加载中...
共找到 16,496 条相关资讯
Operator: Welcome to Carter's First Quarter Fiscal 2026 Earnings Conference Call. On the call are Richard Westenberger, Interim Chief Executive Officer and President; Chief Financial Officer and Chief Operating Officer; Allison Peterson, Chief Retail & Digital Officer; and T.C. Robillard, Vice President, Investor Relations. Please note that today's call is being recorded. I'll now turn the call over to T.C. Robillard. Thomas Robillard: Thank you. Good morning, everyone. We issued our first quarter 2026 earnings release earlier today. The release and presentation materials for today's call are available in our Investor Relations website at ir.carters.com. Note that the statements on today's call about items such as the company's expectations and plans are forward-looking statements. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please see our most recent SEC filings as well as the earnings release and presentation materials posted on our website. In these materials, you will also find reconciliations of various non-GAAP financial measurements referenced during this call. After today's prepared remarks, we will take questions as time allows. I will now turn the call over to Richard. Richard Westenberger: Thank you, T.C. Good morning, everyone. We appreciate you joining us on the call this morning for an update on our business, and I'm pleased to have my colleague, Allison Peterson, who leads our North American direct-to-consumer businesses, joining me today to provide her thoughts. As usual, we have a lot going on here at Carter's. As I'm sure many of you saw, we announced a leadership transition last week. Doug Palladini has departed as our CEO. We have continued progress to report today, and I'd like to thank Doug for his leadership and contributions over the past year. Anyone who met Doug quickly appreciated his passion for our brands and our mission of serving families with young children, and we wish Doug all the best. We are looking forward to welcoming Sharon Price John as our new CEO next month. Sharon has a rich background in the children's industry, having held senior leadership positions at several outstanding companies in our space, and she has a demonstrated track record of driving transformation and growth. Now turning to our first quarter performance. The year is off to a good start. Our first quarter performance, both sales and earnings exceeded the expectations we shared with you on our last call. We saw higher year-over-year demand for our brands across all of our channels in the first quarter. Easter holiday came a bit earlier this year, which benefited demand. Our sense is that consumers were out shopping broadly in the first quarter. Earnings, although above our expectations were impacted by a number of factors, including the net negative impact of higher tariffs, spending and interest costs. Areas of progress that we'll highlight today include continued positive comparable sales in our U.S. Retail business, driven in part by the success of our investment in demand creation in driving higher traffic to our U.S. stores and websites. We're also continuing to attract new consumers to our brands, including Gen-Z. Balancing out these encouraging green shoots are multiple and continued uncertainties in the marketplace, including the evolving tariff landscape and questions about the resilience of the consumer in the face of ongoing inflation and other pressures. And we remain on our journey to improve the profitability of the company. We know we have continued work to do on this objective in particular. Today, we'll share our thoughts on these matters and how we're thinking about our business over the balance of the year. In reviewing our first quarter performance and our outlook, our comments this morning will track along with the presentation posted to the Investor Relations portion of our website. Turning to our presentation materials. Beginning on Page 2, we have our GAAP basis P&L for the first quarter. Our net sales were $681 million. Our reported operating income was $28 million compared to $26 million last year, and our reported earnings per share were $0.39 compared to $0.43 in first quarter last year. On the following page, we've summarized our non-GAAP adjustments. We had no adjustments to our reported results in the first quarter of 2026. Last year, we had adjustments related to operating model improvement costs and leadership transition costs, which reduced our reported profitability. Our comments this morning will speak to our performance on an adjusted basis, which excludes these unusual items in the prior period. Our first quarter adjusted P&L is on Page 4. Our net sales in the first quarter of $681 million represented growth of 8% over the prior year. On these sales, gross margin was 43.1%, a decrease of slightly more than 300 basis points compared to prior year. As expected, year-over-year, our gross margin rate was pressured by tariffs, a gross incremental impact of roughly $50 million in the quarter. This negative impact was partially offset by improved pricing, other supply chain mitigation initiatives, a higher mix of U.S. retail sales and the benefit of our productivity initiatives. On a consolidated basis, AURs improved in the high single digits and units were up low single digits. In U.S. Retail, first quarter AURs were up low single digits, and we achieved higher pricing gains in our U.S. Wholesale and International segments. First quarter adjusted SG&A increased 3% over prior year to $270 million. The increase was driven by incremental investments in demand creation and general inflationary pressures in wages and rent, which were partially offset by the benefits from our productivity initiatives. We do believe our productivity initiatives are delivering as expected, roughly $6 million in cost reduction in the first quarter between the cost of goods sold and SG&A lines of the P&L. These savings are helping to fund our investment agenda, including the incremental spend on demand creation. While spending was up in dollars, we achieved 180 basis points of leverage in the quarter. First quarter adjusted operating income was $28 million with an adjusted operating margin of 4.2%. While ahead of our expectations, this profitability was lower than last year. Clearly, we're focused on delivering growth in both the top line and operating earnings. And to this end, we have operating income growth planned in the second half of 2026. Below the line, net interest and other expenses increased over prior year as expected due to higher interest costs and a higher debt balance related to the refinancing of our senior notes in fourth quarter last year. Our effective tax rate was approximately 28% in the first quarter, up 60 basis points compared to prior year, which was driven primarily by the new higher minimum tax in Hong Kong, which we highlighted last quarter. For the full year, we're forecasting an effective tax rate of approximately 22%. The net of all this on the bottom line, first quarter adjusted earnings per share were $0.39 compared to $0.66 last year. The impact of our debt refinancing on first quarter 2026 EPS was approximately $0.08 per share. On Page 5, we have the details of first quarter performance by business segment. As mentioned, consolidated net sales grew roughly $50 million over last year's first quarter or by 8% with growth in each of our business segments. Adjusted operating income declined $7 million, resulting in the adjusted operating margin of 4.2%, which I just mentioned. We achieved meaningfully higher profitability year-over-year in our U.S. Retail and International segments. However, these gains were more than offset by lower profitability in our wholesale business, which can be attributed to the net negative impact of tariffs. Corporate expenses for the first quarter were comparable to prior year. And Allison will now provide some additional perspective on our U.S. Retail businesses beginning on Page 6. Allison Peterson: Thank you, Richard. Our U.S. Retail business delivered strong performance for us in the first quarter, continuing to build on momentum we've seen over the past several quarters. Total U.S. Retail sales -- net sales grew nearly 13% in the first quarter. Comparable retail sales increased over 10% versus last year and nearly 5% on a 2-year basis. This was our fourth consecutive quarter of comp growth, and we continue to improve our comp trend on a 2-year basis. This quarter, performance was strong across both stores and e-commerce with strength spanning all product age segments. Our baby assortment remained the primary driver, while we also delivered growth in toddler and kid. We do believe an earlier Easter contributed to business in March as we expected. We estimate the earlier and stronger Easter selling period likely contributed about 2 points of comp in the quarter. Comps were strong in both retail channels driven by higher traffic and higher average transaction values. We are seeing some increased penetration of our opening price point product and clearance sales were up in the quarter. We think this reflects a consumer who is more focused on price. This makes sense to us in the context of higher gas prices and volatile consumer confidence, likely in part due to continued persistent inflation across the economy and the unsettled global situation. Despite these factors, we successfully increased AURs by low single digits in the first quarter while also increasing units by double digits. As Richard mentioned, in addition to the benefit of our demand creation investments, improving traffic across our retail channels, we're also seeing good progress in growing our consumer file. Our active consumer count continued to grow in the first quarter, and we added new Gen-Z consumers to our business who are gravitating to our higher AUR products. Despite the negative net impact of higher tariffs, the strong comp sales performance and benefits from our productivity initiatives led to good improvements in Retail's operating profit and margin in the first quarter. On Page 7. During the first quarter, we launched a collaboration between Disney and our OshKosh brand featuring Winnie's the Pooh. This initiative was seamlessly integrated across our digital and physical touch points through distinct and compelling consumer experiences. Consumers love the unique product, which leveraged OshKosh iconic denim. While not a material contributor to sales in the quarter, it was a highly successful collaboration, which brought new consumers to our portfolio of brands and overpenetrated toward Gen-Z. Notably, the average AUR of this special product was more than double our U.S. Retail average. On the following page, as we've shared previously, continued investment in marketing is a very important element of our growth strategy. We saw strong results from our marketing investments in the quarter, resulting in increased traffic to our channels and growth in our consumer file. We have added tactics to connect to consumers in the places where they are spending significant time discovering brands. Social media and connected TV are 2 great examples of channels where we are seeing increased engagement while leveraging content creators and influencers for their authenticity and high credibility with consumers. I'll now turn the call back to Richard. Richard Westenberger: Thank you, Allison. Turning to our performance in U.S. Wholesale and International on Page 9. In U.S. wholesale, net sales were up slightly over last year. Although we improved pricing in response to tariffs, this was offset by a reduction in unit volume. Exclusive brand sales grew versus last year, driven by the Child of Mine and Just One You new brands, while sales of Simple Joys were comparable to prior year in the first quarter. This is an improvement in recent trend for Simple Joys. As expected, profitability in wholesale was lower than a year ago. Virtually all of this decline can be attributed to the net negative impact of the incremental tariffs. As we mentioned on our last call, we expected first quarter wholesale sales to be softer and that tariffs would meaningfully affect this segment's profitability. As we look to the second half, we believe we're well positioned for sales and operating profit growth in wholesale. Our customers have responded well to our fall and winter product offerings, which has driven sequential improvement in our seasonal order bookings. In addition, the net impact from tariffs tapers meaningfully beginning in the third quarter. Our businesses outside the United States have continued to deliver good performance. Total reported international net sales increased 14% over last year and by 8% on a constant currency basis. Growth in the quarter was driven by our businesses in Canada and Mexico. The largest component of international, our Canadian business posted strong total and comp sales growth, similar to the U.S. business likely benefited from the earlier Easter holiday, and we saw strength across both our stores and e-commerce channels. Demand in Mexico was particularly strong in the first quarter. Easter is very important in this market, and our Q1 business reflected strong holiday demand. Total net sales grew over 40% in Mexico with $3 million of the growth attributable to better exchange rates. Our team delivered a plus 21% comp in Mexico in the first quarter. Last year's business had been negatively impacted by some distribution center disruptions, which benefited this year's comparison somewhat, but the underlying trends and demand profile of our business in Mexico continue to be very strong. We're continuing to pursue store growth in this market with plans to open 12 new stores this year. International operating income was approximately $4 million in the first quarter compared to roughly breakeven performance last year. The improved profitability was driven by productivity savings as well as lower product costs resulting from favorable exchange rates. On Page 10, we have some photos of a new store in Mexico. Our team in Mexico has done a great job taking our successful co-branded store model from here in the U.S. and deploying it across the market in Mexico. On Page 11, we've provided some balance sheet and cash flow highlights. Our balance sheet is in good shape, and we ended the quarter with substantial liquidity. Net inventories were $466 million, down 2% compared to prior year and down over 14% from year-end. First quarter inventory units were 9% lower than a year ago. The amount of ending inventory value attributable to the incremental tariffs at the end of the first quarter was $26 million. Excluding this amount, inventory dollars year-over-year were down 7%. We generated positive operating cash flow of $6 million in the first quarter compared to a use of $49 million last year. This better result was due to improved working capital and favorable timing of interest payments versus the prior year. And in the quarter, we paid $9 million in dividends. Before I cover our expectations for second quarter and the balance of the year, I'd like to summarize some of our thoughts on tariffs, which can be found on Page 12. The impact of tariffs on our results is a complicated topic and made even more so by the developments in the courts and ongoing uncertainty about the future direction the administration may take. For context, we've always paid import duties at Carter's. Tariff rates have typically differed somewhat by country of origin. But in total, we historically paid a little over $100 million annually to bring our products into the United States. This represented a historical effective tariff rate of roughly 13%. The imposition of the additional IEEPA tariffs was estimated to add over $200 million of incremental tariffs to this historical baseline, bringing the effective tariff rate above 35%. Our plans for the year were developed assuming these IEEPA tariffs would be in place for the entire year. Given the Supreme Court's recent decision, the overall tariffs were reduced to a 10% additional tariff rate for all countries, also an additional incremental tariff rate in India related to Russian oil purchases was eliminated. As a reminder, for financial reporting purposes, tariffs become part of inventory costs when product is received. These costs are added to the balance sheet value of inventory. Any changes in tariff rates, including reductions, are not an immediate benefit to the P&L. That benefit occurs over time as products are sold and their cost, including tariffs become part of cost of goods sold. Our guidance reflects the benefit of the lower 10% incremental tariff rate on imports through the second quarter and the elimination of the India Russian-oil-related tariff for the balance of the year. We've assumed the higher IEEPA level tariff rates incorporated into our original plan remain in effect for product imported through the second half of the year. We maintain this assumption for higher-than-historical tariff rates based in part on comments from the administration that they intend to reimpose higher tariff rates at least commensurate with what was implemented under IEEPA beginning midyear. If this does not happen or if tariffs return entirely to their historical baseline rates, we may have some upside to our outlook, all else being equal. Needless to say, we expect changing tariff rates may impact the marketplace conditions, especially pricing, which makes it difficult to call significant changes to our previous outlook for the year right now. Turning to our outlook for 2026 on Page 14 of the presentation materials. As we indicated in our press release this morning, we are reiterating our full year sales and earnings guidance. The year is off to a good start, and we're certainly pleased by that, but the lion's share of our year is still ahead of us, and we're mindful of a number of uncertainties that complicate projecting too far out into the future right now. The consumer continues to spend, but as we noted earlier, has become more value focused as of late. We believe fluctuations in consumer confidence and inflation may continue to affect demand for our brands. We're watching the marketplace closely. Some competitors may begin to take their prices down, and we may need to respond accordingly to ensure we're as competitive in our pricing as needed. To this end, we may need to reinvest some portion of potential upside from lower-than-planned tariffs into sharper pricing in certain parts of the business. It's certainly our intention to hold on to the pricing gains we've achieved to the greatest extent possible. And as I said earlier, we're cautious that we're out of the woods when it comes to tariffs, it's possible that new tactics could be employed by the government to reinstate the previous IEEPA level tariffs or an even higher level of tariffs on imports across a range of our sourcing countries. To reiterate our expectations for the full year, we're expecting net sales growth in the low to mid-single digits over 2025. This growth reflects anniversarying the extra week in 2025's calendar. We're expecting growth in each of our business segments. In our U.S. Retail business, we're planning low single-digit sales growth with comp sales up in the mid-single digits. In U.S. Wholesale, we're planning net sales up in the mid-single digits. And sales in our International segment are also planned up in the mid-single digits, reflecting growth in each of the principal components in International, Canada, Mexico and international partners. On profitability, we're expecting adjusted operating income will also grow in the low to mid-single digits over 2025. We continue to forecast that more of our profit growth will occur in the second half of the year. In part, this is due to the higher year-over-year investment spending and interest costs in the first half of the year versus the second. As we indicated on our last call, we're also expecting a smaller net negative impact from tariffs in the second half of the year as tariffs become more comparable and a more significant benefit from pricing as planned in the second half versus the first half of the year. 2026 earnings per share are expected to be down low double digits to down mid-teens over 2025's adjusted earnings per share of $3.47. Our outlook for operating cash flow in the range of $110 million to $120 million remains unchanged. Also unchanged is our forecast for CapEx of approximately $55 million in 2026, with investments in new stores in Mexico, distribution center upgrades and technology initiatives accounting for the majority of planned spend. Our expectations for the second quarter are summarized on Page 15. Second quarter net sales are expected to increase in the low single digits compared to last year. By segment, we're expecting in U.S. Retail growth in the low single-digit range with comparable sales planned up mid-single digits. As expected, we saw some softening of demand trend in April. In part, we think given the strength of business in late March in advance of Easter, April comparable sales in our U.S. Retail business were down just under 4%. On a combined March and April basis, comps were up in the high single digits. In U.S. Wholesale, we're planning net sales up in the mid- to high single-digit range. In international, we're planning net sales roughly comparable to a year ago. We're planning second quarter gross margin down approximately 100 basis points over last year, principally due to the net unfavorable impact of tariffs, offset somewhat by higher planned pricing, supply chain mitigation actions, a higher mix of U.S. retail sales and productivity improvements. We're planning second quarter adjusted operating income in the range of $11 million to $13 million. Second quarter adjusted EPS is projected in the range of $0.02 to $0.06. Before we open it up to questions, I'd like to thank our thousands of employees across the globe who work tirelessly every day and exhibit such passion for our brands and the families we serve. We are extremely grateful for their efforts. And with those remarks, we're ready to take your questions. Operator: [Operator Instructions] Our first question comes from Paul Lejuez with Citi. Brandon Cheatham: This is Brandon Cheatham on for Paul. I just wanted to touch base on the SG&A change. I think previously, you were looking for that to be roughly flat year-over-year, and now you're looking for a low single-digit increase. I was just hoping that you could unpack what changed there. Richard Westenberger: Sure. So I'll try to give you a little color on that. Well, first, I would say it's expected to be up very low single digits. So it's not something that I'm viewing as an enormous reset to our expectations. A couple of things contributing to that. First, we've had a handful of our intended store closings that are pushing out a bit in the year. They're just going to happen a bit later for a variety of reasons. That is additive to the SG&A line. Also, we've made a decision to spend a bit more on marketing. We feel like we're generating very good returns from those investments. So there's a modest uptick in the spend on marketing, driving very good returns. That's also additive to the SG&A line. Beyond that, I would say there's a couple of areas that are running a little bit harder than planned. Professional fees are a little higher, perhaps a little bit more incremental impact from inflation across wages and rent. Those are the primary drivers. But we have a good record of managing spend pretty tightly here, and my expectation is we'll continue to do that. Brandon Cheatham: Got it. And just as a follow-up on the tariff assumption. So you're assuming that you have a 23% effective rate for basically 4 months and then we return to the 36% rate. Can you just help us like what are you assuming the impact is on gross margin for the balance of the year? By my calculation, it seems like the effective tariff rate that you're assuming before was 36% goes to 32%. Just help us how much of that is flowing through on gross margin in your guide. Richard Westenberger: Yes. I would say it's a difficult question to answer with a lot of precision around just what may happen in the landscape. I think we've given ourselves a little bit of room in terms of what may happen from a marketplace pricing point of view. We obviously held our full year guidance. To your point, we've assumed those tariff rates go back up to the IEEPA level for the second half of the year. The upside that we've reflected in having the benefit of the lower 10% rate and the elimination of the India specific tariff is about $30 million, but there is still considerable gross margin pressure in our plan in the second half. Now there's a higher benefit from assumed pricing in the second half as well. So -- but it is still dilutive on the gross margin line for the year. Brandon Cheatham: But all else equal, you're assuming that $30 million flows through to gross profit or you don't anticipate maybe raising prices as much in the second half? Richard Westenberger: Yes. I think we've just given ourselves a little bit more room, a little bit more flexibility on that pricing and gross margin line of the P&L. So we have not flowed it through. We've held the full year guidance, but that's the benefit of all things being equal, if we're able to achieve our planned pricing and given the reduction in the tariff rates that we will realize in first half imports and such, that's the amount that would flow through. But again, we're not flowing it through because there's just too much uncertainty in the marketplace right now. Operator: Our next question comes from Jay Sole with UBS. Jay Sole: Richard, I'm curious what initiatives maybe that have been going on for the last couple of quarters that were maybe started with Doug in his tenure will continue versus like what stuff might kind of be paused as you wait for Sharon to come in and put her stamp on the business. Can you give us a little sense of that? Richard Westenberger: Sure. Well, as you know, Jay, having followed us for a long time, we have a number of things underway here that we think are generating good returns for us. I think, first and foremost, the investment in demand creation really is -- has been an inflection point for us in terms of driving improved traffic, both to the stores and to the website. That has been an issue in our U.S. retail business for a couple of years prior. We felt like we under-indexed relative to some of the better brands out there, our peers in the industry. So I think we will continue to ramp that up, and we're watching for any signs of inefficiency in that spend. We've not reached that point yet. So that certainly will continue. I think the overall emphasis just on brands and product. This is a product-centric company. And so we continue to work very hard on our assortments to make sure that we've got the most compelling product that attracts and motivates today's generation of parents. That's an evolving landscape. And so I think the attention around the product side of things, in particular, will continue. I think the emphasis on productivity, and that's a broad range set of initiatives, starting with our store fleet. So as you know, we have pruned a number of unproductive low-margin stores. If you're going to have stores, they need to be special, they need to be productive. And so all the efforts that are looking at improving the productivity of our retail store fleet. We've got initiatives also around the e-commerce side of the house. So enhancements are being made to the website that has a lot to do with just the experience for the consumer online, more branding stories. We have a great transactional website. We think there's an opportunity again to have the power of the brand to shine through a bit more distinctly. And so our teams -- our great e-commerce teams are working on that. So I would say more will go forward versus stopping or pausing. Sharon certainly will come in, and we expect her to put her fingerprints on the organization and on the strategy. Fortunately, she's been read in on a number of the things that we have underway here, and I think that was a point of attraction for that we're not starting over. We're not starting from blank slate. There's a lot of good things that are underway here, and I would expect most of those to go forward. Jay Sole: All right. That's super helpful. Maybe if you can also give us a sense of what do you think the children's apparel industry grew during the March-April period? I mean you believe you took share? I mean, how do you think about that? Richard Westenberger: Yes. I don't know about the March-April period specifically. For the first quarter, our data suggests that the market was up just under 5% year-over-year. So there was healthy growth, and that's on top of considerable growth in the market in the fourth quarter. So the consumer does seem to be outspending on their kids. We think that's a healthy backdrop for our business. Our data suggests that we've maintained our share overall. Operator: Our next question comes from Jon Keypour with Goldman Sachs. Jonathan Keypour: I have 2 questions. One of them is very quick. The first is just what can you tell us about tariff refunds you anticipate getting, timing and potential use of those funds? And then just on advertising as a percent of spend, I think historically, you guys have been around 3%, and you have mentioned some willingness to pick that number up to 5%. It sounds like acceleration on the advertising is going to be part of the SG&A increase in the guide. I'm just wondering, it seems like the ROI is very good or the ROAS is very good on the advertising piece, not to put an even more pointed kind of focus on it, but like why not more, I guess? At what point do you feel like you can really accelerate and get up to that 5% and how it still be incremental and still get the right return? Richard Westenberger: Right. Jon, thanks for the question. First, as it relates to tariff refunds, there's about $130 million of incremental IEEPA tariffs that we paid between last year and early this year before the Supreme Court's decision. That is the amount that we have filed for refund with the government. So our claims have been entered into CBP's portal. We do see some progress. We've been tracking this pretty closely as everyone in the industry has. It does look like there is some progress and an intention to start disbursing those funds. We're not counting on that. We're not recognizing that until the cash hits the bank account. But we're in line for our refund, and we're monitoring it closely. As it relates to use of the funds, capital allocation is something that we talk about with our Board all the time. We'll continue to do that. We're not necessarily in a liquidity crunch. We're not constraining investment right now based on not having that tariff money. Our first preference would be to put the money back to work in the business. And so we're actively looking for opportunities to accelerate the growth of the business. Again, we're not capital constrained, where we have good investment cases for investment, we're continuing with that work. And marketing is a good example of that. I would say we're stepping up the investment by a little over $20 million this year. So that 3-ish percent number will start to inch up a bit. I think we're stepping our way into it and monitoring it and measuring it to make sure that we're getting the kind of returns that we should and that make the investment justified. To your point, we might be able to go faster, but I think $20-plus million investment is significant for us. We want to just make sure it's generating the right returns, and we'll continue to spend as we start to see these -- the benefits in the business. Operator: Our next question comes from Jim Chartier with Monness, Crespi, Hardt. James Chartier: Richard, just curious what gives you the confidence for second quarter comp sales to be up mid-single digits given the softness that you saw in April? Richard Westenberger: Yes. Thanks, Jim. I think that the April softness wasn't entirely unexpected, just given the strength of business in March. I think Easter was probably a bit more pronounced of a benefit than we had planned. From the commentary that I've read, others in the industry saw their businesses soften a bit in April. That combined number of high single-digit comp was terrific. We've already -- we're only a few days into May. We've started to see business turn solidly positive again from a comp point of view in our U.S. retail business. And then the compares become a bit easier. May and June are easier compares than April was a year ago. So I think we feel like we've got good momentum in the business. I think, again, the marketing investments appear to be successful in driving traffic to both channels. So that's what gives us the encouragement that we'll achieve that result. Allison, anything that you would add to that? Allison Peterson: The only other thing I would add is that as we continue to see our consumer file grow, that gives us some momentum with bringing new and returning customers back to the brand. James Chartier: Great. And then can you talk about the Umbro collaboration? What are you seeing with that? And then how are you thinking about collaborations going forward? Is that something you think you want to increase the number as you go forward? And what does the pipeline look like? Allison Peterson: Yes. Thanks for the question. I think we are feeling very bullish on collaborations. We've spent some time on the call talking about our collaboration with Winnie the Pooh and OshKosh, and we're very, very happy with the results we saw from that collaboration. Umbro has also started out strong. We are seeing, as with most things, people excited to purchase the baby products first as it relates to the size offerings, and we see toddler and kid a little bit purchase closer to the time of the event, so knowing that the World Cup is up and coming. We anticipate that we'll still see some nice demand. I would say from an experience perspective, we're very excited with how the Umbro collaboration has come to life across all of our channels, very similar to what we saw with Winnie the Pooh. And we do feel pretty confident about our collab pipeline for the rest of the year. Richard Westenberger: Jim, I think the collaborations have been a good way for us to introduce something new, some newness in the assortment, which is a bit of a spark again on that traffic front, brings the consumer in, they find something new and different relative to their expectations. So we'll do it selectively, I think, going forward where it makes sense for our brand and then obviously, whoever we're collaborating with. But there's a place for it in our business in a more meaningful way than we've done historically. Operator: Our next question comes from Ike Boruchow with Wells Fargo. Irwin Boruchow: Richard, 2 for me. I guess the first question is, I know the queue will come out later, but can you share, at least at a high level, the gross margin details, the decline in the first quarter at retail and what it was at wholesale in the first quarter? I guess I'm asking because it seems clear there's a much larger decline in wholesale. And I kind of just want to ask why you're not able to mitigate the pressure in one channel versus the other? And then the follow-up to that is to stay with wholesale is that the wholesale margin run rate now looks like it's come down to more like a mid-teens versus the low 20s a few years ago. Do you expect that to regain that lost margin in '27 and beyond? Or do you kind of view this as the new normal with some structural changes in that channel and DTC kind of is the margin opportunity for the consolidated business going forward? Richard Westenberger: Right. Yes. So good questions. I won't comment on the specific gross margin changes by channel. Those are in the queue. And to be honest, I don't have them right in front of me, but I'll speak at a high level. The wholesale business, for sure, has been more impacted by tariffs, and that's for a variety of reasons. We are much more in control of our destiny in our U.S. DTC business than we are with wholesale. And we plan that business collaboratively with our wholesale customers. And this has been an evolution. The landscape has been evolving as it related to the tariffs being put in place and how the industry has responded. I'd say there's been good partnership and collaboration with those customers, more of a sharing convention of the cost of the tariffs as we've kind of stepped our way into them. I think we've made more progress as we've gotten into 2026, but that coverage was less than what we had achieved in our U.S. Retail business, where we just obviously control much more of the various levers in the business, pricing units and so forth. So it was expected coming into the year that we would not fully cover all of the costs of tariffs in the wholesale channel. And that has had, to your second question, the flow-through impact on wholesale segment profitability. And there's other things that have affected it as well. We've made some make investments in the product itself, which we felt like we had to make from just a competitiveness of the assortment point of view, and that has caused the margin to run down a bit. It's been a very margin-rich business over the years for many years. I think the mix has also changed pretty considerably over the years as it relates to the customer profile. So the department stores, which are the best margin part of that business have just continued to decline. And I think that's more structural as it relates to the industry, nothing to do with their regard for Carter's or the demand for our products. It's just that as a channel has not grown and has been contracting a bit. Business is more concentrated in the mass channel than it had been. Target and Walmart continue to be very good margin businesses for us, but probably not quite at the rate that those department stores have been over time. So I think for the next little bit, the margins will be lower than they've been historically, but our internal plans show margin expansion over time. That's an important objective for all of us that every part of this business is expected to grow its profitability over time. And that's how we're approaching it. But certainly, the impact of tariffs cannot be underestimated in this part of the business. It's also the part of the business that I think will benefit most directly if tariff rates come down more permanently. So most impacted on the way in. And as tariffs go out, hopefully, this is part of the business that should recover more dramatically and more rapidly. Irwin Boruchow: And Richard, you mentioned competitors that may look to take prices lower and you may have to adjust your business. Is that a comment that's more related to your direct-to-consumer business? Or is that more related to the wholesale business? Richard Westenberger: Well, I think it's a comment about the marketplace more broadly. I think tariffs have been an industry issue. So our wholesale customers have faced it with developing their private label assortments with everything else that they're buying in other national brands as well, certainly in our DTC business as we look at other near-end competitors, we're watchful of what they may be doing as well. There's other challenges as it relates to inflationary pressures as well, which may provide the industry some motivation to keep pricing. So as we look into early next year with what's going on with oil prices and commodity costs, we're seeing a bit more inflation than we had originally planned for early next year product deliveries. Transportation costs are going up. We're seeing some additional fuel surcharges. We have an awesome supply chain that does a great job. So we're not disadvantaged in any aspect of how we procure our products, but the entire marketplace is going to see these pressures, including the cost of bringing the goods over to the United States. So tariffs are one element of the cost structure, but I think we have to look at all the other input costs as well. Operator: Our next question comes from Tom Nikic with Needham. Tom Nikic: I've got 2 hopefully quick ones. First, question, Richard, I apologize if you said this already, if I missed it, but did you say anything about store openings and closures for this year? Richard Westenberger: I don't know if we commented on it specifically, Tom. The plan is to close about 60 locations across North America, most of those here in the U.S. As I mentioned, there's a handful of stores that have pushed out timing-wise, probably a bit more into Q4 versus Q3 as originally envisioned. There's -- from memory, we closed about 10 stores in the first quarter, though, another 20 or so that we will close here in the second quarter. And then we have a handful of new store openings. Those are really just stores that were planned originally as part of last year. They've kind of locked over the calendar year-end date, and they'll happen now in 2026. Tom Nikic: Got it. Okay. And then on the wholesale channel, I believe you said that the Amazon business was flat this quarter. Is that sort of a sign that, that business has now stabilized and maybe the declines there are finished? Or was there anything kind of one timing there or anything timing related on the Amazon front? Richard Westenberger: Tom, I would say on Amazon, we actually had growth in the Amazon relationship in the first quarter. And my comment was specifically that Simple Joys volume was comparable in the first quarter, which is an improvement over where we've been. We do have Simple Joys planned down a bit this year, not at the same rate that we've seen over the last couple of years, and we're starting to see the ramp-up of the sale of our flagship brands, for Carter's, OshKosh, Little Planet. They exhibited some growth in the first quarter. There's stronger growth that's planned in the second half for those brands, which we intend to offset Simple Joys being down. So we've planned growth with Amazon for the full year. Operator: Our next question comes from Kendall Toscano with Bank of America. Kendall Toscano: I just had a follow-up on tariffs and just to make sure we're thinking about the timing correctly. But assuming it takes until July to sell through the inventory, you brought in at the 36% rate. So starting around August, you'll start to see some benefits from the lower rates that have been in effect since February 24. I guess how long would you assume it reasonably takes to sell through this inventory that you've been bringing in at lower rates for the last 4 months? Would it be through the end of the year? And I'm just kind of curious how should we think about -- if you're assuming then that the back half of the year, tariffs jump back up to a higher rate, assuming the incremental IEEPA tariffs, when does that hit the P&L? Is it during 2026? Or would it be beyond? Richard Westenberger: Yes. Thanks, Kendall. It would be a mix. I would say, on balance, our turn assumption, which drives the -- how inventory cost bleeds into the P&L is kind of 4 to 5 months. It depends a little bit on the sales rate of product. But the assumption is that we're going to see higher tariffs again and that those will be implemented midyear. And so to the extent we import product beginning in that kind of midyear time frame, those would go into our inventory costs. And we'd be selling that product over the balance of the year and into early next year. We start to sell kind of spring product. There's pre-ship product for spring '27 that we would sell in the fourth quarter. So all of that in our current hypothesis would be subject to the renewed higher tariff rates. I hope it doesn't happen. I hope they find a different path forward and we go back to where we've been historically, but we'll see. Kendall Toscano: That's helpful. And then one other question I had was just on unit growth versus AUR. Obviously, specifically on the U.S. retail business, you had a pretty nice acceleration in units to up low double-digit percent this quarter. Curious how you're thinking about the balance of the year and whether you'd expect unit growth to remain as strong? Richard Westenberger: Yes. I think unit growth may be at the high watermark as it relates to Q1 as we plan the business. I think it will moderate a bit in Q2 and then it will moderate further in the second half where we have more benefit from pricing planned in. That's just how we've planned the business. There's historically been a pretty elastic relationship as you take prices up. Now we've been benefiting, I would say, from a little bit more stickiness, a little bit more inelasticity, particularly among the baby category where we have the most equity with consumers. I would say, among some of our higher-priced, higher AUR goods where the aesthetic, the benefits, the features are a little bit more apparent to the consumer, that has shown some greater inelasticity as well. But pricing is a bigger part of the calculus in the second half and the units won't be as strong, at least as we're looking at it today. Operator: Our next question comes from William Reuter with Bank of America. William Reuter: So you mentioned that you have kind of made the assumption that these 301 tariffs, the U.S. trade representatives will indeed move forward with those. Have you talked to your wholesale partners in terms of Walmart and Target or in the event that they do not put 301 tariffs in place if they expect that you will reduce prices based upon the fact that prices have been set based upon IEEPA tariffs from last year? Richard Westenberger: Bill, I won't comment on specific conversations with specific customers. I would say that we plan the business collaboratively with our wholesale customers. They've been good partners as we have faced this issue as an industry. And I would expect that if we get relief on tariffs that, that would be the spirit of conversations going forward as well. But obviously, we have an interest as an industry to see these costs go away. This is a value-oriented product category. Even small cost increases have been historically difficult with pricing increases over the years to cover. So we'll face those conversations when that situation emerges. I hope that situation emerges where tariffs have gone away, and we're looking at a nice benefit to potentially I'd be discussing together. William Reuter: So does every analyst that's been calculating this for the last couple of years. The second part of my question, you mentioned that good sell-through of winter products has resulted in stronger spring order books, maybe than you've seen in a little while. I guess how much visibility do you have into your order books for the remainder of the year? Any way you can give some context for what types of increases we might be seeing? And I guess, how much remains kind of uncertain, meaning I'm not sure what level of communication from your wholesale customers they provide at this point? Richard Westenberger: Yes, Bill, I would say we've sold in the fall and winter at this point. So I think we have pretty good visibility to the majority of, I would say, seasonal product shipments for the balance of the year. Now an order doesn't necessarily mean that it wouldn't change over time. If conditions change, there is some history that orders could be canceled, but that's -- we don't have a long history of that. So I would say reaction by the wholesale customer set to our product itself with the various meetings we have to show them the line and such. And again, we plan the business collaborative with them. We get their input on the kind of products that they're looking for has been extremely positive and more positive than in recent seasons. So that translated to an improved order profile for the second half of the year. The other component that is a little bit more of a game time read on business is just what happens with replenishment. Replenishment is between 30% and 40% of the business at wholesale, and that depends on how the register is ringing. And so if consumer demand continues to be strong, that's potentially some upside to the forecast as well. But I would say we have good line of sight to seasonal bookings, and that's been an improving outlook for us. William Reuter: That 30% to 40% number is very helpful. Operator: This concludes the question-and-answer session. I'd now like to turn it back to Richard Westenberger for closing remarks. Richard Westenberger: Well, thank you very much for joining us this morning. We appreciate your participation in the call and your questions and your investment in Carter's, and we look forward to updating you on our next call. Goodbye, everybody. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Hello, everyone, and welcome to Amwell's conference call to discuss their first fiscal quarter of 2026. [Operator Instructions] Joining us on the call today are Amwell's Chairman and CEO, Dr. Ido Schoenberg; and Mark Hirschhorn, Amwell's CFO and Chief Operating Officer. Earlier today, a press release was distributed detailing their announcement. The earnings report is posted on the Amwell website at investors.amwell.com and is also available through the normal news sources. This conference call is being webcast live on the IR page of the website, where a replay will be archived. Before we begin prepared remarks, I'd like to take this opportunity to remind you that during the call, we will make forward-looking statements regarding projected operating results and anticipated market opportunities. This forward-looking information is subject to the risks and uncertainties described in the filings with the SEC. Actual results or events may differ materially. Except as required by law, we undertake no obligation to update or revise those forward-looking statements. On this call, we'll refer to both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in the earnings release. With that, I would like to turn the call over to Ido. Ido Schoenberg: Thank you, operator. Good evening, everyone. Over the past 12 months, we focus on what matters most, solving clear urgent customer needs. We deliver dependable, unified platform, and the market is responding. Elevance renewed for 3 years. DHA deployed globally. Our pipeline is growing. CMS is increasingly making telehealth flexibilities permanent. And in 2025, we reduced losses by $100 million. We also significantly grew our subscription revenue mix. We have ample cash, no debt and a clear path to cash flow breakeven in Q4 with real confidence in multiyear growth beyond it. Amwell entered 2026 with one focus, consolidate our platform and deliver what payer and provider customers need most today and in the future. The market opportunity is real and urgent. Payers are under serious margin pressure. Premiums are not keeping pace with the total cost of care. Technology-enabled care and AI-powered clinical programs, in particular, are now one of the most critical levers payers have. They help control costs. They help improve outcomes. They help payers compete for members and sponsors. This is no longer speculative. It is a survival imperative, but adoption remains hard. Despite strong demand, customers are struggling. Vendor sprawl is a real burden. Legacy tech stacks and internal silos make it expensive to integrate point solutions. The result, fragmented member experiences and very limited visibility into what actually works. Customers cannot easily measure performance across their programs. Switching between them or optimizing member attribution is slow, expensive and painful. That is exactly where we step in. Amwell solves this. We offer a trusted, proven technology-enabled care infrastructure, a unified digital stack that lets health care sponsors act as their own system integrators. Customers white label and embed the clinical programs their members need directly within their own digital front door. They control navigation, they monitor results. And those results go to the heart of their business, lower costs, better outcomes and stronger market share. With Amwell, customers get one unified engagement and navigation platform. It reduces acquisition and retention costs. It matches each patient with the most effective program based on client-defined rules. And it aims to deliver unified analytics across every program, so clients can see what works, document outcomes and adjust quickly. Clients can adjust service attribution by member, group or cohort. They can add Amwell native clinical programs, third-party programs or their own preferred programs. That level of control and agility is highly valued and desired. The Amwell platform is built for where AI is going next. The industry is moving fast from generative AI to agentic AI. These are systems that don't just create content. They execute tasks autonomously across complex workflows. Our customers are preparing for this shift. The Amwell platform is positioned to be the governed environment where these agents operate safely, effectively and at scale. We are not positioning Amwell as an AI feature. We are the infrastructure layer where AI-powered care becomes operational and measurable. A critical enabler of effective AI is data. Because our platform serves as a common infrastructure across all programs, we aim to maintain a unified data structure that is unique in our industry. Before care begins, we look to share relevant member information with clinical programs, which the patient has selected so they can engage effectively from the first interaction. After care is delivered, we aim to collect and consolidate outcomes data across all programs. That data improves attribution, drives personalization and makes every AI-driven program more effective over time. This unified data foundation may create a significant and durable competitive advantage for us. We also have powerful validation at scale. Elevance Health, one of the largest payers in the country, has renewed with Amwell for 3 more years. That is a strong vote of confidence in our platform and the value we deliver in one of the most sophisticated operating environments in the market. We also have powerful validation on the government side. The military health system contract extension in August 2025 put our platform in front of 9.6 million military beneficiaries across the globe, connecting deployed units in and outside combat zones with military hospitals. That level of security, scale and mission-critical reliability is exactly what other government entities, payer and health system clients are looking for. The regulatory environment is now working in our favor. CMS has made telehealth permanently accessible. Rural geographic restrictions are gone. Home-based telehealth is extended through at least 2027. Virtual behavioral health is now a permanent part of Medicare. New reimbursement code for advanced primary care management and behavioral health integration are creating further incentives to shift care into virtual and community-based settings. This is a direct tailwind for our platform. We have also transformed how we operate. Alongside strengthening our platform, we made meaningful operational improvements, sharper focus, significant organizational changes and more efficient ways of working. In 2025, we reduced net loss and adjusted EBITDA losses by approximately $100 million. Subscription revenue grew to 53% of total revenue, a recurring stable income stream. And the market is responding. Renewals are strong, pipeline growth is significant. Our offering is resonating with existing customers and new ones alike. We enter this next phase with $182 million in cash, no debt, a clear path to cash flow breakeven in Q4 of this year and a view towards multiyear growth beyond that milestone. We have a clear strategy, a mature and highly relevant platform, an efficient operation and financial stability that gives us the runway to execute. We are excited about what is ahead. And now I would like to turn to Mark for a closer review of our performance. Mark? Mark Hirschhorn: Thanks, Ido, and good afternoon, everyone. On today's call, I'll start with a few highlights from the first quarter, walk through our financial results in detail and close with an update on our second quarter and full year 2026 outlook. In the first quarter, we delivered strong results across revenue, gross margin and adjusted EBITDA. The outperformance was driven by strong visit volumes in urgent care and clinical programs with continued cost discipline. These results demonstrate continued progress on our path toward profitability and reinforce our confidence in the trajectory of our business. Total revenue for the first quarter was $54.9 million, down approximately 18% year-over-year. Subscription revenue was $24.9 million, down approximately 23% year-over-year, driven primarily by previously disclosed churn. Encouragingly, renewals and retention were higher than budgeted in the first quarter, providing greater confidence in the stability of our subscription base going forward. Amwell Medical Group, or AMG visit revenue was $28.9 million, up approximately 9% year-over-year. AMG paid visits totaled approximately 382,000 visits, up slightly year-over-year with revenue per visit of approximately $76 up approximately $5 per visit year-over-year, reflecting the growing contribution of our clinical programs and the broader shift in our visit mix toward higher acuity, higher-value care. Virtual primary care continued its strong growth trajectory with visits up approximately 57% year-over-year, underscoring the increasing adoption of our VPC offering across our client base. Total platform visits were 1 million visits, down approximately 19% year-over-year, which is in line with the portfolio changes we have previously discussed. Gross profit was $28 million with a gross margin of 51%, down approximately 180 basis points year-over-year from 52.8% in the first quarter of 2025. Near term, our existing revenue mix will likely generate a margin profile similar to what we just generated. We continue to see our projected revenue mix shifting toward higher-margin SaaS offerings, which we believe will support margin expansion over the next several years as our scale improves. Total operating expenses were $45.4 million, down approximately 31% year-over-year. As a percentage of revenue, operating expenses improved to 82.6% from 98.3% in Q1 of 2025, reflecting the benefits of our transformation actions and continued cost discipline. Adjusted EBITDA for the first quarter was a loss of $3.1 million compared to a loss of $12.2 million in Q1 of 2025, representing a $9.1 million improvement. Operating loss was $17.4 million compared to $30.4 million in Q1 of 2025, an improvement of approximately 43% year-over-year. Now turning to the balance sheet. We reported cash burn of approximately $3.1 million, down from $19 million last quarter. We ended the quarter with $179 million in cash and investments with 0 debt. Now turning to guidance. For the second quarter of 2026, we expect revenue in the range of $48 million to $52 million and an adjusted EBITDA loss in the range of negative $4 million to negative $2 million. This Q2 outlook reflects normal seasonality in visit volumes and the continued step down in subscription revenue impacted by previously discussed churn. Additionally, for the full year, we are reiterating our revenue outlook and updating our expectations for adjusted EBITDA. The revised adjusted EBITDA range reflects the progress we've made in the first quarter and that which we expect to continue throughout 2026. We now expect full year 2026 to generate revenue in the range of $195 million to $205 million and adjusted EBITDA loss of $16 million to $12 million compared to our previous range of a loss of $24 million to $18 million. The strength of Q1 gives us increased confidence in our goal of achieving positive cash flow from operations in the fourth quarter of this year. In summary, Q1 was a promising start to the year. Visit volume momentum, stable subscription revenue and a leaner cost structure give us confidence that we are on the right path. I want to thank the entire Amwell team for their hard work and dedication. These results reflect their efforts. With that, I'll turn it back to Ido. Ido Schoenberg: Thank you, Mark. We are encouraged by our progress. It was made possible by the amazing team at Amwell. We feel privileged to help improve care for millions of patients and especially for the men and women in our military and their families around the globe. Amwell is playing an important role in transforming health care. What we do matters, and we believe it will only become more valuable going forward. We are proud of what we've accomplished, and we are truly excited about the road ahead. With that, I'd like to open the call for questions. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from the line of John Park of Morgan Stanley. John Park: On the DHA relationships, could you remind us or help us understand if there's any dependencies on the broader DHA's GENESIS or partners like Leidos and if that ecosystem dynamic would influence any renewal decision in the near future? Mark Hirschhorn: I believe, Ido, may be having some tech problems. Ido Schoenberg: I'm sorry, I'm back, I apologize for this. Can you hear me now? John Park: Loud and clear. Ido Schoenberg: Okay. So essentially, when we take this incredibly important customer, the DHA, we really focused on delivering on their very specific and high expectations. We are privileged to have many other players involved, but our focus remains on making sure that first and fore, we put the customer first. There are many changes happening in different areas, but the service that we are providing and the integration into the backbone of the DHA remains constant. From where we sit and we strongly believe that based on our performance and relationship, we would likely hope and believe we are going to renew and continue to serve this customer for many years, recognizing that not all the players -- other players may or may not continue in the same format, but we are fairly confident and hopeful that we will, although we can never take it for granted and we work every day to continue and justify their trust. John Park: Got it. My just follow-up would be, you talked about perhaps the broader pipeline. I remember perhaps the broader government pipeline you talked in the past. When you think about the rural health transformation initiative, I was wondering if you see any opportunities that this program could serve as a diversification lever relative to the broader government portfolio? Ido Schoenberg: You're absolutely correct, John. In general, as we focus our efforts on our single platform and related products, I mentioned in my prepared remarks that people have great clarity. about the value that we bring and see the urgency in fulfilling that value that we believe we provide fairly uniquely. That's true for health system. It's certainly very true for commercial payers. And now that we have demonstrated in very large scale in a very unique and challenging environment of the GovCloud, our ability to operate there, that's not lost on government entities. From where we see it, we certainly believe that we are going to continue to grow in the commercial space, but also in the government space going forward. We are trying to submit RFPs to many of the opportunities that you mentioned in rural health. This is a long process. We believe we are well positioned, but the jury is still out as to the results, and we'll just have to wait patiently with everybody else. That's not the only opportunity in government that we are pursuing. We're pursuing other opportunities as well. And that's certainly part of the pipeline I talked about and Mark mentioned as well. Operator: Our next question comes from the line of Corey DeVito of Wells Fargo. Corey DeVito: This is Corey on for Stan Berenshteyn. Two questions on my end. One, any update on upselling the scope of the current DHA contract? And then the second one, what's the driver of the sequential increase in deferred revenue? I believe it's up $7 million quarter-over-quarter. Ido Schoenberg: I'll take the first, and Mark will answer the second part of your question, Corey. Thank you. As it relates to the DHA, we are laser focused, as I mentioned earlier, on renewing our agreement for the current scope, and we are hopeful that, that's going to be the case. As it relates to further expansion, especially behavioral health, what we know is that we did deploy that successfully in the past, quite significantly in different demonstrative regions. And we know that it delivered on the value. The decision, of course, lies with the customer, and we hope they will expand at some point, but we don't have any specific information as to if and when at this point. And with that, I'll turn to Mark for the second part of your question. Mark Hirschhorn: Yes. The deferred revenue is purely a result of timing based on the renewals of some of our largest clients, those which took place in the first quarter as compared to prior year, which took place at the end of the calendar year. Operator: Our next question comes from the line of Charles Rhyee of TD Cowen. Charles Rhyee: Congrats on all the progress that you've made so far. Ido, you made the comment earlier that the pipeline is growing and obviously, where subs and renewal and retention better than expected. So kind of giving you confidence in sort of the model as it goes forward. But maybe to dive into the pipeline a little bit more. Can you give us a sense on the mix of what that pipeline is maybe from a -- maybe a dollar standpoint to think through how much is health plans, health systems, government? Because when we look at 2025 revenues, Elevance obviously, is your largest customer, a fairly significant mix. DHA is not too far behind. And then there's a decent concentration in the top 10 as well. So just trying to understand, as we think forward, as we get through this period and we think about where growth is coming from, if you could help us understand where the opportunities you think are sort of the easiest to go after and sort of what that -- and how does that pipeline kind of reflect that? Ido Schoenberg: Absolutely, Charles, and thank you for joining. Good to hear your voice. As it relates to the pipeline, as we mentioned earlier, it is significant and very different from the past years. I'll talk about it a little bit qualitatively. Essentially, the exciting news is that our new platform, the Amwell platform resonates really, really well across the market. And that's a tool that allows us not only to have subscription revenues, but also to grow the related clinical services, Amwell and non-Amwell services that we also generate revenue from when we do that. I mentioned earlier that while this technology and these services are relevant to health systems, to payers and to government entities across the board, we really believe that the most pressing need, obviously, is with large payers. They clearly need an infrastructure like that. And when that happens, 2 things happen. One, we have some new logos, but much more importantly, as they deploy our platform, it contributes to same-store growth, as it becomes more and more efficient in creating engagement with more members, and it is built to increase same user utilization of the clinical programs I discussed, encouraging the sponsors to continue and finance both engagement and coverage as we are able to demonstrate and prove outcomes, financial and clinical outcomes that also drive success in open enrollment and market expansion. So I believe that it's very refreshing for us to see a product mix that used to be many, many products across vast markets narrowed down to essentially one platform and related services and still generates a very healthy growth in pipeline and a healthy level of enthusiasm by existing in a new potential customers. Charles Rhyee: Is there any way -- can you share maybe sort of what that kind of growth looks like? Are we talking double-digit growth in the pipeline maybe since last year? Or anything you can share in terms of sort of the growth outlook? Mark Hirschhorn: Charles, I would just jump in and suggest that the pipeline is a multiple of what it had been last year. So it would be closer to triple digit as a result of those opportunities that Ido addressed. And again, primarily, it falls in line with what we believe will be principally components of government opportunities. Charles Rhyee: Okay. And maybe just one more, if I may. I think to a previous question, getting an update on DHA. Can you remind us the time lines of when you would expect to get a decision on, a, the renewal? And remind us in the off chance that there isn't a renewal, what is the fallback for the government? Because the DoD because my understanding is they don't really have one. And then lastly, can you kind of remind us what the opportunities are for expansion with this renewal? Would they come together? Or would those be 2 separate decisions? Mark Hirschhorn: Yes, Charles. So the renewal, we think, is going to be very straightforward. We believe that will be completed at the end of the quarter, start of the third quarter, perhaps July. We also believe that the opportunity to expand that will take place after the initial renewal. And as Ido alluded to earlier, whether that's a direct contract, whether we continue to work with our Leidos partners, irrespective of who ends up being the contracting party, we feel very confident that, that renewal is going to commence within that time frame I just spoke to. Operator: Our next question comes from the line of Jailendra Singh of Truist Securities. Jailendra Singh: My first question is around the visit volume in the quarter, around 1.1 million. How did that track compared to your internal expectations? And what's driving the full year guidance of $1.3 million to $1.37 million? Some providers have talked about soft volume trend. They saw soft flu season, some weather disruption, which might have been a tailwind for you. Just curious like puts and takes you saw in Q1 and how we think about the trends for the rest of the year? Mark Hirschhorn: Hi, Jailendra, it's Mark. The trends were positive in both regards to premium-priced visits. So those that represented more higher-priced care specifically those clinical programs and virtual primary care as opposed to what had been the vast majority of our revenue-producing visits coming from urgent care in prior periods. We've also seen a nice high single-digit growth in volume. So we did not experience what some others may have told you was soft. We actually saw a nice seasonal boost that brought us through to the end of the quarter. And now we're obviously seeing the expected seasonality set in. So it was a nice surprise. It was one that I think was supported by the fact that we've got some additional ASO clients participating in the offerings that we've introduced. So the trend is positive, and we expect it to continue throughout the year. Jailendra Singh: Great. And then my follow-up, your comments around a number of meaningful renewals and strong pipeline. How often do AI capabilities come up in your client discussions now? And is the behavior different when you're talking to a health plan versus health system? And related to that, when clients evaluate your AI capabilities, are they willing to pay explicitly for those? Or they're saying like they should be bundled in your current platform and pricing? Just how are those conversations evolving? Ido Schoenberg: Hi, Jailendra, that's a great question. So essentially, the answer is a little bit complex in this -- when people buy the platform, some of the AI capabilities that we use directly relate to things like consumer experience, streamlining navigation, providing sophisticated analytics and things of -- such things. Interestingly enough, not all our customers are ready to accept those modules. Some of them actually are very cautious about those models and really focus on the reoccurring, stable, proven parts of our platform as their main interest. However, all our customers, without exceptions, are eager and ready to test AI-driven clinical programs on our platform. And the reason is that we built the platform such that integration is very fast and the integration and replacement is even faster without changing many things like the consumer experience or the analytics. So there is a general recognition that AI clinical programs are necessary in order to achieve improved clinical and financial outcomes and they prove them. But that does not necessarily need to be expressed in the risks related to the actual platform, but rather more to the different programs that people test. So while we have a healthy bit of AI in our own offering, which we deploy to customers who are ready to benefit from it, the most important value that we bring is the safe, reproducible, scalable way for our customers to test different options. Most of them are AI-driven, not necessarily for a full cohort, but rather to certain ASOs versus others and so on and so forth and then really manage risk while having access to all the opportunities that all those innovations bring to them. Operator: Our next question comes from the line of David Larsen of BTIG. David Larsen: Can you talk a little bit more about the Defense Health Agency contract? I think there was a component in there. I think it was mental health that didn't renew, that might renew in the future and expand. What is the annual dollar value amount of that, please? Mark Hirschhorn: David, we can't speak to the exact dollar value of that, but we would expect it to represent in excess of 15% to 20% of the total value of the platform today. That's based on the experience that we had at the beginning of 2025 when the DHA was actively using those services. We are fully engaged in the discussion around reintroducing those services. However, we believe that will likely take place after the effective renewal of the base services earlier this summer. David Larsen: And can you please talk about the nature of those services? Is it mental health? Is that correct? And I would think there's no greater need that the military has the mental health services given sort of the nature of their roles and their jobs. And I would think that the federal government would be very sympathetic towards supplying whatever support they can to serve our men and women in uniform. Ido Schoenberg: David, this is Ido. Obviously, I totally agree with you, and we are very hopeful that's going to happen. The sequence is as follows: we are very grateful to be in a position to be the backbone and the infrastructure for technology-enabled care for the U.S. military. That relates to the core connection between any member of this wonderful family and their doctors, wherever they are. So that's Amwell. In addition to that, one of the clinical programs that fits, obviously, as a native solution, totally integrated in our solution is our behavioral -- automated behavioral health program that one of its main benefits is that it allows for a handful of therapies to reach dramatically more patients. So -- and that's a giant problem. There is a giant supply and demand in behavioral health in general, and that also includes an environment like this environment. And this is not theoretical. I mean we've tried it in this environment. We integrated it and it works and it's needed. The customer decided because of their own reasons to defer that deployment after we've proven that it works well and fully integrated, and that's perfectly fine. Should the client decide to add that again, the speed is going to be very, very quick. We believe it's going to be very helpful, and it does make sense. But these are totally the decisions of the customer, not our decisions. We know that it worked really well, not only in places like the DHA, but for example, in the National Health Service, the NHS in the U.K. where studies proven that we could dramatically change the ratio between therapists and patients. And that's obviously a wonderful thing, both in way of cost, but more importantly, in way of accelerating access that is such a pain point for everybody. David Larsen: And then for 2027, would you expect revenue to grow on a year-over-year basis? And I understand there's been some churn. I guess, any more color around the churn that has already occurred? Why has it occurred? Is it maybe 1 or 2 clients? And then would you expect revenue to grow in '27 relative to '26? Mark Hirschhorn: Sure. 2026 churn has been immaterial. We would always expect low single-digit churn as we would in any business in a competitive market. We do have significant expectations for revenue growth. I had alluded to that even at the end of last year that even if a part of our pipeline converts this year, we expect to have meaningful revenue improvement in 2027 coming from these new government contracts. David Larsen: And one more quick one. Mark, fantastic job getting a lot of these costs under control. Just are you sort of there? Or how much more in incremental annualized cost can you pull out of the business and nice work, by the way. Mark Hirschhorn: I appreciate that. Of course, I speak on behalf of all my colleagues as well because, as you know, it takes teams, essentially a village to get there. People have done much more with far less in this company over the past 18 months. We are all very pleased with where we are. However, everybody understands that the job is not finished yet. We have the next couple of quarters to ensure that we complete some of the initiatives that we've invested in over the past several quarters, but we do have a step down of costs, which means a lower operating cost basis coming out of the third quarter. So we are well on our way. You could probably tell that we're very optimistic and excited about achieving that milestone, but we're also very excited about what we believe is going to be meaningful growth next year. Operator: [Operator Instructions] I'm showing no further questions at this time. So I would like to return it to Ido for closing remarks. Ido Schoenberg: Thank you, Ari, and thank you, everyone, for joining. We truly appreciate your many years of support in Amwell and look forward to talking with you all soon. Take care. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, everyone, and welcome to today's BrightView Earnings call. