加载中...
共找到 16,500 条相关资讯
Operator: Good day, and thank you for standing by. Welcome to the NerdWallet, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone and you will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Robb Ferris. Please go ahead. Thank you, operator. Robb Ferris: Welcome to the NerdWallet, Inc. Q1 2026 Earnings Call. Joining us today are Co-Founder and Chief Executive Officer, Tim Chen, and Chief Financial Officer, John Lee. Our press release and shareholder letter are available on our Investor Relations website; a replay of this update will also be available following the conclusion of today's call. We intend to use our Investor Relations website as a means to disclosing certain material information and complying with disclosure obligations under SEC Regulation FD from time to time. As a reminder, today's call is being webcast live and recorded. Before we begin today's remarks and question-and-answer session, I would like to remind you that certain statements made during this call may relate to future events and expectations and, as such, constitute forward-looking statements. Actual results and performance may differ from those expressed or implied by these forward-looking statements as a result of various risks and uncertainties, including the risk factors discussed in reports filed or to be filed with the SEC. We urge you to consider these risk factors and remind you that we undertake no obligation to update the information provided on this call to reflect subsequent events or circumstances. You should be aware that these statements should not be considered a guarantee of future performance. Furthermore, during this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, except where we are unable, without reasonable efforts, to calculate certain reconciling items in confidence. With that, I will now turn it over to Tim Chen. Tim Chen: Thanks, Robb. We reported revenue of 222 million for the first quarter, up 6% year over year. Within our consumer vertical, we saw continued year-over-year growth in banking, driven by robust demand for savings accounts. Personal loans revenue was also significantly higher in Q1 year over year. These positives were partially offset by a year-over-year decline in credit cards. Within our SMB vertical, we saw year-over-year declines driven by organic search headwinds. Non-GAAP operating income of 34 million and adjusted EBITDA of 45 million set new Q1 records, driven by strong operating leverage on our fixed cost base and lower other marketing spend. As we look ahead, we are affirming the high end of our full-year NGOI guidance range but taking a more conservative view on the lower end of the range to reflect two dynamics that are adding uncertainty to near-term results. First, in auto insurance, monetization from one of our large partners started running below our expectations, which impacted our Q1 results and is expected to have a greater impact in Q2. While this business can be volatile on a quarter-to-quarter basis, we are encouraged by the strong macro outlook for auto insurance customer acquisition spend. Against this healthy backdrop, we are deepening our technology integrations with several auto insurance carriers and expanding our offering with agent-centric carrier partners through phone-based referrals. We are also investing to build out our branded agency, NerdWallet, Inc. Insurance Experts. We believe that these investments will create a more diversified and resilient base from which we will grow in the future. Second, we have decided to be more aggressive in placing our long-term bets. We believe our brand and distribution moats represent a growing advantage as less powerful brands struggle to reach consumers efficiently, while AI simultaneously reduces the cost of offering financial products. This is creating a unique investment window for NerdWallet, Inc. While this environment is increasingly challenging for newer entrants and single-product companies, our trusted brand leaves us in a strong position to capitalize on our massive consumer reach and distribution network. Whether we are evaluating corp dev opportunities or building offerings like NerdWallet, Inc. Insurance Experts, we believe we are in a sweet spot to generate attractive long-term returns on these investments. And now I will pass it over to John Lee to cover our financial results in more detail. John Lee: Thanks, Tim. Before I walk through the results in detail, a quick reminder on the reporting we discussed last quarter, which took effect today. Beginning this quarter, we are presenting revenue in two categories: consumer and SMB. Consumer combines what we previously reported as insurance, credit cards, loans, and emerging verticals. SMB remains unchanged. Prior-period amounts have been restated under this new presentation. Turning to the top line, total revenue in Q1 was 222 million, up 6% year over year. Consumer revenue was 198 million, up 10% year over year, driven by banking and personal loans and partially offset by consumer credit cards, primarily due to organic search headwinds. SMB revenue was 25 million, down 15% year over year, driven primarily by organic search revenue declines in SMB products, partially offset by revenue growth in loan originations. Moving to profitability, Q1 GAAP operating income was 27 million, compared to 1 million in the prior-year quarter. NGOI was 34 million at a 15% margin, up from 9 million at a 4% margin in Q1 2025 and above our guidance range of 28 million to 32 million. The year-over-year improvement was primarily driven by lower other marketing expenses on lower brand spend, partially offset by higher performance marketing spend. Recall that we did not repeat a Super Bowl ad this year, which was the primary cause of the decline in our other marketing spend year over year. As we have seen in the past quarters, brand spend tends to fluctuate quarter over quarter and is dependent on timing of brand campaigns and market conditions. Q1 adjusted EBITDA was 45 million. Turning to cash flow and capital allocation, we ended the quarter with 56 million of cash and cash equivalents, down from 98 million at year-end 2025. During the quarter, we generated 40 million of adjusted free cash flow, offset by 17 million of cash consideration for the College Finance acquisition that closed in February 2026, as well as 66 million of share repurchases in the quarter. Please note that the contributions from College Finance were not material to first-quarter revenue or operating income. Our trailing twelve-month adjusted free cash flow of $1.31 was up 125% year over year, a testament to the strong cash flow characteristics of our business model. Our diluted weighted average share count was down 9% year over year due to our share repurchase activity, and we will continue to evaluate share repurchases alongside other uses of capital. As of March 31, 2026, we had 90 million remaining under our share repurchase authorization. Turning to guidance, we expect to deliver second-quarter revenue in the range of 186 million to 2[inaudible] million, up 4% year over year at the midpoint. In terms of profitability, we expect non-GAAP operating income in the range of 6 million to 14 million. As a reminder, Q2 is typically our seasonally softest quarter, and our guidance reflects this as well as our deliberate increase in vertical integration investments to drive long-term growth. For the full year, we are guiding to an NGOI between 85 million and 110 million. We are reaffirming the upper end of our previously issued guidance range with the expectation that we will continue to grow revenue year over year in each of the remaining quarters of 2026, supported by continued performance marketing-led growth in banking, personal loans, and other products, resulting in full-year revenue growth in the mid- to high-single digits year over year. In addition to top-line growth, we expect NGOI to be supported by ongoing corporate G&A expense discipline. However, we are reducing the low end of the range, which now reflects planned investments to accelerate our vertical integration strategy, and reflects uncertainty as it relates to monetization with one of our large auto insurance partners. As Tim mentioned, we are increasingly confident that these investments not only have the potential to accelerate our growth and generate attractive returns for our shareholders, but to create a more diversified and resilient NerdWallet, Inc. over time. We will now open the call for questions. Operator: As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Justin Patterson with KeyBanc Capital Markets. Go ahead. Your line is open. Analyst: Great. Thank you. This is Miles Jakubiak on for Justin. I wanted to dive deeper on the acceleration of investments in the vertical integration. Could you give more context around what you saw or what changed that led you to want to push the pedal on more investment in these areas? And then any more context you can provide around where these dollars are going within the vertical integration strategy would be helpful. Thank you. Tim Chen: Thanks for the question, Miles. High level, the cost of launching financial products is decreasing rapidly, as everything from software to call centers to capital markets is getting more efficient. Meanwhile, the cost of distribution is going up. That means now more than ever, distribution is king. As a result, a lot of bright entrepreneurs, whether internal to NerdWallet, Inc. or external, are seeing NerdWallet, Inc. as a great place to build. So we have a really unique investment window. From the corp dev side, we are seeing a lot of people coming to us who value our distribution and who have built great products. We are also considering building a lot of things ourselves as well. Robb Ferris: Great. Thank you. Operator: Stand by for our next question. The next question comes from the line of Michael Aravante with Morgan Stanley. Analyst: Hey, two ones for me. I will ask them both at the same time. Are you able to parse how much of the full-year low-end NGOI reduction is driven by the monetization dynamics versus the incremental investments? And then, Tim, on the incremental investment—you obviously gave some commentary there—we are in the middle of a significant structural profitability change in the business with the mix shift towards performance marketing. Can you walk us through the work that you have done internally to get comfortable with the returns that you intend to deliver here? Thank you. John Lee: Thank you for the question. On the full-year NGOI guidance, we are reaffirming the upper end of our previously issued guidance range with the expectation that we will continue to grow revenue year over year in each of the remaining quarters. In terms of the low end of the range, we assume that we are not able to offset the insurance weakness for the entire year and we continue to invest further into our vertical integration strategy, whereas the high end of the range represents that we are able to offset the insurance weakness in the second half of the year while identifying fewer investment opportunities in our vertical integration strategy. Tim Chen: I will take the second part of that, and I will give a little more color on insurance as well. One of our large carriers pulled back in March, and we have a lot of concentration towards a few carriers currently and a few channels. Taking a step back, even after growing our insurance business several fold over the past few years, we are still a relatively new player in this market and have a pretty high concentration. We are investing in growing additional carriers, and we are also starting to sell directly to agents. That is a new business for us. That rounds out our core click offerings with calls and leads, and it enables us to open up additional channels. In terms of the IRR analysis, we obviously want to exceed our cost of capital when we are doing things like vertical integration—and our cost of capital is pretty high. If you look at our free cash flow yield versus our market cap and our growth rate, that is a pretty high hurdle to get over. What is unique for us is we have that big top of funnel. When we are looking at things from a corp dev perspective, we can do commercial testing with partners and get a pretty good sense of how that is going to shake out. When we are building internally, with all the new tools and infrastructure that are available now, you can do incredible stuff with pretty small teams. Both of those are affecting the cost side of the IRR calculation. Analyst: Helpful. Thanks, guys. Operator: One moment for the next question. Our next question comes from Ralph Schackart with William Blair. Go ahead. Your line is open. Analyst: Maybe piggybacking off that last question on insurance, can you give us a better understanding of the investment needed in terms of the dollars and the duration of this investment? Is this going to be a multi-quarter cycle, or something that you think could be quickly built to add that additional carrier capacity? And then maybe just an update on the LLM traffic—what you have observed or learned since the last call. Any sense how cannibalistic this is or how that traffic is shaking out? Thank you. Tim Chen: On the insurance buildout, we are definitely talking multi-quarters. We are standing up a system where we are routing calls to agents—both independent agents as well as captive agents. That takes time. We have to build that out from both an operational side as well as a BD side, demonstrate our value, and follow the playbook over time. I would expect more of a slower ramp there. We are going to try to do it efficiently, but that is an incremental investment. In terms of LLM traffic, it is pretty much the same story as last quarter. We are dominant when it comes to LLM share in financial services or money questions based on the third-party data we have seen. We do see people coming through, and we see high conversion rates. It is just a very small piece of our overall pie right now from a revenue perspective. Analyst: Great. Thanks, Tim. Robb Ferris: Thank you. Operator: I am showing no further questions at this time. I will now turn it back to management for closing remarks. Tim Chen: Thanks, everyone, for your questions today. This quarter we made meaningful progress against our strategic pillars. I am proud of what the Nerds delivered and remain confident in where we are headed. Our focus is clear: making NerdWallet, Inc. the first place consumers turn to for financial products. Thank you. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
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: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Good day, and welcome to Performance Food Group Company's Fiscal Year Q3 2026 Earnings Conference Call. I would now like to turn the call over to Bill Marshall, Senior Vice President, Investor Relations for Performance Food Group Company. Please go ahead, sir. Bill Marshall: Thank you, and good morning. We are here with Scott E. McPherson and H. Patrick Hatcher. We issued a press release this morning regarding our 2026 fiscal third quarter results, which can be found in the Investor Relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2025. Any reference to 2025, 2026, or specific quarters refers to our fiscal calendar unless otherwise stated. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. With that, I would now like to turn the call over to Scott. Scott E. McPherson: Excited to share our results from the third quarter, which demonstrate the strength of our strategy, solid execution in the field, and building momentum that we expect to continue through the fourth quarter and into fiscal 2027. At our Investor Day last May, we laid out the long-term vision for the company. Central to this plan is leveraging the diversification of our business across the entire food-away-from-home market. We believe that our broad position across the U.S. is a unique strength for Performance Food Group Company and will result in many years of sustained growth. The most recent quarter demonstrates the benefits of this strategy. There has been much discussion about the challenges facing our industry, including soft foot traffic into restaurants, price inflation, major weather events, and political disruption. Despite these items, we were able to achieve the high end of our guidance outlined in February, exceeding expectations in several of the metrics that underpinned our projections. All three of our operating segments displayed positive signs of resilience and a strong foundation to grow upon in future quarters. Let us discuss some of the business highlights from the quarter in each of our businesses. I will then turn the call over to Patrick, who will review our financial performance and updated outlook for the fiscal year. Starting with our Foodservice segment, strong sales execution combined with disciplined margin management translated into high single-digit EBITDA growth in our foodservice business excluding Cheney. This performance underscores the durability of our foodservice model and our ability to grow profitably even in a choppy macro environment. Our ability to gain market share and grow independent cases has been a strength of Performance Food Group Company's business throughout our history. Consistent with that theme, we are incredibly proud of our sales organization and their independent performance in the third quarter. For the period, independent cases accelerated from the second quarter, growing 6.5%, exceeding our stated benchmark of 6%. Our performance was the result of consistent market share gains through the quarter and wallet share gains from existing customers. Net new account growth was approximately 5.4% as account wins continue to drive the majority of our case growth. At the same time, we were pleased to see a 100 basis point differential between new account growth and total case growth, which indicates positive trends in account penetration within existing accounts. This performance occurred within a backdrop of consistent low-single-digit foot traffic declines according to Black Box, demonstrating the strong execution of our salesforce. Our focus on recruiting, training, and incentivizing our salesforce is a key factor in our multiyear outperformance within the independent restaurant space. We continued to strengthen our talented sales team by providing them with industry-leading brands and technology that enables great customer engagement. And once again, we increased our headcount by mid-single digits compared to the prior year. Double-clicking on technology, we continue to see excellent traction from our online ordering platform, Customer First. Since highlighting this technology at our Investor Day, we have deployed multiple AI agents that provide our customers and salespeople a digital partner when researching items, recipes, and products to place the optimal order. Customer First is not only a powerful tool for our restaurant business; it will become our digital solution for all three operating segments, demonstrating the cross-company collaboration that defines our PFG One initiative. Turning to our chain business, we saw case volume increase in the third quarter. This was particularly impressive given the difficult backdrop that chains have experienced and reflects our efforts to partner with growth concepts. Also encouraging is our pipeline of new chain business, which is robust and should provide a lift to our foodservice volume performance in fiscal 2027. Before turning from the foodservice segment, a few comments on Cheney Brothers. In the third quarter, we continued to see strong sales growth at Cheney, particularly with independents where cases grew north of 6% as did the sales headcount. Their growth culture remains vibrant, and their brand portfolio is growing, providing additional sales and margin opportunities ahead. Critical to continuing this growth are the investments we have made in their physical infrastructure discussed last quarter. The headline investment is our recently opened state-of-the-art broadline distribution facility in Florence, South Carolina, which started shipping to existing and new customers towards the end of the second quarter. This new facility will not only provide room to grow in the Carolinas, but will also free up capacity in other facilities in the Southeast. We are making investments today that will pay dividends in future periods. These activities did cause higher-than-anticipated expenses in the fiscal second and third quarters, and we have embedded a continuation of some cost items in our fourth quarter outlook. As we move through the fourth quarter and into fiscal 2027, we are confident Cheney will become a significant contributor to our revenue and profit growth moving forward. Turning to our Convenience segment results, I am extremely proud of how our Core Mark associates have risen to the occasion and led our company in revenue and EBITDA growth. For the past two quarters, we have discussed adding two meaningful pieces of business with Love’s and RaceTrac. While exciting, these types of large customer wins also bring potential execution risk. I am proud to say that Core Mark has done a great job onboarding these customers and continues to work tirelessly to execute while building strong and lasting partnerships with these iconic convenience retailers. The results speak for themselves. Convenience delivered 8.3% organic case growth and 8.7% total revenue growth in the quarter, and an outstanding 34.1% adjusted EBITDA performance. While the top-line performance is certainly impressive, Core Mark’s ability to deliver on volume increases of this magnitude exemplifies the commitment this organization has to its customers. As I said at the onset of the call, Performance Food Group Company aspires to be the leader in the food-away-from-home space, and this diversification has played a significant role in the success we are seeing with Core Mark. Core Mark has leveraged the broader enterprise to develop food expertise, expanding its food and brand portfolio, providing customers with a differentiated offer. That, coupled with great customer-facing technology, strong supply chain execution, and a focus on building lasting partnerships, has resulted in significant market share wins for the segment. Looking ahead, the addition of Love’s and RaceTrac will continue to be an incremental benefit to our Convenience performance through mid fiscal 2027. We have visibility into additional customer wins and some offsetting losses, though not nearly the size of either of these two pieces of business. We believe the outlook for our Convenience segment is bright and we continue to resonate with customers looking for a partner to help them drive their business performance. Finishing with our Specialty segment, this is a unique asset within the Performance Food Group Company portfolio as there is no pure-play competitor that has the reach of Vistar in the candy, snack, and beverage market. As a result, we are able to pursue a range of business opportunities for long-term growth. An example of this is the continued expansion into the e-commerce fulfillment space. While still a relatively small channel for us, our ability to ship direct to businesses and consumers across the U.S. makes Vistar an attractive partner for a wide array of businesses and manufacturers trying to reach their end consumer. Vistar also continues to benefit from growth in other emerging channels, including specialty grocery and campus retail, and is currently pursuing additional avenues that we are confident will fuel future growth. During the quarter, growth across most of Specialty’s channels drove solid top-line performance. Case growth of 1.1% produced a 5.3% revenue increase year over year. During the quarter, Specialty saw difficult margin dynamics including lapping higher prior-year inventory gains. Expenses in the third quarter were also elevated due to shipping and fuel costs, resulting in negative EBITDA performance in the quarter compared to the prior-year period. Despite a challenging quarter, the Specialty segment’s attractive overall margins and prospects for continued revenue performance give us a high degree of confidence in their long-term profit opportunities. To summarize, all three of our operating segments contributed nicely to our top-line growth, allowing us to achieve sales results at the top end of the guidance we laid out in February. Our adjusted EBITDA came in above the high end of our guidance range even as we invested in our business to support future growth. This performance was possible because of our diversification efforts and share gains across the U.S. food-away-from-home market. I am excited for the final months of fiscal 2026 and expect a nice acceleration in fiscal 2027, putting us well on track to achieve our three-year targets laid out last May. I will now turn the call over to Patrick, who will review our financial performance and outlook. Patrick? H. Patrick Hatcher: Thank you, Scott, and good morning. Today, I will review our third quarter financial results, provide color on our financial position, and review our tightened guidance for 2026. Performance Food Group Company’s total net sales grew 6.4% in the third quarter, with growth in all three operating segments and particular strength in Convenience. Total company cases increased 4.4% during the quarter, highlighted by a 6.5% organic independent restaurant case growth and an 8.3% organic case gain for our Convenience segment. We are very pleased with the contribution from the addition of the Love’s and RaceTrac business, which accounted for the majority of the growth in Convenience. Total company cost inflation was approximately 4.5% for the quarter, in line with what we experienced in the prior quarter. Foodservice inflation of 1.5% was slightly below recent trends, with continued deflation in the cheese, poultry, and egg categories, somewhat offset by higher inflation in beef. At the same time, while cheese and poultry remained deflationary on a year-over-year basis, we did not see the dramatic declines we experienced during the fiscal second quarter and, as a result, these items were less impactful to our overall financial results. Specialty segment cost inflation was up 5.1% year over year, about 25 basis points lower than the prior quarter, mainly the result of candy and hot drink price inflation. Convenience cost inflation increased 7.9%, slightly higher than the prior quarter due to inflation in tobacco and candy. The inflationary environment has been active over the past several years, but as a company, we have demonstrated our ability to handle a range of outcomes. We expect the inflation rate to remain in the low- to mid-single-digit range for the remainder of fiscal 2026. Moving down the P&L, total company gross profit increased 6.4% in the third quarter, representing a gross profit per case increase of $0.20 as compared to the prior year period. This improvement was driven by strong mix, execution of our procurement initiatives outlined at our Investor Day, and continued execution of our brand strategy. We are very pleased with our gross profit results which demonstrate our ability to execute on our priorities outlined in our three-year plan. In 2026, Performance Food Group Company reported net income of $41.7 million, a 28.5% decrease year over year due to an increase in operating expenses. Adjusted EBITDA increased 6.6% to $410.6 million. Diluted earnings per share in the fiscal third quarter was $0.27 while adjusted diluted earnings per share was $0.80, an increase of 1.3% year over year. Our EPS was impacted by below-the-line items, including higher interest and depreciation expense. Our effective tax rate was 25.4% in the third quarter, a slight decrease from 25.8% last year. We expect our full year 2026 tax rate to be close to our historical range of around 27%. Turning to our financial position and cash flow performance, in the first nine months of 2026, Performance Food Group Company generated over $1 billion of operating cash flow, an increase of approximately $245 million compared to the same period last year. We invested approximately $266 million in capital expenditures during the first nine months of 2026. We have been diligent around new capital projects and expect full year 2026 CapEx to be below our long-term target of 70 basis points of net revenue. The organization is striking a good balance of investing in infrastructure and high-return projects to support our long-term growth while maintaining excellent free cash flow performance. In the first nine months of 2026, we generated $[inaudible] of free cash flow, up $312 million compared to last year. We are extremely pleased with our cash flow performance. We are fully committed to investing back into our business to support our growth, and as you can see from our nine-month results, we are generating significant cash flow to fund this investment. During the quarter, we repurchased a total of $1.2 million of our stock at an average cost of $83.11 per share. We will continue to be opportunistic around share repurchase, but our priority remains debt reduction and investing in our growth. The M&A pipeline remains robust, and we continue to evaluate strategic M&A. Performance Food Group Company has a history of successful acquisitions to drive growth and shareholder value. We expect that to continue. At the same time, we will apply our typical high standards and robust due diligence to evaluate high-quality acquisition opportunities. Turning to our guidance, today we tightened the guidance range for fiscal 2026. For the full fiscal year, our sales target is now a range of $67.7 billion to $68 billion compared to the previously stated $67.25 billion to $68.25 billion range. We now expect full year adjusted EBITDA in a range of $1.9 billion to $1.93 billion compared to the previously stated $1.875 billion to $1.975 billion in 2026. Our results keep us on track to achieve the three-year projection we announced at Investor Day with sales in the range of $73 billion to $75 billion and adjusted EBITDA between $2.3 billion and $2.5 billion in fiscal 2028. To summarize, we are very pleased with our progress despite a challenging business environment in the third quarter. We are in a solid financial position, which supports our growth investments and capital return to our shareholders, and expect strong execution to finish the year, setting the stage for a strong fiscal 2027. Thank you for your time today. We appreciate your interest in Performance Food Group Company. With that, Scott and I would be happy to take your questions. Operator: Thank you. If you would like to ask a question, press 1 on your keypad. To leave the queue at any time, press 2. Once again, that is 1 to ask a question, and we will pause for just a moment. Thank you. Our first question comes from Edward Joseph Kelly with Wells Fargo. Please go ahead. Your line is now open. Edward Joseph Kelly: Morning, everyone, and nice quarter. It is good to see such strong top-line momentum in the business. What I wanted to ask about is that you did trim the Q4 guidance at the midpoint. I think you had an acquisition that came into the quarter, so presumably maybe there is some help there. But can you just talk about the offsets that you are seeing in Q4 to drive a slightly more conservative view? H. Patrick Hatcher: Yeah, Ed, this is Patrick. I will take that, and maybe Scott will add something on the acquisition if he wants to. But really, we gave the full year guidance. You are talking about the implied Q4 and how we are looking at it as we exit Q3 with a really strong top-line momentum and a nice EBITDA increase of 6.6%, the top end of our guidance. So we are feeling really confident about the things that we have line of sight to and controllables. As we mentioned in our comments, really strong momentum. We are seeing positive improvement at Cheney, although there will be some pressure there during the quarter. And we are obviously looking for improvement in Specialty. Outside of our control are things like the macro environment. Obviously, there is some pressure from fuel that we experienced a little in Q3. We expect some of that pressure in Q4 as well. So really very confident about Q4. There are some pressures on the numbers, as I mentioned. And then we are looking really towards 2027. We see a really nice setup, and we will obviously give you much more color on that in August. Scott E. McPherson: Hi, Ed. This is Scott. Just real quick on the acquisition. We did have an acquisition that came in late in the third quarter, something that we have been really excited about. Cash-Wa is a broadline foodservice distributor in Kearney, Nebraska. Three facilities that really cover Nebraska and the Dakotas, giving us a little