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Mr. Chris Stoczko, Vice President of Finance and Investor Relations. Please go ahead, sir. Chris Stoczko: Good morning, and thank you for joining BrightView's Second Quarter 2026 Earnings Call. Dale Asplund, BrightView's President and Chief Executive Officer; and Brett Urban, Chief Financial Officer, are on the call. I will now refer you to Slide 2 of our presentation, which contains our safe harbor disclaimer. Our presentation includes forward-looking statements subject to risks and uncertainties. In addition, during the call, we will refer to certain non-GAAP financial measures. Please see our press release and 8-K issued yesterday for a reconciliation of these measures. With that, I will now turn the call over to Dale. Dale Asplund: Thank you, Chris, and good morning, everyone. Our second quarter marked a key inflection point for BrightView as our transformation strategy centered around prioritizing our employees and putting the customer at the center of everything we do has begun to yield meaningful returns and inflect sustainable and profitable top line land growth. While this is a pivotal moment for BrightView and our ongoing transformation, our momentum is building as we continue accelerating investments in our go-to-market teams as we manage the business for the long term. Total revenue grew 6% in the quarter, highlighted by a robust 4% increase in Land revenue, reaffirming that our transformation strategy is working and positions the business for sustained momentum. We also delivered record second quarter adjusted EBITDA of $79 million with a record margin of 11.3%, underscoring the strength and scalability of our business. From day 1 of my tenure, my focus has been on solidifying the foundation of our business through improving frontline turnover, driving higher customer retention and unlocking our size and scale as the industry's largest commercial landscaper. These initiatives continue to strengthen the foundation and have allowed us to accelerate investments back into our sales force, resulting in the continued momentum in our contract book of business. Now we are seeing the expanded contract book drive revenue growth in our Land segment. This, combined with outsized snow performance in the quarter positions us to raise our 2026 revenue guidance and reaffirm our commitment to delivering a third consecutive record EBITDA year. While the broader macroeconomic environment remains uncertain, we've built a resilient business model designed to perform through cycles. The recurring nature of our contract revenue, combined with disciplined pricing and cost management position us to continue driving sustained profitable growth in both the near and long term. While we're enthusiastic by the progress we've made this quarter, this marks just the beginning of our journey to drive sustained, profitable top line growth in both the near and long term supported by continued investments in our frontline employees, a growing sales force and the realization of efficiencies from our size and scale, driving meaningful shareholder value and positioning BrightView as the investment of choice. Turning to Slide 5. We continue to reduce frontline turnover with an approximately 5 percentage point improvement over the previous quarter and 35% since the start of our One BrightView initiative. Our focus remains, as it has since day 1, on prioritizing our frontline employees by creating a safe and rewarding environment, offering industry-leading benefits and providing reliable, consistent schedules. This continues to differentiate BrightView from its competition as the Employer of Choice, driving improved turnover and unlocking cost efficiencies that we're reinvesting into our frontline. Moving to Slide 6. I've said in the past, the longer we retain frontline employees, the more consistent our service delivery is. And as a result, customer retention continues to improve. Since bottoming at approximately 79% in 2023, retention has increased by approximately 550 basis points as of Q2 2026, now approaching IPO levels of 85%. This sequential improvement reflects the commitment of our frontline teams, our focus on service quality and our continued investment in the business which together are strengthening our underlying contract book and setting the foundation for sustained land revenue growth. Over the past 2-plus years, we have strengthened relationships with our customers by delivering best-in-class service and earning their trust. In light of recent macroeconomic uncertainty and rising fuel costs, our priority remains on maintaining long-term relationships with our customers and not reacting to potential short-term headwinds. As I've said since day 1, we are managing this business for the long term and customer retention remains a top priority to delivering sustainable, profitable growth. Continuing to Slide 7. I'd like to highlight the progress we've made in improving customer retention across our branch network with approximately 35% of our branches now achieving best-in-class 90-plus percent retention, a significant improvement since 2024. At the same time, the share of underperforming branches has declined with only 10% of our branches now under 70% retention. We know the branches with higher retention are yielding growth and our improvement reflects meaningful progress. But let me be clear, there is still plenty of runway for improvement as we continue to transform this business. Now to Slide 8, where we see the significant byproduct of our transformation continuing to materialize through accelerated momentum in our Land Contract book. The equation is simple: improved customer retention and the accelerated ramping of our sales force are generating growth in our net new sales, a metric that factors in both customer retention and new contract sales. As previously mentioned, customer retention has improved through our ongoing initiatives. The second part of the equation has been ongoing since the back half of 2025 and really accelerated in the first quarter of 2026. Now as our increased sales force is ramping up their productivity, we are starting to realize the true momentum that has been building over the past few quarters. The combination of these 2 metrics improving in [ unison ] has contributed to 4 consecutive quarters of net new sales growth driving 3% growth in our Land Contract book of business, a key leading indicator of future top line growth and in the recurring Land Maintenance business. Now as we move to Slide 9, we are reaching an inflection point where the momentum built in our contract book over the past year is translating into measurable results. Land Maintenance revenue grew 4% in the quarter and approximately 1% year-to-date, making the first year-over-year increase in the segment since the third quarter of 2023. This growth has been made possible by the steps we've taken to solidify the foundation of our business by investing in and prioritizing our frontline employees delivering consistent, reliable service to our customers and unlocking our size and scale as the industry's largest commercial landscaper. These efforts have driven sequential improvement in employee turnover, customer retention and margin expansion, all of which are strengthening the core foundation of our business and will continue to be key focus areas for the future. On top of this, we will continue to focus on driving profitable top line growth through accelerated sales force investments. This will be key to continuing contract book growth, providing a runway for heightened ancillary sales and increasing density within existing and adjacent service lines. As we grow our business organically, we continue to evaluate M&A opportunities that either complement our core business or help drive expansion in greenfield markets. Last quarter, I highlighted our expectation for Land growth in the back half of 2026. The acceleration in our contract book, along with other key underlying metrics give us the confidence to raise our 2026 Land revenue guidance, which Brett will discuss in more details in a few minutes. Before turning the call over to him, I want to express my gratitude to our nearly 18,000 employees. During the month of April, we celebrated Employee Appreciation Week. It was great to see pictures and hear stories of how the branches celebrated their teams. Their unwavering commitment to delivering consistent, high-quality service reinforces our position as the Provider of Choice and is just the beginning of our journey ahead. It is the customer-first mindset and relentless focus on service that defines BrightView. And we thank our employees for their continued commitment to excellence. With that, I will now turn the call over to Brett. Brett Urban: Thank you, Dale, and good morning, everyone. Our second quarter results reflect the continued momentum we are building across the business with solid execution driving another strong quarter of record financial performance, most notably in our Land Maintenance segment, where revenue grew 4%. The strategic investments we have made over the past 2-plus years in our employees, customer experience and sales force are translating into tangible results as evidenced by our improving retention, strengthening demand and encouraging results from our expanded sales efforts. We are increasingly excited about the trajectory of the business and continued momentum towards future sustainable growth. This is reflected in our updated guidance, which raises total revenue and Land revenue and reaffirms a third consecutive year of record adjusted EBITDA. Let's now turn to Slide 11 to discuss profitability in the quarter. We delivered record Q2 adjusted EBITDA and margin of $79 million or 11.3%. This represented an increase of $6 million and 8% higher than prior year as we continue to realize efficiency in our business. Higher revenue in the quarter drove incremental flow-through, while fleet refresh initiatives, enhanced procurement-driven purchasing power and continued G&A savings drove efficiencies. These benefits were partially offset by the acceleration of the investments in our sales force, which was funded by a portion of the incremental benefit from the outsized snowfall in the quarter. These revenue-generating resources underpin our growth strategy as evidenced by the 4% growth in our Land business, which was driven by our continued momentum in our Land Contract book. At the segment level, Maintenance margins grew 110 basis points, supported by the higher revenue flow-through and continued efficiencies in the business. In development, margins contracted in the quarter as a result of the timing and mix of projects. As a reminder, the margins in this segment benefited the most over the past 2 years as we implemented our One BrightView strategy and are still significantly above pre- One BrightView. Moving to Slide 12. Revenue for the second quarter was $703 million, representing a 6% increase driven by Land revenue growth and above-average snowfall in the quarter. Land revenue was a major bright spot, growing $13 million, representing a 4% increase from the prior year. This marks the much anticipated inflection in Land revenue growth, the recurring and highly resilient revenue stream of our business, driven by the continued momentum in our growing contract book and rising demand across the segment. We are highly encouraged that this result demonstrates the successful execution of our transformation strategy with benefits expected to continue in the back half of 2026 and beyond. These benefits are reflected in our updated Land revenue guidance, which I will discuss in a bit. Snow once again was a major benefit in the quarter, increasing 30% from the prior year as we saw higher-than-average snowfall in the Mid-Atlantic and Northeast geographies, slightly offset by lower snowfall in the Rocky Mountain and Pacific Northwest regions. In the Development segment, revenue decreased 13%, driven by project timing delays. To be clear, the headwinds we experienced here were timing related and should not be viewed as lost revenue over the long term. Building on that, let's turn to Slide 13 to look into our growth prospects in the Development segment. The segment was unable to get some work in the ground this quarter due to adverse weather. However, our strategic initiatives provide a balanced runway for continued long-term success. As we are building our sales force in the Maintenance segment, we are doing the same in Development, where we have about 50% more sellers versus this time last year. These sellers are already contributing to the business' underlying momentum, and we've grown development bookings roughly 15% year-to-date. This metric is the leading indicator of future development growth and drives our confidence in the long-term health of this business as we continue to sell into 2027 and beyond. At the same time, we are also enhancing our market position by leveraging our existing footprint through development cold starts with 6 currently opened and 5 more underway. These new branches located in markets where we already serve for maintenance will drive incremental development activity and result in multi-segment growth. Moving to Slide 14. I'd like to touch on snow as the winter season is now primarily behind us. Snow was a major benefit to revenue for the first half of 2026, growing approximately $85 million or 40% from the previous year as we saw record snowfall across core snow markets. This came in $70 million above the high end of our original guidance, enabling us to fund accelerated investments into our sales force, which will further drive sustained profitable top line growth. While snow was certainly a benefit in 2026, our current contract structure leans 60-40 variable versus fixed revenue contracts, and this creates a degree of unpredictability when forecasting revenue as snowfall can vary year-to-year. Since our February 2025 Investor Day, we've made progress increasing our mix of fixed tiered contracts. This shift towards a higher mix of fixed contracts will enhance revenue predictability, mitigate the impact of light snowfall and enable us to service our customers year-round. Turning to Slide 15. I'll provide a brief update on the strategic actions we've taken to fortify our balance sheet. Subsequent to quarter end, we extended our revolving credit facility, enhancing our liquidity position and extending our maturity profile. This transaction also includes a 25 basis point reduction in pricing and provides an additional $100 million of capacity to support future liquidity needs. This further strengthens our financial flexibility and reflects our continued proactive management of the balance sheet. Let's turn to Slide 16 for our updated 2026 guidance, which we have provided a reconciliation on Slide 21 in the appendix of the presentation today. Our updated guide is highlighted by raising total revenue and raising Land Maintenance revenue for the year. Total revenue guidance is now in the range of $2.745 billion to $2.795 billion, representing a 4% increase at the midpoint versus 2025 and a 3% increase versus our prior guidance. This guidance assumes Maintenance Land growth of 2% to 3%, a 100 basis point increase at the midpoint of our previous guidance. This also assumes snow revenue of approximately $290 million, an increase of approximately $70 million versus the original high end of the guide. Development guidance has also been updated to reflect timing impact of projects. Moving to adjusted EBITDA. We are reaffirming our guided range of $363 million to $377 million, which represents another year of record adjusted EBITDA and margin expansion of roughly 20 basis points at the midpoint. Included within this guidance are costs related to our accelerated investments into our sales force, which we expect to continue at a similar pace, but does not include the potential impact of fuel price volatility, which I will touch on in a minute. It's important to note that at the midpoint of our margin guidance implies an approximate 300 basis point improvement over the last 3 years, reflecting the incredible progress made on our transformation. We are also reaffirming our adjusted free cash flow guidance of $100 million to $115 million, providing us with significant financial flexibility to continue to reinvest in the business. In total, this guidance reflects a third consecutive year of record-breaking adjusted EBITDA, continued margin expansion and the continuation of Land revenue growth. To wrap up, let's move to Slide 17 to describe the potential impact of higher fuel costs in the back half of the year and the actions we're taking to mitigate against this. Through the first half of the year, fuel prices were relatively consistent with prior year. But amid recent macroeconomic uncertainty, prices have moved higher and are fluctuating daily. Given that roughly 60% of our fuel consumption occurs in the second half of the year, continually higher prices has the potential to create cost headwinds. While approximately 1/4 of our remaining fuel consumption is hedged, the unhedged portion remains exposed to market volatility. Given the volatility in the price of oil, this could mean varying impacts based on how long prices remain elevated. That said, there are mitigating factors within our control that will help us offset a portion of this impact as the year progresses. Pricing power remains a key lever for us. Ancillary work, representing approximately 1/3 of our total land revenue is priced daily and adjust in real time to reflect cost increases. Additionally, all new bids and annual contract renewals incorporate these higher costs. Alongside pricing, we are working on our own efficiencies on reducing fuel consumption through improved route density, minimizing idle time and leveraging technology to identify the most cost-effective fuel options. Before turning the call back over to Dale, I want to underscore my confidence in the momentum of the business and the ability to deliver sustainable, profitable top line growth. Our investments continue to drive measured improvements in employee turnover and customer retention and are now powering top line growth in the Land Maintenance segment, a trend we expect to build upon in both the near and long term to deliver meaningful value for our shareholders. With that, I'll turn the call back to Dale. Dale Asplund: Thanks, Brett. Before we turn to questions, I want to express my enthusiasm for the trajectory of our business, underpinned by the inflection of Land Maintenance revenue in the quarter, continued growth in our contract book and sequential improvement in our core KPIs as we execute upon our strategic objectives. This progress has been made possible by our people who are at the center of everything we do and the driving force behind our transformation. While we're encouraged by these results, this marks just the beginning of our journey to deliver sustainable, profitable top line growth and create meaningful long-term shareholder value. With that, operator, you can open the call up for questions. Operator: [Operator Instructions] We'll go first this morning to Tim Mulrooney with William Blair. Timothy Mulrooney: It be hard to limit myself to one question here, but I'll do my best. I guess I want to ask about the Land Maintenance growth because it feels like we've been -- what we've all been waiting for is finally here, inflecting in a positive territory here and a positive 4% at that, which was well above our expectations. We were actually expecting organic revenues to decline a little bit in the quarter and that's a pretty big variance relative to our expectations. So was some of this just weather related? Or how would you characterize the main drivers of this result so that we can get comfortable with underwriting, I don't know, a similar level of growth in the second half here? Dale Asplund: Yes. Thanks, Tim. I'll start off and I'll let Brett add. 30 months. 30 months, we've been waiting for this inflection point, Tim. And you are right. We have done everything right to build the foundation for getting us ready for growth. And even though last quarter, we had some headwinds from weather where we actually reported a slight decline in Land. We were able to actually see some of that come back. We had said roughly $6 million of Q1's decline was just temporary. We saw some of that benefit return in Q2. And then even with the weather that we saw in Q2, the outsized snow, we still saw our Land business show growth. Some of that was our ancillary revenue. But I think the big important topic in answering the second half of your question is what we see that builds momentum. When you look at everything we talked about in Q1, where we talked about our book of business being up 2%, we just reiterated that by saying at the end of Q2, now we're up 3%. Just let me do some math for everybody on the call. Our book of business is roughly $1.15 billion. If we have a 3% growth in that book of business, that means we're growing our contract book by roughly $35 million. 60% of our Land revenue will occur over the next 6 months. So that means we have $20 million of tailwind built into our updated guide going from 1% to 2% Land growth to 2% to 3% Land growth. And on top of that, the most exciting part is with our continued momentum in retention getting up to almost pre-IPO levels at 84.5% roughly. That means the longer we keep customers, the more they're willing to work with us on ancillary services. So we are very confident. We saw this coming. We tried to give a little signal to that as we went through Q1's earnings. But now I think everybody sees the inflection point is behind us. And Brett and I, I think both said the term several times, our focus is on sustained long-term profitable growth. And our Land business is key to that initiative. So Tim, great question. It's probably the one thing Brett and I are the most proud of. We've done it the right way. We've stayed focused on getting the business to be able to start growing organically the right way. And then, look, you heard me mention. I've said to all of our team, you have to earn the right to do M&A. I think our quarter here on Land shows people are starting to earn the right for us to consider M&A again. But Brett, do you want to add anything? Brett Urban: No, Tim, we're excited. Look, the inflection is here. I think we've been saying it's coming. They all said 30 months. You go back 2.5 years ago and investing in our employees, who invest in our customers and can drive that customer retention higher, the strategy is working. And now the strategy has evolved to investing in our sales force. We started that last year. We invested $6 million in our sales force in Q1, another $6 million in Q2. And I said it in the script, we're going to invest another $6 million probably in Q3 and another $6 million in Q4, because it's working. The strategy we laid out on paper 30 months ago is now inflected growth in the Land business. If you look at the kind of the first half of the year, as Dale mentioned, it's about a 1% growth in the Land business, but we're entering into our busy season. We raised revenue guidance in Land. And the back half of the year implies a 3% to 4% growth in that Land business. So we couldn't be more excited, Tim, about the inflection being here. Operator: We go next now to Greg Palm with Craig-Hallum. Greg Palm: Congrats again on the solid results. Can you maybe just talk about the competitive environment a little bit? Just -- I don't know, it seems like a lot of factors that are now coming together that would support at least the potential for not just share gains, but maybe significant share gains. So maybe you can talk about what your thoughts on that are. Dale Asplund: Yes. Great question, Greg. I think we have said from day 1, customers require quality service and your commitment to putting the customer at the center of everything you do is what's going to drive our path forward. We have to take care of what we can take care of in our control, and we've done that. When I joined in the end of '23, our customer retention was a dismal 79%. We were never going to outrun that type of loss on an annual basis. So we did that foundational work to get our branches focused on quality service to the customer, making sure the customers we had, we kept. And now after 2.5 years, we're amplifying that by bringing in more sellers. So you keep your customers you have and you grow the new sales because the environment out there, a lot of people might be getting reactionary with what's going on in the overall economy with fuel. And we just remain focused on we're going to take care of our business for the long term. We're partnering with our customers. We're working with them to look at where we want to be over the next several years. At our Investor Day last February, we made a commitment that we're going to grow this business and the targeted mid-single digits for our Land business, and we are still committed to that. And I think the trajectory that we'll exit 2026 and go into 2027 with puts us on a path for that. So we couldn't be excited about what we've done. Now what we've got to do, Greg, is continue to listen to customers. We've done great with snow this year, everybody saw. We had a big snow year, and we had a lot of customers turn to us to ask us if we can bail them out when we had a lot of snow coming down. That creates relationships and gives us the opportunity to partner with customers all year round. We want to take care of the customers we have. And when new customers come in, we want to do what we promise we're going to do. That's what's key. We've got to make sure whatever we commit to, that's what we do. But Brett, do you want to add anything for Greg? Brett Urban: No, Greg, I would just say market share, the market grows about 1% to 2% a year. This year, implied in our guide, we're going to grow at 2% to 3% a year. So yes, you're saying we're taking market share. And look, it starts with the strategy. It starts with taking care of our employees, which the minute Dale stepped in here for all 18,000 employees in this company. We put them front and center, especially the folks that service our customers. And that's driven customer retention. Now it's time to invest in our sales force, which we've been doing, which is resulting in higher growth than the market. And look, you go out into our operations, Dale mentioned we had Employee Appreciation Week not too long ago, and you see our employees with new boots, new safety equipment, new vests, new high vis safety gear. You see them with new trucks and trailers, just the business has drastically improved over the last 2.5 years. And obviously, our customers are seeing that with the result in customer retention. And now it's our time to take share, Greg, as you just said. Operator: We go next now to Stephanie Moore with Jefferies. Stephanie Benjamin Moore: I wanted to segue off of that last question, but I might ask it to be more specific here. So I mean, definitely really appreciate what you just outlined and certainly the color on improved labor and customer retention. But could you maybe talk about how you think about your long-term strategy while also navigating this heightened fuel environment? And maybe it would be helpful if you could kind of compare and contrast to 2022 and the strategy at that time, which was the last time fuel really spiked and how it's different from what you guys have outlined today? Dale Asplund: Yes. Thanks, Stephanie. It's a great topic because, obviously, a lot of people, including some of our vendors, the initial reaction is try to pass on any fuel headwinds they get to their customers. The last time BrightView did that back in 2022 when we started the year with 83% customer retention, and by doing a haphazard fuel surcharge that we just pushed out blindly across the board, it resulted in exiting the year down 300 basis points with a customer retention level at 80%. So we are going to make sure we put in the long-term view with our customers. We're going to communicate. Brett went through a litany of items we're doing to mitigate fuel. Let me give you some statistics of what we're doing that's in our control and not trying to pass along our challenges to our customers at a very volatile time. And for those of the people I'm sure that watch the news every morning, there was new news out this morning that has oil coming right back down at a rapid pace. But let's talk about what we can control. First, Brett mentioned some of this stuff. I'll give you some statistics. We have made a considerable investment in our fleet, in our route density for our employees. What else is a byproduct of that is we anticipate and what we've seen year-to-date is our consumption of fuel is down across our network between 5% and 8% in our branches. All that new investments we made are helping us use less fuel. We have to reduce idle time. We have to reduce -- we have to increase route density and reduce wasted time to make sure we're being as efficient as we can using fuel. Brett said it, we have ancillary services we're pricing every day. And this is a balance between us making sure we're still growing our ancillary business for our customers and showing them we respect them, yet pricing it at a fair level. So we have built in some fuel opportunity into our ancillary pricing. And in the back half of the year, we have roughly $300 million of ancillary work of roughly half of that, we have an opportunity to do spot pricing on. So we'll get some recovery with that. When you look at the things we've done to mitigate, in the full year, we used 20 million gallons of fuel at BrightView. We're halfway through the year, just over 7 months now for BrightView. Roughly 60% of our fuel is used across the next 2 quarters. So if you do the math on that, that's 12 million gallons of fuel that we're coming into the season with that we're going to consume. Of that 12 million gallons, we've already hedged fuel at about 25% of that. So that takes us down to 9 million gallons. If you take the improvement we've seen in fuel, that takes us down to 8.5 million gallons that we think we are potentially trying to find out how we're going to make sure, we find an offset for. In the month of April, we saw roughly $1 increase per gallon for that month, creating about $1.5 million headwind for us. But we believe we will see some recovery as we work through all the initiatives I mentioned and continue to focus on making sure as fuel prices come down, we don't damage customers long term. We are 100% focused, not on the next 90 days, but on the next several years. Our project to get to 2030 goals is still our North Star, and it's not the third or fourth quarter. Brett, do you want to add? Brett Urban: I would just add, Stephanie, we are going to be better partners to our clients than that. And that's what we're demonstrating right now. This short-term headwind that you see in the market is very dynamic. It changes every day. There was articles out this morning that drove fuel down over 10%. But we are not going to manage this business for the short term. We've said that continuously now for the last 10 quarters. And we're going to stay on that long-term focus. And back to the piggybacking on Greg's question, that's how we're going to be better partners to our customers. That's how we're going to gain market share. And I'll take one step further. If we see in our regional areas where other service providers are passing along fuel increases, we'll pick up that business without the fuel increase. So we are going to be better than that to our customers. We're going to continue to drive customer retention. We're going to continue to sell more business through our expanded sales force, and we're not going to manage this business for the short term. The best long-term decision is going to be taking care of those customers now. So 6 months from now, a year from now when this all blows over, that's what's going to be remembered that's going to continue to drive that customer retention and that Land revenue growth even higher. Operator: We go next now to Bob Labick at CJS Securities. Bob Labick: On the quarter. We're viewing it as a beat and reinvest. And kind of with that team, you've talked about it a little bit. Can you talk about the decision to keep your foot on the pedal with the hiring of the salespeople? What have you learned so far from the recent hires that keeps you so encouraged? And where do you stand in your plan? I think you outlined a plan to increase the sales force 50% or so. Dale Asplund: Yes. Yes. Great question, Bob, because it's what gives us the enthusiasm to keep looking at how much opportunity this business has. So it's a tough -- when you look at the investment to make in the sellers, we invested $6 million more year-over-year in Q1. We invested $6 million more year-over-year in Q2 in just the frontline sellers of our business. Now the way I look at those new sellers, Bob, the first 6 months, they relatively produce very little. Some of them don't produce hardly any sales as they start making customer relationships. Between 6 and 12 months, their annual run rate is closer to $500,000 to $600,000. And once they get to a year plus, that's when they're starting to produce somewhere around $1 million. A fully matured seller has been with us roughly 18-ish months, and we target about $1.5 million of new sales. Here's the exciting part. We've been able to cover that $12 million that we invested year-to-date. And we're seeing that net new growth every quarter, 4 consecutive quarters now. We started to add sellers in the back half of '25, and we really stepped on the gas pedal in Q1, and we continued it in Q2. So what gives me the confidence is it's working. We just put up 4% Land growth. We just raised our guide from 1% to 2% of Land for the year that on the last call, people questioned if we were going to be able to deliver to 2% to 3% growth. And we are optimistic that as we get into 2027, we can even do better than that. So we are not going to pause. This is our future. Growing this business is how we're going to make BrightView the Investment of Choice for our investors. Long-term profitable growth is the key for us, and that's what we have to do by making sure we're bringing in new customers and getting our arms around our existing customers and keeping them as long as we can as a great partner. Brett, do you want to add? Brett Urban: Yes, Bob, I only add the strategy is working. We're not going to slow down something that's showing positive signs and working for us. And we said during Investor Day around 15 months ago that we'd add 50% to our sales force, which is the starting point was about 1,000 in total sellers. We're well ahead of that pace. We've added just under 200 year-over-year right now. So call it, we're up to about 20% add of that 50% or 40% of the way there. So we are making significant progress much sooner than anticipated. Dale mentioned, we had the benefit of heightened snowfall, which allowed us to move quicker and pay for them. But I would just say that the strategy is working, and we are going to go as quickly as possible to get these sellers on board, ramped up and productive. Operator: We go next now to Greg Parrish with Morgan Stanley. Yehuda Silverman: This is Yehuda Silverman on for Greg. Just have a quick question on the development cold starts that are opened and the 5 more underway. Just curious how bookings have been early on and how long you expect it will take to get to a normalized backlog book there? And what gives you confidence to have success in those regions? Dale Asplund: Yes. Yes. It's great question, Yehuda. So look, I think one thing I've seen, we have -- and I've said this since the day I started, I met our teams in our development business, we have hands down some of the most talented development people in this industry. Our Development business is the largest in the industry. The jobs we do just amaze me. So our team in Development, while it's a choppy business, they do unbelievable work. And the one thing I can assure you, where we have the ability to do quality development installations and long-term maintenance service, we are a better provider, a better partner to our customers. And our customers see that. So a year ago, I said what we have to do is take those markets that we're so strong in that we have great Development and great Maintenance teams working side-by-side under our One BrightView initiative, and we have to make that in every market we can service. So we announced we're going to open 10. What we need to do to open a Development branch, we usually have real estate with our Maintenance branches. We try to get a branch manager, we get a seller into that market, and we go up. What you see as us saying we have 6 that are open, it's because we have booked backlog. They vary. Some branches have gotten big jobs, but I will assure you, every branch has a nice pipeline of open quotes that they're trying to land. The 5 that we still say are in process of opening. We've hired people. We have sellers. We have them starting to work. We haven't closed any deals there yet, but we anticipate over the next several months, we will see those go to fully open branches. We believe we need to have a Development resource helping our branches in every market that we service. And there's still so much open space for us to expand into through either M&A on the Maintenance side or through organic opportunities. So look, I think we're happy with the progress we've seen. The business of Development is choppy, to say the least, especially with some of the weather that we just saw in Q2, you can get movement between quarter-to-quarter, but we're anticipating growth in the back half of the year in that business. And our teams are focused on continuing to go after the customers every day, and we're working with our partners. So the backlog is a little bit choppy in those, but every branch that we set are now open for those 6 have now booked orders. Brett, do you want to add detail? Brett Urban: I would just echo Dale's comments. We do have the best teams, the best experts that produce unbelievable work in this business. It can be a bit choppy with timing. We saw the last 2 to 3 quarters, projects push out. But if you look at our bookings year-to-date, up 15%, you look at our remaining performance obligations, which is projects greater than 1 year, that's up 6% quarter-over-quarter. So the momentum is building in that business as well. And, look, let's not discount the fact that when we have these cold starts and they open up business and sell new Development work, that's just a leading pipeline for more Maintenance Land revenue. So converting that work also is a big opportunity for us. But we're excited about the trajectory of the business. The momentum there is building. We haven't quite got the work in the ground and the timing we anticipated, but it's coming and the leading indicators are there to show growth. And that's what's implied in our second half guidance is growth in that business. Operator: We'll go next now to Andrew Steinerman with JPMorgan. Alexander EM Hess: This is Alex Hess on for Andrew. I hope everybody is having a lovely day. I actually have a multi-parter, so I hope you'll bear with me on this. But just a couple of items that haven't yet been touched on. On fuel costs, I know there was some discussion about how that might impact ancillary. But just to be clear, you're not flowing any fuel benefits through on revenue that you aren't also flowing through on costs, correct? Just maybe to start with. Dale Asplund: Correct, Alex. We have said we didn't imply any assumptions for fuel cost outs and nor have we assumed anything on the revenue side. So you are absolutely right with that assumption. Alexander EM Hess: Understood. Then on snow, can you provide us what was the EBITDA flow-through on that snow revenue? I know it was a little muted last quarter due to some of the contract dynamics. Just trying to understand how that shift to contract -- more contract book impacts the revenue and incremental margin of snow. And that's the third one to pull out. Dale Asplund: Yes. So last quarter, we said we were under the 20% target that we had, Alex. While we don't have a fully loaded P&L for snow, obviously, we're sharing resources. We believe that our full year flow-through is about 20% right now on EBITDA for that business. Now snow has been a great story, and I'm going to let Brett comment here in a few minutes. Snow is the markets we saw a lot of snow and the markets we didn't see any snow. So when you really break down the snow season that we went through, obviously, everybody on the Eastern Seaboard felt the impact of weather, some way or shape through the quarter and through the first half of the year. In fact, some of our ancillary benefits that we saw in Land, we saw freezing all the way into Florida that those teams had to do work as we went through Q2 after those deep freezes. But the Eastern Seaboard, even the Carolinas, where we always have variable snow, saw a considerable amount of snow. On the opposite of that, Colorado had a very, very soft snow year as well as the Pacific Northwest. Both of those markets are traditionally more time and material/variable snow because of the volatility in their snow, what can do a little bit of a drag on those margins. But once again, long term, our goal is to be a better partner to our customers is our continued movement to get customers on more of an annual fixed snow agreement. We want to keep pushing that, so customers know what they're going to spend for snow. And if we get a big year like we just had, yes, maybe it's not quite as profitable, but it allows us to manage the business with them over the long term, where years where we get less snow maybe in those markets, we do a little better. So -- but Alex, to answer, it's about 20% is the way I'd look at it. I think that's a healthy margin for us and make sure we get our arms around our customers. Brett, do you want to add? Brett Urban: No, I think the takeaway there is this is our opportunity heading into next snow season with outsized snow in the Northeast and Mid-Atlantic regions to try to move more of those contracts to fixed. We are about 2/3, 1/3 variable. Now we're about 60-40 variable, so leaning towards variable. But as we have those conversations now and renewals for next season and selling into next season, this heightened snowfall, this is the opportunity for us to become more predictable in our snow model by shifting even more of that business to fixed. Operator: We'll go next now to Ryan Gilbert with BTIG. Ryan Gilbert: Great to see all the work on the revenue initiatives starting to play out in the landscape maintenance business. I think last quarter, we had talked about the potential for some of your customers' budgets to be stretched potentially due to the snowfall, and it seems like that fortunately did not materialize in the quarter. But I'm wondering if you could expand on what you're hearing from customers as to their appetite and ability to pay for landscaping services. And then just a quick housekeeping. I don't think I heard the number of sellers you added this quarter. So if you could quantify that, that would be great. Dale Asplund: Yes. What Brett had said, Ryan, is we're roughly up 200 year-over-year. We had said we're up about 180 at the end of Q1. We're saying we're up about roughly 200 on the number of sellers. So it's fluctuating every day, obviously. We continue to keep the foot on the gas as we've gone through April. So that's just your quick housekeeping. I would say what we're hearing is we talked last year as we went through Q3, some of the challenge we heard with the reactions from Liberation Day, we had heard pretty quickly from our customers how they were nervous about all the potential impact from tariffs or anything else that was coming out. Our teams are telling us there's plenty of work out there for them right now. They feel much more optimistic as we go into this summer. We have some customers that had severe snow costs. But for the most part, take that little bit of that noise out, people are much more optimistic as they're going into this summer for that discretionary spend. A lot of people know they want their properties looking good. It's the spring time. It's the time for them to start making some investments. So I would tell you, we feel more optimistic as we sit here beginning of May 2026 than we did just 12 months ago as we were facing some headwinds. And look, we're looking forward to your conference this week, and we're excited about some of your investors, and we'll see you in New York this week. But Brett, do you want to add anything? Brett Urban: No, Ryan, I'd just add, that's what gave us confidence to raise our Land guidance in the back half of the year, right? If we're seeing any type of slowdown or softness, we'd be hesitant to do that. But the momentum in our contract book, that's now 3% up year-over-year, 4 sequential quarters of net new positive growth in our contract book. We're keeping customers longer, as Dale said earlier, those customers who stay with us longer, have more confidence in us to do ancillary, spend more money with us. So those things, including the ancillary outlook for the second half of the year, gave us the confidence to raise our Land guide in the back half. Operator: We go next now to George Tong with Goldman Sachs. Alex Lakritz: This is Alex Lakritz on for George Tong. Can you provide an update on the conversion of Development contracts to recurring Maintenance contracts? And then how BrightView is tracking towards the 70% long-term target? Dale Asplund: Yes. Look, I think what we're saying is Development is choppy. We saw continued momentum. Our teams are working better than they ever have. It's relatively consistent as we went from 2025 through into the first half of 2026. So we had very few projects closed here in the first half of the year, as you can see. We have a little softer development revenue. We'll see that as work gets finalized as we go through the back half of the year, we'll see more opportunity to convert that. So it's a tough metric when all you're looking at is the development revenue, Alex, because what you actually got to really focus on how many jobs close. We had some pushouts here. We'll see those jobs close as we get into the back half of the year. And then it will create opportunity for us on the maintenance side. So we feel great about how the teams are working together. But Brett, do you want to add? Brett Urban: Alex, I'd just say our teams are working together better than they ever have in our geographies, especially where we have Maintenance and Development branches together. Those teams are partnered at the hip now under One BrightView over the last 2.5 years, and they're working better together than they ever have. And you think about our cold start strategy, we have 6 cold starts opened with Maintenance branches, Maintenance employees, a reputation for Maintenance already in those markets. That's only going to supercharge that conversion opportunity as we open up development cold starts in those areas we already have Maintenance. Operator: We'll go next now to Jeffrey Stevenson with Loop Capital. Jeffrey Stevenson: Congrats on a nice quarter. You reported strong 110 basis points of maintenance margin expansion during the quarter, benefiting from the positive revenue flow-through on the landscaping side. So although you're taking Maintenance margins down due to continued accelerated pace of new sales hires during the back half of the fiscal year, do you believe the strong March quarter margin expansion shows that the One BrightView initiatives are driving improved underlying margins as landscaping demand returns positive? Dale Asplund: Yes. Great question, Jeff. So 30 months ago, I realized we had to fix this business, and we have to get it growing. There is no question our future is about growing the top line organically, not just buying revenue, it's about organic growth for the business. And there is no question that when we can grow Land 4% through our existing branch network, that's going to create profitable margin expansion for us. Now snow didn't really hurt us. It wasn't the reason that everything happened, but we firmly believe, Jeff, that Land organic growth and the flow-through that's going to produce is our future. And that's why we are so excited about what we're predicting for the back half of the year, increasing from 1% to 2% for full year to 3% to 4% or 2% to 3% in Land growth. Just to give you a quick reference, our updated guide suggests we will grow our Land Maintenance business over the next 2 quarters between 3% and 4.5% in the back half of the year. And that's why we're excited. That's why there is no question. I am 110% committed to investing in our frontline teams and our sales force to go after market share. We have done everything needed to get the foundation of this business in a healthy spot. We're far from perfect. We need to keep pushing those customers -- those branches that don't have customer retention at 90-plus percent. You've seen now 35% of our branches are at 90%, which is great, and I congratulate those, but we still have 10% below 70%. We are hyper focused on taking care of those branches. I want to talk about the day we don't have branches below 80%. Taking care of our existing customers is my #1 priority. And on the backside of that, I am going to invest, invest, invest in growth. And there is not a reason that we should back off on our strategy because Brett said it, and I'll say it, it's working. It's producing the growth that we've been waiting for. And I am so excited about what that means, not just for the back half of this year, but '27, '28, '29, future years. We have $130 billion end market, and we are just a fraction of that end market. We are going to take share. We are going to grow this business. We are 100% focused on becoming the Provider of Choice for our customers. And that's our focus. So Jeff, great question. Brett, do you want to add? Brett Urban: Yes. I would just add quickly. Look, you think about development margins for a second over the last 3 years since One BrightView, that business has expanded EBITDA margins over 500 basis points or around 500 basis points. So huge margin expansion in Development really getting pulled into the One BrightView strategy. And you said it, Jeff, now it's time for Maintenance implied in our back half of the guide and full year guide is margin expansion and Maintenance, 30 to 50 basis points while investing in the business. We're investing $6 million a quarter into our incremental sellers and sales force. About 90% of that is maintenance related. So even despite that investment, we are seeing the outsized benefit now start to come in Maintenance margins. and for the full year guide, still expected to expand 30 to 50 basis points. Operator: And gentlemen, it appears we have no further questions this morning. Mr. Asplund, I'd like to turn things back to you, sir, for any closing comments. Dale Asplund: Yes. Thank you, operator. Look, I'll close by reiterating our confidence in the path ahead. We had some great questions today, but our transformation is starting to take hold. That's what's critical for us. Over the past 2-plus years, we've built a stronger foundation at BrightView, bringing the organization together, unlocking efficiencies and achieving good financial results. Through this period, we've consistently reinvested back into the business by refreshing our fleet, supporting our frontline teams and building a stronger, deeper sales organization. Even though we're still early in our transition, the investments we've made are translating into a growing contract book, which is the driving top line growth in our Land business long term. So once again, we said it many times, everything we've done is with one focus in long term, continued profitable top line growth across this business and make it sustainable, so we will grow this business for years to come. So we look forward to talking to everybody come Q3. Thank you again for your attention, and we hope everybody has a good day. Operator, you can now end the call. Operator: Certainly. Thank you, Mr. Asplund, and thank you, Mr. Urban. And again, ladies and gentlemen, that concludes BrightView's earnings conference call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.
Operator: Good day, and welcome to the Bioventus First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to hand the call over to Dave Crawford, Vice President of Investor Relations. Please go ahead. David Crawford: Thanks, Andrea, and good morning, everyone, and thanks for joining us. It is my pleasure to welcome you to the Bioventus 2026 First Quarter Earnings Conference Call. With me this morning are Rob Claypoole, President and CEO; and Mark Singleton, Senior Vice President and CFO. Rob will provide an update on our 2026 priorities and first quarter highlights, and then Mark will review the first quarter results and discuss our 2026 financial guidance. We will finish the call with Q&A. A presentation for today's call is available on the Investors section of our website, bioventus.com. But before we begin, I would like to remind everyone that our remarks today contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the SEC, including Item 1A Risk Factors of the company's Form 10-K for the year ended December 31, 2025, as such factors may be updated from time to time in the company's other filings made with the SEC. You are cautioned not to place undue reliance upon any forward-looking statements, which may -- which speak only as of the date made. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include reference to certain financial measures that are not calculated in accordance with U.S. generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP or adjusted financial measures. Important disclosures about and definitions and reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investors section of our website at bioventus.com. And now I will turn the call over to Rob. Robert Claypoole: Thank you, Dave. Good morning, everyone, and thanks for joining our call today. Bioventus is off to a strong start to the year across our business as we successfully executed our plan, accelerated investment in our growth drivers and delivered another quarter of solid financial results. We continue to strengthen our commercial, operational and financial fundamentals across our company, while we help patients recover so they can live life to the fullest. For my remarks this morning, I would like to provide an update on our performance regarding the 3 priorities we outlined at the start of the year and highlight our first quarter performance. As a reminder, our 3 priorities for the year are: one, accelerate our long-term revenue growth with increased investment into our business; two, continue to increase earnings even as we significantly increase our investment into the business; and three, continue to strengthen our robust cash flow and enhance our capital allocation optionality. We are off to a good start and are progressing well across all 3 of these priorities. As a result, we are raising our full year guidance for adjusted EPS and cash from operations. Mark will provide more detail on that in a moment. Now let me expand on each priority, starting with revenue growth and acceleration of investments into our business. First quarter revenue growth of 7% was slightly ahead of our expectations as we delivered strong revenue performance across our core portfolio. These results were achieved through a combination of factors, including strong focus on growth with disciplined resource allocation, increasing awareness of the differentiated clinical and economic value we bring to our customers and effective commercial execution across geographies and channels. Regarding our investment into the business, our continued ability to deliver above-market growth from our core portfolio is generating significant operating profit for us to invest into our future growth drivers of PNS, PRP, Ultrasonics and our International segment to accelerate long-term growth. During the quarter, we increased investment across these 4 growth drivers, which included expansion of our commercial teams, stronger marketing to help raise awareness of our differentiated solutions and additional physician training programs. We also gained important data-driven insights across our growth drivers that will shape and accelerate our investments throughout the rest of the year. To provide you with some further context, let me share a few examples of the increased investments we are making in PNS as it will account for more than half of our planned investments this year. As a reminder, we possess a significant opportunity with our world-class PNS technology in a rapidly expanding market. To capitalize on the opportunity, we've started to expand the sales organization and add clinical resources to assist in pre-, intra- and postoperative patient and physician support. In addition, we're investing to support these teams with surgeon training and increased marketing to raise awareness. We also made the strategic decision to hire a dedicated general manager. I'm excited to have Megan Rosengarten join Bioventus as our General Manager for PNS. Megan brings a proven track record of launching and scaling new medical device businesses around novel technologies and has held senior leadership roles across multiple leading med tech companies. Bringing Megan on board at this early stage reflects our belief in the significant potential of our PNS business and our intention to scale the business aggressively. Turning to our second priority, increasing our earnings even as we invest in our future growth drivers. In the first quarter, we increased adjusted EBITDA by 24% and improved our adjusted EBITDA margin by well over 200 basis points. The increase in adjusted EBITDA, combined with our significant interest expense savings enabled us to generate adjusted EPS of $0.15, nearly double compared to the first quarter last year. This is a testament to our earnings power, which is generated from our durable above-market growth and our stable peer-leading gross margin. Our strong start to the year with our operating margin exceeding expectations provides us with greater flexibility to invest aggressively in opportunities we identify while delivering on our full year financial goal of increasing earnings. As we ramp up investment throughout the year, we may see some margin fluctuation from quarter-to-quarter, but our strong business model gives us the agility to invest significantly while holding our adjusted EBITDA margin around 20% for 2026. And with respect to our third priority, accelerating cash flow, we had a great start to the year following our very strong performance last year. Cash from operations increased $28 million compared to the first quarter last year and marked the largest -- our largest cash flow from operations in the first quarter since becoming a public company. Our strong cash flow gives us substantial capital deployment optionality. And as mentioned previously, at this time, we plan to continue to prioritize strengthening our balance sheet by using our free cash flow to further reduce debt. In conclusion, thanks to the solid execution of our team, we are off to a strong start, and we remain focused on building our momentum in the quarters ahead. We believe we have a powerful and differentiated combination of value drivers that sets Bioventus apart, and we are confident in our portfolio, our strategy and our investment approach as we continue our pursuit to become a $1 billion leading med tech company that delivers significant value for all of our stakeholders. Now I'll turn the call over to Mark. Mark Singleton: Thank you, Rob, and good morning, everyone. Let me begin by saying that we had a strong first quarter, and we are well positioned to increase investment in our future growth while continuing to strengthen our balance sheet with robust cash flow. I'm confident that with continued focus and disciplined execution, we will advance our business and create significant shareholder value. Turning to our headline results for the first quarter. Revenue of $132 million increased 7% compared to the prior year period, driven by solid performance across all 3 of our businesses. Adjusted EBITDA of $24 million was nearly $5 million higher than the prior year and represented an increase of 24%. Foreign currency exchange rates had a favorable impact for the quarter as we benefited by almost $2 million due to the impact from FX rate movements compared to the first quarter of last year. Adjusted EBITDA margin of 18% expanded 260 basis points compared to the first quarter last year. This was the result of higher revenue and improved gross margin, partially offset by the increase in investment that Rob highlighted. And adjusted earnings were $0.15 per diluted share for the quarter, nearly double compared to the $0.08 in the prior year period. Now let me provide some additional commentary on our quarterly revenue. In global Pain Treatments, we delivered revenue growth of 8% compared to the prior year. As Rob mentioned, our revenue growth slightly exceeded our expectations, which was driven by a favorable rebate adjustment in HA. Operationally, we experienced a slight increase in volume growth in the prior year as growth was impacted by a reduction in inventory levels as distributors, as expected. Next, Global Surgical Solutions revenue grew by 6% as we saw solid growth across the portfolio. We plan to continue to invest in marketing across the business to raise awareness through medical education to train surgeons earlier in their careers, sales force expansion in targeted areas and highlight our distinct clinical and economic value proposition. Shifting to Global Restorative Therapies. Revenue grew 5% compared to the prior year. Our EXOGEN team delivered another strong quarter, and we continue to expect revenue growth in the mid-single digits for the full year. Finally, as one of our four growth drivers, we expect to build on our International segment's double-digit growth rate from last year. International revenue growth increased 17% compared to the prior year, while on a constant currency basis, growth was 11%. We saw improved growth across Ultrasonics in Europe as we began increasing awareness of our innovative technology and opened up another source of growth for Ultrasonics. We believe our positive momentum can continue given our increased strategic focus, talent additions and improved commercial execution. Moving down the income statement. Adjusted gross margin of 76% was 110 basis points higher than the prior year period due to the favorable rebate adjustment as well as benefits from a refund of prior year tariffs. Adjusted total operating expenses and R&D expenses increased by $5 million as we increased investment to accelerate future revenue growth. Now for additional details on our bottom line financial metrics. Adjusted operating income of $20 million increased by nearly $3 million compared to the prior year. Adjusted net income of $13 million increased $7 million compared to the prior year period. This increase is the result of revenue growth, increased gross margin and lower interest expense. Now shifting down to the balance sheet and cash flow statement. Cash flow from operations totaled $9 million, representing more than a $28 million increase compared to the first quarter last year. The stronger cash flow was driven by higher profitability, lower interest expense and favorable working capital. We ended the quarter with $36 million in cash on hand and $272 million in outstanding debt. During the quarter, debt decreased $22 million as we continue to prioritize repaying the borrowing on our term loan. We are confident our projected strong cash flow and increase in adjusted EBITDA will drive our net leverage ratio below 2 by the end of the second quarter of 2026, which is ahead of schedule. We believe this reduction in our net leverage will drive additional interest expense savings and enable greater optionality for future capital deployment. Finally, as Rob highlighted, we are increasing our adjusted EPS and cash from operations guidance. We now expect adjusted earnings per share to range between $0.75 to $0.79. This represents a $0.02 increase compared to our prior year guidance of $0.73 to $0.77. For the year, we now expect cash from operations to range between $84 million and $89 million. This represents a $2 million increase compared to our prior year guidance. We are pleased to reaffirm our 2026 revenue guidance we provided on March 5 of $600 million to $610 million. In addition, we expect year-over-year growth in revenue, adjusted EBITDA and adjusted earnings per share to accelerate from the first half of 2026 to the second half of 2026 as we leverage the expected increase in revenue from our investments. Our guidance does not assume additional impact of U.S. dollar fluctuation for the year. In closing, we are off to a strong start to the year and plan to continue investing in our 4 growth drivers to accelerate revenue growth, deliver increased profitability and strengthened earnings power and generate significant free cash flow. We believe this is a powerful combination that will help us build a leading med tech company and create increased value for our shareholders. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Larry Solow, CJS Securities. Lawrence Solow: I guess just first on -- just clarification on the rebate. So I assume you guys expected this, but you didn't know the timing. Is that why you haven't changed your revenue guidance? And does this just all flow to -- is this like a net that just all kind of flows to the bottom line? Robert Claypoole: Hey Larry, this is Rob. Yes. So as mentioned, we had some favorable rebate favorability and finished slightly ahead of our expectations. And we called that out as it related to a one-time process change by one of our commercial payer partners, and we don't anticipate that a similar level of variability moving forward. So we thought it'd be best to point it out. Outside of this, delivered results consistent with our planning assumptions and expect our revenue growth to accelerate in the second half of the year as we keep executing our plan. Regarding the revenue guidance, yes, we feel really good about the first quarter and where we're headed for the year. And we're only a quarter into the year, which I mentioned because we normally wouldn't raise guidance this early. From a revenue standpoint, this is a key year for us to invest in and activate our growth drivers, which we expect to accelerate throughout the year, especially in the back half. So we're making the investments, executing our plan and analyzing our leading growth metrics very diligently, and we'll keep you updated on our progress with that over the coming quarters. But in the meantime, with cash and EPS, they're clearly ahead of schedule, and so we went ahead and raised our guidance on both of those. So overall, off to a good start, and we'll update you again next quarter on growth, cash and the profit expectations there. Lawrence Solow: No, no, absolutely. And just anecdotally, I don't know if you called out, but obviously, early days for both the PRP and the TalisMann, but any just anecdotal update there? I don't think you gave any sales numbers and they're probably modest. But just how the launches are going, how things are being received? Any thoughts there? Robert Claypoole: Yes. Thanks. Yes, we're encouraged by what we saw in the first quarter. We're, again, investing in the business and expanding, and what the first quarter entailed further validated both the market opportunity and the value of our differentiated technology. I think with the 2 of them combined, equally important is we're learning a lot about how to manage -- maximize our success with the business over the coming years. And that's exactly what this year is about, investing in and activating all 4 of our growth drivers and then diligently analyzing the performance every week, month, quarter to shape our future decisions and investments to maximize that long-term success. So I -- with both PNS, PRP and the others, I expect our learnings and our investments and our revenue growth to continue ramping up throughout the rest of the year. And just with respect to those 2 in particular, I'll also mention that we still expect what we've mentioned in the past that combined PRP and PNS will contribute 200 basis points of growth this year. So off to a good start with those. Operator: The next question comes from Chase Knickerbocker of Craig-Hallum. Chase Knickerbocker: I just maybe wanted to start on quantifying a couple of things within pain first. So maybe, Mark, if you could just quantify for us what the impact of those rebates were in pain on a year-over-year basis, if that's easiest. And then just as far as that negative impact on volumes from inventory, if you could just quantify those 2 dynamics? And then just following up on an earlier question, any sort of thoughts on what the contribution was from the new launches in Q1, just as we think about all the different moving pieces within pain? Mark Singleton: Thanks, Chase. Appreciate that. Yes. When we look at break down the pain question and we look at it, as I said in the script, from an operational perspective, really kind of focus on volume. Our volumes were slightly positive from an overall global perspective. And so I think that's easiest to talk about with that. And when you look at revenue growth, it's slightly positive overall in pain without the rebate benefit. And so overall, it's really consistent with what we talked about in our fourth quarter remarks, I'd say, without the rebate from a Bioventus perspective as well as the Pain Treatment when we look at our 2 headwinds that we had in the first quarter being 1 less selling day and the lower distributor inventory, I think that those are both worth a couple of points of growth within the HA business. And so if you add those back and kind of normalize without those headwinds, our growth would have been in the mid-single digits from an operational perspective. We get into the new products, the PRP and the PNS, just like Rob had talked about in the earlier question, I think Larry quantified it that way is we obviously, PNS already had some growth in our baseline in 2025. So we're continuing to grow there and then getting growth in our PRP business. But our expectations on that are really that, that starts to accelerate throughout the year as the investment comes in and we get more and more momentum with that in the field. So right now, it's playing out as we expected. Chase Knickerbocker: Got it. And then just on Surgical, you guys had kind of laid out your expectations by product line business segment on the previous quarterly call. That business is tracking on a year-over-year basis, a little bit below kind of what we kind of laid out expectations for '26. Can you just kind of talk us through what the kind of movements within that business were in the quarter, kind of what went better and what worse than expected? Or is that just normal kind of seasonality that you were expecting in Q1? Robert Claypoole: Yes. Chase, this is Rob. Our plan for Surgical entailed slower growth for the first quarter and then an increase in our growth rate sequentially throughout the year. And we believe we'll get to double-digit growth in the second half and even for 2026 overall as we gain additional share in BGS and see the impact from the investments we're making across Ultrasonics to train surgeons, expand our sales force and enhance awareness of our differentiated technology and clinical and economic value. So looking at a strong year for Surgical and expect that ramp up in the second half. Chase Knickerbocker: And just last for me, specifically on Ultrasonics. I mean, any specifics you can give us on the quarter just as far as capital growth versus disposables, just the kind of current health of that business would be helpful? Robert Claypoole: Yes. Well, overall, we remain very positive about Ultrasonics. We believe it's going to be a major growth driver for us. As you know, it's a big billion-dollar market. We believe we can make our technology standard of care given the exceptional precision and control it enables, time it saves and [ many ] patient benefits it delivers. And with respect to capital and disposables in any given quarter, both of those are key to the number with the majority of the revenue coming from the disposable side, and we expect those to accelerate throughout the year, as I mentioned, for Surgical overall and to get to double-digit growth for the full year for Ultrasonics as we ramp up our investments and execute our plan. Operator: The next question comes from Mike Petusky of Barrington Research. Michael Petusky: So Rob, I guess just around Ultrasonics, obviously, the lifeblood of getting that business to grow is education and training for surgeons. Can you give any detail around what you guys may be doing differently there in '26 and going forward versus previous just in terms of the effort and maybe urgency that you're trying to bring to bringing greater awareness to surgeons in terms of your technology? Robert Claypoole: Yes. Thanks, Mike. It's a great question. And like you said, it's -- when we have the technology that we have and the opportunity to become a standard of care, training surgeons is critical to that. So there's a few things. One is, as part of our strategic plan that we put in place, a much heavier focus on emphasis on and investment in the training of surgeons going forward. That includes a keen understanding of which surgeons out there we want to reach and when we want to train them in their careers in order to maximize the success of the business overall. So one, it's just a core part of our Surgical plan going forward and of our investment profile for the business. The second is -- so we've built up our medical affairs organization over the past several months, and that includes bringing on a new leader over medical education, someone who's led medical education for a number of other leading med tech companies. And he's building the team around him in that area. So it's not just from a focus standpoint and from an investment standpoint, but it's also bringing new talent on board in order to significantly ramp up the content quality, the folks that we have helping us with that training from outside, including KOLs and just the frequency of that training throughout the rest of the year. And we expect that to continue to ramp in 2027 as well. So I appreciate the question because it is absolutely a big focus for us in terms of driving the long-term growth and success of this business. Michael Petusky: Okay. And then if I could sort of do a follow-up, I guess, on key growth drivers over time and even including this year. I'm just curious, at what point and in what way might you guys start to disclose in terms of some kind of quantification, the PNS business, the progress you're making there, PRP. Like given that you have quantified, hey, this is going to add 200 basis points of growth in '26, to me, it feels like at some point and in some way, there'll come a time to start talking about this either in terms of incremental placements or revenue growth or percentage growth. Can you just talk about how you think about sort of ultimately disclosing as the year goes on? Robert Claypoole: Yes. Thanks. Another great question. So we're very interested in that as well. As we've mentioned before, we're investing and executing our plan with our growth drivers, and I'll keep emphasizing, really analyzing the data and learning a lot regarding commercial activity and the customer behavior about this and having dynamic real-time discussions across our team on what's working well and where we can do better and leveraging our small size and big ambition to make adjustments swiftly and decisively. So what we've said before is that we want to get a few quarters into this year. We're only 1 quarter into it to understand both that commercial activity and the customer behavior more or better so that we can then come out and have the kind of conversation that you're referring to there, getting more specific about the numbers behind each business and even more importantly, communicating what we expect out of those over the next 3 years or so. So as I've mentioned in other forums, Mike, I expect us to be able to have that conversation with you by the end of this year. Operator: The next question comes from Caitlin Roberts of Canaccord. Unknown Analyst: It's Michelle on for Caitlin. Congrats on a strong start to the year. First one from us is how much of the anticipated $13 million investment in growth areas that you called out on your last earnings call, have you allocated already? And maybe can you provide further breakdown or color on that spend? Mark Singleton: Caitlin, this is Mark. So we look at our $13 million of investments, really, say, 25% through the year right now and say that we've been invested slightly less than that. So when we look at it, we're really going to be accelerating the investment over the next 3 quarters. So if you look at our operating expense in the first quarter, we expect that to accelerate into second quarter and the rest of the year. So we'll see a step-up in our expense for the remainder part of the year after first quarter. The investments for that, as we've talked about in the first -- fourth quarter call and Rob referred to it a little bit today, a significant amount of that is in PNS, which is one of our main growth drivers that we're focused on and discussed a lot today. We look at what we're investing inside of that, it's bringing on and ramping up our sales force, bringing on our clinical expertise to make sure that we have the clinical resources to help us drive the demand and help our customers and physicians in that. And then just also continued resources that support that overall in sales reps and then also medical education is a big investment that we're making within that business similar to what we talked about in Ultrasonics. That also is an investment that we're making within the $13 million. So really, most all of those investments are targeted around the growth drivers, but a big portion of that is PNS and then put into Ultrasonics and PRP as well, but all around the same thing, sales resources, clinicians and medical education would be the 3 main areas. Unknown Analyst: Great. And then maybe if I can just sneak in another quick one on PNS. Have you moved out of the pilot launch? And how should we think about the current user mix? Are they primarily existing HA users? And then maybe can you talk about any early initiatives Megan has helped drive in PNS? Robert Claypoole: Michelle, it's Rob. Yes. So I think you may have mixed PNS and PRP there. So let me talk about both of them. So for PNS and PRP, we've moved out of the pilot stage and now we're ramping up. Different dynamics there. For PRP, we're leveraging our existing commercial team for HA, whereas for PNS, we're going to be building that team over the coming quarters for quite some time. So while they're both out of pilot launch, different dynamics in terms of the investment that we're putting into the business for both. And yes, as I mentioned, we're really encouraged by what we're seeing for both in Q1. We're learning a lot. And more than anything, it's validating the market opportunity for both and the strong value that our differentiated technology brings to the space. So very excited about both PNS and PRP going forward. Was there a follow-on question to that? Unknown Analyst: Yes. Yes. Can you maybe talk about any early initiatives that Megan plans to implement or has implemented so far in PNS? Robert Claypoole: Yes, sure. Thanks. Yes. So it's, again, really excited to have Megan on board. She has a track record of -- with promising differentiated technology of scaling it into big businesses. So really excited to have her on board. Really, the focus right now is on scaling the business. So it's -- again, we have this fantastic technology, a market that's growing very fast. We're getting high interest from the customers that we're going to. And now we're building the organization and our commercial efforts. Mark alluded to a number of those things. This is everything from building up the sales team to the clinical resources around that team to the medical education that we're putting in place, to the evidence that we're putting in place. And we had a good plan in place when Megan came on board, and she's doing a fantastic job executing on that plan, leading the team to execute on that plan to scale the business for the future. So again, while it's early, it's a very promising growth driver for us, and we're encouraged what we saw in the first quarter, and we're really looking forward to the path ahead. Operator: This concludes our question-and-answer session. I would like to turn the call back over to Rob Claypoole for any closing remarks. Robert Claypoole: Thank you. Thanks, everyone, for your interest in Bioventus. Once again, we delivered a solid performance throughout our business in the first quarter, and we are confident in our ability to build on our momentum to deliver above-market revenue growth, improve earnings and accelerate our cash flow to create significant shareholder value. Thanks for joining our call. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Good afternoon and welcome to Occidental Petroleum Corporation's First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, we will now open the call for questions. To ask a question, you may press star then 1 on your touch tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Unknown Speaker, Vice President of Investor Relations. Please go ahead. Unknown Speaker: Thank you for participating in Occidental Petroleum Corporation's first quarter 2026 earnings conference call. On the call with us today are Vicki Hollub, President and Chief Executive Officer; Sunil Mathew, Senior Vice President and Chief Financial Officer; Richard Jackson, Senior Vice President and Chief Operating Officer; and Kenneth Dillon, Senior Vice President and President, International Oil and Gas Operations. This afternoon, we will refer to slides available on the investor section of our website. The presentation includes a cautionary statement on Slide 2 regarding forward-looking statements that will be made on the call this afternoon. We will also reference a few non-GAAP financial measures today. Reconciliations to the nearest corresponding GAAP measure can be found in the schedules to our earnings release and on our website. I will now turn the call over to Vicki. Vicki Hollub: Thank you, and good afternoon, everyone. I want to take a moment to acknowledge the ongoing challenges and uncertainty in the Middle East. First and foremost, I want to thank our frontline employees in the region for their professionalism and focus under very difficult conditions. Their safety remains our top priority, and, thankfully, our teams continue to operate safely with no adverse impacts to our personnel. I also want to recognize the continued support of our partners and host governments in the UAE, Oman, and Qatar. Their collaboration and shared focus on safety and asset integrity remain critical as conditions continue to evolve. Recent developments have driven sharp price movements and increased volatility across global markets. These dynamics underscore how quickly supply expectations and trade flows can change, and why reliability, resilience, and financial strength matter. While volatility can influence near-term price, long-term value is created by companies that execute consistently across cycles while protecting their people and assets. During this period, Occidental Petroleum Corporation executed as we planned. More importantly, we demonstrated that the strategy we have built over more than a decade can perform well through disruption. Over the past ten years, we have fundamentally transformed Occidental Petroleum Corporation's portfolio to emphasize quality, balance, and durability. From the beginning, we operated with clear conviction that the world will continue to need oil for decades to come and that the Permian would play a critical role in meeting that demand. That conviction shaped a strategy grounded in subsurface capability and operational excellence to lower full-cycle cost across the portfolio. As we sharpened that focus, we exited noncore assets and redirected capital to competitive positions where our technical capabilities could create the greatest value. We invested consistently in our people, knowing that subsurface expertise and disciplined execution would be key differentiators for Occidental Petroleum Corporation over the long term. As part of that deliberate work, we shifted to a substantially more domestic portfolio. Today, 83% of our current production and 88% of our total oil and gas resources are in the United States, concentrating our operations in a more stable operating environment. Recent global events reinforce the importance of those decisions. Through this transformation, we built both scale and depth. Since 2015, we more than doubled production, going from 150 thousand BOE per day to over 1.4 million BOE per day. We also more than doubled our reserves and resources, increasing reserves from 2.2 billion BOE to 4.6 billion BOE and total resources from 8 billion BOE to approximately 16.5 billion BOE. These resources are high quality and low cost, with a runway of more than 30 years. At the same time, we diversified and balanced our mix of assets in the portfolio, with roughly half of our resources in short-cycle, unconventional assets and the other half anchored in lower-decline assets across EOR, the Gulf Of America, Oman, Abu Dhabi, and Algeria. This balance positions us to reduce our base decline to below 20% by the end of the decade and support lower sustaining capital over time. Subsurface and technical excellence have also been core to our success. Over the past decade, we have invested in data acquisition, reservoir characterization, and development design to build a superior understanding of the subsurface. This enables us to optimize development plans by basin, section, and formation rather than rely on a one-size-fits-all approach. Our teams have delivered, and the data backs it up. Quarter after quarter, we have achieved industry-leading unconventional well performance across every basin in which we operate. Since 2016, we have maintained a reserve replacement ratio above 100%. This capability continues to expand and improve our resource base, unlocking new opportunities across EOR, the Gulf Of America, and our international assets. Looking ahead, this capability will only get stronger as we combine our data and technical foundation with advanced analytics and AI to further optimize development and performance. Today, with the portfolio, resource base, and capabilities we have built, Occidental Petroleum Corporation is positioned to deliver even greater value for decades to come. In the first quarter of this year, we remained disciplined in our capital allocation, maintaining a steady development program aligned with our 2026 plan. And we continued to prioritize balance sheet strength to preserve flexibility and support sustainable shareholder returns. Our first quarter results reflect that progress. Now I want to take a minute to reflect on the leadership succession plan we announced last week. As I am sure you saw, I will be retiring as President and CEO of Occidental Petroleum Corporation on June 1, and with the approval of the Board of Directors, Richard Jackson will succeed me as President and CEO. I will continue to serve on Occidental Petroleum Corporation's Board, and Richard will join the Board as well on June 1. I have worked with Richard for almost 20 years and have always been impressed with his drive for excellence, integrity, and ethics. He brings deep experience across our business and a strong track record of execution, making him a great choice for the next phase of our strategy, which includes the development of our extensive portfolio. The Board and I have full confidence in his leadership as he carries forward the strong performance and foundation we have built at Occidental Petroleum Corporation. As Occidental Petroleum Corporation enters this next phase, I also have great confidence in our innovative leadership team and our employees who will continue to excel at what we do best, and that is oil and gas development and operations. This is our forte. Occidental Petroleum Corporation's future is in excellent hands. With that, I will now turn the call over to Richard to discuss our forward trajectory in more detail. Richard Jackson: Thank you, Vicki. I appreciate being able to speak with you all today, and I am grateful for the opportunity in front of us at Occidental Petroleum Corporation. It is a privilege to be part of our team, and I am looking forward to my new role to help support and drive value delivery. I want to start by acknowledging the strong foundation that Vicki's leadership has built over the last decade. It has been a remarkable transformation of resources and capability across Occidental Petroleum Corporation. Her vision of transformation combined with a strong drive to deliver has positioned us where we are today. More personally, all of us at Occidental Petroleum Corporation recognize and appreciate the impact Vicki has had on our team and on each of us individually. Her passion to develop our team and her people-first approach is something that will endure and shape how we grow together in the future. As we look forward, our focus now is on execution and delivery. As Vicki noted, we have a 30-plus year resource base that is high quality, right-sized, and balanced. We believe each of these are important to help drive our results across any cycle. We are operating from a well-understood resource position with significant value upside and are now set for organic development to achieve our objectives. Our focus starts with continuing to improve our advantaged resource base through sustained improvements in new well performance and base production. Today, we are a leader in U.S. unconventional well performance where much of our future resource development will occur. In 2025, we were top tier in every basin where we operate, delivering at least 10% better new well performance than industry average on a six-month oil-per-lateral-foot basis. We continue to see opportunity for further new well performance improvement across our global assets. Base production is also a key contributor to our results, where we have improved uptime in all operating areas. I want to give special recognition to our Gulf Of America team whose focus on maintenance and platform reliability has led to strong base production performance, with a record topside uptime of 98% in Q1. Beyond well performance, we will continue to improve our resources through advanced recovery across four differentiated capabilities: U.S. unconventional secondary bench development; expansion of EOR across the portfolio; low-cost development and waterflood projects in the Gulf Of America; and a focused exploration strategy in both our Gulf Of America and our international operating areas. These are all areas where our subsurface capabilities and approach are delivering results and where we have significant opportunities to unlock more value. Another key focus will be continuing to deliver cost efficiencies. Since 2023, we have delivered $2 billion in annual cost savings through operational efficiencies. And in 2026, we are on track for an additional $500 million in oil and gas cost savings across new well and facility costs, operating costs, and transportation. Looking ahead in the near term, we see a clear path to grow free cash flow and value at any price, with significant upside opportunities. Our value improvement starts with executing from a strong balance sheet, continuing to organically improve our resources, and further driving cost efficiencies. 