more presence facing West. Great family company, great culture. I think they are really excited to be a part of Performance Food Group Company, and we are excited to have them in the fold. Edward Joseph Kelly: Great. And then maybe just a follow-up, and Patrick, you kind of hinted at this a little bit, but Cheney had drags as we think about fiscal 2026. I was hoping maybe you could talk about what that drag was again in Q3, and then I do not know if you can sort of summarize what the drag has been for the year. I mean, I think the math would say it could be $30 million, something like that. Do you get all of that back next year? Because I think you have talked about you expect Cheney to be a pretty strong contributor in 2027. Scott E. McPherson: Really good question, Ed. From a Cheney standpoint, the first thing I would say that we are really happy about is, as we mentioned, their top line. Cheney has done a great job continuing to grow independent cases, continuing to grow share across Florida and the Carolinas. I think their sales culture is fantastic. They are set up for the balance of this year and 2027 from that perspective. Over the last couple of quarters with the opening of the new facility, we certainly saw some expense drag, and we mentioned that will carry on into the fourth quarter. But we have great line of sight to get those things under control. The rollout of that facility has gone very well. We have transitioned three of our four phases of customers into there. We feel like their setup for 2027 is great, and we are really looking forward to their contributions both top and bottom line going forward. Operator: Thank you. We will move next to Lauren Danielle Silberman with Deutsche Bank. Please go ahead. Your line is now open. Lauren Danielle Silberman: Thanks a lot and congrats on the quarter. A couple of follow-ups and then one question. On Q4, are you able to quantify the net impact of fuel costs that you are embedding for the quarter? I know there are some offsets of surcharges, but not fully. I am just trying to figure out if it basically accounts for the $20 million to $30 million tick down in the implied Q4. And then on the cleaning expense drag, what exactly is driving these higher expenses? I guess I am just trying to understand whether these expenses roll forward into fiscal 2027 just within the base or if some of them come off. And then on the independent case growth side, there is obviously a lot of different dynamics and noise throughout the quarter. Any color you could provide on the cadence you saw as you moved through the quarter, and any you can share on what you have seen into April, thoughts on the fourth quarter? Thank you. H. Patrick Hatcher: Lauren, good question. As we exited Q3, we saw the impact of fuel come in. You are going to get much more detail in the 10-Q on this, but the gross impact for Q3 for that month was $7.3 million, and that is not just because of higher fuel prices; that is also because of new customers and miles driven. Because of the timing of surcharges, we were not able to adjust the surcharge in March, but that was adjusted in April and again in May. So we do have some headwind in Q4, but it is not material. It is something we are working through. We called it out as a headwind because it is one, but it is one of a few things that we embedded into our guidance, and that is why we gave the range we did. Scott E. McPherson: On the Cheney expense drag, there are a couple of things I would outline. The primary one is the new facility in Florence. Right now, we have customers that we are shifting from other buildings into that facility. We had to hire and staff that facility for all of that inbound volume, and at the same time, before we transition those customers, we are still servicing them in our existing facilities. It is kind of double headcount to service that volume, and that has continued over the course of four or five periods, which has been impactful from an expense standpoint. The other thing that drops off is expense as we move past certain integration milestones. We have talked about our synergy flow. At the end of Q3 of this year, or really at the end of the second year anniversary of Cheney, we have a nice pickup in synergy that will continue on through year three and beyond. So we definitely have a couple of things that will be good momentum from the Cheney expense standpoint. On independent case growth cadence, January was a great month. Towards the end of January into February, you saw pretty material weather impact. If I look at the average of January and February, that is kind of what we saw in March, and we saw that continue into April. We have been pretty consistent over the last couple months. If you took the January–February average, that equals what we saw in March and April. Operator: Thank you. We will now move next to Kelly Ann Bania with BMO Capital. Please go ahead. Kelly Ann Bania: Thanks. Scott, just wanted to clarify one point on the Cheney expenses. Did your view of the impact of those to the fourth quarter change since you reported last quarter, or is that just coming in line as you expected it to still be an impact into the fourth quarter? And then, Scott, you made the comment about 2027 and looking for an acceleration in sales and profit growth there. You mentioned cycling some of these expense headwinds and also the synergies, but you also mentioned some new chain business at Foodservice. Could you help bucket some dollars or how we should think about what that might look like in the coming quarters? And then also the procurement savings target should maybe start to build. Is that a factor we should think about being impactful in fiscal 2027 as well? Scott E. McPherson: Thanks for the question, Kelly. There was a little more spillover into the fourth quarter than we probably anticipated a few months ago. We had four waves of customer transition shifting business from existing buildings into that new facility. We have completed three of those waves, and that fourth wave will take place here in the next couple of weeks. We thought we were going to have all four of those waves completed in the third quarter, but we had a little weather impact when we started that building that pushed it back a couple weeks, and we have taken our time to make sure we do a great job servicing those we shift over. We have seen sales growth in that new building on a same-store basis since day one. All those customers that we shifted in there have continued to grow, so really positive results from the transition. On 2027 acceleration, you touched on the key drivers. In Foodservice, we see continued momentum in independent case growth. We have a really nice chain pipeline that we think will help keep chain growth positive for next year. Convenience obviously had a great year from a market share gain standpoint and has some carryover into next year. Specialty has improved its growth three quarters in a row and has a nice pipeline as well. On margins, we feel good about mix and about procurement synergies; that really helps the margin profile. We will also have some spring-back on Cheney expenses and overall efficiency from adding volume. The setup is really nice for next year. Operator: Thank you. We will move next to Mark David Carden with UBS. Please go ahead. Your line is open. Mark David Carden: Good morning. Thanks so much for taking the questions. To start, I know it is pretty much impossible to predict the duration of the Middle East conflict, but if we see higher oil prices continue at their current level for an extended period of time, how much of an impact would you expect it to have on your product inflation outlook over, call it, the next few quarters? And then a follow-up on Cash-Wa. How does its mix of business compare to the base Foodservice business? Does it lean any more or less heavily towards independents? And then more broadly, how is your traction going on building out some of your independent business organically out West in select markets? Scott E. McPherson: I will take a stab at this and let Patrick fill in the blanks. We have talked about how we handle fuel surcharges and fuel inflation, and we have a really good plan around that. Our fuel surcharges mitigate a lot of that impact, though there is a little headwind in Q4. We cannot anticipate whether fuel prices go up significantly or down over that period and beyond, but we think we have a good setup around fuel surcharges. As far as other product inflation, we have not seen any material impacts to date other than a little noise around petroleum-based products—some products we sell are petroleum-based, and there is packaging and containers as well. The longer the duration, at some point you could see inflation tick up. Across the third quarter, we saw inflation tick up a little period by period, and we have seen it tick up a little as we started this quarter, but we feel well positioned to navigate that. On Cash-Wa, their Foodservice business is very much in line with what we see across broadline. They have a really nice independent mix. They also have some broadline national customers, and they have a segment of their business that does have some Convenience sales—snacks, candy, a little cigarette and tobacco as well. So a very diversified mix that fits well into our overall portfolio. Out West, we have continued to add capacity in California, Oregon, Arizona, and Colorado. The West is our fastest growing region by a fair amount. The team is doing exceptionally well in the West, and we are proud of their ability to gain share. H. Patrick Hatcher: Just a little more color on inflation. We manage a very large basket of commodities. As Scott mentioned, maybe some of the petroleum-based might see a little bit of impact. It is hard to predict. Over time, we have managed through a variety of markets well. Specifically in Foodservice inflation, we started January very low, below 1%, and we finished in March at 2%. That is still well within low single digits, an area we manage very well. Operator: Thank you. We will move next to John Edward Heinbockel with Guggenheim. Please go ahead. Your line is open. John Edward Heinbockel: Hey, Scott. Two quick questions on local independent case growth. One, is there still an opportunity to reduce the account loss rate from where it is today? And then if you look at the pickup in lines per account, where is that concentrated? Are you gaining some traction with center of the plate versus where you might have been? And on Cheney, now that they have South Carolina open, where are they in terms of capacity—meaning I do not think they will need to open another facility for a while. And if you took synergy out and just looked at Cheney apples to apples, does it outgrow the rest of Foodservice because of the economic growth in its markets? Scott E. McPherson: On loss rate, we have been fairly consistent over a number of quarters. Is there an opportunity to improve? Absolutely. We are always focused on improving that and spend a lot of time on it. Turning customers is obviously not the goal. Overall, it has been fairly balanced; we have not seen a big shift. On lines per drop and cases per drop, that was the headliner of our penetration in the quarter—really nice increases. It continues to be driven by our brands. If you asked our sales reps their biggest lever, brands would be one of the top one or two. We have had really nice performance in center of the plate—our protein strategy and seafood are working to drive that. But brands are where the focus and real growth have been. On Cheney capacity, we are taking volume out of a facility that was about 90% full and now will be more like 50%–60%. We are going to have three facilities that have 40%–50% available capacity—maybe one is not quite that high—but three facilities with a lot of capacity, creating a whole network with capacity across the network. Really well positioned to continue to grow. Absent synergies, Cheney is certainly in one of the fastest growing markets in the country. As a broadliner with a great reputation and presence in that market, with capacity available, I think they have a really nice growth future ahead of them. Operator: Thank you. We will move next to Alexander Russell Slagle with Jefferies. Please go ahead. Your line is now open. Alexander Russell Slagle: Thanks. Good morning. A follow-up on Cheney. I know the synergies are not really expected until year two or three, but as you have had more time to evaluate the business and see how it pairs up against Performance Food Group Company, do you see any incremental opportunities there? And also curious on the private label at Cheney and your latest thoughts. Also, I wanted to ask on inbound logistics opportunities and potential offsets for some of the higher freight and inbound costs that you have had. Scott E. McPherson: The biggest opportunity is around brands. Cheney has established some of their own really solid brands. Their brand percentage of sales is a lot less than what we see across the rest of broadline, but they do have strong brands, and one of those brands we have taken into the rest of broadline. The procurement piece around brands is going to be a really nice part of the synergy. We have also found some other core competencies that Cheney has that we think will help the broader business, which is why we take our time in that first year and try not to jump in and make big changes. Maybe we do not generate as much EBITDA in the first year, but in the long run it positions us really well. We feel like the future of Cheney and the setup for 2027 and beyond is really strong. On inbound logistics and redistribution, we talked at Investor Day about redistribution and that we continue to grow our redistribution network. That network has performed really well this year. I would highlight the West—we have opened up a facility in the West to help us get our brands to all of those centers. Seeing how those distribution centers aided by redistribution are growing makes me very bullish on what we can do around redistribution. On the broader inbound landscape, we certainly think that is an opportunity—being more efficient in getting goods to our buildings. It is something that helps us today and has more opportunity ahead. Operator: Thank you. We will move next to Jeffrey Andrew Bernstein with Barclays. Please go ahead. Your line is now open. Jeffrey Andrew Bernstein: Great. Thank you very much. First question is on the underlying consumer, excluding the weather noise you talked about in January. You noted the ongoing negative foot traffic for the restaurant industry. Talk specifically about the impact a spike in gas could have on your business. It does not seem like it has had much, but how have your segments been impacted in the past? It would seem like the Convenience store segment might be the most vulnerable as it ties in with gas stations. Any color you could provide in terms of that underlying consumer behavior excluding weather that you have seen in recent months and what you might expect as we close out the fiscal year? And as a follow-up on the independents, your case growth is very strong at roughly 7%. You seem confident sustaining that in the fiscal fourth quarter. Who do you think you are taking share from—large national peers, or perhaps the big three taking from the rest of the industry? Scott E. McPherson: When I think about the restaurant consumer, we have seen our independents hold up exceptionally well, and with our share gain that has been really nice. We have seen a little downdraft on the chains; chains feel more of the foot traffic headwind. So right now, independents tend to be outperforming chains. On overall fuel impact, it comes down to discretionary income. In restaurants, if fuel prices continue to climb higher, that can impact discretionary income. In Convenience, my history would tell me that as price goes up, there is an environment where trips actually go up. The Convenience store consumer getting gas may not fill the tank every time. We have seen trips tick up over the last few months in Convenience stores. There is an inflection point where if fuel gets pretty high, then it is a discretionary income issue. Right now, the consumer has been very resilient across Convenience and Foodservice, and we anticipate they will continue to perform that way as we look to the fourth quarter. On share gains in independents, it is hard for us to tell exactly who we are taking it from. Some is certainly coming from specialty players; some might be coming from bigger or smaller competitors. We are focused on gaining share in each and every customer we service, and we saw that in the penetration numbers. Our brands are a big lever. Another big lever has been our tech stack around customer-facing ordering—Customer First. The combination of our physical relationship with the rep and the digital relationship with Customer First has helped our penetration and share gains. Operator: Thank you. We will move next to Brian James Harbour with Morgan Stanley. Please go ahead. Your line is now open. Brian James Harbour: Thanks. Good morning. Following up on Convenience stores, what does penetration there look like lately? If you separate out the new customer wins, which certainly help, how would you describe that in the Convenience segment? And you said you have done a little bit better with chains, notwithstanding tougher industry traffic. Anything you would call out that is helping there—specific segments you cover? Scott E. McPherson: Convenience is a little different than traditional Foodservice because in Convenience you really have a primary supplier. You do not typically split between multiple broadliners like you might in Foodservice. Where you might have penetration is in foodservice programs within the store—you might have an external vendor there—and that is where we have done a great job of penetrating in our Convenience segment. Over the last couple of years, our Convenience segment on a same-store basis has greatly outperformed the industry. The tools we bring to customers around product mix, how to set your store, how to grow foodservice, and our customer-facing technology have really helped us outperform the market. On chains, it is really two things. We have partnered with a couple of the more progressive foodservice players in the space—those continuing to grow—which has helped us on a same-store basis. The other is share gain. We have had a really nice pipeline in the chain space, and we see that continuing into 2027. Our ability to resonate with chain customers and be a great partner has really helped us. Operator: Thank you. We will move next to Peter Mokhlis Saleh with BTIG. Please go ahead. Your line is now open. Peter Mokhlis Saleh: Great. Thanks for taking the question. I am curious if you could give us a little bit more color on strength and weakness by cuisine. More specifically on the Italian segment, if you are seeing any major changes at all, and then I have a follow-up. Scott E. McPherson: Looking at some of the publicly reporting chains, pizza and Italian growth has been a little muted as of late. Internally, we continue to grow share in pizza and Italian, which is a really big, strong part of our business. Interestingly, we are growing pizza and Italian outside of traditional pizza and Italian locations—growing it in bar and grill, and in our Convenience segment through both Foodservice and Core Mark. So we are holding our own in pizza and Italian, although the segment has been a little more challenged. We are seeing really nice growth in other specialty segments—nice growth in our Asian segment, continued market share gains in our Hispanic segment. One of the biggest share gain areas we have in Foodservice right now is sales into Convenience. The share gains there have been very significant and a big driver for us. Peter Mokhlis Saleh: Great. There has been a lot of discussion in the industry around GLP-1s and the impact. Are you seeing any sort of impact or changes in behavior among restaurants and what they are purchasing that would indicate any change? Scott E. McPherson: We follow the statistics on GLP-1 and eating behavior. In the first year that someone is on those, there could be a tick down in their consumption across food in general—across grocery and all channels. There is a little bit of compression on snack and candy in that first year, but that consumer seems to bounce right back afterward. In restaurants, there is certainly a focus on protein and fiber. We are seeing demand for smaller portions in some places and more to-go containers—so we are selling more containers. There has been some behavior shift. I think that is one of the reasons the independent restaurant has done so well; they are able to react, change menus, change pricing fairly rapidly, and they have reacted to that behavior really well. Operator: Thank you. We will move next to Analyst with Bernstein. Please go ahead. Analyst: Thank you. I would like to ask a couple of strategic questions. First on your M&A pipeline and potential future moves. In your framework, you highlight pursuing transformational opportunities, and recently we have seen two major players acquire cash-and-carry businesses and provide more vertical integration through the customer life cycle. Is this a strategy that you would entertain? Why or why not? And then on the strength you are seeing in the chain business, could you expand on what is causing the incremental focus on the chain business and whether you have seen this as a strategic fit given that it could be a potentially lower margin business? Scott E. McPherson: We spent a lot of time at Investor Day outlining our M&A strategy. Our M&A strategy is really focused around broadline Foodservice. Cash-Wa is a great example, Cheney was a great example, and we continue to have a pipeline of opportunity in broadline Foodservice. There are tangential areas around Foodservice we continue to look at, including protein and seafood. In Convenience and Specialty, we made a small acquisition last year in Convenience, and we will continue to look at opportunities there. But our core focus is broadline Foodservice—that is the field we want to play in. On chain business, there has not been a strategic shift. The chain business has been an important part of our portfolio for a long time. Our independent-to-chain mix in Foodservice is about 40% independent and about 60% chain—a really balanced portfolio. We consistently grow independents faster than chains, and that has been a calling card. But when a big portion of your sales are chain, we are just as focused on growing that as well. We are resonating with customers in both segments and gaining share. We are happy with how our salesforce is performing in both areas. Operator: Thank you. We will move next to Karen Holthouse with Citi. Please go ahead. Your line is now open. Karen Holthouse: Great. Thank you for taking the question. A couple on the Convenience side. Some of the packaged food companies have started to talk about understanding pushback to inflation in the grocery aisle and proactively decreasing prices on some things. Are you seeing anything similar on the single-serve Convenience side of things? And looking out over the next six to twelve months, is there anything that should be on our radar for incremental new customers that might be onboarded specific to the Convenience side? Scott E. McPherson: We have not seen any deflationary noise at all in the Convenience segment. Historically, we do not see actual price deflation. What we see is manufacturers discounting at point of sale—promotional activity that lowers the end cost to the consumer. It really has no impact on us or our margins. That activity has probably ticked up a little, and it would not surprise me if that continues, but it does not impact us from a revenue or profit standpoint. Specific to Convenience customer onboarding, we will lap the Love’s and RaceTrac next year. We have a really nice pipeline. We have a couple of other customers we will onboard and a couple we will offboard over the next six to twelve months. We have had some competitive reaction, and competitors have put a little pressure on the competitive market, but overall the setup for Convenience for 2027 is really strong. The customer shifts I am talking about are much smaller in magnitude than a Love’s or a RaceTrac. The setup is really good. Operator: Thank you. We will take our question from Analyst with Melius Research. Please go ahead. Your line is now open. Analyst: Hey. Good morning. Could you talk about the pipeline or just conversations you are having in the Convenience segment with potential customers? How much of your Foodservice capabilities or broader PFG One capabilities impact those conversations? And then a question on Cheney—thoughts on putting Performance Food Group Company private label into Cheney or taking some of Cheney private label—where you think the opportunities are there and how we should think about that going forward? Scott E. McPherson: The Convenience segment’s core competency around Foodservice over the past three years has increased dramatically. The product mix we offer in our opcos, the turnkey solutions we offer, and the knowledge of that organization around food have been a big feather in our cap in customer interactions. We have to be a great partner, an efficient distributor, and supply the full basket of goods, but having that core competency around Foodservice has helped in negotiations on new chains and account wins. On Cheney and private label, I see it going both ways. We have already taken a couple of Cheney’s private labels and started to roll those out across the broader Performance Food Group Company organization. We have been evaluating the labels that we would put into the Cheney organization as well. Cheney’s brand penetration was in the 15%–20% range at acquisition. We just had a record brand penetration in the legacy Foodservice segment at 54%. Combined, if we were going to reset a target, we would be right at 50% in brand cases to independents. That is a number I think we can grow, and Cheney will be a big portion of that growth. Operator: Thank you. At this time, this concludes our question and answer session. We will now turn the meeting back to Bill Marshall. Bill Marshall: Thank you for joining our call today. If you have any follow-up questions, please reach out to Investor Relations. Operator: Thank you. This concludes today’s meeting. We appreciate your time and participation. You may now disconnect.
Operator: Hello, and welcome to the Klaviyo Q1 2026 Earnings Call. [Operator Instructions] Also, as a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. With that, I would now like to turn the call over to Ryan Flaim, Director of Investor Relations. Ryan, you may begin. Ryan Flaim: Welcome, everyone. We appreciate you joining us. Joining me today are Klaviyo Co-Founder and Co-CEO, Andrew Bialecki; Co-CEO, Chano Fernandez; and CFO, Amanda Whalen. Andrew, Chano and Amanda will first share their views on the quarter, and then we'll open up the line for your questions. Our commentary today will include non-GAAP measures. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release or earnings release supplemental materials, which can be found on our Investor Relations website. Additionally, some of our comments today contain forward-looking statements that are subject to risks, uncertainties and assumptions, which could change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risk factors, uncertainties and assumptions and other factors that could affect our financial results are included in our filings with the SEC. We do not undertake any responsibility to update these forward-looking statements, except as required by law. Andrew, that concludes my introduction. We're ready to begin. Andrew Bialecki: Thanks, everyone, and welcome. We've entered the era of agents and infrastructure, at least so far as software is concerned, and our first quarter showed what that means for Klaviyo. Before I cover our results and highlight a few specific observations, I'd like to take a few minutes to remind everyone of the opportunity AI presents and how we're taking advantage of it. Our strategy is centered on helping businesses grow by maximizing their most important asset, their relationships with their consumers. The businesses that win are the ones that deliver stunning personalized experiences at scale. That's been the goal of everything we built at Klaviyo for the last decade. And the reality is that creating those experiences through deep personalization, engaging media, meeting customers where they want to be met and optimizing those experiences automatically is still not easy. Our work over the last decade has been building the infrastructure to make that possible, what we call the B2C CRM. As we built it, we felt a growing gap between what our infrastructure is capable of and how businesses are actually using it. This capability overhang means businesses are missing opportunities with their consumers and in turn, leaving real dollars and greater success on the table. AI agents are allowing us to close that gap and revealing enormous latent demand for intelligence to design, deliver and optimize consumer experiences. Our agents are going further, finding new opportunities for the businesses we serve and contributing back to product direction. They're already among our most advanced users of our data and experience infrastructure, pushing the limits of what's possible and giving feedback for what to build next. We're entering a positive loop where agents use our infrastructure to build stunning consumer experiences that generates data and feedback that improves the infrastructure, which in turn makes agents smarter and more capable and the cycle repeats. Together, agents and the infrastructure we provide are the autonomous B2C CRM. We believe every consumer business will run on it and every consumer experience will be driven by it. And our agents and infrastructure get better with increased data scale and usage. Our infrastructure sees almost 4 billion daily events and signals across 8 billion consumer profiles. Ingesting, storing and indexing these signals in real time gives every business running on Klaviyo a real-time data feed on how consumers and businesses are interacting with each other and critically, gives businesses and the agents they run context on what will delight consumers. The laws of consumer behavior shift in real time. Our customers and the agents they deploy use our real-time view of consumers as context to deliver stunning highly performing experiences. And agents make it even easier to infuse this context into experiences for the benefit of consumers and businesses alike. Let's look at our first quarter results to show what this looks like in practice. Revenue increased 28% year-over-year to $358 million, with strong momentum across enterprise, international and our B2C CRM platform. Non-GAAP operating margin increased to over 16%, the highest in our history. More than 196,000 brands are on our platform. We closed the largest number of multimillion dollar ARR deals ever, and our largest customers once again grew their revenue, known as GMV, roughly 2x faster than the broader market. Our investments in ARR are not limited to the agents and infrastructure we build, but extend to how we operate and deliver Klaviyo. Annualized revenue per full-time employee in Q1 was over $600,000, up more than 25% year-over-year. As an example, we're committing and shipping code at nearly double the rate per engineer from a year ago. As a result, we shipped more than 75 features in the first quarter, including a private preview of our next-generation marketing and analytics agent, Composer, increased intelligence and channel capabilities for customer agent and deeper partnerships and product integrations with Google, Anthropic, Shopify and Canva. I'd like to share a bit more on our agent products and how we're seeing customers use them, starting with Composer. Composer is our next-generation agent for marketing and analysis and is an entirely redesigned agent harness. It builds from the learnings of how customers are using our first-generation marketing agent. Marketing agent's functionality was more narrowly scoped to content marketing and campaign creation. Composer takes advantage of the advances in underlying LLM's abilities through reason and use tools. Composer scope is dramatically expanded. It can reason over your data, take actions across consumer experiences and learn from those experiments. The private preview we introduced in March includes the ability to autonomously query and analyze consumer and marketing data and create marketing campaigns and automations across all services with support for creating and optimizing customer