2026 is an important first step as we are targeting more than $1.2 billion of incremental free cash flow relative to 2025 before the positive impacts of higher prices. As a next step, we are developing plans to deliver significant additional cash flow by 2029 through continued oil and gas cost efficiency and lower decline rates, improvements from midstream and LCV, and lower corporate costs driven from lower debt interest and workforce efficiency. Our forward plan gives us a clear pathway to grow value through any cycle. At lower prices, we will be able to sustain production and grow the dividend. At higher prices, we have the opportunity to further accelerate value by adding measured reinvestment and share repurchases aligned with our disciplined cash flow priorities. We will also remain leveraged to higher oil prices, enabling us to generate substantial incremental cash during these times. Simply put, advantaged resources, lower cost, and lower decline rates drive lower sustaining capital and durable free cash flow to grow value in any cycle. Now let me turn to our first quarter results and progress. In our Middle East operations, our core focus has been on the safety of our people and operations. We want to thank our teams and partners as we continue to work through the events in the region. Sunil will talk through these impacts as he covers guidance for the second quarter and total year. We exceeded the high end of guidance in both our Oil & Gas and Midstream & Marketing segments in the first quarter. We delivered 1.426 million BOE per day production, a 21 thousand BOE per day beat against the midpoint of guidance, largely driven by strong new well performance and uptime across our domestic portfolio. We also made strong progress on our U.S. onshore oil and gas cost savings this quarter, where we are delivering top-tier capital efficiency. We are building on the successful improvements we have made over the last few years, and we are on track to deliver approximately 7% new well cost improvement in our 2026 plan. Additionally, last month, we announced the Bandit discovery in the Gulf Of America. This is the third Gulf Of America exploration discovery we have had in the last three years, highlighting our subsurface capability and the success of our infrastructure-adjacent, capital-efficient exploration approach. I also want to provide an update on Stratos. The construction of Phase 2 is now complete. This is the second 250 thousand tons per year of capacity and includes the final two air contactor trains and updated pellet reactors based on the new design. We also completed commissioning of the Phase 1 unit operations, which includes operating air contactors and the central processing facility. During commissioning, the technology and process unit operations performed as expected. After these Phase 1 commissioning activities, we identified an issue related to non-process components of the facility unrelated to the technology. We are currently evaluating the repair timeline and assessing the impact on the operation schedule and will provide an update next quarter. While still early in our assessment for repair, we do not expect this to impact capital range for the year. I want to close again by thanking Vicki for her leadership and commitment to Occidental Petroleum Corporation. Many of us have grown and developed together over the years, and the team and capability we have built is one of the strengths I am most proud to be a part of. We have made important progress, but we also recognize there is more to do. Our focus will be on consistent execution of our priorities to deliver enhanced, durable value for our shareholders, employees, and partners. I will now turn the call over to Sunil to review the financials. Sunil Mathew: Thank you, Richard. In the first quarter of 2026, we generated adjusted earnings of $1.06 per diluted share, and reported earnings of $3.13 per diluted share. The difference was largely driven by the gain on the OxyChem sale, partially offset by the impact of derivative losses and early debt retirement premiums. Strong operational execution along with higher commodity prices enabled us to generate approximately $1.7 billion of free cash flow before working capital in the first quarter, and we exited the quarter with more than $3.8 billion of unrestricted cash. Even with oil prices roughly in line with 2025, we generated approximately 52% higher free cash flow from continuing operations, demonstrating our continued focus on cost and operational efficiency. We had higher first-quarter working capital use driven primarily by higher receivables associated with stronger oil prices in March. This was in addition to normal first-quarter items, including semiannual interest payments, annual property taxes, and compensation plan payments. As Vicki and Richard highlighted, our Oil & Gas and Midstream segments delivered exceptional results and exceeded our original expectations. Our production averaged 1.43 million BOE per day in the quarter, exceeding the high end of guidance. Strong base and new well performance in the Permian and Rockies, along with strong uptime in the Gulf Of America, drove domestic outperformance, exceeding the midpoint of guidance by 33 thousand BOE per day. This was partially offset by lower international production due to Middle East disruptions and PSC impacts due to higher oil prices. We also continue to deliver on our cost efficiency targets. Domestic lease operating expense outperformed at $7.85 per BOE, a 5% improvement compared to our first quarter guidance, due to maintenance schedule optimization in the Gulf Of America and higher production. Our Midstream segment outperformed in the first quarter, generating positive earnings on an adjusted basis of approximately $400 million above the midpoint of guidance. This was driven by gas marketing optimization and higher sulfur prices at Alosund, partially offset by lower sulfur sales. We also benefited from higher crude marketing margins due to timing impacts of cargo sales and fluctuations in commodity prices, which are offset in mark-to-market. While the duration of these impacts remains uncertain, our performance highlights the ability of our Midstream business to capture value during periods of volatility. We have continued to make significant progress on our deleveraging. We reduced principal debt below the $14.3 billion level announced on our last call, and today, our principal debt stands at $13.3 billion. This brings a go-forward run rate on interest payments to $845 million per year, which is approximately $550 million lower than our interest payment in 2025. This progress reflects the strength and durability of our free cash flow and our continued commitment to disciplined capital allocation. Our near-term cash flow priority is to reduce principal debt to $10 billion. Reaching this milestone will further strengthen the balance sheet and enhance our financial flexibility across cycles. As discussed on our fourth quarter call, near-term debt maturities remain low, with $450 million due through 2029. This provides meaningful support through periods of market volatility. In the current environment, higher oil prices are generating incremental cash flow that continues to support this deleveraging path. After we achieve the $10 billion principal debt milestone, we will reassess our cash flow priorities based on the macro environment, including the appropriate balance between building cash on the balance sheet ahead of preferred equity redemption in August 2029, additional principal debt reduction, and opportunistic share repurchases. Any increase in reinvestment would be driven by clear macro conditions and supported by continued cost and operating efficiency. Until these conditions are met, we intend to remain disciplined and balanced in how we deploy incremental cash flow. We are well positioned to increase reinvestment from a highly advantaged resource base at the appropriate time. Let me briefly comment on hedging. We have not historically been active in hedging as we believe we create shareholder value over the long term by maintaining exposure to commodity prices. That said, we have selectively hedged under specific circumstances. In February, prior to the conflict escalation in the Middle East, we put in place a modest amount of oil hedges using costless collars. At that time, we saw increased downside oil price risk and an opportunity to take measured action to preserve operational momentum and support our 2026 capital plan with a steady development program and without using the balance sheet. We hedged 100 thousand barrels of oil per day from March through December 2026 with a floor of $55 WTI and a volume-weighted average ceiling of approximately $76 WTI. This was primarily an operational decision and not a change in our hedging strategy. As volatility increased and prices moved higher, we stopped adding new hedges and do not intend to do more. Looking ahead to the second quarter, we expect performance to remain strong, reflecting disciplined execution and durable efficiency gains across our domestic portfolio. Our forward outlook incorporates a few discrete impacts driven primarily by two factors. First, in the Middle East, modest operational constraints at Alosan are expected to impact volumes. These began in mid-March and are anticipated to normalize before the end of the second quarter. In addition, higher prices under PSC terms will result in lower net production. Second, we executed transactions to further optimize our EOR portfolio, increasing working interest in our core operated floods while divesting scattered noncore fields and associated facilities. While this lowers our EOR production modestly, these actions are free cash flow accretive, shifting the portfolio toward higher-margin, oilier production and meaningfully lower operating costs. Overall, this improves both the quality and durability of our EOR asset base. Strong U.S. onshore execution is expected to partially offset the impact of our EOR portfolio optimization. In the Permian, unconventional production is expected to increase in the second quarter, supported by higher activity and resilient base performance. In the Rockies, second quarter volumes are expected to be roughly flat excluding prior-period adjustments. In the Gulf Of America, second quarter volumes are expected to decline modestly, reflecting planned facility maintenance and the beginning of tropical weather season. As a result of the Middle East disruptions and strategic EOR actions, we are adjusting the midpoint of full-year production guidance to 1.44 million BOE per day. We are maintaining our previous guidance for domestic lease operating expense, as increasing CO2 cost pressure related to higher oil prices is offset by the benefits of the EOR optimization transactions. Turning to Midstream, we expect earnings to remain strong in the second quarter, driven by gas marketing optimization opportunities, given the wide Waha-to-Gulf Coast natural gas spread seen quarter to date. Our guidance assumes impacts to sulfur sales in the quarter due to disruption in logistics from the ongoing Middle East conflict. We expect sales to normalize in the second half of the year, recognizing conditions in the region can change quickly. Given strong performance year to date, we are raising the midpoint of full-year Midstream guidance to $1.1 billion, an increase of approximately $800 million from the full-year guidance provided on our last call. We continue to expect the Waha-to-Gulf Coast spread to narrow later this year as additional pipeline capacity comes online, and we believe we remain well positioned to capture marketing optimization opportunities as they emerge. Capital spending in the first quarter was in line with our 2026 plan, with activity weighted toward the first half of the year. We are maintaining our full-year capital guidance range of $5.5 billion to $5.9 billion, with second quarter capital expected to be higher than the first quarter. Even in a highly dynamic macro environment, our outlook remains strong. Our short-cycle U.S. onshore portfolio continues to be a key competitive advantage, with low breakevens enabling efficient, stable activity while providing significant capital flexibility in extreme price scenarios. We complement our U.S. unconventional onshore investments with selective lower-decline, mid-cycle investments that reduce sustaining capital and strengthen cash flow durability across price environments. Together with continued balance sheet progress and disciplined capital allocation, we are well positioned for the future, delivering strong, consistent operational results, providing resilience through volatility, and the ability to opportunistically return capital. I will now turn the call back to Vicki. Vicki Hollub: Thank you, Sunil. Since becoming CEO in 2016, I have worked with our Board and management team to operate with integrity and discipline, and we have invested in technical capabilities that differentiate Occidental Petroleum Corporation. And we built a portfolio designed to endure. The progress we have made reflects that focus and, above all, the expertise and commitment of our people. I again want to thank our leadership team and our employees throughout the company for their performance over the past ten years. They consistently exceeded my expectations with incredible passion, perseverance, and loyalty. I also want to thank our Board for their strong guidance and support. In addition, I want our owners to know that I very much appreciated your trust and long-term perspective. I found our one-on-one meetings to be very valuable and informative. It has been a privilege to spend my 45-year career at Occidental Petroleum Corporation and to lead this company alongside such talented and dedicated employees. With that, we will be happy to take your questions. As well, Unknown Speaker and Kenneth Dillon will join us today for the Q&A. We will now open the call for questions. Operator: To ask a question, you may press star then 1 on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Please limit questions to one primary question and one follow-up. If you have further questions, you may reenter the question queue. At this time, we will pause momentarily to assemble our roster. The first question today comes from Doug Leggate with Wolfe Research. Please go ahead. Doug Leggate: Thanks. Good afternoon, I think it is, everybody. Vicki, it has been fun watching you reposition the company. I am sure you are not going to miss us, but we are all going to miss you. So congratulations, and good luck to you. Now, Richard, you are taking the seat, obviously, and I think the obvious question to ask is, if anything, how do you see things for Occidental Petroleum Corporation strategically? I do not know if you are able to give your top priorities, but as CEO what does the strategy look like under Richard Jackson's tenure? I have a follow-up, please. Richard Jackson: Great to be with you, Doug. Appreciate the question. I will start with a couple of perspectives. Near term, there are several things that we are very focused on in terms of delivery, and I think that is a key thing that I will continue to repeat. First, execution of our current program—2026 as we go into 2027—is critical. We came out this year very proud of the program that we put together; I think it really highlights the efficiency that we have in the program and the quality of the resources that we have been talking about. So we certainly want to spend time with our teams making sure that we have those put together with our partners as we extend those opportunities to our global operations. So focusing on near-term execution is critical. The second piece maybe gets a bit more strategic. One thing we have been working on—and we mentioned it in our script—is free cash flow improvement near term. This year was a big step with the free cash flow that we identified, but over the next several years, we feel like there are some very clear drivers that, at any price, will significantly improve our cash flow outlook: continuing cost efficiency; our lower decline of production that is coming forward—having the opportunity this year to invest in things like the Gulf waterfloods and even EOR is significantly contributing to lower decline as we go over the next few years; improvements in our Midstream and LCV; and, of course, debt interest as we continue to make great progress on deleveraging. Being very clear on that free cash flow plan is important, and then that turns into a value plan. For us, it is simple: drive sustainable cash flow up—both free cash flow and cash from operations—and drive our sustaining capital down through lower cost and lower decline. When we do that, we are built to generate significant cash flow at any price. At lower prices, we can continue to grow our dividend; at higher prices, we get the opportunity to further grow our dividend, reinvest in this high-quality resource base, and look at opportunistic share repurchases. We want to be aligned on those plans, articulate the clear drivers, and engage to help our investors understand when and how these improvements show up. The last thing I will say is our people. We have great people, and these are opportunities to work on growth, succession planning, and how we continue to develop. We have been doing quite a bit of work on workforce—whether that is technologies like AI or relooking at our processes and priorities—to make sure we are focused on the delivery I am describing. Those are the big ones that we will be focused on initially. We look forward to delivering in the near term as well. Doug Leggate: Well, congratulations to you as well, Richard. It has been fun watching you evolve as well. My follow-up, if you do not mind: I am looking at Slide 20. Sunil, you talked about getting to the $10 billion principal debt milestone. Obviously, your net debt is sitting a little over $11 billion, at least it was before you paid down the May bonds. But the next line item on Slide 20 says ongoing net debt reduction. I really want to understand what that means. Are you prepared to take this balance sheet to a level that essentially prepositions to redeem the prefs when they come due? That would essentially mean zero net debt. What are you signaling? Thank you. Sunil Mathew: Hi, Doug. Just to put things in context, let me first walk through the progress we have made with respect to deleveraging in the last six months. At the end of Q3 last year, our principal debt was approximately $20.8 billion, and since December, we have paid down $7.5 billion. Today, principal debt is $13.3 billion, which is below the target we set in Q4 last year of $14.3 billion. We want to further strengthen our balance sheet, so near-term focus in terms of cash flow priority is to reduce principal debt to $10 billion. Once we get to the $10 billion of principal debt, we will reassess based on the macro, and we have multiple options. One is build cash on the balance sheet to redeem the preferred in August 2029, when we can redeem the preferred without the $4 per share return of capital trigger. Like you mentioned, that is the option of reducing net debt and being ready to redeem the preferred in August 2029. The other option is reduce principal debt beyond $10 billion. And the third is opportunistic share repurchases if there is a major dislocation between share price and oil price. We do not have a specific net debt target; ultimately, it is going to depend on the macro, and we will take the appropriate action at that point based on what we believe maximizes shareholder value. As we also think about potential reinvestment opportunities—once we have clarity on the macro and supported by continued cost and operating efficiency—that is something we would consider because of the portfolio that we have and our operational performance. The last thing I want to highlight is what Richard mentioned about having a sustainable and growing dividend even at low oil price. In 2029, after we have redeemed the preferred—and even if you were to assume no principal debt reduction after $10 billion—the cash flow improvement between preferred dividend and interest payment will be approximately $1.2 billion better compared to 2025. Our current common dividend payment is approximately $1 billion. That implies a significant opportunity to have a sustainable and growing dividend even at lower oil prices. Operator: The next question comes from Nitin Kumar with Mizuho. Please go ahead. Nitin Kumar: Hi. Good afternoon, everyone. Vicki, first of all, congratulations on the milestone, and thanks for your support over the years. Richard, you have been very clear about this new $10 billion target—that is the first priority. A lot of your peers have formulaic return-of-cash programs in place. You are still talking about opportunistic buybacks. What is the hesitation in adopting something like that? Is it because you feel the macro is too volatile, or are there any other reasons for not adopting something like that? Richard Jackson: Thank you for that. You are right—we have preferred not to have a formula-based approach to our returns. For us, the cash flow priorities lay out how we think about, and then—as I walked through—the value proposition of how we turn what we do into shareholder value. Having flexibility through uncertainties has given us advantages to be able to move and do that. What does not change are the fundamentals of driving the cost efficiency into our program. If you think about how we create additional cash—capital efficiency, lower operating expense, and lower decline—that is where we are fundamentally focused. In terms of our cash flow priorities, bigger picture, dividend—as Sunil mentioned—is where we go. If we think about share repurchases, we do want to be able to create those opportunities, but as we look to the future, especially as we build an even stronger balance sheet, continuing share repurchases through the cycles gives us opportunity and it even helps our dividend growth as we are able to do that on a consistent basis. So, for us, a lot of what we do focuses on the opportunity to grow the dividend as we put these pieces together. Nitin Kumar: Thank you for that clarity. And then just, you talked about discipline and maybe staying the course on at least 2026 and not chasing growth. One of your peers talked about increased nonoperated activity in the Delaware Basin. Anything that you are seeing on the ground—you have a big position and a big operation there—in terms of others chasing growth? Richard Jackson: I think we are managing that. That was one of the uncertainties we had early in terms of our capital range for the year. Our teams have been continuing to work that and have not seen anything that has put us out of our plan. The teams have done, even after the EOR optimization that we talked about, strong work—the core components of our production were strong, with over 9 thousand barrels per day on the total year that we improved. In the Permian, we are growing; Gulf Of America, we are growing. As we have been able to think through the current price environment, within our plan and within our spend, we are seeing time-to-market optimization. We are seeing opportunities in our operating expense categories, both in Gulf Of America and EOR, to accelerate. These have been the controllables that we have been really focused on—staying within plan for the year. Operator: The next question comes from Arun Jayaram with JPMorgan. Please go ahead. Arun Jayaram: Vicki, I also wanted to express my best to you as you move into the next chapter. And Richard, congratulations to you as well. My question is: you are targeting principal debt to reach a $10 billion number this year, given the improvement in strip pricing. How are you thinking about capital allocation post reaching this objective? Richard, you mentioned the potential to shift into some measured reinvestment to deliver a modicum of growth. Walk us through how that pivot into a little bit more reinvestment could look like for Occidental Petroleum Corporation. Is this a 2026 opportunity or more longer dated? And talk to us about between short cycle and long cycle where your thought process is. Richard Jackson: Appreciate that. This year, we know delivery is critical—it always is—but we really wanted to demonstrate the capital efficiency that we have in the program, and certainly the milestone of $10 billion and what we are able to deliver this year is helping. For reinvestment conditions, a few things: the macro being more clear is important. Obviously, the dollar we spend today does not turn into production—or at least peak production—until next year. The efficiencies that we are delivering this year are largely built on what I call development efficiencies—more wells per pad, longer laterals, more simul-frac. These take integrated development planning to put together. While we are always looking to improve the program and optimize, these are things that are more difficult to change without impacting that efficiency, so clear macro support before we add is important. Decline rate is another. We like what we are doing this year in terms of investment into EOR and the Gulf waterfloods. Being able to go from mid‑20s toward 20% or less over the next few years in terms of decline rate reduces our sustaining capital by hundreds of millions of dollars, which gives us more headroom for return of capital. At low prices, that is important to establish. When we do feel like reinvestment comes, we want to provide clear outcomes—returns, cash flow timing, decline rate. We want to demonstrate that everything we do improves the value proposition we talk about. When I say measured, it is taking that approach. With that said, we have an amazing resource base, very balanced, and we have the opportunity to accelerate value over the long term whether we are sustaining or growing production. Getting that balance right between short-cycle and mid-cycle is really important. Sunil Mathew: I just want to add, in the last quarter we mentioned that for 2027, you can use $5.9 billion as a starting point for sustaining capital. The assumptions behind that $5.9 billion were: U.S. onshore capital assumed to be flat compared to this year, with growth largely driven by capital efficiency—like what we have been demonstrating for the last few years—and the balance between unconventional and conventional to manage base decline and reduce sustaining capital. In Gulf Of America next year, related to the on‑mountain waterflood projects, we will be drilling two injectors, so you will see some increase in Gulf Of America next year. Exploration—we typically participate in three wells with around 30% working interest. This year, we reduced exploration activity, so that might go back to on average around $150 million, which is what we have done over the last few years. And then you have the roll-off of the LCV capital. So $5.9 billion would be a starting point in terms of sustaining capital. Any increase in reinvestment is largely going to be driven by the macro, but we are well positioned to do it at the appropriate time. Arun Jayaram: That is super clear. For my follow-up: service companies are talking about pushing some price on rigs, frac, and consumables. You reiterated your CapEx range at $5.5 to $5.9 billion for the full year. Can you talk about these inflationary pressures, and does it change where you expect to land within that range? Richard Jackson: I will start, but invite Kenneth to add. Our approximately 7% new well cost improvement is largely driven by efficiencies today. We have seen some ups and downs in pricing but are largely holding flat. We work closely with our service partners on performance—addressing their needs in terms of utilization or pricing while ensuring our performance is delivered. We are more levered to the cost of the well, so we have worked with them to continue to drive our cost down. Diesel and other items are playing a role, but not a major role. We do not see inflation impacting our range, and our cost improvement is intact through efficiencies. Kenneth? Kenneth Dillon: Middle East supply chain has been a huge success during this period. Everyone has worked really well, so we have not had any shortages in production due to material deliveries or costs. All of our vendors have really stuck with us. We have seen increases in some areas offset by others. We still see vendors really interested in market share as opposed to individual line-item wins. Given our scale and mass in each of our locations, that is paying off for us, especially as we concentrate activities on one pad. Utilization becomes really clear for the vendors. Overall, a very good story by supply chain. Operator: The next question comes from Analyst with Barclays. Please go ahead. Analyst: Hi, team. I want to share my congratulations to Vicki and Richard as well. My first question is a bigger picture one. Your Slide 3 really laid out what Occidental Petroleum Corporation was focused on in the last ten years versus where the next ten years could look like. You already have built the foundation for the portfolio today. Where do you think is the biggest opportunity to extract value from the current portfolio from here in the next phase—this execution phase? The free cash flow expansion we can clearly see, but where are you most excited—whether that is the resource expansion or from the cost efficiency side? Richard Jackson: Great question. There is a lot to be excited about. Our advanced recovery—whether in the Gulf Of America with waterfloods, CO2 EOR, our conventional opportunities, and now our unconventional even internationally—will be a distinct advantage over the next ten years. This has been building for some time. It translates to lower sustaining capital and more value for our shareholders. Operational excellence continues—we have a great team that understands how to put things together not only for CapEx but also operating expense and base production. One of the best things we demonstrated over the last year was production uptime in the base. Workforce efficiency is another—being innovative and deploying technology. AI is taking on a larger role across all disciplines. Partnership does not change—we have done a great job internationally creating win-wins, like our exploration program. Oman is a great example of how we are different in exploration: taking more difficult new reservoirs and growing them to scale near existing facilities. All of these come together to drive the value proposition, starting with the resource—we are in an outstanding position today. Analyst: That sounds great. Maybe digging a bit more into the base optimization—I appreciate the focus on mitigating decline. Can we get an update on the unconventional EOR projects? What do you need to see to scale these projects, and what are some of the limiting factors longer term? Richard Jackson: We have the three commercial projects that we talked about starting. Most of this year is getting early construction and long-lead items moving—mainly compression. Those are expected online in 2028. We have continued demo work, including in the Midland Basin around Barnett—we are happy about our primary production and now excited about CO2 EOR there, seeing very good results on our first cycle. Proof points continue on CO2 EOR. Another item in EOR: we have had success with some sidetracks in San Andres on the Central Basin Platform edge and in the Platform. We optimized the program to actually add production this year. One advantage of the EOR divestment and acquisition optimization is concentrating our working interest where these opportunities lie. Today, EOR is about 100 thousand barrels per day. We are concentrated with the right low-cost structure and advantages to take into both our conventional and unconventional assets. Operator: The next question comes from Neil Singhvi Mehta with Goldman Sachs. Please go ahead. Neil Singhvi Mehta: Congratulations, Vicki, and congratulations, Rich, as well. Maybe, Vicki, give you an opportunity to share your perspective. The last ten years have been very volatile for the energy sector. Any perspective on the decade ahead—what leaves you optimistic, and what are the biggest concerns that we as an investment community should be spending time on? Vicki Hollub: Volatility is going to be with us forever. It has always been volatile and will continue to be. It seems more volatile now because we see the numbers as they change daily. A lot of things have happened in the history of our industry—going back to the Suez Crisis, Yom Kippur, Iranian Revolution, Iran-Iraq war, price wars, and more. When oil prices changed dramatically in real terms was around the PDVSA strike in Venezuela, the Iraq war, Asian growth, and a weaker dollar—that is when WTI prices started being driven up. Through all the volatility, some things are consistent. From January 1974 to today, WTI averaged $76.32 in real prices. If you look at this century—from 2001 to now—the average real price was $81.67. If you take out the nine years in this century that prices were above $100, that still takes prices to a healthy level at $66.76. We tend to remember the bad prices and times versus when things were okay, and that is why we built our portfolio to last through cycles and be able to create value for our shareholders now and going forward. Two big things are important. First, pricing—I think if you are built to last and make it with cash flow generation through the cycles and a dividend that you can support in years when prices are lower, you must be prepared to pay the dividend through cycles. Second, in the U.S., we expect that between 2027 and 2030, the U.S. is going to hit a plateau; production will then start to decline. Where we sit today is with a better inventory than any company with respect to our U.S. base. We will be prepared in the U.S. to help offset that decline because we not only have great assets in the United States, we have the ability—as Richard described—to apply EOR to get more oil out of the reservoirs we have, and we will do that internationally as well. Internationally, we are in places where we have great relationships with the government—Oman, Abu Dhabi, and Algeria. Now that resources are becoming a real issue for some companies—because 80% of the current oil reserves in the world are held by NOCs or governments—trying to get reserves if you do not have a strong and large inventory today is getting more challenging. Going to international locations where we decided, as part of this transformation, not to go to may offer better contracts in bad places, but that usually does not end with a better result. We believe that for decades to come, oil is going to be needed, and peak supply will occur before peak demand—not just for the United States, but for the world. We are perfectly positioned with where we are today—the capabilities and the portfolio—to help address that. Neil Singhvi Mehta: Really great perspective, Vicki. The follow-up: you are now long inventory through M&A and good reserve replacement, so the probability of needing to do large M&A is diminished. Richard, I would love your perspective as well. Is that the view the leadership team shares—really an organic story? Vicki Hollub: We did not go through what we went through to build this portfolio to let it sit there for 30 years. Richard, to you. We are very focused on organic development. Richard Jackson: What has been done has put us in an outstanding place. Our responsibility now is to extract value from it. We are laser-focused on the fundamentals—capital efficiency, operating efficiency, and subsurface work. There will be opportunities around assets to continue to improve—trades and other things—but we could not be more excited about the balance and what I like to call the right-sized resource base that we have. We work to deliver the most value. We look at a lot of scenarios—we are put together to deliver the most value. That is clearly what we are focused on. We are excited to do that and appreciative of what we have to work with. Vicki Hollub: Thank you, Neil, for the question and helping us to clarify that. And with that, we are done with the Q&A. Thank you all for joining us and for your questions, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the VSE Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Michael Perlman. Please go ahead. Michael Perlman: Thank you. Welcome to VSE Corporation's First Quarter 2026 Results Conference Call. We will begin with remarks from John Cuomo, President and CEO, followed by a financial update from Adam Cohn, our Chief Financial Officer. The presentation we are sharing today is on our website, and we encourage you to follow along accordingly. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including those described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. We are using non-GAAP financial measures in our presentation. Where available, the appropriate GAAP financial reconciliations are incorporated into our presentation and posted on our website. All percentages in today's discussion refer to year-over-year progress, except where noted. At the conclusion of our prepared remarks, we will open the line for questions. With that, I'd like to turn the call over to John. John Cuomo: Good morning, everyone, and thank you for joining us today. We delivered a strong start to 2026 with record results in the first quarter and continued momentum across our business. Our performance was driven by balanced contributions from both our distribution and MRO channels, supported by strong execution, new program activity and continued market share gains. Engine-related aftermarket activity remains a key driver of our business and now represents more than half of our total revenue with continued strength across our core platforms. During the quarter, we advanced our OEM-aligned distribution programs, expanded our MRO capabilities, invested in targeted growth opportunities and made meaningful progress on our acquisition integrations. We remain focused on executing our strategy, scaling our platform and driving continued growth, margin expansion and long-term value creation. Let's begin on Slide 3, where I will highlight our recent developments. Let me start with the acquisition of PAG, which we closed this week on Tuesday, May 5. Together, VSE and PAG now form a scaled independent aviation aftermarket platform with 61 locations across 8 countries, including 48 repair facilities and 11 distribution centers of excellence. The combination significantly expands our capabilities across both distribution and MRO, enhances our technical depth and strengthens our ability to deliver more integrated end-to-end solutions with increased proprietary content to a broad and diversified customer base. The business will now serve a diverse customer base across commercial, business and general aviation, rotorcraft, OEM and defense markets. Strategically, this transaction accelerates our transition towards a more integrated, higher-margin aftermarket model with greater exposure to repair and engine-related activity. PAG's margin profile is immediately accretive and supports a clear path to exceeding 20% consolidated adjusted EBITDA margins over time, along with improved free cash flow generation. We funded the transaction through a combination of equity and new debt financing, which Adam will cover in more detail shortly. With the transaction now closed, our focus shifts to integration and execution. We see clear opportunities to drive synergies through cross-selling, repair in-sourcing and procurement efficiencies, and we are confident in our ability to deliver on those objectives. Let's move to Slide 4 and continue with our recent developments. On April 1, we acquired NorthStar Technologies, a provider of MRO and third-party logistics services supporting the engine aftermarket. This acquisition expands our engine service capabilities in the business and general aviation market, deepens our integration with OEM aftermarket supply chains and enhances our ability to capture growing demand for teardown and other labor-intensive services. The business operates under a capital-light model with strong demand visibility and a demonstrated resilience across market cycles, supporting both active fleet and increasing teardown and retirement activity. Let's now turn to Slide 5, where I will highlight a few business developments from the quarter. First, we previously announced a new globally exclusive life of program distribution agreement with Pratt & Whitney Canada for APU aftermarket components. This agreement spans more than 2,500 SKUs across more than 15 commercial, regional and business aviation platforms and meaningfully expands our OEM aligned portfolio while deepening our role in supporting these assets across their full life cycle. Second, we expanded our airline-focused asset management program through the acquisition of CFM56 engines for a major U.S. airline partner. By leveraging our in-house capabilities across asset management, teardown and component level repair, we're able to deliver a more integrated engine aftermarket solution. This program supports our organic growth and further strengthens our position across the engine life cycle. Third, we completed the integration of Turbine Weld into the VSE platform. With that integration now in place, the business is well positioned to continue to scale and contribute to our expanding engine-focused MRO capabilities. And finally, in connection with the PAG acquisition, we strengthened our capital structure through a combination of equity and debt financing, enhancing our financial flexibility to support future growth. Adam will cover this in more detail shortly. Let me briefly update you on the current aviation aftermarket environment. Despite near-term macroeconomic uncertainty, including elevated fuel prices driven by recent geopolitical developments, we have not seen a pullback in airline capacity, OEM production plans or operator behavior to date. Demand for engine maintenance and repair activity remains strong, supported by continued fleet utilization, aging assets and ongoing supply constraints. This continues to be a key driver of activity across our commercial and business aviation businesses. Specifically in the business and aviation sector, demand also remains resilient. This segment has historically demonstrated lower sensitivity to fuel price volatility and continues to provide a stable and diversified source of revenue within our portfolio. Let's now move to Slide 6 and discuss our consolidated first quarter 2026 financial performance. In the first quarter of 2026, we delivered record revenue and profitability. Revenue growth was driven by balanced contributions from both our distribution and MRO businesses, along with contributions from recent acquisitions. Engine aftermarket activity remains a key driver of our performance and now represents more than 50% of our total revenue. We continue to see strong demand across this segment, supported by high fleet utilization and ongoing supply constraints. Our business also delivered record profitability in the quarter. Profitability in the quarter reflects disciplined execution across both new and existing programs, expanded product offerings and MRO capabilities, strong performance in our OEM licensing and manufacturing programs and early synergy realization from recent acquisitions. With that, I will now turn the call over to Adam to walk through our financial details. Adam Cohn: Thank you, John. Let's turn to Slide 7 of the conference call materials, where I will provide a detailed overview of our first quarter consolidated financial results. For the first quarter of 2026, we generated $325 million of revenue, an increase of 27% year-over-year. Both distribution and MRO delivered strong results with distribution revenue increasing 26% and MRO revenue increasing 28% year-over-year. The 26% increase in distribution revenue was driven by strong performance across new and existing programs, product line expansion, market share gains and contributions from the Aero 3 acquisition. The 28% increase in MRO revenue was driven by expanded repair capacity, new repair capabilities, sustained end market demand and contributions from the Aero 3 and Turbine Weld acquisitions. Growth across both segments continues to be supported by strong demand, specifically in the engine aftermarket. Excluding recent acquisitions, organic revenue increased about 15% year-over-year, reflecting strong underlying demand across the business. Consolidated adjusted EBITDA increased 37% to $55 million compared to the first quarter of 2025. Adjusted EBITDA margin was 17.1%, an increase of approximately 130 basis points versus the prior year period, driven primarily by greater mix of higher-margin product and repair activity, higher-margin OEM license manufacturing sales and continued synergy realization from recent acquisitions. Adjusted net income was $33 million and adjusted diluted earnings per share was $1.17 per share. Let's turn to Slide 8 and our balance sheet. At the end of the first quarter, total debt outstanding was $366 million. The company had approximately $1.24 billion of cash and cash equivalents on hand, of which a majority was used to fund the PAG acquisition at closing, which occurred on May 5. We had no borrowings under our $400 million revolving credit facility, which was recently upsized to $500 million. The upsized credit facility remains undrawn. During the first quarter, we used approximately $69 million of free cash flow, driven by part procurement seasonality and targeted strategic investments to support both the recently awarded APU program and the expanded airline-focused asset management program. We remain confident in our ability to generate strong free cash flow as these investments scale through the balance of the year. Pro forma for the acquisition, adjusted net leverage is estimated to be below 3x with a clear path to below 2.5x by year-end, driven by EBITDA growth and free cash flow generation. Let's turn to Slide 9 to review our updated consolidated company guidance for full year 2026, inclusive of the PAG acquisition. Starting with revenue. With the PAG acquisition now closed as of May 5, we are updating our full year 2026 revenue growth guidance to reflect the contribution of that business. Our new range, inclusive of PAG is 57% to 61% for the full year. Importantly, this update reflects the inclusion of PAG and no change in our expectations for the underlying business. The updated revenue guidance is presented net of intercompany eliminations. We are also updating our full year 2026 adjusted EBITDA margin outlook to reflect the addition of PAG, raising our range to 18.1% to 18.5%. As with our revenue guidance, this update is driven by the inclusion of PAG and does not reflect any change in our expectations for the underlying business. On a free cash flow basis, inclusive of our strategic investments executed in the first quarter and inclusive of the PAG acquisition, we expect to see improvement over the course of the year and on a year-over-year basis, driven by earnings growth and a reduction in working capital intensity. I would now like to provide an update on several additional modeling assumptions post PAG acquisition, which are also detailed in the appendix of the presentation. For the full year 2026, interest expense net of interest income is projected at approximately $37 million to $40 million. Depreciation and amortization is expected to be approximately $98 million to $103 million in aggregate. The effective tax rate is projected at approximately 25%. Stock-based compensation is expected to be approximately $18 million to $19 million, and capital expenditures are expected to be approximately 2% to 2.5% of revenue. Let's now move to Slide 10 and review our new capital structure. On May 5, we closed on a $900 million Term Loan B and upsized our revolving credit facility to $500 million. These new facilities replace our prior Term Loan A and the revolver structure. And together, they strengthen our balance sheet and give us flexibility to execute on our strategic priorities. With this refinancing, we extended our term loan maturity, expanded our borrowing capacity and improved our day-to-day operating flexibility. We were pleased with the level of institutional support and the pricing achieved. This refinancing positions us with significant available liquidity to support our strategic priorities and future growth initiatives. With that, I'll turn the call back over to John. John Cuomo: Thanks, Adam. I'd like to conclude by briefly reviewing our 2026 priorities on Slide 11. First, we are focused on executing our recent acquisitions, accelerating integration and realizing synergies. We've made meaningful progress in the first quarter, including completing the integration of Turbine Weld. Second, we are implementing newly awarded OEM and distribution programs across our core platforms, including the Pratt & Whitney Canada APU agreement and our CFM engine initiatives, which we expect to contribute more meaningfully in the second half of the year. Third, we are expanding our MRO capacity and technical capabilities to capture continued demand across the engine aftermarket. Fourth, we are advancing and converting our organic growth pipeline into revenue and margin contribution. Fifth, we are continuing to enhance our systems and processes to support scale, integration and efficient growth, including the targeted use of AI and data-driven tools to improve operational efficiency and optimize workflows across the platform. And finally, with the PAG acquisition now closed, our focus moves to execution. We see clear opportunities to realize synergies through cross-selling, repair in-sourcing, procurement efficiencies and network optimization, and we are confident in our ability to deliver on those objectives. In closing, we delivered a strong start to 2026 with record results in the first quarter and continued momentum across our business as we begin the second quarter. During the first quarter, we advanced our OEM aligned distribution programs, expanded our MRO capabilities, invested in targeted growth opportunities and made meaningful progress on our acquisition integrations. While we are mindful of the current macro environment, including geopolitical developments and fuel price volatility, demand across our core end markets has remained resilient, and we have not seen a change in customer behavior to date. Overall, we believe the strength of our engine-focused aftermarket exposure, combined with our growing presence in business and general aviation, positions us well to navigate near-term uncertainty while continuing to execute on our long-term growth strategies. Thank you for your continued support and confidence in VSE. Operator, we are now ready to take questions. Operator: [Operator Instructions] And our first question will come from Ken Herbert from RBC Capital Markets. Kenneth Herbert: John, Adam, and Michael, really nice results for the quarter. Maybe just to start the discussion, John. I can appreciate you've maintained the full year guide and not seeing any impact yet from the higher crude prices on airline or purchasing behavior. But some other engine companies like GE, in particular, have talked about a lag effect and have sort of lowered their expectations of cycles and utilization this year somewhat. Are you concerned at all that we see any sort of lag impact on your business, especially now with a greater focus on engine? Or maybe how can you talk about in your prior experiences, how this could potentially play out as you think about the portfolio today? John Cuomo: Yes. I think -- I appreciate the question. And what I would add to kind of the remarks I made a minute ago is April has also started out quite strong. And our bookings don't go out years, but they do, in many instances, go out months, specifically on our engine-related business. And again, not seeing any outward impact on our engine bookings at this point in time. I'd also kind of highlight the mix of the work that we have. We typically lag a bit on newer generation engines and have a mix of more legacy engines. So whether if you want to play kind of downside scenarios and think through retirements accelerate a bit, that does cause an element of teardowns and such as acceleration happens, which creates additional demand inside of our shops. The second thing I would note is our business is about 50% business and general aviation. And we're -- we do more work on the workhorse aircraft than we do on kind of the more expensive airplanes that don't fly as much. And we tend to see that market slightly more resilient in the near term where you see a little blip from a macro perspective, you don't usually see an impact there. So at this point, we're holding to our guidance. If things change, we may even look at some upside potential towards the back end of the year. Kenneth Herbert: That's great. And if I could, just a follow up. On PAG, congratulations on getting that done. How do we think about the pace of the synergy capture? Typically, you're going to take some time to get to know the business well, but you tend to move fairly quickly as you identify opportunities. How should we think about that as it impacts '26 and '27 on the synergy side? John Cuomo: Yes. Think about '26 is more in-sourcing and cross-selling and '27 is more kind of cost synergies. We have already -- during diligence and then in our work pre-closing, we've highlighted a number of synergies. And if you look at kind of the embedded organic growth for that business, it's -- the business will grow naturally high single digits. We've conservatized it slightly because some of that will move towards intercompany as we drive some synergies, which is where we'll get some near-term margin improvement. And then the second phase of synergies will roll out through 2027 as we execute on our cost initiatives. Operator: Our next question will come from Sheila Kahyaoglu from Jefferies. Sheila Kahyaoglu: I wanted to ask just the organic growth in Q1 of 15% is ahead of schedule. Maybe, John, on your comments, specifically honing in on that 28% MRO expansion. How much of that was organic? And you mentioned it was increase in repair capability, increase in parts, I guess. Can you maybe expand on how you're doing that and how you think about the MRO business growing? John Cuomo: Yes. Actually, Sheila, for the first quarter, distribution outpaced MRO in terms of growth. We saw our distribution businesses, both on the commercial and on the business and general aviation side, quite strong. More of our engine-focused product, I would say, led that growth with kind of MRO slightly lower organic growth in comparison. And I'd say it's a -- it really is -- what I like about the quarterly results is there's a lot of balance to it. You saw contributions from new programs that we've implemented or in the process of implementing. You saw contributions from businesses we've acquired in the past that are now organic, and we have them growing at above market. And then we have some of the internal investments that we've made to support some expanded repair capabilities. We saw some contributions from those as well. And again, April, I'd say, has started off quite strong on both sides of the business, both MRO and distribution. Sheila Kahyaoglu: Great. And then maybe if I could ask another one, just given your relatively high business aviation exposure, how are you thinking about -- or what are you seeing in terms of the fleet activity given higher jet fuel, and how are you thinking about the business aviation side of both repair and distribution growing in that channel? John Cuomo: Yes. I mean we see it more resilient than the commercial side of the business. And again, as I mentioned a moment ago, the workhorse aircraft, your PT6 engines, your Citations, your Learjets, your King Airs and Pilatus, that is the core of what we focus on, both from an airframe and from -- I mean, from a component and from an engine perspective. And you tend to see sometimes people downgrade slightly to those aircraft when they're flying kind of higher, more expensive jets. And we tend to see that side of the business to be more resilient. So we haven't seen any concern. And I think the data has been quite strong for the first quarter and leading into the second quarter as well. Operator: Our next question will come from Louie DiPalma from William Blair. Louie Dipalma: Your organic growth in the first quarter of 15% was -- it appears that it will be faster than the industry growth that you estimated was going to be in the high singles for this year. Should your new Pratt & Whitney Canada APU global distribution deal and the other deal that you announced, the CFM56 deal, should that lead to an acceleration in the organic growth in the second half because that likely wasn't a contributor in the first quarter, right? And what are some of the other moving parts in terms of the organic growth for this year? John Cuomo: Yes. I think the Pratt & Whitney Canada, you're correct. It will scale throughout the year. And I'd say on the engine side, the CFM56 announcement that we made, that could be some late '26 or even sometimes 2027 revenue. So Adam, I think from a modeling perspective, how would you... Adam Cohn: Yes. I would say it's already embedded into our guidance. And as you know, we had a program that's ending this year, Louie. So the Pratt APU program will -- is replacing that revenue. Louie Dipalma: Great. That makes sense. And secondly, in the prior question, you were just discussing the dynamic between business aviation and commercial. In your recent 10-K disclosure, you revealed that a group of affiliated customers now represents 20% of revenue, and it would seem that affiliated group is RTX, since you have such a strong relationship with Pratt & Whitney Canada. But I was wondering how has business grown with Pratt & Whitney Commercial since you've acquired TCI? And how is the TCI business done? And is there more room for growth on the commercial side there, not only for Pratt & Whitney, but for your other partners? John Cuomo: Yes. I mean RTX is an important partner to us. You also have the Collins business, which is a number of businesses within that business as well. So there's -- it's just -- it's really 4 separate companies or 5 separate companies with a number of contracting arms even within them. We see all of our OEM partners as continued opportunities for share of wallet expansion. And if you look back from all of our acquisitions, and we'll do a little bit more deep dive at the back end of the year as we have our Investor Day, but the organic growth that we've been able to experience inside all of our core acquisitions and those programs or tangential programs they support is well above market. So I don't want to give an exact percentage around that, but I would just say we've grown the business north of 20% since we've owned it. Louie Dipalma: Great. And one final one. If the price of oil were to stay elevated, and that might not happen, but if it were -- would you expect that like PMA and USM would start to become more competitive to OEM parts? And I know in the past, you've described how you work with the OEMs on pricing strategies to help protect their businesses from competition related to PMA and USM. And so would you expect to play a significant role there? And would that help offset any weakness? John Cuomo: Yes, it's a good question. I tend -- this is an opinion. I tend to still think that PMA and DER repairs and our proprietary solutions, it's driven more by supply chain than by cost to start. You're solving problems for customers when they can't -- they don't have access to the products or the services in the market. So I tend to believe that, that's really the biggest driver. I think that in some instances, when you look at the economics around a repair or the economics around a certain type of aircraft, I do think that you'll look at can you do something different in terms of parts and repair to drive a better economic situation for that carrier or for that operator. I think when you're looking at the commercial airlines, one part here and there is not going to change the overall dynamics that dramatically that I still think engineering and supply chain will be the biggest drivers of kind of that PMA/DER transition over cost first, even with fuel prices being up. But that's an opinion. It may be different. We're prepared. We're working with our OEM partners. We work with our supplier partners. We have our reverse engineering team and then our engineering team that can support PMA parts as needed. We have DERs on staff, and we have the ability to support proprietary solutions around that as well. And then assuming OEMs want to kind of reallocate capital during any type of period of disruption, we have our OEM solutions business where we're buying the IP as well. So we've got kind of 3 avenues and 3 levers to pull there. And I would say we're more responsive to what customers want and force them down one path or another. Operator: Our next question will come from Scott Deuschle from Deutsche Bank. Scott Deuschle: John, can you clarify what exactly the CFM56 asset management program is and then what work scope is for VSE? John Cuomo: Yes, it's a good question. So we typically are not -- I wouldn't call us a traditional used serviceable material player. Everybody has USM product that's part of their portfolio. We tend to tie new parts, rotables, and exchanges, and repair together as much as possible. And then we look at our USM business more as an asset management business where we're supporting our major airline customers. And hopefully, in many instances, it's asset-light, where we're not buying the asset. We're just helping them monetize a used asset, and that could be us selling it on behalf of them. It could be us tearing it down and repairing pieces of it. And then we can drive some revenue in our MRO shops and then, again, maybe some type of profit sharing. In this instance, we have a major airline who did want to exit some engines because they don't have a program set up today, and we did buy the engines. We'll be tearing them down. We'll be utilizing our existing capabilities inside of our MRO shops. And this is more of a traditional USM model than we typically deploy. And that's what this airline needs at this point in time. And we wanted to show our nimbleness and agility, and we got a hold of some really great engines that in a time where the market needs them at a pretty good valuation. Scott Deuschle: Okay. And was this the main driver of the inventory build we saw in the quarter? Or was that more related to the new distribution agreement? Adam Cohn: It's really 2 reasons, Scott. It was partially the engine purchases and then also the inventory build on the new APU program. That was most of the cash usage in the quarter and the inventory build. John Cuomo: And that's why we felt very confident saying expect guidance to -- I mean, expect the cash to change dramatically throughout the year because you had 2 kind of one-offs nonrepeatable. Scott Deuschle: Okay. And then, John, can you share your latest thinking as to when you think the business can get to 20% EBITDA margins? It seems like it could be relatively soon given the outperformance in the quarter, the accretion from PAG and the PAG cost synergies, but just curious for your perspective there. John Cuomo: Yes, ask me that next quarter, and I say that because it's funny you buy these businesses, you do all this work and all the diligence and then you have to see it play in reality and really the devil is in the detail as you start to operate the business. So we have -- we never put a time line on it, candidly, because of a lot of the financing that we were going through. But we were hoping that we would be in that 20% range more like the end of '27. That's really kind of how we modeled things initially in our plans. The question is, can I accelerate that and bring that forward? I'm not 100% ready to commit to that at this point. I would tell you, we are doing everything in our power to try to accelerate that. We think it's an important milestone for the business. And I'll keep you updated as I kind of get my arms around both the synergies and just really my arms around each of the business units in a different way as we're operating it. We've owned the business for, I think, 25 hours. Scott Deuschle: Right. Okay. And then last question, Adam, can you just offer any detail on NorthStar's revenue and margins? Just trying to think through the modeling implications of that acquisition. Adam Cohn: Yes. Scott, I would say it's immaterial. It's a few million of revenue contribution for the year. John Cuomo: Yes. And Scott, from a strategic perspective, this acquisition was really done to support one of our OEM partners. They need some support in their aftermarket programs on logistics. They need support with some repairs that they may be doing in-house today that there's an opportunity where they don't have capacity for us to support. And then they have some leases that are coming -- engines coming off of lease that they need to tear down and again, repair and other types of support around it. So this was a fast way to build the business plan around kind of an OEM partner's need. Operator: Our next question will come from John Godyn from Citi. John Godyn: There were a few earlier questions about aftermarket resiliency. And sometimes you're referring to kind of the trends in 1Q and other times that you were talking about forward bookings and having multi-month visibility. I just want to be like crystal clear. Is it fair to say that not only did you not see anything this quarter impact -- negative impact on aftermarket, but you see nothing in any of the leading indicators that you have access to that suggests there's softness. Is that the message? John Cuomo: Yes. I think it's a good question, John. At this point, we have not seen any softness in our business. And like I said, April was a strong month. I don't have the closed final numbers yet, but just looking at the flash for the month, it was another strong month, and we look at outward bookings being quite strong at this point in time as well. So I'd say from our indicators and the data that we have on hand today, we are not seeing any demand degradation at this point. John Godyn: Okay. Appreciate that. And then just focusing on PAG, congrats again on closing the deal. I remember earlier in the year, there was a little bit of a sort of sidebar discussion about an earn-out that you had on PAG. And you had made the comment at different times that you'd be more than happy to pay that earn-out because it means that the integration synergies, everything went phenomenally. It feels like we're on the first step of hitting that earn-out because the deal closed early. Can you elaborate on the likelihood of hitting the earn-out, what it takes to get there? And maybe this idea that you kind of described as priority #1, which was accelerating the integration. What can be done? And are we on track at the end of this year, do you think, to be hitting those kind of above normal targets for that earn-out? John Cuomo: Yes. I mean it's a good question. I mean, essentially, to oversimplify it, our model showed one EBITDA number, their model had a higher one. So the question is, how do you bridge that gap and get there? And that was not just dollars, but their margin percentage was higher in their model. So it's a combination of the right mix and of accelerating some of the in-sourcing and sales synergies. So as soon as we got antitrust clearance about 3 or 4 weeks ago. So we're waiting on a few foreign investment things to close. But in that last 3 weeks, we started to put together the synergy plan. And we're actually having dinner with the team tonight, and we'll spend a little bit of time this week diving into it a little bit further to try to accelerate some of that -- those growth opportunities. I think that the answer is probably somewhere in the middle, meaning that their model, I still think was a bit on the robust side. But I do think ours probably had some level of conservatism on the ability to achieve some of those near-term synergies. So hopefully, there'll be some upside on margin as we get into the back end of the year. Again, like I mentioned earlier, I just got to get my arms around it, and I want to get 1 or 2 wins in there quickly, right, to say, okay, this is exactly what we thought it is, and I can validate all the things that we have on our internal slides at this point. Operator: Our next question will come from Louis Raffetto from Wolfe Research. Louis Raffetto: John, maybe can you provide an update on the fuel control systems manufacturing? I think you kind of referenced it a few times in the release and this morning. So just curious how that is going? Are we fully up to speed now? John Cuomo: Yes. I mean, essentially, all the revenue and earnings are in the business at this point. We have a few transition items to get done to make us officially the manufacturer of record of that product line. But essentially, from a modeling perspective, I'd say everything is embedded. What we've learned over time is we're building a really deep -- I'm trying to think of the right phrasing to use. But with the fuel control program, what we've learned is we're building a very deep portfolio on the engines that, that supports. So I would say that the share of wallet opportunity around the fuel control has been what's been exciting as well. So we've got some fuel pumps that we're supporting. We've got other repair capabilities that we're supporting. So it's turned out to be not just a very strong revenue and margin driver for us, but it's created organic opportunities for us to grow around it as well, and that's been pretty exciting. So it's been a big contributor to both the margin improvement in the business as well as the organic growth. Louis Raffetto: Great. And then Adam, I know the slide deck mentioned attractive pricing on the refinancing. I think on the old stuff, you were like SOFR plus 175. Do you have an idea what the new items are? Adam Cohn: Yes. On the Term Loan B, we're SOFR plus 200 with scale downs depending on leverage. So the term loan A, we are at 175. That's only because we are at a low leverage level with the cash that we generated from some of the equity raises. So it's a similar kind of grid where you're in that at this leverage level, you'll be in that S plus 200-ish range. And obviously, there's more flexibility there, less covenants and borrowing requirements that are easier going forward from a flexibility standpoint. So we feel, all in all, it is a very good outcome for us. Operator: And our next question will come from Jeffrey Van Sinderen from B. Riley Securities. Jeff Van Sinderen: And let me add my congratulations on closing PAG. I feel like that was pretty fast. John Cuomo: Yes. I mean for the size of the transaction, we feel good about the pace and getting that over the finish line. Jeff Van Sinderen: Yes. So now that you're 25 whole hours in, I won't ask you to jump too far ahead, but maybe any more color you can share on what the first 90 days focus on integration looks like for PAG? And then also, maybe you can touch on how you're thinking about PAG's ability to reverse engineer and do you further develop that? John Cuomo: Yes. I mean, candidly, the first 30 to 45 days is actually just physically visiting the sites, getting to meet the people, spending time with them. What we will -- the first element of integration will be by capability set and by market segment and customer base, getting those teams together to work on cross-selling opportunities and in-sourcing opportunities. And whether that means just bringing things in-house, whether that means how we go to customers with a greater offering, whether that means utilizing the proprietary solutions that we have in our business and they have in theirs and embed them inside of our capability sets. So I'd say that, that's really all the focus. We'll have probably five or six key people who will come up with a number of actions. And we've got a synergy capture leader that will be very much focused on how do we drive those benefits in the market, which -- meeting to our end user customers. So we're bringing better service to customers, which will drive the near-term integration. As far as kind of organization and systems and all of that, we have a framework of what we think the business is going to do and how it should come together. And the CEO, David Mast and I kind of worked on it a lot as we went through kind of diligence and just time together. Now again, we got to go validate that, and that's why we won't make any changes of any substance until 2027 there. So again, picture all the synergy capture really around in-sourcing and sales synergies at this point in time and all the actions around it will be focused there. Obviously, Adam has got his things in terms of internal controls and treasury and the like, but that's not stuff that you're going to see in the P&L. Jeff Van Sinderen: Okay. That's helpful. And then any thoughts on kind of the reverse engineering capabilities there? John Cuomo: I'd say their stronger capabilities are actually more on the DER repairs than actually on reverse engineering capabilities. I think we bring more opportunity on the reverse engineering to them. So I think bringing our engineering team into their shops, they did acquire a couple of businesses in the last like 18 months that do have a little bit more kind of reverse engineering capability. And candidly, I did not spend a lot of time with those businesses during diligence, and I look forward to the site visits next week actually to dive into that. So I'll have a better answer for you when I see you at the end of the month at your conference on that topic. Jeff Van Sinderen: Fair enough. And then it may seem like a small detail at this moment, but how are you planning to apply AI to your businesses? John Cuomo: Yes. I mean, we've got a number of initiatives. How we're starting with AI is a couple of things. Number one, it's more bottoms-up than top-down led, meaning I want the businesses to find problems that they have inside of their business units and then working with our IT leader and the AI initiatives that we can deploy to really support solving those problems. So some of our MRO leaders have launched a number of programs already. And we're measuring both productivity improvements and ROI on those initiatives. The second thing I'd say is we're trying to build as much in-house as we possibly can. I'm concerned about having somebody else get embedded from a process perspective inside of our processes and then I've got kind of this annuity-based fee that I have to pay forever to somebody because we like what's happened and what's been done. But I would say it's anything from improving kind of work on the shop floor where from an end-to-end, a part comes in the door, we tear it apart, quote it and then repair it wherever we can improve a process in that kind of chain. The second piece is aggregating data to support both supply chain demand planning and pricing. And then I'd say on the third side, anything on the customer service side. We get a lot of quotes, aggregating quotes, the quality of those quotes and data around that, I think, is really critical. So I would say we're at the very infant phases right now and look forward to having real productivity gains really 2027 and beyond. Operator: And our next question will come from Jonathan Siegmann from Stifel. Jonathan Siegmann: So on the Pratt & Whitney Canada agreement, congratulations on that. I think by our count, there were 5 or 6 other agreements and expansions and geographies of that particular customer. So just -- I know you said you didn't want to quantify how much opportunity there was at specific customers. But given the great success here with this one, is it fair to say that you're in the late innings of expansion? Or is there further opportunity here in Pratt? John Cuomo: Yes. I mean I think when you look at any of the Tier 1 OEMs as partners, I'd say there's no late innings because they're still managing somewhere between 75% and 80% of the aftermarket on their own. So number one, there's share gain to just happen there. The second is they touch so many different aircraft types and so many different product categories that even though it's "the same OEM partner", so many of these programs, an APU program on a regional jet is very different than an engine program on a light business jet, which is very different than a gearbox program on a Gulfstream. So I'd say it's really kind of early to mid-innings with all of these partners because there's just so many different opportunities that don't look like each other. So for us, it's almost like separate programs than it is the same account that it may look like to you from the outside. Jonathan Siegmann: Great. And then with NorthStar, I appreciate that small, but glad to see the acquisition flywheel going into hibernation mode after Precision Aviation. I'm just wondering if -- if we should consider this just a one-off or if there's other potential small bite-size opportunities for you? John Cuomo: Yes, it's a good question. Two things. Number one, the NorthStar deal was intended to support one of our OEM partners, and I want to continue to show my OEM partner regardless of me doing a large deal that I can still be nimble and agile and support them as quickly as I've always been for this time. With regard to our M&A pipeline, which remains very robust, the smaller deals that are kind of self-sourced, timing is complex on those because you never know when an individual owner wants to sell. So if they accelerate their own kind of mental process, I would tell you we've been part of it. And you'll absolutely see us play in that space in the back end of the year. With regard to anything more material, I look more at end of the year to 2027 before we'd be open to doing anything. Operator: And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to John Cuomo for any closing remarks. John Cuomo: Yes. I just want to -- a quick thank you to everybody for your continued support. Thanks for the time this morning, and have a great rest of your week. Take care. Operator: Thank you. This does conclude today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Utz Brands, Inc. First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Trevor Martin, Senior Vice President, Head of Corporate Finance. Please go ahead. Trevor Martin: Thank you, operator, and good morning, everyone. Thank you for joining us today for our live Q&A session of our first quarter 2026 earnings results. With me today on today's call are Howard Friedman, CEO; and BK Kelley, CFO. I hope everyone has had a chance to read our prepared remarks and our presentation, all of which are available on our Investor Relations website. Before we begin our Q&A session, I just have a few administrative items to review. Please note that some of our comments today will contain forward-looking statements based on our current view of the business and that actual future results may differ materially. Please see our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance. Today, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials. Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials posted on our website. Now operator, we are ready to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Peter Galbo with Bank of America. Peter Galbo: Howard, maybe to start, just -- you had some commentary on the second quarter in your prepared remarks kind of addressing some of the softness to start 2Q, particularly in April. So I was hoping maybe you could expand a little bit just on that point as well as whether or not you think April represents kind of the bottom within the quarter, and then we should see improvement in May and June. So maybe I'll start there and let you kind of elaborate on your commentary? Howard Friedman: Yes. Thanks for the question, Pete. So a couple of things. Look, I think, first of all, we always expected that April was going to be sort of -- it would be a more difficult lap for a couple of reasons. Beyond sort of the Easter shift, we have year-over-year programming that we had done in the prior year. Specifically, you see it on Boulder Canyon, and you can see it on the cheese business. We also had some laps in some larger customers where there's some merchandising timing that actually shifted. So as you look at the year-over-year, we expected the quarter to start out a little bit softer than the run rate had been. I think if you look at the food channel overall, 50% of our business, I think it's a pretty good indicator of our underlying strength, which continues to be positive. And as we progress through the second quarter, you'll actually see some incremental activations coming. Boulder Canyon has some activity behind Tallow. You'll see new product innovations start to hit. And obviously, California will continue to grow. So I think we're off to where we expected to be in the second quarter and largely through the -- through Q1 as well. Peter Galbo: Great. And BK, just maybe as a follow-up, you left the guidance unchanged for the year, actually reiterated all elements of it. I think there was a bit of concern out there in the market that just given maybe less of a scaled DSD platform, things like freight, resins might hit you a bit sooner. So maybe you could just talk a little bit about the hedging program and kind of how you're locked on freight and go forward for the rest of the year. William Kelley: Yes. Thanks, Pete. Thanks for the question. So first of all, I would say we're covered for most of the year on fuel, ags and freight. Our productivity program that we've touted a bit here at approximately 4% is going well, and we'll continue to build on those plans in H2. And that will help us offset any incremental inflation, which we think comes from primarily a small impact from fuel for us, but mostly packaging driven by the resin impact. We'll continue to maximize the other levers that we have, the RGM tools around price pack architecture, and we'll be using AI to improve our promo effectiveness, and we'll continue to improve our sales mix. The net impact for us is that we have many levers to address potential inflation, but we are mostly covered on the fuel, ags and freight pieces to your point. Operator: Your next question comes from the line of Michael Lavery with Piper Sandler. Luke Maloney: This is Luke on for Michael. I just wanted to ask on marketing spend. You increased marketing spend by 35% in the first quarter, and I believe your long-term target is for 3% to 4% of sales. How close do you get to that target this year and in 2027? And then also, where do you see the biggest opportunities for return on marketing spend? Howard Friedman: Thanks for the question. Look, I think what we've said, we're largely in line with what we would have expected on the marketing investment for the year. We will expect to add [indiscernible] about 40% year-over-year, and we continue to have conviction that, that's the right place to be. We're still many -- probably a couple of years out from being able to get to that 3% to 4% longer-term target because as you can imagine, when we start to think about the available resources we have and the opportunities we have to grow, whether it's with westward expansion, continue to drive capabilities as well as marketing and innovation, there is a reasonable competition for those dollars. I would tell you that we feel great about the innovation this year, and I think it's probably the strongest lineup we've certainly had in the -- in my time here. I think in terms of where we see ongoing investment, I think there are a couple of places. One is obviously supporting our Power Four Brands, Utz, Boulder Canyon, Zapp's and On The Border. Boulder Canyon has new advertising that will be out this year to support the momentum on that brand, which continues to grow very quickly. Second is in our expansion markets where we're introducing the brand. In California, we'll obviously get investment as we continue to scale that area. And then the last is in supporting our core where it's a little bit more traditional competitive dynamics for us within the category. So I think over time, you'll continue to see us grow our advertising and consumer spend, and we'll remain focused and disciplined on how we deploy those resources. Luke Maloney: Okay. That's great. And your household penetration increased just over 1 point. What's working there? And what opportunities are ahead? Howard Friedman: Yes. So look, I think part of our household -- we feel very good about the household penetration trend we've been on. I think equally important to us is that the loyalty rates continue to grow because, obviously, as you grow penetration, you're introducing yourself to newer users, and they may not repeat quite as much. And what we're seeing is very strong loyalty rates as well, which I think is a testament to the quality of our products and the variety of items that we offer. I think that the major drivers, again, are going to be -- partially it's going to be about expansion geographies which obviously, for the Utz brand is as we're moving westward and for the remaining Power of Three, it's also bringing it into Utz's core geography. So we're introducing new households in both places. Second, our innovation is introducing products into households that they may not have had before. We feel very good about the early start on Tallow. And then lastly is just driving incremental advertising, which is also doing a good job of being both effective and efficient, but also driving our brand story. So I think we're kind of hitting on most of the cylinders right now and lots left to do. Operator: Your next question comes from the line of Scott Marks with Jefferies. Scott Marks: First thing I wanted to ask about in the prepared remarks, you made a comment about not seeing any need to change commercial plans because of competitor activity. Wondering if you can expand on that a little bit and just help us understand what you're seeing out there from a competitive perspective and how some of the recent changes within the category may or may not have impacted your own business. Howard Friedman: Yes. Thanks for the question, Scott. Look, I think overall, we feel like we're where we expected to be at this point in the year and that our commercial plans are holding. And a lot of the innovation expansion and investment in marketing consumer, I think, is going to deliver on the goals that we've had for the year. I think with respect to what we're seeing competitively, I'd tell you what we've observed is, obviously, the Bell-Mark prices or the on-pack price has come down, and we have seen some sharper promotional price points with some customers in some of the subcats. And this isn't wildly different than what we had seen in Q4 as we were going through the -- observing the early testing. And we do believe that at this point, it will continue to be a targeted and focused activity from the competition. From our perspective, we feel pretty good. I think if you look at the first 2 major merchandising windows of the year, Super Bowl and Easter, we were able to take dollar share. We grew our distribution 7% on TDPs, and we increased marketing to, as we said, to 35%, while also being mindful of where our price gaps need to be to remain competitive. So I think we feel confident in our drivers for the year. I think we feel confident that California will continue to build and that we've invested in our revenue management capabilities to make sure that we are able to compete. And the nice thing about our company is we can be fairly agile and with productivity giving us more resources potentially to deploy it if we had to, we feel like we can compete in a variety of contexts. Scott Marks: Appreciate the thoughts there. And then just a follow-up for me. A lot of comments in today's remarks about the bonus bags. Hate to bring up the term again, but obviously, it's in there. You obviously helped us -- give us a little bit of context in terms of what the numbers look like, excluding the Bonus Packs. Wondering if you can break that down between core markets versus expansion markets. What would the impact have been if we exclude the bonus bags just in terms of price versus volume and kind of where that growth has come from? Howard Friedman: Yes. So a couple of things. I think -- I know we haven't broken it out between core and expansion geographies. It's kind of more difficult for us to do just given the nature of the fact that bonus bags were actually the same UPC. So we have to do quite some additional work to be able to offer that. I think what you can take [indiscernible] is that bonus bags broadly were mostly in the core geography because that's where the majority of our distribution is with respect to things like Utz and On The Border, which is where it was. But we tried to give you a perspective of on a 2-year basis, we're holding up quite well competitively and that both volume mix and price are being similar contributors to our overall growth rate, which is I think really kind of the point we wanted to make sure we got across. Operator: Your next question comes from the line of Rob Dickerson with BTIG. Robert Dickerson: Yes, just a quick question on the category. I realize you're using retail dollars in the quarter, category is not flat, right? It was up, I think, over 2% based off of what you spoke to, the guidance that you've been talking for a while of kind of expecting kind of flat for the year. Is it just kind of -- obviously, the market is very dynamic right now, kind of we're still in the early or at least first half of the year. So there's no need to say, oh, we actually think the category could be more than flat this year and maybe we'll be in line with the category. I'm just trying to gauge a sense of kind of where your head is right now sitting in early May with respect to the category and maybe its potential for the year and then kind of how you could maybe operate vis-a-vis that category growth? Howard Friedman: Yes. I think -- first, I think when you think about the beginning of the year, we have continued to project a more flattish category, just given how early it has been in the year, and there is a very -- it's certainly been noisy in the first 3, 4 months of the year. So I think at this point, we're just continuing to take a conservative view on the category. I think what we would expect is that as the year continues and as the category sort of starts to demonstrate more consistency, then we would -- we'll relook at that, look at our assumptions. But from our perspective, obviously, we've never been solely dependent on the category for our growth. The expansion geographies remain a significant area of white space for us and our increases in innovation in A&C, we believe, puts us in a position to make sure that we are delivering against the guidance that we've provided as we go forward. And obviously, if the category continues to improve, then we'll take a different decision as we continue to navigate the year. Robert Dickerson: All right. Super. And then I guess just on the innovation front, I think you mentioned you were saying like Beef Tallow going for $20 on auction. And then I know you have flavored tortillas coming and Utz Protein, some Utz Protein SKUs. There are a few other competitors that might have some healthier options coming in as well. But just as we think about kind of consumer reengagement, right, in the category like Boulder is clearly doing very well, engaging well with the consumer. Again, kind of coming back, I guess, to Utz, but then also to the category, it just feels like there's clearly action in motion that would support kind of category improvement potentially as we get through the year, but especially just within consumer reengagement. I don't know if that makes sense. Just to hear your comments. Howard Friedman: Yes, it does. Look, we think that there are kind of 3 areas where consumer engagement really kind of matters to us. I think the first, to your point, is around better-for-you, and we're certainly seeing many people entering into the better-for-you category, larger scale competitors and smaller guys. We feel really good about Boulder Canyon's ability to compete. Tallow has gotten off to a great start. It was a new one for me to go on to an auction site and see the product there, but really around better-for-you attributes and non-seed oil and that business continues to grow in both the Natural and conventional channels. I think we've also seen that it's actually able to stretch with, to your point, both unflavored and now flavored tortilla chips, which we feel very good about the authorizations and early consumption trends on that business is strong. I think Protein in Utz is introducing that brand into what we call an elevated performance, not necessarily all the way to the Boulder Canyon side, but the presence of positives, we think, is a big territory for consumers who are looking to incorporate more protein in, and we'll continue to try and work on the better-for-you attributes across. We have Snacking Made Simple on our Utz brand is our sort of our organizing idea, which highlights the simple ingredients that are in our core products. The next 2 areas really are around flavor and value. And those 2 areas also are places where I think consumers have always engaged in this category and we will continue to do so as we go forward. So I do think you're going to see more effort by everybody to continue to introduce presence of positives. I think it's a consumer trend, but I also think flavor and value you'll also see. Robert Dickerson: All right. And then just maybe a quick one for me, too, for BK. Just on the free cash flow front, is there kind of anything to call out as we get -- as we're now in early May, for the year. And I'm really just kind of speaking to that expected kind of sequential improvement in free cash flow this year and then kind of that ability to hit that larger target longer term. That's all. William Kelley: Yes. I think the -- thanks for the question. Our confirmation of our guidance included the $60 million to $80 million of free cash flow that we were chasing this year. The Q1 for us is always going to be a quarter where we burn cash as we build for the seasons. I think the improvement in our leverage year-on-year is something that is indicative of the improvement we're making in our processes and capabilities in this area. We continue to think that, that will build over the year, and we'll be on track for the free cash flow that we expect to generate as well as the leverage targets that we set. Operator: [Operator Instructions] Your next question comes from the line of Jim Salera with Stephens. James Salera: I wanted to circle back on the pricing actions you mentioned by large competitors and kind of the limited impact on the commercial plan. From some of the work that we've done, it seems like those pricing actions are most pronounced in mass, particularly the largest mass retailer. I wonder if you could share how you're thinking about your pricing maybe on a kind of channel basis relative to peers and if we should see maybe a more strategic opportunity for you to differentiate yourself in channels outside of mass? Howard Friedman: Yes. Thanks for the question. Certainly, we've seen similar performance in the mass channel, which is not that much of a surprise to us. I think you've seen that -- we've seen that historically, which kind of goes back to the original point of the nothing that we're doing -- we've seen so far has been all of that surprising to us. And if you think about how our commercial strategy kind of unfolds, we have got a wide range of competitive dynamics across the price ladder. So we continue to grow very nicely in the Natural channel. We've been making good progress in Club behind some of our premium brands, notably Boulder. Our expansion geographies and frankly, the food channel overall continues to perform for us with the larger national grocers as well as the regional players. And so we will compete there. Obviously, our [ rev man ] capability really comes through in the food channel because that's where promotional effectiveness and timing can really kick in. And then I think more broadly, as you think about sort of the rest -- the remainder of the mass channel, we are feeling very good about the performance of our business there. We've seen distribution gains. So overall, we are -- it is a subcat by subcat, channel-by-channel game for us. And that's -- again, I think we have a lot of different ways to get to our goals and our objectives. And I think that's kind of what you're seeing in the first quarter. James Salera: Great. And then if I could shift gears and ask a quick one on California. You mentioned in your prepared remarks, California was up high single digits. It might be too early, but I want to ask if -- do you have any sense for the repeat rates in California given your brand is going to be new to a lot of folks out there. Curious to see kind of the initial loyalty response. Howard Friedman: Yes. It's early for us to see. We have to get through a couple of purchase cycles before we really be able to give you a better sense of loyalty. What I can tell you is if you look at our overall marketing metrics nationally, which, of course, our expansion geographies are a significant portion of our growth, you continue to see loyalty and repeat rates actually fairly consistent across. So I think that, that gives us quite a bit of confidence that even with a lower relative brand awareness on a brand like Utz that the product once in consumers' hands and pantries will have -- will earn its right to stay there. I think beyond that, remember that Boulder Canyon and Hawaiian are also brands that exist in that marketplace today. And so that -- it's also the opportunity for us to expand distribution of those items, which are more familiar to the California market. So it will be a full suite of our Power Four Brands and some of our targeted brands as we kind of mature that geography over time. But like I said, high single digits, a couple of weeks in, call it, 5, 6 weeks into it, we feel pretty good about where we are in California, lots to do, but we're excited about it. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning. My name is Michael, and I will be your conference specialist. At this time, I would like to welcome everyone to the BorgWarner 2026 First Quarter Results Conference Call. [Operator Instructions] I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference. Patrick Nolan: Thank you, Michael, and good morning, everyone. Thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, borgwarner.com, both on our home page and on our Investor Relations home page. With regard to our Investor Relations calendar, we will be attending multiple conferences being now in our next earnings release. Please see the Events section of our IR page for a full list. Before we begin, I need to inform you that during this call, we may make forward-looking statements, which involve risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today. During today's presentation, we will highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes with prior periods. When you hear us say adjusted, that means excluding noncomparable items. When you hear us say organic, that means excluding the impact of FX. When you hear us refer to our incremental margin performance, incremental margin is defined as the organic change in our adjusted operating income divided by the organic change in our sales. We will also refer to our growth compared to our market. When you hear us say market, that means the change in light vehicle production weighted for our geographic exposure. Please note that we posted today's earnings call presentation to the IR page of our website. We encourage you to follow along with these slides during our discussion. With that, I'm happy to turn the call over to Joe. Joseph Fadool: Thank you, Pat, and good morning, everyone. I'm pleased to share our results for the first quarter of 2026 and provide an overall company update, starting on Slide 5. We I wish to begin by thanking our employees, our customers and our suppliers for all of their trust, efforts and continued support. In the quarter, we achieved sales of $3.5 billion. Excluding the decline in our Battery Energy Systems segment, our organic net sales were down approximately 3% year-over-year, in line with the decline in the market production. I am excited to report that our strong award activity has continued into the first quarter. To date, I'll highlight 12 business awards across our foundational products and e-products portfolios. These wins represent only a portion of the awards secured during the quarter. But I believe that they underscore the strength of our portfolio and the global demand for efficient powertrain technology. Our adjusted operating margin performance was strong in the first quarter, coming in at 10.5%. This strong underlying operational performance was once again driven by our focus on cost controls across our business. And we are taking steps to grow our product capabilities for the data center and other industrial markets. I will share 2 additional products with you in a few slides. At the same time, our turbine generator continued to make progress towards its 2027 launch. Lastly, we remain disciplined in deploying capital to drive shareholder value during the quarter, returning approximately $185 million to shareholders through share repurchases and our quarterly cash dividend. Looking back on our first quarter performance, I'm extremely proud of our team and our results. Once again, we executed at a very high level which gives us confidence that we are on the right path to achieve our full year guidance while also continuing to win awards across our portfolio to deliver sustained shareholder value throughout long-term profitable growth. Turning to Slide 6. I'd like to highlight several recent product awards that demonstrate both the competitiveness of our technology and the strength of our execution in key markets. First, BorgWarner has secured 3 electric motor business awards with Asian OEMs in South Korea and China. BorgWarner is broadening its electrification offerings in China by introducing S winding and ultra short hairpin winding technology for hybrid vehicles. In South Korea, BorgWarner secured a new state or assembly business for an electric vehicle program I believe these awards reflect the customers' confidence in BorgWarner's engineering capabilities, localized manufacturing footprint and product quality in Asia. Second, BorgWarner has secured a 7-year contract extension to supply 8 families of engine, machines, power module and battery management controllers to a leading off-highway manufacturer. The extension builds on decades of partnership with the OEM and spans a broad range of applications from construction vehicles and marine platforms, the stationary power systems. I believe this contract expansion validates our position as a trusted long-term propulsion partner that is agile enough to support them and provide tailored solutions as they expand into new and emerging markets. Third, BorgWarner has secured 3 turbocharger program extension awards and 1 turbocharger conquest award with a major European OEM. Our turbochargers will be utilized on a range of passenger car and fan applications. The awards include variable turbine geometry, twin-scroll wastegate and regulated 2-stage turbocharging technologies. These technologies are tailored to a range of engine and vehicle requirements, helping the customer meet demanding performance fuel economy and emissions targets across a broad range of applications. I believe these business wins reflect -- BorgWarner's strong turbocharging technology. Our competitive solutions and the trust we have built with this long-standing customer. Fourth, BorgWarner secured conquest business with a major European commercial vehicle OEM to supply both a variable turbine geometry turbocharger and an exhaust gas recirculation cooler for a Euro VII compliant heavy-duty diesel engine platform. The award expands BorgWarner's product portfolio in the on-highway commercial vehicle sector and further broadens our collaboration with this customer. Production is expected to begin at the end of 2028. And finally, BorgWarner continued to grow its drivetrain and engine timing portfolio in Asia with 2 new program overs. BorgWarner will supply a next-generation wet dual clutch for a Chinese OEM SUV platform. BorgWarner also secured a conquest win for a Tamtor-actuated VCT system for a Japanese OEM's next-generation hybrid ego. These new awards reflect BorgWarner's continued commitment to advancing efficient and competitive propulsion solutions across both transmission and engine timing technologies. I believe they further demonstrate the resilience and growth potential of our propulsion business in Asia as customers continue to value high-performance, cost-competitive solutions for both combustion and hybrid powertrains. Next, on Slide 7, I would like to discuss our expanding capabilities for the data center and other industrial markets. Let's start with an update on our turbine generator launch progress. I'm very pleased with the advancements we've made over the past quarter. First, strong customer demand indicators continue with ongoing end customer visits to our facility in Asheville. Next, I'm pleased to report that our first B sample turbine generators are now being delivered to our customer. This is a very important step to allow our customers to move towards field testing our product. In addition, our teams have continued their testing processes, which are performing as plan. And as part of our production readiness, I'm also pleased to report that our supplier nominations for production are now complete. Our UL compliance process is now well underway. We have completed our internal UL compliance requirement evaluation on our B samples. This is an important milestone toward our final certification which will take place with C samples later this year. In my opinion, these are all positive steps as BorgWarner continues to progress towards industrialization and production, currently expected in 2027. In the middle and right side of the slide, you'll see that BorgWarner continues to expand its portfolio to serve the data center and other industrial markets. I'm really excited that this portfolio now includes battery energy storage systems and bi-directional microgrid inverters. With this expansion, we have products that serve the market needs across power generation, energy storage and power conversion. First, I would like to highlight our battery energy storage system offering. You've heard BorgWarner speak about the possible application of our battery technology for various industrial markets, and we are now testing and quoting business for these markets. We believe our battery energy storage system will be well suited for deployment in multiple uses across the data center market, but we also see other commercial and industrial applications. Importantly, our battery energy storage system designed a cell chemistry, form factor and application independent. I believe this is important. Given the wide range of needs and potential battery cell technologies that could be deployed for these markets. Our product design is modular lean and scalable with redundancy in our design. We believe this design can be deployed for applications, including peak shaving, backup power and more. We believe our battery energy storage system will be production-ready in 2027 with ongoing customer validation and UL compliance and process. I look forward to providing you with updates as we receive customer feedback. Finally, we are also adding bidirectional microgrid inverter or grid tie inverter to our portfolio for these markets, and we expect this product to be production-ready in 2027. Our grid tie inverter features a power distribution unit, critical for efficient and flexible grid forming across microgrid applications. Our tie inverter is designed to enable the filing, significantly reduced weight and size compared to traditional systems, efficient bi-directional power flow for seamless charge and discharge. Why voltage conversion capability to support diverse energy systems and fast dynamic response for improved micro grid stability and controlling. Our UL compliance for this new product is already underway as part of our product readiness. We're excited to share that the first grid tie inverter B sample units are being shipped to 4 customers, a major milestone for the program and a testament to the work behind it. To summarize, there are 3 key takeaways from today's call. First, BorgWarner's first quarter results were south. Excluding the decline in our battery and charging sales, our sales performance was in line with industry production and is consistent with our full year outlook. Our adjusted operating margin expanded 50 basis points and adjusted EPS grew 12% compared to the first quarter of 2025, reflecting our continued focus on cost controls and growing the earnings power of the company. Second, we announced 12 new business awards across our portfolio in the quarter, which we believe further demonstrates our focus on product leadership across the propulsion market for combustion, hybrid and BEV architectures. And third, we plan to take steps to continue growing our capabilities for both our existing markets while also expanding into data center and other industrial markets. We expect this technology expansion will help ensure that our profitable growth continues long into the future. While the current environment remains challenging and uncertain, I'm confident in our team's ability to effectively navigate these conditions, which we clearly demonstrated in the first quarter. I also continue to firmly believe that we have the right portfolio decentralized operating model and financial strength to deliver our full year 2026 guidance and drive long-term profitable growth. With that, I will turn the call over to Craig. Craig Aaron: Thank you, Joe, and good morning, everyone. Let's jump into our first quarter financials. By turning to Slide 8 for a look at our year-over-year sales. Last year's Q1 sales were just over $3.5 billion. In the first quarter, stronger foreign currencies drove a year-over-year increase in sales of $167 million. Then, you can see the sales headwind from our batteries, which drove a year-over-year decrease in sales of $54 million. The remaining organic sales decline of $95 million or 2.7% was in line with the reduction in our light vehicle market production for the quarter. This decline was primarily driven by transfer case outgrowth in North America, which was more than offset by foundational product headwinds in Europe and a timing-related e-product sales decline in China. The sum of all this was just over $3.5 billion of sales in the first quarter. Turning to Slide 9. You can see our earnings and cash flow performance for the quarter. Our first quarter adjusted operating income was $372 million, equating to a strong 10.5% adjusted operating margin. That compares to adjusted operating income of $352 million or a 10.0% adjusted operating margin from a year ago. The exit of our charging business in 2025 increased operating income by $8 million year-over-year. Excluding this benefit and FX impacts, adjusted operating income decreased $4 million on $149 million of lower sales. This strong year-over-year performance benefited from ongoing cost reduction actions that our teams continue to take across our business. Our adjusted EPS was up $0.13 or 12% compared to a year ago as a result of higher adjusted operating income and the impact of over $650 million in share repurchases over the past 4 quarters. And finally, free cash flow was a generation of $13 million in the first quarter, which was a $48 million improvement from a year ago. Now let's turn to Slide 10 and take a look at our full year 2026 outlook, which is unchanged compared to our initial guidance provided in February. We continue to project total 2026 sales in the range of $14.0 billion to $14.3 billion. Starting with foreign currencies. Our guidance assumes an expected full year sales benefit of $200 million compared to 2025 due to the strengthening of the euro and the renminbi versus the U.S. dollar. We continue to expect our weighted end markets to be flat to down 3% for the year. We expect our light vehicle business, which comprises over 80% of our sales performed broadly in line with our weighted by vehicle market. However, we expect a sales decline in our battery business due to the lack of North American incentives and weaker European demand. This decline represents a 150 basis point headwind to our year-over-year sales group. Based on these assumptions, we expect our 2026 organic sales change to be down 3.5% to down 1.5% year-over-year, which is roughly in line with our market, excluding the decline in battery sales. . Now let's switch to margin. We continue to expect our full year adjusted operating margin to be in the range of 10.7% to 10.9% compared to our 2025 adjusted operating margin of 10.7%. On a year-over-year basis, we expect the exit of our charging business to drive a 10 basis point improvement in adjusted operating margin. Excluding this benefit, the low end of our margin outlook contemplates the business delivering a full year decremental conversion in the low double digits, while the high end of our outlook assumes we largely offset the impact of the organic sales decline through further cost controls, just like we saw in the first quarter. We view this as strong underlying performance with our first quarter results, providing a strong start to the year. Based on this sales and margin outlook, we're expecting full year adjusted EPS in the range of $5 to $5.20 per diluted share, which is unchanged compared to our initial guidance. The midpoint of this EPS guidance represents approximately a 4% increase versus our 2025 adjusted EPS and once again demonstrates our focus on consistently driving or expansion despite lower industry production, battery sales declines and potential cost inflation. And finally, we continue to expect full year free cash flow to be in the range of $900 million to $1.1 billion, building off a strong 2025. With that, that's our 2026 outlook. Let me summarize my financial remarks. Overall, we were very pleased with our first quarter results. Our sales performance was in line with our full year guidance despite a challenging first quarter production in market. We achieved a 50 basis point adjusted operating margin improvement on relatively flat reported sales. And our free cash flow performance represented a solid start to the year. Our Q1 results once again demonstrates the BorgWarner team's ability to deliver strong financial results and a declining production environment. As we look ahead to the balance of 2026, we intend to remain focused on expanding the earnings power of the company. At the midpoint of our guidance, we expect another year of adjusted operating margin expansion and adjusted earnings per share growth despite our expectations that market volumes and battery sales are expected to decline in 2026. Finally, with another year of anticipated strong free cash flow, we expect to have additional opportunities to create value for shareholders as we prudently evaluate inorganic accretive opportunities that grow BorgWarner's earnings power and execute a balanced capital allocation approach that reward shareholders. With that, I'd like to turn the call back over to Pat. Patrick Nolan: Thank you, Craig. Michael, we're ready to open it up for questions. Operator: [Operator Instructions] And the first question today comes from James Picariello with BNP Paribas. James Picariello: Good morning, everybody. So I'd like to hit on the company's non-auto industrial focus to start things off which is clearly gaining momentum in terms of the company's strategy. So for the battery energy storage product launch potential, how translatable is the company's competency regarding commercial truck battery packs to a proper energy storage system. How -- I mean, clearly, you're targeting the potential for production next year. Like is there additional investment that we should anticipate within that Battery Systems segment this year? And how rich is the quoting pipeline. . Joseph Fadool: Yes. James, so first of all, the battery energy storage business and our products are very portable to these types of stationary applications. If you think about the requirements in commercial vehicles and buses, they're pretty significant in terms of reliability and quality. So -- we are leveraging our existing capacity to pivot further into the data center space and other industrial markets. So from that standpoint, it's a really smart play for our teams and as we mentioned, the battery energy systems are cell chemistry and form factor independent. So we think we're well positioned for various types of applications that are out there. As far as the pipeline, we are actively quoting with a number of customers. So we're really pleased with the pipeline we're seeing. James Picariello: Got it. And then as a segue, my follow-up, is there a natural synergy for battery energy storage through your turbine generator partner endeavor? And -- as we think about the power generation business for data centers for BorgWarner, I know production starts next year, targeting $300 million plus in sales. It's early days. But -- are there any considerations to potentially expand your turbine generator capacity like beyond the North Carolina plant? I know Endeavor and its subsidiary edged have data centers, active data centers in Europe in addition to the U.S. So I'm just curious how the company might be thinking about that capacity potential international expansion element and then the synergy, the potential synergy on the energy storage piece. Joseph Fadool: Yes. Sure. So the first question on synergy, there's definite synergy. I mean, if you think about the 3 offerings we show on Page 7, turbine generator, battery energy storage and then power conversion. Those are highly related products in the system, and they're all solving a major issue, which is lack of power. So when it comes specific to Endeavor, definitely, we've got a great partnership with Endeavor. We see it continuing to grow over time even better news is these energy storage systems and power conversion have lots of opportunities outside of the strong endeavor relationships. So we're optimistic. There's a lot of applications and potential customers out there for both energy storage and power conversion. With respect to your question on the turbine generator, as we mentioned on the call, the progress is quite good, in our view, we're on track for a 2027 launch sometime this year, we will have to make a decision on whether we expand capacity further beyond the 2 gigawatts that we've installed in North Carolina, but we'll take that decision as we get closer to the second half. . Operator: And your next question comes from Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: Great. Just 1 follow-up on the power gen side. Obviously, it's still early days and a lot to learn there from customers, et cetera. Are you able to give us some color on how do you think about the value proposition that your solution offers. What unit economics look like? How does that compare with the existing established solution? Just trying to understand how the conversation with potential customers is going. Joseph Fadool: Sure. So a couple of things we're solving here for. One is time to market the backlog for power generation is pretty significant, sometimes up to 5 and 6 years. So our ability to leverage automotive scale and move quickly into the space is speed that's well needed in this market. That's the first thing. The second is the emission profile of these turbine generators raises the bar and meets even the car requirements in 2027 and beyond. So from an emission standpoint, very clean power. The third thing is the total cost of ownership is very attractive. So -- we feel really good about the value proposition of this into the space, especially right now. Emmanuel Rosner: Understood. And then the -- my second question would be on the capital allocation. So it looks like you have in front of you some opportunities to invest more capital into this industrial solution, you'll make a decision on the capacity for power gen. And then obviously, you're trying to get into energy storage, power conversion. Is there any change at all into how you're thinking about capital allocation, either within CapEx in terms of increasing that or just shifting that towards these solutions and away from autos? And then in terms of M&A versus buybacks, like if you have so many organic opportunities, you still need -- do you still have as much focus on M&A as you did recently? Joseph Fadool: So let me begin by saying our top priority will always be on driving organic growth, and we're able to show that we're leveraging our entire portfolio especially if you look over the last 18 months of win. So we want to continue with that winning strategy and the first priority then for capital would be to invest for those projects. Nothing has changed from our capital allocation process beyond that. I'll answer the M&A topic, maybe Craig talk more deep about the other way to serve shareholders. On the M&A side, we continue to open up the aperture and have a very disciplined process and flow of targets that we're looking at. But just to remind you, there's 3 main criteria here. One is really leveraging the core competence we already have. So it has to make some strong industrial logic. The second is we want any acquisition to be accretive. And third, we want to pay a fair price. So we're sticking with that disciplined approach. We continue to have a good flow of targets inside auto and out. And I would just say you can expect from Craig and I to stick to that game plan. Craig Aaron: Maybe just to add on to Joe's comments, what is our goal? Our goal is to create value with our cash. And I think we've done that very effectively over the past several quarters. Q1 was another great example of that, $185 million of cash deployed to shareholders between share repurchases and dividends. Over the past 5 quarters, we deployed over $800 million of cash, which represents about 70% of our free cash flow. Joe and I are focused on discipline, consistency and how we're allocating capital across the business, but it's through those levers for investing in the business organically. So we feel really good about the actions we've taken over the last several quarters. Operator: Your next question comes from Joseph Spak with UBS. Joseph Spak: Thanks. Good morning, everyone. Back on the best opportunity. I just want to be clear sort of what you're doing here. So you're -- it's similar to what you doing -- or we're doing on commercial trucks, where you're putting the pack together into a system with some software because it does say sort of chemistry and form factor independent, which leads me to believe you're still not doing the calls here. But I guess the reason I ask is I keep going back to this FinDreamsLFP announcement from 2024. And I know that agreement said it was specifically for commercial vehicles, but I'm wondering if there's any leeway in that agreement to be able to leverage that relationship as well. Joseph Fadool: Yes. Joe. So as you mentioned, we do have a strong partnership with FinDreams and our products are cell chemistry agnostic. So, we're in production today on NMC, but we're also working on future cell chemistries, like LFP, sodium-ion and others. The great part about the pivot here is we're leveraging both our technology that's existing that commercial vehicle and the current CapEx that's invested. So that's 1 of the reasons we can get to market so quickly. So we're moving forward with UL certification and quoting. As far as our content on it, it's very similar to CV or eBUS in terms of procurement of the cells, design of the entire pack, the system, the BMS and the final testing. The main difference is these will be for stationary applications versus mobility. Joseph Spak: Okay. That's helpful. And then just to, I guess, follow on to Emmanuel's question on capital. Look, these opportunities are super exciting, are still relatively small, but you can see how they are much, much -- are much more meaningful in the future. So is there any like just a rule of thumb for -- and I know you're using existing capital as you sort of just mentioned, but is there any rule of thumb about how you would advise investors think about incremental investment dollar per every pick your metric of revenue just so we can understand how the return profile looks going forward? Joseph Fadool: Yes. I think it would be Fair to say that the ROI and capital intensity will be similar to our light vehicle business. So if I look at our turbine generator, which we talked about over the last quarter, although we're putting a greenfield site in for the final assembly and test and Henderson Bill, we're leveraging 4 existing auto plants, broad components and subassemblies. So I think it's a great example of how we're leveraging our CapEx, our capability and our speed, so that we can move quickly into these new markets. Operator: And your next question comes from Colin Langan with Wells Fargo. Colin Langan: Just on the overall guidance to step back. I mean, production has come in a bit worse. Raw materials have gotten better. and the guide is being held. Are there any puts and takes within that we should be thinking about? Is there favorable mix or favorable FX? And any additional cost actions that may be needed to offset some of the inflation we've seen in the market? Craig Aaron: Yes. Colin, overall, we think we can manage the inflationary impact at this point. in our mid-teens decremental conversion. So let me start there. But I'll walk you through again the guide from a revenue perspective and a margin perspective at the midpoint. And really, it's unchanged from our view Q1 was a good start to the year. So when we think about sales year-over-year, we ended last year at $14.3 billion. We do see a headwind from industry production right around 1.5%. A decline versus last year. We see the battery business declining, but we see positive FX coming in as well as some modest outgrowth. And that's what gets us to $14.15 billion, when you think about the margin profile, we're excited that we're expanding margins at the midpoint and the high point of our guide despite some challenges from a market perspective. That's really coming from a couple of areas. First, the exit of our charging business, that's about 10 basis points of enhancement. Additional cost controls, just like you saw in Q1, that's another 10 basis points. And then again, we're holding that decremental conversion in the mid-teens, which includes the inflationary pressures that might, might happen in Q1 and throughout the year. So we're closely monitoring that, but we feel good that we can expand margins and expand EPS this year despite some macro headwinds. Colin Langan: Okay. So there's no incremental -- there's no cost or there's no -- you're going to offset those cost savings actions from a raw material side. Craig Aaron: At this point, we feel like we can manage that appropriately. Colin Langan: Okay. And then on the -- just on the data center and storage. I'm just trying to understand all this. One, just from the energy gen side. I mean, just to be clear, this is more -- at this point, you're just capacity constrained that looks like that market is just completely sold out. And then on the storage side, anything -- any way to size that market, is that potentially just as big as the turbine generator opportunity. And then lastly, as we think of these businesses together, does that actually help you market to customers? Because I believe hyperscalers are actually starting to actually have storage requirements as they build out data centers. Does the combo actually, is that a selling package that you could provide both and that created an added opportunity to win business? Craig Aaron: Yes. Colin, maybe I'll start with the second question. When you think about, again, Page 7 power gen, storage and power conversion, those are highly related and they're all towards solving this power availability issue. So yes, there's synergy between those 3, and we do find customers that want more of a system solution or at least someone that understands the complete system across these very complex product segments. With regard to your first question? The ability to bring storage to market fits well within the same data center growth that we see across all 3 platforms. So from our view, we're talking mid-teens CAGR for the next 10 years or more. So the backdrop and the demand very strong for these products, and it's actually increased over the last 12 months as many folks know. Operator: And your next question comes from Chris McNally with Evercore. Chris McNally: Thanks so much, team. And sorry, some of these will be really questions, I get the toner of the call on the industrial extensions. But I wanted to just kind of phrase it differently. I think the way I'm questioning the size of -- let's focus on the power gen opportunity over the next couple of years. Would you characterize it as -- are we -- is there a supply constraint, a capacity constraint or signing up customer by customer? I mean it's a new business, it's going to be deal by deal. But I would love to know is what is a capacity ramp look like? How does that occur? Is that the type of thing that you'll need multiple years lead time or as the deals come in, as the customer wins come in, capacity will follow. But that supply versus demand, what would be the bottleneck taking a couple of years out would be great for sizing the business. Joseph Fadool: Sure. Thanks for the question, Chris. So let's say this starts massively with demand. The demand for power gen, especially behind the meter, driven by the fact that many utilities have a 4-, 5-, 6-year lead time to get the power to serve these data centers. And on top of that, the growth of Gen AI specifically, it's creating a massive demand challenge. I would say over the last 12 months, what we've seen is the supply constraints of the existing turbine generators and other behind-the-meter solutions has made the challenge even bigger. So we're fortunate to come in at the time we are with a great product that has a lot of value to the customer. So I hope that answers that question. With regard to the capacity we have installed and how do we go about selling that. So as a reminder, we've installed at of capacity, the $300 million next year is the initial launch and revenue that we're planning. So it's a subset of this capacity. So we feel really good about the installation of the 2 gig. We wouldn't install that much if we didn't feel that there was going to be a backlog created. And as we mentioned earlier in the call, we'll likely take a decision whether or not we add additional capacity based on the demand we see in the purchase orders placed. And that capacity could be installed in this market, but we also see demand in Europe and other markets. So we'll also have to decide the location. Chris McNally: And I know we tried to do this last call, and obviously, we're not going to get specific pricing, but just ballpark like 2 gigawatts is multiples of $300 million of revenue. Is that fair to say? Joseph Fadool: Yes. We haven't provided pricing. So yes, multiples is a fair way to think about it. I think if you look at the pricing that's out there for power gen, especially behind the meter, you get a range that's out there. And it's only increased over time. So that might give you some indication of where we're at. Chris McNally: No, that ended. That was the check on the math. And is the last follow-up. I think someone asked right before -- it seems like with the behind the meter and the battery stores that also you could have great lead-in from some of the auto customers, right, on the battery restorage side, a lot of excess capacity we know in batteries. Is that helping on a cross-sell specifically on those 2 businesses? Joseph Fadool: Yes. I would say it's adding significantly to our play. Our play is more about serving these industrial markets directly, not with our automotive customers. Clearly, we have relationships with those customers and where we can work together, we will. But these plays are more about our relationships with the industrial customers. Operator: And your next question comes from Dan Levy with Barclays. Unknown Analyst: Thanks for taking the questions. I'll continue. The line of questions on the data center side. And more so just a supply chain question. I know you've talked about 2/3 on the turbine generator 2/3 of the content is coming from you and then you're heavily leveraging the automotive supply chain. But I think we've heard within the power gen side that 1 of the key sort of supply constraints out there is areas around [ blade, veins ] and very large lead times. So we know that generally, it takes maybe only 1 or 2 components to have a bottleneck. So maybe you could just walk us through your confidence that when you look across the supply chain, there won't be any issues getting what you need for the turbine generator system and that if you're going to expand capacity that the supply chain can keep up with you, even on the most supply limited component. Joseph Fadool: Yes. No, thanks, Dan. So a couple of things that I think may help address your question. So first of all, our turbine generator system, it does leverage not only our supply base, but our technology. So our turbo products are radial turbos many of the large turbines are more flow-through or axial turbos. So it's different technology, different levels of material selection for these are more consistent with what you see in commercial vehicle applications and sometimes pass car. So the requirements are different for what we're buying. Second point, -- it is true 80% of the supply base for the turbine generator is already in a BorgWarner is already a BorgWarner supplier. So they know how to work with us from developing those components to launching and producing those components. So we feel that's a big risk reduction, getting this product to market. I think the third important thing here is 1 of the things that we are experts on is global supply chain. I mean we have teams of people around the globe that manage suppliers in many, many commodities. So this is our wheelhouse. It's a core competence of the company and we're going to bring all that confidence to launch these products. So from time to time, you do see a constraint or you see an issue with the supplier. But as a global company, we get boots on the ground to address those constraints and make sure it doesn't impact the products to our customers. . Unknown Analyst: Great. As a follow-up, I'll give you a question on the core business today. I mean our reaffirming the guidance for the growth of the market to be flat this year, but you've given a sort of another slide of all these component wins. You've talked about really being this reacceleration of growth. Maybe you could just give us an update on where we are on line of sight to the rest of the portfolio seeing a reacceleration. Is it just content gains, new new program launches? What's going on that's driving that uptick in growth from the core portfolio in '27. Joseph Fadool: Yes. I think it's fair to say, in 2016, we're still living with the overhang from some of those programs on the EV side from a couple of years ago. but we're working through that. In '27, what we like to point to are the product wins across the entire portfolio. So if you just go back last 18 months I mean over 30 awards we've announced publicly. And it's not just 1 part of the world. It's not just a couple of product lines. The other thing to point to is if you just look at this quarter, we announced 12 wins, 3 of them were conquest wins. So what we've been sharing over the last 12 months that the strong will not only survive, they're going to thrive in this type of market, we're starting to see that in the program wins. And of course, as those launch we'll start to see the revenue beginning in 2027. Operator: And our next question comes from Luke Junk with Baird. Luke Junk: Maybe you could just put a finer point on how you're thinking about capital allocation is a way to maybe potentially accelerate the data center and industrial story in an inorganic sense. Is that something that you're looking at intentionally in terms of building the acquisition funnel and thinking sort of holistically and deploying capital towards these efforts? Joseph Fadool: Yes, Luke. So the capital allocation story hasn't changed. I would say, over the last 12 months, we've continued to open up the aperture of what we're looking at. So not only automotive and CV space, but also this new data center space, but I just want to bring us back to the 3 criteria. The first 1 is, it needs to make a lot of sense and leverage our competence. We wanted to be accretive, and we want to pay a freight price. We want to pay a fair price. So we want to stick to that discipline, and you can kind of Craig and I to do that. But we do feel more and more confident that our products and technology played really well into this data center space. So as you can see, we're leaning further into it with the R&D investment. And so I can expect we're going to look at some things that might help accelerate that journey. But you can count on us being disciplined about it. Luke Junk: Stay tuned there. And then second, maybe this is an unfair question, Craig, but I'll ask it. Just you mentioned that you're confident in the right path to achieve full year guidance, why not raise the display margins, especially, -- is it just too early in the year? Or is there something that we should be thinking about in terms of investments tied back to these incremental products that you're showing us this morning. Craig Aaron: Yes. I think we had a really good Q1. There's still a lot of uncertainty in the overall environment, but when you look at our performance, that's implied in the guide, and I'll walk through what we saw Q2 through Q4 last year versus this year. Q2 through Q4, sales were about $3.6 billion a quarter. Margin was about 11.0%. And -- what's implied in our guide is revenue is coming in a little bit lower, $3.54 billion per quarter, about $60 million loss per quarter, and that's really the contraction in our battery business. But our margin profile is staying right about 10.9%. So basically on top of the 11.0% and it's managing that decremental conversion right around the mid-teens, which is what we've communicated consistently. So from my perspective, I think, hey, solid Q1, a lot of uncertainty with higher energy prices around the globe, through Q4 looks pretty consistent year-over-year. We feel like we're on the right path to create value by executing our guide. So that's where we sit today, look. Operator: And your next question today comes from Andrew Percoco with Morgan Stanley. Andrew Percoco: I do just want to come back to the power gen side 1 more time. I know you're in an exclusivity with Endeavor for this turbo cell product. But as you mentioned, it's such a capacity-constrained market and you obviously have a decent amount of content and in-house capability there. I'm curious like whether or not you've evaluated if there is an opportunity to develop a product on either on a stand-alone basis or work through Endeavor to look outside of their captive universe of customers to deploy this product. Joseph Fadool: Sure. So Andrew, a couple of things. It is true. We're an exclusive relationship with Endeavor to bring that turbine generator to market. What we're hyper focused on is a successful launch next year in 2027. One of the things that's important to know, so Endeavor and the entity we're working through Turbocell, they sell internally for their own data center use, but they also are able to sell to other customers and users. So you need to keep that in mind. They understand the market. They've been in this market for a long time, the principals have -- and of course, they want to leverage those relationships and know-how. And we're more of the design and manufacturing house to help them deliver. So Hopefully, that brings some clarity. As far as the other 2 products, battery, we're actively quoting and I would say, with an outside of Endeavor inverters, the same. The exciting part about the inverters is the 4 customers we're shipping product to for their testing. So I feel real good about the overall momentum of these 3 product segments. Andrew Percoco: Okay. So that makes sense. So essentially, Endeavor could sell that turbo cell product outside of their own data center applications, if there was demand for it. So that's a helpful clarification. And maybe to follow up, on the battery storage for a second here. I think it was asked earlier about the content. Can we just double click on that. If you think about the current environment, I think battery storage on average, it's $225 to $250 per kilowatt hour. Is there a way to bracket what your content is as a percentage of that potential ASP? And as a follow-on to that, I think it makes sense that you guys are getting into this market, you have core competencies there. I think 1 thing that we've seen across this landscape is the service angle and the service requirements from some of these customers can be a lot different than maybe what you see in auto. So I'm just curious in terms of the investment needs maybe on the service side of the organization to make sure you're providing the level of uptime needed for some of these customers? Joseph Fadool: Sure. So the content of the battery energy stores, we want to think about it, it's very similar or maybe a little bit incremental to what we serve on the CV side. So we're buying cells. We're designing complete packs. We're assembling those complete packs. There's other value-add like battery management systems and control systems, software development, and then we test and ship those packs. Now the main difference is these are in stationary applications as opposed to mobility. So you would see a little bit different structure there. But in essence, it's a very similar type of product that we serve the CV market with. Operator: We have time for 1 final question, and that question comes from Mark Delaney with Goldman Sachs. Mark Delaney: One on the power gen business as well for me. Joe, you mentioned BorgWarner may need to expand capacity there, and you're going to have to make that decision soon. We've also seen several hyperscale guides now during earnings season, they've been pretty robust. So given that backdrop and based on your customer engagements and discussions with Endeavor, should investors think about BorgWarner shipping the full 2 gigawatts in 2028. Joseph Fadool: Yes. We haven't shared that level of detail. I would say as we get into early 2027, we'll start to provide more color on the sales and a longer-term view on the business. It is true. We've seen recent announcements with hyperscalers really growing their capital investments, which I think holds well for this entire data center space. So -- but we'll provide more details as we get into late '26 or early '27. Mark Delaney: Okay. My other question was specifically on the auto business and China, the company spoke about a little bit of growth in our market in China in the first quarter based on some program timing. Maybe talk a bit more on how you see the China market developing from here and your ability to get back to growth over market in part given some of the past wins you've discussed? Joseph Fadool: Sure, Mark. So first, it's important to note, generally speaking, we are really strong in the China market. We continue to win business there. It's a very important market for us. I think what you've seen in this last quarter, if you start with the market itself, the domestic market was down -- but overall, it was buoyed by a lot of export sales. And much of that export sales has put into content on it. So we continue to feel optimistic about that market. It's hard to read too much into 1 corner like we have in the first quarter. But generally speaking, the Chinese OEMs continue to grow their share globally and a lot of it has to do with the export markets, which we're very well positioned in as they eventually localize in those markets. Patrick Nolan: Thank you all for your great questions today. If you have any follow-ups, feel free to reach out to me or my team. With that, Michael, you can conclude today's call. Operator: This concludes the BorgWarner 2026 First Quarter Results Conference Call. You may now disconnect.
Mathew R. Ishbia: Thanks for joining today. I appreciate you all. Obviously, a little different format this quarter. Hopefully you like it. We would love to get feedback on it. This probably fits my style more. Hopefully, if possible, I would love to be able to see you too. I do not think we set it up that way this time; maybe next time. I appreciate everyone being here today. I have a bunch of questions, so I am going to go through them. I know last quarter we did not do Q&A and people missed that, so I am happy to do this and make it valuable to you in any way possible about the industry and about UWM Holdings Corporation. I have a whole variety of questions. I will try not to duplicate and will tie some together. I will read a person’s name, read the question, and go through it. If anyone has any follow-up questions, I know I cannot take them live this way, but our investor relations team, Blake and everybody else, will be able to handle your questions and help you with anything you need. Let us get started. We will jump into it right now. First question, I have Doug Harter from BTIG: What is the status of bringing servicing in-house? What is the latest timeline transitioning all servicing to our own platform? Status of bringing servicing in-house: it is going fantastic. We feel really great about where servicing is right now and how it is going. We have fewer than 100 thousand loans on today, but all new are going on, and we have moved a bunch of loans over from Cenlar already. We feel really good about that. The process will be this year. Over the whole year, we will bring all of our loans in-house so there will be no subservicers by the end of this year. UWM Holdings Corporation will handle it all. It is going really great. Our technology process is going great. We partnered with Black Knight, we partnered with BILT, and we have also built a bunch of stuff ourselves. We feel really good about how that is going. Our client service has been excellent. All the metrics that people look at are fantastic, so we feel really good about that across the board. So servicing in-house is great. Transition timeline: that is this year. Hopefully that answers your question, Doug. I know there are a lot of servicing questions. I am sure I will get to them as we go through it. Next one, Ryan Nash, Goldman Sachs: What are your thoughts on future gain-on-sale margins? What does the competitive landscape look like in a heightened rate environment? Rates went up in March from February. I think the 10-year finished at 3.95%. And so seeing rates go up, how does that impact competitive landscape and gain-on-sale margins? We are in a really great position from a margin and competitive position standpoint. The competitive landscape is very competitive right now. A heightened rate environment means purchases more than refi. However, you looked at our first quarter—we did a heck of a job on the refinance side. I see gain-on-sale margins in the range they are in right now being the right range, and I think that will continue: not significantly higher, not significantly lower. I actually think there is upside in the margins. Our margins were pretty strong in the first quarter. I expect them to be in those ranges again in the second quarter. If rates come down, you could see margins increase. The competitive landscape is very competitive out there right now. We had a great first quarter—you saw the numbers and what we did—and first quarter is usually the slowest quarter. Rates going up, the war going on, and uncertainty create issues in the rate environment, but we feel really good about where it is at right now. Ryan Nash also asked thoughts on the Knicks winning it all. They have a very, very good team. We just lost to Oklahoma City, who is an amazing team too. The East is open. The Knicks have a real good chance. Not really cheering for anybody—I am just watching and learning. Good luck to your Knicks. Next question, Mark DeVries from Deutsche Bank: What is the strategic value you see in Two Harbors, and what updates can you share regarding its progress or impact? The Two Harbors thing is out there right now; it is interesting. When we originally went to acquire the company, they had something really great: a pristine servicing book. When we originally agreed on the deal before all the work was done, we thought there would be a lot of synergies also—capital markets expertise, maybe some finance expertise, and their servicing platform we could learn from. As we went through due diligence, we learned there was a really great servicing book, and we still like that servicing book. We originally put an offer out there. Where that stands now: we do not see as much value in their management team. Their team members are very good, but their leadership team—we were not as impressed with. They went out and tried to get another bid, and they did. Whether it was appropriate or not, we can discuss that at a later point. If they would have engaged with us, we always planned on paying $12. Quite honestly, based on when the stock price went down, I would rather pay it in cash than in stock. I feel like I am giving my stock away at a really low price. They never engaged—they just went out to another offer. We made another offer; they basically ignored it. We made another one and said, okay, we will go to $12—what we originally planned on paying. I think it was maybe $11.95, but you can do the math based on when the stock was at $5.11 or $5.15 the day we cut the deal, I think. We still feel really good about that deal. It is very clear that their management team and their board, which has had its own issues in the past with lawsuits and such, may be playing some games because they realize that we do not see any value for them specifically. They have really great shareholders, which we are excited to bring on to UWM Holdings Corporation. But their board and their management team do not have any value to us. Now they are trying to do anything they can to potentially engage with someone else so that they have jobs and sustainability. It will play out. The strategic value is their MSR book. Their shareholders have some value because we got a chance to get to know them during that process and feel like they are really good shareholders; we would love them to be UWM Holdings Corporation shareholders. Whether they take cash or stock does not matter to me. We feel really good about that. For the shareholders of Two Harbors, they obviously would prefer taking $12 in cash or UWM Holdings Corporation shares than taking $11.30 in cash. That is obviously going to play out that way. We feel good about the strategic value. It is very clear to us that it is the MSR book and the shareholders; we do not have any value for their leadership team, which is obviously not what they like to hear. Next, Mikhail Goberman from Citizens Bank: How do you foresee the balance between origination income and servicing income evolving, especially given the post-war reversal of rates seen since February? We are an origination company. We are the biggest and best originator in the country. We feel great about where we are in origination. You saw an amazing first quarter. We have been the number one originator for four straight years and the number one wholesale lender for eleven straight years. Origination is our game. As we bring servicing in-house, we will have more servicing, and we will continue to retain the servicing. Are we still opportunistic if someone gives me a bid that we believe is more than the intrinsic value? I will sell the servicing. I have those options. With the lower cost of servicing by bringing it in-house and the better level of service, which will help retention, we feel like we have the best of all of it. We will see with the income levels—origination versus servicing—but origination is still our game. We will continue to build out the servicing book, but we are always opportunistic. People call us all the time. Even with Two Harbors—some of the “pristine” servicing book they have happens to be our old servicing book that we sold them. We feel good about the paper we originate every day and servicing the loans, but if someone wants to offer us a great opportunistic price, we will always look at that. Jason Stewart from Compass Point: Was there an increased number of high-producing brokers affiliated with UWM Holdings Corporation during the quarter supporting wholesale channel growth? Good question. High-producing broker shops affiliated with UWM Holdings Corporation—I always say the numbers roughly—there are about 12 thousand to 12.5 thousand brokers that work with UWM Holdings Corporation, and maybe there are 400–500 that are not all-in with UWM Holdings Corporation. So there are not that many high-producing shops to bring over. Almost everyone in the market works with UWM Holdings Corporation. That is why we have almost 45% market share—I think it is 44.7% or 44.8% market share for the year last year in the pro channel. Our big focus is to grow the channel, help brokers do more, and help more originators realize that broker is the place to go—whether they join a broker shop or start their own—and that has been a really big focus. As the broker channel grows, UWM Holdings Corporation will grow, even if our market share happened to go down. I feel great about growing the broker channel. Are brokers coming over to join UWM Holdings Corporation? Yes, every single day people see the value of what UWM Holdings Corporation does. A separate note on the “all-in” thing with brokers from years ago: one of the biggest adversaries of UWM Holdings Corporation was a guy named Mike Fawaz at Rocket who was saying negative things about UWM Holdings Corporation and about what we do and how UWM Holdings Corporation was not best for brokers. Recently, he left Rocket, started a broker shop, called me, and now he is working with UWM Holdings Corporation. Someone that knows every detail at Rocket came and learned about UWM Holdings Corporation, started a broker shop, and picked to work with UWM Holdings Corporation. That sends a message. There are not that many big broker shops left out there that do not work with us, but that is an opportunity. The bigger thing is to grow the broker channel and continue to grow. The broker channel is continuing to be very positive, and we are excited about the growth. I have a couple of questions on Mia and the AI initiative, so let me combine them. One person asked about Mia’s text messaging capabilities and customer response to Mia generally. Let me give you a Mia update. Mia has been fantastic. It has been almost a year—I rolled it out at UWM Live last year—and it has been amazing. I would say roughly in the range of 80 thousand to 100 thousand closings over the last year have come from Mia. The last report I saw was very strong with Mia’s initiation of refinance opportunities. If you look at our servicing book, people ask, “You have 2% or 3% of the servicing book, but you did 12% or 13% of all refinances.” Mia is a big part of that. Brokers do a great job with the consumer upfront; consumers want to come back to the broker. The problem was brokers did an average to below-average job of following up with their past clients. They would do the purchase and then would not talk to them again. Now, with Mia, she is keeping the broker in front of the consumer. When the consumer goes to refinance, they work with the broker because the broker offers a better deal anyway; they just know who to call. Mia leaves voicemails and sends a text message out. She calls, and about 40% of her calls get picked up, which is higher than we expected, so 60% go to voicemail and we send a text message also. A lot of those call the broker back: “Was that AI or was that real?” Then they connect and do a loan. On the 40% that pick up—on a 40 thousand-call day, about 16 thousand—borrowers talk to Mia and have two-, three-, four-minute conversations. Some of them know it is AI and some do not—it has gotten that good. We send a follow-up email to the broker: “You have a call scheduled at 3 PM with Jenny, the borrower,” and it has been very successful. We are continuing to enhance it and make it better. The scale we are doing with our IT team has been phenomenal. I do not know anyone in any industry doing it at this scale. It is going to get better next week at UWM Live and beyond. We have big enhancements coming. It helps brokers win. That is a big part of how with 2% or 3% of the servicing book we are doing 12%–13% of refis—Mia and great brokers staying in front of their clients. Kyle Joseph asked to review industry competitive trends, current broker share, and how we anticipate it evolving. Current broker share is about 28%. Five years ago, in early 2020, it was 14%–15%, so it has almost doubled. Will it double again? We are working on it. Our goal is to help brokers be the number one overall channel—50.1%—and we are on a path to doing that. Our share has been very steady—over 40% for years now, roughly between 40% and 45%. That has never been done in the wholesale channel. It is because we provide value: we help brokers grow, look good to real estate agents, do more business, make the process easier, and be successful. We train them, coach them, and give them tools to win more loans. We will continue to be the best and the biggest in wholesale and overall. Being the largest lender in the country for four straight years, we only have a chance at 28 out of 100 loans. Every other lender is competing for 100 out of 100. If that 72 out of 100 that is retail moves to 65, 60, or 50, that is growth for UWM Holdings Corporation. That is why we are bullish on our growth and the broker growth—we are all going to win together. I also got a couple of questions tied to expenses. You saw our expenses went down. We invested a lot for years, and now we are starting to see the harvesting or success of those investments—TrackPlus, free credit reports to help brokers grow, and more. You will see more of a leveling out of expenses. They went down. Our investments are starting to pay off. You saw a little in the first quarter. Compared to the industry, we had a great quarter. Last year’s first quarter was $32 billion; this year we did about $45 billion. That is significant. Our gain on sale was up and volume is up year-over-year. Expenses are flat or down. We feel good about where we are from an expenses perspective. I think of them as investments, and they are paying off. Mikhail Goberman had another question on the new VantageScore rating system for borrower credit. Kudos to the leadership of FHFA on rolling out a new way. FICO scores and credit reports have gotten really expensive. With a competitor in there, you have options. Options create better outcomes—that is why wholesale works. Now FICO and Vantage are both striving to be the best. There were very few companies put on the pilot; we were one of them. I think it rolled out less than two weeks ago from FHFA Director Sandra Thompson with the support of Fannie Mae and Freddie Mac. Four business days later—Wednesday of last week—we rolled it out. VantageScore has been an enormous success. Not just saving $50 a credit report, though that is possible too. We have both FICO and VantageScore and are making sure borrowers get the best opportunity because they have different models. Vantage looks at thinner credit differently, can add rent and other things so more people can qualify or qualify with a little bit higher score. Under current comparability, you take a 20-point haircut from Vantage to FICO. So if a Vantage score is 744, that is equivalent of 724 in FICO. If the FICO score was 719, I just got that borrower a better deal with lower LLPAs. That is a win for consumers. In five business days, the amount of emails I have gotten on loans we have helped brokers win and consumers grateful that they can qualify for a home or got a better interest rate and lower fees has been phenomenal. Kudos to FHFA, to Fannie and Freddie for getting it out. We rolled it out with VA loans today, and FHA will be soon. MI companies like Essent and Enact are on it too. FICO is still great in many ways. It is not one or the other—both are great. We want to help consumers qualify for a mortgage and have better credit profiles. The rollout was done in four business days and worked flawlessly—our IT team did a heck of a job. Others may have it out in May or June. We are rolling with it now—saving loans, helping loans, giving better deals right now because of Vantage. I have a couple of questions on the BILT partnership. Indications of the BILT card relationship, increased leads, status of the partnership, and infrastructure in place. BILT—Ankur Jain, the CEO—is phenomenal. Their vision is great. UWM Holdings Corporation is a servicer; we brought servicing in-house. We are controlling everything. We chose a platform on the front end that provides rewards points to consumers for making their mortgage on time without using a credit card—they can use ACH and still get points. That has never been done in our industry. Rewards points for making your mortgage on time. People love points. You can also link your credit card and get points—your American Express points and BILT points—and use them for flights and other things. It is really cool. Beyond that, the servicing platform is slick. We built this with them, because they had never done this before on the front end for mortgage. It is great for consumers. BILT has over 6 million consumers and, depending on the year, 8%–10% of them buy houses. Those are curated leads. They will want to stay on the BILT platform and work with a mortgage broker. That is a huge opportunity. We already had that in pilot. There is a concierge service that gives our consumers—our brokers’ consumers—an amazing platform to get things done and make their life easier. It is a cool neighborhood experience. Ankur is going to speak at UWM Live next week—if you are there, you will understand it better. The vision is awesome. The key is UWM Holdings Corporation has servicing in-house. We have been the best originator in the country for a long time; we are going to be the best servicer because we are focused on it. It will help retention for our brokers and make the consumer experience better, with ancillary benefits too. The partnership is launched, rolling, fully active, and getting better every day—as we do with everything at UWM Holdings Corporation. We do not have all 700 thousand consumers on it yet; those are moving on to it. I have shadowed the team. The servicing process has been really great. You asked in the past why we did not do it—I always said focus on originations. We still do. The cost/expense will be great on servicing, not outsourcing anymore. Better yet, retention and experience for consumers and our brokers will be even better. We are excited about that. I also got questions on what we see in the business for the next three to five years (and even ten). Here is my high-level view. Over a five-year window—call it 2027 to 2031—we are expecting to do over $1.3 trillion in mortgages. There might be one year in there with $400 billion, and a year with $150–$200 billion, but I believe $1.3 trillion is the north star over five years. While that happens, my expenses basically stay the same. With our AI initiative and our technology, the expenses you see today—call it roughly $600 million in the quarter (I think it was about $590 million)—I expect that to be the level even as volume more than doubles. On top of that, I see another roughly 20%–25% in other revenue coming into UWM Holdings Corporation starting to happen with some ancillary products that are picking up steam. So revenue growth outside of just volume and gain-on-sale. To summarize: $1.3 trillion over five years, gain-on-sale margins in these ranges (maybe slightly higher), expenses flat or down (I will call it flat), and other revenue tied to AI initiatives that are starting to produce margin and other revenues. If I did not answer a shorter-term detail, Blake Kolo and investor relations are happy to talk anytime. Kyle Joseph: How are you thinking about the Homebuyer Privacy Protection Act (trigger lead rule) and potential impacts on competitive environment and overall margin? The trigger lead rule (effective March 4) definitely changed things. When a consumer used to pull credit, 50 people would call them. Now it is the servicer, the original lender, original broker, maybe their bank—three or four. That has changed the competitive landscape and is probably a better experience for consumers (fewer calls). On the flip side, consumers may not get as many options. You might get offered 6.5% with $5 thousand of fees and not know you could have gotten 6.25% with $3 thousand of fees working with a mortgage broker—going to mortgagematchup.com. Trigger leads made people compete more. From a competitive landscape, you could argue it is maybe not as good for consumers on rates and fees, though experience is better. If you are only winning on rates and fees, you will not be around long in this business. I could argue it may increase margins a little because there is less “low-ball to win” with fewer calls. It has been about 60 days—still early—but that is what we are seeing. Brokers who used trigger leads are finding other ways to buy data. It is still competitive, just a lot less noisy. A couple have asked about debt ratios: Why did secured debt go up relative to other aspects of the balance sheet, and how do we look at the debt ratio? We look at the debt ratios every day. The debt ratio was really good a couple of years ago when volume was not as good. Now the business is really good, and the debt ratios are not as good as we would like. Some of those ratios and liquidity numbers are a little bit of an anomaly based on trades we have out there to help balance the MSR book, which can move around. At the end of the quarter, it was up; it has already come down a bit now. Those fluctuations can throw the ratios off a little; they are better than they appear. We feel really good about it. We watch the numbers closely. The key is earnings. You saw we had a good earnings quarter in the first quarter. There will be quarters with bigger earnings. We are monitoring and managing it. We believe in delivering value to shareholders—dividends, which we have been doing, and potentially buybacks or other things. Overall, our leverage ratios and debt ratio—we feel really good. We monitor and manage them, and there are a lot of levers we can pull to make those ratios better while still doing more business and having higher earnings. You will see some of those in the second quarter and beyond. Jason Stewart from Compass Point: During periods of heightened volatility at the start of the year, how do you manage lock duration and pricing cadence? Do you increase frequency of rate sheet updates? How much volatility is absorbed? And impact of things like Purchase Boost 50 and pricing initiatives? The market has been very volatile. We have an extremely experienced capital markets team. Yes, sometimes you have two or three different rate sheets in a day—maybe four or five on rare days. If rates get better, we put an improvement out there to ensure brokers have the most competitive opportunity. If pricing gets worse, we worsen pricing. These numbers move all day. We have thresholds that move pricing up or down; when we hit those, we act. Some days you put a rate sheet out at 10 AM and nothing changes all day, or not enough to change pricing—we want some consistency for our clients as well. That balance is why you saw really strong margins in the fourth quarter and first quarter, and you will see strong margins in the second quarter. Built-in rewards have nothing to do with gain-on-sale or pricing; it is just another benefit for brokers and consumers because they get rewards points through BILT. On Purchase Boost 50 and other pricing initiatives: all are designed to help brokers succeed and win. Our brokers are not “I need the lowest price” to succeed. If lowest price alone won, they would cut comp in half and all use Provident. That is not how it works. A lot of our price incentives are more strategic. They incent brokers with price to use a tool of ours. For example, we had an incentive tied to 40–45 bps if you used hybrid or virtual closing because it makes the consumer experience better. That makes the consumer more likely to like you and refinance with you in the future. We track borrower happiness on every single loan. A lot of those are investments and are reflected in gain-on-sale. We did some of that in Q4 and Q1, and gain-on-sale is still much higher than last year’s Q1—about 123 bps in the first quarter (about 122 in the fourth). We track it daily and understand where we are. We give a very competitive price to our brokers, add significant value to help them win more loans, and provide the best service in the industry. We come out with AI tools and technology; we invest with free credit reports to help brokers compete even more and help more consumers. Many of these decisions are strategic to help brokers win. Sometimes a broker has never done a virtual closing, and the extra 45 bps gets them to do it, and then they continue doing it because they realize it is best for the consumer and helps them build their business. If brokers win, UWM Holdings Corporation wins. When consumers realize the fastest, easiest, cheapest way to get a mortgage is through brokers, UWM Holdings Corporation wins. Real estate agents win. We are one team because it is best for consumers. When a consumer goes to a random commercial or their local bank, they usually pay higher rates. When a consumer goes to mortgagematchup.com, they will find a broker who will get them a better rate, better fees, and a better experience. Anything I can do to drive more business there is what I will do. UWM Live is next week. It is the biggest mortgage event of the year. Please come. I will be there all day. We have great speakers. It is really cool to see the broker community. I will meet with investors and analysts—happy to spend time. We have covered a lot of the questions. Let me know how you like the format. Maybe next month, I can see you too, and we can have more interaction. Hopefully you like the format. I know last quarter you did not like that we did not do Q&A, so I am here for it. I love this. I will do this anytime. I enjoy talking about our business and the industry. Please give us feedback—give our investor relations team feedback on the format. If I did not answer your question, investor relations—Blake and the whole team—will answer all your questions. We appreciate you. Thanks for being partners of UWM Holdings Corporation—shareholders, investors, analysts. Anything we can do to help make your life easier. We are going to keep winning together with our brokers. The broker community and UWM Holdings Corporation will continue to grow with my amazing team members here. Thank you for your time. I am excited about the future here at UWM Holdings Corporation. The second quarter is going to be great as well. We will do the same format again unless we get a lot of feedback that you did not like it. Hopefully you did, and hopefully it was valuable to spend this time with me. Have a great day. Blake Kolo: The video is not, but we can hear you. They can hear you. Okay.