agent coming soon. On top of this, we built Composer to be extensible, so customers and partners can build subagents and system connectors it can use and makes them available wherever users work, not just the Klaviyo interface. Because this is such a significant step forward, we're being deliberate about quality, both in Composer's analysis and its creative decision-making. The bar is high, and we're committed to meeting it. Similar to how Vibe coding represented a shift from engineers focused on how software is created to what software to create, we've seen a similar trend with Composer where users are live marketing by focusing on what they want to achieve and create, letting Composer do the research and initial creation and then iterating with Composer on the insights and perfecting its outputs. The proof points are very exciting. Take One Beauty brand in our preview. Composer audited their marketing, found automations that have been broken for years, fixed them live and surfaced half a dozen other opportunities their team had never gotten to across creative, discounting strategy and personalization. That pattern is repeating across our enterprise users in the preview. Teams are using Composer to audit, source opportunities and implement in a single session. One of the most recognized apparel brands in the U.S. saw a 40% plus increase in top-performing flow revenue following a single session. Hydro Flask used Composer to find misconfigured targeting that had been preventing a campaign to send and Composer fixed it with them live. A prominent personal finance company masked and prioritized more than 1,000 flows across 13 business units in a single session, giving the team a clear picture of where to focus first. This is why global brands are telling us that Composer solves the biggest pain point they have and is the best agentic marketing solution they've seen on the market in the past year. And because Composer runs securely inside Klaviyo's data perimeter, it already addresses the data privacy concerns that typically slow enterprise AI adoption. For one enterprise fashion brand, it was the first marketing AI tool to clear their security teams review because Composer runs inside Klaviyo's trusted environment. Composer is the future of how businesses will use Klaviyo to understand their consumers and create stunning experiences for them. We're very excited to open up to more of our customers and partners in the coming weeks. Turning to customer agent. And similar to Composer, we've taken advantage of the improvements in underlying LLM intelligence and tool use to allow businesses to create more tailored, highly performing agents their consumers can interact with. The experience and abilities of customer agent built on Klaviyo can now be entirely customized with our custom skills launch last week. Customer agent now runs across text, WhatsApp, e-mail, RCS and web chat, and we're adding voice and multilingual support. Adoption continues to grow month-over-month and the experiences customer agent delivers are showing real results. Digitally native fashion brand, Naked wardrobe resolved 84% of conversations through customer agent and AI and saw a 28% increase in average order value, helping consumers own their style and buy on their time, including many instances of consumers shopping and chatting at 2:00 a.m. when customer support would have otherwise been offline. Finally, underneath our agents is our data infrastructure, capable of training, serving and optimizing personalization, machine learning and AI models. These models don't require direct tuning from users. They learn from usage and they improve the platform automatically. What this unlocks is true one-to-one personalization, the right content for every consumer at every interaction serve across every channel and agent we operate. These models and the features that leverage them were used by nearly 2/3 of our customers in the first quarter, and usage is driving outcomes. As an example, customers using our personalized send time models saw a 35% lift in click-through rates. More engaged consumers and higher revenue driven by infrastructure that get smarter, the more it's used. We believe this is a year marketing and analysis agents like Composer and always-on agents like Customer Agent become standard and ubiquitous. And we built for that deliberately, meeting customers in the tools they already use, an open garden, not a walled one. And to accelerate that, we've deepened integrations and expanded partnerships across the AI ecosystem. In February, we deepened our integration with Google by launching RCS to all customers, and we opened up beta access to Google Search and Ads products that connect discovery directly to customer agent experiences over RCS. The consumer can now see an ad, tap it and then immediately have an immersive conversation with a brand powered by customer agent. Google delivers the reach, Klaviyo stores the consumer relationship and delivers a personalized experience. We've extended access to our infrastructure and agents via expanded MCP connectors and applications with Claude, ChatGPT and Canva. MCP usage of Klaviyo continues to expand rapidly, increasing more than 10% week-over-week in Q1. And top users of MCP are querying more consumer data and building more marketing campaigns than their peers, with 16% more platform usage relative to those who don't use MCP. Businesses are connecting more data to Klaviyo, centralizing it and taking advantage of the increased accessibility. Consumer event volume from the hundreds of apps in our marketplace is up 44% year-on-year. As an example, AS Beauty home to Laura Geller and other brands and one of our largest customers runs a complete omnichannel program on Klaviyo, including greatly expanding their text messaging program this quarter. Their team queries Klaviyo data and Claude, model campaign performance and make faster decisions. Their KAV or Klaviyo attributed value is up 20% over the past two years. A senior leader there recently described Klaviyo as an indispensable pillar of their business, infrastructure that they and their brands rely upon. None of this happens without our customers and partners pushing us and Klaviyo is delivering. We're grateful for both. I'd like to finish by providing an update on our leadership team. First, Q1 was Chano and I's first full quarter together as co-CEOs, and it's been a terrific partnership where we have so much in common, including a relentless drive to deliver and highly complementary skills. Second, as we announced in a press release earlier today, after almost four years as our CFO, Amanda has made the personal decision to step down from her role at Klaviyo in the coming months, spend more time with her family before pursuing the next phase of her career. I want to take a moment to recognize what Amanda has meant to Klaviyo. She was instrumental in building the team that took us through IPO and helped us scale into a multiproduct, global AI-native business. Amanda will continue to lead our finance organization through August 21 and will remain in an advisory capacity through November to support a smooth transition. We've initiated a search for our next CFO, who will build on our strong financial foundation and momentum. Beyond what she's helped us build, she's been a terrific strategic partner and a trusted adviser to me and many others across Klaviyo. We wish her the absolute best. Amanda, on behalf of the entire Klaviyo team, thank you. And with that, Chano. Chano Fernandez: Thanks, Andrew. I want to echo your words on Amanda and the impact she has had across Klaviyo. We have confidence in the team and transition plan, and we're grateful Amanda will continue to provide leadership and support in the months ahead. Turning to the quarter. The core business is strong and the opportunity in front of us is large. Enterprise, international and platform consolidation each have real momentum right now. AI accelerates all 3. Let me walk you through what we are seeing and how we are executing. Starting with enterprise, new customers in the 50,000-plus ARR cohort were notably higher than Q1 2025. We closed one of our largest deals ever, an expansion bringing a single customer's contract to over $6 million ARR. The program here consistently in enterprise is fragmentation. Customer data, marketing execution and service are spread across too many systems. Fragmentation costs revenue. What resonates is consolidation onto one data model, one execution layer with AI that operates with full customer context across the entire life cycle. That's what Klaviyo does. The wins in Q1 reflect that. [Ellis And Olivia] is migrating to Klaviyo to unify online behavior, purchase history and in store associate interactions in one system. Weber Grills replaced a legacy platform with Klaviyo globally across the U.S., APAC and EMEA. Expansion activity was also strong as customers standardize more on their workflows on our platform. Take Patagonia, a long-time e-mail customers that came to us with two things on their mind, improving the customer experience and migrating off a fragmenting text messaging setup, creating redundant messaging across channels. We showed a clear technical plan and a credible commercial case. But the reason they choose Klaviyo was anchored in where we're going together. RCS, omnichannel journeys that support both commerce and advocacy. Patagonia is not a brand that wants to send more messages. They want to send the right ones. Finally, we were proud that this quarter, the Forrester Wave named Klaviyo a strong performer and recognized us with the highest customer satisfaction score among all vendors evaluated. We have enterprise credibility validated by a name Enterprise Trust, alongside proof the pipeline is converting. International revenue outside the Americas grew 39% year-over-year in Q1 and five of our top 10 largest new customers are from EMEA. What we're seeing in AI is just growth is the same platform priorities driving our largest U.S. enterprise deals, unification, real-time data and AI across channels. All Saints is a great example. The flagship U.K. fashion retailer replaced legacy technology in a multiyear deal with both the Global Digital Director and Chief Technology and Transformation Officers as champions of the move. They choose Klaviyo for speed to execution, the ability to unlock WhatsApp as a new audience channel and the future opportunity to consolidate e-mail and other channels on a single platform. They shared that this move reflects their desire to move toward a more agile way of working that will significantly reduce the hours spent on day-to-day CRM activities. We also welcome Hobbii, a fast-growing Nordic yarn retailer selling across multiple international markets, winning a competitive deal that came down to speed, flexibility and, the strength of our native integrations with platforms like Shopify. We continue to deepen the product capabilities our international customers want. Locale aware catalogs is a good example. Shopify merchants with country-specific catalogs can now run fully synchronized multi-market data automatically across every region they operate in. For many global brands, that's a requirement. Now Klaviyo delivers it. That same pattern, complex multi-market operations consolidating onto Klaviyo is showing up in categories well beyond our e-commerce goods. Legends Global is a flagship wing in ticketing and live events. They're bringing their global portfolio of more than 260 venues and attractions onto Klaviyo, integrating ticketing and venue systems, thinking data through our warehouse capabilities and giving the U.S. and U.K. teams a single platform to activate and execute across every market they operate in. Our partner ecosystem is deepening that reach further. In hospitality, the Thanx integration brings restaurants loyalty into a single workflow. And with our integration of this feature now GA, operators on Cloudbeds, Guesty, and Mews can trigger a pre-stay reminder the moment a reservation is made. We're building the go-to-market foundation to match the opportunity, consistency in how we sell, how we deploy and how we support customers at a scale. The data is clear. When customers unifying Klaviyo across e-mail, text, analytics and service, outcomes compound and our cross-sell motion is executing against that. One thing worth calling out on text messaging because it speaks directly to how we approach the market. Current fees have risen meaningfully across the industry over the past 12 months, and most platforms pass those costs through immediately. We chose to absorb them, a decision that reflects our commitment to customers first. This also gave us a real pricing advantage this quarter, and we leaned into it. But our competitive position is more durable than price. Text on Klaviyo runs on the same unified profile as e-mail, WhatsApp and every other channel, and that's what drives long-term share gains. Going forward, we'll be thoughtful and intentional about any future cost pass-throughs while continuing to negotiate the most competitive text messaging rates. In closing, Q1 showed a business with strong fundamentals, growing enterprise relevance and international momentum that is structural. We're investing where the opportunity is biggest, improving the execution foundation to capture it and staying focused on delivering outcomes for customers. The road ahead is significant, and we're ready for it. With that, I'll turn it over to Amanda. Amanda Whalen: Thanks, Chano and AB. Q1 was proof not just of what Klaviyo can do, but of how our business model works when each part reinforces the others. The growth engines we've been building, multiproduct adoption, enterprise momentum and international expansion reinforced each other this quarter. AI accelerated all of them, and the results showed-up exactly where we expected to see them in revenue, in margin, in customer retention and in the expanding values customers are generating from our platform. Revenue grew 28% year-over-year to $358 million, ahead of our expectations. We delivered our strongest non-GAAP operating margin and our first quarter of positive GAAP operating margin since going public. NRR was 110%, up 2.0 points year-over-year, meaning our customers aren't just staying, they're growing with us. Customers are also earning more from every message with KAV or the revenue that customers generate from Klaviyo per message up approximately 8% year-over-year. That's how our model is designed to work and tangible evidence of how we are building more valuable customer relationships that help our customers and in turn, our business grow. Turning to our growth engines. First, multiproduct adoption grew as more brands sought out the strategic advantage of consolidating onto a single platform. Service remains on the steepest adoption curve in our company's history. And all of this matters for future growth because multiproduct customers retain better and generate more value per profile over time. Second, enterprise momentum continued in Q1 with our $50,000-plus ARR customers growing 38% year-over-year to 4,175 customers. This is reflective of a broader structural shift as leading brands modernize and consolidate their tech stacks. These are complex multichannel relationships choosing Klaviyo as their long-term platform because we unify data, intelligence and action in one place. Third, international was again a highlight with revenue outside of the Americas up 39% year-over-year. Notably, revenue for EMEA outside of the U.K. was up 51%, marking the sixth consecutive quarter of growth above 50% in that region. Let's now turn to AI. Across each of our growth engines, AI is increasing both velocity and yield, helping customers do more faster and with better results. Automated flows generate 10x more revenue per message than campaign. And that acceleration is important because it flows directly into our model. As customers generate more value, we grow as well. Agents also represent a net new revenue opportunity. Customer agent is already contributing, and we expect that to grow as we expand channels and capabilities. Composer is early, but the value signals so far are strong. Higher intelligence drives higher value and higher value drives revenue. Turning to the P&L. Non-GAAP operating income was $59 million in Q1, representing a 16% non-GAAP operating margin. That's nearly 500 basis points of expansion year-over-year and our strongest margin since going public. GAAP profitability was driven by improved non-GAAP operating margin as well as a two percentage point reduction in stock-based compensation year-over-year. Non-GAAP gross margin was 76%. This reflects our continued success with text messaging cross-sell, offset in part by infrastructure efficiencies. Non-GAAP operating expenses were 59% of revenue, down 560 basis points year-on-year. Sales and marketing, in particular, saw meaningful leverage. This reflects two things: first, operational efficiencies enabled by AI that we're building into the business; and second, the absence of the B2C CRM marketing investment that we made in Q1 last year. Free cash flow was $19 million, a 5% margin. This reflects normal seasonality and the timing of annual bonus payments, consistent with what we saw in Q1 last year. Our trailing 12-month free cash flow margin was 16%, spotlighting the strong cash generation potential of the business. In March, our Board authorized a $500 million share repurchase program. This authorization reflects our Board's and management's confidence in the durability of our strategy, the scale of the opportunity ahead and our conviction that Klaviyo reflects an attractive long-term investment. As a component of that program, we immediately entered into a $100 million accelerated share repurchase, which was completed in April. We continue to execute on the remaining authorization. Our model is efficient enough that we can invest aggressively in growing the platform in AI and agents, in international, in enterprise and simultaneously return capital to shareholders. Turning to guidance. We're confident in the trajectory and set up for the remainder of the year. We outperformed Q1 expectations by approximately $10 million. Based on that performance and the broad momentum we're seeing, we are raising our full year 2026 revenue guidance by $13 million at the midpoint. This reflects our conviction in what's ahead. We now project revenue between $1.514 billion and $1.522 billion, representing 23% year-on-year growth. We're also raising our full year 2026 non-GAAP operating income guidance to a range of $222 million to $228 million, and non-GAAP operating margin of approximately 14.5% to 15%. The model continues to support reinvestment in growth while delivering expanded profitability. This guidance assumes that we continue to absorb the majority of carrier fee increases. As Chano described, thus far, we've made the strategic decision to absorb these fees rather than passing them directly to customers. Over the course of the year, we'll continue to be intentional in our approach, striking a balance that's strong and smart for both our business and our customers. For Q2, we expect revenue of $359 million to $363 million, representing growth of approximately 23% to 24% and non-GAAP operating income of $47.5 million to $50.5 million or a non-GAAP operating margin of 13% to 14%. As you're building your models for the balance of the year, I would like to call out a few items. With regards to revenue, we expect our sequential step-up in revenue from Q3 to Q4 to be similar to last year. We also expect higher operating margins in our fourth quarter this year compared to Q2 and Q3, driven by the timing of investments as well as the compounding effects of AI efficiencies. As we said last quarter, with scale, we have improved our forecasting visibility, which means we are guiding with greater precision. Our guidance philosophy remains consistent. Our goal is to share the best visibility we have and the numbers that we're confident in delivering. Our guidance reflects both that increased precision and our confidence in the business. Before we open the line to questions, I want to say a few words about the transition that we announced today. Klaviyo has never been stronger than where we are today. There is a significant opportunity ahead for us, strong momentum across the business, and a clear path to continue growing rapidly while expanding profitability. We also have an exceptional team in place, and I've always believed the right moment to take the next step is when the work is in great hands. AB and Chano, thank you for your partnership. Importantly, I'm not going anywhere just yet. I will remain CFO through August before transitioning into an advisory role through November. It has been a privilege to be a part of Klaviyo, and I'll be cheering this team on every step of the way. In closing, here's what we hope you will take away from Q1. We beat and raised. We expanded operating margin to the strongest level since our IPO. We returned $100 million to shareholders while continuing to invest in the platform. The businesses we serve grew, and their engagement with Klaviyo is deepening. This is exactly what our model is built to do, and AI is making all of it faster. We're confident in our trajectory. The platform is getting stronger, and the results are following. And with that, we'll open the line up for questions. Operator: [Operator Instructions] Our first question is from Samad Samana from Jefferies. Samad Samana: So I'm going to pack a 2-parter into this. So first, maybe on the product side, just as I think about Composer adoption, what are you seeing in customers that typically lead in new product adoption? And maybe how do you expect that product to accelerate the AI adoption flywheel? And just in case you mute me, Amanda, great to work with you, and I continue to look forward to working with you until the transition. But I just wanted to touch on that comment about guiding with more precision. And just does that mean that the 2Q guide should be closer to the pin? We had a slightly smaller beat in 1Q. Was that already a philosophy that started when guided for 1Q? Just help us, maybe get a better context in that statement as well. [p id="310160143" name="Andrew Bialecki" type="E" /> Awesome. Thanks for the question. I'll give the Composer one, and I'll pass it over to Amanda for guidance. So yes, we launched this private preview in March, and we're very excited about the results we've seen so far. And again, for context, our Composer agent really combines a combination of a bunch of subagents that do various tasks. But you can think about the two big groupings as, one, it will actually do marketing creation, so we can create marketing campaigns, automations, templates, and creative content. And then two is it will do the analysis. It will actually look at your customers, who they are, help you do cohorting, understand behaviors, as well as look back over previous marketing campaign performance to help you figure out what to do next. So what's great is, yes, we've introduced kind of a range of customers. Some are more power users. Some of them are more entrepreneurs who are just starting out, so we can get a feel for their usage patterns. And I'll tell you, kind of universally, the feedback has been very, very positive. We talked about our next-generation agents building off the success of our marketing agent last fall. And what we've done, and we talked about in past quarters, we've dramatically expanded its scope. So you can think of this as really like kind of, I don't know, version 2 or N+1 of our agent. And the thing that I'll call out is we're getting very, very good at building marketing, creative, and content that is on brand. This is both a function of what we've seen from the LLMs and some of the underlying technology improving, as well as just like technology that we've built at Klaviyo to harness those agents and keep them in the direction that brands want them, right? So actually, we're at an unfair advantage, frankly, because we can teach our agent to pattern match off of past campaigns. So it's a little bit -- that actually makes it better at maintaining a kind of brand in the field that you want. And then on the analytics side, I mean, we've seen just some like incredible results. I think we have customers that are now running these kinds of daily or weekly reviews of the marketing they're doing or how their customers are behaving. And so far, we've only given them the ability to kind of run that ad hoc. So they have to log in and execute those kinds of queries. In the near future, it's not very hard to see that like customers are just going to schedule these to run on demand to alert them of issues, and then couple that with the creation or the creative part of our agents, they'll be able to automatically take action. And in some cases, we expect our agent will just actually automatically decide to run new campaigns or make modifications to do -- for optimizations. And so we're very excited about that. I think the path is also to hey, the value is very clear because obviously, as we run incremental marketing campaigns where we make improvements, we can measure those results. Customers see it, they feel it, they're seeing the value. And I think the path to then, like, hey, the pricing and packaging and monetization is also very clear. And that's something else that we're using this private preview to really work through. So, never been more excited about the intelligence and really the agent capabilities that we're able to build on top of the infrastructure that is Klaviyo's marketing and data platform. And then I'll turn it over to you for guidance. Amanda Whalen: Thanks, Samad, and I'm going to look forward to staying in touch with you as well. On the question of guidance, we are closer to the pin this quarter by design. As we committed to you last quarter on the call, we spoke about guiding with greater precision and greater accuracy that comes with the benefits of that greater precision and greater accuracy that we see from scale. And so the tighter beat reflects that improved ability to forecast the business. If you take a step back and look at Q1, it was incredibly strong. We saw a 28% revenue growth. We saw our highest operating margin since the time of the IPO. We had our first quarter of GAAP profitability as well. And we saw real strength in some of the core metrics of the business, like an NRR of 110 and greater than 50,000 customers, up 38%. So overall, an incredibly strong Q1 that gives us confidence looking forward and gave us confidence to raise that outlook for the rest of the year by $13 million, which is even greater than the beat that we had for Q1. So what you see in the guidance for the rest of the year reflects both of those. It reflects both our increased precision and it reflects the confidence in the momentum that we've got in the business. Operator: Our next question is from DJ Hynes from Canaccord Genuity. [Operator Instructions] David Hynes: AB, I'd love to hear how your agency partners are embracing the innovation that Klaviyo is delivering, right? I mean on the one hand, you're giving them incredible powerful tools to do their jobs better. On the other hand, if the autonomous vision takes shape, you're kind of putting them out of work. So how do you balance that dynamic? And what are you hearing from those folks? Andrew Bialecki: Yes. I mentioned in our opening remarks, this kind of this capability overhang of like basically what you can do with Klaviyo and the infrastructure that we've built is actually, there's a lot more there that our customers and businesses are not taking advantage of. And I think our agencies have always helped close that gap. I think now with our agents, and I'll touch on both Composer, which is sort of for optimizing how you understand your customers and marketing and then customer agent, which is more consumer-facing, agencies are accelerating the adoption of both. So you talked about Composer, I think it makes it easier to take advantage of everything you can do with Klaviyo with all the data and marketing and messaging primitives that we're giving you. And agencies are actually able to take on more clients as a result because they're able to get more leverage as a result of Composer. So I've had many conversations where folks have said that they're actually changing their ratios of the kinds of products they can take on because of, I mean, Klaviyo is a product and it's just ease of use, but especially now because of like some of the agentic capabilities that we're offering. And then what's been great is I've talked to dozens of agencies where they're really establishing new practices around our customer agent. So just as a reminder, our customer agent is a whole new surface. We think about this as this is the digital representative for your business. It can do not just customer support, but can also help with sales conversations, marketing conversations. It can run the game. And because it's connected back to our data platform, it has a real-time view of who that end consumer is, that profile, it can do -- it can do much better than more generic AI agents at like actually matching up to what a consumer is trying to -- looking for. And you'll see that show up in some of the stats that we talked about around like product recommendations. Now the reality is, as we talk about driving adoption to that, like it's still what's growing very fast, service is our fastest-growing product line. The reality is that setting up agents is something that just not a lot of customers have expertise around. So we're both building products around that, where actually we've built a whole number of agents that will train up agents. But the reality is like when we go talk to businesses, they'll say, okay, well, there's some nuance to maybe like how I want to solve some of these, or how I want these experiences to work or how I operate my business. Those agencies are helping us bridge the gap and drive adoption. And so we're actually very excited. We've done a bunch of work to help them set up their own practices so that they can set up customer agents for our customers and help drive adoption. So I think our agency network is in great shape, and I think they're excited to help usher in both of our agents to our almost 200,000 customers -- 200,000 customers. Chano Fernandez: Hey DJ, Chano is speaking. I hope you are well. Just to give you an example, I talked to one of our agency partners that is building a custom order editing scale, connectivity and API that is handling the full post-purchase experience with a human agent, without a human basically in the loop. So that's all created significant automation allowing increased productivity for them. So we're all very excited. Operator: Our next question is from Rob Oliver from Baird. Robert Oliver: Can you hear me okay? First of all, Amanda, I wish you all the best, and it's been a pleasure working with you. My question is for Chano. Chano, just I guess, coming into this year, a lot of excitement around the enterprise opportunity moving upmarket, legacy replacements. You guys called out, I think, some really -- at least one really large win in the quarter. I would love to hear some color from you on what you're seeing within that installed base? How are sales cycles? How is the legacy replacement opportunity relative to kind of where it was when we all gathered last fall in Boston? And then any update on partner contribution would also be helpful. Chano Fernandez: Thank you so much, Rob, for your question. I mean, first, maybe the data, right? I mean we called, we doubled the number of customers over $1 million ARR basically last year, also end of Q1. Clearly, Amanda commented on the number of customers over $50,000, obviously, that's becoming now 38% year-on-year. And we talk to them on an expansion of customers doing with us more than $6 million ARR. And we talk with other customers, examples like Patagonia, that's been a long-term e-mail customer from us now adding text just because they see that fragmentation that have been falling and they see the value of that unified platform in terms of bringing customer experiences together. So I think that all presents a really terrific opportunity for us. I would say that we even with this growth rates beginning of the year is very exciting because, of course, as we're playing more into the enterprise, you know, Rob, that this will be playing more towards largest quarters, especially end of the year and Q4 being much bigger and much larger. And of course, where I think the team is doing a very good job is to put the focus and the discipline, right? The focus is around what we're doing on product and the investments that we're doing on go-to-market and