Operator: Good morning, and welcome to the Fubo Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Ameet Padte, SVP, FP&A, Corporate Development and Investor Relations. Thank you. Please go ahead. Ameet Padte: Thank you for joining us to discuss Fubo's Second Quarter Fiscal 2026 Results. With me today is David Gandler, Co-Founder and CEO of Fubo; and John Janedis, CFO of Fubo. Full details of our results and additional management commentary are available in our earnings release and letter to shareholders, which can be found on the Investor Relations section of our website at ir.fubo.tv. Before we begin, let me quickly review the format of today's call. David will start with some brief remarks on the quarter and our business, and John will cover the financials and guidance. Then we will turn the call over to the analysts for Q&A. I would like to remind everyone that the following discussion may contain forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding our financial condition, our expected future financial performance, including our financial outlook, guidance and long-term targets, business strategy and plans, including our products, subscription packages and tech features, our partnerships and other arrangements, the benefits of the business combination, including expected synergies and integrations and expectations regarding growth and profitability. These forward-looking statements are subject to certain risks, uncertainties and assumptions. Important factors that could cause actual results to differ materially from forward-looking statements are discussed in our SEC filings. Except as otherwise noted, the results and guidance we are presenting today are on a continuing operations basis, excluding the historical results of our former gaming segment, which are accounted for as discontinued operations. During the call, we may also refer to certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also available in our Q2 2026 earnings shareholder letter and press release, which are available on our website at ir.fubo.tv. With that, I'll turn the call over to David. David Gandler: Thank you, Ameet. We appreciate everyone joining us for today's call to discuss our Q2 2026 financial results. We delivered the strongest second quarter in our history on an adjusted EBITDA basis. More importantly, on a trailing 12-month basis, we have now exceeded $100 million in pro forma adjusted EBITDA, an important milestone that reinforces our confidence in delivering against our long-term target of at least $300 million in adjusted EBITDA by 2028. We also achieved record revenue for the quarter, driven by continued expansion of our Fubo and Hulu + Live TV offerings, differentiated content and product innovation. The migration of our advertising business to the Disney Ad Server began in February, and we are pleased with the early benefits to date with both fill rates and CPMs experiencing healthy increases. The business combination fundamentally expands our strategic position. Fubo is now built to scale as a preeminent video player driven by flexible content packaging. We can aggregate and deliver a range of content packages at different price points, allowing us to serve distinct consumer segments rather than forcing a single package across the entire bundle. That flexibility is a durable advantage and a key driver of both growth and margin over time. We are already executing on this strategy. We now offer our Spanish-speaking customers 2 clear options. Fubo Latino, a lighter bundle without Univision and Hulu + Live TV Espanol, a more comprehensive package launched this quarter, which includes Univision. Fubo is applying the same approach across our broader service portfolio. We offer the Fubo Sports service alongside our core Fubo bundle as well as a more comprehensive entertainment offering through Hulu Live, which includes NBC and Versant. This diversified product set is designed to expand choice while reducing churn. Importantly, we believe we have successfully navigated the loss of NBCU on Fubo, even during a period when NBC held a dominant portion of February sports programming. Customers continue to access that content through Hulu Live and incremental churn at the combined business during the quarter was minimal. This provides a clear example that we are not reliant on any one programming provider as we segment our content strategy across our portfolio. At the same time, we are beginning to unlock synergies following our business combination. Over the last 12 weeks, we have been hard at work to explore, define and execute against a series of initiatives we've identified to power future growth. Let me expand upon a few of these. First, Fubo's aggregated storefront now offers the full Fubo and Hulu + Live TV content portfolios. Consumers can select the content plan that's right for them, whether that's an English or Spanish package, our Fubo Sports service, the Fubo virtual MVPD or Hulu + Live TV's complete cable replacement package. Second, through our integration with ESPN, fans looking to watch a live game will soon be able to seamlessly access Fubo via linkouts on ESPN's Where to Watch pages, creating a new acquisition channel. Third, we previously announced that our Fubo Sports service will be integrated into ESPN's e-commerce flow through a reseller and marketing arrangement. I'm pleased to update you that launch is expected in the first half of calendar year 2027. As a reminder, the ESPN ecosystem reaches over 100 million users every month. Through our progress on various cross-selling initiatives, we are building a powerful growth flywheel to scale our business. But this is just the start. We believe the next phase of aggregation will be the conversational layer, where discovery becomes the product. As content libraries expand, simplifying how consumers find and engage with programming becomes critical. This fall, we intend to launch our first AI conversational feature within the Fubo app, starting with sports. With Fubo's AI Assistant, customers will be able to use natural conversational voice to search their DVR'd content for game highlights and ask for recommendations. They can ask precise questions, such as give me all of the scoring plays by the New England Patriots quarterback in the past 2 games, but I only want to see passing touchdowns, no rushing. Or I'm trying to figure out who to move on to my fantasy team. Show me all of the Kansas City Chiefs defensive highlights from last month. We believe our AI Assistant is a fundamentally more intuitive way to interact with live sports and video than scrolling up and down or being fed algorithmic carousels. We expect this to drive deeper engagement and stronger attention over time. We look forward to adding the AI Assistant to Fubo's Roku, Apple TV and mobile apps to start. We also plan to extend the AI Assistant to news and entertainment talk shows, enabling the Fubo app to instantly retrieve any clip our customers are looking for. In closing, we are more confident than ever in the Pay TV category and in Fubo's growing position within it. Based on these and other initiatives, we believe there will be opportunities to drive growth and scale as we focus on our long-term target of at least $300 million in adjusted EBITDA. I will now turn the call over to John Janedis, CFO, to discuss our financial results in greater detail. John? John Janedis: Thank you, David, and good morning, everyone. The second quarter of fiscal 2026 marked our first full quarter as a combined company following the close of our business combination with Hulu + Live TV. As a reminder, to facilitate comparability between periods, we will discuss our results on both an as-reported and a pro forma basis, which gives effect to the transaction as if it had been completed at the beginning of the first period presented. Turning to results for the quarter. In North America, our revenue for the second quarter was $1.566 billion compared to $1.125 billion in the prior year period. Pro forma revenue in the prior year period was $1.556 billion, representing 1% growth year-over-year. In terms of our user base, we ended the quarter with 5.7 million total subscribers in North America compared to 5.9 million in the prior year period. Turning to our profitability metrics. Our net loss for the second quarter was $6.2 million compared to a reported net loss of $40.9 million in the prior year period. Pro forma net income in the prior year period was $120.6 million, positively impacted by a $220 million net gain related to the settlement of litigation. Earnings per share for the quarter reflected a loss of $0.07. We delivered adjusted EBITDA of $37.7 million in the second quarter compared to pro forma adjusted EBITDA of $1.4 million in the prior year period. From a cash and liquidity perspective, Fubo ended the quarter with $244 million in cash, cash equivalents and restricted cash on hand, and we continue to expect to finish the year with more than $200 million of cash on our balance sheet. I would also like to provide some additional commentary around the near- and long-term financial targets we recently released. For fiscal 2026, we continue to expect pro forma adjusted EBITDA of $80 million to $100 million and at least $300 million in fiscal 2028. We also expect to deliver positive free cash flow in fiscal 2027 and fiscal 2028 under our current operating plan. Our outlook is supported by elements of our business combination in which we have a high degree of conviction. As a reminder, for our commercial agreement, Fubo received a wholesale fee relative to Hulu + Live TV's carriage costs, currently at 95% in calendar 2026 and scaling to 99% by 2028. This contractual step-up provides strong visibility into our expected earnings profile and adjusted EBITDA expansion. Furthermore, the company captures advertising revenue from both the Fubo and Hulu + Live TV businesses. Together, these elements reinforce our expectations regarding the long-term earnings power of our combined entity. In summary, Q2 was a healthy quarter for our business, and we believe we are just beginning to realize the full potential of the Fubo and Hulu + Live TV business combination. As David noted earlier, we are excited about our new initiatives and the opportunities ahead. As we move forward, we remain focused on establishing a sustainable foundation for growth. With that, I'll turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] Our first question comes from Kutgun Maral from Evercore ISI. Kutgun Maral: There's a lot to talk about, but I wanted to actually focus on advertising. With Fubo's inventory having now moved over to Disney's ad platform, it seems like there's a lot of opportunity, but the broader streaming ad market has been choppy for some folks. So I'd be curious if you could talk about any of the early indicators you're seeing on whether the Disney relationship is creating real upside net of the 15% agency fee, perhaps, in terms of CPMs, filler rates or something else? And how much of the medium-term EBITDA plan that you laid out assumes a meaningful ad monetization improvement versus just stabilization? John Janedis: Kutgun, this is John. Let me answer this one. I would just say the short answer is yes, and we're already seeing that. It's been less than 90 days since we started the migration of the inventory to Disney's ad server. And we have seen improvement in both CPMs and fill rate. And as you know, those are the key components of that ARPU, and we think that can continue. The CPM improvement has come in faster than expected. I'd say in terms of timing, we expect the migration to be fully completed by the end of the year. And then at that point, the Fubo ad ARPU is expected to converge with Hulu Live. On the second part of the question, look, the largest component of the adjusted EBITDA improvement will come from the contractual increase in the wholesale fee from 95% to 99%. But I would say the ad monetization improvement is tracking in line to better as of now. And I'd say also the quarter came in ahead of expectations. Operator: Our next question comes from Matt Condon from Citizens Bank. Matthew Condon: I just want to ask, just given the combination with Hulu Live TV meaningfully expanding your subscriber base and with it sort of your content cost leverage, can you just help frame the timing of when that scale benefit really begin to show up in your content cost structure? John Janedis: Matt, this is John. I'll start with this, and David may want to chime in also. Look, I'd say cost broadly in terms of scale benefit to your question, first, on the content cost, we historically haven't spoken to the timing of specific deals. What I can tell you is that we've had a couple of small renewals come up since the close of the business combination. We're happy with that outcome or those outcomes. And I think what I've also said historically is that on the timing, but we've talked to medium, short and longer term in terms of seeing that benefit. On the content cost side, given that we typically have about 1 renewal per year, that will have a bit of a longer tail to show up in the numbers. Operator: Our next question comes from Drew Crum from B. Riley. Andrew Crum: So on your fiscal '26 adjusted EBITDA guidance, you've generated $79 million during the first half, which suggests a pretty meaningful step down in the second half, can you reconcile the 2 and address what's driving the deceleration? David Gandler: Yes. This is David. Why don't I start, and then I'll let John chime in. So just in terms of where we are, as you know, we are a sports-first cable replacement service and the seasonality of our business typically allows us to generate 40% to 50% of our gross ads in the last fiscal quarter. And therefore, we keep our powder dry until then. So we do expect to spend more in marketing. And also, given the initiatives that we just laid out for you in my opening comments, we want to make sure that we have the flexibility to not only focus on profitability, but also growth. So this really allows us to take a balanced approach. John Janedis: And I would just want to add one quick point in terms of a one-timer. We did have a $6.5 million above the line tax-related benefit during the quarter. David Gandler: Yes. And just one last thing I'll say is look, we provided guidance a few weeks ago. Our plan is really to focus on the at least $300 million of EBITDA in 2028. And so we're planning accordingly and working with Disney on a number of these initiatives that we -- again, of course, as we get traction, we'll look to double down on some of these efforts. Operator: Our next question comes from Tyler DiMatteo from BTIG. Tyler DiMatteo: I was hoping we could unpack some of the organic growth trends in the business, in particular, the subscriber trends. I was hoping we can kind of get a little bit more color about maybe the split between Hulu Live and Fubo and then also more importantly, kind of how you see that trending through the year? And maybe any comments on ARPU as well. David Gandler: Yes. Thank you. I'll start. So one, we don't separate our sub count going forward. This is one company, and we're focused on creating leverage for the business as a combined entity. In terms of where we are from an organic perspective, I laid out 3 initiatives that we're working on at the moment just to kind of reinforce those. The first is utilizing our storefront to drive sales for Hulu Live. I think you know the Fubo team has been very strong in driving growth organically and inorganically over the last few years. So we'll look to really attempt to drive growth on the Hulu side. Due to the array of products that we offer, it makes sense for us to be able to push people towards a bundle that includes a comprehensive portfolio of networks. And I think part of the opportunity here is we're the only company today that offers such an array of offers, everything from as low as $9.99 on the Fubo Latino package. Then there's the Hulu Español package, which starts at the $30 range, which is well below some of our competitors and really gives us an opportunity to drive growth across these packages. As you know, lower pricing typically yields greater subscriber growth and top-of-the-funnel conversion. So we're focused on that. From a product and technology perspective, we've built a pretty strong mousetrap, I would say. Today, we're really focused on continuing to enhance our product capabilities to drive engagement and to take advantage of what John was talking about earlier around the advertising. The more engagement that we can drive on the platform, the more Disney will be able to drive ad sales on behalf of Fubo Inc. John Janedis: And I would just add on seasonality given your question in terms of organic. Look, the Fubo service tends to have a bit more seasonality than Hulu Live. But when we look at the sequential change in subscribers from fiscal 1Q to 2Q over the past 2 years, the trends were nearly identical for both periods and for both services. Operator: Our next question comes from Brent Penter from Raymond James. Brent Penter: It's good to see some of the RSN deals ahead of MLB season. I just want to zoom out and get your broader view as that space evolves and some of those businesses face some headwinds. How do you maintain your advantage in local sports as that ecosystem changes? And then with Hulu Live now, any plans to push Hulu Live more into the RSN space? David Gandler: Yes. So obviously, we are working in an ever-evolving landscape. I think we've done a very good job navigating the different changes that the industry is dealing with. As you said, we've done a great job adding -- I think it was 14 local baseball teams in a very short period of time as well as the Dodgers, the Braves and the Mets before opening day, if I'm not mistaken. And that allowed us to really offset our losses from the subs that rolled off due to the NBCU drop. So we feel pretty good about where we are. Of course, we enjoy our position as a leader in local sports. But we'll be focused on football season next -- the World Cup and then football season after that at this juncture. So that's where our focus is, and we'll look to evaluate the situation as things change. But as you know, we've constantly been proactive about some of these decisions that we've made, and they've obviously worked out very well for us. Operator: Our next question comes from David Joyce from Seaport Research Partners. David Joyce: Could you just provide a little bit more color on what you said about the Olympics earlier and Super Bowl and NBCUniversal. What's your retention experience been like versus prior years? And then secondly, it seems like you're mostly integrated with Disney ad sales. Was there any technological work remaining on that front? David Gandler: Why don't I start with the first part of the question and let John touch on the technological side of the ads. Look, from a retention perspective, I think we've done very well. As I said, we've navigated the issues with the NBC loss in a particularly dominant month for NBCUniversal, which included the Super Bowl, the Olympics and let's not forget the All-Star game. So I think from January through March, we've experienced better retention across all plans, which is obviously very important, and we've seen growth on that front, which really translates into the, I would say, relatively flat sub base on a year-over-year basis, which I think is very impressive. In April, what we've already experienced is retention levels that are on par with 2024. Again, that's offset by local baseball. And the only year, I think where we may have experienced better retention was during the pandemic in 2021. Reactivations were also very strong, which really highlights the fact that people really enjoy the Fubo product during the baseball season. So again, we're very focused on continuing to drive growth across all of our plans and to ensure that we don't rely on any one provider of programming for our service. John Janedis: David, just on the tech front, look, I would just say that there was, as you'd expect, a fair amount of tech work that was done, and that's also largely complete. Operator: Our next question comes from Alicia Reese from Wedbush. Alicia Reese: And then moving back to onetime events or occasional events. I'd like to ask on the World Cup. And I have a couple of questions or a two-parter on that. If you could talk first about what level of subscription uplift is embedded in the guidance from the World Cup? And then also, if you could talk about any -- like how you're participating outside of subscriptions in terms of perhaps shoulder programming around the World Cup that you can advertise against, whether it's on Fubo or Hulu? John Janedis: Reese, this is John. Look, for World Cup, we do think there may be a good incremental opportunity for us, particularly on Fubo Sports, given the lower price point. I would say on previous World Cups, really haven't had a major impact on ad revenue. I'd say this time around, we do have several sponsorships that we haven't had in the past because we're now selling hubs. And so combined with that, given with the friendlier time zone, there could be more of an advertising opportunity this year. On subscribers, look, I'd say that we haven't shared a subscriber outlook specific in terms of our guidance, but I would say that our marketing team expects an uplift in trials. And so it could also be upside based on conversion. Operator: Our next question comes from Patrick Sholl from Barrington Research. Patrick Sholl: With your free cash flow expectations for 2027 or sooner, could you maybe outline some of your capital allocation priorities whether in terms of growth, investments, leverage targets and other areas of investment? John Janedis: Pat, it's John. Look, we're investing in several areas. David alluded to them in the letter. But I would just add again, we're investing in product and tech. I think we're seeing some of the fruits of that in terms of what we're seeing in retention and churn, content in terms of the RSNs, marketing, all in an effort to drive customer delight and customer growth. On the free cash flow front, look, I would say we are tracking in line to slightly better relative to our expectations. Look, on leverage, we don't have a leverage target, but more or less what we've said is that in terms of cash, we expect to have north of $200 million of cash on the balance sheet at the end of the fiscal year. Based on our debt outstanding, we have a very manageable net debt level, if you will. Operator: Our last question today comes from Laura Martin from Needham. Laura Martin: Okay. On AI, can you guys talk about how you're affecting -- AI is affecting cost and also whether it's accelerating revenue? And then on international, could you tell us sort of what's going on in the international subs and how those subs fit into your strategy now that you're a part of Hulu + Live TV? David Gandler: Yes. Thank you. Laura, this is David. I'll take both of those, I think. Let me start with the international question. I think post our business combination with Hulu + Live TV, we're very focused on driving domestic growth given the size of our subscriber base here. So we'll probably put that on the back burner given all the priorities we have, particularly with some of the initiatives that we are implementing in the relatively short term. As it relates to AI, I think you and I are sitting together on May 12 at your conference. I'm looking forward to it. This is a major topic. I think this is one of the most underrated topics within streaming video. On the back end, I would say, from a business perspective, about 35% of all of our code is now completed with AI. About 200 of our employees now use either ChatGPT or Claude to code to really drive more effectiveness and efficiency. Some of our top engineers actually don't code anymore. So there's still a learning curve here. We're still going through that. But I do think that there's opportunities for us to enhance across all of the various functions in the company. From an external-facing perspective, as I mentioned, on the technology front, we're going to start with our AI assistant. I actually think times are changing. Everyone has been so focused on the billing relationship. I think going forward, it's really the conversational layer that's going to really drive value for consumers and for companies. And our job really is to try and to compress the entire journey from discovery to purchase. And that means that there will be some level of graphic UI deconstruction where I think we're going to really start to experiment as we've done historically with 4K and MultiView and other capabilities that we brought to the forefront, which I think the industry has benefited from. So we're looking forward to implementing some of these features in the short term before the fall to start testing and looking forward to talking about these in the future. Operator: We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Limbach Holdings First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I will now turn the conference over to your host, Lisa Fortuna of Financial Profile. You may begin. Lisa Fortuna: Good morning, and thank you for joining us today to discuss Limbach Holdings financial results for the first quarter of 2026. Yesterday, Limbach issued its earnings release and filed its Form 10-Q for the period ended March 31, 2026. Both documents as well as an updated investor presentation are available on the Investor Relations section of the company's website at limbachinc.com. Management may refer to select slides during today's call and encourages its investors to review the presentation in its entirety. On today's call are Michael McCann, President and Chief Executive Officer; and Jayme Brooks, Executive Vice President and Chief Financial Officer. We will begin with prepared remarks and then open the call to questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements under federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate or other comparable words and phrases. Statements that are not historical facts, such as those about expected financial performance are also forward-looking statements. Actual results may differ materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause a material difference in the company's results compared to these forward-looking statements is contained in Limbach's SEC filings, including reports on Form 10-K and 10-Q. Please note on today's call, we will be referring to non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our first quarter 2026 earnings release and in our investor presentation, both of which can be found on Limbach's Investor Relations website and have been furnished in the Form 8-K filed with the SEC. With that, I'll turn the call over to President and CEO, Mike McCann. Michael McCann: Good morning, and welcome to our stockholders, analysts and interested investors. We appreciate you joining us today. Yesterday, we reported our first quarter 2026 results, which were in line with the expectations we discussed on our last earnings call in March. Before turning to the details of the quarter, I want to briefly recap where we've been and where we're headed. Our long-term vision and strategy are to become an indispensable building system solutions partner for our customers' mission-critical facilities. We provide cost-effective, innovative and dependable services designed to support uninterrupted operations. We operate as an integrated organization that aligns our people, capabilities and service offerings. Our culture is built on the value of caring. At Limbach, our people care about our customers and are dedicated to delivering and maintaining systems that support some of their most critical assets while staying safe. Over the last 5 years, we've transitioned and scaled our business to focus on direct relationships with building owners. This has raised our margin profile, improved the quality of our revenue and deepened our relationships with customers who operate mission-critical facilities. Our revenue mix between ODR and GCR has reached stabilization, reflecting progress toward what we view as the optimal balance between the 2 business segments. Going forward, we intend to continue to prioritize ODR growth while selectively pursuing high-quality GCR opportunities where customer, partner, risk profile and end market align with our strategy, particularly in data centers where demand is accelerating rapidly. As we move forward into 2026, our focus is on scale and growth. We see significant opportunities to deepen and expand our customer relationships, supported by the strong foundation we have built over the previous 5 years. Now turning to our first quarter results. First quarter revenue was $138.9 million, in line with our expectations. Although total revenue growth was 4.3%, organic revenue was down as expected, decreasing by 13.4%. As previously discussed, the results reflect the impact of lower bookings in the middle of 2025 and normal seasonal patterns among industrial customers. The revenue mix was 71.9% ODR and 28.1% GCR, with ODR revenue growing 10.4% and organic ODR revenue declining 5.4%. Total gross margin was 22.4%, primarily due to lower fixed cost absorption in our ODR segment from lower revenue during the quarter, the absence of higher net project write-ups that benefited the prior year period, which is largely timing related and the current lower gross margin profile of Pioneer Power. Adjusted EBITDA was $8.7 million, which was also in line with our expectations. As anticipated, we experienced a cash outflow due to the lower net income and higher working capital needs in Q1. Q1 bookings were exceptionally strong at $209 million, generating a book-to-bill ratio of 1.5. Approximately 27% of bookings came from data center opportunities, reflecting strong demand in this vertical and the value of Limbach's existing customers with brand-name hyperscaler customers. As a reminder, in 2026, we remain highly focused on our 3 strategic growth pillars: ODR organic and total revenue growth, margin expansion through evolved customer solutions, scaling the business through acquisitions. While first quarter organic revenue was down as expected, the more important development in the quarter was the acceleration of demand. Over the past 2 quarters, we recorded more than $434 million of bookings, including $209 million in Q1 of 2026 and $225 million in Q4 of 2025. Our Q1 2026 book-to-bill ratio of 1.5x is a strong indicator that revenue momentum is building as we move through 2026. We believe the strength of these bookings reflect the traction we are getting from recent investments in our national sales, vertical market teams, customer solution teams as well as our ability to serve increasingly complex mission-critical facilities. Earlier this year, we invested in dedicated sales enablement tools to support productivity. This type of sales support is only possible in an organization that works collaboratively and shares best practices. During the first quarter, we rolled out an updated sales process system designed to better highlight what differentiates Limbach in the marketplace. We also continue to invest across 3 national vertical market teams. The health care team is now fully built and delivered strong bookings over the past 2 quarters, positioning revenue to accelerate in the second half as those bookings convert. In addition, during the first half of the year, we are focused on adding resources to our data center team, combining experienced Limbach employees with new hires to drive scale and deepen existing customer relationships. Our second pillar is to expand margins by driving more evolved customer solutions. We differentiate ourselves from our competition by delivering creative integrated solutions that solve real business problems. Our strategy is focused on 6 core customer solutions, including integrated facility planning, service and maintenance, replacement equipment and retrofits, rental equipment, MEPC infrastructure upgrades and energy efficiency decarbonization projects. Over time, our goal is to deliver all 6 customer solutions at both the national and local level across our customer base. By bundling these offerings, we can create a more comprehensive solutions for customers while layering on incremental margin. Our third strategic pillar is targeted acquisitions, designed to extend the Limbach brand, strengthen our market presence and expand our capabilities. By pursuing disciplined acquisitions, we seek to diversify our vertical market exposure, broaden our geographic reach and add new offerings that enhance and scale our customer solutions. Given robust demand from customers with national operations who are increasingly seeking partners with comparable geographic reach and technical capabilities, we believe there's an opportunity to further refine our acquisition strategy. We're actively evaluating acquisitions and are open to larger acquisitions where the strategic rationale is compelling. Many of our customers operate nationally and increasingly want partners whose geographic footprint and technical capabilities can match the scale of their own businesses. We are focused on businesses that expand and extend our local service capabilities, deepen our presence in attractive geographies and enhance our ability to deliver mission-critical solutions across a larger national platform. Our integration of Pioneer Power is progressing well. Pioneer expands our capabilities, broadens our customer base and gives us additional avenues to participate in high-growth mission-critical end markets, including data centers. We're in the process of increasing gross margin at Pioneer Power to align with our company average. Our key strategic priorities to achieve this include reviewing and renegotiating existing contracts for better pricing, optimizing project mix with prioritizing revenue by specific target margins, leveraging cross-selling opportunities and implementing Limbach sales and operating tools. We expect Pioneer's margins to begin improving in 2026 with continued progress over the next 2 to 3 years. From a macro perspective, conditions were generally favorable in the first quarter. We believe the optimal mix for Limbach is centered on 3 key areas: institutional markets led by health care and higher education, industrial markets and data centers. Our experience in 2025 reinforce that market vertical diversification and geographic expansion will make our business model more resilient. Starting with health care. Customers remain focused on near-term mission-critical spending while thoughtfully planning longer-term capital investments. As discussed last quarter, D.C. policy changes extended budgeted time lines for several of our customers. We are now seeing those budgets normalize with spending expected to pick up in the second half of the year and align with historical patterns. At the national level, our team is gaining traction with key customers and aligning sales efforts with anticipated funding releases. Locally, customers remain disciplined in how they allocate capital, prioritizing investments to maintain and upgrade critical systems. Our local engineering expertise and solution-oriented approach remain key differentiators, and it's our responsibility to structure opportunities that clearly meet each customer's ROI requirements. Jake Marshall was a key contributor to our margin expansion over the last 4 years. They've been focused on building relationships in the health care sector. This momentum continued in the first quarter with the award of a multiphase renovation project at Chattanooga-based facility, further strengthening our presence with this customer. Our Chattanooga team has successfully deployed multiple customer solutions, including maintenance agreements, rental fleet utilization and on-site account management. These solutions enabled us to win this significant infrastructure project. Turning to data centers. We want to emphasize that Limbach has long-standing 10-plus year relationships with brand-name hyperscaler customers, and we are focused on building on that foundation as demand accelerates. What has changed is the scale and urgency of demand in the market and our ability to bring a broader, more coordinated set of capabilities to those customers. As mentioned on our fourth quarter call, we were awarded a unique infrastructure data center project. Additionally, in the first quarter, we successfully won a similar but even larger project from one of the hyperscalers in the market. We will be providing a fabricated package encompassing of steel structures, piping systems and the execution is expected to be rapid. We anticipate the final contract value of this project to exceed $30 million and expect to generate the revenue over the next few quarters. Our experience and disciplined approach has made us highly selective around customer quality, contract structure, project execution risk and partner alignment. We are approaching this opportunity with discipline. We're not pursuing growth for growth's sake. We are pursuing data center work where we believe Limbach has a differentiated right to win and where the risk-adjusted return profile is attractive. One of the key value creation initiatives of Pioneer Power is expanding its reach into the data center market. In the first quarter, we were awarded one of the initial projects within an existing data center, which is expected to provide immediate contributions beginning in the second quarter. The contract value is approximately $6 million, features a rapid execution schedule, involves a complete retrofit of the space to support new server installation. Layering data center work into Pioneer's existing customer profile remains an important driver of the margin expansion over time. We continue to see meaningful opportunities within this vertical market and expect momentum to build through the year. To support this growth, we are developing a dedicated data center vertical market team focused on leveraging both our fabrication resources and our available field talent. Industrial manufacturing activity began to show meaningful momentum starting in April with our strength in this vertical beginning to translate into new opportunities. Our other vertical markets are trending in a positive direction, though we expect most of the growth to come in the latter part of the year. Moving to our outlook. We are reaffirming the full year guidance we provided for 2026 back in March. We expect revenue between $730 million and $760 million, implying year-over-year growth of 13% to 17%. Adjusted EBITDA of $90 million to $94 million, implying year-over-year growth of 10% to 16%. The following underlying assumptions support this guidance: total organic revenue growth of 4% to 8%, ODR organic revenue growth of 9% to 12%, ODR as a percentage of total revenue to be in the range of 75% to 80%, reflecting the stabilization of the mix shift, total gross margin of 26% to 27%. SG&A expense as a percentage of total annual revenue to be 15% to 17% and free cash flow to be 75% of adjusted EBITDA. For the second quarter of 2026, we expect sequential improvement in revenue adjusted EBITDA and are comfortable where the consensus expectations currently stand. With that, I'll turn the call over to Jayme to walk through the financials in more detail. Jayme? Jayme Brooks: Our Form 10-Q and earnings press release filed yesterday provide comprehensive details of our financial results. So I'll focus on the highlights of the first quarter of 2026 with all comparisons versus the first quarter of 2025, unless otherwise noted. We generated total revenue of $138.9 million compared to $133.1 million in Q1 of 2025. The increase was primarily due to $23.5 million revenue contribution from Pioneer Power. ODR revenue grew 10.4% to $99.8 million, with ODR acquisition-related revenue increasing 15.8%, partially offset by an expected 5.4% decrease in ODR organic revenue. ODR revenue accounted for 71.9% of total revenue during the quarter. As expected, GCR revenue declined by 8.6% to $39 million from GCR organic revenue decreasing by 30.2%, partially offset by a 21.6% increase in GCR acquisition-related revenue. Total gross profit decreased 15.1% from $36.7 million to $31.2 million. Total gross margin on a consolidated basis was 22.4%, down from 27.6% in the prior year quarter. Excluding Pioneer Power, total gross margin would have been 25% due to the lower margin profile of Pioneer Power. As Mike mentioned earlier, our acquisition integration strategy is focused on improving Pioneer Power's gross margin to align with our broader operating model over the next 2 to 3 years. ODR gross profit comprised 73.7% of total gross profit dollars or $23 million. ODR gross profit decreased 12.1% or $3.2 million and ODR gross margin was 23% compared to 28.9% in the prior year period. The decrease in gross margin was primarily due to lower fixed cost absorption as a result of higher fixed costs and seasonally lower revenue, the absence of higher net profit write-ups in Q1 2026 compared to the first quarter of 2025 and Pioneer Power's current lower gross margin profile. Project write-ups are typically recorded when projects are at or near the end of their life cycle to reflect strong execution. During the first quarter of 2025, more projects were at or near the end of their life cycle than in the first quarter of 2026. Additionally, we incurred higher fixed costs impacting the cost of revenue in the first quarter of 2026, primarily due to the increase in the size of our vehicle fleet and increase in our insurance premiums as well as increase in tools, supplies and safety costs. As revenue levels increase in 2026, we expect fixed cost absorption to improve. GCR gross profit decreased 22.5% from $10.6 million to $8.2 million. GCR gross margin decreased from 24.7% to 21%. The decrease was due to lower gross margin work associated with Pioneer Power and lower total net project write-ups in the first quarter of 2026 compared to the first quarter of 2025, similar to the ODR. SG&A expense for the first quarter was $28.1 million, an increase of approximately $1.6 million from $26.5 million. The increase was primarily driven by an increase in payroll-related expenses. As a percentage of revenue, SG&A expense increased to 20.2% compared to 19.9% in the first quarter of 2025. Interest expense increased $0.2 million to $0.7 million, driven by higher borrowings under the company's revolving credit facility to finance working capital as well as higher financing costs associated with a larger vehicle fleet. Net income for the first quarter decreased 57.1% from $10.2 million to $4.4 million and earnings per diluted share was $0.36 compared to $0.85. Adjusted net income decreased 42.6% to $7.8 million compared to $13.5 million and adjusted diluted earnings per share decreased 42.9% from $1.12 to $0.64. Adjusted EBITDA for the quarter decreased 41.7% to $8.7 million compared to $14.9 million. Adjusted EBITDA margin was 6.2% compared to 11.2% in Q1 last year, primarily driven by the lower gross profit and slightly higher SG&A expense. Turning to cash flow. Net operating cash outflow during the first quarter was $7.8 million compared to a $2.2 million cash inflow in the year ago period, driven by lower net income and higher working capital. The primary drivers of the reduction in operating cash during the quarter were incentive compensation payments, contingent consideration payments related to prior acquisitions and prepaid insurance premiums. Additionally, as part of our capital allocation to offset stock issuances for our long-term incentive plan, we used $5.8 million of cash to pay employee taxes related to the shares withheld to cover their taxes. Free cash flow, defined as cash flow from operating activities, excluding changes in working capital, minus capital expenditures, was $7.7 million in the first quarter compared to $15 million in Q1 last year, representing a $7.4 million decrease. The free cash flow conversion of adjusted EBITDA for the quarter was 88.7% versus 101.1% last year. As Mike already mentioned, for the full year 2026, we continue to target a free cash flow conversion rate of at least 75% of adjusted EBITDA and expect CapEx to have a run rate of approximately $5 million. Turning to our balance sheet. As of March 31, we had $15.8 million in cash and cash equivalents and total debt of $57 million, which includes $32.4 million borrowed on our revolving credit facility and $7 million of standby letters of credit. As a reminder, at the end of June last year, we expanded our revolving credit facility from $50 million to $100 million in principal amount borrowings. Total liquidity, defined as cash and availability on our revolving credit facility was $76.4 million at the end of the first quarter. This concludes our prepared remarks. I'll now ask the operator to begin Q&A. Operator: [Operator Instructions] The first question comes from the line of Rob Brown with Lake Street Capital. Robert Brown: First question is on your kind of gross margin trends. You addressed some of the ins and outs, but how -- what's sort of the timing of the improvement on Pioneer kind of this year? I know you gave a 2- to 3-year window, but how much improvement can you see this year from Pioneer integration? Michael McCann: Rob, so from a Pioneer Power perspective, obviously, we've discussed this before, but the first piece of this really was from an integration perspective from a systems, process, accounting system. So that was really last year. This year, it's focused on, obviously, from a gross profit improvement perspective. So a number of different things we've talked about. But obviously, dedicating resources to the best accounts, analyzing them, going back from renegotiation from accounts as well, too. I think the other thing we talked about in the prepared remarks, too, was our ability to infuse some data center work on top of their markets from industrial and institutional as well, too. So I think those are going to take some time to come into play. And I think we're going to improve. It will be towards the back half of the year. But we're making a lot of -- I think the team, along with management is making a lot of proactive steps to really think through what that improvement process is. And quite frankly, there's a number of different levers that we can pull, and we're kind of doing those in a very coordinated effort. So we're optimistic for sure with Pioneer Power margin improvement. Robert Brown: Okay. Great. And then on the bookings, strong bookings in the quarter, particularly in data center, how much -- it seems like you're early in that effort. How much opportunity do you see in the data center vertical as you get your national accounts teams in place? Michael McCann: Yes. We've definitely been pleased with the last 2 quarters, $434 million booked in the last 2 quarters. I think one thing we -- from a data center perspective, there's so much need for people that work in a mission-critical environment. We're leveraging some relationships we've had for a number of different years. I think we're off to a strong start in Q1. There's a lot more opportunity as well, too. So I think -- as we continue to work our way through that vertical, dedicate resources, we have a national vertical market team as well, too, that will be working relationships and understanding where we fit in. Ultimately, though, the skill set that we have in the mission-critical environment translates really well from a data center perspective as well, too. So we haven't really provided any forward-looking outlook as far as from a percentage basis, but I think we're pleased with the 27% in Q1, and we see tons of opportunity for players like us. The other thing I would tell you, I think from a data center perspective, the things that we continue to learn are they're looking for somebody that has a -- is a national contractor that has a good footprint that matches aligns with their footprint. And again, that quality mission-critical expertise. So we anticipate the combination of those 2 to be favorable for us as we look forward through this year and I think the next couple of years. Operator: Next question comes from the line of Chris Moore with CJS Securities. Christopher Moore: Maybe just one more follow-up on the data center. So it sounds like the lead times in terms of converting the data center orders is -- at least on these orders is a little bit quicker than the average bookings. Is that fair? Michael McCann: Yes. We -- one of the examples that we gave in the prepared remarks was a fabrication project, which is a very quick burn, which will burn in the next several quarters. So it depends on the work. I think the one thing that seems pretty consistent with the data center work is, unless on our end is they -- it's speed to market at the end of the day. So it does take time to set the work up, even the jobs that we did, we think it will move pretty quickly, but there is a reasonable setup period of time as well, too. But we're excited. I think our ability to leverage our capacity to move quickly. We won several of these fabrication type projects. And this one that we recently were awarded that encompasses steel and pipe and a number of different structures that we can put into place that they want to -- I think they're looking at us for capacity and speed to market. So it will depend on the opportunity, but I think that particular opportunity or at least a couple that we mentioned in the prepared remarks will burn very quickly. Christopher Moore: Terrific. Are the margins there consistent with your ODR targets? Michael McCann: We've done some work. The margins -- the work that we've done in the past, the margins have been really good. So we definitely wouldn't be getting into this vertical if we felt like the margins weren't as good, if not better. Again, we're going to be very selective as well, too. So I think that's -- we're going to be very measured just like we are overall from a strategic standpoint. But we're excited about the margin opportunity. It's all about delivering on time with a high level of quality, and they will pay the margins that's relative to that effort. Christopher Moore: Got it. So in terms of -- on the guide, ODR organic growth, 9% to 12% versus the 17% last year. Last year, you had a big Q4. Is there a similar expectation in '26 that the organic ODR kind of builds in Q2 through Q4? Michael McCann: Yes, it will definitely build throughout the year. I mean, I think a similar cadence that we've had and similar cadence that we had last year as well, too. So -- and I think it's part of the cadence with the owner direct customers as well, too. I think as we layer data center work in, I think that could have a little bit of a different profile that's not so backloaded. But a good chunk of our revenue, obviously, this year is based on the institution and industrial markets. Industrial doesn't really start hitting until April. And then the institutional, they set their budget at the beginning of the year, and they see how it goes and they tend to really spend towards the back half. So yes, I would say similar cadence to last year and especially due to the institutional and industrial work that we do. Christopher Moore: Got it. And so you do expect a positive ODR organic growth in Q2, that's I guess what I was asking. Michael McCann: I think it will build throughout the year for sure. Operator: Next question comes from the line of Brian Brophy with Stifel. Brian Brophy: Congrats on the data center activity. Just I realize awards are kind of hard to predict. But the data center activity in terms of awards that you saw this quarter, is that unusually high? Or just given the demand environment that we're seeing, could we see this potentially grow from this level? I guess how sustainable do you think this level of activity on data center side is? Michael McCann: It's tough for us to tell. But I will say we've talked to various customers in this space. The opportunity is there, no doubt about it. I mean we're going to have to figure out what our cadence is. We're off to a good start, but I think we don't have enough quarters in a row to kind of figure out our cadence or our year-end percentage. But there is so much spend that they're looking for people that understand quality, speed to market, kind of all the things that kind of play into our expertise. So we haven't necessarily run into a position or a customer where there wasn't the need. And so I think it's going to be -- the demand is there for us to take advantage of for sure. Brian Brophy: Okay. That's helpful. And then obviously, it sounds like fabrication work is part of the awards here. Do you guys have enough capacity currently to support what you're being awarded? Or is there any more CapEx that is needed to support some of that work? And I guess at what point would you need to add more fabrication capacity? Or are we pretty far away from that at this point? Michael McCann: No, it's a good question. So we have a decent amount of capacity right now. If anything, we have excess capacity, one thing that we're able to leverage is we -- when we purchased Jake Marshall in late 2021, they had a very large fabrication facility. I think it's almost 14 acres. So we have a lot of capacity. I'd love to get to the point where we need more because that means that, that shop. We also have other shops at locations as well, too. So I think the advantage for us is when some players or competitors are filled up, we have the capacity. So we spent a lot of time touring people through our facility. And they can see physically that there's capacity as well, too. So I'd love to be discussing a CapEx in some sense because that means -- but I think we're quite a bit of ways away from that. And we're trying to use the capacity that we have and fill it up. So there are several of these jobs that we could handle at one point. And then we also have overflow as well, too. So that's the message that we're telling our customers. I think it's going to help the business all around as if we fill up that fabrication capability capacity. Operator: Next question comes from the line of Tomo Sano with JPMorgan. Tomohiko Sano: Could you talk about industrial manufacturing situations? You mentioned you're seeing meaningful momentum start in April. So if you could talk about what exactly you're seeing? And any more color would be appreciated. Michael McCann: Sure, sure. So a lot of our industrial work in manufacturing has really come from our acquisitions from Pioneer Power in Minneapolis and Consolidated in Kentucky as well as Jake Marshall in our Chattanooga location as well, too. So for us, part of it is just -- I think as we continue to acquire companies that work in that space, there seems to be kind of a natural cadence that April starts that spend. So we see positive outlook for sure. But I think that seems like that's the spend. That's the timing. I mean, especially even from a PPI perspective, I think some of this is just seasonal as well, too. But as we continue to acquire in this space, I think we're going to see kind of the pattern that happens. So we're optimistic and looking forward, I think, to the work that happens this year. Tomohiko Sano: And a follow-up on national versus local sales contribution. Last quarter, you discussed investing in 2 senior executives, one focused on local sales enablement and one on the national relationship. How much of the $209 million in Q1 booking was driven by national account relationship versus local sales? And are you seeing the national strategies begin to contribute meaningfully? Michael McCann: Yes. We didn't provide a breakout per se, but I will say there's a good mix between the 2. Still more heavily locally weighted but definitely starting to see some efforts from a national perspective as well, too. So very -- Jayme and I are very happy with the way that we -- from a structure standpoint and an executive management standpoint as far as one executive is on sales enablement with local sales, been very successful. And then we have somebody dedicated from a national account perspective. So that's going really well. I think there are -- I would also tell you, too, that the 2 of them work together and those functions work really well together as well, too. So if we have a national account or an opportunity, the 2 of those execs collaborate as well as the local branch as well, too. So I see them working really closely together. As we expand not only our footprint, but as well as our exposure from a national account perspective, the more overlap, the better. So that means we're getting synergies as well, too. So I think for us, especially from a customer buy perspective and the way that we go to market and differentiate ourselves, the ability to have local and national, I think, is going to be a game changer as we continue to expand resources. Operator: Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to Mike McCann for closing comments. Michael McCann: In closing, our strategic priorities for 2026 are the following: ODR organic revenue growth and total revenue growth, margin expansion through evolved customer solutions, smart capital allocation and scale through acquisitions. Our first quarter book-to-bill ratio of 1.5x, expanding data center opportunities, growing national account relationships and healthy acquisition pipeline all reinforce our confidence in our strategy. We believe Limbach remains in the early stages of building a larger, more valuable, more durable building systems solutions platform, and we're focused on executing that opportunity with discipline. Our model combines engineering expertise with direct execution, enabling us to partner with customers through multiyear consultative capital planning efforts that extend beyond traditional backlog. We believe this is a differentiated approach, supports sustained growth and shareholder value creation. Thank you again for your interest in Limbach, and have a great rest of your day. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and welcome to the California Resources Corporation First Quarter 2026 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Daniel Juck, Vice President of Investor Relations. Please go ahead. Daniel Juck: Good morning, and welcome to CRC's First Quarter 2026 Conference Call. Following prepared comments, members of our leadership team will be available to take your questions. I hope you have had a chance to review our earnings release and supplemental slides. We have also provided information reconciling non-GAAP financial measures to comparable GAAP measures on our website in our earnings release. Today we'll be making forward-looking statements based on current expectations. Actual results may differ due to factors described in our earnings release and SEC filings. [Operator Instructions] I will now turn the call over to Francisco. Francisco Leon: Thanks, Dani. Good morning, everyone. We're off to a solid start in 2026 with unprecedented energy market volatility creating meaningful tailwinds and opportunities for our business. Before getting into the quarter, let me share a few thoughts on the macro environment and why CRC's business is well positioned to create value through the cycle. Events across the Middle East have reminded the world of the importance of oil and energy security. Global supply chains have shown to be vulnerable and countries have been forced to seek reliable, diversified sources of energy. While the United States has been relatively insulated due to our strong domestic production, California faces a unique and precarious position. Today over 60% of the oil consumed in California comes from foreign sources. In recent weeks, our state's inventories have been reduced by more than 20% as oil destined for California has been diverted to Asia at substantial premiums. The importance of in-state production has never been more critical, both to ensure supply and preserve affordability. As the Golden State's largest producer, CRC is positioned to be this solution. Delivering local barrels that shorten the supply chain, lower transportation costs and associated emissions, and helping keep gasoline affordable for Californians. CRC has a deep, primarily Brent-linked, high-quality inventory of oil development opportunities, and recent legislative efforts to improve permitting are proceeding as expected. Our recent mergers were well timed with transactions priced well below today's strip, and set a strong foundation for future growth. We're now deploying capital into these assets to drive disciplined long-term value. California is starting to recognize that local production is essential to affordability, reliability and the state's climate objectives. And CRC is ready to support all 3. Today we're moving decisively to accelerate development. We are increasing drilling cadence this summer by 3 rigs: 2 in California and 1 in Utah. This will allow us to return to our long-term production maintenance capital program ahead of schedule and accelerate high-return projects to unlock value. In California, we're drilling new wells and adding capital-efficient workovers that will translate quickly into production. And in Utah, our highly contiguous acreage position provides meaningful upside that we have only begun to capture. Let me spend a moment on the Uinta acreage because this opportunity is compelling. Since 2020, production in the basin is up 100%, reflecting both improved results at the well level and expanded more mature regional infrastructure. Recently drilled CRC and offset wells have substantially derisked our acreage, and we're planning to perform additional appraisal work. With over 200 gross Uteland Butte locations already in the portfolio and additional benches under consideration, we have considerable running room to support a scalable growth platform. Our planned acceleration in activity to 7 rigs will meaningfully enhance our financial outlook. For the full year, we are now targeting approximately 1% entry-to-exit gross production growth, and raising our adjusted EBITDAX guidance by over 40%, outpacing the expected rise in Brent. We're also increasing our Berry merger synergy target, which Clio will cover in detail in a moment. Our carbon management business, CTV, is on the cusp of a historic milestone. We completed the construction and commissioning of California's first commercial-scale carbon capture and store project at our Elk Hills cryogenic gas plant, and we expect to receive final notice of the termination from the EPA any day now. That approval will clear the way to first CO2 injection, marking the first time in California's history that carbon emissions are permanently stored. It will also place CRC among a small group of U.S. oil and gas companies with active CCS operations. Put simply, this is a defining moment, not just for CRC, but for California's ability to deliver on its climate objectives while preserving energy reliability and affordability. We expect carbon capture at our Elk Hills cryogenic gas plant to be the first of many more projects to come. Our storage reservoirs sit within reach of approximately 17 gigawatts of baseload power generation across California that we believe has the potential to be retrofitted for CCS. And we have submitted over 350 million metric tons of carbon storage capacity to the EPA, with additional reservoirs tracking or draft permits through 2026. Our data center conversations continue to gain momentum. As previously announced, a top-tier national data center developer is investing several million dollars to accelerate early-stage site readiness and permitting at Elk Hills, a clear vote of confidence in the opportunity. As AI transitions from training to inference and other states face mounting power constraints, tech's appetite for scaled clean power in California is growing. CRC is uniquely positioned to meet that demand. We can permit, deliver firm gas supply, offer available land adjacent to existing infrastructure and [ pair it ] all with CCS. Power is the binding constraint for AI growth, and we are one of the few platforms that can solve it. On the Reliable and Clean Power Procurement Program, or RCPPP, we expect the next major update in the second half of 2026. Natural gas with CCS is not yet eligible, but support is building and [ 3 of 5 ] CPUC commissioners have publicly endorsed inclusion. California already offers some of the highest stackable CCS incentives globally. RCPPP eligibility would make the economics even more compelling. Our enhanced 2026 outlook reflects the positive impact of these developments as well as the continued execution of our strategy. With that, I will turn it over to Clio to walk through our first quarter results and updated 2026 guidance. Clio? Clio Crespy: Thank you, Francisco, and good morning. We delivered a strong first quarter with adjusted EBITDAX of $304 million, approximately 17% above the midpoint of our guidance, and we are raising our full year guidance. The combination of disciplined execution, higher oil prices and accelerated activity has improved our outlook for 2026. In the first quarter, operating cash flow before changes in working capital was $247 million, ahead of our expectations and reflecting the stronger Brent backdrop relative to our previous guidance. Net production averaged 154,000 BOE per day, with oil at 81% of the mix and realizations at 96% of Brent pre-hedged, in line with plan. Adjusting for PSC effects, underlying production was in line with our quarterly guide. G&A for the quarter was above guidance due to the timing of legal expenses and a higher cash settled equity compensation, reflecting share price appreciation. G&A is already trending down with further reductions driven by Berry synergies, which we expect to capture in 2026. Total capital deployed in the quarter was $131 million, at the high end of guidance. The increase in spend was by design as we pulled forward pre-spud timing on development wells and accelerated facility spend to support the activity ramp Francisco outlined. Even with that accelerated capital deployment, free cash flow before changes in working capital was $116 million, a strong start to the year. In March, we priced a $350 million add-on to our 2034 notes. We upsized from $250 million with a book more than 5x oversubscribed and used the proceeds to redeem our 2029 notes. This extends our weighted average maturity to approximately 6 years, lowers our interest expense and further strengthens the balance sheet. Net debt ended the quarter at $1.3 billion, with net leverage at 1.1x last 12 months EBITDAX. We returned $46 million to shareholders during the quarter, including $36 million in dividends and $10 million in share repurchases, bringing cumulative returns since mid-2021 to more than $1.6 billion, a track record that reflects the consistency and the durability of this business. Current conditions across domestic energy markets arguably provide the most constructive backdrop for our business and the industry than we have seen in quite some time. For the second quarter, we expect net production of 149,000 BOE per day, reflecting the impact of PSC effects at higher prices and a planned short maintenance window at our Elk Hills power plant. We expect capital deployment of approximately $130 million, reflecting increased drilling activity in June, G&A of $95 million, and adjusted EBITDAX of $390 million, assuming an average Brent price of $105 per barrel. As usual, we provide both quarterly and full year sensitivities to Brent to help frame the impact of commodity price volatility. For the full year, we are raising our outlook across the board. We now expect 2026 exit gross production of 175,000 BOE per day, roughly 1% entry-to-exit growth and building momentum into 2027. To deliver this growth, we are increasing full year midpoint of total capital guidance to $540 million. [ D&C ] and workover capital is $100 million above our prior plan, reflecting a second half ramp to a peak of 7 rigs. Partially offsetting this increase is a reduction to facilities capital of $10 million, reflecting ongoing field level facilities rationalization. Allow me to pull all of this together in one important comparison. We previously forecasted that our maintenance capital framework to hold production flat required 7 rigs and approximately $485 million of D&C and workover capital. This year, and given our portfolio's flexibility, we are expecting to deliver entry-to-exit growth with an average of 5 rigs and D&C and workover capital utilization of less than $400 million. Fewer rigs, less capital, and we are now growing. The return profile on our full year 2026 capital program is compelling. At current strip prices, we expect a multiple of approximately 4.5x on invested capital, up from 3.8x previously. And IRR is approaching 70%, roughly 40% higher than our prior estimate. We now expect full year free cash flow before changes in working capital to exceed $800 million. Turning to Barry merger-related synergies. We have already implemented over 80% of our original target and are now raising that target by 12% or an additional $10 million. That's driven by field consolidation and contractor-to-crude conversion across the combined footprint. Our cumulative synergy and structural cost reduction target through 2028 now stands at upwards of $460 million. We expect full year adjusted EBITDAX at a midpoint of $1.45 billion, assuming an average Brent price of $91 per barrel. This increase reflects both higher commodity prices and underlying margin expansion. Brent is up approximately 38% while our EBITDAX outlook has increased by approximately 42%, with a positive difference driven by high-return drilling, structural cost discipline and incremental synergies, all supporting higher cash flow per share. That gap between commodity upside and EBITDAX upside reflects the value of our integrated strategy compounding, and it is the kind of outperformance we can sustain through the cycle. Cash flow per share growth, high-return reinvestment, a derisked balance sheet and structural margin expansion, that is 2026 in a nutshell. With that, I'll turn it back to you, Francisco. Francisco Leon: Thanks, Clio. Before we open the line for questions, let me share a few closing thoughts. CRC remains a different kind of energy company. And this distinction could not be more evident. Our integrated strategy is delivering on 3 fronts at once: a low-decline conventional business accelerating into a stronger price environment, California's first commercial-scale CCS project on the doorstep of CO2 injection, and a power and data center opportunity gaining traction. The path forward is clear. We're scaling activity across California and delineating the Uinta. We're converting structural margin expansion into cash flow growth. We're returning capital through a durable dividend and opportunistic buybacks. And we're advancing our leading carbon management platform. Our priorities are unchanged: develop our resource base responsibly, unlock the full value of our portfolio, maintain a premier balance sheet, and allocate capital with discipline. That is how we create durable long-term shareholder value. Operator, we're ready for questions. Operator: [Operator Instructions] The first question comes from Scott Hanold with RBC Capital Markets. Scott Hanold: Looks like you have it all coming together. You got the permit reform, you identified the inventory, now you've got the price. So this growth path, I think, looks pretty attractive. But I was wondering if you could walk us through the 2026 program as it is now, just give us a sense of when the rigs are coming on and how that translates into when the production actually shows up throughout the year. And if you can give a little bit of context too on the permits, whether or not you've got the permits in hand to execute it at this point. Francisco Leon: Scott, thanks for the question. Yes, we came into the year looking to reestablish the permitting process, showcase the inventory and then the highly capital-efficient program. We think the updated 2026 guide reflects the progress on all these objectives. Let me explain. So we're going to be drilling a total of about 357 new wells and side tracks for the year. Happy to report that we have all permits for all 7 rigs now on hand and are working on our 2027 plan. Not only that are permits flowing, but the process overall is getting better. So with the permitting process being squared away, that allows us to focus back on more dynamic capital allocation. And that's where we see an advantage versus maybe the shale peers in the rest of the country. We have a lot of flexibility to deploy capital and have very short time to market. So time to markets are very quick, from spud to production is roughly 30 days on average, although we can beat that number. And we don't have the same level of service intensity or competition for equipment and crews. So we can try to connect to a window of price opportunity and deliver incremental production that way. So we're lining the incremental rigs to be ready in the summer and start producing in the -- early in the second half of the year. So then that allows us to focus on the overall picture, which is returning production to maintenance. We talked about and showcased that we have significant running room, 24 years of inventory. Our wells are performing extremely well. We're beating the [ tight ] curve. And you can see that in the numbers that Clio highlighted. Our entry production is 174,000 BOEs per day. Our exit is estimated at the midpoint to be 175,000 BOEs per day at the midpoint of the guide, and that's on a gross production basis. Why do I mention gross production and not net? Because that's a cleaner measure of reservoir performance. Gross is unaffected by PSC cost recovery variability. We have the contract in Long Beach where it's subject to PSC mechanics. So you look at growth in terms of being able to measure that efficiency. So now you can also back out the PSC effects from net production and you get to the same shape; you're staying flat to slight growth. But the really exciting thing that we're seeing come through as our team is executing is that we're staying flat with less rigs. So the improvement on capital efficiency has been significant. So let me turn it to Clio to highlight the capital efficiency and the returns of the program as well. Clio Crespy: Scott, really on the efficiency point, the comparison here is really compelling. So on how much our program has improved relative to what we outlined just last quarter. We had talked about the 7-rig program with about $485 million of D&C and workover capital. That will be needed to hold production flat next year, so in 2027. And today what we're outlining is we're delivering that flat to modest growth with roughly 5 rigs throughout the year and under $400 million of D&C and workover capital. So that's a meaningful step up in the capital efficiency. We're getting more out of fewer rigs, less capital, and we're bringing that forward in time. And most importantly there, that improvement is also showing up in our returns profile. And so the program-level returns, you're looking at roughly 4.5x MOIC, nearly 70% IRR, that's meaningful further increase from our prior program, which was already highly attractive. I'll unpack that just a bit further. It's coming from a few places, 3 things really: well economics, cost structure and portfolio sequencing. So first, we're seeing better capital productivity at the well level, both in terms of cost and also early time performance. Second, we've structurally lowered our cost base and particularly on the field and facility side. And third, sequencing and timing here. We're simply deploying capital more efficiently across the year and across our broader portfolio. So this isn't just one lever. It's a multiple of improvements compounding at the same time. And as you think about our activity increase here, Scott, the key is that it's tightly price-gated. So we remain capital disciplined at current strip free cash flow before working cap. That is expected to come in above $800 million this year. And we're also anchored to long-term pricing rather than near-term thought. So at around $65 Brent, our 4-rig program was fully supportive and generates strong returns. And each incremental rig from there, that requires roughly $5 Brent increase and long-term pricing to maintain those returns. So what effectively does here is create a clear decision framework internally. Every step-up in activity has to meet our return threshold. So even in a stronger tape that we're seeing today, we're not chasing volumes. We're scaling only where returns justify it. And as you move towards 6 rigs in California, we're underwriting that again something closer to a $70 or $75 Brent long term, which is broadly where the strip sits today. And tying back to what Francisco was mentioning earlier, that framework, it's really enabled by the flexibility and program. We can adjust activity quickly without putting really the base at risk. So key takeaway here, Scott, is it isn't a change in strategy; it's stronger execution and better economics. Scott Hanold: Yes. I appreciate all the color. That was very helpful. My follow-up question is, is on Uinta Basin. And then maybe if you could step back for us and talk about why invest in Uinta, and how do you look at the long-term strategy of that asset? Francisco Leon: Yes, Scott. So we're still in the evaluation stage of Utah. We have 4 wells that we want to drill before the end of the year. We have -- when we acquired Berry, we booked about 200 locations in -- but as you look at the stacked acreage and the horizontal development and what offset operators are doing, there's a lot more running room to go. But ultimately, we're looking to unlock the best value. And the way to think about it going forward beyond the 4 rigs is we are considering full development, but we're also considering monetization. So I'd say we are not in a holding pattern anymore. We're going to make a decision coming up. But we see some compelling opportunities to delineate and advance the evolution and the understanding of that asset base. I wouldn't call it a core asset, our core is California, but we're still in that evaluation stage. We see the rest of the country struggling to find high-quality inventory. We think the Uinta will provide that. And the nice thing for us is we attributed very low value to Utah in the very acquisition. So that leaves us with meaningful upside to unlock that best value. So more to come. For now, 4 rigs. We're still evaluating. Sorry, 4 wells, not 4 rigs. Operator: The next question comes from Betty Jiang with Barclays. Wei Jiang: I want to start first on the upstream and maybe impact a bit on the capital efficiency improvement that you're seeing in '26 and how that's impacting 2027. 2026 guidance is a bit noisy just with the PSC effects, but you guys spoke to a lot of those investments is really showing up in the second half, and Uinta is not going to peak until first quarter of next year. So I'm wondering how much of the 2026 investment is going to show up in growth in 2027. And then just on the CapEx side as well, is it fair to say that if you are at 5 rigs this year growing on the lower CapEx, is maintenance CapEx now lower than the $485 million before? Francisco Leon: Yes, Betty. And yes, it's early to guide and to start locking in 2027, but I get the logic behind your question. We are definitely seeing capital efficiencies improve and lower the maintenance capital. I think that is evident in the guide today. We do see longer term 7 rigs as the table stakes for the business. What that means is that is the view we have on the forward long-term baseline at mid-cycle pricing. Have, as Clio said, a lot of flexibility and we can adapt to market conditions, but from a planning perspective, we see 7 rigs as what we want to invest in given the quality and duration of our inventory. So in terms of the investment that we're making now, yes, the -- in conventional assets, you will see the shape of the wedge that peaks -- in this year, we invest, we peak next year, right? So a lot of the investment that we're making is not for 2026 [ expected ], it's really for the benefit of 2027. And having a view towards the long-term price curve and seeing -- and also with our strong hedge book, that gives us confidence to deploy capital thinking into 2027. Ultimately, 7-rig pace also yields a very resilient free cash flow profile. That allows us to have durable returns for shareholders. Ultimately, we'll have to look at a lot of elements as we start thinking about the rig deployment in 2027. So we have a great portfolio, a different mix of wells, different commodities that we can go after. I would not assume that we would -- seeing the split of 6 in California and 1 in Utah. That's still to be determined. But a total of 7 rigs is what we think is the long-term guide on baseline investment for the business. Wei Jiang: Great. That's helpful. For my follow-up, I want to ask about the data center development. You spoke to you're working with a top-tier data center developer to find sites or develop sites in Elk Hills. Can you just speak to the scope of that partnership? Is it fair to think about the value accrued to CRC long term could be on multiple fronts from the value of surface acreage, gas supply, CCS, et cetera? And then just how are the conversations going in general to move the project forward? Francisco Leon: Yes, Betty. So we're making really good progress. We have previously discussed the concept of land now, which means land that's permitted, it's powered, shovel-ready codeveloped and, ultimately, an adjacent to our Elk Hills facility. So we're getting the site ready and our data center partner is putting real capital behind the opportunity, investing several million dollars to accelerate the early-stage work. So we see a lot of people chasing headlines trying to talk about hyperscalers and data centers. We're really focused on project delivery and accelerating durable contracted cash flows. So it's a good way to think about it as we have an integrated view on data centers, from natural gas supply, which we have at Elk Hills, to land, which we have over 200,000 net acres of surface and a lot of it is around Elk Hills, to also being able to provide power and then decarbonize those electrons. We think it's a very compelling one-stop shop opportunity. And we're focused on the delivery. So you'll see more progress on the permitting, you'll see more progress on the advancement, and that's all coming together in a very nice way. We've developed a very strong core competency in being able to kind of navigate the California regulations. We've done it with oil and gas effectively, we've done it really well with carbon capture, and now we're going to do the same thing with data centers. So our partner is adding a lot of value in that design in anticipation of what hyperscalers need. So it's a real and exciting project we're developing. And we'll be ready to announce the specifics a little bit further along, but we're seeing really good progress. Operator: The next question comes from Josh Silverstein with UBS. Joshua Silverstein: Nice update on the Berry synergy front here. And I like that you guys give the 3 different bars there to help kind of break those out, where they're coming from. Can you just talk about how these are starting to trickle in through the course of this year? Will you start to see it in 2Q? Or is it later on this year where those benefits really start to show up? Francisco Leon: Josh, so yes, the integration with Berry is going extremely well. At this point, we've captured about 80% of the targeted synergies. We increased our target by $10 million, primarily in OpEx, and trending really well towards the cumulative target of $460 million of annual synergies between [ Era ] and Berry. So the trajectory, the trend is all going very well. So why the rate in OpEx? I'll give you a couple of examples. Our team is doing a fantastic job in field consolidation. So what that means is we're merging overlapping water and oil treatment facilities and ultimately also consolidating supplier contracts by leveraging our CRC infrastructure and vendor relationships. So that's going really well, probably better than anticipated. We also have a big opportunity for automation. Both Era and CRC were much stronger in automation than Berry. So now we can integrate the legacy Berry fields into our operational control center, which creates the scale and the automation that we need in the operating model. I'll turn it to Clio talk about more of the specifics. But one thing to also note, I see a lot of oil companies talking about AI and how they're incorporating AI into operations. We're working on the same things and seen efficiencies, but those numbers -- those impacts are not quantified yet in our numbers, right? So there is some upside assuming technology advancement and implementation works, but everything else we're really doing is more physical movement and placement of facilities alongside with reductions in G&A. But I'll turn it to Clio to provide a little more context on the synergies. Clio Crespy: Josh, I'll frame it from a broader financial perspective to start really on how those synergies benchmark and then look at your timing question and unpacking that. So on the benchmarking side, while the $10 million increase we announced today on the various synergies, that might look incremental in terms of absolute terms, it's actually quite significant relative to the size of the transaction. We're now roughly at 13% of deal value, which is well above what we typically see in the sector, where most of those transactions are in the mid-single digits, and more recently, we've seen deals trend even lower. So this is clearly a differentiated outcome. And importantly, it's consistent with what we delivered on Era. So we view this as a repeatable playbook for us. On the trajectory, we're largely through a lot of the action items. So we laid out last quarter that we had already delivered roughly $300 million of structural cost reduction and that ahead of schedule. This quarter, we've captured the 80% that Francisco was mentioning of our original Berry synergy targets. So we're well on our way. And the durability of the model is really proven on the synergy capture. And that is what gives us confidence in the path forward on the longer term and our ability to get close to that $0.5 billion of cost reduction. I'd say the remaining synergies that we're looking for are less about those onetime actions now and more about continuous improvement of the business, and you could expect those to come through more steadily over time. If you put it all together, it's really a sustained structural margin expansion story that's continuing to build. And you're already seeing that in our outlook where EBITDAX is growing ahead of the commodity price rise. Joshua Silverstein: Got it. I was hoping to shift over towards the power business for you guys. And I wanted to see how you guys are thinking about the evolution of this business for you? Is it something that could grow? I know it's something being integrated with other parts of the business, but how are you thinking about this? And then maybe just kind of a broader overview of what you're seeing in the California markets. Francisco Leon: Yes. California is fascinating. We keep seeing the same message. We just need more power in the state. And it needs to be clean, it needs to be reliable, it needs to be around the clock. And we're one of the very few companies that can go from molecules in the ground to electrons on the grid to carbon back on the ground. We think that's a big differentiator, and the geology and our expertise on subsurface is what makes it really difficult to replicate. If you then look at the interconnection queues in California, it just takes longer than anywhere else in the country. And so that puts a scarcity premium, capacity that's already tied to the grid. So having those assets, it's very meaningful. We have close to 1 gigawatt of power under our portfolio. But we're seeing some regulatory improvements. So the CPUC just started the procurement process of 6 gigawatts of new clean capacity by 2032. But what we really like to see is that 1.5 gigawatts of that is clean and firm. So that's the energy that we can provide, right, always on, dispatchable, zero emissions. So these are solar and batteries can fill that, it's gas, natural gas with CCS. So in terms of the dynamics that we're seeing, we see a resource adequacy payments that are compressed today because you have a lot of this intermittent supply solar and wind that's flowing in the market. But this new clean, firm requirement creates a structural demand for what we operate. So then the resource adequacy pricing is expected to follow and it's stronger over time. So ultimately, what we see in terms of power is the future natural gas with CCS. It's very California-specific solution. You might not be seeing that in other parts of the country. And you're expecting the CPUC to address it this year and moving forward. So we're well positioned either way, but we see a significant business opportunity as we think about California power dynamics. Operator: The next question comes from Zach Parham with JPMorgan. Zachary Parham: I wanted to ask on the buyback first. Buybacks were relatively smaller in 1Q at $10 million, and you bought back around $45 per share. So those buybacks were done mostly early in the quarter. The stock's moved quite a bit higher since, but so is the commodity, so you're going to still generate quite a bit of free cash flow this year. Can you just talk about how you're thinking about the buyback going forward? Francisco Leon: Yes, Zach. So the first priority for this quarter was to get the activity production back to maintenance level. And the reason for that is that, that gets us to sustainable capital returns. And that duration is what we think the investor is really looking for. And you look at the track record, $1.6 billion of buybacks over the years. So very much a part of our portfolio to be able to distribute cash to shareholders. So we continue to be very focused on that. It's just a matter of sequencing. So getting production back on track is -- was paramount, but the framework hasn't really changed since we started, right? So we want to be the company that you can own through the cycle, and that means good returns, steady returns as we go forward. So we will have to make the next decision right now that we're able to invest into a business to keep production flat, then the next opportunity to either grow from their or buy back shares or increase the dividend or ultimately accumulate more cash for that is something that we're going to have to continue to look at as we start thinking about the setup in 2027. But maybe let me turn to Clio to recap that framework and provide a little more of the specifics. Clio Crespy: Zach, the way I'd frame it is higher prices don't really change our framework, but they do shift the mix of where capital goes with a lot of more naturally flowing towards high-return reinvestment in the base business, with us continuing to build that long-term optionality. But importantly, we're doing that within the same disciplined framework that we've held. So we're still running a sub-40% reinvestment rate on the E&P side. The business continues to generate significant free cash flow. And with our leverage that's already low, the balance sheet isn't a constraint. It gives us the flexibility to lean into those opportunities while generating meaningful excess cash. And you asked about the buybacks, and I'll take a step back and saying shareholder returns more broadly, that remains a core part of our story. We've consistently grown the dividend over the past 4 years, and that yields around 2.5%, which we think is competitive both within the sector, but also more broadly. And we'll continue to approach buybacks in a disciplined and opportunistic way. We think that's been very effective. If you look since mid-2021, we've returned via buybacks about $1.2 billion, $1.6 billion in total as Francisco was mentioning. And we executed that at a meaningful discount to the intrinsic value. So we repurchased shares at an average price of about $43.50, and that's roughly 30%, 40% discount to where you've seen trading recently. And we've been able to also keep share count relatively flat even as our production has grown about 50% over that period of time. So you've seen us lean in and be opportunistic and be effective with that tool. But even as we lean into our E&P investment, we're not stepping away from returns, we're simply delivering more. And we're really not making a trade-off here. It's a dynamic allocation. Capital flows to the highest-return opportunity, while supporting our shareholder returns and also maintaining our long-term growth options. Zachary Parham: A follow-up I wanted to ask on the cost side. As you add back some activity, are you seeing anything on the inflation side? I'm sure you're seeing higher diesel prices have some sort of impact. But anything else you would flag from an inflationary standpoint? Clio Crespy: Good question. I'd say at this point on inflation, it remains modest and really manageable for us within the business. So we saw minimal pressure in the first quarter. But you're right, as oil prices have moved much higher, we're starting to see some impact, primarily in oil-linked inputs. But in terms of magnitude, we're estimating that's roughly $6 million to $8 million impact this year or $10 million on an annualized basis, so very manageable. If you look at what's driving that, about 1/3 -- well, actually 3/4 is fuel related, so driven by higher costs across our field operations and logistics. And the balance of that, so 25% to 1/3, is oil-based products where we're seeing moderate supplier increases there. But it's important to note that our team, we've done a significant amount of proactive work on the supply chain side, consolidating vendors, improving procurement, leveraging scale. And that really mitigates a lot of the exposure. So altogether, I'd say the level of inflation is modest so far and it's more than offset by the structural margin improvement we're delivering across the business. Operator: The next question comes from Michael Furrow with Pickering. Michael Furrow: I'd like to ask about risk management. Clearly it was a volatile quarter for pricing. It looks to probably continue in the second quarter. California market dynamics only add to volatility. When you look at the business today, the balance sheet is in a much healthier position than it's been previously. So does any of the market dynamic changes alter the company's hedging strategy moving forward? Francisco Leon: Michael, so as I mentioned before, we want to build a company that the investors feel good about owning through the commodity cycle, the ups and downs of the cycle. So we see our hedging strategy as a great tool to deliver that and to ultimately lock in attractive economics so we can execute regardless of where prices go. I'll turn it to Clio for a little bit more details on the go-forward impact. Clio Crespy: So our hedging and our hedging program, it's really about being able to deploy capital with confidence. So it's about having the confidence in our returns in our capital program and our ability to really deliver through the cycle. It allows us to lock in attractive floor economics and also commit to higher levels of activity participate in the upside. Last quarter, we shared what the business generates at around $65 Brent, and that underpins how we think about both capital allocation and hedging. We did put these hedges in place in a different forward curve environment that was delivered at the time, protecting the base business, the capital program and the dividend and while retaining a lot of upside participation. And if you look at our portfolio, that's how it's structured today. So in '26, roughly 2/3 of our volumes participate to the low to mid-80s Brent, and about 1/3 remains unhedged. So while we do have downside protection, we're not fully capped. Higher prices do translate into stronger margins and free cash flow across a meaningful portion of our portfolio. And if you look beyond '26, that exposure increases. So there's about 40% in '27 and roughly 80% in '28 of our volumes that are unhedged. I'd say stepping back, that visibility is what has allowed us to commit to the activity levels and to the returns we're outlining today. And the objective of that hedging program hasn't changed. It's about protecting the downside while maintaining meaningful exposure to the upside. Michael Furrow: Staying on the topic, in the first quarter, volatility weighed on the post-hedge realized pricing, or at least [ versus ] our numbers, negatively affected our EBITDA expectations. But looking forward, is that same timing dynamic that was a headwind for the first quarter act as a tailwind for 2Q? Clio Crespy: So what you're looking at there in terms of GAAP is we're really settling our hedges on a monthly basis. And if I look at the Street, I think most analysts are doing so on a quarter basis. So an average quarterly price will not reflect what happened, for example, in Q1 where you had January and February in high-60s and then March with the high 90s. So I believe that, that's what's driven most of the delta, if not all of the delta. If you do that average quarterly price versus the month-to-month, that yields, for example, a $30 million to $40 million delta in EBITDA loan for that order. So I do think that that's something that our IR team can work to make sure that we are closely calibrated. Operator: And the last 2 questions today will come from Nate Pendleton with Texas Capital. Nathaniel Pendleton: Congrats on the great update. Francisco, I wanted to go back to the RCPPP potential briefly. Could you provide a bit more detail about what the next steps are for that to be implemented and how that could impact demand for your CTV [ floor ] space and perhaps even your end-state natural gas volumes? And if I may add one more part to that, with the potential program, are you already having conversations with companies trying to get ahead of implementation? Francisco Leon: Nate, so yes, we see RCPPP as being a game changer if it passes. It's a very unique front of the meter opportunity. It's the recalibration of a grid that has been struggling to keep up over reliance on solar, wind and batteries when you really need that firm capacity to come back into play, and a state that focuses on decarbonization and reducing the carbon footprint very few ways to go and nothing really tangible other than carbon capture. So we see this as an incredible opportunity. The policy rule-making is advancing. We saw, as I mentioned earlier, call for procurement, 1.5 gigawatts of firm and clean, which really limits the pool of opportunities that we think -- I said CCS is the most tangible one. But you look at -- you step back and you look at about -- California has about 40 gigawatts of power generated through natural gas-fired generation. I assume that not all of all them will be able to be retrofitted with CCS. So our view is about 17 -- call it, 15 to 20, 17 midpoint, gigawatts, would be good candidates for retrofit, right? So you can start scaling the magnitude of the program. So we will have the ability to participate primarily in the transport and storage of CO2. But we also have the input, which is natural gas and we can grow that and have a dedicated natural gas flow of low-methane emission, very high-caliber or natural gas going in, that ultimately all goes into the calculation around carbon intensity. So we can provide a very scalable, big offering. And then we've seen progress, as a reminder, the CO2 pipeline moratorium was lifted earlier this year. So that allows us to start thinking about that transport in a much more tangible way. And then you come back to our Elk Hills project, we're at the doorstep of getting that permit from the EPA. We look at the project management dashboard, there's no red left in that dashboard, right? We're done, commissioned, we sent the samples into the EPA. They have been checked and confirmed to be adequate. So we're just waiting for that final approval. I think that is the final signal to the market that CCS is here, that we were able to clear all permits and have been able to make it to commerciality, and we see demand follow. We are having conversations. We do see a lot of interest, as the CPUC considers CCS, we see a significant uptick in those conversations on how do we get the CO2 from the point source into reservoirs. So massive front-of-the-meter opportunity, very tailored towards a California solution, a unique business model and one we're extremely well positioned on. Nathaniel Pendleton: Perfect. And then as my follow-up on the regulatory side, it seems you have been able to navigate the regulatory and permit process extremely well with the receipt of permits for the 2026 program and already working on '27. So can you comment on how your discussions with regulators have been to open up the permitting process? And could you share your views on the ongoing governor's rate given the potential impacts to the industry more broadly? Francisco Leon: The governor's rate, okay. Yes. On the first topic, we -- it truly is an incredible team effort from our folks in State Capital in Sacramento to our permitting team in Bakersfield. And there's been incredible progress throughout. Our view towards California is different than other energy companies. We're working to establish partnerships, to provide solutions, to be innovating alongside with the state. And that's giving us an opportunity to work very constructively with regulators and the politicians. And ultimately, our track record really to deliver projects that no one else can really puts us into a place of -- or really good placement on a go-forward basis. So really proud of what the team has been able to do. And it is a core competency. It's something that we do exceptionally well, better than most, and ultimately creates an incredible market opportunity if we continue being really good at it. In terms of the governor's rate, June 2 is the [ jungle ] primary, so the top 2 candidates regardless of the party move on to a general election in November. Ultimately, it's a fascinating dynamic with a lot of candidates that could ultimately end up as governor, so fairly open. Our view is we can work with all candidates. We support some campaigns and candidates that have a little bit more in tune with rational energy policy. We really want to focus the politicians on protecting and creating local jobs. And ultimately, we can partner and solve the affordability crisis in the state. So exciting times to have an election, and we're watching it closely. And looking for leadership that will continue to collaborate and make the state better going forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Francisco Leon, for any closing remarks. Francisco Leon: Great. Thank you, everybody, for joining us today. We look forward to seeing many of you on the road at upcoming investor conferences in the coming weeks. So thank you, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, everyone, and welcome to the Clearfield Fiscal Second Quarter 2026 Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Gregory McNiff, Investor Relations. Sir, please go ahead. Gregory McNiff: Thank you. Joining me on today's call are Cheri Beranek, Clearfield's President and CEO; and Dan Herzog, Clearfield's CFO. As a reminder, Clearfield publishes a quarterly shareholder letter, which provides an overview of the company's financial results, operational highlights, and future outlook. You can find both the shareholder letter and the earnings release on Clearfield's Investor Relations website. After brief prepared remarks, we will open the floor for a question-and-answer session. Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company. These remarks constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. It is important to also note that the company undertakes no obligation to update such statements except as required by law. The company cautions you to consider risk factors that could cause actual results to differ materially from those in the forward-looking statements contained in today's press release, shareholder letter, and on this conference call. The Risk Factors section in Clearfield's most recent Form 10-K filing with the Securities and Exchange Commission and its subsequent filings on Form 10-Q provide a description of these risks. With that, I will turn it over to Cheri. Cheri? Cheryl Beranek: Good afternoon, everyone. Thank you for joining us to discuss Clearfield's results for the second quarter of fiscal 2026. I'll begin with an overview of the quarter and our strategic priorities. And then I'll turn the call over to Dan to review the financial details and outlook. Second quarter net sales were $34.4 million, which came in towards the high end of our guidance range of $32 million to $35 million. Our performance was driven by continued strength in our Community Broadband market with year-to-date revenues up 5% over the same period of last year. Our net loss per share of $0.04 was within our guidance range. Our backlog rose 39% sequentially from the first fiscal quarter, resulting in a book-to-bill ratio of 1.3 for the quarter, consistent with typical summer seasonality and supportive of our outlook for the second half of the year. We are focused on consistent execution while investing in Clearfield's next phase of growth. To that end, we are building a significant pipeline of opportunities beyond our traditional broadband customer base. While these adjacent markets have yet to contribute meaningful revenue, reflecting their longer sales cycles, they do represent a compelling avenue for future expansion and early indications are encouraging. In particular, we are seeing increasing engagement linked to data center environments where capacity expansion is driving more consistent infrastructure planning needs. As these opportunities develop, we expect them to contribute meaningfully to revenue, driving a gradual broadening of our revenue base. Recently, Clearfield hosted Fiber to the Future at our headquarters, a program that brought together key thought leaders from across our industry. The event featured demonstrations of our BABA-ready cable extrusion capabilities and optical fiber termination solutions alongside insights from these leaders. Participants included executives from service providers, our top distributors, industry media, and association leaders gained a Clearview of how Clearfield's innovation and operational excellence position us to meet the growing data infrastructure demands driven by fiber-enabled Artificial Intelligence. As Edge AI takes shape, Clearfield demonstrated throughout the day its innovation and thought leadership. From an industry perspective, the pace of the BEAD funding process continues to be the primary constraint on our core business. While we are seeing early-stage planning and design activity across our customer base, the timing of funding disbursements remain uncertain, which is delaying order activity. We continue to expect meaningful BEAD-related revenue to materialize in fiscal 2027 as the program is deployed across the states. In response to the current environment, we have maintained a proactive approach to ensure that we are well positioned as demand materializes. We are deepening engagement with customers as projects progress towards execution and aligning our resources to support anticipated build activity, including the compliance with BABA requirements. Our focus remains on understanding where customers are in their planning process, and how we can best support them as projects take shape. We believe this approach enables us to allocate resources effectively and to stay closely aligned with customers as their deployments advance. Looking ahead, we are increasingly focused on longer-term opportunities tied to distributed compute and edge infrastructure. Industry trends continue to support a shift toward compute closer to the end user, as low-latency AI applications require faster processing capabilities between compute and storage rather than relying solely on centralized data centers. This dynamic will drive the build-out of smaller distributed edge locations that function like compact data centers and require high-density fiber connectivity, particularly in markets served by Community Broadband providers. As a result, there is growing demand for solutions that can be deployed quickly, scaled efficiently, and replicated across numerous sites. We are actively positioning the company to participate in this evolution. Our NOVA Platform announced last quarter, is designed to address this need by enabling the flexibility and scalability required to support the next generation of edge AI infrastructure. The platform has been well received, and we anticipate shipping in the second half of the fiscal year. You can also expect a series of new product launches as we bring proven, hardened, reliable, and scalable outside plant techniques and strategies into this space. With that, I'll turn the call over to Dan to review our financials and outlook in more detail. Daniel Herzog: Thank you, Cheri, and good afternoon, everyone. As a reminder, in November, we completed the sale of our Nestor Cables business. As a result, all financial results presented for fiscal year 2025 and all prior periods reflect the Clearfield segment as continuing operations only. With Nestor results reported under discontinued operations in our Statement of Earnings and Statement of Cash Flows, and reported as assets and liabilities held for sale in our Balance Sheet. With this transaction behind us, our focus and portfolio are now fully centered on the Clearfield business and the execution of our core strategy. Second quarter net sales were $34.4 million, a 15% decrease from $40.6 million in the prior-year second quarter. This decline was partially due to a pull-in by a Large Regional Customer into last year's second quarter from our Fiscal Year 2025, third quarter. Revenue was flat sequentially, primarily due to expected seasonality in the winter months. Gross profit margin was 32.5%, down from 34.4% in the prior-year second quarter and down slightly from 33.2% in the first quarter of fiscal 2026 mainly due to lower sales volume. Operating expenses for the second quarter of fiscal 2026 were $13.2 million in comparison to $12.3 million in the prior-year second quarter. Primarily due to investments to support future planned growth, including in adjacent markets. Net loss in the second quarter of fiscal 2026 was $500,000, or a net loss of $0.04 per diluted share, compared to net income of $1.3 million, or net income of $0.18 per diluted share, in the prior-year second quarter. We ended the quarter with approximately $147 million in cash, short-term and long-term investments and no debt. During the quarter, we repurchased 237,000 shares for $7.3 million as part of our share buyback program. For the third fiscal quarter of 2026, we anticipate net sales from continuing operations to be in the range of $42 million to $46 million. Operating expenses to remain relatively consistent with our second quarter and net income per diluted share in the range of $0.17 to $0.21. The earnings per share ranges are based on the number of shares outstanding at the end of the second quarter of Fiscal 2026 and do not reflect potential additional share repurchases completed. For the full year fiscal 2026, we are reiterating our guidance for net sales from continuing operations in the range of $160 million to $170 million, which represents approximately 10% top-line growth at the midpoint. Operating expenses as a percentage of revenue to remain consistent with Fiscal 2025 and net income per share to be in the range of $0.48 to $0.62 and with that, we will open the call to your questions. Operator: [Operator Instructions] The first question comes from Ryan Koontz with Needham & Company. Ryan Koontz: I wonder if you could give us a little more color on where BEAD is here. We're hearing from other vendors and just industry press that maybe Operators are starting to see that money in engaging in products. What are you seeing in terms of hard data from Operators that are going to get BEAD [indiscernible]? Are you starting to see forecasts or maybe early orders? Any color there would be great. Cheryl Beranek: Ryan, yes, the BEAD is, unfortunately, I would say, slower than expected. We are expected by the industry, but consistent with our outlook that we believe it is a '27 revenue opportunity for us, starting in late fall, early winter, and moving into next year. We absolutely are seeing customers talking about their planning cycles. We're talking to customers about their network designs and the kind of products that they'll be looking for from us and quoting that activity. I would say that there have been some challenges associated with trying to be able to align the availability of optical fiber from the fiber vendors so that there's a knowledge of when that product -- those materials are going to ship, so they can plan accordingly and to receive their financing. And so I would say today, it is -- I think the government still has some work to do in order to get material or the program underway. But then we're going to have some obstacles associated with just how that fiber -- excuse me, the project financing, the match gets aligned. And then as I indicated, some of the fiber that needs to be able to come from the domestic providers. Ryan Koontz: Maybe on the regional service providers, any updates there in terms of puts and takes and how you're thinking about this build season with the regionals broadly... Cheryl Beranek: I would say that that's -- we started with the negative, which is the things we can't control, which are the programs under BEAD. But as it relates to private financing, both in Community Broadband as well as in the Large Regional, we're seeing a strong build season, which is why we're looking at forecasting a 10% increase over last year. After -- for the year after a pretty slow start for the first half of the year. There has been some uncertainty in the Large Regional as they have been acquired by the Tier 1, so that those accounts have a little bit of learning to do. In regard to where the bathroom is in the new place or how they place their purchase orders, I guess, is a better way to say it. But we also are seeing other Large Regionals start to come into play and start to be more active in their deployments. So I think across the board, the Large Regionals are a nice healthy marketplace that will continue to build both with internal financing and with private financing from other vendors. Operator: [Operator Instructions] Since there are no more questions, this concludes the question-and-answers session. I would like to turn the conference back over to Cheri Beranek for any closing remarks. Please go ahead. Cheryl Beranek: Thank you so much. While it's unfortunate and disappointing that the BEAD programs are going to be delayed into '27 for any meaningful revenue. We are extremely proud and pleased with the work that we've done to stay alongside our customers and to be supporting them in their planning process. We thank our shareholders for continuing to be patience with us as we continue to support our customers, and are very excited about where that will go as we move forward. Also, want to reiterate the strength of private financing and the work that's being done to allow fiber-to-the-home to continue to expand as we know that fiber-driven networks do provide the best average revenue increase per subscriber for our shareholders or our service provider customers and are pleased and excited about where that will go. Finally, I did want to point out or remind everyone that Clearfield is about a Fiber-to-the-Anywhere opportunity. And our strategic plan very strongly supports our core marketplace and making sure that we protect our core, but we are investing over the course of the last, really, 18 months in adjacent market opportunities. Both bringing our existing product line to new markets as well as to be able to introduce new customers to new product lines. So continue to look forward to telling you about those in the coming months and quarters ahead. With that, we're excited about the Build Season. And unfortunately, well, fortunately, we're looking forward to warmer weather; it's a little chilly here in Minnesota today. Thanks so much. We appreciate your support. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the GXO First Quarter 2026 Earnings Conference Call and Webcast. My name is Sachi, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements, the use of non-GAAP financial measures and the company's guidance. During this call, the company will be making certain forward-looking statements within the meaning of applicable securities laws, which, by their nature, involve a number of risks and uncertainties and other factors that could cause actual results to differ materially from those projected in the forward-looking statements. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings. The forward-looking statements in the company's earnings release or made on this call are made only as of today, and the company has no obligation to update any of these forward-looking statements, except to the extent required by law. The company also may refer to certain non-GAAP financial measures as defined under applicable SEC rules during this call. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial tables are on its website. Unless otherwise stated, all results reported on this call are reported in United States dollars. The company will also remind you that its guidance incorporates business trends to date and what it believes today to be appropriate assumptions. The company's results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic conditions and consumer demand and spending, labor market and global supply chain constraints, inflationary pressures and the various factors detailed in its filings with the SEC. It is not possible for the company to actually predict demand for its services, and therefore, actual results could differ materially from guidance. You can find a copy of the company's earnings release, which contains additional important information regarding forward-looking statements and non-GAAP financial measures in the Investors section on the company's website. I will now turn the call over to GXO's Chief Executive Officer, Patrick Kelleher. Mr. Kelleher, you may begin. Patrick Kelleher: Good morning, and thank you for joining our first quarter 2026 results call. Joining me today are Mark Suchinski, our Chief Financial Officer; and Kristine Kubacki, our Chief Strategy Officer. Before we get into the quarter, I want to take a moment to welcome Mark, who is joining us for his first earnings call as our Chief Financial Officer. Mark's decades of experience driving enterprise performance through labor productivity, contracting and pricing improvements as well as deep expertise in aerospace and defense, which is one of our most important growth verticals, is exactly what we need as we accelerate growth and expand margins. His track record of driving value creation aligns directly with where we're headed in this new era of growth. With Mark on board, we have the right team in place to deliver on our strategic priorities. A big welcome to you, Mark. Mark Suchinski: Thank you, Patrick. I'm truly excited to be part of the GXO team. Patrick Kelleher: And we are thrilled to have you. Now turning to the quarter. In the first quarter, we delivered revenue of $3.3 billion, up 11% versus prior year and adjusted EBITDA of $200 million, up 23%. Adjusted diluted EPS increased 72% to $0.50. Organic revenue growth was 4% in the quarter, with every region contributing, demonstrating the resilience and global strength of our business model in a dynamic geopolitical environment. We entered 2026 with strong revenue visibility, and we have continued to build on that momentum. In the first quarter, we added $227 million in new business wins across key verticals, including notable contracts in aerospace and defense, several technology wins, including further growth in AI cloud infrastructure with hyperscalers and an expansion with the NHS in the U.K. In consumer, we secured a meaningful new partnership with L'Oreal in Europe. We are also seeing encouraging momentum in North America with our largest win in the quarter coming from our rapidly expanding aerospace and defense business. These wins demonstrate strong commercial momentum and give us confidence in our ability to accelerate organic growth in 2026. We now have $870 million of expected incremental new business revenue already secured for 2026, up 19% compared to this time last year, giving a strong line of sight into the balance of the year, and we are already beginning to build visibility into 2027. Mark and Kristine will discuss our financial outlook and new business wins in more detail shortly, but I'm pleased to announce that after a strong start to the year, we are raising our full year guidance for adjusted EBITDA and adjusted EPS. We now expect a 22% increase in adjusted EPS at the midpoint of the range. Now let me walk you through what's driving that confidence. We're focused on 3 strategic priorities: sharpening commercial execution, strengthening operational discipline and leading in AI and next-generation automation. These are the levers that will accelerate growth and expand margins. To execute on these priorities, we brought in new leadership across commercial, operations and our Americas and Asia Pacific region. That team is now in place and delivering results. First, on commercial, we're diversifying into strategic growth verticals. Karen Bomber joined in January and is focused on 3 key areas: bringing an unified global approach to account management that mirrors how our customers operate, pricing that reflects the value that we deliver and faster, more consistent commercial processes, and we are already seeing momentum. Our total pipeline now stands at the highest level in GXO's history. And in the quarter, 40% of wins were in our strategic growth verticals, aerospace and defense, industrial, life sciences and technology, particularly data centers. Our sales pipeline is accelerating, up 20% from the fourth quarter, of which more than $0.5 billion is in our strategic growth verticals. We also saw positive year-on-year volume growth in these verticals, helping to offset softer volumes in retail and consumer. And we have seen the momentum building specifically in North America, one of the largest and fastest-growing logistics markets globally. Our new management team and targeted marketing investments are gaining traction. In the first quarter, win rates notably increased and the pipeline grew 35% sequentially, giving us increased confidence in the opportunity ahead. In the region, we continue to benefit from our leadership position in B2B verticals, particularly aerospace and defense and data centers, while also seeing broader momentum emerging in consumer verticals, including consumer staples. During the quarter, we launched the Defense Advisory Board in the U.S. and established the Taurus Defense Supply Chain Alliance in the U.K., a significant move that positions GXO as the leading supply chain provider to the U.K. defense industry, building on the expertise or relationships Wincanton brings to our platform. Second, in operations, we have begun to implement the GXO Way. Our new global framework for standardizing and scaling excellence across the full operational life cycle. This gives us the platform to drive more consistent, repeatable execution at scale, which will make GXO even more competitive as a growth partner for customers and drive margin expansion. Third, in technology, we are making clear progress on our automation and AI strategies. GXO IQ reached an important milestone this quarter as we began to scale the platform, launching several new sites with the rollout expected to accelerate throughout the year. We are targeting more than 50 sites by year-end. The deployment of automated solutions continues to advance as well, including a fleet of autonomous mobile robots in the Netherlands and our first auto load solution in Europe. This will not only enhance how we deliver, driving greater efficiency and productivity for our customers, it creates ongoing value and strengthens the durability of our partnerships. On humanoids, we will launch more pilots across the U.S. and Europe later this year. Our first-mover advantage is real, and we are building on it. In closing, GXO is off to a strong start in 2026. The underlying business is showing positive momentum. Our strategic priorities are beginning to gain traction, and our team is fully focused on driving long-term value creation. I look forward to sharing more on our long-term strategy and progress at our Investor Day to be scheduled after the third quarter earnings. With that, I'll hand the call off to Mark. Mark Suchinski: Thank you, Patrick, and good morning, everyone. Again, it's a pleasure to join you for my first earnings call as CFO of GXO. In my first 5 weeks, I've had the opportunity to meet with our site teams, our customers and colleagues across the business. My initial takeaways are very clear. We have a strong foundation and a significant growth opportunity ahead of us. GXO has built a formidable enterprise, one with significant global scale, a competitive advantage in automation and AI and a caliber of customer base that very few companies in the world can match. My priorities are fully aligned with Patrick's. To operate as a single connected global firm, powering our commercial growth strategy, leveraging the GXO Way to drive consistent global execution and optimizing our cost structure. We will also ensure disciplined capital allocation that drives long-term shareholder value. I look forward to sharing more on each of these areas in the quarters ahead. In the first quarter, GXO delivered revenue of $3.3 billion, up 10.8% year-over-year, of which 4.1% was organic. Every region contributed, a clear demonstration of our breadth and resilience of our contractual business model in a dynamic macro environment. We delivered adjusted EBITDA of $200 million, up 22.7% from this time last year. This resulted in an adjusted EBITDA margin of 6.1%, up 60 basis points year-over-year. We delivered net income of $5 million and adjusted net income attributable to GXO of $58 million, up 70.6% year-over-year. Adjusted diluted EPS was $0.50 per share, up 72.4% from the first quarter a year ago. We generated $31 million of operating cash flow in the quarter, while free cash flow was an outflow of $31 million, in line with typical seasonality. We are managing working capital efficiently and investing in the business at high returns. Turning to our balance sheet. We ended the quarter with $794 million in cash on hand and a strong liquidity position of $1.6 billion. Our leverage levels held steady at 2.5x. Our investment-grade balance sheet is strong and positions GXO for profitable growth. We remain focused on disciplined allocation of capital to enhance long-term value for our shareholders. The integration of Wincanton is progressing at pace. We remain on track to deliver run rate cost synergies of $60 million by year-end 2026. We also expect to capture significant revenue synergies in the years ahead. Turning to the outlook for the full year. We overdelivered versus our guidance for the first quarter. We saw strong underlying performance from our core business as well as benefiting from certain contract termination costs that had been anticipated in the first quarter and are now expected to be incurred over the remainder of the year. As a result, for our full year 2026 guidance, we are maintaining organic revenue growth of 4% to 5%, raising adjusted EBITDA to a range of $935 million to $975 million, raising adjusted diluted earnings per share to a range of $2.90 to $3.20, up 22% at the midpoint and maintaining free cash flow conversion of 30% to 40%. With strong operating performance, a record sales pipeline and solid financial foundation, we are well positioned to accelerate growth and expand margins in 2026 and beyond. With that, over to you, Kristine. Kristine Kubacki: Thanks, Mark. Good morning, everyone. The first quarter results again demonstrate the strength and resilience of our business model. I'd like to provide some more context on the drivers of that growth, the durability we see across our business and how we are positioning GXO for the next phase of value creation. Patrick has been clear about our strategic priorities, sharpening our commercial strategy, strengthening our execution and leading the deployment of AI and next-generation automation. Together, these priorities will drive long-term profitable growth. Commercially, we are making significant progress deepening our global relationships with blue-chip customers and expanding across geographies and into high-growth verticals. In the first quarter, we won $227 million in new contracts, and our pipeline grew to $2.7 billion, a record for GXO and a clear reflection of the momentum that has built since Patrick joined in August of last year. As Patrick and Mark both noted, we are deliberately leveraging our strong positions in aerospace and defense and technology, including data center infrastructure to capture the rapidly growing opportunities in these verticals. We are also continuing to build on our strong foundations in life sciences and the broader industrial vertical. In the first quarter, approximately 40% of our wins and 1/4 of our pipeline came from these strategic growth verticals, a direct result of our deep capabilities, technical expertise and strong competitive positioning. With supply chains continuing to grow in complexity and reshore, we have increasing confidence in the durability and resilience of our growth outlook. And with a combined TAM of over $200 billion across these verticals, the runway ahead remains substantial. Taken together, our recent wins translate to $870 million in incremental revenue already booked for 2026, up 19% from where we stood at this point last year. This gives us confidence in our full year guidance and provides a clear visibility into our long-term growth trajectory. The second priority Patrick outlined was strengthening our execution, leveraging our position as the leading pure-play contract logistics provider to drive better outcomes for our customers and improve profitability for GXO. Central to that is our leadership in automation, technology and AI. In the first quarter, we made meaningful strategic progress on this front as we began expanding GXO IQ into a scaled platform. We have moved from pilot to global rollout, launching GXO IQ at a large consumer product site with a seamless implementation. We are now accelerating deployment across North America and Europe with U.K. sites set to follow later in the year. As a reminder, GXO IQ is an AI-powered warehouse technology platform that improves start-up efficiency, accelerates productivity and enhances data security. GXO IQ simplifies implementations and makes our proprietary AI modules and automation capabilities truly scalable. We are targeting to expand GXO IQ to more than 50 sites by year-end. In combination with strengthening our operating model, in the quarter, we have begun to reshape our organization to drive sharper execution. Our new COO, Bart Beeks, who joined in January, is overseeing the launch of the GXO Way, our operating framework designed to turn proven excellence into a repeatable advantage. This means standardizing implementation best practices, accelerating frontline automation deployment and leveraging our global procurement capabilities to drive scale and expertise benefits for our customers. Overall, these strategic priorities are serving to diversify GXO's revenue base, making our growth even more durable and driving our profitability and cash flow. We look forward to sharing more at our Investor Day after third quarter earnings, where we'll provide more detail on our long-term strategy and financial framework. With that, I'll hand the call back over to the operator for Q&A. Operator: [Operator Instructions] The first question is from Stephanie Moore from Jefferies. Stephanie Benjamin Moore: Congrats on the strong quarter and obviously, a really good start to the year. I was hoping that you could address a topic that is probably clearly top of mind with investors this past week. So I think most have probably seen this, but I'm obviously talking about the announcement from Amazon of its expanded supply chain services. So I think, it would be helpful if you could just maybe speak to your competitive moat and differentiated service proposition and how that differs from other players such as Amazon or really any other well-backed company that would look to expand fulfillment or warehousing services. I think that would be a helpful place to start. Patrick Kelleher: Absolutely, Stephanie, and thanks for the question. I've been in this industry for 32 years, and I really viewed Amazon's announcement this week as a fantastic validation of the opportunity that's in front of you and of the contract logistics industry. This is a massive market. It's approximately $0.5 trillion and growing. Very exciting today, roughly 70% of the market that being contract logistics is in-sourced, which is a huge opportunity. So we don't view this as really changing the overall competitive dynamic. I would point out that we provide a fundamentally different offering. Amazon is selling access to its supply chain, whereas GXO, we build custom solutions for our customers, and that distinction means everything to our blue-chip customers. We're not a one-size-fits-all provider. What we do is bespoke, operationally complex and relationship-driven. The more complex the supply chain, the more bespoke really matters. There's a couple of differences to our model that I really want to point out. First is control. For enterprise customers, protecting their data is a top priority. Many companies are going to be reluctant to give a competitor deeper visibility into their inventory, demand patterns, sales channels, financials. #2, we offer a flexible tech stack that is vendor agnostic, so we're not beholden to a single technology solution. And #3, our capabilities extend way beyond retail into sectors like aerospace and defense and industrial, just to name a few. We see our moat as really deep. The combination of factors, our client-aligned customized solutions feature long-term contracts, cutting-edge technology, deep vertical know-how, high-quality execution, and I think those are all key differentiators. We're really focused on delivering value for our customers, shareholders and teammates with a focus on discipline in executing our strategic plans and executing for our customers. So we really feel great about how GXO is positioned as a leader in the contract logistics industry to continue to win and grow this year and into 2027 and beyond. Stephanie Benjamin Moore: One question on just the quarter itself. Maybe if you could just speak to, I think the EBITDA performance was better than we had initially expected. So if you think about that underlying performance, do you think that this is a testament of some of the cost actions that your team have kind of implemented more recently? Maybe talk through what this should mean in terms of the momentum of those cost actions as the year progresses. Just wanted to get a sense of your underlying confidence and the ability to really look for some of the productivity savings that you called out before? Patrick Kelleher: Absolutely. I'll ask Mark to answer that question. Mark Suchinski: Stephanie, thanks for the question. As you indicated, we had a really strong performance in the first quarter in our core business. We feel good about that. The initiatives that are in place, they're starting to take hold here. And so it's a clear indication that what we're doing, we're on the right track here. And so I think as we move throughout the year, we continue to win new business and focus on very disciplined execution for our customers, along with the initiatives that Bart Beeks, our new COO, is driving, we feel good about our ability to drive margins in the long term. And you're seeing it show up in the first quarter. And that's one of the reasons why we felt confident but prudent in our approach to raising guidance. Operator: The next question is from Ravi Shanker from Morgan Stanley. Ravi Shanker: Just on the current environment, can you guys clarify if you've seen any blips in customer activity or planning at all because of the conflict in the Middle East and kind of what the outlook looks like the rest of the year? Patrick Kelleher: Yes. First, I would say that for GXO, we have virtually no direct exposure to the region, and we are not seeing any material impact from the conflict. Our volumes for the first quarter overall were relatively flat, which is something that we had actually forecasted and saw coming into the quarter. B2B volumes in our aerospace, defense, industrial technology, life sciences sectors were slightly up and B2C volumes in retail and CPG slightly down, but netting out to being flat. We continue to see great energy from customers around the exploration of outsourcing and through our new business delivery in the first quarter, clearly, customers are continuing to commit to solutions going forward. I think a great testament to the health of the industry and the opportunities out there is the increase that we saw in our pipeline in the first quarter. So a record pipeline now up to $2.7 billion. We're seeing great conversion on that pipeline. And based on the flow of projects coming in week by week, we see that continuing in the medium term, long term as we look towards the end of the year. Ravi Shanker: Great. That's helpful. And maybe as a follow-up on the Amazon topic. Thanks for the clarification and kind of what you see as your moat there, particularly the point on custom solutions. Is there any part of your business do you think where you do not have the level of complexity or customization that you would like to have? Or any end markets or geographies, where you think kind of as a result of this development, you would maybe want to pivot away from and maybe towards others? Patrick Kelleher: Sure. So the area of the business where I do see us competing with Amazon going forward, and we have been in the past for a while is with Amazon's FBA product, which is very similar to our GXO Direct product offering, which is our shared use e-commerce offering. That business for GXO Direct grew in 2025. It grew 5% in the first quarter of this year, but it does represent just under 6% of our total business. So relatively small in the overall scheme of GXO's business in total. I think where we do competitively differentiate as GXO Direct is that we are servicing high-value brands that will leverage our value-added services in packaging, etching and really white glove type services for those very high-end brands. It's a high-touch customer experience. And I think we're well positioned to continue to compete as GXO Direct in that space. Operator: The next question is from Chris Wetherbee from Wells Fargo. Christian Wetherbee: Maybe one sort of shorter-term question and maybe a little bit bigger. I guess as you think about demand and maybe what the second quarter could look like, kind of curious to get a sense of what you think organic revenue trends look like as you go through the year. So you came in a little bit better than what we thought in the first quarter. I don't know if you see an acceleration as you move into 2Q. I know we're kind of in the range that you guys gave for the full year, but any thoughts on the second quarter and kind of what you're seeing from demand in the month of April? Mark Suchinski: Chris, it's Mark. Let me just respond to that. As you indicated, we had solid revenue organic growth in the first quarter of 4.1%. We expect the second quarter to be about the same that we saw in the first quarter. And with the pipeline and the wins that we've achieved and the line of sight that we have here in the second quarter, we're seeing the organic growth then accelerate in the back half of the year. So I think the first half of the year, it's going to be at the lower end of the range, whereas in the back half of the year, it's going to be at the higher end of the range based on the visibility that we have today. Patrick Kelleher: And that visibility is really reinforced by we're seeing the signings happening today, and it's really about the timing of the implementation of the business that we have sold and when that revenue is coming on in 2026. And then I think based on the signings we're seeing and particularly the acceleration of the pipeline and the conversion rates that we're seeing, we have a lot of confidence going into 2027 around the continuation of accelerating organic growth. Christian Wetherbee: That's super helpful and a great segue. I guess I wanted to ask a little bit about sort of building that incremental revenue wins for 2027. So at $168 million, I think you're a little lower than what you've been in the last couple of years there. Is it just sort of a timing dynamic? I guess, as you guys have sort of reconstituted some of the management team has not lost enough that there could be some transition dynamics that play out here. But how do you think that builds as we go through the rest of the year? Patrick Kelleher: Yes. I'd see that solely as a timing dynamic around when ink hit paper in the first quarter versus actually signing contracts in the second quarter and beyond. And I think it will really come down to timing of implementation in terms of how much lands this year versus how much carries into 2027. But as I said, we're very confident in our direction there. And maybe, Kristine, if you want to comment on a pipeline perspective. Kristine Kubacki: Yes. Chris, I would just simply state that we feel very good, of course, about the record pipeline that we have and the underlying trends that we're seeing in the business. I think simply, we plan to sign more this year as we move forward. And a large part of that will simply fall into 2027. We'll see that layering on. So we feel very good and have every bit of confidence that we'll see accelerating growth through -- in the back half of this year and into 2027. Operator: Next question is from Scott Schneeberger from Oppenheimer & Company. Scott Schneeberger: Patrick, I'd like to touch again on the sales pipeline, an all-time high, and you certainly highlighted the 25% from the strategic growth sectors, and it sounds like a lot of progress is being made there, and congratulations. Curious to hear on the other 75% of the pipeline, what are the -- the primary verticals that are building and where you're seeing conversion? Kristine Kubacki: Scott, it's Kristine. I think we're very encouraged about what we saw in terms of the wins that we had in the first quarter. So it was $227 million and 40% of those were in our new verticals. So we had good signings from across our technology. We signed 4 more contracts, including 1 internationally for data centers. Aerospace and defense was actually our largest contract win in the quarter. So despite that, we still have a great representation of the pipeline as we move into the second quarter. But I think, obviously, with 75% of the pipeline is in our core business. And so that just shows that we're continuing to see momentum in the core geographies and our core verticals, omnichannel retail and the like and consumer are very strong. Our value proposition is resonating with customers. And certainly, in a dynamic environment, our value proposition only grows. Scott Schneeberger: Great. And then considering it was first quarter and often the time of year where reverse logistics is quite meaningful on returns post the holiday season. Any update on that area of your business, what percent of revenue it presents, what that mix may be going to and maybe some of the profitability attributes of that business? Kristine Kubacki: Scott, it's Kristine again. No, great question. As you know, returns are an extremely complex operation for us and one of our skilled expertise that GXO does. And in fact, we've seen very encouraging trends across our reverse logistics business. It remains probably around about 10% of our pipeline and of our business today. But we did see high single-digit growth for us in the quarter. And obviously, because of the complexity of the operations, it remains a very value-added service for us from a profitability standpoint. Operator: The next question is from Ari Rosa from Citi. Ariel Rosa: Patrick, I was hoping you could comment just for some context because obviously, the market feels confused and we saw the stock get a bit hit, obviously, on the Amazon threat. Just help us understand when companies leave GXO or when they make the decision to -- to kind of not renew the contract. What are the typical reasons that, that happens? And then if you could also comment on how often you see Amazon in a competitive bidding process? And do you have any concern that it could -- they're kind of stepping up their presence in this space could lead to something of an erosion of pricing power or greater pricing competition in the industry? Patrick Kelleher: Yes. So to take the first question, our churn rate is less than 5%. That trend is continuing. When customers leave, it is typically because of rarely a bankruptcy, but we do see those. Typically, it's a restructuring of the supply chain. It is closing one warehouse node in order to open up a new node somewhere else and then a very, very small part, of course, in a competitive bid to our competitors. But our churn rate continues to be very healthy and we see that going forward and improving as we focus on even more account management. You would have seen that with the introduction of Ajit Kara into the strategic account management role that we announced a little while ago. In terms of Amazon's presence in the market, I think they've been very clear around selling into our existing infrastructure. Providing stand-alone bespoke solutions is very different from selling into existing capacity in standard solutions. Outside their platform, in selling stand-alone bespoke solution, the game is very different. The market is populated with very formidable competitors in that space, which GXO leading, in my mind, in that regard in the contract logistics industry. When I look at our customers, they are the Chief Supply Chain Officers. We have many chiefs -- former Chief Supply Chain Officers on our Board within our organization running our business. When you look at their job and the things that are most important to them, cost matters, service is critical. They can differentiate between transactional supply chain activity like air freight and parcel and making -- and establishing short-term contracts for great rates and buying capacity. The strategic decision associated with outsourcing and contract logistics requires an approach to long-term relationship of purpose-built supply chain warehouse operation, a focus on continuous improvement over what is a long term, particularly our average contract is 5 years. So the business is very different. The engagement with the customer is very different. The way in which our organization supports the delivery of those solutions for our customers is very different than if we were selling into a standardized solution as Amazon is putting forward. So I feel really confident that at the most senior levels within our customers' organization, we are the right answer for the strategic outsourcing aspect of their supply chain. And then certainly, there is a role to play for airfreight parcel and so forth. And the competitive dynamics there are very different from the competitive dynamics in contract logistics. And that's why I'm really confident that we're so well positioned to succeed in what is a very big market. And as I said in the beginning, I think it was really a great thing that Amazon called out what an incredible opportunity there is in supply chain, what a great industry this is to invest in. Ariel Rosa: That's helpful. It certainly seems like there's a lot of confusion out there. I was excited to see that you guys have loosely set a date now for the Investor Day. Obviously, still a while away, and I'm sure there's going to be a lot of work in terms of refining long-term targets. But at a high level, maybe help us understand how you think of the objectives for the Investor Day? And what is it that you'd really like to get across? Or what is it that you feel perhaps the market is misunderstanding or investors are misunderstanding about GXO. Patrick Kelleher: Sure. You can expect on Investor Day, GXO will lay out our 3-year strategy. We will go in substantially more depth on organic growth, where to play, how to win and how we see ourselves delivering organic growth over the next 3 years. We will go deeper on the operational levers in terms of productivity improvement, glide path on SG&A, insight into the investments that we will be making -- continue to make in driving performance of the business, both on top line and bottom line. And we want to do that with transparency. The reason for the timing after the third quarter is to give this management team opportunity to pull those plans together, make sure that we can articulate those at a level of depth that everybody can embrace and that we set the stage for our path forward and sharing how we are performing against our plan. We want to be aligned externally and internally around those key metrics and those key KPIs that underpin an assessment of our performance, so we move with even more transparency going into 2027. Operator: The next question is from Bruce Chan from Stifel. J. Bruce Chan: Mark. Maybe just want to follow-up on the demand comments in terms of what you're seeing in the various geographies and end markets. I know we've been in a pretty soft environment for a while now. You mentioned some sluggishness in retail and consumer. So just any broad color on recovery rate in Europe or, for example, by industry? And then maybe also some comments on what's embedded in guidance in terms of volume from existing customers, just in case I may have missed that. Patrick Kelleher: Mark, do you want to talk about what's embedded in our current forecast from a volume perspective and... Mark Suchinski: Sure, Bruce. As we've indicated, our guidance reflects organic growth of -- we're targeting between 4% and 5% for the year. And from an existing customer standpoint, from a volume standpoint, we're assuming about breakeven on the year. So we're looking at that sales, that organic growth clearly coming from new contract wins that we achieved in 2025 and the early part of 2026. And so that's what's reflected in the guidance. Patrick Kelleher: Yes. And I would just comment across the 3 geographies, North America, U.K., Europe, where the majority of our business lies. The consumer appears to continue to be very strong. So while volume is a bit softer, it's only low single digit, very low single digit in terms of year-on-year volume changes. As we've shared on the B2B side, certainly higher volume increase there, but that represents a smaller percentage of our business where that is netting out to being relatively flat. So we're encouraged as we look towards the end of the year in terms of at least volumes being flat year-on-year. And as communicated, I think, on our last call, we still maintain that, that is a prudent position right now, and we're hopeful for better, but no reason to think that right now that, that would materialize... Operator: The next question is from Brian Ossenbeck from JPMorgan. Brian Ossenbeck: Maybe, Patrick, can you give us a little bit more details around the new aerospace and defense wins, especially the bigger ones, it sounds like in North America, like how long was that in the pipeline? If anything different than what you've seen in terms of the conditions, contract length, anything along those lines? And to the extent you can give us a little clarity and the confidence behind the ramp, anything that you've signed or have really good visibility to signing here in April? Patrick Kelleher: Yes, sure. I can't go into any details on what's forthcoming in terms of specific deals on April and beyond. The opportunity that we signed in the last quarter is focused on parts distribution, which is a very strong capability of ours, not only in aerospace and defense, but in data centers and life sciences as well. So that really plays to our core. That was a relatively quick turn project in terms of design to decision-making, which is encouraging in terms of how customers are able to move at speed in that space. We're seeing great traction in the pipeline build, particularly through the engagement of our Defense Advisory Board. That team has met on a number of occasions already. And the individuals on that board are great advocates in terms of helping us build the pipeline there, getting our name known out in the space and being able to look at real projects there. So I'm super excited about the traction we're seeing there. That goes for the Defense Advisory Board in North America as well as the opportunities that we're planning for in the U.K. through the alliance that we've established there. Brian Ossenbeck: And then it sounds like we're going to hear more about the operational improvement and possibilities at the Investor Day. But just maybe give some context in terms of the GXO Way, which seems like it's just rolling out right now. How quickly can you see benefits from that? I mean you've got a lot of different sites, long-term contracts. Can you make smaller incremental change that just adds up? Or do you feel like this can actually have some bigger impacts without having to deal with changing contract terms or maybe the operating footprint. So realize we'll hear more in the back half of this year, but I'd love to hear just how to think about that until then. Patrick Kelleher: Yes, sure. So it's early days there. As you said, we'll share a lot more on Investor Day in terms of dimensioning the potential there, as Kristine said, we've had great success in rolling out GXO IQ. That is really foundational to the GXO Way and GXO IQ is the platform for us to enable AI deployment at scale in our sites. And we have good success on the AI front. We have 8 AI modules, which we've deployed at a number of sites. We've gone live with those first instances of GXO IQ, which really provides a more standardized distribution of AI across all of our sites, and we're building towards 50 sites being on GXO IQ by the end of the year. So we're excited about that progress. When you look at the productivity improvement opportunities that we have, even just from an AI perspective, we're focused on 2 dimensions. One is driving innovation in our customer warehouse and transport operations, and we're already seeing benefits from the new modules that we've rolled out there and more to come. The second is leveraging AI for overhead and functional efficiency. And we've got great initiatives in flight there in functions like HR, IT, finance and so forth. So we're coming at it from both perspectives and very, very excited about Investor Day, where we can dimension that in more detail. Operator: The next question is from Jeff Kauffman from Vertical Research Partners. Jeffrey Kauffman: Mark, congratulations. Look forward to working with you. One quick detailed question for Mark and then a bigger picture for Patrick. Mark, as you expand into North America, how does that change your tax rate? Mark Suchinski: I would say this, Jeff. I don't think it changes in a meaningful way. Obviously, the North American rate is a touch higher than the rates across the globe here. But I think it won't be meaningful year-on-year over time. I think we'll see a small tick up in that. But at this point in time, I wouldn't anticipate anything significant. Jeffrey Kauffman: Okay. And then for Patrick, bigger picture, I'm just kind of curious your perspective last 3 to 5 years. I mean we've had COVID, we've had this AI boom. We've had tariffs. It's really kind of changed how companies are thinking structurally about their supply chains. What are some of the big changes you've seen? And how is the business shifting? Patrick Kelleher: Yes. I talked about the contract logistics industry and the evolution there, and I've been in the industry for 32 years. The industry has grown every single year over those 32 years. Events such as the financial crisis of 2008, maybe even the European bond crisis 2015, COVID, various wars and conflicts that have happened throughout the years, the evolution of tariffs, which all be reminded, started to be a big deal in the '80s, not 4 years ago. These headwinds, these changes have always resulted in fueling additional growth for contract logistics and outsourcing. Our industry is a great lever for our customers. Our solutions are a great lever for our customers to take cost out, improve service to drive change at a faster pace within the supply chain. The time and attention being put to that as a lever only continues to increase. I talked about over the last couple of months at a number of conferences, tariffs being a catalyst to supply chain efficiency. So as additional costs are introduced to the supply chain, that creates opportunities for return on investment that maybe didn't exist before. And a great example of that is the free trade zones. So there's significant demand now for free trade zones. That's a great way to at least mitigate or delay the impact of tariffs. We have 67 free trade zones around the world. We're seeing great growth in that space. As these headwinds come, supply chain efficiency becomes more important and outsourcing becomes a very easy lever for our customers to pull in order to drive those supply chain efficiencies more quickly in their business. And I think if you look at the evolution of the contract logistics industry, it started in the '90s around labor arbitrage and really has evolved to an arbitrage of expertise. The thing that differentiates us the most is the people that we have in our organization who bring the supply chain expertise, the technology expertise. They understand how to stitch technologies together to deliver unique solutions. They know how to implement change and warehouse operations quickly and efficiently and deliver solutions. And I think the arbitrage of expertise now is going to be a very big differentiator going forward. So I think all sets up well for the contract logistics industry to be healthy, and I think all sets up for the market we're participating in to be healthy. And as a market leader, we are capitalizing on that. Operator: The next question is from Jason Seidl from TD Cowen. Uday Khanapurkar: This is Uday on for Jason Seidl. Patrick, on this competitive subject, could you expand on the data security and governance that you mentioned as a differentiator in winning those RFPs? Like would you say that being a pure play offers prospective customers a degree of comfort maybe that their data is not at risk from leasing to other business lines. I'm just wondering how big of an enabling factor that might be really just given a lot of your competitors are conglomerates. Patrick Kelleher: Yes. I think it is an enabling factor. It is certainly something important to us, something we're very respectful of with our customers. And so that is something that will continue to feature as part of our solutions going forward. I would say in terms of competitive differentiation. That's just one of many things that differentiates us. And I think really is important from an outsourced supply chain provider and customer relationship perspective. I think that -- remind me the second part of your question there? Uday Khanapurkar: No, that's helpful. That's clear. Maybe just a follow-up on some of the volume outlook. Are the tariff changes and refund dynamics creating any kind of new variability in customer volume forecast? And if so, I mean, is that influencing your approach to planning and capacity management? Like do facilities need to flack in the coming months or quarters in case there's stimulus effectively that drives some volumes? Patrick Kelleher: Yes. So I think it is resulting in changes in volume flows. And so that, I think, is completely accepted by folks. I think what we are seeing is from a volume perspective, those shift in flows are coming from acceleration of onshoring, particularly around manufacturing. I think that is very real. I think that plays very well to our focus on the B2B more industrial verticals and the support of that activity. And so I think net-net, volumes increasing. And that, I speak in the context of North America. When you look at the U.K. and Europe business, seeing increasing flows directly from China and Southeast Asia, trade lanes being impacted there in terms of where product is flowing. And I think we're so well positioned given our position in the countries that we operate in Europe and of course, U.K. and Ireland to capitalize on those changes in flow. I think just to close out the other part of your first question was do we feel advantaged as a pure play in contract logistics. And I think that is one of our biggest advantages. We are making directed investments in being the best contract logistics provider. We're not encumbered by investment decisions that have to be made across a conglomerate and multiple service lines. So we intend to go deep in terms of our investment providing the very best services around those solutions that we're bringing forward to customers. And so we think that, that is a strategic... Operator: The next question is from Harrison Bauer from SIG. Harrison Bauer: Following up on something earlier on GXO Way and executing a repeatable operating framework, implementing best practices. Is there a way to frame a range of gross profit margins across the portfolio at a site level, maybe what might be on the lower end even at a mature site or underperforming site? Or at the very least, what's driving operational underperformance at a site level? And then as you push deeper into A&D, industrial, high-tech in North America, are you encountering heightened start-up costs or implementation friction standing up those new verticals? Patrick Kelleher: Yes. So the latter question on implementation costs or friction, the answer is no. We are already deep in those verticals in terms of our operational expertise. And that expertise has come both through a number of acquisitions that have been made over the years as GXO and with the competencies that have come, especially most recently with the acquisition of Wincanton. And so we have been executing solutions in aerospace and defense, technology, industrial, life sciences for more than a decade. And so we have great people operating those businesses and the implementations that we're seeing there have been very successful. We have a lot of confidence in our ability to execute in that space. On the first part of your question, I'm maybe more anxious than you to give the answer to that question, but we're going to defer that to our Investor Day. Harrison Bauer: Understood. And then just a follow-up. Pricing has come up a couple of times from opening remarks as well as Patrick, your call out on Mark's contracting experience. Mark, this one is for you, I guess, drawing on your experience from your prior [ seat ] at Spirit, how is that shaping the way that you're thinking about pricing and contract structure for GXO, particularly in A&D in North America? And are you pricing the new verticals differently than the legacy book? Mark Suchinski: Yes, Harrison. It's interesting when we look at the types of contract pricing mechanisms that we have here at GXO, open book versus fixed, a combination of fixed and variable. And what I would tell you is there's a lot of similarities when we think about aerospace and defense, in particular, with the defense primes around what we call an aerospace and defense cost plus, cost-plus incentive, fixed price. And so when we think about tackling some of these new verticals and move up the food chain, I think there's a lot that we can think about as it relates to the services that provide, the value that we bring in the terms and conditions and how we can create a pricing proposal that creates a win-win for us and our customers. And I've got a lot of experience doing that both with the big defense primes and the commercial folks. So I'm excited to really roll up my sleeves and get into that. As I said before, I think there's some similarities on how we do that. I found it very interesting as I came on board here. But I think there's some sharpening that we can do and some real focus that we can provide that I think will create a win-win for us and our customers. Operator: The next question is from Kevin Gainey from Thompson, Davis & Company. Kevin Gainey: Maybe we can just touch on Wincanton real quick as you guys have kind of got layered in completely. I know one of the bigger things with it was synergy opportunities. I was curious, if you ran across any more of those. Mark Suchinski: Kevin, I would say this, we outlined -- GXO outlined a target of $60 million worth of synergies to be achieved by the end of 2026. I personally reviewed the plan. We're tracking well. We've made significant progress against those targets, and we're comfortable that we can achieve those by the end of the year. I would just tell you this, we're not stopping there. We continue to look and stretch ourselves. But first and foremost, our goal is to achieve the $60 million that we committed to. But with any acquisition, there are opportunities and risks that come associated with it. And I do think that on balance, there are some further opportunities as we look at integrating that business into the bigger GXO and for us to take advantage of that. So things are on track. I can't give you a specific quantification at this point in time, but we're working very hard at that. Kevin Gainey: That was good color. And then as you guys hit a sales pipeline record, how are you thinking about the team's capability in converting that? And then how should we think about GXO's investment that may be required with that conversion? Patrick Kelleher: Yes. So we are absolutely feeling great about the pipeline development, particularly over the past couple of months. That development is the result of the amazing team that we have focused on marketing and sales, especially in building that pipeline. And we're seeing very good conversion on that pipeline, especially in the first quarter of this year. So I feel very good about the trajectory that we're on moving forward there. Operator: Ladies and gentlemen, that is all the time we have for questions today. I'd like to hand the call back to management for any closing remarks. Patrick Kelleher: Great. Thank you, operator. So to close, we are very encouraged by the strong start that we've had this year and even more importantly, by the momentum that's building across the business. As I talked about, the market dynamics are increasingly favorable. Outsourcing continues to accelerate and the addressable marketing for advanced logistics solutions is expanding. Our unique value proposition is resonating with blue-chip customers. Our pipeline is strong, and our teams are executing with discipline. With the foundation of strength and leadership we've put in place, we're moving with greater clarity, alignment and speed. The decision to raise our guidance really reflects our confidence in both the strength of demand that we're seeing and the predictability of our operating model. We're very excited as we move towards the middle of 2026. Thank you for joining today. Operator: Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.
Operator: Greetings, and welcome to Inter Parfums, Inc. First Quarter 2026 Conference Call and Webcast. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, [inaudible]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Devin Sullivan, Managing Director at The Equity Group and Inter Parfums, Inc. investor relations representative. Thank you. You may begin. Devin Sullivan: Thank you, Rob. Good morning, everyone, and thank you for joining us today. Joining us on the call today will be Chairman and Chief Executive Officer, Jean Madar, and Chief Financial Officer, Michel Atwood. As a reminder, this conference call may contain forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from projected results. These factors may be found in the company's filings with the Securities and Exchange Commission under the headings “Forward-Looking Statements” and “Risk Factors.” Forward-looking statements speak only as of the date on which they are made, and Inter Parfums, Inc. undertakes no obligation to update the information discussed. Inter Parfums, Inc.’s consolidated results include two business segments: European-based operations through Interparfums SA, the company’s 72% owned French subsidiary, and United States-based operations. It is now my pleasure to turn the call over to Jean Madar. Jean, please go ahead. Jean Madar: Thank you, Devin, and good morning, everyone. We started off the year broadly in line with expectations, with consolidated sales increasing 2% on a reported basis, reflecting growth from both our U.S.- and European-based operations. Despite mixed results across the portfolio, aided by favorable foreign exchange movements, we were able to generate significant growth across several key markets operating in a more difficult environment while enhancing profitability. Our results reflect the strength of our underlying business, the appeal of our brands, and the disciplined execution of our strategy across a diverse global footprint. Consolidated sales growth in the first quarter reflected strong brand execution and solid performance in select regions, partially offset by macro and regional headwinds. North America, our largest market, increased by 7%, driven by continued category growth and innovative brand extensions, particularly from Coach. Central and South America grew 23%, supported by strong momentum in women’s and men’s Coach franchises and the Montblanc Legend line. Western Europe sales were flat, driven by slow consumer demand. These results were partially offset by softer performance in other parts of the world. Eastern Europe declined 12% driven by operational difficulties in certain markets, which disproportionately impacted Lanvin and Lacoste. Middle East and Africa declined 12% primarily due to recent intensifications of regional wars and conflicts. Asia Pacific sales decreased 7% driven by distribution changes we implemented in 2025 in South Korea and India, and softer consumer demand in Australia and New Zealand, which were partially compensated by strong growth in China. Moving to performance by brand, we saw solid growth from several of our larger brands. Coach increased 30%, reflecting strong sell-in following the launches of new extensions within the Coach Woman and Coach Men franchises—Coach Cherry and Coach Platinum—as well as sustained healthy demand across most existing lines. Montblanc rose 14%, driven by the launch of Legend Elixir, the first launch of the Legend franchise since 2024, and the success of the Explorer Extreme line launched last year and the lower sales base in last year’s first quarter. GUESS, our largest U.S.-based brand, grew 11% in the first quarter, driven by ongoing success of the Iconic franchise, supported by launches of new extensions within the Iconic and Seductive pillars. Roberto Cavalli continued to generate robust results to start 2026, achieving a 32% increase in net sales. Our blockbuster launch from last year, Serpentine, remains a substantial success, opening many more doors for us across the world. The product was a finalist for the Prestige Popular Packaging of the Year award at the Fragrance Foundation last month. Growth during the quarter was also fueled by the latest innovation—Roberto Cavalli Wildheart extension dual gender duo Wild Pink and Wild Blue—and their Roma Soluto, the newest fragrance within the Roma pillar. Other key brands reflected tougher comparisons. Lacoste declined 12% driven by last year’s strong innovation-led growth and weaker Eastern Europe conditions. We launched a new extension late in the first quarter called Original Aqua for men, and we plan to launch several other extensions throughout the year to further elevate the brand. While Donna Karan/DKNY declined 3% off a high prior-year base, we did see a 16% rebound in the Be Delicious core, indicating renewed consumer demand and improving franchise momentum. The Cashmere Mist deodorant also remains a successful product within the Donna Karan/DKNY brand, as it continues to be incredibly popular on TikTok Shop and Amazon. Overall, with the global fragrance market normalizing toward historical growth rates following several years of exceptional performance, capturing market share has taken on greater importance as a key source of momentum. In order to do that, our portfolio offerings must be both diverse and distinguished to reach and appeal to multiple large consumer audiences, especially in a more difficult operating environment. In addition to launching exciting new innovation across our existing portfolio, we are expanding our portfolio with new brands to further amplify our offerings and appeal. During the first quarter, we resumed distribution of the existing lines of Anigbutal and reopened two store locations in Paris, with another one to open soon. We will continue to develop the brand’s reach and offering within the high-end fragrance market. Also, we are continuing to develop brand new fragrances for L’Enchant and Off White, and these launches will happen in 2027. We expect these two new brands to help us elevate our positioning in the high-end fragrance category. And in January, we announced separate exclusive long-term worldwide fragrance license agreements with David Beckham and Nautica; David Beckham joins our portfolio in 2028 and Nautica in 2030, respectively. Both will be essential for us to expand our offerings in the lifestyle fragrance space that we know quite well. Fragrance continues to stand apart within beauty for its resilience, supported by its role as an accessible luxury and everyday form of self-expression that consumers continue to prioritize even amid macroeconomic and geopolitical uncertainty and more deliberate spending behavior. The category is also benefiting from powerful e-commerce tailwinds, with an increasing number of fragrance products purchased through nontraditional retailers including Amazon, underscoring the growing importance of digital marketplaces in both discovery and conversion. Consumers are also increasingly seeking personalization, which we find through fragrance layering as well as personalized AI-driven recommendations. Whether through social media, major e-commerce platforms, or physical retail, the way consumers discover, evaluate, and engage with fragrance is rapidly evolving. These are powerful channels for discovery, and we are actively leaning into that shift with a focus on storytelling that can bridge multiple channels and offer consumers an immersive and consistent brand experience. To be successful, brands must inspire desire, whether as a gateway into the world of an iconic fashion house—such as Jimmy Choo, Ferragamo, or Coach—or that of a celebrity like the one we will do with Beckham. We are continuing to develop our portfolio to maintain desirability across all our brands. The travel retail market continued to perform well, representing approximately 7% of total net sales, consistent with prior periods. Brands including Roberto Cavalli, GUESS, and Coach have performed well to start the year, with several retailers overall currently showing strength in Europe in particular. We anticipate steady growth in our travel retail business going forward. Despite a dynamic macroeconomic environment, the global fragrance category remains resilient, and we are well positioned to deliver on our goals this year. We remain cautiously optimistic for the balance of 2026, reflecting war and disruption in the Middle East while capturing improving dynamics in other regions. We are confident in our ability to navigate near-term volatility, continue to operate efficiently and profitably, and drive disciplined, sustainable, long-term growth in service of our customers, brand partners, and consumers. With respect to the Middle East, I realize that oftentimes we can fall into the trap of viewing different parts of the world primarily through the lens of how it impacts our business. But our concern for our colleagues and partners in the whole Middle East extends directly to them, their families, and communities. We truly appreciate and acknowledge their contribution during this time of heightened conflict, and of course, we pray for better days ahead. Before I close, I want to highlight that alongside operating our business, strengthening our ESG profile remains a key priority. Our ESG strategy is now in its third year and is going strong. We have seen a great return on our investment in this program across supply chain visibility, our ability to respond to new regulatory requirements, and our external investor ratings. These actions and enhanced measures resulted in Inter Parfums, Inc. receiving its third consecutive ESG rating increase from MSCI. We now sit at BBB and have our sights set on A. Our goal is to continue addressing the environmental and social risks that are most financially material to our business. This approach bears long-term, return-on-investment-focused resiliency with ESG performance. With that, I will now turn it over to Michel for a review of our financial results. Michel? Michel Atwood: Thank you, Jean, and good morning, everyone. I will begin by discussing the consolidated results before breaking them down into our two operating segments: European- and United States-based operations. As Jean pointed out, we delivered sales of $345 million, representing a 2% increase on a reported basis. On an organic basis, which excludes the impact of foreign exchange and the headwinds generated by the Middle East conflicts, sales declined 3%. Excluding the 1% headwind related to the war in the Middle East, organic sales declined by a more moderate 2%. The foundations of our business remain strong and continue to go from strength to strength. For instance, our top 20 brand-region combinations, which represent 86% of our global sales in Q1, grew 9%. Our direct-to-retail channel, which represents 43% of our sales in Q1, grew 16%. This significant growth has had a sizable positive impact on our P&L, as the direct-to-retail channel has significantly higher gross margins but also requires more SG&A, especially A&P and logistics. Our reported growth benefited from a favorable 4.6% foreign exchange tailwind. While the stronger euro has continued to favor our top line, it also increases our cost base across the P&L and our balance sheet. We are continuing to implement a variety of actions to mitigate that impact and have been pleased with the results. Beginning with gross margins, they expanded by 140 basis points to 65.1% from 63.7% of sales, primarily driven by favorable segment, brand, and channel mix as described above, as well as lower-than-expected destruction costs, which reflect enhanced efficiencies in areas such as inventory management and forecasting. These gains were partially offset by tariffs, which represented an expense of about $6 million during the quarter. We are pleased with the positive effect of our tariff mitigation activities and ongoing cost savings initiatives. Our manufacturing optimization—whereby we are shifting manufacturing closer to the point of sale—continues to contribute favorably to our operations and our cost structure. In combination with select pricing actions we took last year, we expect gross margin stability in 2026. SG&A expenses as a percentage of net sales rose 200 basis points to 43.6% compared to 41.6% in the prior-year period. The increase resulted from a number of factors: royalty costs grew ahead of sales due to the GUESS license extension and unfavorable brand mix; we also had FX impacts as described above and higher logistics costs related to supply chain transitions and channel mix. Our A&P spending was stable at $52 million, approximately 15% of sales, and we continue to invest in line with anticipated sell-out by retailers to help drive traffic across all distribution channels, which we believe are higher than our reported sales. Overall, our consolidated operating income was $74 million for the quarter, a 1% decline from the prior period, resulting in an operating margin of 21.5%, or a 70 basis point decrease from a very high 22.2% in 2025. Below the operating line, we reported a gain of $1.1 million in other income and expense compared to a loss of €1.7 million, leading to a positive year-over-year impact of $2.7 million compared to the 2025 first quarter. Within these numbers was a million-dollar increase in interest income behind a stronger ROI on our excess cash. Moving to tax, our consolidated effective tax rate was stable at 24.6% compared to 24.5% in the prior-year period. These factors led to net income of $43 million, or $1.35 per diluted share, representing an increase of 2% compared to net income of $42 million and $1.32 per diluted share in the prior-year period. As a percentage of net sales, net income rose to 12.6%, broadly in line with the prior-year period. Now moving to our two business segments, starting with European-based operations: net sales rose 2% but declined by 4% on an organic basis. Gross margin expanded by 190 basis points to 67.4% from 65.5%, driven by favorable brand and channel mix, lower-than-expected destruction costs, and some of the pricing that we took last year. These were partially offset by tariffs which represented an expense of $4 million. SG&A increased by 9% to $104 million, with SG&A as a percentage of net sales rising 270 basis points to 41.4% of sales compared to the prior-year period. The increase in SG&A was driven by foreign exchange impacts along with increases in employee-related costs as we are building up our Korean subsidiary, and higher logistics costs related to increased warehouse fees. Royalty costs also grew ahead of sales driven by unfavorable brand mix. Overall, net income attributable to European operations grew 4% to $50 million for the quarter, representing 19.8% of sales compared to 19.4% in the prior-year period. Turning to United States-based operations, net sales rose 2%, helped by a positive foreign exchange tailwind; organic sales were broadly flat. Gross margin remained essentially flat at 58.9% compared to 58.7%, with favorable brand and channel mix as well as lower-than-expected destruction costs offsetting tariffs which represented an expense of about $2 million. While SG&A expense increased 3%, SG&A as a percentage of net sales remained essentially flat at 47.9% compared to 47.6% in the prior-year period. Overall, net income attributable to the U.S.-based operations was broadly flat at $8 million for the quarter, representing 9% of sales. This also reflected a higher effective tax rate of 19.7% in 2026 compared to 18.1% in the prior period, driven by lower tax gain from stock-based compensation. As of March 31, our balance sheet remains strong with $237 million in cash, cash equivalents, and short-term investments, as well as working capital of close to $700 million. From a cash flow perspective, accounts receivable was up 6% and days sales outstanding was at 78 days, up from 74 days in the prior-year period, driven by foreign exchange and changes in channel mix. Despite the increase, we are still seeing strong collection activity and we do not anticipate any issues with collections or accounts receivable, even amid foreign exchange headwinds. On our costs, inventories declined significantly to $370 million as of 03/31/2026 from $390 million a year ago. This represented a seven-day reduction in inventory on hand to 259 days. By effectively managing working capital relative to our sales growth, we again significantly improved our operating cash flow. Cash flow generated from operating activities was positive during the quarter, compared to operating cash usage of $7 million during the 2025 first quarter. We continue to expect strong free cash flow productivity in 2026. Now turning to our guidance and outlook. As outlined in our earnings release issued last evening, we are maintaining our full-year outlook. We continue to expect sales of approximately $1.48 billion and diluted earnings per share of $4.85. Our EPS guidance does not include any benefit from potential tariff refunds. While we remain proactive in mitigating the impacts of tariffs on our cost structure, we are also monitoring the possibility of IEPA tariff refunds this year, which could total approximately $17 million. These potential tariff refunds are not included in our outlook for 2026; however, should they occur, we would likely take the opportunity to reinvest at least partially in support of our brands and fuel momentum where we think we can get a strong long-term ROI. We continue to anticipate a return to stronger growth in 2027 driven by enhanced innovation, including the development and distribution of our newest brands. Overall, we are seeing moderating demand in several international markets, along with tariff-related pressures on our cost structures, and we are continuing to closely monitor potential inflationary impacts as suppliers adjust pricing. Nevertheless, we remain well positioned with a strong innovation pipeline, enduring global partnerships, and a resilient consumer base that collectively reinforce our confidence in our long-term growth and value creation. With that, operator, please open the line for questions. Operator: Thank you. At this time, we will be conducting a question and answer session. Please ensure your handset is unmuted before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Sydney A. Wagner with Jefferies. Your line is now live. Sydney A. Wagner: Hi, thanks for taking our question. So gross margin obviously expanded during the quarter, which was great. Just curious looking ahead, which of those benefits do you view as structural versus more quarter-specific? And then on the category, you have spoken to seeing some normalization, but you have also noted pockets of strength where we are seeing maybe above-category growth. So how do you feel about the portfolio’s ability to capture those pockets of above-fragrance algorithm growth? Thank you. Michel Atwood: Gross margin was really a combination of everything going favorably for us this quarter. We had the impact of the pricing increases that we took last year. We had a significantly favorable mix impact coming from our direct-to-retail channel. As you know, the gross margin on our direct-to-retail is significantly higher than when we sell through distributors. It was really a perfect storm. At this point in time, we expect this to normalize over the balance of the year, and this is one of the reasons why we are maintaining our gross margin target flat for the year. I would expect to see some of this mitigating particularly over the course of the second and third quarter. Regarding the portfolio—Jean, do you want to touch on the portfolio piece? Jean Madar: Yes. Regarding the portfolio, I would like to say that our bigger brands are doing better than our smaller brands. When you look at Coach, Jimmy Choo, GUESS, Montblanc, DKNY, they are all in good shape and they will grow this year. We will look at the smaller brands and, in time, we will definitely edit the portfolio—maybe brands that are doing less than $10 million should not be part of the portfolio. That is why we are looking at always increasing the portfolio of brands, looking for bigger brands and bigger potentials, and we are happy to have signed in the first quarter of this year two new licenses, one with Beckham and one with Nautica. Even though they will start later on, they will be a great addition to the portfolio. Regarding geography, we think that there is good potential in the U.S. We see strength in the U.S., primarily department stores, Amazon U.S., and TikTok U.S.; we will perform a bit better than other parts of the world. Michel Atwood: Maybe just to build on Jean’s comments: we did see very strong growth in the U.S. market. The market was up 7% in the quarter and was very strong in March; it was up close to 9%. That is really driving and fueling the momentum, reiterating our core portfolio. Our top seven brands grew actually 8% this quarter. So we have a very strong portfolio, and I think we have a very long tail that we need to continue to streamline over time. Overall, I would say a very healthy core. And then in terms of emerging consumer segments, we are playing in some of these small-size, trial-size, lower price points when you think about TikTok. And as you know, with Gutal as well as with Sulphurino, we are starting to play in the higher luxury space, which has historically been one of the faster growing segments in this category. Sydney A. Wagner: If I can just poke in one quick follow-up: on that 9% growth you saw in March, are you still seeing that level of growth quarter-to-date, or how did the trends in April compare? Michel Atwood: I do not have the April numbers yet. I think we will be getting them in the next couple of days. We are not hearing or seeing anything that seems to be limiting the growth. I think growth in the U.S. continues to be very healthy. Sydney A. Wagner: Great. Thank you. Operator: Our next question comes from Susan Kay Anderson with Canaccord Genuity. Your line is now live. Susan Kay Anderson: Hi, thanks for taking my questions. It sounds like you feel really good about U.S. growth continuing maybe even into the back half. How are you feeling about Europe and globally in a more normalized fragrance growth environment? And then on newness, no big launches this year, but are you expecting more newness to roll out in the back half versus the first half to maintain share until we get to more blockbuster launches next year and some new licenses? Thanks. Jean Madar: Michel, do you want to answer on Europe? Michel Atwood: Yes, sure. As much as the U.S. continues to do well, I think Europe is more of a mixed bag. You saw our numbers for Eastern Europe. Eastern Europe is particularly impacted by the war in Ukraine and the challenging economic situation there. There has been a dramatic slowdown in purchasing and consumption, and it is definitely impacting certain brands that have a strong presence there. If you look at Western Europe, it is also a mixed bag. There are certain markets like Spain that continue to do well, but we are seeing a significant slowdown in markets like France and Germany—very large fragrance markets. Those are two markets where we are seeing very sluggish growth, even some decline; the last couple of quarters have been declining in France. Conversely, on the positive side, Latin America continues to do well. As the economies improve and the middle class expands, that will represent a long tail of growth in the future. Asia has been a little bit more temporary; we have had to make some changes in our distribution both in Korea and in India, and that is weighing down a bit on our growth, but that should eventually pick up once that situation improves. Jean, I will let you address the innovation piece. Jean Madar: The second part of your question, Susan, was are we going to have a blockbuster in the second part of the year? The answer is, like we have said before, this year of 2026 is not a big year for blockbusters. We really have a concentration of new launches—new big blockbusters—in 2027. We knew that. That is why we animate the portfolio with flankers, so we still have innovation but not as big as what we expect in 2027. It is a coincidence that we have so many new big launches in 2027. Actually, all our biggest brands will have a new franchise, a new pillar, in 2027. So for a year without huge innovation, I think we are doing quite well. Susan Kay Anderson: And then maybe just one follow-up on pricing. You will start to lap the price increases you took last year in August, and you talked a little bit about inflation maybe impacting COGS a little bit. How should we think about pricing as we start to cycle those price increases from last year? Are you expecting to take any more price this year? Michel Atwood: Our priority is to make sure we are offering the right consumer value with the offering. We have historically been very prudent with pricing. Last year we had to take pricing because of the tariffs, and we mostly took pricing here in the U.S. Outside of the U.S., there was very little pricing. At this point in time, unless we see something dramatic happening, it is unlikely we will take any pricing, especially in light of our innovation program. We may take some pricing as we launch new lines next year—it is always an opportunity when you launch something new to elevate the brand and price up—but we are not taking straight pricing on the existing lines. It is going to be more innovation pricing. Jean Madar: I totally agree. We do not like pricing here. We do it when we are really forced. Pricing is not the right answer to maintain or increase sales. We think that the retail price of our fragrances is well adapted at a more democratic level. I do not see pricing unless something like a tariff happens like last year, where we were forced—like everybody else in the industry—to react, but to date, that is not the case. Susan Kay Anderson: Okay. Great. Thank you so much for all the details. Good luck for the rest of the year. Operator: Our next question comes from Hamed Khorsand with BWS Financial. Your line is now live. Hamed Khorsand: Hi. I just wanted to ask you, given that you are seeing the growth in the marketplace with demand outpacing your competitors, is this consumers just trying out your products because they are seeing your advertisements, or is there some sort of loyalty to your brands that you are seeing this year that you were not seeing in prior years? Jean Madar: Great question. It depends on the brand; I think it is a little bit of both. We have some loyal customers coming back when the bottle is empty and they buy again the first. We also have a lot of curious new customers that are targeted by our aggressive digital advertising and buy a fragrance from our portfolio. For instance, I was looking at young boys anywhere from 13 to 17 years old buying a lot on TikTok, buying a lot on Amazon, and buying quite expensive fragrances. They have, apparently, the resources to do so. This is very interesting for us, and we are going in the future to look at these customers. Of course, teenage girls were always part of our target, but this is for us a new trend, and we are going to look at this carefully. Michel, want to add something? Michel Atwood: I would just say this is a category where people are always exploring. You have people that are loyal to a fragrance and wear the same fragrance forever, and some have a core fragrance that they keep and then a couple of new ones that they try on special occasions. What is important is to always be present when the consumer is top of mind. It is one of the reasons that we have spread out our A&P more evenly across the year. As you recall, we used to spend everything in the fourth quarter; we are now spending more regularly, and I think that is helping sustain demand. It is also important to always look good in store and be present in all the right channels. A lot of the work we have done, whether it is with Amazon or with TikTok in anticipating emerging channels, has been quite successful for us. Hamed Khorsand: Yes, that was going to be my follow-up. Given that you are seeing some efficiency or response to your advertising online, does that make you want to change your A&P in any way or put more weight toward what you are seeing respond? I am just trying to gauge if there is a possibility of upside sales here. Michel Atwood: You love asking us questions about A&P ROI. The challenge with A&P is you know that it works; you do not always know how everything works. The tools have gotten better, but generally speaking, we have plenty of opportunities to spend more to get a better return. It is about managing profitable growth and managing the short term, midterm, and long term. Certainly, and that is one of the reasons why you probably heard this in my prepared remarks: if we see more upside coming through in the form of tariff refunds, we will try to reinvest some of that. We believe that there is more upside here. Again, we want to do this responsibly, in terms of managing the top and the bottom line. We are constantly looking at ROI. Ten years ago, everybody was doing TV, and now everybody is doing digital. We are constantly evolving. We are investing a lot right now on Amazon and TikTok. We are always looking for that edge and that ROI, and I think that is a constant optimization opportunity. Hamed Khorsand: Great. Thank you. Operator: Our next question comes from Analyst with Berenberg. Your line is now live. Analyst: Yes. Hi, Jean and Michel. Thanks for the presentation. I have two or three questions; I will ask them one by one, if that is okay. First, about Lacoste—could you help us understand how you are looking at the year as a whole for Lacoste given the soft start? I understand the comment on Eastern Europe, but it is quite an important growth lever for EU ops generally. Do you feel like you can recover some of what you lost in Q1 for that brand specifically? Jean Madar: I am not worried at all about Lacoste, to be honest with you. In the first quarter, we had difficult comparisons. I think we can recoup definitely toward the end of the year. What is important is that in 2027 we are going to have a very important launch for Lacoste. I saw the product; it is great. The advertising will look great. So Lacoste is in very good shape. It is true that Eastern Europe was too slow—this explains a weak first quarter—but nothing to worry about. Michel Atwood: I would just add that Q1 and Q2 last year were really insane growth. We grew 30% in the first quarter; we grew 60% in the second. We had a huge amount of innovation. We are feeling pretty good about Lacoste overall as a brand, and some of the challenges we are seeing this quarter are really related to footprint and disproportionate impact. Lacoste is primarily strong in Europe, and as growth slows down, it is impacting the brand disproportionately. But the brand is very healthy, and we are feeling really good about it. Analyst: Perfect. Thank you. Second, how did orders trend through Q1—maybe putting the Middle East to one side as an exceptional circumstance? Do you feel more positive on the rest of the countries now than you did in, say, January or February? Jean Madar: I can try to answer that. We put our guidance for 2026 in November 2025, when we said that we would do $1.4448 billion. We have not changed the guidance even though there is a big conflict in an important region—the Middle East—which represents 7% of our sales. That means that we think that we will be able to find some growth outside. It is also a good thing to have a conservative guidance at the beginning of the year because we sell in 120 countries, and with so many geopolitical threats that we cannot control, we do not have to lower guidance even though there are difficult times in important regions. As of now, business is doing well. The orders that we received are in line with our projections. Michel, you want to add something? Michel Atwood: Our orders have been broadly in line with our expectations. The dip in the Middle East really happened in March and impacted March disproportionately. We do expect that quarter two will also be impacted disproportionately. Today, if we think about Q2, we are seeing Q2 as being flattish versus last year. Until we see how this settles and eventually picks up, we are going to continue to be prudent. Analyst: Very clear. Thank you. Third and final question: on the direct-to-retail channel, I know you have taken in-house Korea because you had to, but are there any markets where you feel like you are closer to reaching a scale where you could potentially in-source those? Would love to hear more about any projects you are working on there. Jean Madar: Please, Michel. Michel Atwood: I would say we are very happy with the partnerships. At the end of the day, the question is: what are you looking for? Are you looking for gross margin, or are you looking for total shareholder return? In a lot of the markets where we are currently present, we have great distributor partners—many we have been working with for many years. We are quite