in terms of bringing the results. I think the discipline is about clearly how we are building the pipeline and how we're doing, especially qualification on deals getting much more meaningful in terms of the enterprise cadences, right? So if you would say, how do you feel about the opportunity this is we will talk back in the autumn, I would say I feel even much more excited than I was in the autumn because I can see that tangible. Of course, I will tell you, yes, we are on the early innings of that opportunity, and we have a lot of work to do ahead of us, but the opportunity is just massive. -- right? So this can be by itself a really significant reacceleration engine for Klaviyo, and that's how I see it. It's not going to pan out in one quarter. I don't think it's going to pan out in two quarters, but we will see kind of these growth levels, I would say if I would be on your shoes kind of from a modeling perspective that will have significant impact down the road, and that is not too far away, right? And clearly, if we are creating those customer cases and experiences, again, that brings much more confidence that we're a player. In terms of the partners, as you know, we announced Accenture, and we are working with them pretty closely, of course, with other partners as well, but on a clear target list with clear activities and clear progress. So I'm expecting that we will see some of those wins coming during the course of the next few months. Clearly, on some of the wins that have already announced, there has been support from some of these partners, either because they influence the deal or they source the deal either/or is good for us. So very excited about the enterprise being a game changer for this company. Of course, we want to keep the healthy business of our core bread and butter in terms of the entrepreneur and SMB and lower business. That is doing very well if you look kind of the increase in net new logos overall and the dynamics that we have in that segment. Operator: Our next question is from Raimo Lenschow from Barclays. Raimo Lenschow: All the best from me as well, Amanda. The question I have, like I had a few people asking me about the fee that you mentioned. I think some of your competitors have kind of altered that. Can you talk a little bit about the impact it would have on potential revenue, but also profitability? Amanda Whalen: Sure. Thanks so much, Raimo. So what these are carrier fees. And when you are in the text messaging business, there are carrier fees that come to you from the big telco carriers that get charged that generally for many of our competitors are a pass-through. Now our primary operating principle is we are trying to operate with our customers with consistency and transparency and trust. And we're helping to make their business more predictable. And so thus far, we have taken the strategic choice not to pass through those carrier fees. Now some of them, they vary by carrier. So it's been building over the course of, I'd say, the last year or so with some of these announcements coming even as recently as last week. But we wanted to, again, have that predictability for our customers. Now it certainly helps in price. And Chano is leaning in, as he said, and the team on how we show our customers that value. But as we've said before, the reason that we win is not only because of price, it's primarily because of the value that we create for customers and the benefits that come to them from consolidation. Now as these grow, we're going to keep making thoughtful choices there over time. So I won't say that we'll continue to pass them on forever, but we're going to be really strong and choiceful and intentional about how and when and in what manner we do that. And that intention is built into the outlook for the back half of the year, both the increasing penetration of the text messaging business as well as this choice that we're making on carrier fees. Operator: Our next question is from Terrell Tillman from Truist Securities.... Amanda Whalen: Terry if you want to hop back in the que we can move on to the next question, we will pull you up again if you are able to login. Operator: Our next question is from Nicholas Altmann from BTIG. Nicholas Altmann: AB, one of the value propositions of Composer is just around the velocity of campaigns. And so how should we think about the monetization of Composer from a stand-alone SKU perspective versus Composer allowing customers to accelerate their e-mail and messaging volumes? And then the follow-up question to that is, does that sort of play into your decision to not pass through the SMS carrier fees? [p id="310160143" name="Andrew Bialecki" type="E" /> So when we think about Composer, I mean, we're ultimately, selling or we're providing is intelligence. And obviously, that's the form factor of like tokens. So what we're finding is that customers -- to go back to some of the examples that we've had is customers are, for instance, using us to review who their customers are, the state of their marketing and then using that to figure out like what to do next. And we're finding that those like sessions, right, those kinds of reviews they're doing are incredibly valuable. I mean they're generating thousands -- hundreds of thousands of dollars in incremental revenue and sales. And so the pricing that people get is it's actually pretty similar to if you were to hire somebody or how you value your own time. And we're just able to do that. We're able to provide that intelligence like through tokens and obviously, it's just much more efficient. And we can go much deeper because our agents have access to some internal benchmarks and like kind of best practices that aren't publicly available. So what that's doing is that intelligence, we look at it is an entirely new revenue stream. We think about the activities that people are doing in and around Klaviyo, like so obviously, we're storing information, people log in Klaviyo to understand who their customers are, different cohorts, behavioral trends. They're using it to actually create marketing. They're using it to then review that marketing. So we think that's just an entirely new revenue stream. In terms of, like the impact that's having on just overall platform usage, like actual usage of our infrastructure, yes, we're seeing that drive incremental use. One stat for us is as we've opened up the underlying infrastructure of Klaviyo to third-party agents or LLM clients like ChatGPT and Claude and Gemini, we're finding the folks that have integrated MCP and our best users. I mean, they're doing 16% more marketing, more campaigns, more automations, querying into their data more frequently. So, we think this is actually like this is kind of like the easy version of that trend because it still requires people to use those tools and prompt on their own. What we think is going to happen with our agent is you're going to be able to set it either in like sort of synchronous mode where you're chatting with it or having a conversation with it, it's on Klaviyo or other platforms. But you can also just set it on sort of this like, hey, run every day, right, asynchronous or recurring mode. And we think that will drive even more usage. So I go back to this, like there's just a lot of latent opportunity out there to do better marketing, deliver better customer experiences. And Composer is literally the conduit by which we're going to do that. And I think people see this as like, okay, that's very valuable and they're willing to pay for it. And I do think it will have this halo effect of really in two dimensions. One is, I think it will increase messaging volume because messaging will be just better, right? The creative, the content, the personalization will be better. And then two is Klaviyo is always indexed on the number of consumer relationships a business has. And one of the things that we look at is, well, how do you help a business grow more of those relationships and make sure they're higher quality. And obviously, like if a marketer or a business owner or somebody that owns the customer experience is strapped for time, like we see this. There are cohorts of consumers that they're just not able to deliver the right experience to because they just run out of capacity, right, their own like human time to work on that. Agents don't have that problem. I mean they can tirelessly work for that to optimize for every single one of those consumers. So we actually think that the number of consumer relationships business has are also going to grow as a result. You'll get less churn. So you think about like in the worst case, it's like, say, unwanted, right, marketing messaging or just marketing messaging that doesn't resonate, people unsubscribe. We actually think that will go down because the quality will go up. So those are some of the halo effects that we think we'll see beyond just directly monetizing Composer. Amanda Whalen: And I would think of, to the second half of your question, carrier fees is very distinct from this. As we just talked about before, carrier fees are about this choice and the balance that we're making between the two priorities of customer predictability and trust and maintaining our overall margins. And if you look at our gross margins for Q1, you can see that compared to last year, we absorbed the carrier fees. We saw significant growth in our text messaging business, and we were able to hold our gross margins relatively steady, which I think shows our ability to deliver on both of those priorities at once. As we think about the priorities for the back half of the year, it's about growing our gross profit dollars and continuing to grow that revenue and gross profit dollars while expanding our operating margin, and that is exactly what we're doing. As we committed to you at the beginning of the year, we're committed to increasing our operating margins by at least one point this year. And should we not only raised our operating income dollars, but also our operating margin in our guidance this year on the reflection of that strength that we're seeing in the business. Chano Fernandez: And I wouldn't take that not passing through the carrier fees is basically, as we say, it's an intentional decision on being customer first, but I wouldn't take it like if and when we decide to do that and, and what will be intentional and what is the right moment that we're basically winning because we are not doing that because clearly, we are winning because of the value of our offering and they comply -- the full unified basically data platform that we offer. And certainly, we are going to be value-based pricing down the road. It's not the aim of this team to be competing on pricing. I thought that decision was important, particularly now to provide some stability on pricing to our customers and, potentially reflects as well the highest customer satisfaction that we've been highlighted as a strong performer of the Forrester Wave. And I think we all know that happy customers basically renew and buy more from you. Operator: Our next question is from Siti Panigrahi from Mizuho. Siti Panigrahi: Amanda, it's a pleasure working with you. I wish you good luck. And then I want to dig into the NRR. That's 110%, up two points year-over-year, but flat sequentially. In prior calls, you talked about key drivers like core e-mail, SMS and then cross-sell and profile enforcement. And as the profile enforcement benefit already laps, so what keeps NRR at this or above this level? Is there -- what are the next driver you think that will push NRR higher in the back half of this year? Amanda Whalen: Thank you, Siti. It's a great question. And the largest driver of NRR is customer behavior and the way that customers are leaning into Klaviyo to automate more, to send more to use increasingly our flows, which generate 10x more revenue per message compared to a static campaign. And as customers see that value, they're leaning in and they're using Klaviyo. So if you break down NRR into its pieces and take a step back, the first and largest driver is expansion of customers' usage of our existing products. And that's where when they see that strong ROI and that strong return, they increase their usage and that, in fact, is contributing positively to NRR. The second driver is cross-sell, and we have increasing and strong momentum in our cross-sell as well. Customers see and understand the value of consolidating onto a single platform and the way it drives not only simplification from a business standpoint, but importantly, makes for a better customer journey and drives better relationships. And then there is a little bit in NRR on lapping of the price -- the profile enforcement from last year. And so as you think about it over the course of this year, you'll see some impact from that lapping of profile enforcement, but then you'll also see contribution coming in a positive sense from the improvements that we're seeing in expansion and in cross-sell. Operator: Our next question is from Callie Valenti from Goldman Sachs. Callie Valenti: I understand that the lighter beat was by design, but I think the sequential growth in the first quarter was still a bit lighter versus prior first quarter. So I wanted to ask, just given Klaviyo has outsized exposure to retail and e-commerce, is this potentially a result of the business becoming more seasonal over time as it scales? Or is there a better way to think about that? Amanda Whalen: I think, Callie, it's maybe a little bit actually inverse, we're seeing because we have gone to profile enforcement, we still do see seasonality because Q4 is our customers' biggest time of the year, and we are there for them, and they are counting on us to drive their revenue. But with profile enforcement, we see a little bit less seasonality there than we have in the past. It's primarily coming from our text messaging business and then some expansion there in e-mail. I will say that in Q1, what we saw was just strength across many different parts of the business. We saw strength in our international business, where it's growing 39% year-on-year. We're seeing increasing momentum in our enterprise business. And those enterprise businesses, again, tend to be steadier multiyear contracts. A great example of a multiyear contract that was a big win for us this quarter, for instance, is – All Saints, who signed a three-year contract. And those are going to tend to be less variable across the year. So it's all of these different areas of strength that we're seeing in the business that contribute to a great Q1 and then also a strong outlook for the year. Operator: Our final question is from Scott Berg from Needham & Company. Scott Berg: Nice quarter here. I want to ask just a question about the state of marketing budgets overall and from what you're seeing with customers through an interesting lens since you sell to lots of different sized customers. Your results talk about a marketing space that seems to be on fire right now, at least from a demand perspective, especially relative to the rest of our enterprise software companies that are growing, we'll call it, 40% or 50% slower than what Klaviyo is growing right now. I guess the question is why? I guess what's in the environment that's actually driving the spend? Or what are you seeing that has customers standing up, raising their hands saying, I've got to do this now, and I've got to do it in a pretty big way. Andrew Bialecki: I'm happy to take that, and Chano will add some color on to the specific customer examples. But I'll give you three trends I think we're seeing. So the first is because unlike most software enterprise software, we're focused on revenue generation. I mean there's sort of an insatiable appetite for if you can help grow top line, grow profits, people want to spend more. And we see that constantly. The second I'll say is just around consolidation, and that's both within marketing, but then across also marketing, our data and analytics products are now our service products, Customer Hub on the website. We're finding that people want to merge those budgets together. And it's not actually for like -- I mean, there's probably some total cost of ownership arguments there, but it's not to reduce costs. It's because they're finding that when you combine the data that we have with those marketing channels, you can get better performance. And that's making a big difference. So I think those are the trends that I think we would think are very evergreen, very durable. And they're definitely -- I mean, they're big contributors to our growth. And then obviously, we're going to overlay on top of that then I think there's a lot of demand -- I mean just speaking from what we're seeing from Composer, there's a lot of demand for then intelligence applied to this combined B2C CRM infrastructure that we offer because people get that there's a lot of ideas that they can't see or projects they can't execute on and they then want to use that as a way to efficiently execute those and then obviously drive greater profitability and increase revenues. Chano Fernandez: Yes. I would only add that personalization as well and the basically breadth of understanding that we provide out of those customer profiles and communicating with them at the right time through the right channel with the right message is really powerful in our platform, and they're leveraging that, and they're seeing the results through Klaviyo attributed revenue. Again, we more than doubled than the rest of the market in terms of our customer revenues through GMV. And then I would say the other trend is this productivity increase that we are providing in terms of the opportunity to do much more with less, a bit less headcount driven, but clearly, the opportunity to create those campaigns on targets and at the same time, have those customer agents that can communicate and put a great face to their business with their customers is terrific capabilities that they're leveraging on. So I think it's the increased revenue impact on ROI that they're seeing plus this technology shift that we are seeing and where Klaviyo is certainly at the center of and that is what is driving it. Operator: Thank you. This concludes today's call. Thank you for joining us. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Today's presentation will begin momentarily. Good morning, and welcome to the Rayonier Advanced Materials Inc. First Quarter 2026 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open to questions with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Daniel Bradley, Vice President of Investor Relations. Daniel, you may begin. Daniel Bradley: Good morning, and welcome to the Rayonier Advanced Materials Inc. First Quarter 2026 Earnings Conference Call. Last evening, we released our earnings report and accompanying presentation materials which are available on our website at ryan.com. These materials provide key insights into our financial performance and strategic direction. During today's discussion, we may make forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially. These risks are outlined in our earnings release, SEC filings, and on Slide 2 of the presentation. We will also reference certain non-GAAP financial measures to offer additional perspective on our operational performance. Reconciliations to the most comparable GAAP measures can be found in our presentation on Slides 19 through 21. We appreciate your participation today and your ongoing interest in Rayonier Advanced Materials Inc. I will now turn the call over to Marcus. Marcus J. Moeltner: Thanks, Daniel. Good morning, everyone, and thank you for joining us. Before I turn to the quarter, I want to begin on Slide 4 and address the announcements we made on April 20, 2026. As disclosed, a formal review of strategic alternatives to maximize shareholder value has been initiated, and the company has engaged Morgan Stanley as financial adviser in connection with that review. At the same time, an interim office of the CEO has been established to provide continuity during the transition and the search for a permanent CEO is underway. Importantly, the members of the interim office of the CEO bring more than 60 years of combined experience at Rayonier Advanced Materials Inc. and Témiscaming, which provides continuity and deep knowledge of the business. We remain focused on safety, reliable operations, serving our customers, executing our 2026 priorities, and improving value across the portfolio. That has not changed. With that in mind, the strategic review is appropriately broad. The alternatives under evaluation include, but are not limited to, continued execution of our stand-alone strategic plan; a strategic investment or partnership that strengthens the business; a merger or other business combination; and the sale of part or all of the company. They may also include capital structure actions designed to improve financial flexibility, including potential debt refinancing or restructuring, covenant relief, or other collaboration with our lenders. Any path under consideration ultimately needs to be evaluated against the same core objective: what best strengthens the company, improves financial flexibility, and maximizes shareholder value. As we said in the press release, we have not set a timetable for completion of the review and we do not intend to provide updates unless and until disclosure is appropriate or required. So today, my focus is where it should be: on execution, on the operating path forward, and on the actions that improve value under any outcome. Turning to Slide 5, the message is straightforward. Our 2026 priorities are unchanged. We have four operating priorities for the year. First, deliver positive free cash flow. Second, assert our leadership in CS. Third, drive year-over-year EBITDA improvement across every business. And lastly, exit 2026 with momentum. These priorities reflect both where we are today and what must happen next. We entered 2026 with negative free cash flow and elevated debt. So our task this year is clear: strengthen the earnings profile of the business, improve cash generation, and build momentum quarter by quarter. The first quarter was an early step in that process. I will cover the detailed results on the next slide, but at a high level, the quarter was broadly consistent with the operating plan we laid out in March as pricing, mix, and commercial actions to strengthen our leadership in CS continued to come together. Let us turn to Slide 6 and the first quarter results. Adjusted EBITDA in the quarter was $8 million. High Purity Cellulose generated $24 million of adjusted EBITDA, and we achieved a 17% increase in average CS sales price year over year, while CS volumes were lower and commodity mix was higher. Paperboard and High Yield Pulp were a negative $5 million, reflecting continued pressure from new third-party supply in paperboard and continued domestic oversupply of high yield pulp in Asia. Corporate and other costs were $11 million for the quarter, with favorable foreign exchange rates compared to the prior-year quarter providing some offset. Importantly, we ended the quarter with total liquidity of $160 million, comprising $68 million of cash on hand, $88 million of availability under the ABL, and $4 million available under our factoring line in France. The quarter came in broadly in line to slightly ahead of the expectation embedded in our prior outlook. Although still below the level required to achieve our full-year objectives, that outcome reflects continued execution of the commercial and operating initiatives required to strengthen our leadership in CS as the near-term benefit from those actions is building. The free cash flow bridge also makes an important point. Even with a weak first quarter, we generated $12 million of adjusted free cash flow. This reinforces that positive free cash flow in 2026 will come from a combination of better operating performance, improved mix, commercialization of new offerings, disciplined capital allocation, and balance sheet actions as needed. Turning to Slide 7, our new product pipeline reflects how we are advancing growth through focused innovation and value-added products across the portfolio. What is important here is that these opportunities are not dependent on any single product or end market. They are spread across multiple businesses and, in many cases, leverage assets, technical capabilities, and commercial positions we already have in place. The initiatives highlighted in green on the slide are the ones I want to focus on today because they represent the most tangible near-term progress. In paperboard, we continue to gain traction in both freezer board and oil-and-grease-resistant board, and we are targeting approximately 10 thousand metric tons of annual sales in 2026 in each of these markets as commercialization and customer qualifications continue to advance. In high yield pulp, we see a path to approximately 20 thousand metric tons of annual sales in 2026 for softwood high yield pulp rolls as we move into higher-value, absorbent end markets, while the wrapper product provides a near-term opportunity to support internal cost reduction and create a path to future external sales. In cellulose commodities, odor control fluff remains one of our more differentiated growth and margin-accretive opportunities in the pipeline, which I will come back to on the next slide. The broader point is that this pipeline supports both near-term earnings improvement and longer-term portfolio value creation. The slide that follows highlights a few representative examples of how the value is being developed through targeted product innovation, sharper commercial focus, and a more dynamic operating approach. So turning to Slide 8, this slide brings together three representative examples of how we are working to create value through more focused commercial execution, differentiated product development, and a more dynamic operating approach. First, in nitration grade cellulose, what we have learned is that customers in qualification-intensive energetic applications are buying certainty, technical support, and disciplined specification control, not simply material that meets a basic spec. Rayonier Advanced Materials Inc. is well positioned here because we are the only supplier with a multisite sulfate and sulfite production footprint across North America and Europe. Our actions are focused on the highest-priority conversion and qualification opportunities, and on continuing to strengthen customer support, qualification continuity, and supply assurance in the applications where reliability matters most. Second, odor control fluff is a different type of opportunity, but it reflects the same discipline. Adult incontinence is the fastest-growing fluff segment, and there is a clear unmet need for immediate odor control. Our product offers a differentiated urine-activated solution that can be used as a drop-in replacement in existing products. The commercial approach here is also deliberate. We are targeting brands directly in order to pull the solution through the value chain. Third, dynamic asset allocation is the internal discipline that connects strategy to day-to-day execution. What we have found is that there are still barriers and bottlenecks that can be removed to raise production and improve mix, and that we have more flexibility than we have historically used to allocate capacity across our grade portfolio to maximize value. A good current example of this is in the fluff market, where pricing has strengthened. As those market conditions have improved, we have further prioritized volumes into fluff and other attractive softwood pulp markets to take advantage of that pricing environment. The broader point across all three examples is the same: we are becoming more targeted in how we deploy technical, commercial, and operating resources, and that is an important part of how we intend to improve the earnings quality of the business going forward. Let us turn to Slide 9 and the 2026 outlook. The core message on this slide is that 2026 remains a transition year, but one in which we are building leadership momentum and laying the foundation for a stronger 2027 and beyond. The first quarter came in broadly in line to slightly ahead of the near-zero EBITDA level we had anticipated, as the benefit of our CS leadership initiative is building. So while the year still depends on sequential improvement from here, the underlying direction of the plan remains intact. The items on the right side of the slide reinforce that point. In the first quarter, average CS sales price increased 17% as our leadership actions continued to build. We are also advancing trade actions to support fair competition in Rayonier Advanced Materials Inc.’s U.S. domestic markets. Across the CS value chain, we expect inventory conditions to become more favorable as we move into 2027, while CS supply-demand conditions remain tight and continue to support disciplined pricing actions. We also expect to benefit from improving commodity pricing as supply and trade dynamics continue to normalize, with pricing currently forecasted to increase sequentially over the balance of 2026. Beyond the market backdrop, we continue to take actions within the business to improve the earnings and cash flow profile. That includes ongoing inflation mitigation work across the enterprise and continued progress on new product and grade-specific leadership initiatives that are expected to contribute incremental value in 2026 and beyond. Taken together, these actions are intended to build a stronger earnings base and improve cash generation over time. That said, our priorities for 2026 are unchanged. We continue to target positive free cash flow, assert our leadership in CS, drive year-over-year EBITDA improvement across every business, and exit the year with stronger momentum. We also remain focused on safer operations, strengthening our organization, and executing with greater precision and speed. In closing, I have confidence in the plan we are executing and in the team that is advancing it. Regardless of which plan is ultimately chosen, execution remains the anchor under any outcome. The initiatives we discussed today are the right initiatives for the company. They strengthen our financial position, improve our commercial posture, increase operating discipline, and enhance the strategic value of our assets. The best way we can support the strategic review is to execute the initiatives in front of us, improve our earnings and free cash flow quarter by quarter, and continue building a stronger company. If we do that well, we will reinforce the business under any scenario and position Rayonier Advanced Materials Inc. for a stronger 2027 and beyond. We will now open the call for questions. Operator: At this time, if you would like to ask a question, press star followed by the number one on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star followed by the number one. Your first question is from the line of Daniel Herriman with Sidoti. Daniel Herriman: Thank you. Good morning, Mark. I will start with a couple and then get back into the queue. Marcus, heading into 2026, it was very clear that CS volumes would be under pressure as you continue to push price, and obviously Q1 results were consistent with that. Can you provide us with an update regarding where you stand on those pricing conversations today and when you expect to have that fully placed? I believe you had maybe between 12–15% still to go. And then with the breakdown on the CS volume decline, the release calls out elevated acetate inventories and also soft ethers demand. I was hoping to get an idea of how much of the volume weakness is market-driven versus self-imposed by those higher prices, and if that at all changes your confidence in the back half of the recovery. Thanks so much. Marcus J. Moeltner: Good morning, Daniel. Thanks for your questions. As an update to the negotiations and asserting our leadership strategy, we have secured the majority of our 2026 CS volume at pricing that is meaningfully higher than 2025. A good reference point is the evidence we shared with the 17% increase in Q1. This really reflects deliberate commercial actions we have taken to manage pricing and improve our mix, and better align value with the value our products bring to the applications. In our industry, Hawkins Wright publishes capacity and demand figures, and anything above 88% is really balanced. We are above 90%, so we are still in the backdrop of a very constructive market. Our discussions are well advanced, and we continue to make progress. On acetate and ethers markets, we continue to advance our discussions with the acetate customer base in the backdrop of an end-use market that does have elevated inventories, but it is improving. In ethers, that is the market where