pleased with the level of progress and return on investment. There are always opportunities, particularly as we grow, to consider certain large markets, but the question is what do you get for it? Yes, you might get a better gross margin, but you will also get more expense, more inventory to manage, and more accounts receivable. At the end of the day, where are we going to get the best TSR? With the footprint we have, I think we have the best TSR. If something comes up at some point which makes more sense, we may consider it. At this point in time, we are not really looking to convert distributors to affiliates. Jean Madar: I totally agree. Korea was an opportunity; we took it. We can reevaluate, but nothing forces us to change from a distributor to subsidiaries. Operator: We have reached the end of the question and answer session. I would now like to turn the call back to Michel Atwood for closing comments. Michel Atwood: Thank you again for joining us today. Thank you to our teams for their continued dedication and agility in navigating this uncertain environment and helping us drive the efficiencies supporting our ongoing success. I would like to mention that I will be participating in the Jefferies Conference in Nantucket in June. If you would like to participate, please reach out to your sales representative at Jefferies for information. If you have any additional questions, please contact Devin Sullivan from The Equity Group, our IR representative. Thank you, and have a great day. Operator: This concludes today’s conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the Veolia publication of Q1 Financial Information Conference Call with Estelle Brachlianoff, CEO, and Emmanuelle Menning, CFO. [Operator Instructions] Estelle Brachlianoff: Thank you very much, and good morning, everyone. Thank you for joining this conference call to present Veolia, because you know the line is a little bit blurred. So I thought you had finished your introduction. No anyway, I will go on. I'm accompanied by Emmanuelle Menning, our CFO, to present Veolia's Q1 key figures. I will start on Slide 4 by highlighting the key achievements of the first quarter. We delivered a strong Q1, resilient growth and solid EBITDA progression, fully in line with our annual guidance in spite of a difficult environment. Our unique multi-local model has proven its value again, combining resilience with growth potential based on a sustained demand for essential services, which has led to limited impact from the Middle East conflict and even future opportunities. I will come back to that in a minute. We are continuing our strategic transformation towards international markets and technology-driven solutions with new tuck-ins in Q1. I will also come back to innovation after our dedicated day recently held in London as it is core to our strategy, fueling growth and efficiency targets for years to come beyond the GreenUp plan. I, of course, will fully confirm our 2026 guidance as well as our GreenUp trajectory. These results demonstrate that Veolia's business model and strategy is robust, diversified and well positioned to navigate uncertainty while capturing growth opportunities in essential environmental services. Now let's look at the specific numbers for Q1 2026, and I'm on Slide 5. Revenue reached EUR 11,427 million -- so EUR 11.4 billion, up 2.1% at constant scope and ForEx and excluding energy prices. This represents resilient growth in a geopolitical wait-and-see environment and very comparable to the second half of 2025. Our EBITDA came in at EUR 1.766 billion, up 5.1% at constant scope and ForEx and up 5.8% when including tuck-in acquisition. And I recall, without any contribution of Suez synergies that we enjoyed during the previous quarters. This performance is therefore excellent, especially in a complex macro and geopolitical environment. Particularly noteworthy is our EBITDA margin expansion of 73 basis points year-on-year, reaching 15.5%. This margin improvement is fueled by our strategic choices and operational efficiency. Current EBIT reached EUR 971 million, up 7.2% at constant scope and ForEx, demonstrating strong operational leverage. Our net free cash flow improved significantly by EUR 144 million compared to Q1 2025, driven by strict management of both capital expenditure and working cap requirements. Net financial debt stood at EUR 20.8 billion, which is fully under control. And this result gives me strong confidence for the full year 2026. I'm now on Slide 6 and wanted to recall what makes Veolia truly unique, which is our positioning that combines both resilience and growth. We are an international environmental services leader operating in 44 countries across 5 continents, which gives us the firepower to lead in technology and innovation, thanks in particular to our 14 R&D centers and over 5,000 patents. We rank in the top 3 in Europe, the Americas, Asia and the Middle East, which gives us pricing power. But no capital employed in a single country exceed 10% outside the U.S. in order to derisk the group. This is a choice. Our customer base is diversified, roughly 50-50 between municipal and tertiary and industrial clients. Our multi-local delivery model is anchored in local communities. That means we have no impact from tariffs, no impact on margin rates for ForEx volatility, only translation effects and no dependency on subsidies or government contracts. Our long-term contract on an average of 11 years in duration with 70% being inflation indexed. We estimate that 85% of our business is macro immune and commodities are essentially pass-through in our contracts. By the way, and in addition to what I already said, we offer a unique way of integrating solutions combining waste, water and energy services. This combination of growth potential and resilience is rare in today's markets. Slide 7. Given the current headlines, I want to address the Middle East situation directly. I believe it is a perfect illustration of the multiple strengths of our business model. We can see this first with the sustained demand for social services. In the region, we maintain constant and direct daily connection with local authorities and clients to ensure the continuity of critical services. This includes operating desalination units, for instance, which can account for up to 95% of the water supply. These direct contacts confirm that our partners are already preparing for the post-crisis phase and require partners like Veolia to be by their side. Furthermore, our multi-local model ensures our direct financial exposure remains very limited with EUR 1.3 billion revenue in 2025 and capital employed around EUR 300 million in the region, which is less than 1% of the group's total. Consequently, the local impact on Veolia has been largely neutral, only limited operational disruption like a little bit lower hazardous waste volumes and a slowdown or I going to say more a delay in water technology projects being signed. Regarding consequences on other geographies, we are well protected against rising costs. Our long-term index contract covers 70% of our contracts and covers all our cost base with some lag effect. For the remaining 30%, we have proactively already put in place specific fuel surcharge when needed, particularly in the waste business, and we've secured key supply. I'm on Slide 8. In a way, this crisis in the Middle East highlights the power of our unique Veolia offer and explains why it may even lead to a few opportunities. Our proprietary solutions help secure access to water supply, which is as critical as oil, if not more, as we see now. Our solution give access to an untapped reservoir of local energy at fixed price instead of import. You can imagine how important it is and lots of people realize it. In addition to that, our solution can contribute to securing supply chain, thanks to the circular economy. And those solutions can as well depollute industrial sites and protect human health. You will understand, I'm sure, why I'm very confident about our future performance as we have built with Veolia a unique positioning as the environmental security powerhouse, addressing critical needs for our clients. Slide 9. Our international footprint has largely contributed to our good results in Q1. I would like to highlight the continued standout performance in our region outside of Europe, which grew by a strong 3.1% and even 5.3% at constant ForEx. I will insist on the performance of the U.S.A., which grew by 7.5% at constant ForEx in spite of extreme cold weather conditions, which impacted hazardous waste volumes in January and February. The demand for our services is very strong. We also passed the main steps in the Clean Earth acquisition process, which secures the closing at midyear as announced. The Water Technologies segment performed quite well, up 4.3%, excluding the project business line, which was penalized or even more like delayed in signing by the crisis in the Middle East and continued to deliver a remarkable EBITDA growth in this segment. In Europe, we grew by a solid 3%, anchored by strong performance of Central and Eastern Europe, the U.K. as well as Spain, all enjoying strong commercial momentum and positive weather. Finally, France and Hazardous Waste Europe was resilient in spite of adverse weather conditions, which has penalized a bit waste activities. I expect Hazardous Waste Europe to grow faster in the coming quarters without the Q1 disturbances. Looking out at our top performance by business line on Slide 10, we see resilient growth and solid EBITDA progression across all our activities. Our stronghold activities, municipal water, solid waste and district heating generated EUR 8.4 billion in revenue, up 2.5% at constant scope and ForEx and excluding energy price. Our booster activities, Water Tech, Hazardous waste and Bioenergy, generated a little bit more than EUR 3 billion in revenue, up 2.2%, including tuck-ins. You have to remember again that Q1 was quite specific with negative impact from the Iran war on the delay of signing specific projects with Water Tech, added to extreme weather events and timing effect in Hazardous Waste. The demand for our booster activities keeps being very strong. If we were to exclude Water Technology project delay, our boosters would have grown by 4.6%. The combination of Strongholds and Boosters now represents already 30% of our revenue, demonstrating our strategic evolution towards high-growth, higher-margin activities while maintaining the stability of our core business. Emmanuelle will give you all the details by activity in a moment. I'm now on Slide 11. Veolia continues its transformation as set up in GreenUp towards more international, more technology-driven activities, which is our Boosters. We are very active, sorry, in strategic portfolio management with EUR 8.5 billion of assets, which will have rotated over 4 years. You remember that 2025 was a pivotal year as we successfully achieved the Suez integration, but we've also crystallized strategic moves with 2 major acquisitions signed or closed. First, EUR 1.5 billion invested in Water Tech to enhance our combined technology portfolio capabilities. We have already extracted 1/3 of the planned EUR 90 million synergies, which is EUR 30 million, including EUR 10 million in Q1. And of course, $3 billion with the acquisition of Clean Earth in the U.S. We have obtained both the antitrust clearance and our shareholders' approval on Monday, which means we are fully on track to close the deal midyear. Both acquisitions already create value, but also will enhance the group's profile going forward. Lastly, we announced EUR 2 billion of nonstrategic asset divestitures in the 2 years following the Clean Earth closing. Process has started with clear list and various scenarios. We have already achieved several small and medium divestments of mature assets or not in the top 3, which you know are some of our criteria, and we will continue pruning our portfolio. On Slide 12, I would also like to say a few words about our exciting growth ambition related to innovative offers through 2030, which we have explained in a dedicated session last April. I will start with our new offer dedicated to AI industries, covering data centers and chips manufacturing. Those industries are in high demand to secure steady water supply for cooling systems, continuity of supply of untapped water and they use a large amount of high-quality solvent and acids. Data centers are starting to see resistance from local communities to be granted permits given the intensity and resource consumption. Our DATA CENTER Resource 360 new offers help secure local acceptance and license to operate with recycled water technologies and heat recovery as seen in our recent contract with AWS in Mississippi. We already grew very quickly in those AI industries from $150 million in 2019 to $560 million in 2025, and we're now targeting approximately $1 billion by 2030. We have a unique set of assets and technologies to support this growth. Patented technologies such as electrodeionization for ultra-pure water, ZeeWeed membranes for water recovery, without mentioning a new Taiwan-based electronic-grade sulfuric acid recovery, which is really promising, but also a worldwide installed base of hazardous waste treatment facilities. In addition, we'll soon have a presence in all 50 states of the U.S. with the Clean Earth acquisition. I'll remind you that the offer we launched in 2024 on PFAS is already very successful, and I'm very confident we'll reach our ambitious EUR 1 billion revenue by 2030. We had 0 revenue in 2022 to EUR 259 million in 2025, which is up 25%. And our recent acquisition of soil remediation specialists in Australia at a very reasonable multiple will complement nicely our comprehensive solution portfolio and offer duplication opportunities. This innovation-driven growth are testimony of the group transformation towards more value-added offer and services as an environmental security powerhouse. On Slide 13, we will also derive from digital and AI, innovative tools and an increasing contribution to our efficiency plan. In 2025, 23% of our operational efficiencies were already derived from AI and digital, and we aim at 50% by 2030. This is by scaling up AI-based tool we've already tested to maximize plant productivity, to reduce energy or chemical consumption or to help detect leaks. Our Talk to My Plants tool dedicated to plants maintenance operator is particularly very promising. It is a very exciting journey, and we are only on the very beginning here. Slide 14. I just want finally to fully confirm our 2026 guidance, which is reminded fully on this slide, in particular, with EBITDA to grow 5% to 6% organically and current net income by 8% at constant ForEx and before PPA. And this is, of course, excluding Clean Earth. Additionally, assuming a mid-2026 closing, the Clean Earth acquisition will be accretive to current net income from 2027 before PPA, confirm as well our GreenUp trajectory. This reflects our confidence in our business model and strategic execution. Emmanuelle, the floor is yours to elaborate on Q1 results. Emmanuelle Menning: Thank you, Estelle, and good morning, everyone. Revenue in Q1 amounted to EUR 11.4 billion, up 2.1%, excluding energy prices. Organic growth of EBITDA was 5.1%, in line with our annual guidance, which is an excellent performance as we no longer benefit from the synergies. And our EBITDA margin continued to increase by 73 bps to 15.5%. We continue to enjoy a strong operating leverage, leading to a 7.2% progression of current EBIT. Net free cash flow increased by EUR 144 million, thanks to tight CapEx control. And net debt landed at EUR 20.8 billion, including the seasonal reversal of working cap. ForEx impact on EBITDA was EUR 33 million as forecasted due to a lower U.S. dollar, British pound and LatAm currencies. ForEx is moving, notably due to the crisis in the Middle East and the final impact on 2026 EBITDA is hard to predict. It will be lower than initially expected with the current exchange rate. We will see, but remember that as a multiple -- multi-local group with very limited international trade, ForEx does not impact our businesses or margin rate and ForEx has a very limited impact at net income level. Moving to Slide 17, you can see the revenue and EBITDA evolution by geographies. As Estelle mentioned earlier, growth outside Europe was quite satisfactory at plus 3.1% and even plus 5.3%, including tuck-in. Most regions registered mid-single-digit growth. U.S.A. grew by plus 5.2% and 7.5%, including tuck-in in spite of adverse weather conditions, which impacted hazardous waste volumes in January and February and hazardous waste in the U.S. grew by 5.7%. Pacific grew by plus 8.1%, including the successful acquisition in Australia, which strengthens our leadership in hazardous waste and PFAS treatment. Africa/Middle East revenue increased by plus 4.4%. And by the way, Middle East succeeds to be up plus 3% in a complex geopolitical context. Water Technologies was quite resilient, excluding projects and progressed by 4.3% like last year. And as I remember, 70% of our activities are recurring corresponding to products, services and chemicals, while 30% is more volatile by nature, what we call projects. In Q1, projects were impacted by several booking and milestone delays due to the Middle East crisis, and we forecast this to continue in Q2. Above all, Water Technologies continued to deliver a strong EBITDA growth, fueled by our business refocusing and efficiencies and synergies. Europe grew by 3%, excluding energy prices, fueled by favorable weather in urban heating and by good water activities. And finally, France and Hazardous Waste Europe were resilient. Now let's take a look at our performance by business. I will start with water. It represents 40% of our revenues and 50% of the group EBITDA. Water revenue was up by 2%. Water operation benefited from good indexation in Europe and in the U.S., except in France, due to the lower electricity prices. Volumes were on a very good trend, up 1.1% in France, 2.4% in Central Europe, 2.9% in U.S. regulated. And as I just explained, the underlying growth of Water Technologies, excluding the timing of project delivery remained quite strong at 4.3%. Moving to waste, representing 35% of our revenues. Waste activities succeeded to stay flat despite an helpful macro and are very comparable to previous quarters. Indeed, excluding external factors as weather recycled or electricity prices, waste revenue was up plus 1% at constant scope and ForEx. Starting with solid waste, we did not experience in Q1 any significant impact of the higher diesel costs. In terms of diesel price increase, I remind you that it's pass-through. The group diesel purchases for the waste activity amounted last year to EUR 218 million, half for multiple contracts with automatic pass-through in indexation formula with 3 to 6 months lag and half for C&I clients with immediate fuel surcharge. In terms of volumes and commercial developments, performance was mixed in Europe, slight volume decrease impacted by bad weather, icy road and frozen waste. Good incinerators availability rates and activity continued to progress in the rest of the world. Hazardous waste grew by plus 1.7% and plus 6%, including tuck-in. Europe was slow due to the combination of adverse weather and maintenance outage timing with rebound planned in Q2. Growth remained strong in the U.S., plus 5.4% with average price increase of 3.6% and volume up despite unfavorable weather conditions. For Q2, we expect further price increases alongside fuel surcharge and better volumes. The performance of last year's tuck-in in the U.S., Brazil and Japan was very good. Finally, moving on to energy, I'm on Slide 20. Regarding the evolution of gas and fuel prices, I remind you that our energy business model is very strong as we demonstrated in 2022 and 2023, it is regulated and our margins are protected. We can also marginally take advantage of higher electricity prices and volatility of our midterm. For 2026, we are largely hedged in terms of gas, CO2 cost and electricity revenue. Energy prices were down as expected, but to a much lesser extent than last year. Excluding the energy price impact, Q1 growth was quite good, plus 4.1%, thanks to good volumes, helped by a colder winter and with a resilient activity for the booster. The revenue bridge on Slide 21 explains the driver of our resilient growth in Q1. ForEx impact amounted to minus 2.3% due to U.S. dollar, GBP, Argentinian peso and yen. Scope was positive by plus EUR 69 million, including hazardous waste tuck-in. We expect the consolidation of Clean Earth in the second semester 2026, and we are pleased to have now obtained both the antitrust clearance and on very shareholder approval. The impact of energy prices was as expected, more than divided by 2 compared to Q1 last year. Recyclate prices were almost neutral and the weather effect amounted to plus EUR 66 million due to a colder winter in Europe, partially offset by adverse weather impact for waste activities. The contribution of commerce volumes and pricing was plus 1.6%. Pricing in water and waste remains sustained, contributing to plus 1.4%. Let me walk you through the EBITDA bridge, which illustrates our strong operational performance. We experienced ForEx translation impact of EUR 33 million. It's important to remember that ForEx has no impact on our margin rate. It's purely translation effect since our revenues and costs are in the same currency in each of our countries. Scope effect from tuck-ins contribute positively plus 1% EBITDA increase, showing good revenue to EBITDA conversion and fueling future EBITDA growth. Energy and recycled material prices had an impact of minus EUR 16 million. Weather effect contributed positively to 1% EBITDA growth. And the most impressive component is our growth and performance contribution of 5.1%. This breaks down into EUR 62 million from net efficiency gain with a very good retention rate, thanks to action plan implemented across Europe. And we have also EUR 10 million from water technology synergies. The volumes and commerce contribution was limited and in line with revenue. This represents organic growth of 5.1% at constant scope and ForEx, which is quite good. As mentioned, we do not benefit anymore from the 1.5% contribution of the Suez synergies. A few highlights on the efficiency gain. I am on Slide 23. We delivered EUR 96 million of efficiency gain in Q1, in line with our annual target. Two important characteristics you need to consider regarding efficiency. First, efficiency was indeed a permanent lever for value creation. It's embedded into our operation. Efficiency gain at Veolia are not discretionary cost-cutting program, but they come from a very diversified series of initiatives in our thousands of plants. In case of headwinds, we can and we know how to boost efficiency program as we demonstrated in the past by specific plan like the one we have conducted in China, in Spain and in France. Second, digital and AI gain, which already accounted for 23% of our recurring operational efficiency in 2025 will continue to increase, and we have set an objective of 50% of digital gain in 2030. Let's now analyze our performance below EBITDA. I am on Slide 24. Going down to current EBIT, this slide illustrates perfectly the operational leverage of our business model, 2.1% revenue growth, 5.1% EBITDA growth and 7.2% EBIT increase. Current EBIT grew to EUR 971 million at a faster pace than EBITDA. And let me highlight amortization and OFA, which were slightly up at constant scope and ForEx and industrial capital gain provision were stable, showing a continued strong quality of results. Now free cash flow generation, which is key and net financial debt, I am on Slide 25. I am satisfied with the progression of the net free cash flow of EUR 144 million, which we achieved despite the seasonality of working capital. And thanks to a tight CapEx control, you see a strong discipline on industrial investment at minus EUR 860 million compared to more than EUR 1 billion last year. Limited increase of taxes and financial charges linked to Water Technology acquisition. Working cap reversal was close to last year. Net financial debt is, therefore, well under control, reaching EUR 20.8 billion, and this increase of EUR 1.1 billion is due to the seasonality of working cap and financial investment for minus EUR 172 million. Our net debt is 85% fixed. Our net group liquidity is very solid, EUR 6.7 billion, and our balance sheet, therefore, remains very strong. Both rating agency confirmed strong investment-grade rating beginning of 2026. Before concluding this slide reminds you of our 2026 guidance, which Estelle fully confirmed earlier, continued solid organic revenue growth, excluding energy prices, our EBITDA organic growth between 5% and 6% current net income of minimum 8% at constant ForEx, excluding Clean Earth, which we will close mid-'26, leverage ratio equal or slightly above 3x with Clean Earth acquisition. And as usual, our dividend will grow in line with our current year. As you see, we are very confident for 2026. We delivered a strong Q1, resilient growth and solid EBITDA increase. fully in line with our annual guidance. Thank you for your attention. Estelle Brachlianoff: Thank you, Emmanuelle. And now we are ready, Emmanuelle and myself to take the questions you may have. Operator: [Operator Instructions] First question comes from Ajay Patel from Goldman Sachs. Ajay Patel: I have 2 areas I wanted to dig a little deeper. Firstly, on cost cutting and the retention rate over this quarter was quite a bit higher than you normally guide. I just wondered how should we think about that in the context of the full year? And then I guess maybe alongside that, you talk of AI increasingly becoming a proportion of the overall cost-cutting efforts increasing in size. I just wondered, is the retention rate on the cost savings that you make on the AI side higher than that of maybe the non-AI side? Just to understand if there's any dynamic there that we should understand? And then the last one is just referring to the bridge on Slide 22. If you could help us with the volumes and commerce element being a limited contribution. Just what headwinds maybe break out a little bit more of the headwinds that you experienced over Q1? And how should we think about that variable over the course of the year? Estelle Brachlianoff: Thank you for your question. So first on cost cutting, you're right. It's EUR 62 million out of EUR 96 million basically that we've retained, so which is higher than the usual, don't translate it into times 4 for the entirety of the year. Our good target is usually between 30% and 50%. But it's fair to say in the recent quarters, we've been more around the 40% to 50% than the lower part of the range. That's a good proxy for me. With regard to your second half part of the first question on AI. You're not wrong. As in our AI cost cutting is mainly on operational things, like that's why I mentioned the example of AI helps us to reduce energy consumption to help us increase the plant efficiency and so on and so forth. And this type of gains are typically more retained than what would be, say, SG&A type of a cost cutting. So you're right. The more we can retain of the cost-cutting gain or efficiency plan, the happier we will be. There always will be some leakage, let's call it that way, because it's part of our business model with our customer. When we renew contracts, we give some productivity back to the customer, and then we find other ways of gaining productivities in the years following the renewal of the contract. That's why there will always be some type of leakage. And of course, we try to retain the maximum possible. In terms of the second part of your question, I would not highlight anything which would look like -- I mean, there is no slowdown in revenue. When you look at H2 2025 and Q1 2026, we are exactly in the similar type of range of 2-point-something revenue, excluding energy price. In the pluses and minus of this quarter in terms of commerce, so commerce is very good. No question about that, retention of our contract or renewal of our contract is very good. On the plus side, we had a little bit of weather effect in Eastern Europe. On the minus side, we had a little bit of weather effects on the negative side in the U.S. and in Europe on haz and waste. You may have noted that there was 2 times a week or 1.5 weeks of the Eastern parts of the U.S. being totally blocked by minus 15, minus 20 degrees Celsius type of temperature with everything being closed. Of course, that means less volume in the end. The trucks are not even allowed to be driven into any type of road. So that's why pluses and minuses, but nothing which looks like a slowdown. And April is good. The demand of our services is sustained. And again, the same type of pace in revenue as we had enjoyed in the second part of last year. Ajay Patel: May I add one more question? It was just the other thing just on the opening comments, I think then we were talking about that conflict at the moment. Just wondered if -- what -- how does the disruption work in your business model in terms of if a certain component doesn't turn up on time or there are some restrictions on how you operate in terms of some form of rationing. I know that we're not at this level yet, but if these types of impacts happen, are they passed through? Or is there some exposure on that side? I didn't quite necessarily get that from when I was listening to the presentation. Estelle Brachlianoff: So when it comes to the Middle East activity, we have not seen disruption in supply chain. The thing we've seen is like a few days on and off in the refineries, which were nearby our sites. Therefore, a little bit less activity from one day to the next. But we don't depend on very sensitive component with our chemicals, which only go through -- a lot of it goes through the Strait of Hormuz, if it's your question. We are very decentralized in our supply chain. So we have -- we have, of course, some centralized procurement, but we usually are more on a regional basis anyway. So honestly, we have not seen any disruption, and I don't anticipate any disruption in the supply of everything Veolia needs to operate. We cannot hear you. The line is super blurred. We cannot hear you. Emmanuelle Menning: I think, Arthur, please go ahead. Arthur Sitbon: Yes. Can you hear me well? Emmanuelle Menning: Yes, perfectly, please. Estelle Brachlianoff: Apparently, the only line which doesn't work well is that of the operator, which is not exactly helpful, but we'll try to go ahead anyway. Please go ahead. Arthur Sitbon: So the first one would be just on the headwind to waste organic growth that you mentioned related to bad weather in Europe in January, February and plant outage. I was wondering if you could quantify that negative effect on EBITDA in Q1. And I was also wondering, basically, more generally speaking, how should we expect waste volumes to look later in the year, in particular, you're mentioning a bit of a slow start in January, February. How was it looking in March and April? I suspect you already have some indications of trends for those 2 months. And the second question is just on what's happening in the world at the moment, which is higher inflation due to the geopolitical uncertainty. I was wondering about the sequence of events for Veolia. Is it possible that basically you have a slightly weaker end to 2026 because of the slower volumes and higher costs and then a recovery or a more positive effect in 2027 with your inflation clauses that you flagged that have a little bit of a lag? Estelle Brachlianoff: Thank you. So I guess I would like to highlight, by the way, some opportunities, and I will start with that. What we discover, we discover or the general public realizes when it comes to the one in the Middle East is the dependent on imports is never a good idea. We rely on supply of water, otherwise, nothing happens. And everybody is super concerned by their health and that of their kids. That's exactly what Veolia offers solutions to. So in a way, in my opinion, the crisis reveals anything but the strength of the business model of Veolia and its positioning. To answer specifically your question, there is no slow start to the year in terms of volume when it comes to say economy underlying this, even in waste in the first part of the year. We haven't seen that. The only negative, again, was weather related. There's a number of days where we cannot even circulate it. Our customer could not. So they haven't generated waste, and that was it. But don't take it as a start [Audio Gap] as a slowdown in or a slow start to the year in terms of underlying trend because I think that would be a mistake. So the underlying trend is exactly the same as the end of last year. That's exactly what we've seen to answer your second part of your question in March and April, which were exactly good. When you exclude the weather effect elements, which were a few days here and there and even 2 weeks in the U.S. that's the only component. But again, the demand is sustained. So the volumes are there, and they are coming back once you can transport them, if I may. In terms of the impacts beyond the Middle East itself of the Middle East crisis on costs, if I understand your second question. As we've demonstrated through the war in Ukraine in a way, we have the ability to pass on the cost to protect our margin. We've demonstrated it. There is a little bit of lag effect, but we have a little bit of positive as well in terms of commodities and things like that. So that's why I can confirm fully our guidance for the year. So we will maintain our 5% to 6% EBITDA margin growth for the year. Operator: So I think the next question is coming from Philippe Ourpatian from ODDO. So let's move to Olly from Deutsche Bank. Olly Jeffery: Two questions for me, please. One is just on the free cash flow. There's a bit of improvement versus Q1 last year. Does this put you on track, do you think, to see a similar improvement for the full year for net free cash flow versus 2025, so we can see a bit more meaningful growth there? And then just coming back to the inflation point, I mean, presumably with inflation expectations where they are currently, and we could see those continue to increase perhaps. If there's any benefit from that with your tariff indexation, presumably the bulk of that would start to come through in 2027. If you could just confirm the mechanics of that again, that would be very helpful? Estelle Brachlianoff: Emmanuelle, on free cash flow. Emmanuelle Menning: Yes. Olly, so as mentioned, we are very satisfied with the progression of free cash flow beginning of the year. As you have seen, it has increased by plus EUR 144 million. And part of it come from the very strong discipline we had on CapEx. I mentioned it. We spent EUR 860 million when it was more than EUR 1 billion last year. You know that we are very committed to have a strong free cash flow generation to be able to cover our dividend. We are fully committed, and we have a lot of action regarding that, working on the time to invoice, putting control our CapEx, improving the collection. So our target remains for the year to have a strong free cash flow to be able to cover our dividend. And as you may see, we have a very strong liquidity, EUR 6.7 billion and a very strong balance sheet for 2026. Estelle Brachlianoff: So our aim is always to grow free cash flow on a yearly basis. We don't give guidance because there is seasonality in this in Veolia. But of course, we always try to do our best to improve the free cash flow generation of the group, which allow us then to decide where to invest. I remind you that it's free cash flow after growth investments, by the way, which is in our hands. In terms of inflation, maybe I was not clear enough. So Emmanuelle, do you want to get to have a go at that and fuel surcharge maybe? Emmanuelle Menning: Yes. So your question, Olly, was on the impact of inflation and fuel surcharge. So as mentioned by Estelle, you know that we -- our model is well protected against cost increase. We have 70% of our portfolio, which benefits from indexation formula, and we have 30%, which -- where we have strong pricing power and where we can do price surcharge. Coming to the specific element on inflation, we showed in the past that our model was very strong and able to pass the cost to our clients in 2022, 2023. And what we have done since the beginning of the year is to be very agile and very reactive on the 30%, specifically on the fuel surcharge. We start beginning of March. It has been put in place. We can have a small time lag, but it's very efficient. We demonstrate -- you may remember that in 2022, '23, we are able sometimes to do 3 to 4x increase when it was necessary. So it's fully put in place. The element to have in mind is that for our municipal clients, which is 50%, we may have a time lag of 3 to 6 months. But we have put in place all our action plan, as mentioned before, to have really strong discipline on cost to not accept automatically the increase of our supplier to have restricted move or the placement if it's not necessary and of course, to increase our strategic inventory when necessited. Estelle Brachlianoff: So for the 70%, which is indexed, if there is a little bit of lag effect on the revenue, there could be a lag effect on our supplier in a way in our cost base in other terms to protect our margin. And for the fuel surcharge, it's already in place. And if you have to do 2, 3 this year or 1 will be enough, we will see, but it's already in place now as we speak. I would like to highlight again, if I may. I said it in my speech first, the type of discussion we have with customers is not only about cost protection. Actually, it's quite the opposite. And I just wanted to share this with you. It's incoming calls on can you help us with energy efficiency? Of course, energy is higher in price. Therefore, can you help me with that? It's -- can you help me with securing local sources of energy? It looks like you do that, Veolia. Can you help me with that because it helps. Same with circular economy. When you recycle, it avoids importing from far away and be dependent, therefore, from the ups and downs of commodity prices. So all that means we have a lot of incoming calls of customer where for them, the war means I want more of Veolia type of services, starting in the Middle East, by the way, where they already are preparing for the postwar and discussing about how can we be even more resilient going forward and in terms of the infrastructure reconstruction or depollution of sites. Operator: The next question comes from the line of Philippe ODDO. Philippe Ourpatian: Not Philippe ODDO, I will be more rich than I am. But Philippe Ourpatian from ODDO. Just one question. Most of my questions have been already answered. Concerning the divestments, you mentioned in your slide that 3 operations means the top 3 program have been already signed or being closed in the coming months, I would say. Could you just give us, as you have also mentioned that there is your plan and several scenarios are prepared, could you have the idea -- could we have the idea of what's the amount of divestments already under bracket secured versus the EUR 2 billion targeted? Without mentioning any specific operation, but just to give us where you are exactly '26 and '27 because I do suppose that it's already started and you have some discussion and some assets which have been already determined to be divested... Estelle Brachlianoff: Thanks for your question. A few things. We said we will divest EUR 2 billion in the 2 years following the closing. So we're talking about from now until mid-'28. So we have plenty of time and given our balance sheet is compatible with the time scale I just gave. In terms of what we've already done of the criteria, as said, non-top 3, so things which we are #5, #6 on the market, and we don't see any possibility to be up very, very quickly. Mature as in we don't see how we can grow the EBITDA or the EBIT even with our best efforts going forward or nonstrategic like we've done with SADE, which was an activity in construction, we didn't want to go on with. So that's the typical criteria. That's typically in the criteria of what we've already like signed and closed, secured. We're talking about smaller and medium objects, which are listed there, plastic in Korea, industrial cleaning in Belgium. So altogether, it will be a bit in excess of EUR 100 million, EUR 200 million, this type of order of magnitude, if I remember well. In terms of the larger objects, I will consider them secured when they are signed and when they will be signed, they will be announced. And you will have to wait until that date to have them secured. But I'm very confident I'm very confident because we've done a few market testing. And we have alternatives in case for whatever reason, one doesn't go ahead in the type of price range we were expecting. So we have plan A and plan B, if you want. So we will secure this EUR 2 billion in good condition in the 2 years following the closing. Philippe Ourpatian: May I have an additional comment because it's very interesting what you said concerning your capacity to choose some assets. In order to do EUR 2 billion, what's going to be your, let's say, global potential of divestment? Are we discussing about EUR 3 billion, EUR 4 billion, EUR 5 billion means the bucket of -- or the basket of potential disposal regarding the size of your group and the numbers of subsidiary you have around the world? Just to have an idea about where we are exactly when you mentioned 2, you can pace your calculation on how much more than that? Estelle Brachlianoff: We have enough headroom to be able to be very confident. That's the only thing I can say. But those businesses, it always is a choice. The businesses which are plan B are businesses we like. They are on the money. They are a little bit less interesting than others. So we have no problem in selling them, but they still are good businesses. So we don't have any problematic one in the list. Therefore, like I guess, like we have sufficient security on the achievement of this program, I can tell you. Emmanuelle Menning: Just one element I wanted to share with you. So we told you already a very clear plan. We know what we want to do. We have different scenarios, allowing us to be agile. There is no pressure on timing because our balance sheet is very strong. We don't need to do the divestments to be able to finance Clean Earth. That's not the issue. And you may have seen that in terms of transactions delivery and execution, we have been showing an amazing track record. So not under pressure of time. We also shared with you before that we will divest part of the EUR 2 billion will be a business which will be divested. The other one will be and 1/4 and 1/3 will be linked to the portfolio cleaning that we have also launched before and that we will continue. So we don't need to do everything everywhere. We have a very clear picture on where we want to do, on where we want to go and a very good track record in terms of execution. Estelle Brachlianoff: Just to illustrate what we said by portfolio pruning, we said plastic in Korea. It doesn't mean that we don't like plastic or we don't like Korea, but it looks like plastic in Korea, we were not in the top 3 and not being able to get in the top 3. That's why we sold it. In terms of our industrial cleaning activities in Belgium, it was more of the nonstrategic criteria here. Industrial cleaning is not a priority for the group. And therefore, have no ability to be duplicated anytime soon in nearby geography. So we decided to sell it each time with value-added sales. So it was a good sale for us. So that's -- I think it gives you an idea of what Emmanuelle said by the smaller ones, which are more portfolio pruning type of activities of disposal. Operator: So I think next question is coming from [indiscernible]. Unknown Analyst: Yes. May I ask what is the impact of the delays in terms of projects in the Middle East in terms of EBITDA impact or the order of magnitude? Estelle Brachlianoff: So basically, Water Tech EBITDA has progressed very, very, very well in the first quarter, like it had been in the quarters before. So the answer -- the short answer to your question is none. As we always said, projects are lower margin type of activities within Water Tech. It's only 25% of the business. We like it because it fuels potential buy of membranes and stuff like that in the end, positive margin still, but lower than the average. So the answer is none, roughly. Very nice improving of the EBITDA in the first quarter in Water Tech. So again, Water Tech, excluding project was plus 4.2% revenue increase, which is very nice. EBITDA increased by even more than that. Thanks to, again, the usual cost efficiency and so on and so forth, added to the EUR 10 million synergies we've delivered in the first quarter in addition to the EUR 20 million we already had delivered for the second part of last year. So no impact is the answer. And I'm very confident again that it's only delays in signing, and we still have discussion with the customers about not only signing whenever they will be able because the world will be like a bit more under control. And we even have specific orders like of mobile units and stuff like that in emergency type of situation in the Middle East in Water Tech. So it has created even some opportunities. Operator: Next question is Alex from Bank of America. Alexandre Roncier: Two follow-ups and one question on guidance, please. The first follow-up on the weather headwinds for waste. I don't think that was a specific item that was disclosed in the revenue bridge before and maybe because the impact was just always much smaller than this quarter. But is that something we need to consider on a more recurring basis given climate change around the world? And similarly, on phasing, just to expands on some of the earlier question, should we not see good volumes in Q2 to catch up on the missed rounds you've had in Q1, which would then normalize in Q3? Second follow-up on disposals. Why not perhaps rotate capital more rapidly? I think you mentioned that you had a lot of headroom beyond the EUR 2 billion of asset disposal target. But if these assets are not # 3 -- well, I'm sorry, top 3 mature and nonstrategic, why not also increase the pace of disposals and perhaps get money back to shareholders or even create plenty of headroom for yourself to do some more strategic acquisition? Question and last question on guidance. Given the operating leverage of the business, revenue up 2%, EBITDA plus 5%, EBIT plus 7% is the plus 8% net income guidance not too conservative for the year? Or are there any below-the-line items we need to be mindful of? Estelle Brachlianoff: Okay. So weather on the bridge, Emmanuelle? Emmanuelle Menning: Yes. Alex, so regarding the bridge on the column weather, we have always -- we have the same methodology than before. It's just that in the past, we are not facing this type of weather conditions. So you had in the past, mainly in the weather column, the energy impact almost all time. And you had one or twice some effect from waste when it was the case, but it was more an exception than the rules. You were mentioning the impact of volume. So you're right, we benefit in Q1 in terms of -- of weather from good impact on energy. So we'll not have that in Q2. We will not have this positive effect, but we will benefit from a form of rebound as we will not have, as we had in Q1, the weather impacting -- having impact on icy road, icy waste, no project on some remediation. So we'll have a formal rebound in Q2. That's for sure. And we are starting to see that in April, which is positive. And as we are speaking a bit on the month of April, what we could see is that we have plus and minus. On the waste, as mentioned, there will be -- so yes, we had more outage in Q1, and we'll not have that in Q2, Q3, Q4. We'll not have the negative impact of the [indiscernible]. We'll have a slight -- we may have a slight fuel surcharge or delay, but between 3 and the 6 months like we have mentioned. On the energy side, we had the positive effect of weather that we had in Q1 are not going to be in Q2. And we may have a small impact on energy prices, as I mentioned, linked to fuel surcharge. But we have opportunities for the non-top which has been hedged that we are -- we have full visibility of the energy margin. On the waste business, we have part of the electricity, we are hedging 85%. So for the 15%, we can have a positive impact. Also positive impact, as mentioned before by Estelle potentially on the recyclate, notably on the plastic side. It's marginal because you know that we have put in place back-to-back to contract. And on water, we spoke already about the Water Technology timing effect on project top line. And we see the good trend we have seen on water, especially in terms of pricing and in terms of volumes, we don't see any change of trend in April. Estelle Brachlianoff: So altogether, April will be -- has been good. And we haven't seen any change in underlying trends. You have the ups and downs of weather, but apart from that, nothing specific. And no, there is no -- it was really exceptional in waste. It never happens. It happens every -- I don't know, like 5 to 10 years, this type of circumstances, it was really, really exceptional. So I don't anticipate that it will come again very much. In terms of the capital allocation, yes, we have headroom. That's a question you always ask, what about we sell this and that and then we give money back to the shareholders. I'm really keen on, one, we still create value with those assets by increasing, thanks to our operational efficiency, thanks to everything we are doing. We are creating value. Shall I remind that we've increased the dividend quite a lot in the last few years and the net result by basically 12% year-on-year in the last 2 years and double the net result in the last 5 years. So this creates value. So we already are giving to the shareholders like some element via dividends. We have topped up that starting last year by first in the history of the group, which was the share buyback to avoid the dilution program. So I guess I'm very focusing on delivering shareholder value, but I think we do create shareholder value with the business model we have. In terms of the -- will we stop there irrespective of the -- I mean, irrespective of the buying opportunity, we are doing the pruning of portfolio anyway. The non-top 3 is a strategy which was in the GreenUp plan. You may remember that. So we've tried in typically in the plastic in Korea, I just mentioned, we've tried for 2 years to try to see if we could be in the top 3. We didn't manage to be successful. Therefore, we decided to sell it. That's more the way to see it. There is an up or out strategy here, which we are implemented. And yes, I can confirm that we are very confident about the 8% net income. But Emmanuelle, do you want to elaborate on that? Emmanuelle Menning: Yes, with pleasure. So you know that when you look at our performance this year, very strong performance with the increase of EBITDA of 5.1%, as mentioned before, without the synergies, meaning that we are cruising at the same pace, showing that our strategic decision to go for faster growing and higher-margin activity is delivering results. Down the line, we will, of course, continue to benefit from our operating leverage. We have shown that before, plus 2.1% revenue increase, plus 5.1% EBITDA increase and plus 7.2% EBIT increase. So as you see, we keep a tight cap -- tight control on CapEx so that our DNA will not increase significantly. Our total cost of financing, which decreased slightly in 2025 will only grow in 2026 a bit linked to the financing, for instance, of Water Tech acquisition we did last year in June. And we believe we can sustain a tax rate between 25% and 26%, meaning that we are fully confident to confirm our target in terms of current net income for the year. Operator: I think the next question is coming from [indiscernible]. Unknown Analyst: It's just a follow-up as most of the questions have been already answered. I want to have more clarity on the net income guidance because you signaled that the closing for Clean Earth is expected on June after the 2 major steps in the AGM and the antitrust clearance. So can you help us quantify the expected net income effect from the integration for 2026 as you signaled the 8% growth is ex Clean Earth with a positive contribution from 2027. So what is the expected net income effect that you expect to have from the integration of Clean Earth for '26? Estelle Brachlianoff: So I will refresh what we've said in a way, which we can confirm on when we've announced the acquisition of Clean Earth, which will be assuming it's midyear. Therefore, since we publish, so we can have -- if we were to do accounts at midyear with everything and dividend and so on and so forth, which is not the case, it would be a different story. But basically, given the fact that it's likely to be midyear, it means it will be accretive before PPA, the Clean Earth acquisition from 2027 and accretive even after PPA by from 2028. The PPA, we don't know yet what it's going to be. So we have a few uncertainties on dates on things like PPA. So we cannot give you numbers, but it will be accretive very soon in a way before PPA from year 1 and even after PPA from year 2. That's what we've announced, and we're confident we will deliver. In terms of integration, you remember, we plan over 4 years of synergies. So we have not included any synergies in 2026. It will start in 2027. But again, all that depends on the date and the detail of it. Of course, if we are able to manage some synergies this year, we will be very happy with it. But it is not what we've included in our business plan or what we've announced so far. [Technical Difficulty] We talk about access to local sources of energy, when we talk about securing supply chains, this is exactly what Veolia offers to its customer. And if anything, the crisis in the Middle East is reinforcing the importance of our services and the demand for our services. So I'm very confident not only in confirming the guidance for this year, but in the years to come. And the last point is, of course, we'll have various opportunities, myself, Emmanuelle and the Investor Relations team to see some of you in the roadshows to come. So I'm sure you will have plenty of opportunities to ask a detailed question. And see you otherwise in July for H1 results. Thank you very much. Emmanuelle Menning: Thank you.
Operator: Thank you for standing by. This is the conference operator. Welcome to the IAMGOLD First Quarter 2026 Operating and Financial Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions]. At this time, I would like to turn the conference over to Graeme Jennings, VP Business Development. and Investor Relations for IAMGOLD. Please go ahead, Mr. Jennings. Graeme Jennings: Thank you, operator, and welcome, everyone, to our conference call this morning. Joining us on the call are Renaud Adams, President and Chief Executive Officer; Martin Jason, Chief Financial Officer; Bruno Lemelin, Chief Operating Officer; Ankit Shah, Chief Strategy Officer; and Annie Katie Legacy, Chief Legal Officer. We are calling today from IAMGOLD's office, which is located on 2013 territory on the traditional lands of many nations, including the Miscageof the credit, Donabate and Hotusoni and the WindaPeoples. At HANGOLD, we believe respecting and upholding indigenous rates is founded upon relationships that foster trust, transparency and mutual respect. Please note that our remarks on today's call will include forward-looking statements and refer to non-IFRS measures. We encourage you to refer to the cautionary statements and disclosures on non-IFRS measures included in the presentation and the reconciliations of these measures in our most recent MD&A, each under the heading non-GAAP financial measures. With respect to the technical information to be discussed, please refer to the information in the presentation under the heading qualified person and technical information. The slides referenced on this call can be viewed on our website. I will now turn the call over to our President and CEO, Renaud Adams. Renaud Adams: Thank you, Graham, and good morning, everyone, and thank you for joining us today. Before I start, I'd like to welcome a will join IAMGOLD on Monday as our Chief Strategy Officer. Ankit, who many of you on the call are familiar with brings to our team nearly 20 years of strategy, corporate development and capital markets experience at a very exciting time for this company. So welcome Ankit. IAMGOLD is off to a strong start to 2026. In the first quarter, we produced 183,600 attributable ounces of gold. positioning us well to achieve our full year guidance of 720,000 to 820,000 ounces. The quarter was marked by robust financial results. with revenue exceeding $1 billion and mine-site free cash flow of $525 million. The cash flow we are generating is allowing us to execute on all fronts. As in the first quarter alone, we returned $260 million to shareholders through our share buyback program and repaid $100 million of debt on our credit facility while increasing our cash position. These results reflect the significant leverage of our business as to the current gold price environment and more importantly, the quality of the asset we have built and the teams that operate them. But what excites me most is where IAMGOLD is head. I believe we are entering 1 of the most catalyst-rich period of company's history. Over the next 12 to 18 months, we expect to deliver updated technical reports across each of our assets. Core gold, Westwood, Essakane and the Nelligan Mining Complex. These studies are expected to outline a larger, longer life production profile that we believe will redefine how the market views IAMGOLD. At Cote, the year-end technical report is expected to contemplate the significantly larger scale operations incorporating both the Cote and Gas, supported by an updated mineral resource estimate coming this quarter. At Nelligan, we are advancing 1 of the largest preproduction gold camps in Canada towards a preliminary economic assessment next year. And at Westwood and, we see meaningful potential of mine life extension and production growth. We will get into the detail on each of these through the presentation today. When I look at IAMGOLD today, with $2 billion of EBITDA generated over the last 12 months, a strengthened balance sheet and increasing production profile, catalyst that has every asset and meaningful capital being returned to shareholders. I see a company that is delivering on its promises and building something very exceptional. We are well positioned to create significant value in 2026 and beyond. and I look forward to walking you through the details. And with that, let's get into the quarter. Starting with health and safety. In the quarter, our total recordable injury rate was 0.44, a measurable improvement from the prior year period. I would like to highlight 2 big achievements in the quarter. As the Essakane mine achieved a milestone of 000 in the first quarter, and Westwood achieved its first full quarter at the 0 trip. Gold every mine side strives to reach. I want to thank our teams across our operation and in the field for the continued commitment to safe and responsible mining as safety is where it starts. for us. Looking at operation. And as I noted, IAMGOLD produced 183,600 ounces to our account in the first quarter. At -- good day, attributable production of 52,300 ounces was impacted by reduced throughput due to unplanned downtime associated with Warner on a conveyor belt as crushed ore volumes significantly increased following the commissioning of the second compressor. This belt will be replaced in May, after which we expect to operate at full capacity with an improving cost profile through the year as debottlenecking of the secondary crusher allows us to phase out the aggregate crusher. Meanwhile, Essakane and Westwood, both had a very strong start to the year, demonstrating the value of having a diversified portfolio of producing assets. Cash costs, including royalties, were $1,301 per ounce in a quarter, tracking well within our full year guidance range, including royalties, cash costs were $1,608 per ounce, and all-in sustaining costs were $2,124. It is worth highlighting that both Code and this carry significant royalty structure, which are directly linked to the gold price in a quarter where the gold price realized was nearly $4,900 an ounce. The royalty component is naturally higher than what our guidance assume at $4,000. As a reference, this worked out to around $115 per ounce increase in cash costs for $1,000 per ounce increase in the gold price from a royalty alone. Meanwhile, on the input cost, the ongoing conflict in the Middle East has introduced additional volatility to energy market, and we did see oil prices move higher towards the end of the quarter. scan in particular, has meaningful exposure given its reliance on diesel and heavy fuel oil to power both the processing and the mining fleet. On a consolidated basis, a $10 per barrel increase translates to approximately $12 per ounce increase in cash costs. We are actively monitoring energy price movement and potential supply chain impacts across all of our operations. With that, I will pass the call over to our CFO, to walk us through our financials matter. Martin? Marthinus Theunissen: Thank you, Renaud, and good morning, everyone. The current golf market and our operating results have resulted in good financial results and considerable free cash flow being generated, which is which allows us to continue to execute on our capital allocation strategy to maximize value. We produced $524.6 million of mine site free cash flow that is operating cash flow minus capital expenditure from each operation. $228.4 million of the funds was used to strengthen our balance sheet by repaying $100 million of the credit facility and we also increased cash by $128.3 million. For the shareholder return component, we purchased $260 million or $12.9 million of shares as part of the share buyback program. Subsequent to quarter end, we purchased an additional 2.1 million shares for $40 million, which brings the total shares repurchase by IAMGOLD since the start of the program last December to $350 million. or 18 million shares. In addition, we completed the debt repayment component of our plan and paid down the remaining $100 million balance of the credit facility, making the full facility available. The company tend to continue to use cash flow from Essakane to fund its share buyback program at approximately the same rate of cash generated and we parted from Essakane over the course of 2026. Naturally, the actual number of common shares that may be purchased if any, and the timing of such purchases will be determined by the company based on a number of factors, including the gold price, the company's financial performance, the availability of cash flows, consideration of uses of cash and our strategic allocation. In terms of the financial position, at the end of the quarter, IAMGOLD at $505.2 million in cash and cash equivalents with $100 million on the credit facility, resulting in liquidity at the end of March of approximately $1.1 billion. With the $400 million term loan we paid at the end of last year, and the repayment of our credit facility, IAMGOLD today is the net cash position, a significant milestone for a company that a year ago was carrying over $800 million in net debt. Within cash and cash equivalent, we note that $281.9 million was alpaca at the end of the quarter. The cash balance at this account increased during the quarter and will be used to fund tax payments in April. and the government Burkina Faso's portion of the 2026 dividend payable in June. The company uses dividends and shareholder account structure to repatriate funds in excess of working capital requirements from. Turning to our financial results. Revenues from operations totaled $1 billion from sales of 211,500 ounces. On a 100% basis, at an average realized price of $485 per ounce. The record gold price and operating results resulted in adjusted EBITDA of $666 million in the first quarter of the year. which brings the trailing 12-month EBITDA to a total of approximately $2 billion. At the bottom line, adjusted earnings per share for the quarter was $0.67. Looking at the cash flow reconciliation for the quarter, offers a good visualization of the major drivers in the quarter. We see good conversion of EBITDA into operating cash flow with $629.5 million of operating cash flow before working capital changes. As stated earlier, the significant operating cash flow allowed for the funding of our capital expenditure of $101.6 million $260 million under the share buyback program. We paid $100 million of the credit facility, while still resulting in an increase in cash of $128.3 million. As we look ahead with the debt prepayment golly, we will continue to see the share buyback flow by using cash flow from Essakane and the remaining cash going to our balance sheet. to further strengthen it as we evaluate the best use of the funds to increase value of the business. We are evaluating an appropriate time to induce a dividend that would likely be at the end of the year or early next year. It is worth reinforcing on how we think about our capital allocation framework today. The Canadian platform, consisting of Protego and Westwood is generating sufficient cash flow to fund the company's Canadian operations and corporate activities as well as our internal growth plans over the next 3 years. This is important because it means that the cash revenues account can be directed to fund our capital return to shareholders. that currently consists of the share buyback program. And we believe there is compelling logic to that. The market has historically applied the discounted cash flows generating with kinase. By repatriating those funds to Canada, and using it to repurchase our shares at current market value, we are effectively converting cash with the market discounts into full value equity for our shareholders. We continue to evaluate the program and believe that this is currently the most prudent use of capital. And with that, I will pass the call to Bruno Lemona, our Chief Operations Officer, to discuss our operating results and outlook. Bruno? Bruno Lemelin: Thank you, Martin. Starting with Cote go. Looking at the quarter, Cote produced 74,700 ounces on a 100% basis. Mining activity totaled 9.3 million tonnes of material mine with 3.6 million, representing a strip ratio of 1.6. Total tonnes mined were lower in January and February. The operation completed overburden removal activity required to open up the bid while managed seasonal winter condition. Mining activity in pre March drilling and blasting command in the pushback area. We mined in the quarter was 0.99 grams per tonne, in line with the mine plan. Net throughput in the quarter was $2.3 million as we noted in our results, was limited due to some time on the Citycon conveyor, which feeds material from the primary and secondary crushers to the screen of building. This downtime was primarily due to the increased load on the conveyor following the installation of the secondary crusher. putting additional stress on areas of the company or belts that have prime were in license. We were able to refine our repairs in early April. We then saw improved performance of the belt when the debt plant averaged 32,000 tonnes per day over the month. Later this month, we are installing a new heavier gauge belt, which will allow for the circuit to resume full operations above the -- in summary, the Citadel situation is not structural in nature, but an isolated, nonrecurring early mine item. We are seeing fewer of these as the operations stabilize margin and then we step forward versus the past 12 to 24 months. Cordis transitioning into a phase for first on operating discipline and consistent execution. Net grades for the first quarter was 1.07 gram per ton, in line with the guidance for the year of 1.1 gram per tonne with recoveries of 93% -- we continue to be very pleased with the reconciliation between reserve model, group, grade model to life and production. Production is expected to increase quarter-over-quarter as throughput increases in Q2 and on higher grades in the second half of the year. We remain on track with code-based production guidance of 390,000 to 440,000 ounces for the year. Looking at costs Coty reported first quarter cash costs, excluding real fees of $1,359 per ounce and an in sustained cost of $2,109 per ounce. We have been clear with our plan to lower our cost this year, and that 1 is still in place. Our goal is to exit the year at sub for that refund mining cost and processing cost in the mid-teens. The primary driver is to lower costs this year are fourfold. -- on increased from the mill and higher production. Second is to significantly reduce and remove the reliance on the contracted aggregate crusher. Third is with improved maintenance cycle inter-sales performance improvement and for is to realize the operational efficiencies and the fifth year of ducts. The second goad crusher is operating well, which has removed the bottleneck on this area of the secondary crushing circuit. Later this quarter, the increased capacity will allow us to phase out the usage of the aggregate crusher, which we contracted last year to allow the plant to its 2025 goal. We have already realized benefits beyond the additional volume capacity with the HPGR seeing an immediate debt reduction on where of its growers, which will translate to less rotor replacement over the course of the year. As Rene pointed out, cost at growth are affected by higher gold prices. In the first quarter, royalties accounted for $335 per ounce or 20% of cash costs. Further, and this is something that we've been asked about frequently of late is the impact of rising on price. The benefit to is that the plant in our are connected to the low-cost hydro risk. So effectively, only our mining fleet is directly impacted by fuel prices. Based on our estimates, this translates to about $7 per ounce increase in cost per $10 increase in the price of oil. With a fast forward this year to a higher production and lower costs, -- all eyes turned to what the next 2 is once. The first step is the upcoming of the mineral resources estimate, which will combine both the Coty and Galindo into a single block mall. The goal is to see additional upgrading of ounces into measured and in scale. The resource base will form the foundation of the Cote Garten expansion mine plan, which is still on track to be announced in the fourth quarter of this year. The report will envision a near-term expansion of the Cote plant to 50,000 to 55,000 tonnes per day targeting a significantly larger resurface from the updated resource. We expect the expansion to be highly accretive on a not basis as the near-term capital required for the plant expansion is relatively modest. The permitting and larger requirements for additional savings management and opening of Gardline will likely be staged out many years in the most time. Turning to S1. The mine continued its strong production proceeding 26,300 ounces of the quarter as underground activities very well with excellent marking and foisting performance. Underground mining totaled 106,000 tonnes in the quarter with an average head grade from underground of 9.85 grams per ton. Regards to compensate a lower or termed mine of 60,000 tonnes, operations prioritized waste stripping to open up access to additional or with opportunities to further extension maturity expansion. Net group in the third quarter was in line at $303,000 and turn at a blended average grade of 4.4 grams per tonne and recoveries of 92%. Together, Westwood produced $110 million of mine free cash flow in the first quarter, bringing the last 12 months of cash flow generation to $242 million. Westwood demonstrates what disciplined execution and incremental optimization can deliver safe operations stable collection, expanding optionality and strong free cash flows without step-change capital. As a result of the strong quarter, cash costs averaged $1,270 per ounce and all-in sustaining costs averaging $1,733 ounce, well below the guidance ranges for the year. We have seen a modest mining cost increases on a per unit basis associated with increased driven securities and higher explosive costs. Looking ahead, our teams are quite excited for the future of this year. This year, we are spending about $30 million on expansion capital that has been used to explore MTESthe Eastern extension of the mine, which you can see circle here on Slide 13. We are seeing the sticking of mineralization in this area -- our project teams are currently drifting into this area to come back both testing. The company plans to publish an updated technical report or westward in the second half of 2027, which is expected to extend the life of mine and highlight the potential for both mining in this Eastern zone. This approach would potentially support higher overall underground throughput, and this conceptually would allow for increased gold production at improved mining costs, allowing the mill to be filled with higher-margin material. Turning to Essakane. The mine reported record production of 111,900 ounces on a 100% base, as rates continue to benefit from the positive reconciliation as mining progresses deeper into Phase 7. As a result of the strong performance minifree cash flow from Essakane was $302.7 million in the quarter, bringing the total cash generated by Essakane the last 12 months to $803.6 million. On operation, mining totaled 11.9 million tonnes versus 2.2 million tonnes, translating to a strip ratio of 4.4:1. The higher proportion of waste was a result of the initial pushback of the DIP expansion in the now it. The mill reported in line throughput of 3.1 million tonnes, which was a good achievement as the plant completed its annatto. Head grade averaged 1.24 grams per ton coming off the record grade last quarter. Despite the positive reconciliation impact in Page 7 we are maintaining our guidance for the year of 1.1 grams per tonne additional ore from Gavin talk into the mine plan. Isaac came within guidance ranges with cash costs excluding core fees of $1,083 per ounce and all-in sustaining costs of $2,125 per ounce. Mining costs benefited in the quarter due to freely gain of the initial satellite ventures of the level pit, resulting in reduced exclusive consumption. While on a project basis, these savings were offset by higher synergy and consumable costs and the replacement of the liners. Atacand costs also have exposure to the gold price. In the first quarter, the strong oil price conflated royalties accounting for $597 per gram or 35% of cash flows. Further, Essakane heavily reliant on nice raise on the usage between living and mining, it is estimated that a $10 increase in the price of oil per barrel would equate to about $20 per ounce increase in cash costs and in all-in sustained costs respectively. At this time, our fuel supply has not been impacted by the conflict in the Middle East, to risk, the price and supply have increased. the company access effectively monitoring the situation and supplementing measures that are within its control. This account continues to be a highly cash-generative assets, delivering strong free cash flow while operating optionality to an updated mine plan for being a potential 5-year expansion of its current life of mine. In the first half of 2027, IAMGOLD going expect to release the updated plan, which would exemestane 2033. This work will also support the discussion with the government of Burkina Faso at end of license renewal in 2028. Today, this account post 4.4 million ounces of measured and indicated resources with ferro suppose by ongoing drilling. With that, I will pass it back to Renaud. Renaud Adams: Thank you, Bruno. This brings us to the Nelligan Mining Complex. The first quarter was the first full quarter that we controlled the consolidated district and our exploration teams have been drilling to expand mineralization at Filber Milligan and Monster Lake, while prioritizing targets for further discovery. This year, we will be drilling over 60,000 meters to advance the project so we can release our initial PEA study to the market in the first half of next year. The Nelligan Mining Complex already has a significant mineral inventory of over 4.3 million ounces of measured and indicated and 7.5 million ounces of inferred resources. And we believe there is meaningful upside to those numbers. Many of these deposits and targets have not had a sustained or well-funded exploration program behind them. That is changing now, and we expect the mineral inventory to continue to grow as we put capital to work across the district. We expect the study to outline a project with a central processing facility being fed from multiple ore sources within the 17-kilometer radius, considering the minerals wealth and potential for growth and the fact that IAMGOLD owns 100% of the Nelligan mining complex has the potential to be among IAMGOLD's largest mine. The Nelligan Mining Complex is already positioned as 1 of the largest preproduction gold projects in Canada. What makes truly compelling is the combination of district scale consolidation across multiple million ounces deposit. The ease of access, the combined of underground and open pit mining and the fact that is located in Quebec, 1 of the premier mining top premier mining jurisdictions in the world. Taken together, we believe this attributes positions Nelligan as a premium asset in our portfolio. and 1 where we expect to unlock significant value as we amend the project through the study process. So with that, I want to thank our shareholders for your support. We truly believe it will be an exciting year for IAMGOLD with significant value growth opportunities ahead, including the upcoming resource update at Cote, the code expansion study later this year, followed by next year where we outlined a mine life extension in face in the first half the year, an initial study wrapping economics around Milligan mining complex also in the first half of next year and a mine life extension expansion under goat Westwood in the second half of next year. So altogether, we have significant value accretion catalysts ahead. With that, I would like to pass the call back to the operator for the Q&A portion of the call. Operator? Operator: [Operator Instructions]. The first question comes from Sathish Kasinathan with Bank of America. Sathish Kasinathan: My first question is on Essakane. Are you seeing any risks in terms of potential supply disruptions for diesel or fuel oil over there? How much inventory do you currently have on site? You also talked about the direct cost impact from higher oil prices, but how should we think about the indirect inflationary pressures? Renaud Adams: So maybe, Martin, you take that. Marthinus Theunissen: Satish, we are we are derisking the fuel supply at Essakane. We have supply at site that's 5 to 6 weeks, and we try to maintain that at maximum capacity. But then what we've also done is we continue to secure additional fuel up the supply chain. So we have secured that field. So for the next 2 to 3 months, Acan has already secured sufficient fuel -- the impact, as we stated for the direct impact on the actual cost per fuel that is linked to the market price is about $20 per ounce for per barrel. There is other costs at Essakane as well there's taxes on fuel and those impacts. But we have not seen other inflationary pressures at Essakane or the other mines at this point, and it's hard to estimate those. If you look at our energy cost as a company, it's about 20% of our operating cost and our consumables is about 15% to 16%. So that's kind of like the level of our cost structure that could be impacted by inflationary pressures. But it's hard to, I think, for anyone to predict at this point. what exactly that would look like. Sathish Kasinathan: Okay. My second question is on Cote. How should we look at the quarterly guidance of production and cost, especially for the second quarter with the reduced operating capacity and the scheduled maintenance shutdown in May, should we expect the average milling rates and cost to improve versus the first quarter? Or is it more like a second half story? Marthinus Theunissen: On -- we expect that once we have completed the shutdown in middle of May, like it's meant to be on the May 20 -- we're going to be replacing the conveyor belt, we're going to be replacing also the HPGR tires that were supposed to be change earlier in the year. And -- we are going to make some adjustments in certain areas. But after that, we're going to resume to full operation and even going beyond the nameplate capacity. So it's what I did is that the expectations both on the mining side and mining side, the unit costs are expected to decrease and to have a sharp improvement in terms of gold production quarter-over-quarter. Graeme Jennings: This is Graham. And you'll note in our news release that we refined our throughput guidance for Cote for to 12 million to 13 million tonnes for the year. Sathish Kasinathan: Okay. congrats on a strong year-to-date buybacks. Operator: The next question comes from Anita Soni with CIBC. Anita Soni: I just wanted to ask a little bit about Westwood. So this quarter, a little bit lower production from the Grande deposit or from the open pit, I'm not sure if it's still granted. But how long does that -- how long do you expect to have that or I think I said into 2027? But I was just trying to figure out when it ends in sort of the ramp-up in 2026 in terms of the tonnage over the course of the year. Bruno Lemelin: It, this is Bruno. Good question. We are seeing net new from grade to be extended even beyond 2027. We have also options Phase 5 that put through even beyond till 2029. That's what we're doing right now. We are currently evaluating those options. So been like a great support for Westwood. And the moment that it will be tailing off, it would be also a great moment for the Eastern zone that I'm referring to the thicker part of the underground from at Westwood to replace that material. Renaud Adams: If I may add, Anita, -- so what I really like about the work that's been done and the drilling that took place in the last 2 years. our effort has always been to protect the production profile on the upside basis. the potential Phase Grand Duke should we be able to maintain this up to 2029, '30 followed after that by an increase of the underground in the East. So this is the focus right now. So you don't see any gap. And if anything, continue to increase profile -- it's a bit of about the same thinking, and I appreciate the kinases are different situations we monitor and so forth. -- the best, of course, would be to completely offset the gap and Ciplan can also being capable to maintain the production profile. So that's really the focus at this stage, understanding that we would be continuing to monitor the situation in the West Africa. Anita Soni: Yes. And I guess what I was driving at was on the Westwood was this quarter, you had very good cost and very lot of mining from the underground and with the Grand Duke ramping up. I'm just curious to see how the -- like the -- theoretically, the overall mining cost per ton should actually drive down more with more underground -- sorry, more of the open pit ore coming in. So I'm just trying to get a handle on, you've had a significant cost beat in the first quarter at Westwood relative to your guidance. So I'm just trying to figure out how those like how should be thinking about costs for the rest of the year. Marthinus Theunissen: It's Martin. So I agree, we had a great quarter, if you look at the dollar per tonne for the underground mine. We do expect it to maybe increase just above the 300 level again for the rest of the year that it might not be signed at that level. So it tries to do that $325 million for the full year, again, as we saw in the past. So Yes, we don't expect Q1 to be the norm for the recipe. Renaud Adams: We wish so, but we do understand that there are some zones, some areas in the mine that requires maybe more support and so forth. So you cannot really just it really depends where the guys would be where the team would be mining. But our focus is to remain at the lower cost, but I appreciate that we'll be mining out the sector as well, but higher comp. Anita Soni: Okay. And my other question on Cote on throughput was after in 1 of the other questions going above nameplate. So I'll leave it there and get back in the queue if I have any follow-up. Operator: The next question comes from Tanya Jakusconek with Scotiabank. Tanya Jakusconek: Kreat.on,. Maybe I'll do the financial 1 first. Martin, over to you to maybe talk about the $400 million dividend after tax that you're getting in from Essakane. Should I do think that all of that now could be going to share buyback in like Q2 or Q3? How should I be thinking the payment of the $400 million over for the share buyback from a quarterly perspective? Renaud Adams: Dana. So -- we have about $200 million left on the shareholder account for last year's dividend. We expect that cash to be repatriated by June or July of this year. And then the reason why this is a bit of a slowdown is because of the tax payments we have to make in Q2 as well as the government is getting the $100 million portion of the dividend. So the cash that we bring in, we expect for the remainder of this quarter to spend EUR 40 million to EUR 50 million a month. We readied EUR 40 million in April, so kind of like getting to that EUR 400 million for the year, likely on the this share buyback, we will continue to evaluate. But that EUR 400 million that we declared in June is then a new shareholder account of EUR 400 million and then as we then repaid at cash from Isaka, we would then continue to use that to potentially fund share buybacks for the second half of the year into next year. Gold price dependent is the exact sequence of that. But we could cut vision on the next quarter setting us through the middle of the year. Tanya Jakusconek: Okay. Great. That's very helpful. And then my other financial question is just on the taxes were quite low in Q1. When I look at your guidance and what you paid significantly lower, maybe just a little bit about what's happening there and how you see the rest of the year. coming out in terms of taxes? Marthinus Theunissen: So from a cash tax perspective, we've paid about 14%, if you take our guidance, cash taxes. We still think our cash tax guidance is impact. And maybe if you look at it for how we spread over the course of the year, like 14% to 15% in Q1 and Q4 and then the remainder is spread over Q2 and Q3 and that's again driven by a cash tax payment in Q2. And the withholding tax payment on the dividend, that's normally either end of Q2 or beginning of... Tanya Jakusconek: Okay. Yes. Okay. Perfect. And then just moving to some of the technical questions. maybe Rena over to you to -- as I think about this updated resource that is coming out on Cote Osland at the end of, I think, it's this quarter or in Q2. Should I be thinking, and I think I heard that we're upgrading the measured and indicated category. So should I be thinking that, that 20 million ounces that you have outlined should I be thinking that $2 million of inferred gets moved into measured and indicated and there will be no increase to the reserves that you reported of 7 million ounces or should I also be thinking that, that $20 million overall should get bigger? Just trying to understand what to expect. Renaud Adams: No, thanks for the questions. And we've been socializing this quite a bit. If you look at our year-end mineral resource where we're sitting below the $19 million and the $18.5 plus million of measured indicated. There were still some holes to be integrated in the database. We've done some work in the saddle as well. So in short, our confidence remain, as you say that there would be additional conversion to MI to our objective of 20 million ounces of measured indicated and as you drill, as you continue to improve your inferred as well. So we would all clarify this, but the most important thing is our objective remains $20 million of measure indicated, and that will form the basis for the reserves. We will not disclose the reserve, obviously, because we'll trigger the need for the report right away. So we're going to clarify in Q2 our resource and the reserve then will be a measure of a factor of conversion of the $20 million. Obviously, we're expecting a significant increase in reserves out of the $20 million. but that will be clarified in the study as we come out at the end of the year. Tanya Jakusconek: Okay. That's what I thought was going to happen, but I just wanted to make sure -- and then just maybe on -- I know we talked a little bit about these costs coming down at Cote on both the mining and the processing. As we think about this new study that's coming out in Q4 for this complex, should I be thinking that the new study should have cost under $4 a tonne for mining and processing in that $12 to $14 a ton as a combined entity. I mean, they were quite high this quarter, as we know, for various reasons, but I'm trying to understand if going to be benchmarking on that under $4 a ton and $12 to $14 on the processing. Renaud Adams: The -- you're absolutely right. I appreciate you know that in the short term, cost has been hired. And as we highlighted in Q2 last year, the use of the Gregor plan is a big portion of it. not having the capacity and the dry and short. All this have been tested. We've been using as well some external view as well to revalidate all this. We're talking about visibility level type of studies. So we remain extremely confident. We understand and appreciate our costs are higher, but I think we have good visibility about what has to be done. So this is a focus as we partly aggregate and focus on reducing. It's not going to be all in 1 year. It's going to be spread over a couple of years to 3 years. Our are highlighted heading to the expansion. So maybe Bruno just quickly what you see as the main focus in the second half of the year in terms of customers. Bruno Lemelin: Yes, like for the mining cost, you will see those mining cost rein the second and for the rest of the year, mainly First of all, it was a volume really good thing for Q1. And as we expect volume to increase or net costs are going to go down. Second is we have also made like great improvement in drill and blast increasing our performance by 65% of late. We're also going to receive 4 additional 7 mines increasing arm. So we're putting everything in place to be successful to be below the $4 a ton before the end of the year. Same thing happened for the mining costs at the moment that you take out to remove the aggregate crusher, the contractors and demonetization of other contractors, you will see also a sharp reduction in cost. We are also making improvements here and there. The is part of the optimization phase. And as Rene pointed out, that optimization phase is going to take a good 3 years make sure that we see within a downward pressure for the cost. So we're quite confident that the 43-101 is going to be well spotted by assumptions that are realistic. Tanya Jakusconek: Okay. Understood so a basis to go forward on that. And maybe just my final question, as I thought about the rest of the year. And I know in the previous in February, the guidance has been that Essakane production would be relatively stable through the year was Westwood and then Cote would see quarter-on-quarter improvement and we saw a stronger second half. So how are we looking at the overall company for production profile for first half, second half? Bruno Lemelin: Yes. It's going to be much stronger as we mentioned for Cote, the grades are going to be overing between and -- so we have to expect as far H2. For Essakane, it's going to be quite stable. We need to -- and we mentioned that we remain within guidance as we start implementing the ore into the mine plan. Westwood is just like the only thing that we use for was what it's just been a stable operations, stable and safe operation, 1,000 -- 1,000 ounces a month on average and coupling more, we can be a. So overall, you will see much stronger H2 as opposed to H1. And I think this is what we also disclosed last quarter that H1 would be the softer to take into account the winter conditions and soften changes for the HPGR changes and confidence. So I think right now, we're being. Tanya Jakusconek: Yes. No, that's what you had that. I just wanted to make sure. Operator: The next question comes from Hamed idea with National Bank. Mohamed Sidibe: Maybe if I could maybe ask a question on the underground -- we've now seen 2 quarters a mining rate above the 1,100 tonnes per day and grades over that 9.8 grams per tonne mined. So could you maybe help me understand how to think about the next few quarters in terms of mining productivity, Integrate over the coming quarters? Renaud Adams: The oiling, the marketing is going very well. Our targets are close to 1,000 tonnes per day. And in fact, we're exceeding those metrics every day now. It's done through our optimization and better engineering, better preparation. Hosting, you know we have a 4,000-tonne capacity at Westwood. So we have plenty of capacity at Oi. So it's not constrained. Therefore, the additional gives us great hope that whatever improvement that will be done at Fort will become new mags catalysts into the gold production in the -- but overall, what we plan is we grew we've done what we do and we do work on -- so trying to make sure that we have stabilized the patient, and we improve in an increment manner the Westwood operation on OmiFixbutemeter of admin per day, meter per manship -- the drilling is doing very well also, and we have a new Simberi coming in -- so the drilling performance is also improving very well. The ability of our mining crews to a new zone or improving also with the algorithm that we have developed over time. So overall, it's going well. Marthinus Theunissen: I appreciate that you've seen like quite a significant increase. I mean, again, it's a little bit of the questions on the cost side, depends a bit where you mine as well. what we want is reliable and safe operations. Are we going to see a continued increase. The focus is really to deliver sustainable and safe operations. So we're very comfortable, really like the last quarter. But I think like being in the zone of the 1,000 to the 1,200 is a good zone, and we're going to always prioritize the safe operations, Mohamad I appreciate your question. Mohamed Sidibe: That's very helpful. And maybe if I can ask a second question on AkoteGold on the improvement on the process cost, and sorry if I missed this, but is the improvement of the maintenance time line for the HPGR already reflected in that expected cost improvement you have for the end of the year? Or is that a positive surprise following the installation of the. Renaud Adams: No, I wouldn't call a positive surprise. I would say a validations of what has been our belief since the start, again, with the short of capacity in the dry. We knew we were feeding the HPGR slightly outside of its design criteria with the course of ore, which was accelerating the wear on the machine. So since we've commissioned the second column, we've been in capacity to return to the design criteria within an automatic and overnight change. And we expect the change of the tire now to get back to the life spend that we're expecting. So yes, we're not expecting another change of tire this year, and therefore, it is built in the reductions of cost post change. Operator: The next question comes from Josh Wolfson with RBC. Joshua Wolfson: I apologize. I just want to clarify a couple of things. I'm having trouble hearing some of the data points. Just going back to some of the details on Cote. -- this comment about the plants operating above nameplate in the second half of the year and some of the tonnage numbers that was provided. -- the numbers look to imply about maybe 10% to 15% above nameplate in the second half. I just want to clarify, does that sound correct? And then -- is it reasonable to assume that those throughput levels can be sustained beyond 2026 even before the expansion takes hold? Renaud Adams: Yes. When we say that we can produce about mantras we have more than many days above 36,000 tonnes per day, even 42,000 tons per day remit. With the addition of the second on crushers and also allowing the gain-of there protecting now the HPGR, which is going to be running very efficiently. We expect to remain into that loan between the 36,000 tonnes per day and 42,000 tonnes per day in average. So that's very promising for us. We with the shutdown that we have in August and other shutdown that we have in certain areas, we are still evaluating and planning an overall average throughput of 36%. But overall, like when you have a very well run rate, it goes well. Marthinus Theunissen: What we've experienced, Josh, with the second column is we're for only a few weeks, unfortunately, before we started to have the issues on the conveyor. So the objective has always been to stabilize at the 36%. So what we've seen is effectively, of course, if you want to reach 36 when you upgrade, you need to be above. But we also had Brunel earlier talking about slightly better grade as well. So it's not just a matter of throughput. It doesn't matter that we should access as well better grade in the second half. But the priority at this stage is to demonstrate that minimum 36 average all time in the dry in the wet, as you cross finer, you will unlock more potential in the web as well. So for the first stage 1 is as soon as we change the tire, we change the bell, we parked the aggregate plan. The focus in June is to demonstrate that we actually get operated an amply then will come the optimizations on a step-by-step basis. But so far, so good for what we've seen with the crusher. Joshua Wolfson: Okay. Got it. And then your comments about the better grade, as the number was mentioned on the call, again, I apologize for nothing of it here. It was said it was 1.1 to 1.2 in the second half. Is that correct? Bruno Lemelin: Between 1 and 1.2. Marthinus Theunissen: Yes. So we did $107 million in the first quarter, and we're you could see a quarter above the $107 million. So we said $1 million to $1.2 million -- and hopefully, we'll see quarters about the 11. Joshua Wolfson: Okay. And then last question. I know it's sort of been mentioned by some of the other participants just on mining costs for Cote. I mean I wouldn't necessarily extrapolate the current quarter. And obviously, there's a lot of volatility on the energy side of things. But what is a reasonable sort of mining cost for us to assume in the second half of the year would you factor in maybe I'm not sure what sort of energy price us. I'll let you guys figure that out. But maybe just at least high level, what would be the target steady state? Renaud Adams: Martin, you can get some details, but I can say that at this stage, the focus is absolutely to bring those mining costs below the as we exit the year. Martin? Marthinus Theunissen: Just 1 thing we didn't mention earlier was that we've actually put in some price protection for oil at Cote. So for June as well as for all of Q3 9% Cote oil is hedged at a price of about $80 per barrel. So if the price goes above $80 per barrel, it doesn't impact our cost further during that period. And we still participate if the price goes below that. So that will help offset some of that cost as well to get us close to that fall. So as we exit the year, as we achieve our objective to drop our mining below the floor and get the mailing more towards the 15% as we exit. That is the main focus at this stage, knowing that there would be some more optimization to continue to take place. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Graeme Jennings for any closing remarks. Graeme Jennings: Thank you very much, operator, and thanks, everyone, for joining us this morning. As always, if you have my initial questions, please reach out to Reno or myself. Thank you all. Be safe, and have a great day. Operator: Thank you. This brings to close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day. Thank you.