you see weakness from European construction, and there is also the impact of competing products from China that make their way into that end-use market. Overall, consistent with our last message, in the back half of the year we will continue to complete these negotiations. Daniel Herriman: That is really helpful. Thanks so much, Marcus. Operator: As a reminder, to ask a question, press star followed by the number one on your telephone keypad. Your next question is from the line of Matthew McKellar with RBC Capital. Matthew McKellar: Hi. Good morning. Thanks for taking my questions. First for me, you disclosed on April 20, 2026 that you are engaged in a formal process to explore strategic alternatives. There is some language in the presentation suggesting you do not have a specific timeline, but to help us get a sense of timing, can you help us understand when you formally began this process and, more broadly, what you think is driving interest in Rayonier Advanced Materials Inc. at this point in time? What do you think public markets have underappreciated about your business? Thanks. Marcus J. Moeltner: Good morning, Matt. Thanks for your question. As I mentioned in my prepared comments, engaging Morgan Stanley was a decision made given interest expressed by third parties. It is a very broad mandate that could involve numerous permutations of corporate development activities with the real focus to maximize shareholder value. There is also a piece related to continuing to address the balance sheet of the company and to look to optimize the capital structure. The process has the overarching objective to maximize shareholder value, because I truly believe there is value within Rayonier Advanced Materials Inc. that is not recognized by the marketplace. We have a unique offering, and you are seeing that offering reinforced in the current backdrop of what is going on in the world, where you have pressure on oil-based products and our cellulose-based products are well positioned in any environment to be perceived as having high value. Matthew McKellar: Great. Thanks for that perspective. Maybe next for me, can you provide a bit more color on the conditions you are seeing in the fluff market right now and how those conditions might be different than your expectations going into the year? With that, can you talk about your mix in the commodities business—what your mix of fluff looked like in Q1 compared to the past couple of quarters—and whether you would expect mix to evolve much through the balance of the year compared to Q1? Marcus J. Moeltner: Thanks, Matt. Higher fluff pricing is a positive backdrop to our business right now, and it aligns well with the dynamic asset allocation strategy I referenced in my comments. Given what we are seeing in the fluff space, there is definitely upward pricing movement. We are seeing the ability to pivot and drive our mix toward more fluff production. If I contrast Q1 versus Q2, we certainly had a higher mix of paper pulp in Q1 versus where we will be this quarter, given that we are going to drive pricing and volumes to fluff. We are picking up that there are some further pricing announcements pending here—in the range of a net $55 increase in China and $120 in North America and Europe. I think there is a lot of positive momentum in fluff. Additionally, as we advance the commercialization of the softwood roll product in Témiscaming, we will have products across the continuum of fluff grades and can position our product made out of Témiscaming out of high yield to get further value there as well and drive improved mix. I am really excited about that project as well. Operator: Your next question is from the line of Dmitry Silversteyn with Water Tower Research. Dmitry Silversteyn: Good morning, Marcus. Thank you for taking my call. Quick question. There was a development at the end of last year in the antidumping case concerning Brazilian and Norwegian imports. The ruling was positive for you in the sense that there was some damage assessed, but the amount of remedy was a little disappointing. Can you talk about what other things we can look forward to in terms of that trade dispute? And then as a follow-up, you mentioned in your press release that your shipping costs have gone up, particularly to China. Is it in any way related to the geopolitical conflict going on in the Middle East now? Or, asked differently, are there any impacts on your logistics and shipping costs as a result of that conflict? Marcus J. Moeltner: Good morning, Dmitry. Thanks for your questions. On trade, we feel positive about the direction and where things are headed across the tariff-related workstreams we have, including AD and CVD. As you know, Rayonier Advanced Materials Inc. is the sole remaining U.S. producer of high purity dissolving wood pulp, and we think the importance of a reliable domestic supply is paramount. It is particularly important for critical infrastructure and certain defense-related applications, and it is continuing to be better understood. It is early days, but we are optimistic on the direction this is taking and like the trajectory we are on in those discussions. On inflationary pressures on logistics, like everybody, we are seeing the impact of higher oil pricing and diesel costs, and there are surcharges coming through on freight. We are certainly focused on that. It is creating pressure as well on some chemicals—think of the sulfur and ammonia families—but we are actively managing this through supplier negotiations. We have targeted commercial recovery actions that we are pursuing, and, where appropriate, we continue to pursue cost discipline to mitigate these impacts. Thanks again for your questions. Dmitry Silversteyn: Thank you, Marcus. Just a quick follow-up. You mentioned in your presentation several new businesses or business lines that are gaining traction in the first quarter and second quarter, some by the end of the year. If we were looking at relative performance versus your expectations within your guidance, which of those products do you think will have the greatest impact on your results—provided successful commercialization and share gains—for 2026? And which should we think about as more impactful for 2027 and beyond? Marcus J. Moeltner: Thanks again, Dmitry. Looking at our new product pipeline, several of those products are Témiscaming-centric—think of freezer board and oil-and-grease-resistant board. Those will help us drive better mix across our paperboard portfolio, and those will have impacts in the second half of 2026. As well, as we advance the commercialization of the roll product—the fluff product—at Témiscaming, that is another value-adder for the second half. We see all those products produced in Témiscaming as providing a nice benefit for Rayonier Advanced Materials Inc. for the balance of the year. Longer term, as I mentioned, odor control fluff is a real differentiator and a strong prospect. I can see that adding considerable value to our fluff portfolio going forward. We are really excited about all those products, but think of Témiscaming as having a nice impact from these activities. Operator: As a reminder, to ask a question, press star followed by the number one on your telephone keypad. You do have a follow-up from the line of Matthew McKellar with RBC Capital. Matthew McKellar: Hi. Thanks. Just one follow-up for me. Referencing Slide 8 and the dynamic asset allocation comments you have made, can you give us any more detail around how you have achieved this greater flexibility to increase production and allocate capacity across grades? And then can you share any perspective around how we should think about the sequential change in CS shipments into Q2, and whether the fire you addressed will have any impact to acetate volumes in the quarter? Marcus J. Moeltner: Thanks again, Matt. Examples of execution in leveraging this dynamic asset allocation strategy include being more nimble and quicker to respond to market changes, because our production lines are quite flexible. It is about leveraging that capability and putting it into action to adapt quickly. We had to do that in Q1—adapting be-line to making a mix of commodity paper pulp to keep the lines running—and as that is now filled with acetate, you can see how we have put that into action. Another example is as fluff markets have improved, driving that mix higher. We have that same capability at Tartas, where we can pivot between ethers-type grades and make a fluff product. It is being mindful of our asset capabilities and putting that into action in real time. On volumes sequentially, CS volumes will be higher from the base. We just did over 70 thousand tons of CS; we could be upwards of 15–20% higher on those volumes. We will also drive better fluff pricing, and that mix should be greater given that we will make less paper pulp. Lastly, on the fire, as we mentioned, this was a very isolated and contained event. Relative to the previous fire, it had a minor impact, in the range of $5 million. As far as production, we were more focused on paper pulp as we started up from the outage, so the impact on acetate is de minimis. Operator: At this time, there are no further audio questions. I will now hand the call back over to the presenters for any closing remarks. Marcus J. Moeltner: Thank you for your time today and for your continued interest in Rayonier Advanced Materials Inc. We really appreciate the support and engagement of our shareholders and other stakeholders. Our focus remains on disciplined execution, open communication, and continuing to build value in the business. We look forward to updating you further on our progress next quarter. Thank you again. Operator: This concludes today's presentation. Thank you for joining. You may now disconnect your lines.
Operator: Greetings. 2026 first quarter earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Anne-Marie Megela. Thank you. You may begin. Anne-Marie Megela: Thank you, and thank you all for joining us today. Welcome to the Q&A session for our first quarter 2026 business update. During today's call, we may make forward-looking statements regarding our expectations for the future. These statements are based on how we see things today, and actual results may differ materially due to risks and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release and our most recent SEC filings for more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures. Please refer to today's earnings release and the non-GAAP information available on our website for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. Joining me today to answer your questions is our chief executive officer, Steve Cahillane, and our chief financial officer, Andre Maciel. Operator, please open the call for the first question. Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Peter Galbo of Bank of America. Your line is now live. Peter Thomas Galbo: Hey, good morning, everybody. Thanks for the question. Steve, I was actually hoping to start with Hold, Win, and Win Big. Just comparing what you said at CAGNY a few months ago to what you are presenting today, at least in the slides, I think there have been a few shifts of some of the platforms and/or sub-platforms. Can you touch on the decision between the different categories and some of those changes, and then as a part b to that question, whether that signals anything in terms of how you are viewing potential asset sales of different platforms? Steve Cahillane: Yes. Thanks for the question, Peter. As I said at the outset, we reserve the right to continue to get smarter, and that is what we have done as we have made some of these changes. A couple of examples: we did downgrade our Frozen from Win Big to Hold. We think that is based on what the category is showing us, what our real opportunities are, and really confronting the facts as they stand and being realistic about them. Equally, we looked at hydration and moved that from Win to Win Big. We see strong category growth. We really like our brands in this space. We really like Capri Sun and its ability to follow the cohort when young and age with them with our new hydration platform that is coming out now. So we see a real opportunity to Win Big there based on our brands and our place in the category. Equally, we have moved cheese from Hold to Win. We like the margin there. We like our brands. We like our opportunities. Those are some of the changes that we have made. I think they are all positive and they point to the fact that we are continuing to look at our portfolio, challenge our portfolio, invest in our portfolio, and look for those areas where we can grow. Peter Thomas Galbo: Great. Thank you for that. And, Andre, maybe just as a follow-up: I know the guidance is largely unchanged after what was probably a better than expected Q1. You called out some timing factors. Maybe just expand a little bit on your prepared remarks around Q2 and how you view the evolving outlook. I know you bumped that up a little bit today. Thanks very much. Andre Maciel: Good morning, Peter. Thanks for the question. We expect the second quarter to have top line between minus 3% and minus 5%. This is a consequence of the Easter shift that we have explained a few times, combined with the fact we still anticipate and expect SNAP to be a 100 bps headwind in the year starting in the second quarter. Nothing that we have seen so far indicates otherwise. We do expect to continue to see market share improving like we observed in Q1, but given softness in the category, we expect that to be a headwind in the second quarter. These will all be partially offset by continuous improvement in away-from-home business worldwide and in emerging markets. When it comes to inflation, we initially guided the year to be approximately 4%. In fact, our number implied in the outlook was a little lower than that. We are now seeing, mainly because of the conflict, inflation around energy and resins spiking up. We are well hedged in energy for the year. Resins we are hedged through mid-Q3, so I do expect, if the situation remains the same—there is still a lot of volatility out there, which can get better or even worse—that we will start to suffer the impact from that inflation in the third quarter. Operator: Our next question comes from Steve Powers with Deutsche Bank. Your line is now live. Stephen Robert Powers: Great, thanks, and good morning, everybody. Steve, if we just look at the improvement you have started to show through and exiting the first quarter, as you dig into it, are you able to parse out where there is more meaningful, true underlying progress that you think can really be momentum you can build on versus maybe some transitory impacts—areas where Easter timing or weather or what have you flattered the quarter? Is there a way to parse out what is most promising versus maybe where we should temper our thinking a bit? Steve Cahillane: Yes, Steve. Definitely, we benefited from the Easter shift—there is no question about that—and the winter storms caused some pantry loading, no doubt about that. But underlying that, we have seen real improvement in our share trajectory and performance. We said in the prepared remarks, the total business last year held or gained share in only 21% of categories. In the first quarter, that moved to 35%, and in March, that moved all the way up to 58%. If you look at our Taste Elevation, where we were investing earlier last year, that moved from 24% holding or gaining share last year all the way to 81% in the six and exited March at 87%. That is really a function of the investments that we have made, the product improvements that we have made, and the distribution that we have been able to hold or gain based on the activities we put in place. The totality of the business and the good start to the quarter can also be attributed to the fact that for the last at least sixty days, this organization has been maniacally focused on growth and execution. Pausing the split freed up lots of resources, as we said it would, and we turned our attention and the attention of this entire organization to get off to a strong start, and that is exactly what we did. So we are being very realistic about what flattered the quarter, as you said, but we also see the underlying strength that is building. That is important because that is where we are going to continue to invest, and the vast majority of our $600 million is still dry powder that is being deployed as we speak from now through the rest of the year. So we are holding guidance, but we are very encouraged by the start to the year, and we plan on continuing our maniacal focus against our consumer, our customer, and execution. Andre Maciel: And to complement a little bit with the numbers: last year, we started the year losing 90 bps of market share, mix-adjusted. That was really the bottom of the last ten years. As we started to step up investment in the second half, we were able to exit last year losing 50 to 60 bps of market share. Now, year to date, we are at 30 bps, so there is definitely good improvement happening right now, led also by hydration, as Steve mentioned, and desserts—places where we have stepped up investments in marketing and renovated the product—and we have started to show some signs of improvement. Stephen Robert Powers: Great, thank you. And, Andre, while I have you, just on free cash flow—obviously a strong quarter, but with some working capital and marketing accrual timing benefits. You have maintained the free cash flow outlook for the year, but as you think about the balance of year, 2Q through 4Q, anything to call out in terms of timing of year-to-go free cash flow? Andre Maciel: Our cash flow comp remains very strong. Think of all the changes we have done to incentives a couple years ago. We now have the organization focused on really being disciplined in deploying CapEx and managing working capital better. We are seeing that translated again in the first quarter. Because of the step-up in investments happening in the second half, we should expect cash flow potentially to go down in the second half of the year, but that is anticipated. Now, we exited the quarter with very strong cash on hand, so you will see us now in the second quarter paying down debt. We have debt maturing now in Q2, and we are strongly considering anticipating paying back part of the debt that is maturing next year. We have $1.9 billion next year again, so we are considering anticipating a portion of that as well, and there are a couple other things we are doing in terms of managing our debt tower better, which will allow us to reduce interest expense. But I think it is a good position that we put ourselves in, to allow us to invest $600 million in the business and still generate strong cash flow. Operator: Our next question comes from Michael Lavery with Piper Sandler. Your line is now live. Michael Lavery: Thank you. Good morning. Just curious how to think about the pricing environment. You have obviously started the year with plans that include price adjustments, and it looks like there are early signs in this quarter that they are in place already—that that is working. But then there are shifts in the input cost environment. Does that do anything to change how you think about your plans, or how fluid and dynamic would your pricing expectations be? Steve Cahillane: Thanks, Michael. I would say the pricing environment can be best characterized as very rational. We have come through this inflationary cycle, which was obviously unprecedented. The consumer is under a lot of pressure, and so our focus is very much on value—creating value and affordability. We have looked at opportunities to adjust pricing where we think it has gone a little too far, and you are seeing some results in that. But we will always look at the input cost environment and say our first line of defense is productivity. We are really looking to ramp up and have a top-notch productivity year this year because it is really needed since the consumer can only absorb so much price. Ideally, a business like ours would take about half of input cost inflation in price and then the rest in productivity. If we could do better than that, this is the year to do it because the consumer is under a tremendous amount of pressure. We look at it as very much our goal to be affordable and be there for our consumers in an environment like this. Andre Maciel: To complement what Steve said, in the guidance for the year, we had contemplated initially that we would price only 20% of the inflation. So this was already anticipated. To Steve's point, we are relying on another strong year of productivity. We started Q1 strong again, above 4% of COGS, and we do expect to be able to maintain that pace. Michael Lavery: That is really helpful. Related to that, I wanted to follow up on—I think it is Slide 8—you flagged a simplified operating model as part of the turnaround for the U.S. It has the Ore-Ida logo there; it could be referring to the Simplot JV. How much opportunity is there to simplify the operating model? And part of the question is, through the lens of history, knowing that cost cutting can obviously go too far, how should we think about what opportunities there are and maybe the risks, and how you think about that approach? Steve Cahillane: We made a terrific hire in bringing Nicolas Munoz to run our North American business, and he has been hard at work looking at the operating model, as have we all. We see real opportunities to have stronger accountabilities and stronger empowerment at the people who are running the business. We also see big opportunities to supplement our commercial activities and our commercial people, and we have been doing a lot of that—hiring people in sales and marketing—with a focus on the consumer and the customer and very strong objectives that are aligned around our business objectives. The chief one is growing organic sales and improving market share performance. We are simplifying everything that we do in service of the consumer and the customer and our goal to drive profitable, volume-led, value market share. Operator: Our next question comes from Chris Carey with Wells Fargo. Your line is now live. Christopher Carey: Hi. Thank you, everybody, for the question. If you think about the back half acceleration in top line that you are embedding for the year, can you unpack that a little bit across the most meaningful drivers—as it pertains to the lapping of Indonesia, the step-up that you are expecting from investments, the improvement in market share that you are expecting, perhaps some of this acceleration in Western Europe post-pricing? Give us a sense of the major contributors to the back half improvement that you would expect in the top line. Steve Cahillane: Chris, I will start and Andre can help with more details on the numbers. We are not really calling for an acceleration. We got off to a very good start, and we are being prudent about the way we think about the rest of the year. Of course, we would always like to overdeliver on our top-line goals and overdeliver on our market share objectives, but we are being prudent in the way we think about the rest of the year and not embedding the first-quarter overdelivery into our guidance for the top line. Andre Maciel: In terms of the building blocks, you mentioned Indonesia—that is certainly a contributor. In the first quarter, for example, Indonesia alone was a 70 bps headwind to top-line growth, and we do expect that to go away in the second half as we lap all the adjustments we have made in the business. Market share in the U.S., as we step up the investments, should see an improvement versus where we are today. Similarly, we feel good about our European plans and everything that we are doing behind Heinz. There is a lot of step-up investment as well as part of the €600 million that is going against Heinz in Europe. We are going to see that also helping improve performance there. And away from home, even though there is still overall softness in the category, we are now seeing signs of market share improvement in the U.S., which is quite encouraging, especially in the sauces portfolio. All of those factors should allow us to see a step-up, so there will be a balanced contribution across those levers. Christopher Carey: Thank you. It has been touched on a bit, but as you think about the inflation exposure in Q4, this is going to imply bigger exit rates going into 2027. What does the toolkit look like for you to work through a sustained higher inflation environment? There is pricing, productivity running at relatively high levels, maybe harvesting some of the investments that you have made in SG&A to protect the bottom line going into 2027. Obviously this is a fluid environment, and inflation can certainly change, but can you give us more insight on how you would be planning from a cost-offset perspective if we look out 18 months? Steve Cahillane: We would not look at our investments—the $600 million and otherwise—as a way to protect profit. In fact, we are looking at opportunities to even invest more as we see good returns against those investments and good outcomes in terms of the top line. We will protect that and, in fact, even lean into it. As we said earlier, the first line of defense is always going to be productivity. It is unknown what the fourth quarter and 2027 will bring. It could be that the whole environment moves towards needing to take more price. We cannot predict what the outcome will be in the Middle East and how that will affect costs, but it would be something that affects the entire environment. We would be looking to go with that if needed, but again, first line of defense is productivity, investing in our brands, and driving a good top-line outcome. Operator: Our next question comes from Thomas Palmer with JPMorgan. Your line is now live. Thomas Palmer: Good morning. Thanks for the question. Maybe starting on the marketing side: you noted a 37% increase in the first quarter on a year-over-year basis, also the plans for 5.5% spend. Any framing on where that level of increase in the first quarter takes you relative to that annualized percent of sales? And when we think about the magnitude of the increase, are there any timing considerations, such as having that earlier Easter impacting how that marketing spend flowed through? Lastly, any detail on where that spend has really been focused and if you are seeing, when we look at the share improvements, disproportionate spend in the areas that have inflected the most? Andre Maciel: As we said in our prepared remarks, we do expect marketing for the year to be at least 5.5% of revenue. As Steve mentioned, we have been looking very closely at how our performance is shaping up, and if things end up better than we anticipated, we will be willing to lean more into investment, with marketing being one of the key drivers. The reason why we see 37% in the first quarter—you might remember last year we stepped up marketing investment in the second half—so now you have an easier comp on the marketing front. Year over year, we are going to see that benefit gradually reducing because of the step-up in the second half. But overall in the year, we do expect at least 20% increase. In terms of where this money is going, we have been prioritizing our Win Big categories. There is a proportionate amount, started last year, that went against sauces, cream cheese, mac and cheese, and hydration. But we do have the opportunity to step up marketing across the whole portfolio. We have been gradually stepping up investments across different parts of the business to different extents, but we believe that to be healthy for the whole portfolio. Thomas Palmer: Thank you for that. On the SNAP side, you have noted expected headwinds, especially ramping this quarter. I know it is still early in the quarter. Are you already seeing signs of this incremental impact as we think about the second quarter? And just to confirm, there was not really an impact in the first quarter—I know it was not a callout. Thanks. Andre Maciel: We definitely see an impact from SNAP already happening in February and March. If you look at SNAP transactions, they are already down, in line, if not even a little more than expected. On the other hand, we saw strength in the non-SNAP households, which helped to offset that in the first quarter. It is hard to predict at this point if that strength in the non-SNAP households will hold into the remainder of the year. We are anticipating that we will start to see that net household impact more pronounced into sell-out for the year to go, and that is why we have been calling for a 100 bps headwind. Obviously, we are not sitting on the problem. That is why part of the price investment we have deployed in the $600 million was put against opening price points. This part of the consumer base is definitely under a lot of pressure. Operator: Our next question comes from Megan Klap with Morgan Stanley. Your line is now live. Megan Klap: Hi, good morning. Thanks so much. Maybe to pick up on Tom's first question on the marketing investments—and, Steve, some of the comments you have made—clearly you are seeing some benefits from things that were done prior to you making this new plan. You mentioned $600 million is still dry powder. As you see the improvements you have made in the first quarter and then some of the areas you highlighted—meats in particular—there is still opportunity. Can you talk about whether anything you have seen so far has changed how you are thinking about concentrating some of those investments, particularly as the macro continues to shift and perhaps the cost inflation outlook gets more challenging as we go into the back half? Steve Cahillane: What we have seen is good returns on the investments that we have made, and that is where we are leaning in. If you look at some of the exciting things that we have going on right now, you can follow our investment against those. For example, Power Mac & Cheese, which just came out in April—too early to see any sell-out data, but the sell-in was outstanding: 35 thousand accounts right now as we speak. I think that is a function of the commitment that we made to increase our investments substantially, which led to better distribution, and we are going to be investing against it. We anticipate a good launch there. In our varieties business, we have a nice Shapes innovation that we are investing in. The Capri Sun Hydrate that we mentioned earlier is a big opportunity to continue the momentum that was built last year on Capri Sun with new distribution and new doors there, so we are investing against that. We have a Lunchables renovation coming next month; we will be investing against that. We have seen a good turnaround in Lunchables, which started at the end of last year. In the back half of the year, Philadelphia Lactose Free is coming, which we think is a big opportunity given the number of people who suffer from lactose intolerance in the U.S., and it is a great innovation we will be investing against. The brands where we think we have a real right to win, we will be investing in. You mentioned meats—where we have things that we need to turn around, we need to make some investments there. We do not like leaky buckets, and we are going to look to plug those at the same time as we lean against our biggest and best opportunities. Megan Klap: Great, thank you. And, Andre, maybe just a quick follow-up on the gross margin performance—still down in the quarter but significantly better than what you were expecting and what the Street was modeling. I understand there were probably some fixed-cost leverage benefits on the top line, but anything else in the quarter in terms of upside versus your expectations to call out? Thanks. Andre Maciel: There is about 40 to 50 bps of gains in the quarter that are nonrecurring. A portion of that is selling excess byproducts; we do not expect that to be repeated in the year to go. There is a small contribution from a maintenance we were expected to do in a certain factory that would have required us to cut back production to a co-packer temporarily. We decided to move that to later in the summer, so that is a phasing thing. Cheese commodities came a little better than what we anticipated. We did see the peak in inflation that we expected across most of the commodities, including coffee and meats, but we had those other upsides that helped in the quarter. That is why we are also maintaining our expectation for the year of a headwind of 25 to 75 bps. Anne-Marie Megela: Perfect. Thank you. Operator, we have time for one more question. Operator: Our last question comes from Scott Marks with Jefferies. Your line is now live. Scott Marks: Hey, good morning. Thanks so much for squeezing me in here. In the interest of time, I will just ask one. Can you give us a lay of the land in terms of the away-from-home environment? I know you called out some pressures in the U.S. business. You have some clear paths to growth there. Can you help us understand what is happening both in the U.S. and abroad, and how you think about the improvements within that part of the business? Thanks. Steve Cahillane: Yes, Scott. From a macro perspective, away from home is under a fair amount of pressure based on the macroeconomic environment both in this country and around the world. Having said that, we see tremendous opportunities for us in away from home based on the strength of our brands and the opportunities in front of us, and this is one of the areas we are investing in. We see away from home as a strategic outlet and a strategic opportunity for us. We like the momentum that we are building early this year. We see a lot of opportunities both in this country and especially around the world to continue to gain share in away from home. We have one of the greatest away-from-home brands in Heinz, and we can do a lot more in leaning into Heinz—and not just in ketchup. Heinz has been successful in mayonnaise and other spreads as well. There are big opportunities for us to continue to leverage our brands, especially Heinz, as we think about the away-from-home opportunity. Operator: We have reached the end of the question and answer session. This concludes today’s conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the DoorDash, Inc. Q1 2026 earnings call. After today’s opening statement, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. I will now hand the call over to Weston Twigg. Weston, please go ahead. Weston Twigg: Alright. Thank you, Elizabeth. Good afternoon, everyone, and thanks for joining us for our Q1 2026 earnings call. I am pleased to be joined today by Co-Founder, Chair and CEO, Tony Xu, and CFO, Ravi Inukonda. We will be making forward-looking statements during today’s call, including, without limitation, our expectations for our business, financial position, operating performance, profitability, our guidance, strategies, capital allocation approach, and the broader economic environment. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described. Many of these uncertainties are described in our SEC filings, including our most recent Form 10-K and 10-Q. You should not rely on our forward-looking statements as predictions of future events or performance. We disclaim any obligation to update any forward-looking statements except as required by law. During this call, we will discuss certain non-GAAP financial measures. Information regarding our non-GAAP financial measures, including a reconciliation of such non-GAAP measures to the most directly comparable GAAP financial measures, may be found in our earnings release, which is available on our Investor Relations website at ir.doordash.com. These non-GAAP measures should be considered in addition to our GAAP results and are not intended to be a substitute for our GAAP results. Finally, this call is being audio webcast on our Investor Relations website. An audio replay of the call will be available on our website shortly after the call ends. Operator, I will pass it back to you, and we can take our first question. Operator: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from the line of Shweta Khajuria with Wolfe Research. Your line is open. Please go ahead. Shweta Khajuria: Thanks a lot for taking my questions. Let me try two, please. One is on product and the other is on partnership. So first on product, could you please talk about how you envision your product developing over the next 12 to 24 months as you integrate more of agentic and AI capability? So will we have an opportunity to communicate via voice and put a cart together and execute a transaction, even saving us more time, or better search and discovery, or whatever it may be? If you could please talk to that. And then the second one is on partnership. You announced extension and expansion of your partnership with Lyft. As you think about the greater value proposition around local commerce and becoming the operating system for local commerce, how do you think about travel as an adjacency with Uber partnering with Expedia—partnering with Airbnb and Booking.com type partnership? A value add or something else? Your thoughts on that would be great. Thanks a lot. Tony Xu: Hey, Shweta. Maybe I will take both of those and feel free to add in anything you want, Ravi. Look, on the first question with respect to product, the DoorDash, Inc. philosophy and story has always been the same here, which is we have to create the best end-to-end shopping experience. If we do that, we will continue to be the ones that innovate and lead. We will continue to deliver great results like the ones that you saw in the quarter and in the many years leading up to the results that we have just shared. There is not one way to do that. You talked a bit in your premise, Shweta, about this idea that you should be able to, with the assistance of agentic-like tools, have better discovery and search experiences, and we agree with you. I think that we absolutely will have agentic ordering experiences in which it will be a lot easier for customers to do many things that they do today with much lower friction, to discover things that they perhaps did not know existed on DoorDash, Inc., to formulate complicated queries and solve those in the best possible way. The most important thing in delivering this is making sure that we can do it not just in discovery and the upper funnel, but across the end-to-end experience. What is the point of having the best discovery experience if we cannot bring you that exact item, or if that exact item were out of stock, or it does not meet your personalized preferences, and we cannot actually solve for that need? For us, the way I think about it is there is no one trick. It is making constant and continuous improvements to the selection quality, the accuracy of the catalogs, making sure that we offer the widest choice in terms of affordability and different price points, offering the best quality of experience in speed, timeliness, and accuracy, and then, obviously, in customer support, which I think is also having an agentic revolution in itself. You will see all of these things play out in the DoorDash, Inc. product experience. The most important thing is that we have to build the best end-to-end experience. We are the only company that has the most robust catalog, much of which is actually about the physical world that does not exist in any digital repository, that cannot be scraped, and that we ourselves uniquely own access to because of all the work that we do to actually build up a repository of the physical world. That is something that we will continue to build greater and greater advantage in, especially in the world of agentic commerce. Your second question on membership and how partnerships will evolve: the way to think about it is that membership experiences and the benefits that live underneath the umbrella of membership programs only matter if they are best-of-breed experiences to customers. This is why you see different customers, for example, choose a variety of different memberships even for the same product. If you take streaming, for example, some people prefer shows of a certain format on one network, whereas others prefer shows of a different format on a different network, and that is why they end up having multiple membership programs. There are so many examples of this where being best of breed is ultimately what customers care about and why they will choose to adopt or not adopt your program. As you saw in some of the results that we discussed—record engagement in DashPass as well as our other membership programs around the world—what we are doing is building the best-of-breed product experience when it comes to eating, and increasingly in shopping as we go outside of the restaurant category. There is a long way to go. There are 20 to 25 occasions for eating alone every single week, so over 100 every single month. If you add in shopping, it is even higher than that, and on that combined sum, we are a tiny fraction of what is available and addressable, which means there is a large runway and opportunity for us to become even better in breed in terms of what we can offer. If we can keep doing that, I think we are going to be just fine. You see it in our numbers. You see it in our growth rates both in the US and outside of the US. We are gaining share virtually in every single market, and we are growing at near historical highs in pretty much all of our geographies. I think that is happening even at the scale that we have developed over the last few years because we are continuing to build the best-in-breed experiences in categories that have a very large runway for growth. Shweta Khajuria: That was great. Thank you, Tony. Operator: Your next question comes from the line of Michael Morton with MoffettNathanson. Your line is open. Please go ahead. Michael Morton: Good evening. Thank you for the question. One for Tony and then a quick one for Ravi. Kind of following up on what you were just speaking about, Tony—AI and partnerships. As the AI platforms become more capable, there is a concern from investors that personal agents could layer themselves in between the on-demand marketplaces and the consumer. I would love to know DoorDash, Inc.’s long-term strategic view on this, and if there is a risk to your business of becoming an API or logistics offering to these, and why or why not you would want to work with one of these third-party AI platforms. Then the quick one for Ravi: as you have been operating Dot for a bit now in some cities, are you willing to share any learnings about what percentage of the US delivery market you think is addressable for AVs, and then maybe thoughts on how to incentivize consumers to come out and meet the Dot, or where the opportunity costs are around cost to serve with AV? Thank you so much. Tony Xu: Yeah. Hey, Michael. I will start on your question related to agentic commerce and agents and whether or not there is any intermediation or disintermediation risk. I think what is instructive here is what we have seen historically with top-of-funnel programs. For at least a decade, you can argue companies like Google or Apple, and many other large platforms, were top-of-funnel drivers to a lot of different commerce platforms, ours included. Take, for example, Google food ordering, which allowed you to order through various Google channels—Google Maps, Google Search, and I believe a few others—where you could order restaurant delivery. That started in the mid-2010s and went for about eight years before they shut it down. From a traffic perspective, they absolutely could drive a lot more traffic than virtually anyone else could to any one of these restaurants. Yet the retention of that traffic was a fraction of what platforms like DoorDash, Inc. saw, and as a result, customers effectively moved all of their shopping experiences to DoorDash, Inc. I would argue something similar happened with Amazon where, perhaps at the beginning of the 2010s, Amazon was not a leading player in the product search category, but by the end of the 2010s, Amazon ended up owning a significant percentage of all product search terms related to commerce. You may ask why that happened and what lessons we can learn from history to instruct what is happening in this moment and in the years to come. What I would say is customers ultimately do not care about any top of funnel—DoorDash, Inc. included—or any of these agents. What they care about is whether they got the order they wanted, the item they were actually looking for, and whether they got it in the best possible experience in terms of price, speed, timeliness, and accuracy. Obviously, if something were to go wrong, was it fixed appropriately and quickly? When I look at it from the customer’s perspective, they are going to ultimately judge us on the best end-to-end experience. That is what we are focused on maniacally at DoorDash, Inc.—not just building agentic ordering experiences on DoorDash, Inc. to make discovery or search easier, but also building a catalog, a digital catalog of structured information for the physical world: collecting where every banana sits or every ripe or unripe avocado, to every size shoe in whatever color and style a customer is looking for. All of that information about the physical world—of which there are billions of items, tens of millions per city—and getting that annotated and having that unique and proprietary to DoorDash, Inc., which we do not have to share with anybody. If we can do that and improve our discovery experience over time, given the power of some of these agentic tools, I think we are going to be the best end-to-end shopping experience. Ultimately, that is how we are going to get judged. I think that is the reason why, for instance, even our restaurant delivery business, which is the oldest of the areas in which we operate, continues to grow at above historical highs, because we are constantly trying to build the best end-to-end experience and be best of breed in doing so. It does not mean we are perfect. We have a long way to go, and it is not a guarantee that we are going to be able to get there. But if we can keep executing like we have, I think the numbers will continue to speak for themselves. These top-of-funnel players will be partners of ours. They will drive a small percentage of our traffic, and a lot of that will be a choice that we will have. Ravi Inukonda: Hey, Michael. On your second point around Dot, we are very happy with the progress that we are making. Maybe I will talk a little bit about the vision. The vision for us is we are building autonomous delivery because, ultimately, we think different formats are needed for different types of delivery. That is how we build the most efficient network. We are happy to partner with others, and we are happy to build ourselves. I think there are going to be different formats both on land as well as in the air that we are working on. We are early on this journey. We are scaling. What we are trying to do is operate at scale, manufacture at scale. That is going to be important for us. We have seen good results. We have launched it in a couple of markets. Adding it down to the end customer benefit—because I think that was one part of your question—it is going to be a combination of the key things that we focus on. It is going to help us with speed. It is going to help us with quality. It is going to potentially help us with overall range of delivery. The key is the work that we are doing is starting to look good. We are early in our journey, and the overall progress we are making is going really well according to the plans that we made at the beginning of the year. Tony Xu: One thing, Michael, I will add to the autonomy story that sometimes is harder to see from the outside is that there is a pretty big difference between just shipping a vehicle or having a vehicle ready for a demonstration and a vehicle that can really operate at scale under any condition and is really battle-tested. It is kind of like saying, I can shoot a three-point shot, and so can Steph Curry, but one of us is the greatest shooter of all time, and one of us maybe hits it once in a while. This year for us, it is really climbing that curve for the autonomy program and making sure that we can harden our systems. It is not just the autonomy. It is the autonomy, the hardware, the remote operations, all the work around regulatory with the different cities so that we can do this at scale and truly be the best of breed. I believe the only way you can really do that is if you actually get in there and do all of the things yourself. That is what is happening this year with DoorDash, Inc. and also our broader autonomy program. Operator: Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open. Please go ahead. Eric Sheridan: Great. Thank you so much for taking the questions. As we get deeper into 2026, any updated views around either the depth or the duration of some of the strategic investments, especially in the platform, that you talked about over the last couple of earnings calls? More importantly, any updated views on how the tech replatforming might position you for different forms of innovation than you envisioned six plus months ago? Thanks so much. Ravi Inukonda: Sure, Eric. I will start, and Tony can feel free to add anything. We talked about two calls ago that we are investing $100 million back into the platform. Obviously, the largest component of that is our global tech infrastructure stack. It is going well. The biggest component is being able to design and map all the domains, which is what the team has done over the last several quarters. That part is done. Now we are focused on execution. We are starting to see production traffic go through. We are already starting to see some early benefits come through. On the cost side, which I think was the second part of your question, my view on the overall quantum of dollars that we are investing behind this has stayed the same. It is largely in line with what I had expected two quarters ago. Both the program from an execution perspective as well as a cost perspective is going well. Finally, to your point around benefits, ultimately, the benefit is going to accrue in terms of us being able to do more, us being able to release features earlier. The feature development velocity is going to improve, which will ultimately result in retention, frequency, and unit economics increasing. That was the goal for this. We are starting to see benefits, and I feel good about where the trajectory of the overall program is. Tony Xu: The two things around your second part of your question, Eric, that I would add to what Ravi said about innovation are, one, velocity and, two, quality. Velocity increases for the simple fact that instead of shipping one feature—which, if we were to do it today, we would have to ship three separate times across DoorDash, Inc., Bolt, and Deliveroo—we would only have to do that once. That is the velocity comment. The second point is around the quality in which we can see benefits. By choosing to build a new tech stack versus just replatforming a couple of different brands into the same tech stack that we currently have, you get to take the best-of-breed experiences from different brands and products and put them into a new product that all three get the benefit from. For example, one of the things that we have learned is that there are different logistics challenges in places like London or cities in Europe that are a lot smaller, tighter, and not always perfectly gridded like some cities in the United States or other parts of the world—perhaps older cities historically—not really meant for driving under any circumstance. You need different logistics approaches, and we can borrow and take the best of what we are seeing from European operations and bring those over here to the US. In the US, because we have larger physical geographies that travel longer distances and perhaps a greater retail network with a larger catalog of items, those are advances that we get to port over to Europe. That is what I mean by quality. I am pretty excited that we are on track, which is great news when you are taking on a project as large and ambitious as the one we are thinking about. We are already seeing some velocity and quality wins across all of the brands, and I think there will be a lot more to come as we actually roll this out. Ravi Inukonda: Great. Thank you. Operator: Your next question comes from the line of Youssef Squali with Truist. Your line is open. Please go ahead. Youssef Squali: Excellent. Thank you so much. Hi, guys. Maybe just following up on the prior question and looking at it more from a competitive lens. Can you talk a little bit about what you are seeing in Europe, particularly Northern Europe, with Uber becoming a little more aggressive? There is a line of thinking that maybe as you guys are going through your replatforming, it may make you potentially a little more vulnerable to competition. So maybe if you can comment on that. And then, Ravi, thank you for quantifying the support to drivers. In Q2, I think you said $50 million. Obviously, we do not know how long this thing is going to last, but is $50 million a good run rate to assume for the rest of the year, just assuming status quo on the macro environment? Thank you. Tony Xu: I can take the first question, which is around our competitive position in Europe. We have never been stronger in Europe. Deliveroo is seeing the highest growth rate it has in the past four years, and it has been reaccelerating in growth each of the months in which we have been operating it. Bolt is seeing the highest share performance in each one of the countries in which we operate. Those are outcome metrics, and candidly, they are not things that I stare at all the time. I am looking at what improvements we are actually shipping for our different audiences. If we are seeing logistics improvements, how is that translating into lower wait times at different stores, higher accuracy of picking, or faster delivery? If we can continue executing the way that we have, I think the share performance and reaccelerated growth is only going to continue. It goes to the DoorDash, Inc. story: how do you build what is best of breed? If you continue building what is best of breed, customers will continue voting with their wallets, and they are voting DoorDash, Inc. Ravi Inukonda: Hey, Youssef. On the first one, I will question your premise because if you look at the underlying consumer input metrics—whether it is users, order frequency, we talk a lot about subscription in the press release—we are seeing accelerated growth in subscription. Users are growing. We are gaining share in the majority of the markets that we are operating in. The other thing I would offer is if you actually look at the overall MAU growth in the industry, the majority of that is being driven by DoorDash, Inc. That should tell you the business is doing really well, both from a demand as well as an underlying improvement in customer metrics perspective. Your second point around the impact from a gas rewards perspective: roughly, the impact of that is about $50 million in Q2. We did have to find offsets in the business. We will push out some investments from the first half into the second half. Our goal is to make those investments in the second half of the year. On whether we are going to extend it, we have not made any decision. We will monitor the situation closely and do what is right for the business. That said, my broader view on EBITDA for the full year has not changed. The last couple of quarters, I talked about the fact that I expect overall EBITDA margins for 2026 to be slightly higher compared to 2025, excluding RUE, and RUE to produce roughly about $200 million of EBITDA. That view has remained very consistent. If we do decide to extend the gas rewards program, we will find offsets in other parts of the business in order to make sure we still feel good from a top line as well as a bottom line perspective. Youssef Squali: That is very clear. Thank you, Doug. Operator: Your next question comes from the line of Nikhil Devnani with Bernstein. Your line is open. Please go ahead. Nikhil Devnani: There. Thanks for taking the question. Tony, in a world with AI workloads and a more productive workforce, is your mental model for headcount growth and even organizational structure for DoorDash, Inc. changing at all? Tony Xu: Yeah, it is a really good question. In short, the answer is yes. The longer answer is we are trying to figure out what that really looks like because we are seeing a lot of productivity gains right now from AI. Well north of half of our code—probably closer to two-thirds of our code—is written by AI today. But that alone does not articulate how workflows and team setups ought to change. It means that we are being more productive and shipping more code, but the ultimate question I have is, are we actually delivering better outcomes for customers? At the end of the day, that is the only thing that really matters. We are in that period where we are seeing productivity gains and trying to figure out how those translate to what team setup should look like. The top priority for us right now is getting all teams onto a single tech stack. The second priority is making sure that everyone in the company—not just engineers—is as AI-capable as anyone else. Then we can start thinking about what workflows have to change to truly deliver things faster. Right now, we are delivering features faster—delivering sets, projects, and components faster—but I think the customer holds us to a higher bar: can you actually deliver outcomes much faster? That is a tricky question that all companies, ourselves included, are wrestling with right now, and we will figure it out. Ravi Inukonda: Hey, Nikhil. Very similar to what Tony talked about, we are using it across the board and seeing productivity improvements. The goal for us from a productivity improvement perspective is as it has always been: we want to do more with more. We want to drive more features. We want to do more for our audiences, and we want to do more internally as well. Ultimately, we channel productivity improvement into developing more features. If it is purely from a modeling perspective, I would expect, in the near term, OpEx to roughly be in the 2% range that I have talked about before. We are being very judicious and disciplined. The goal is to generate leverage on it, just like any other part of the P&L over time. Nikhil Devnani: That is helpful. Thanks. And, Ravi, if I could just follow up on the order growth dynamics in Q1 as well. Could you elaborate a bit on the deceleration there? Is that just weather, or are there other things you want to call out? How are you thinking about that as you think about the Q2 guidance you have given for GOV? Thank you. Ravi Inukonda: The question broadly is around consumer demand on the platform. Demand continues to be quite strong. The impact purely from a winter storm perspective is roughly about 1% on a year-over-year growth basis from a GOV standpoint. When I look at the underlying demand, it continues to be very good. We have talked about MAUs reaching an all-time high. Order frequency is growing. Subscription had a record quarter across the board—across DoorDash, Inc., Deliveroo, as well as Vault. What we are seeing is member growth has accelerated on a year-over-year basis, following the last few quarters where member growth has been quite healthy. We are seeing that from sign-up as well as overall retention. We are gaining share. New verticals are continuing to do well. We were volume share leaders in Q4, and we have continued to extend that. Across international, we touched on Deliveroo acceleration, and the rest of the international portfolio is also growing. Scooter is off to a good start. We feel good about the demand patterns that we are seeing in the business. Nikhil Devnani: Thank you. Operator: Your next question comes from the line of Deepak Mathivanan with Cantor Fitzgerald. Your line is open. Please go ahead. Deepak Mathivanan: Great. Thanks for taking the question. Tony, on groceries, in the last few months, you have got a lot of new partners. Can you talk about the trends in the business broadly—maybe in terms of penetration, how use cases have evolved, potentially some color on growth, and maybe also where the unit economics have seen the biggest gains? And then similarly, Dasher Fulfillment Service is also another big area of focus this year. Where does it currently stand, and where do you want the service to get to ultimately before it starts becoming another incremental key growth driver? Thank you so much. Tony Xu: Those are related questions, so I will start with where grocery is at today. It is pretty much at record highs for us. We became the share leaders by volume last fall or last winter, and it has continued to go in one direction. There is a lot of activity in the field. You are right, in part, because we have added a lot of grocers, and we like the trajectory of the pace we are at. We are also improving the service experience. It is not just adding more selection. I always ask myself, why is grocery not a lot bigger? Why should it not be even bigger than restaurants? It is because the online delivery experience is just not yet good enough compared to the offline experience of buying it for yourself. We are really closing that gap, and the team deserves a ton of credit for making us a lot more accurate, more affordable, making basket building a lot easier, making customer support better, making the experience easier for shoppers—literally tens of thousands of little things over the last six or seven years that are accumulating. But there are still reasons why, over time, if you truly want to marry the best possible selection—which is every store inside your neighborhood—with the best possible quality—which means you get exactly the item you order without any substitutions or changes and certainly no out-of-stocks or canceled items or orders—I think you do have to work the fulfillment problem, which is where Dasher or Dasher Fulfillment Services comes in. There, we are trying to build an inventory management and fulfillment setup with all of the grocers and retail partners that we work with. If we can do that, then finally you can unlock what is truly a magical experience where it is more similar to restaurant delivery where, yes, there might be a small premium you pay, but at least you get exactly what you ordered, which is not the experience today. In terms of where Dasher Fulfillment Services is, we are doing it with a handful of grocery and retail partners today. If you think about that journey, we are trying to work with grocers and retailers who, for decades now, are used to running their supply chain and their stores in one particular way. Now we are introducing a second way, and there are a lot of things to figure out in terms of technology, people processes, the interaction of business models, and everything in between. We see good results with a handful of partners, but in the spirit of all things at DoorDash, Inc., we really want to make sure we nail the experience before we scale it because this is quite disruptive in a positive way to the customer experience and also disruptive to how retailers are used to working and running their businesses for so many decades. We have to make sure that we get it fully right end to end. Then we can replicate the playbook. Ravi Inukonda: Deepak, on the unit economics side, we made a lot of good progress. Last call, I made the point that we expect the overall new vertical to be gross profit positive in the second half. We are trending well towards that. We have not been worried about what the profitability profile of this business looks like. It is something we understand quite well and what we need to do. It is not that there is any structural change we need to make happen. It is just continued execution on a number of lines up and down the P&L. What we are truly focused on is how we scale the business. In Q4, we talked about the fact that about 30% of our monthly active users order from categories outside of restaurants. We truly think that could be 100% over time, and that is going to come with a lot of improvements in selection, quality, and the underlying product. Looking at consumer metrics, order frequency is improving. Basket sizes for mature cohorts are continuing to improve, which means people are using us for more use cases. Over time, the underlying order rate also continues to improve. These are all good signs, which drive both growth and improvement in scale, which will ultimately drive the unit economics in the business as well. Deepak Mathivanan: Great. Thank you so much. Operator: Your next question comes from the line of Josh Beck with Raymond James. Your line is open. Please go ahead. Josh Beck: Yeah, thank you so much for taking the question. Maybe more on the cost side. Ravi, you mentioned the $50 million gross cost as you look to find relief for those investments. What are some of the big topics that you are looking to uncover there? And then, going to some of your points on new verticals, certainly a very nice watermark to achieve gross profit breakeven. To get to the next milestone, what are going to be some of the really important elements? Generically, it seems like within new verticals, advertising is a bit more of a weighting factor there. Just curious how to think about some of the important drivers beyond scaling into the second half. Ravi Inukonda: Hey, Josh. I will take the first one. Tony, why do you not take the second one? On cost and gas rewards impact on the model for the rest of the year: in Q1, we had the impact from both winter storms as well as the introduction of gas rewards. In Q2, we did extend the gas rewards program. The rough impact in Q1 was about $50 million. The projection for the impact in Q2 is also going to be about $50 million. Like I said earlier, we did find offsets in the business. It is a very dynamically managed business. We take our plans very seriously. We look at input metrics to make sure we are doing the right investments. We did have to push out some investments in H1 in order to make room for this. We are fully convicted that we are going to make these investments in the second half of the year. If we do decide to extend the program, our goal is to find offsets like we did in H1. My view on the full-year EBITDA has not changed. We have said a couple of quarters ago that overall 2026 EBITDA margin is going to be slightly higher compared to 2025, excluding room. That view still stands. I would expect second-half EBITDA to be higher than first half, and second-half EBITDA margins to be higher than the first half, largely similar to what I had expected at the beginning of the year. Overall, we look pretty good from a bottom-line perspective for the rest of the year, and demand on the platform continues to be strong as well. Tony Xu: With respect to your second question about what else we need to do to achieve higher levels of profitability within grocery, the short answer is more of the same. We are not trying to rely on any one source of revenue, like ads, to make grocery profitable. We do not need to. We believe we have created a lower cost structure that allows us to make delivery profitable, but it is just not good enough yet. From the perspective of the customer—not our P&L—we still need to be more accurate. We still need to have more items available, even from existing stores, and we need to do it at better and better price points. If we keep doing that, you already see it in our cohort behavior. It is not true across the whole business because we are still gaining a lot of new customers— in fact, we gained about one in every two new customers that comes into the industry for grocery delivery for the first time—but cohorts over time buy bigger and bigger baskets and achieve profitability milestones without any unnatural or overreliance on any one cost or revenue driver. That tells me that, at current course and speed, it will get there. The question is how to get there faster, but perhaps most importantly, how to actually unlock a much bigger industry. Grocery delivery fundamentally should be as large, if not larger than, restaurant delivery. It is just that the product is not good enough yet. We already are leading, from what we have been told by some of the top grocers in the country, in terms of quality, but we still think there are miles to go. Perhaps we brought some innovations to the market, but we think that we have to keep innovating on all things accuracy and price points, and we have some interesting ideas on how to do that. We do not have to do anything unnatural or rely at all on any single line item to make the math work. Josh Beck: Super helpful. Thanks, guys. Operator: Your next question comes from the line of Brian Nowak with Morgan Stanley. Your line is open. Please go ahead. Brian Nowak: Thanks for taking my questions, guys. I have two. The first one, Tony, in the letter you talk about making some new tools that help designers streamline the merchant onboarding process. Can you talk to us about areas you have made the most progress in bringing on new merchants and more inventory per merchant, and what are some of the technological advancements you are still looking to make to really make that easier to get more of those bananas and avocados that you talked about earlier—and even carving knives? And then, Ravi, one for you on the replatforming. You say that you have live production traffic ramping up across all three of the global marketplace brands. Does that mean that you are running all three tech stacks now, so we are burdening the P&L with the max cost, and then we should start to turn some of those off in the back half? Or how does this triple-platforming-down-to-one-platforming timeline work? Tony Xu: I will take the first one, Brian. We continue to ship a lot of different tools to make it easier to work with us, for customers to find what they are looking for, and for Dashers to perform deliveries. On the specific question with respect to the merchant tool, where I have found AI to be helpful—especially now with more powerful models that can reason in a multi-turn fashion—is that you can start looking at repetitive processes that are stitched together and actually get them done with perfect quality every single time, using just an agent. Even six to eight months ago, this was less true because you had to build a lot of backup or redundant systems to make sure agents do not go off the rails and can actually finish the task. That has happened with onboarding, for example—whether it is helping you with your menu or your catalog as a restaurant or retailer, or with your photos and your metadata and the annotation of that data. All of these are effectively repetitive tasks in which you can create agents and stitch them together to do that in a really productive way. With all things, the removal of friction increases activity, and increased activity increases the business that we get to do together. We are already seeing benefits to the P&L from some of the AI work that we are doing—some of it on our own products, like the AI ordering agent, and some on tools related to merchants, customer support, and Dashers. With respect to things we still have to do—capturing all the inventory inside a city—we are still just a tiny fraction of all items sold or even represented today on DoorDash, Inc. That is becoming more interesting as some of those items are also different when it is an in-store shopping experience. Some restaurants, for example, offer different in-store products and experiences and services that they do not offer for takeaway or in the offline world. There is a lot we have to document. The second thing we have to do is build structure and cleanliness out of what is inherently very messy and constantly changing, which is a challenge. If we can do both across every category as we march from restaurants to grocery to different categories within retail—and do that through the merchant’s channel online, the DoorDash, Inc. channel online, and the merchant’s channel offline or in-store—I think that builds a really rich dataset that is nonexistent anywhere, extremely valuable for the merchant to have a full view of all the different types of customers and occasions, and really interesting for DoorDash, Inc. to build both products as well as businesses. Ravi Inukonda: Hey, Brian. On your second question around the global tech side, two broad points, then the mechanics. The team has done an incredible job. This is a massive project. It is going according to plan. I am really happy with the progress. Even on the cost side, my view on the overall cost is very similar to what I talked about two quarters ago. So both on progress and cost, I feel very good. On the mechanics of the P&L, there is a portion of the spend which is redundant in the sense that we are going to run all three tech stacks in parallel while we are working on the new global tech stack. That is going to phase in and phase out. My expectation is the majority of that will run through 2026. Maybe some portion will bleed into early 2027, and then it will bleed out. Hopefully, that gives you the mechanics of how the rest of the P&L is going to work for the year. Brian Nowak: Thank you both. Operator: Your next question comes from the line of Justin Patterson with KeyBanc. Your line is open. Please go ahead. Justin Patterson: Great. Thank you very much. Good afternoon. I saw you recently launched workplace catering for DoorDash for Business. Can you talk more about how you are thinking about that opportunity and what you see as some of the key challenges toward scaling this? Thank you. Tony Xu: DoorDash for Business is off to a very great start, and it is something we really recently focused on in the last few years. DoorDash for Business is a suite of products—there are three. You talked about one of them, which is catering. There is also Meal Manager, and corporate solutions related to DashPass and group ordering. The idea is, if you are a company or an organization—it could be a nonprofit, a government institution, or a school—and you are serving multiple different use cases, sometimes it is a group meeting with just a few of us, sometimes you are hosting an event in which you need catering, sometimes you need individual meals as your sales teams travel to do different things or client demos. You are going to want to work with one place ideally where you can see everything in one view and offer your organization the best-in-breed selection, price, and quality. Because we offer what we believe is the best of breed in price, selection, quality, and service, DoorDash for Business is naturally growing very quickly. The biggest challenge, especially with catering, is solving the perennial hard problem of cooking for a large group of people. It sounds simple, but if you think about cooking for yourself and then adding guests, that logistics problem gets exponentially more difficult as you increase the count of guests. The challenges are numerous: kitchen capacity, menu design, staffing, logistics, operations. We have to do all of that. To truly create the industry—because the industry by itself is somewhat limited since not every restaurant is built as a manufacturing facility to cook up to the needs of a larger organization or team—it is really working hand in hand with merchants and Dashers to co-create that solution and hopefully create a very large industry. Operator: Your next question comes from the line of Lloyd Walmsley with Mizuho. Line is open. Please go ahead. Lloyd Walmsley: Thank you. Wondering if you can give us an update on what you are seeing in the ads business on a 1P basis and syndicating ads outside of Dash. And then, second one, Tony—earlier you talked about miles to go in terms of improving the user experience in grocery. Can you elaborate on some of the things you are doing—have you found any big unlocks or anticipate any big unlocks—to drive a step-function improvement in the grocery experience that can help you penetrate deeper with your customers? Thanks. Tony Xu: Sure. Maybe I can take both and feel free to add, Ravi. On the ads question, it has never gone better for us. Ads are at a record high and continue to grow extremely fast compared to any previous year. The continued strong trajectory comes from the team cracking the code not just in solving problems for SMBs—restaurants or retailers—but also larger advertisers, both in the restaurant world as well as in retail. Another unlock has been cracking the code on CPG advertisers. There is no one thing; it is a relentless checklist of making the product a lot better for advertisers and delivering on two competing objectives. One, you have to deliver the best return on ad spend for advertisers, which we do. Two, you have to deliver the best consumer experience where you do not spam people. We have a much lower ad load than some other platforms, and the teams have been working really hard to balance those two objectives. Beyond scaling some of the unlocks in ads, we are also discovering some off-site opportunities you mentioned, which include in-store activities in addition to our work buying on behalf of advertisers off of DoorDash, Inc. I think there is a very large runway for the ads business. On grocery, we have been at it for about five years now. I am, on the one hand, super proud of the team—becoming the volume leader where consumers shop as well as where new consumers find out about grocery delivery for the first time. On the other hand, I do stand by the statement that we have miles to go to build an experience that can outcompete you going into a grocery store and buying items yourself. That is still the winning product if you look at the data. That does not mean we are not growing extremely fast, making a lot of improvements, gaining share, and improving profitability while we do it. There is a lot of work to do. A lot of it has to do with continuing to build a cost structure that allows you to offer items at around the same price as in-store and delivering with perfect quality. The hardest problem to solve in grocery is that, because consumers—when we go into grocery stores—move items around, and because of how supply chains, inventory systems, and payment systems do not necessarily always talk to each other, and how grocery stores are run and were built historically and as they have moved into e-commerce, it is really hard for them to know where things are. That is still the fundamental problem to solve. We have done lots of things already in that space that we have pioneered and are proud of. There is a long way to go in scaling that work to all the stores we work with, not just the ones in which we have tested. We also have to do the next hill climb to achieve perfect quality at the prices you would expect, for every single item, every single time. Ravi Inukonda: And, Lloyd, on your first question on ads, if you are thinking about it from a flow-through perspective, it is growing and having an impact from a margin and profitability perspective. But the way we think about it is very similar to the rest of the business. An ad dollar is very similar to improvements we generate from unit economics. Ultimately, our goal as operators is to find opportunities to reinvest that back in the business to drive long-term free cash flow production. That is largely what we are doing with advertising or other efficiency that we generate in the business. Lloyd Walmsley: Alright. Thank you. Operator: Your next question comes from the line of Justin Post with Bank of America. Your line is open. Please go ahead. Justin Post: Great. Thank you. I just want to follow up on advertising. How do you think about integrating that with agentic capabilities on your own platform? And is there any way you could generate ad revenues on agentic platforms on other platforms? Thank you. Tony Xu: I will take that. Ads are just a means to connect consumers with merchants who are hoping to be discovered and making sure that you do that in the best possible way. With respect to agentic commerce, that is just one way of shopping. I do not think it will change our ability to advertise. It may increase some of the in-surface areas, but I think a lot of that remains to be seen. I do not think the ideal agentic shopping experience is just going to be a chat assistant. I think it is going to take on various forms, and we are iterating on that. With respect to what happens with ads on third-party agentic sites, I think you will have to ask them. Justin Post: Great. Thank you. Operator: And this concludes today’s Q&A session. This also concludes today’s call. Thank you for attending. You may now disconnect. Unknown Speaker: Goodbye.
Operator: Hello, and welcome to Exelon Corporation's First Quarter Earnings Call. My name is Michelle, and I will be your event specialist today. All lines have been placed on mute to prevent any background noise. Please note that today's webcast is being recorded. During the presentation, we will have a question and answer session. You can ask questions by pressing star 11 on your telephone keypad. If you would like to view the presentation in full screen view, click the full screen button by hovering your computer mouse cursor over the PowerPoint screen. Press the escape key on your keyboard to return to the original view. And finally, should you need technical assistance, as a best practice, we suggest you first refresh your browser. If that does not resolve the issue, please click on the help option in the upper right-hand corner of your screen for online troubleshooting. It is now my pleasure to turn today's program over to Ryan Brown, vice president of investor relations. The floor is yours. Ryan Brown: Great. Thank you, Michelle. Good morning, everyone. Thank you for joining us for the 2026 first quarter earnings call. Leading the call today are Calvin G. Butler, Exelon Corporation's President and Chief Executive Officer, and Jeanne M. Jones, Exelon Corporation's Chief Financial Officer. Other members of Exelon Corporation's senior management team are also with us today and will be available to answer your questions following our prepared remarks. Today's presentation, along with our earnings release and other financial information, can be found on the Investor Relations section of Exelon Corporation's website. We would also like to remind you that today's presentation and the associated earnings release materials contain forward-looking statements which are subject to risks and uncertainties. You can find the cautionary statements on these risks on Slide 2 of today's presentation or in our SEC filings. In addition, today's presentation includes references to adjusted operating earnings and other non-GAAP measures. Reconciliations between these measures and the nearest equivalent GAAP measures can be found in the appendix of our presentation and in our earnings release. It is now my pleasure to turn the call over to Calvin G. Butler, Exelon Corporation's President and CEO. Calvin G. Butler: Thank you, Ryan, and good morning, everyone. We appreciate you joining us for our first quarter earnings call. Our message today is straightforward. 2026 performance remains on track, both financially and operationally, and with a disciplined, adaptable platform, you can continue to depend on Exelon Corporation to navigate change and deliver on our commitments. This morning, we reported adjusted operating earnings of $0.91 per share, exceeding expectations, with outperformance driven primarily by net favorable weather and timing-related items. We are also affirming our 2026 operating earnings guidance of $2.81 to $2.91 per share. Reliability and operational performance continue to set the standard for the industry, even as our system faced several high-wind storm events this spring. All utilities sustained top-quartile reliability performance, with ComEd in the top decile. Our men and women on the ground continue to deliver: responding safely, restoring service quickly, and keeping customers connected. This quarter also included several important regulatory and legislative developments, most notably in Pennsylvania and Maryland. At PICO, we made the decision to withdraw the recently filed electric and gas rate cases. This was a deliberate, timing-based decision grounded in customer affordability considerations and informed by stakeholder feedback. Importantly, this decision does not change our commitment to safety, reliability, or long-term infrastructure investment. It demonstrates our ability to adjust timing and reallocate capital while maintaining the balance between near-term affordability and long-term system needs. Maintaining that balance requires difficult prioritization decisions and the strong ongoing stakeholder partnerships you have come to expect from Exelon Corporation. Looking ahead, we welcome continued close collaboration with all stakeholders across Pennsylvania as we reprioritize certain investments without compromising safety or reliability in the near term. Before I move on, I also want to highlight a recent leadership update at PICO. Dave Vajos, previously CEO of PICO, has transitioned into an advisory role reporting to me. Michael A. Innocenzo has stepped in as an interim President and CEO while continuing to serve as Exelon Corporation's Chief Operating Officer. Michael A. Innocenzo previously served as President and CEO of PECO from 2018 to 2024 and brings deep operational experience, long-standing relationships across Pennsylvania, and a strong understanding of PICO's system, workforce, and stakeholders. This transition ensures continuity and stability at PICO as we remain focused on operational excellence, affordability, and reliable service for our customers. Turning to Maryland, the Utility Relief Act has passed the legislature and is awaiting Governor Moore's signature. We know the governor and state leaders share our focus on affordability. However, the legislation does not address the growing imbalance between energy demand and supply. Residential supply costs in the Mid-Atlantic have increased by up to 80% or more over the past five years. Without addressing supply constraints, affordability challenges will persist. Addressing this challenge requires a combination of incremental transmission investment, continued reforms at PJM, and, critically, the addition of new generation. We are leaning into areas where we have a clear mandate today, like transmission, while also advancing solutions in areas where we currently cannot participate, including utility-owned generation. For example, HB 1561 in Maryland was designed to establish a clear path for utility-owned backstop, particularly storage and renewable resources. Given the structural imbalance between supply and demand in the state and Maryland's heavy reliance on imports from neighboring markets, this approach would have meaningfully enhanced energy security and resilience and ultimately avoided the risk of blackouts, which in 2024 PJM suggested could happen as soon as 2028 due to lack of supply. In short, affordability and reliability must go hand in hand. We remain committed to working constructively with stakeholders to deliver near-term customer relief while supporting the long-term investments required to keep energy safe, reliable, and affordable. As such, we have taken a hard look at our plan and made deliberate adjustments. Let me be clear. This is a different plan for a different moment. We are pulling back on certain projects, reprioritizing capital across our portfolio, and delivering $350 million of incremental O&M savings in 2027 tied to work we will no longer pursue. We are actively reshaping the business to best meet the needs of our customers while delivering on the Exelon Corporation promise to keep energy bills as low as possible. This includes accelerating the use of new technologies, focusing investment on the highest-impact opportunities, and maintaining disciplined cost control. Business as usual is not an option. The energy market has shifted dramatically with significant load growth and a lack of supply to meet the evolving needs of our customers and communities at a reasonable price. While we remain confident in the value of our work and investments, this moment requires us to adapt, to be agile, and to make changes thoughtfully and purposefully. Our core mission—commitment to safety, reliability, ethics and compliance, and service to our customers—is not changing. Now, Jeanne will walk through the details in a moment. But with these actions in place, we are reaffirming our 2026 adjusted operating earnings guidance of $2.81 to $2.91 per share and our long-term operating earnings growth outlook from 2025 to 2029 near the top end of the 5% to 7% range. This is our platform at work. Size, scale, diversification, and discipline translate directly into execution. As we adjust our plan to reflect current realities, we are also leaning into areas where we see strong visibility and clear need—most notably, in transmission. Our scale, multistate footprint, and deep operational expertise allow us to step forward where reliability and resiliency investments are increasingly needed, especially as load growth and system complexity continue to accelerate. We have seen that play out in recent periods through our success across multiple competitive and reliability-driven processes. That momentum continues. In February, we submitted competitive bids for two Illinois transmission opportunities within the MISO Tranche 2.1 window, representing approximately $1.9 billion of total transmission capital spend pursued jointly with Infinergy. While it is too early to comment on potential outcomes, these projects underscore our disciplined approach—deploying capital where RTOs have identified clear need, strong execution visibility, and attractive risk-adjusted returns. You should expect Exelon Corporation to continue engaging competitively and with discipline in future transmission windows across PJM and other ISOs, including two additional bids expected later this month. However, affordability and energy security cannot be solved by transmission alone. Additional generation is critical. We continue to work closely with federal officials, PJM, and state leaders to address elevated supply costs and emerging reliability challenges across the system. Let me reiterate. You cannot have a conversation about affordability without addressing the underlying shortage of generation. We support measures that bring new generation forward while avoiding market designs that result in unnecessary or excessive payments at the customer's expense. That is why we have been focused on ensuring our data center pipeline is increasingly backed by FERC-approved Transmission Security Agreements, which have now secured approximately $1 billion of collateral. Real affordability depends on careful design, from load forecasting and cost allocation to how new resources are integrated into the market framework. There is more work ahead as implementation details continue to take shape, and our team remains closely engaged with PJM, regulators, and policymakers to ensure outcomes that protect customers and support a reliable, affordable system. As we said before, addressing these challenges will require an all-of-the-above approach, including utility-led solutions, demand-side alternatives, and merchant investment. While we do not control the supply side, we remain intensely focused on reducing the cost we can control and on actively advocating on behalf of our customers. In the past year alone, we have delivered approximately $1 billion in customer savings through a combination of actions, including our award-winning programs that connect customers to assistance, our industry-leading customer relief fund, a recently approved gas supply settlement, and disciplined cost management that kept costs nearly flat driven by operational efficiencies. We have delivered this $1 billion while also providing best-in-industry reliability. In contrast, over the last two years, customers have paid $32 billion to generators for capacity in PJM, while supply has declined by 1.2 gigawatts over that same period—meaning customers paid more and received less. The time for action is now. PJM has been warning about 2028 reliability risk since 2024. We are halfway there, and there has been no meaningful progress on new supply. While recent activity in the PJM interconnection queue is encouraging, it is not enough for projects to simply be in the queue. We need to ensure they are built and come online in time to meaningfully address this reliability need. Had utilities been allowed to build generation for the 2028/2029 planning year, we would be in a materially stronger position today. As we have highlighted before, Charles River Associates estimated that utility-supported generation could have saved PJM customers between $9.6 billion and $20 billion in the 2028/2029 delivery year while reducing outage risk from energy shortages by approximately 85%. Our customers simply cannot afford to wait any longer. With that, I will turn it over to Jeanne to walk through our financial performance and provide additional details on our rate case activity. Jeanne? Jeanne M. Jones: Thank you, Calvin, and good morning, everyone. In addition to our first quarter financial update and progress on our 2026 regulatory activity, today I will review several disclosure updates that reinforce our confidence in our path to adjusted operating earnings growth near the top end of the 5% to 7% range, beginning on Slide 5. We recognize that balancing affordability with safety and reliability is critically important, and we remain actively engaged in solutions that put customers first. Our customers are served by some of the most reliable utilities in the nation, and continued investment is essential to maintaining that performance in the near term while supporting long-term economic growth. Our revised four-year capital plan reflects these priorities by rebalancing investment, enabling us to invest nearly $10 billion in 2026 and a total of $41.7 billion over the next four years for the benefit of our customers. This reflects $1.1 billion of project deferrals and reductions in PICO and BGE distribution, coupled with $1.5 billion of incremental transmission investment to support project realignment and the interconnection of data center customers that have signed Transmission Security Agreements. Despite the rebalance of capital, we are maintaining a revised annualized rate base growth of 7.9% over the next four years, reflecting the substantial and accelerating transmission growth opportunities we are experiencing across our service territory. The need for additional transmission infrastructure is real, and we are witnessing this growth firsthand, driven by reliability requirements and large load interconnections. We now anticipate transmission rate base growing at 16% through 2029 and are maintaining our previous upside guidance of $12 billion to $17 billion, which does not include our recent competitive transmission bids in MISO or potential solar or storage opportunities. Having executed within 2% of our plan since 2023, we remain confident in our ability to deliver this next phase of growth through disciplined execution, advancing important economic and energy priorities while keeping customer affordability front and center through a continued focus on cost management. We are confident in our ability to drive expense growth well below inflation. In addition to nearly flat expense growth from 2024 to 2026, we are now targeting no more than 2% adjusted O&M growth through 2029. We remain committed to managing the portfolio as one Exelon Corporation and are leveraging our dedicated team to identify another $350 million of savings in 2027. Our revised plan incorporates cost reductions achieved through accelerating AI and technology transformation, prioritizing IT projects with the greatest customer and operational impact, focusing our community investments, reducing use of outside contractors, implementing a managed hiring process, and offering a targeted voluntary separation program later this year. We also continue to rely on a balanced funding strategy to support this execution. We are committed to ensuring that we maintain financial flexibility and strong credit metrics over the guidance period, targeting approximately 14% at Moody's and S&P. Turning to Slide 6, we present our quarter-over-quarter adjusted operating earnings block. Exelon Corporation earned $0.91 per share in 2026, compared to $0.92 per share in the same period in 2025. Earnings are lower in the first quarter relative to the same period last year primarily driven by $0.07 of new distribution and transmission rates, net of depreciation and AFUDC, and $0.01 of favorable weather at PICO. This favorability was offset by $0.04 of ComEd timing due to revenue shaping in 2025, $0.02 of higher interest expense at corporate and PICO, $0.01 of higher credit loss expense at BGE, and $0.01 attributable to the recognition of Pepco Maryland's N Y P reconciliation, for which a final order was received in March. These results are slightly ahead of our indications on the fourth quarter call, primarily due to favorable weather and timing-related items. Looking ahead to next quarter, we expect second quarter earnings to be approximately 15% of the midpoint of our projected full-year earnings guidance range, which contemplates normal weather and storm activity and anticipated revenue shaping and timing for the quarter. In combination with Q1 results, this would result in recognizing 47% of projected full-year earnings in the first half of the year, in line with seasonal shaping in prior years and allowing us to remain on track for full-year operating earnings of $2.81 to $2.91 per share, with the goal to be at the midpoint or better. Turning to Slide 7, we highlight our regulatory activity in 2026. Starting with the Pepco Maryland base rate case, where we have filed a notice with the Maryland Public Service Commission to pursue the traditional base rate case we had filed last fall, requesting a revenue requirement of $119.9 million, which primarily seeks recovery of critical infrastructure investments and incremental financing costs associated with rising interest rates. These investments support system reliability, capacity, and long-term