Laura Lindholm: A very warm welcome, and thank you for joining Cloetta's Q1 Interim Report Presentation. I'm Laura Lindholm, the Director of Communications and Investor Relations. Our CEO, Katarina; and CFO, Frans will first go through our results, after which we will move to the Q&A, where you either have the possibility to dial-in and ask questions live or alternatively post your question through the chat. It's already possible to add questions in the chat. Over to you, Katarina. Katarina Tell: Thank you, Laura. Today, I'm very proud to present our first quarter 2026 results. After a transformational 2025, this is our first quarter with execution and clear result from our strategy. As you will see during the presentation, we are making great progress and are moving closer to delivering on all 4 long-term financial targets. But first, over to the agenda. Today, it looks as following. I will start with Cloetta in a brief, then I shortly recap our strategic framework and our updated financial targets for the ones that have not listened to us before. After that, I move to our quarterly highlights. Our CFO, Frans, will then walk you through our quarterly and full year financials. And as always, we wrap up with a Q&A. For the new listeners on the call, let me start by introducing Cloetta. We were founded in 1862. And today, we are the leading confectionery company in Northern Europe. We strongly believe in the power of true joy and our everyday purpose is to spread joy through our iconic brands. We have grown a lot since the early days and now have an SEK 8.5 billion in sales last year, combined with an operating margin of 12.1% to be compared to 10.6% in 2024 and 9.2% in 2023. We have established a strong profitability uplift, which we also will talk more about today. Over half of our sales come from our 10 biggest and most profitable brands, and we call them our super brands. Despite the increased geopolitical uncertainty, we remain largely unaffected. This resilience is due to several key factors. First, we operate in a noncyclical market with stable consumer demand, which provides a solid foundation even in uncertain times. Second, our broad product portfolio allows us to offer a range of alternatives, helping us adapt quickly to shift in consumer behavior. And finally, we have, despite the current geopolitical uncertainties, still many attractive growth opportunities like expansion of our super brands, step-up in innovation and growing beyond our core markets. These strengths gives us the confidence to continue delivering solid performance, profitable growth and building further long-term value for our investors, our customers, consumers and for the people at Cloetta. I will now briefly walk you through how we bring our vision to life through our strategic framework and then in relation to this, also our updated financial targets. To learn more, please see the recording of our Investor Day 2025, which is available on our website. So let me start by talking about our vision at Cloetta because it's really capture what we are all about. Our vision is to be the winning confectionery company inspiring a more joyful world. And it's not just something we say. For us, this is a real promise to do great work, to keep innovating and most of all, to bring joy to people every day. This vision is what guides us, is what keeps us learning, improving and leading the way in our industry. I will today also show you 2 concrete product examples of the vision. We have created a clear strategic framework to guide us forward. And right at the center is our vision. Our strategy is about focus, clear choices that will help us scale, grow and make the biggest impact where it truly matters. We have 5 core markets. It's Sweden, Denmark, Norway, Finland and the Netherlands. And today, around 80% of our total sales come from these markets. Our first strategic priority is to focus on our 10 super brands within those core markets. These are the brands with the strongest potential. By leaning into an expansion strategy, we can open new opportunities, grow faster and build real scale. We are not stopping there. We're also looking beyond our core markets. We have identified 3 high potential markets that sit outside the core, and that is U.K., Germany and North America. Our third priority is to elevate our marketing and accelerate innovation. The market keeps changing, and we need to stay ahead, not just following trends, but also help to shape them. In our strategic framework, we are now also opening up to explore M&A, but only if it fits our strategy and when, of course, it makes good business sense. That said, any M&A would serve as an accelerator. It's not something we rely on to reach our financial targets. And to make all of this work, we need, of course, the right enablers in place. This means having a focused, efficient operating model and a structure that actually support our strategy and goals. During 2025, we aligned our structure with our strategy so we can move faster and strengthen our path to profitable growth. People and culture are, of course, the heart of everything. Without them, the rest is just a black box. Our culture is the foundation of how we work, and we have now built an organization that is strong, capable and filled with joy. So Lakerol is one of our super brands in the pastilles category. And this slide capture our launch of Lakerol more and how it delivers on our vision and fits into our strategy win with super brands. What we are introducing here under the Lakerol brand is a new texture and flavoring experience, softer, chewer and more indulgent, while we are staying fully within the sugar-free space. This is a successful multi-market launch in line with our vision and strategic focus. This launch is helping us recruit younger shoppers into the Lakerol brand as Lakerol more feels modern, sensorial and relevant without alienating our existing core users from the brand. We've seen a strong start across the Nordic markets where we have launched the 2 flavors with early results showing increased market shares in the pastilles category and what's particularly is encouraging is the repeat purchase rate, which is already above the category average, really confirming that consumers don't just try Lakerol MORE, they actually also come back to buy more. Moving on to our second example. And here, we are showing how we are scaling a winning pick & mix concept into branded packaged products. Zoo Foamy Monkey started as a pick & mix success within CandyKing, where it quickly stood out, thanks to its taste, foamy texture and playful shape. Consumer demand was strong, and this gave us the results we wanted to also scale Foamy Monkey into branded packaged format. Under the super brand Malaco, we are building on the iconic Swedish Zoo monkey shape and flavor that Swedish consumers already know and love and now translated into a soft foamy candy in a Malaco branded bag. Malaco Foamy Monkey is rolled out across major Swedish retailers as we speak and is available in 2 variants, sweet and sour. This is a great example of a smart brand leverage, proven products, strong emotional equity and high engagement, both in-store and on social media. These projects deliver faster growth, lower risk and stronger relevance, a perfect example of how we continue to win with our super brands and deliver on our vision. In March 2025, we updated our long-term financial targets to match our strategic priorities and our vision. With a clearer plan in place, we raised our long-term organic growth target from 1% to 2% to 3% to 4%. As reported, inflation has now stabilized. It's obviously difficult to justify price increases driven by inflation. This means that future growth primarily needs to come from higher volumes, exactly what our strategy is designed to deliver. Our long-term adjusted EBIT target is 14% with a goal to reach at least 12% by 2027. As many of you saw in the report, we're already above 12%. As Frans will explain later, both Q4 and Q1 got an extra boost, and we will wait to celebrate 12% EBIT when it's fully repeatable. Our EBITDA net debt ratio target is below 1.5% -- 1.5, sorry. Of course, if a strong M&A opportunity appears, we may go above that temporarily, but only if it clearly supports our strategy and with a clear deleverage plan in place. And finally, our dividend policy. We are now targeting a payout about 50% of profit after tax. And now a short quarterly update. As highlighted in the report, we delivered a very strong first quarter with profitable growth driven primarily by higher volumes. Easter sales fell into the first quarter this year, but even when we adjust for that effect, we still achieved our long-term organic growth target of 3% to 4%. I'm also proud to see solid growth across both of our business segments with particularly strong performance in the Nordic and North America. Inflation continued to ease during the quarter. At the same time, geopolitical uncertainty increased, and we, therefore, expect societal and political pressure related to food pricing to remain high. Our EBIT margin reached 12.9%. And even excluding the compensation related to the quality incident, we are in the quarter, exceeding our profitability target of at least 12% by 2027. After a transformational 2025, we are now fully executing and delivering on our new strategy. And with that, we are now also another step closer to reaching all of our long-term financial targets. And with that, it's time for the financials. I'll hand over to Frans, who is more than ready to dive into the first quarter's numbers. Frans Rydén: Yes. Thank you, Katarina. So just before looking at the details here, I'd like to tell you what I'm about to tell you, and then I'll tell you. So firstly, and it's worth repeating, strong organic volume-driven net sales growth in line with our higher long-term growth target set 1 year ago and then a favorable Easter phasing on top of that. So not because of, but on top of, and I'll come back to that. And then I'll talk about the continued significant margin expansion, delivering another quarter with an operating profit adjusted margin meeting the midterm target set to be reached only in 2027. And then I'll tell you about the continued improved leverage for yet another best ever at 0.6x net debt over EBITDA, further improving on our ability to secure resilience in a volatile world and importantly, financial strength to act on business opportunities in line with our strategy. And lastly, not Q1 specific, but Tuesday, I guess, 2 weeks ago, given our strong financial position, the AGM approved the Board's proposal, which was in line with our new long-term target to distribute for 2025, our highest ever ordinary dividend, so SEK 1.40 per share, a 27% increase versus last year. So let me then start with our net sales. So again, very strong volume-driven organic net sales growth of 6.9%. Now as you recall, in Q4, our slight volume decline from Q3 had turned to stable growing volumes. So now from the stable growing volumes, we are now in the territory of solid volume growth. In Q4, I also shared that we expected that quarter 1 2026 would benefit from the shift of Easter sales coming into Q1 from Q2 last year. And I can confirm that shift to SEK 40 million to SEK 45 million this year, which is in line with the earlier estimate I gave. This means then that even when adjusting for the earlier Easter phasing, Q1 2026 organic growth is at the upper end of the range for our long-term target growth of 3% to 4%. And we are, of course, very pleased with this and to be able to confirm that after a transformational 2025, implementing the new strategy and updating our organizational structure to support that, it all starts to come together in product innovation, marketing and sales and supported by a reignited supply chain organization. Naturally, given that the phasing was from quarter 2 into quarter 1, in the coming quarter 2, that quarter's growth will reflect also that shift. So the main point will be then to look at the first half of 2026. And given the strong Q1, so you can imagine, even if we would not grow at all in quarter 2, the first half of 2026 will still be growth in line with our long-term target. And I'm not trying to sandbag quarter 2 here. The main point is just to illustrate how strong of a quarter 1 really is. Now on the 6.9% organic growth, that's partially offset by currency effects of about 3.3% for a reported growth of 3.6%. And before looking at the segments, I want to repeat something mentioned also last quarter about the currency effect. So companies incurring costs in Swedish krona in Sweden to make products which are then exported and sold in euro, of course, will have a challenge when the Swedish krona strengthens. But at Cloetta, we largely sell our products where we make them. So products made in Sweden are mostly sold in Sweden and products made in euro-denominated countries are mostly sold in euro-denominated countries. So the real effect is really limited for us, and it's primarily a translation effect. Then moving to the regular page showing then the segment here side by side or over and under, I should say. In Q4, we could report that both segments were growing to stable again, while for Q1, both segments are now clearly growing and they are growing on volume. And for pick & mix on the bottom half, we are growing solid double digits. And also if one assumes the full Easter effect in pick & mix, then pick & mix is still growing at a very healthy 2x the long-term target for Cloetta. For packed, we're also growing a healthy 3.6%, which is also in line with the long-term target. That's against a softer quarter 1 2025, but then we also rationalized the portfolio at that time and volumes were also affected by pricing and especially on chocolate back then. That said, we are very pleased with this growth being of high quality. It's volume driven and it's profitable. So let's look at the profit. So in the quarter, we are reporting an operating profit adjusted of 12.9%, and we're very pleased with that. As we also reported about 12% in quarter 4 and for the full year 2025, let me unpeel that a bit. So you may recall, for the full year of 2025, the margin was 12.1%. But then that was aided by the receipt in Q4 of compensation for suppliers' quality deficiency back in 2024. Now in Q1, we have received the second and final part of that compensation. The total compensation over the 2 quarters is SEK 44 million, of which SEK 32 million was received in Q4 and SEK 12 million now in Q1. So doing the math on that, it means that in Q4 2025 and for the full year 2025, the margin, excluding the compensation were 12.4% and 11.7%, respectively. So 12.4% in Q4 and 11.7% for the full year 2025, which is why back then, we said we would hold the celebration of having reached 2027's profitability target of 12% in 2025. Now it does mean that our Q1 margin, excluding the compensation is 12.4%. And that, my friends, is above the 2027 target. So in line with what we flagged earlier, 12% is within sight for the full year 2026. Taking one layer down into this, and it's quite obvious from the slide that the profit is driven by volume as well as mix. On the volume, the mentioned Easter phasing drives further volume. And although we supported that with merchandising and sales activities, which will be visible in the SG&A, we're obviously making a healthy profit on those sales. And then for the mix, you do have an effect of the faster-growing pick & mix, but largely offset by favorable mix with respect to market mix and also product mix within the branded package side. And I mentioned the rationalized portfolio last year, but we also have a strong lineup of new products this year. Now these net sales are supported by marketing at similar levels as in Q1 last year. So the overall SG&A is flattish to up, and we look at that separately. But cutting back on investments is not how we are driving the stronger margin. And actually, before a view of profit by segment, a quick comment for those who wants to look at the gross margin. Remember, you need to look at the adjusted gross margin, and we have that commented in the report. Given that in Q1 2025, we released provisions related to the [indiscernible] the greenfield project. So that led to favorable items affecting comparability, boosting the gross profit that year. So on an adjusted basis, so like-for-like, the gross margin is up about 50 bps. Looking then at the segments over and under, you see that both segments margin improved in the quarter over last year with the Pick & mix segment on the lower half, reaching a quarterly margin of 12%. Now that is, of course, above the target to be between 7% to 9% obviously aided by the strong sales and the favorable fixed cost absorption as a result. And we believe that the targeted long-term range is the appropriate range to continue to drive profitable growth in the category as well as geographic expansion in line with our strategy. Then for the Branded package segment, the quarterly margin is 13.4%, aided, of course, by the second part of the compensation. But irrespective of that, it's a great recovery versus last year and again, bringing us closer to the sort of plus 15% pre-pandemic level margin we used to generate in this segment. And we will continue to seek to further strengthen the packed margin and over time, return to the levels we were before the pandemic. Then moving to SG&A. Here, stripping out the benefit of translating the cost incurred in euro to Swedish krona, which I'm showing separately here, it is an almost flattish SG&A. Actually, it's the lowest quarterly increase we've had in many years. And that is, of course, on account of the savings from the change to the operating structure in 2025. So I can confirm the upside of SEK 60 million to SEK 70 million on an annual basis. And that saving in Q1 is fully offsetting the investments we have for growth, including the investment in the geographical expansion beyond our core markets, mostly well-known is the CandyKing store in New York, but it's also on the organizational side. We're, of course, already profitable on that store, but it does generate SG&A. And then also in overall organization in North America and the U.K. as well as investments in product innovation. And then increased merchandising and sales activities on account of the Easter phasing. Again, obviously, a profitable sales, but it does incur additional SG&A cost. As mentioned, our advertisement and promotions are in line with last year, where we already made a big step-up for new launches and a further step-up will be phased more into Q2 given the already strong Easter performance. The net increase in SG&A shown then on the slide is mostly driven by the carryover effect of annual salary adjustments from April 2025 with the next round, of course, now in April 2026. So key takeaway is that the change to the operating structure in 2025 has not only aligned the organization better to execute on the new strategy as evident from the quarter's results, but also permanently lowered the SG&A baseline and helped offset the stepped-up investments beyond the core markets. So overall, costs are held in check. Then on cash. In Q1, we delivered a solid SEK 144 million in free cash flow, and the difference to Q1 last year is really driven by the working capital effect of this Easter phasing as we ended Q1 with higher receivables, only partially offset by lower inventories. This is in line with expectations. And for comparison in Q1 2024, when Easter was similarly phased to how it is this year, our free cash flow was below SEK 100 million. So we continue to see the favorable development on account of the focus on both profit and working capital. And then CapEx in the quarter, that's SEK 38 million that remains on the low side, in line with earlier communicated is expected to rise to between 4% and 5% of net sales over the next 5 years, and we will revert on that later this year. That brings me to my last slide on financial position. And here, you can see that our leverage as we closed the quarter is 0.6x as net debt over EBITDA, well below our target for the leverage to be under 1.5x. And it's also the lowest ever we've had. Now the result is a combination of the strong cash flow, resulting in a lower debt, lowest ever actually at SEK 820 million and then, of course, the improved earnings. Now with the low debt, we have plenty of access to additional unutilized credit facilities and commercial papers, which together with the cash on hand is just shy of SEK 3 billion. So coming back to where I started. One, we have secured resilience in a changing world and the financial strength to act on business opportunities. And two, in April now, of course, not shown on this slide, we distributed SEK 402 million in dividend, and we're, of course, pleased to have created the conditions for that dividend payment of SEK 1.40 per share, up 27% versus last year. And on that note, I conclude that our financial position developing in line with our set targets remains very strong and hand back to you, Laura. Laura Lindholm: Thank you very much, Katarina. Thank you, Frans. It is now possible to either dial-in and ask questions live or alternatively post your question to the chat. And I think, Vicki, we already have some questions on the line. Operator: [Operator Instructions] We have the first question from Stefan Stjernholm, Handelsbanken. Stefan Stjernholm: Can you hear me? Operator: Yes. Stefan Stjernholm: Stefan here. Congrats to a good start to the year. If you start with the gross margin, if adjusting for the SEK 12 million in compensation for the quality issue, I get the margin to 34.6%, i.e., flattish year-over-year. Am I missing something? Or is that right? Frans Rydén: Sorry, can you repeat that, the flattish? Stefan Stjernholm: If you adjust gross margin for the SEK 12 million in compensation, I am getting to 34.6%. Frans Rydén: Yes. Stefan Stjernholm: Yes. I mean, how should we think about the gross margin going forward? Is there room for improvement? I mean, you had a positive leverage on the strong growth in the quarter, and you're also highlighting positive sales mix. And in spite of that, the margin is -- the adjusted margin is flattish. Frans Rydén: Okay. Okay. Yes. So it's always a little bit -- the reason that we're focusing on the operating profit margin adjusted is because of the 2 segments and that it's difference between the branded side and the pick & mix side. So when we have really strong pick & mix sales, you would have an unfavorable mix effect on the margin as a result. But the reason that we get a higher profit at the end is because we have really good fixed cost absorption when it comes to merchandising and depreciation of the racks, et cetera. So our focus is a little bit further down into the P&L because of the segments are -- it plays out a little bit differently between them, if I put it that way. Stefan Stjernholm: Yes. I got it. Good. And regarding the Easter impact, good that you give the figure of SEK 40 million to SEK 45 million on sales. Is it possible also to quantify the EBIT impact if you get -- if you take the margin for the group, it's like 5% positive. I guess that's slightly more than that given the leverage on better sales. Frans Rydén: Yes, yes. So I would say that it is possible to do it, but we haven't done it. It's not a level that we want to disclose. But we're obviously very happy with the profit in the quarter. Stefan Stjernholm: Yes. But somewhere between 5% and 10% is a fair assumption, I guess, for the EBIT impact. Frans Rydén: Yes, yes. So definitely favorable, yes. Stefan Stjernholm: Yes. And then a final one for me, the pick & mix, the pilot with Edeka in Germany, how long is the evaluation phase? Katarina Tell: Stefan, this is Katarina. Yes. So as we wrote, we are now setting up in the report. We are testing in one store, and then we will also -- we have another try at another customers next quarter. So I would -- it's usually goes for a couple of months and then we evaluate. Of course, you can't drag it out too long. So it's a couple of months, then we do an evaluation. Stefan Stjernholm: Interesting. It would be nice to hear more about that later. Okay. These were my questions. Katarina Tell: Yes. We'll update for sure. Operator: The next question from Nicklas Skogman, Nordea. Nicklas Skogman: I have 3 questions, please. First, could you give some more flavor on the organic growth? You mainly highlighted the growth in chocolate, the Kexchoklad and the Tupla, but how did these new innovations that you mentioned like the Lakerol and the Zoo Foamy, how did they contribute to growth in the quarter? And also how did the rest of the sugar candy business do? Katarina Tell: Okay. I will start with that one. So as mentioned, the Lakerol more was a successful launch. We launched that quite early in the -- or I think it was week 7 or 8 or something in the quarter. And it's already taking market share. So that is, of course, a very positive signal. We also see that consumer already coming back to buy more in a double sense. So that is a very -- we have very positive signal. So that launch have, of course, contributed to the growth. The Foamy Monkey was launched a bit later right now. So it's too early to know the consequence of that one. But we have proof, of course, that the consumer already likes it because it's a client in CandyKing. So that is, of course, we really believe big in this launch as well. Nicklas Skogman: And the rest of the sugar candy business, how is that excluding Easter and the launches -- the innovation launches? Katarina Tell: It's performing well. So we have -- we are on a good growth. And as I said, we had a very strong quarter and on top, the Easter sale. So we really now get the strategy into action. And what we also see is the Nordic performing very well together with North America. Nicklas Skogman: Okay. Second question is on the inflation. You mentioned that it is slowing. Do you think we could see price being a net negative contributor for the full year, given the massive decline in the cocoa prices? Frans Rydén: So first of all, we don't want to comment on our prices in terms of price signaling. What we've said is that we have an established way of working with our customers, which is around fair pricing and where we adjust our pricing based on world market commodities. And now cocoa, which, of course, is only part of our portfolio has stabilized. And here, we have to think about when players who are as us sell chocolate products, if that would be at a lower price, how many consumers would then come back into the category, and that would drive volume to maybe more than offset that. And as Katarina mentioned in the CEO comments in the report as well that although from a market point of view, and I'm talking Nielsen here, the chocolate candy or confectionery chocolate category has -- looks like a little bit more promising now than it did before. We have really strong volumes. So you could have a rollback without dropping NSV. Nicklas Skogman: Yes. So volume could offset the potential price impact in short. Okay. Good. Last question is on the announcement yesterday from a competitor. They acquired a company called Aroma. Do you have any business with Aroma today via a pick & mix part of your company? And also from a broader market view, do you expect any changes to the market dynamics as a result of this acquisition? Katarina Tell: Yes, I can confirm. In the CandyKing concept, we have Aroma products. As mentioned in the interview this morning, it's not in line with strategy for Cloetta to acquire Aroma because we have a clear M&A strategy from that perspective. [ Fazer ] and Aroma are 2 well-known players today in the market. And of course, they will now have one -- there will be one set of competitors that we have to -- yes, play with, so to say, and see. I don't think it's too early to say what the key changes will be. But of course, this is a signal that Fazer will be more focused in the confectionery category. And that, of course, we need to take a position and manage. Nicklas Skogman: Could you share how much of the pick & mix business that is like how much is Aroma at the retail level? Frans Rydén: No, no, that's not something we would do. But if you think about Aroma is about 1% of the confectionery market in Sweden. So Aroma plus Fazer is less than half the size of Cloetta in Sweden. So it's not going to change -- impact our strategy this. But as Katarina says, we'll have to continue to see how this acquisition develops. And -- but it doesn't impact our strategy, and it would not have -- Aroma would not have been relevant for us with our focus on our super brands in the Nordic. Nicklas Skogman: All right. Good. Maybe I'll sneak a last one in. What's the latest on the North American business? Katarina Tell: Sorry, what is the latest update on the North American business? Nicklas Skogman: Yes. What's the last, yes. Katarina Tell: Yes. So as mentioned, North America grew well in the quarter. So it contributed to the growth. We launched the CandyKing store in Manhattan in the end of December. It's a profitable business. It's there to drive CandyKing and also to learn about -- learn the consumers and customers about our concept. We are also, as mentioned, we have recruited a business manager that's located in the U.S., all the packaging for what we can -- how we can drive the Swedish candy in the packed format are now approved from a legal perspective, both the design and the information on pack and recipes and so on. So we are progressing well, but we will share a more updated information about North America, yes, going forward. But we are progressing well and it's contributing to the growth in this quarter for sure. Laura Lindholm: Thank you, both. Vicki, it seems we do not have any further questions from the line. Is that correct? Operator: That's correct. No questions for the moment. Laura Lindholm: Thank you. We move over to the chat. We do have one question that was posted quite early on, but that's quite commercial and business driven in terms of promoting products. So we will come back to that separately. We will move to the second question, which is focusing on the agreement with IKEA. Assuming the IKEA contract has made your products available in more countries than you are already existing in and beyond the 3 identified markets, will you explore the opportunity to accelerate the expansion to new countries? Katarina Tell: Yes. So last year, we signed a global contract with IKEA. Today, we are -- we're having sale in 14 markets, and we continue to roll it out in more countries. We have planned for that in 2026 and 2027. The details of the agreement with IKEA are confidential. So -- but as long as we have the opportunity possibility, we will share information about the contract -- about the business within the details of the contract. Yes. Yes, it's 14 markets. Laura Lindholm: Good. We have no further questions in the chat. So should you like to post a question, please do so now. And I think also no further questions from the lines, right, Vicki? Operator: No questions from the phone. Laura Lindholm: All right. Let's double check the chat. It appears we have no further questions. It's time to start to conclude our event for today, but we take this opportunity to update and remind you of our upcoming IR events. Our next report Q2 is published on the 15th of July. But in addition to that, quite a lot is happening. Before the report, you can meet us in Stockholm and at our plant in Ljungsbro, Sweden as well as also New York and Dublin. You can see the details here on the slide. After Q2, we have so far have confirmed IR seminars and other events in Stockholm and in New York. And also there, you can find all the details on the slide and then also keep an eye out for the IR calendar on our website. We've updated it almost weekly. For those of you who are based in the U.S. or plan to travel there, our CandyKing store has been mentioned many times, and we extend a special welcome to that store. It's located in the West Village at 306 Bleecker Street. And do trust me, it is the perfect spot to familiarize yourself with our leading brand and concepts and to know what Swedish Candy is all about. It's now time to conclude the event. Before we meet again, we, of course, hope that you get the chance to enjoy our wide portfolio of confectionery products during many joyful occasions. Thank you for joining us today.
Operator: Good morning, and welcome to the Flowco Holdings, Inc.'s First Quarter 2026 Earnings Call. Today's call is being recorded and we have allocated 1 hour for prepared remarks and Q&A. At this time, I would like to turn the call over to Andrew Leonpacher, Vice President, Finance, Corporate Development, and Investor Relations at Flowco. Please go ahead. Andrew Leonpacher: Good morning, everyone, and thanks for joining us to discuss Flowco's first quarter results. Before we begin, we would like to remind you that this conference call may include forward-looking statements. These statements, which are subject to various risks, uncertainties and assumptions, could cause our actual results to differ materially from these statements. These risks, uncertainties and assumptions are detailed in this morning's press release as well as our filings with the SEC, which can be found on our website at ir.flowco-inc.com. We undertake no obligation to revise or update any forward-looking statements or information, except as required by law. During our call today, we will also reference certain non-GAAP financial information. We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in this morning's press release and in our SEC filings. Joining me on the call today are our President and Chief Executive Officer, Joe Bob Edwards; and our Chief Financial Officer, Jon Byers. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn the call over to Joe Bob. Joseph Edwards: Thank you, Andrew. Good morning, everyone, and thank you for joining us today. I'll start today's call with a review of our first quarter performance and key operational highlights, followed by an update on how our recent acquisition of Valiant Artificial Lift Solutions is progressing after we closed the transaction in early March. Jon will then cover our financials, including segment performance and provide additional detail on capital allocation and on the balance sheet. I'll close with our perspective on the current market environment as well as our outlook for the next quarter. Flowco delivered a solid start to 2026 during the first quarter, generating adjusted EBITDA growth and consistent execution across both operating segments. We generated $85.5 million of adjusted EBITDA during the quarter, at the upper end of our guidance range. We sustained our industry-leading margins, driven by the strength of our rental platform and modest sequential improvement in gross margins quarter-over-quarter. During the first quarter, we generated $52 million of free cash flow, enabling us to reduce debt while continuing to return capital to shareholders through dividends and share repurchases. Pro forma for the Valiant transaction, we remain conservatively leveraged with ample liquidity to continue executing on our strategic priorities. Turning to operational performance. Our rental platform continued to build momentum during the quarter. Rental revenues increased approximately 9% sequentially, driven by steady demand across our surface equipment and vapor recovery rental solutions as well as our newly added ESP offering acquired with Valiant. Customers continue to adopt these technologies to maximize production and optimized returns across the life cycle of the well. Spending a moment on each. Within surface equipment and in particular, high-pressure gas lift, we are seeing incremental demand in the early part of the year as operators increasingly deploy this technology to accelerate production in a constructive commodity price environment. Given its high uptime and ability to operate efficiently at elevated GORs, HPGL enables operators to bring on production earlier and sustain higher output, ultimately improving well-level economics. Our vapor recovery units are becoming increasingly ubiquitous in pad development as operators use this capital-efficient solution to capture and monetize gas that would otherwise be vented or flared, thereby turning emissions into incremental revenue with minimal additional investment. Importantly, these captured vapors include not just methane, but also the heavier hydrocarbons that are significantly more valuable, often resulting in gas stream values multiple times higher than dry gas, particularly in the current NGL pricing environment. As announced in March, we completed the acquisition of Valiant Artificial Lift Solutions, a leading pure-play provider of ESP systems with an established Permian Basin presence. This transaction expands our capabilities into the largest addressable segment of the artificial lift market, allowing us to offer ESPs where they are the optimal solution for a given well. Valiant performed slightly ahead of expectations in March and the integration is off to a very strong start. We are encouraged by the early alignment across the organization as we begin to identify incremental opportunities from the combination. Let me highlight 2 early examples. First, the Valiant team is now utilizing Flowco's in-house ESP cable installation capabilities, reducing reliance on third-party providers. Second, we are leveraging insights from ESPs on Valiant's well monitoring platform, Optimus, to better identify follow-on gas lift candidates as wells mature and become better suited for alternative forms of lift. Opportunities like these give me confidence in our ability to drive significant revenue synergies as we integrate Valiant's operations with ours. Across all 3 of these rental-oriented product lines, HPGL, VRU, and ESP, rental revenue is largely contracted and recurring in nature, supporting strong visibility and consistency in our financial profile. As a company, rental revenue represented nearly 60% of total revenue during the quarter. Shifting to product sales. We delivered another solid quarter with sequential growth driven by performance within our downhole components offerings. Within Natural Gas Technologies, we saw consistent demand in vapor recovery sales as well as third-party sales and natural gas systems. Our sales-focused businesses remain a key contributor to free cash flow given their minimal incremental capital requirements quarter-over-quarter. Overall, I'm very pleased with how the team executed during the first quarter. We delivered disciplined results, generated strong levels of free cash flow while returning capital to shareholders. And we successfully closed on the Valiant acquisition. We are very well positioned to build on this momentum as we move through 2026. And with that, I'll turn it over to Jon. Jonathan Byers: Thanks, Joe Bob. Turning to our financials. First quarter performance was at the higher end of our guidance range, driven by ongoing expansion in our high-margin rental business and 1 month of contribution from Valiant. Total revenue increased 6% sequentially to $209 million, primarily driven by growth within Production Solutions. Building on this revenue growth and supported by margins underpinned by our high-return rental model, adjusted EBITDA increased by $2 million quarter-over-quarter. As Joe Bob mentioned, we maintained our industry-leading margins in the quarter, achieving adjusted EBITDA margins of 40.8%, even while absorbing some incremental corporate costs in the quarter, which I'll touch on later. This performance reflects disciplined execution and strong operating leverage as customers continue to recognize the value of our differentiated solutions. In our Production Solutions segment, first quarter revenue increased 10% sequentially to $140 million, while adjusted segment EBITDA increased approximately 7% to $61 million, driven by growth in Surface Equipment and the contribution from the Valiant acquisition. Within the segment, Valiant is now reflected in downhole components as our ESP offering. Adjusted segment EBITDA margins decreased 125 basis points quarter-over-quarter, primarily driven by a revenue mix shift towards downhole components following the inclusion of Valiant. In our Natural Gas Technologies segment, first quarter revenue was consistent with the prior quarter at $69 million, while adjusted segment EBITDA was also in line at approximately $30 million. The segment benefited from growth in vapor recovery rental revenue and increased sale of natural gas systems, which were offset by a modest decline in vapor recovery unit system sales quarter-over-quarter. Turning to corporate costs. First quarter corporate expenses increased to $5.6 million from approximately $4 million in the prior quarter. This increase was driven by incremental filing and legal expenses associated with our S-3 filing on February 4, 2026, and subsequent secondary offering. Costs we do not expect to recur on a regular basis. Looking to the remainder of 2026, we expect corporate expenses to normalize to approximately $5 million per quarter. Overall, consolidated first quarter adjusted EBITDA was $85.5 million, reflecting continued execution and the resilience of our operating model. In the first quarter, we invested $26 million of growth capital, primarily to expand our rental fleet across surface equipment and vapor recovery and our annualized adjusted return on capital employed for the quarter was approximately 18%. Looking to the remainder of 2026, our capital outlook is unchanged from last quarter, supporting meaningful free cash flow generation. We will continue to pace investment alongside customer activity, focusing on high-return opportunities. With a 6-month lead time on our equipment, combined with our vertically integrated manufacturing model, we retain meaningful flexibility to adjust capital deployment as conditions evolve in the current market backdrop. On March 2, we closed the acquisition of Valiant Artificial Lift Solutions for approximately $200 million in total net consideration. Integration is progressing well with teams working closely across the organization to align operations, systems and commercial activities. Looking to the remainder of the year, we remain confident in Valiant's ability to generate approximately $52 million of adjusted EBITDA for the full year 2026, consistent with the expectations we previously outlined. As integration progresses, our focus is on executing a disciplined plan to capture incremental revenue opportunities. And we have the capacity and flexibility to support additional activity as those opportunities develop. Turning to our balance sheet, liquidity, and capital allocation. We ended the quarter in a strong financial position and have continued to build on that momentum. As of May 1, 2026, we had $333 million of borrowings outstanding under our credit facility. With a borrowing base of $722 million, this represents approximately $388 million of available capacity. On a pro forma basis for the Valiant transaction, leverage remains at a conservative level below 1x. Our balance sheet strength and cash flow profile provide flexibility for both reinvestment and shareholder returns. During the quarter, we utilized $16.5 million of cash flow to repurchase 780,000 shares in connection with the secondary offering by selling shareholders. As a related note, our average daily trading volume has more than doubled year-to-date following the secondary offering. And with our increased public ownership, we have emerged from controlled company status. Shifting to the dividend. On May 1, our Board of Directors unanimously approved a 12.5% increase to our cash dividend, raising the first quarter dividend to $0.09 per share. This decision reflects our confidence in our growing and sustainable free cash flow profile, which enables us to execute on our long-term growth plans while also returning capital to shareholders. In conclusion, we delivered a strong quarter with results at the high end of our adjusted EBITDA range. We've entered 2026 with a durable earnings foundation and strong cash flow generation, supported by our positioning within production optimization and a constructive market environment. Back to you, Joe Bob. Joseph Edwards: Thanks, Jon. Let's turn now to the market outlook. Recent geopolitical and military developments in the Middle East have heightened the world's focus on energy security and have reinforced the need for reliable, diversified sources of supply to satisfy energy demand. With the Strait of Hormuz closed and the U.S. Navy blockading Iranian oil exports, industry experts estimate that approximately 10% of global crude oil supply and 20% of global LNG supply is effectively offline. Emergency inventories are being depleted at a rapid rate. Approximately 60 days into this conflict, industry sources estimate that up to 15% of strategic petroleum reserves globally have been consumed to satisfy this supply disruption. And the longer this conflict endures, the tighter the supply chains that rely on this supply will become. Of course, we are all hoping for a swift conclusion to the current situation. But whatever the new normal looks like on the other side of this conflict, we believe the world will increasingly look to North America to produce the most reliable and secure energy to drive economic activity. So with that backdrop, what are we hearing from our customers? As others have reported, we are not seeing material activity increases as of yet. Rather, those with access to short-cycle opportunities to increase production, thereby taking advantage of today's improved pricing environment are selectively pursuing high-return investments. More broadly, though, our customers are increasingly focused on existing production. How do I optimize what I'm currently operating? How do I improve recovery factors? How can I manage my artificial lift system more efficiently to drive more production? Flowco's product and service offerings sit at the epicenter of these conversations. And I would expect us to contribute meaningfully to our customer success over the coming quarters. Against this backdrop, we are forecasting another quarter of profitable growth in the second quarter of 2026 with adjusted EBITDA expected to be in the range of $93 million to $97 million. We will benefit from a full quarter of contribution from Valiant. And we anticipate continued growth across our surface equipment and vapor recovery rental businesses. We remain focused on building our position as a leading provider of production optimization solutions for our customers. The addition of Valiant significantly strengthens our platform. Throughout the balance of 2026, we expect to identify additional revenue synergy opportunities as we integrate our commercial efforts. And of course, we will continue to look for creative and accretive ways to round out our product portfolio as we strive to deliver on our aim to offer our customers the right solution in each well every time. With that, I'll turn it back to the operator for Q&A. Operator: [Operator Instructions] Your first question comes from Derek Podhaizer from Piper Sandler. Derek Podhaizer: So I totally appreciate you're not necessarily seeing material activity increases as of yet. But obviously, we've had a lot of news flow over the last couple of days, players like Diamondback given the green light, Conoco adding another rig. So maybe just if you can help us understand the opportunity set as we work through the year, that call on short-cycle barrels, your ability to optimize production for your big customers. So how do you think about that when you're looking out, especially when we're hearing some of these larger E&Ps, the publics coming back to work along with the privates? Joseph Edwards: Yes, Derek, certainly, you've nailed it. Some of the larger and more nimble companies are starting to get -- to increase activity. And those are green shoots for us. As you know, our production-oriented business will follow incremental rig activity, incremental frac spread deployment. Companies that are accessing their DUC inventory to turn wells in line more aggressively to take advantage of this environment. All that is beneficial for us. So when we say we're not seeing material activity increases as of yet, we're certainly seeing the early days of what we think is sustained higher activity, which will drive business for us. I think it's a back half of the year kind of phenomenon for us and shaping up for a very strong 2027. Derek Podhaizer: And then maybe switching to VRUs. I mean, very interesting comments as far as how the VRU side can also benefit from more of this call on short cycle just given the elevated commodity price, especially NGL versus dry gas. Anything to read into as far as more rentals for VRUs versus more sales? I think that was one of your initial investment thesis where you wanted more of the rental market to pick up versus sales. But is this just an in-quarter phenomenon? Is this just more idiosyncratic to this quarter? How should we think about VRU, the rental versus sales mix as we move through the remainder of the year and into '27? Joseph Edwards: Yes. Listen, on VRU, we are listening to our customers' preferences and through commercial activities on our end. We are incentivizing them to rent more than they buy. But look, certain customers like to have these assets as a permanent installation in their production infrastructure. So if customers would like to buy them and rely on our aftermarket and our technology to help run them as an owned asset on their balance sheet, we'll certainly go that way as well. But we do see incremental demand for more rental units. Customers like the ability to size down the units over time as the pad matures. And so as you know, we've got every size of VRU imaginable. So we can work with customers along the way with rental terms that incentivize them to size these units down over time. But yes, we're seeing incremental rental demand from customers. I think you'll see that reflected in our CapEx estimates for the rest of the year. Operator: Your next question comes from Arun Jayaram from JPMorgan. Arun Jayaram: Joe, I was wondering if you could and Jon could maybe characterize kind of the growth opportunities you see over the balance of the year in natural gas technologies and perhaps compare and contrast that to what you're seeing on the Production Solutions side. Joseph Edwards: Yes, Arun, thanks for the question. I'll start in reverse order on the Production Solutions side. With the acquisition of Valiant, we now are having much more constructive conversations with customers around the right lift solution for the early stage of a well's life as newly completed wells get turned online. There are really only 2 choices that an oil company has. You can produce that well with a high-pressure gas lift system or with an ESP. And we've got both. So I would anticipate to the extent CapEx may be biased to the upside in this environment, I would anticipate those dollars flowing into our highest return investment opportunities, which are high-pressure gas lift and ESP. So I think that's going to be the priority for us is to look for ways to deploy incremental capital there. On the NGT side, mainly our vapor recovery offering, it's steadier. As I just said in Derek's question, we are incentivizing customers to rent more than to buy. And so yes, we'll see incremental demand there, but it's going to be a little steadier, a little later stage. But yes, we're very pleased with the market backdrop setting up for an incremental investment from us throughout the balance of the year. Arun Jayaram: And my follow-up is just your thoughts on scaling your business opportunities within the Valiant assets, ESPs. Jon, you guys reiterated your outlook for, call it, $52 million of annualized EBITDA from there. But Joe Bob did mention that things were trending perhaps a little bit better than you expected in March. But just wanted to talk about the scale because you did mention on the last call that the supply chain is a little bit longer than what you're seeing on the HPGL side. And maybe just an updated thought on CapEx because I think last quarter, you highlighted $115 million of CapEx for the full year. But I don't think you gave us an estimate on CapEx related to Valiant. Joseph Edwards: That's right. That $115 million did not include Valiant. For Valiant, we're expecting around $20 million to $25 million in incremental CapEx over the 10 months that we'll own it in the course of the year. Arun Jayaram: And Jon, just thoughts on scaling that business. Jonathan Byers: Yes. Arun, look, we are very optimistic. And I tried to convey this in our prepared remarks. This is a revenue synergy story. We're seeing some very early, very positive indications that we're going to be able to grow that business with customer overlap. And I'll highlight really 2 key areas there. Valiant's customer base consists of about 30 to 35 customers, Flowco's customer base more broadly consists of over 300 customers. In high-pressure gas lift alone, we work for over 65 individual oil companies. So you can understand the playbook when we say we're going to approach key accounts with a truly agnostic offering, whereas before, we were trying to convince customers for every one of their newly drilled and completed wells to use a high-pressure gas lift system. Now we can go in and actually be more thoughtful about the right solution for that well. So that's sort of point one. And then point two, it can't be emphasized enough. After you have a high-pressure gas lift system or now an ESP in a well for a period of time, call it, anywhere from 1 to 3 years, that well has to be handed over to another form of lift. And now that we have the ESP data that we're collecting every day in our proprietary digital technology that we can monitor remotely well conditions with each of the ESPs that we have in the well. We can get ahead of well handovers, failures that occur when a well gets out of spec for an ESP production. So we can be in a customer's office proactively with a gas lift solution or a plunger lift solution before a well goes down, before that customer goes out for bid on the well for the next phase. So that's a synergy opportunity that I think very few can have. And we're unlocking with the Valiant acquisition and our disciplined integration efforts. Operator: Your next question comes from Phillip Jungwirth from BMO Capital Markets. Phillip Jungwirth: When you talk about rounding out the product portfolio, could this at all involve going deeper into ESPs just given how large a market it is? Or are we more talking about unrelated production optimization areas that you're not currently in? And just the creative comment, was that meant to imply that you could look at avenues beyond just normal M&A? Joseph Edwards: So yes. We're -- we have a very active M&A pipeline, as you would expect. And I would hope that we can have the stars aligned on incremental M&A throughout the balance of this year and heading into 2027. We're in most every form of artificial lift. We are missing a couple of specific products that we've been pretty candid. We'd love to add to the portfolio. And there are some complementary services that go along with artificial lift that we evaluate similarly. What are adjacent to the lift systems that we are selling to our clients? What else does the customer procure as they think about the optimum lift solution for a well? So yes, we're evaluating how to enter these adjacencies, both organically and inorganically. Obviously, the easiest way is to buy a business that is already in those markets that comes with a group of people and a management team and a built-in book of business from clients. But we certainly are not afraid of standing something up from scratch. So we're going to continue to listen to our customers of what they are looking to us to do for them and try to add value as we look at our M&A pipeline and our organic efforts as well. Phillip Jungwirth: And then Flowco was never really impacted by tariffs, but I believe Valiant was as an ESP provider. Just curious what's the ability to recoup any past payments here? And if so, what's that process look like? Joseph Edwards: Yes. There is an opportunity to recoup the tariffs. That's a process that's underway. The portal, I believe, is open. And so we're in the process of trying to recoup those tariffs. Some of those may end up going back to customers. We'll see. But right now, the process is still a little bit murky. So time will tell on that. Operator: Your next question comes from Keith Beckmann from Pickering Energy Partners. Keith Beckmann: I wanted to ask, you kind of talked about the rental nature of high-pressure gas lift, VRU, and ESP. I mean, obviously, ESP and high-pressure gas lift go on the wells for a little while. I wanted to get a sense of maybe is there a typical or average contract term length for kind of each of those 3 between high-pressure gas lift, VRU, and ESP? Just trying to get a better sense on how the contract terms work there for the rentals. Joseph Edwards: Yes, Keith, it's all over the map, candidly. Customers on each of those have their own objectives they're trying to solve and it's complicated. So there's not a one size fits all. On the high-pressure gas lift product line, some customers are shorter term in nature. Some are multi-years. On the VRU, it's a shorter term by intent. We want to work with customers on the sizing down project that I described earlier. So a shorter-term contract is desired there. But we've done some extensive analytics, as you would expect. And the average time on location for a given VRU extends well beyond what the contract term is. And then for ESPs, look, it's even more complicated. Some customers prefer to own their fleet of ESPs. They view it as a CapEx item. Some prefer to rent and some prefer a hybrid model where they rent the surface drive unit that helps power the ESP and they buy the downhole. So hard to give you a one-size-fits-all answer. It's a pretty dynamic commercial model. Keith Beckmann: Then my second question I wanted to ask was just around the really strong free cash flow quarter. How should we kind of be thinking about free cash flow conversion for EBITDA through the rest of the year, obviously, as potentially increased CapEx with things getting stronger here in the back half of the year? Jonathan Byers: That's right. I think with $25 million of -- or $26 million of CapEx in the quarter, you can do the math and see that we expect to ramp into Q2 and Q3. So obviously, that's going to have an impact on free cash flow. Second, even though we added Valiant, that added about $50 million of working capital, the underlying kind of pre-Valiant business actually had a reduction in working capital that we don't think is sustainable into Q2. We'll see some of that come back. So I think we would expect to see free cash flow moderate a little bit in Q2. Operator: Your next question comes from John Daniel from Daniel Energy Partners. John Daniel: As the market begins to inflect here, can you guys just speak to how that impacts your pricing strategies over the next several quarters? Joseph Edwards: Yes. Good question, John. Listen, we've -- being in the production phase, we're not subject to the big swings in utilization and the supply-demand imbalances that come with businesses that are levered to drilling and completion like rigs or frac spreads, right? So we don't suffer the pricing decreases on the way down. And we don't get the benefit as much on pricing increases on the way up. It's much, much more stable. So we would anticipate pricing to be pretty consistent with where we've been. We will, of course, look for ways to drive price where we can, where we can still be constructive with our customer base. But I wouldn't say that pricing on any particular one of our products is going to be a particular driver for the back half of this year. John Daniel: And then going back to the growth opportunities from an organic perspective. If you were to feed some money to some guys to go start up something new, Joe Bob, like how much grace period will you give them to get it going? Like what's an expectation for time? Joseph Edwards: Yes, it's a good question. Within a business of our size and given the focus that we have and the discipline we have around free cash flow generation, John, the answer is very little. We want something to be immediately accretive to both earnings, free cash flow and returns. So if we don't see an immediate path to something earning its keep, we're likely not even going to hit the go button. Operator: [Operator Instructions] Your next question comes from Jeff LeBlanc from TPH. Jeffrey LeBlanc: You referenced the increased interest in artificial lift. But can you talk about regional trends and how prominent outside of the Permian? Joseph Edwards: Yes, Jeff, you're a little faint on your question. I think you were asking about regional trends on specific lift techniques across the U.S. onshore, not just the Permian. Is that right? Jeffrey LeBlanc: Well, more broadly, just the inflection in demand and activity outside of the Permian specifically. Joseph Edwards: Got it. So look, I think you'll see it in some of the oilier basins, okay, the Bakken, South Texas, parts of the DJ. But everything is dwarfed by the Permian, as you know. It produces half of the barrels that come out of the U.S. It's where most of the short-cycle inventory is located. So I think you'll see the vast bulk of activity increases there. But the other basins, I think, will -- they'll be there as well. But I think most of what we are seeing is going to be bound for Texas and New Mexico. Operator: And there are no further questions at this time. I will turn the call back over to Joe Bob Edwards, CEO, for closing remarks. Joseph Edwards: Thank you all for tuning in. And we'll talk to you in 90 days. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.
Operator: Good morning, and welcome to the Icahn Enterprises L.P. First Quarter 2026 Earnings Call with Andrew Tino, President and CEO; Ted Papapostolou, Chief Financial Officer; Robert Flint, Chief Accounting Officer; and Joseph Passeri, Director of SEC Reporting. I would now like to hand the call over to Joseph Passeri, who will read the opening statement. Joseph Passeri: Thank you, operator. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements we make in this presentation, including statements regarding our future performance and plans for our businesses and potential acquisitions. Forward-looking statements may be identified by words such as expects, anticipates, intends, plans, believes, seeks, estimates, will or words of similar meaning and include, but are not limited to, statements about expected future business and financial performance of Icahn Enterprises L.P. and its subsidiaries. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors that are discussed in our filings with the Securities and Exchange Commission, including economic, competitive, legal and other factors. Accordingly, there is no assurance that our expectations will be realized. We assume no obligation to update or revise any forward-looking statements should circumstances change, except as otherwise required by law. This presentation also includes certain non-GAAP financial measures, including adjusted EBITDA. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the back of this presentation. We also present indicative net asset value. Indicative net asset value includes, among other things, changes in the fair value of certain subsidiaries, which are not included in our GAAP earnings. All net income and EBITDA amounts we will discuss are attributable to Icahn Enterprises unless otherwise specified. I'll now turn it over to Andrew Teno. Andrew Teno: Thank you, Joe, and good morning, everyone. I wanted to say thank you to everyone, who I've worked with over the past few years, both before becoming CEO and after. It is an honor and privilege to work with and learn from the living legend of activism in our Chairman, Carl Icahn. Over the past few years, we have worked hard to high-grade the Investment Fund portfolio and to get our controlled operations moving in the right direction. I leave the company knowing that it's in good hands with a significant war chest to take advantage of opportunities as they arise. It's been a pleasure and honor. And with that, I will hand it over to Ted, our new CEO. Congratulations, Ted. Ted Papapostolou: Thank you, Andrew. Before turning to the work ahead, I want to begin by thanking Andrew for his leadership and service to Icahn Enterprises and wish him continued success in his next chapter. I am honored to take on the role of CEO and excited by the opportunity ahead. Icahn Enterprises has a unique portfolio, a strong heritage of disciplined capital allocation and a culture of accountability and long-term thinking. I look forward to building on that foundation, working closely with Carl and our Board to continue strengthening the enterprise and executing on our priorities. I also look forward to working with Rob in his new role as CFO. With that, let's get into the results. First quarter NAV increased by $201 million compared to year-end. The increase was primarily driven by an increase of $605 million in our long position in CVI, which was offset in part by losses on refining hedges of $320 million in our Investment segment, also known as the funds. Regarding CVI, major geopolitical events drove volatility, which have set up attractive market opportunities for the balance of 2026. We believe CVI is well positioned to allow for potential future debt reductions and capital returns to shareholders. We are pleased with CVI's announcement of a $0.10 dividend. For Q1, the Investment segment was up approximately 4%, excluding the refining hedges. In terms of our top positions, AEP is an electric utility that benefits from the AI infrastructure build. In the first quarter, the company reaffirmed its 2026 operating EPS outlook and increased its long-term operating earnings CAGR to greater than 9%, supported by 63 gigawatt of incremental contracted load and 11% rate base growth through 2030. AEP stock was up approximately 14% for Q1. Centuri reported strong base revenue and gross profit growth of 28% and 50% in Q4. The company also guided to strong double-digit base revenue and gross profit growth for 2026 as it continues to capture the tremendous tailwinds from increased energy infrastructure investment. The stock was up approximately 16% for Q1. IFF continues to execute on its portfolio optimization, running a sale process for its food ingredients business and announcing the completion of its divestiture of the soy crush business. IFF stock was up approximately 8% for Q1. Caesars reported solid Q1 results with Vegas stabilizing regional sales growing in the low single digits and digital posting strong EBITDA growth of 61%. Caesars is expected to generate significant cash flow in 2026, which we hope to fund meaningful share repurchases and debt paydown. Caesars' stock was up approximately 13% for Q1. Echostar lowered its total expected tax and decommissioning costs related to its divested assets, which we believe meaningful upside remains for the position with the IPO of SpaceX potentially serving as a material positive catalyst. Echostar stock was up approximately 8% for Q1. As of quarter end, we had approximately $782 million in cash at the funds. Lastly, the Board declared an unchanged distribution at $0.50 per depositary unit. I will now pass it to Rob to discuss our financial results. Robert Flint: Thank you, Ted. For the first quarter of 2026, net loss attributable to IEP was $459 million, or a loss of $0.71 per unit. Our first quarter consolidated results include $425 million of losses on refining hedges in our Investment segment and $158 million of unrealized derivative losses in our Energy segment. Q1 '26 adjusted EBITDA loss attributable to IEP was $216 million compared to adjusted EBITDA loss attributable to IEP of $228 million for the prior year quarter. I will now provide more detail regarding the performance of our individual segments. The Investment Funds had a positive return of 4.4% for the quarter, excluding refining hedges. Including the refining hedges, the funds had a negative return of 8.2% for the quarter. Long and other positions had a net positive performance attribution of 4.1% and short positions had a negative performance attribution of 12.9%. The investment funds had a net short notional exposure of 29% at the end of the quarter compared to net short of 13% at year-end. Excluding our refining hedges, the funds had a net short notional exposure of 2% as of quarter end compared to net long of 19% at year-end. Our investment in the funds was approximately $2.2 billion as of quarter end. Moving to our Energy segment. Energy segment adjusted EBITDA attributable to IEP was negative $5 million for Q1 '26 compared to negative $6 million for Q1 '25. The first quarter refining operations were solid with crude utilization of 97%, although margins were weighed down by higher RFS obligation costs and unrealized derivative losses. The Fertilizer segment had strong results driven by robust demand for the spring planting season. We believe that CVI's assets are well positioned to benefit from the global tightness in refined product and nitrogen fertilizer. Now turning to our Automotive segment. Q1 '26 Automotive Services revenues decreased by $9 million compared to the prior year quarter, primarily driven by closure of stores during the balance of 2025, offset in part by increased price. Same-store sales paints a better picture having increased by approximately 2% as compared to the prior year quarter. We are pleased with this positive revenue trajectory, but there's still a lot more work to be done. We continue to focus our efforts on product, pricing, labor and distribution strategy. Now turning to all other operating segments. Real Estate's Q1 '26 adjusted EBITDA increased by $18 million compared to the prior year quarter. The increase is primarily driven by income from the assets that were transferred from the Automotive segment, of which $9 million is intercompany income from the auto segment and $2 million from third-party tenants. Food Packaging's adjusted EBITDA attributable to IEP decreased by $6 million for Q1 '26 as compared to the prior year quarter. The decrease is primarily due to lower volume and disruptive headwinds from the restructuring plan. Home Fashion's adjusted EBITDA decreased by $2 million when compared to the prior year quarter primarily due to softening demand in retail and hospitality business and supply chain disruptions in the Strait of Hormuz. Pharma's adjusted EBITDA decreased by $10 million when compared to the prior year quarter, primarily due to the reduced sales resulting from generic competition in the anti-obesity prescriptions and increased R&D expenses related to our ongoing pivotal drug trials. The Transocean trial preparation for our PAH drug is on schedule, and the first patient will be dosed in the next 60 to 90 days. The physician community remains excited by the potential for disease-modifying designation. Now, turning to our Liquidity. We maintain Liquidity at the holding company and at our operating subsidiaries to take advantage of attractive opportunities. As of quarter end, the holding company had cash and investment in the funds of $2.8 billion, and our subsidiaries had cash and revolver availability of $1.3 billion. We continue to focus on building asset value and maintaining liquidity to enable us to capitalize on opportunities within and outside our existing operating segments. Thank you. Operator, can you please open the call for questions? Operator: [Operator Instructions] As I see no questions in the queue, I will pass it back to Ted Papapostolou for closing comments. Ted Papapostolou: Thank you, everyone, and looking forward to our next update call. Operator: This concludes our conference. Thank you for participating, and you may now disconnect.