growth for our customers, including projects such as the White Flint substation in Montgomery County, which expanded capacity to meet current and future energy needs, reduced outage risk and maintenance needs through removal of more than 16 miles of overhead lines, and strengthened system resilience through underground supply lines and modern equipment. Collectively, this and other investments contributed to Pepco achieving the lowest outage duration in the state. Evidentiary hearings were held last week, and a final order is expected in August. In Delaware, Delmarva Power's electric base rate case continues to progress on schedule, with intervenor testimony due in October. The requested revenue increase allows us to better support our customers through targeted programs and essential investments. This includes a new income-based rate and reliability projects such as Basin Road, where two transformers originally installed in 1967 were replaced and now reliably serve over 2,500 customers, including Wilmington Airport, the Delaware National Guard, and surrounding communities. DPL expects to be able to implement interim rates in effect in July. Finally, on Slide 8, I will conclude with a review and update of our balance sheet activity. We continued to take advantage of favorable market conditions early in the year and have made substantial progress toward our 2026 capital needs. We have completed approximately 43%, or $2.3 billion, of our planned long-term debt financing, successfully executing all expected debt transactions both at corporate and Pepco Holdings for the year and materially de-risking our go-forward financing plan. The strong investor demand and attractive pricing for our debt securities continue to be a testament to the strength of our balance sheet and to our value proposition, positioning us well in service to our customers. We also continue to execute our pre-issuance hedging strategy to further protect us from interest rate volatility. Through 2029, we expect to fund the revised $47.17 billion capital plan with about $21.8 billion of internally generated cash flow, $13.1 billion of debt at the utilities, and $3.4 billion of holding company debt. The balance will be funded with $3.4 billion of equity—approximately 40% of our incremental capital plan from last year's plan and representing less than 2% of Exelon Corporation's annual market cap. We have already made progress on approximately 37% of these equity needs, with all of our $850 million in equity needs for 2026 and over $400 million in 2027 priced using forward contracts under our ATM. Maintaining a strong balance sheet remains core to our strategy. We continue to identify opportunities to mitigate risk in our plan and expect to maintain financial flexibility above our downgrade thresholds, targeting credit metrics of 14% over the planning period. We remain confident in our ability to deliver value for our customers and our shareholders. Thank you. I will now turn the call back to Calvin for his closing remarks. Calvin G. Butler: Thank you, Jeanne. I will close on Slide 9 by reinforcing what matters most as we move forward. Our priorities are clear and unchanged. We are executing our capital plan with discipline, delivering strong operational performance, advancing affordability through prudent investment, and pursuing growth where it strengthens the system and creates long-term value. That discipline is supported by a platform built to perform. Our scale, diversified footprint, and capital flexibility allow us to adapt as conditions evolve without losing focus or momentum. In 2026, we expect to deploy approximately $10 billion of capital for the benefit of our customers, earn a consolidated 9% to 10% ROE, and deliver operating earnings of $2.81 to $2.91 per share with a goal of achieving midpoint or better, while maintaining a strong and resilient balance sheet. The infrastructure we operate is foundational to the communities and economies we serve. We take that responsibility seriously, and we meet it every day through consistent execution, high operational standards, and a clear focus on the people who rely on us. Before I close, I also want to recognize the work of our employees across the company. Balancing long-term infrastructure needs with customer affordability is not easy. It requires judgment and discipline at every step. That work extends beyond prioritizing the right investment. It includes constructive regulatory engagement, partnership with local communities, and advocacy for policies that promote affordability and reliability, even when they are not popular. I am proud of how our teams manage this balance. Their focus on execution, affordability, and customer outcomes is exactly what allows Exelon Corporation to deliver today while positioning us for the future. The world around us continues to change, but our approach remains consistent. We remain focused, disciplined, accountable, and confident in our ability to deliver. We will now open the call for questions. Operator: Thank you. If you would like to ask a question, simply press star 11 on your telephone keypad. Our first question comes from Shahriar Pourreza with Wells Fargo. Your line is open. Shahriar Pourreza: Good morning, Calvin. I wanted to start with Pennsylvania. It seems like it is the noisiest in the country right now. What are you getting from Governor Shapiro to make withdrawing the case and weathering this environment worth it? The gas utilities seem to be okay. One of your peers has a black box settlement that should get approved. The move is a bit conflicting. What is it about this case that spooks stakeholders versus your other peers? How should we be thinking about the trade-offs here in the state from your move? Thanks. Calvin G. Butler: Thank you for asking the question. Let me begin by saying what a difference a year makes. In all seriousness, Pennsylvania has always been a jurisdiction in which we leaned in and had a strong regulatory backdrop and strong relationships, and we continue to have those. Our decision to withdraw the Pennsylvania filing was based on conversations we had with a variety of stakeholders. Those stakeholders said, if we could partner with them to address the affordability issue and lean in, timing is not the best right now. We are assessing our future rate case filings in Pennsylvania, all geared to having a strong infrastructure to provide safe, reliable service. I am not conflating this with any other cases that have been filed by others. We did what is best for Exelon Corporation and PICO specifically at this time. We believe PICO needs to make investments in the future, and we will do so, but we will work collaboratively with all stakeholders to make sure it is a prudent decision and timed appropriately to move forward. Shahriar Pourreza: Hopefully that created the goodwill you needed. On conversations around supporting supply-side solutions and long-term resource adequacy agreements—movement with House Bill 1272 or Senate Bill 897—what should we think about for catalyst and timing? Could this happen before or after the election? Is Pennsylvania waiting for PJM answers from FERC or the RBA process first? How should we think about resource adequacy and the bills that are out there, in light of you just pulling a rate case and creating, hopefully, some goodwill? Thanks. Calvin G. Butler: You go right to the core issue. We are not going to adequately address affordability without addressing the supply issue, and that is our conversation not just in Pennsylvania, but across all jurisdictions. When you see us show up in an advocacy position for bills that allow utilities to get new generation built, that is what it is all about. Recognizing also that Pennsylvania is in an election year with a divided government, getting anything done this year is a long shot, but it is necessary to continue to advocate for utility-owned generation and new generation in the state and across the Mid-Atlantic specifically. If you do not do that, the same issue we are talking about today we will be talking about in the next three to five years. You cannot talk affordability without talking the supply stack. Period. It has to be a holistic approach, and the bills you mentioned go directly to that issue. We will continue to partner with other utilities and stakeholders in the state to address it. Operator: Thank you. Our next question comes from Steven Fleishman with Wolfe. Your line is open. Ryan Brown: Morning, Steve. Steven Fleishman: Hi, good morning. Thanks. Following up on Pennsylvania, you did not really mention the governor's letter. It seemed like a more adverse regulatory structure. Was that part of what you were hearing when you pulled the case, and how should we think about that when you ultimately do file a case? Calvin G. Butler: Thank you, Steve. The governor's letter centered on affordability. He brought up three specific points: making sure that utilities are going after the most cost-effective forms of capital, transparency in ratemaking, and what he termed justifiable returns. It was nothing we had not already heard in our conversations with them, and he put it out to the entire energy portfolio within Pennsylvania—all the utilities—and said future rate cases and discussions need to be centered on these three principles. We have no concern with that. There is a nine-month regulatory process within Pennsylvania, and we will continue to operate transparently and work with the commission and the governor and his team to ensure understanding of the what and the why—why the investments we are making add value in safe, reliable, and resilient service to Pennsylvanians, and what we are doing on the front end to control our costs. We are pulling $350 million of cost out of our business. That goes directly to the governor's message on justifiable returns and doing our part to keep costs as low as possible. We were doing it before, and we will do it into the future. At the same time, we know economic development and job creation are important to him, and there is no better partner than PICO has been in Pennsylvania for decades. These are the very issues we are talking about today and will talk about in the future. Steven Fleishman: Thanks for that. On PJM issues and the need for more generation, one recent thing was the Crane restart and that even when you have something coming back, it is potentially not interconnected until 2031. Are there things that can be done by PJM or transmission owners to deal with the interconnection timeline and get it done quicker? Calvin G. Butler: Thank you, Steve. We have been on top of that issue, partnering with PJM to see what we can do—different routes, what we can do to really secure them and get them on sooner. The reality is we have a concern with the entire reliability and resiliency of the system. I will ask Colette Honorable to provide input. Colette Honorable: Thanks for the question about the interconnection queue. As you know, PJM has been evaluating how best to progress the interconnection queue and last week announced that 811 new generation projects capable of generating 220 gigawatts of electricity have applied to interconnect to the grid. We have also seen that PJM has reopened the queue, and we applaud PJM for that action because we understand all too well—as we hear from our customers—that we need to move that backlog and get the supply through the queue. We also need to address reliability challenges. While we are encouraged that there are over 800 projects in the queue, we know that there is still more work to be done because only 19% of the projects in the queue reach operation. We also know 54 gigawatts have been cleared through the interconnection process but are delayed by siting, permitting, and supply chain issues. Most of all, to your question, we need new supply. We are pleased to see new leadership at PJM with David Mills, and we are hopeful that he can help move this along. Steven Fleishman: Last one. The transmission CapEx increase you did—if you did not lower distribution, would that have happened anyway? Is there more coming from the data centers, or are you managing within a total capital level you were trying to maintain? Jeanne M. Jones: It is work that we saw on the horizon. We have always spoken to the diversification of our portfolio and not one project being greater than 3%. Having those projects available to pull in within the planning period is a benefit of Exelon Corporation's diversified capital portfolio. We can pivot as needed. Our $12 billion to $17 billion of opportunities outside the planning period did not change—that range is still very robust, driven by the same four or five themes. We will continue to manage the portfolio. As Calvin said, this is the plan for this moment. We did pull back on distribution, but there is a cost to investing and a cost to not investing. There is critical work we still need to do in those states, but this is the right plan for now. Through our strong operations on the distribution side, we saved our customers $1 billion in avoided outage costs in 2025 alone. The investment needs to be done, but we will evaluate and adjust, leveraging the size, scale, and diversified portfolio of Exelon Corporation. Steven Fleishman: Got it. Thanks for taking all my questions. Appreciate it. Calvin G. Butler: Thank you, Steve. Operator: Our next question comes from Nicholas Campanella with Barclays. Your line is open. Ryan Brown: Good morning, Nick. Nicholas Campanella: Good morning, team. Thanks for taking the time. One follow-up on the letter, if I can. There was a proposal around the return that would point to a lower ROE and potentially lower equity cap, depending on the mechanics. Those would be significantly below state averages across the U.S. and have already raised the company's implied cost of capital. Can you talk to the risk of it going there? My understanding is you do have a GRC penciled into this plan—can you confirm that? Do you have a view on whether that would require legislation to go that way, or is this something the PSC at its discretion could do? Jeanne M. Jones: On ROEs, capital structure, and transparency on investments, we believe Pennsylvania has a robust regulatory process that allows us to build an evidentiary record that brings in all forms of debate and justifies what is a fair and reasonable return. That is the right place to have that conversation. Even in a settlement, you still have to justify your returns using capital asset pricing models or other approaches based on publicly available, real data—which is what the governor is asking us to pull in—to determine a justifiable return. A financially sound utility needs justifiable returns commensurate with the risk taken by the regulated utility. The capital structure has to balance the right risks to maintain appropriate credit ratings that drive lower cost of financing for our customers. We will leverage that process to build the record that results in the right economics for a financially sound utility that can continue to invest to create economic development, drive jobs, and avoid the significant costs associated with not investing. Nicholas Campanella: Thank you. You introduced some O&M rationalization in the plan and are working toward identifying more. How much is sustainable versus one-time and can be recaptured through a rate case proceeding? Calvin G. Butler: We are going to run our business in the most efficient manner. When we talk about pulling out $350 million in cost, it is largely driven by work we are not going to do. If we are not going to do certain projects, we will pull those costs out and manage accordingly. If opportunities arise in the future to bring back certain avenues of investment, we will evaluate them. But we will always maintain and run a very efficient business. We approach these as sustainable cost savings through 2029. We will not make decisions that sacrifice reliability and safety. These savings are geared toward overall efficiency. Certain op codes will need to make deeper provisions because if you are not investing, you must adjust. That is how we are approaching it. Nicholas Campanella: One more. You continue to be on stable outlook to my understanding. What feedback are you getting from the agencies through what has transpired in Pennsylvania? Jeanne M. Jones: We have had a lot of discussions with the agencies. PICO was already on negative outlook and is under review for downgrade. The combination of continuing to invest and the regulatory climate factors in, and we will continue to work through that. We want to maintain stronger credit ratings to lower financing costs. From an Exelon Corporation perspective, Pennsylvania is one piece. We manage this as a portfolio. Our diversified platform, our ability to pivot around different projects and still deliver, and importantly, our ability to maintain that target of 14% are key. Having cushion to downgrade thresholds is a testament to how we put a safe, reliable grid and balance sheet at the forefront of our decisions, allowing us to deliver for customers and shareholders. Jeanne M. Jones: Thank you, Nick. Operator: Thank you. Our next question comes from Paul Zimbardo with Jefferies. Your line is open. Ryan Brown: Good morning, Paul. Paul Andrew Zimbardo: Hi. Good morning, team. First, it is nice to see the swift adjustments. I know those are not easy decisions. It sounds like more intensity in your prepared remarks quarter over quarter, Calvin. Is there a point where you need to take matters into your own hands and pursue more contracted generation opportunities and advocate for bigger changes with the state and PJM? How do you gauge where you are on shifting toward being more proactive to the extent you can versus waiting for PJM? Calvin G. Butler: Thank you, and thank you as always for the questions. We are taking things into our own hands. Our transmission organization, led by Kusami, is going after competitive transmission bids—two to date. We are also looking at partnerships to build generation and contract for generation. We are doing those things now. As a company, we will talk about them when they are done or when we have something signed and ready to deliver. When I tell you something, we are going to deliver. The intensity comes from our job to run this business. When we say we are taking $350 million of cost out this year and delivered $1 billion in savings for our customers, that reflects a thoughtful process that impacts people and livelihoods. Fewer contractors, programs that impact employees—we do not take that lightly. It is up to us to ensure a stable environment for our 20,000-plus employees while delivering value to our communities. Are we being proactive? Absolutely. We will talk to you about those actions when the plans are baked. Speculation does not deliver results. We are committed to our earnings results through 2029. If that was to adjust, we will be the first to tell you the what and the why. We are being very intentional about our focus based on changing market dynamics. Across PJM, the first thing governors or commissions talk about is affordability. We are listening and addressing it. Paul Andrew Zimbardo: Pulling it together between net higher earnings from shifting to transmission and the cost control—does this build more contingency into the plan, or are you in the same place as before, given the reconfiguration of rate case timings as well? Jeanne M. Jones: This gets us back to plan, Paul. As always, we factor in risks and opportunities and give you a plan that accommodates a variety of scenarios. This is about getting back to the plan we shared earlier, but it is a different plan for this moment. As a management team, that is what you want us to do—pivot, leverage the portfolio of Exelon Corporation, still deliver, and do it in a way that contemplates a variety of outcomes. Paul Andrew Zimbardo: Thank you, team. Good luck. Calvin G. Butler: Thank you, Paul. Operator: At this time, I would like to turn the conference back over to Calvin G. Butler for closing remarks. Calvin G. Butler: Thank you, Michelle. Let me begin by thanking everyone once again for joining our Q1 earnings call. I hope what you have taken away today is the power of Exelon Corporation at work. Our diversified platform and committed men and women reaffirm what we said we are going to do each and every day. We appreciate your continued interest and support, and we hope to see many of you in the months ahead. That concludes our call. Operator: Thanks to all our participants for joining us today. This concludes our presentation. You may now disconnect. Have a good day.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Mayville Engineering Company, Inc. first quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We will now hand the conference over to Stefan Neely with Balum Advisors. Please go ahead. Thank you, operator. Stefan Neely: On behalf of our entire team, I would like to welcome you to our first quarter 2026 results conference call. Leading the call today is Mayville Engineering Company, Inc.'s President and CEO, Jag Reddy, and Rochelle Lair, Chief Financial Officer. 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 the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements. Further, this call will include the discussion of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release, which is available at mecinc.com. Following our prepared remarks, we will open the line for questions. With that, I would like to turn the call over to Jag. Jagadeesh A. Reddy: Thank you, Stefan, and good morning, everyone. Our first quarter results exceeded our expectations, driven by strong top-line momentum in our data center and critical power end market. At the same time, the first quarter reflected an ongoing transition across the business. Our teams remained focused on positioning resources, completing tooling requirements, and preparing for the launch of numerous data center and critical power programs throughout 2026. During this transition, we continue to incur and retain variable costs as we position the business for successful program execution. As a result, our margins remained pressured during the first quarter. That said, performance improved late in the quarter as several data center and critical power programs transitioned from the launch phase into full production. We expect that momentum to continue building through the second quarter, which reinforces our confidence in the sequential improvement reflected in our financial guidance. While many of our data center and critical power programs have yet to launch or are still in the early stages of ramp, execution to date has been strong. This reflects the upfront time, planning, and resources we have invested to ensure a smooth and repeatable onboarding process across our legacy manufacturing footprint. As additional programs enter production, we are seeing consistent improvement in operating leverage and fixed cost absorption driven by better asset utilization across our manufacturing network. Importantly, the strength we are seeing in data center and critical power continues to contrast with mixed conditions across our legacy end markets. While each market has its own dynamics, we have not yet seen clear indications of a broad-based or material recovery in legacy customer demand. Starting with commercial vehicles, demand continued to soften in the first quarter. Net sales declined approximately 24% year over year as North American Class 8 production reached a low point in the current cycle. In its most recent report, ACT again revised its full-year 2026 outlook upward, now projecting a 9.2% increase in Class 8 production. This improved outlook reflects greater clarity around the 2027 EPA emissions standards, anticipated prebuy activity, and strong Class 8 orders earlier in the year. That said, current OEM production levels remained largely consistent over the past six months and do not yet indicate a meaningful cyclical recovery. Combined with elevated fuel cost and recent tariff policy changes, our near-term view of this market remains cautious pending a material improvement in OEM activity. In construction and access, revenue increased approximately 3% year over year in the quarter, which was ahead of our expectations. Performance was supported by continued strength in nonresidential activity, although demand remains more customer specific than broad based. In powersports, net sales increased approximately 5% year over year, driven primarily by incremental volumes from discrete short-cycle customer programs. This was partially offset by continued softness among legacy ATV, UTV, and motorcycle OEMs, as well as lower sales within the marine propulsion market. Within data center and critical power, we delivered organic growth of approximately 71% year over year, supported by growth from legacy OEM customers and early project launches tied to AccuFab-related cross-selling opportunities. Overall, demand from OEM customers in the data center and critical power market remains strong. Our qualified opportunity pipeline exceeds $125 million, and the value of projects scheduled to launch in 2026 is approximately $50 million to $60 million. Combined with continued growth from our legacy OEM customers, we continue to expect data center and critical power to represent more than 20% of our revenue in 2026. Customer demand in this end market remains robust, and we continue to evaluate the right approach to balancing the needs of our legacy customers while meeting accelerating demand in this rapidly evolving space. As data center infrastructure advances, customers are increasingly seeking adaptable solutions that address their evolving needs and enable faster speed to market. These shifts are redefining how customers approach large-scale deployments and their selection of partners. As we move into the second half of the year, and with the potential for recovery across certain legacy end markets, we are actively managing capacity and prioritization to support long-term diversified and profitable growth. Before turning the call over to Rochelle, I want to highlight several areas of commercial momentum that reinforce our confidence in the growth trajectory for 2026 and beyond. Across all of our end markets, customer engagement and bidding activity remains strong. During the first quarter, we secured approximately $50 million in new project awards with data center and critical power customers. This amount surpasses the total awards we secured in this end market during the second half of last year. For the full year 2026, we currently expect total bookings across all of our end markets to exceed $150 million, supporting profitable growth as our legacy markets move toward a cyclical recovery exiting 2026. Within our legacy end markets, share gains continued with commercial vehicles customers as they launch new products ahead of the 2027 EPA regulation changes. These awards support future growth and are expected to enter production in late 2026 and 2027. In addition, new contract wins supporting legacy military vehicle platforms were secured during the quarter. This provides stability to our core base military revenues. Within the data center and critical power market, approximately $50 million of awards secured in the first quarter were primarily driven by demand from new customers in this end market. As these customers scale their programs, the intent is to serve as a long-term strategic metal fabrication partner. The awarded scopes of work span power distribution units, static transfer switches, and switchgear. Turning to capital allocation, our priorities are disciplined and well balanced. In the near term, we are deploying capital in a targeted manner to support existing project commitments and the evolving needs of our data center and critical power OEM customers, including investments in equipment and capacity. At the same time, we remain focused on prudent balance sheet management and reducing debt. Longer term, the focus remains on strengthening the balance sheet and maintaining sustainable financial flexibility. Our long-term net leverage target remains 2.5x, and we expect to make steady progress towards this objective through earnings growth, consistent cash generation, and disciplined capital deployment. Importantly, the demand environment in data center and critical power is creating a meaningful opportunity to invest organically in the business and expand our capacity. In certain areas, customer demand is already exceeding our current available capacity, and we believe targeted investments in equipment, automation, and operating capabilities can deliver attractive returns while enhancing our ability to serve this fast-growing end market. Although we are still assessing the full scope of this opportunity and the related capital requirements, we expect growth capital investment to increase above the $5 million to $10 million level we have historically averaged. In 2026, that investment will remain focused on supporting current program launches and selectively expanding capacity where visibility, customer demand, and return thresholds are strongest. Over time, we believe this market may support a broader and highly attractive organic investment opportunity. As always, we will pursue that opportunity within a disciplined capital allocation framework, balancing growth investment with deleveraging, cash flow generation, and balance sheet optionality. In closing, I am encouraged by the discipline and execution our team has demonstrated so far this year. As we navigate this next phase of growth, our focus is on prioritizing operational agility, efficient program execution, and improved cash flow conversion as volumes ramp. We believe that consistent disciplined execution over the coming quarters will position Mayville Engineering Company, Inc. to deliver stronger operating performance and create a solid foundation for sustainable growth. With that, I would like to turn the call over to Rochelle. Rachele Marie Lehr: Thank you, Jag, and good morning, everyone. Total sales for the first quarter increased 6.8% year over year to $144.8 million. Excluding the impact of the AccuFab acquisition, organic net sales declined by 8.2% compared to the prior-year period. Our manufacturing margin was 7% for the quarter compared to 11.3% for the prior-year period. The decrease in our manufacturing margin was due to $1.2 million of data center and critical power-related project launch costs, nonrecurring restructuring costs, and lower volumes in our legacy end markets. These factors were partially offset by the higher-margin sales contribution from the AccuFab acquisition. Other selling, general, and administrative expenses were $9.2 million, or 6.3% of net sales for the quarter, as compared to $8.7 million, or 6.4% of net sales for the same prior-year period. The increase in these expenses primarily reflects incremental SG&A expense associated with the AccuFab acquisition. Interest expense was $3.7 million for the quarter as compared to $1.6 million in the prior-year period. The increase was driven by higher borrowings resulting from the AccuFab acquisition, which was completed during the third quarter of last year. Adjusted EBITDA margin was 4.5% for the quarter, compared to 9% in the prior-year period. The decrease reflects lower legacy end market volumes and $1.2 million of project launch costs, partially offset by the benefit of the AccuFab acquisition. During the quarter, we also continued to execute our previously announced footprint optimization actions, including the consolidation of four warehouse locations and one manufacturing facility. We expect these actions to generate annualized savings of approximately $1 million to $2 million and they are already contemplated within our full-year outlook. Turning now to our cash flow and the balance sheet. Free cash flow during the quarter was a use of $6.9 million as compared to $5.4 million provided in the prior-year period. The year-over-year decrease was primarily driven by lower operating cash flow as a result of reduced profitability, together with a $1.2 million increase in capital expenditures. The increase in capital spending was primarily related to equipment investments supporting the launch of new data center and critical power programs. At the end of the first quarter, our net debt was $219.2 million, up from $80.4 million at the end of 2025. Our increased debt resulted in our bank covenant net leverage ratio of 4.4x as of March 31. Now turning to a review of our outlook for the second quarter and the full year. For the second quarter of 2026, we currently expect net sales of between $145 million and $155 million and adjusted EBITDA of between $10 million and $13 million. Our second quarter outlook reflects continued launch-related costs and margin pressure early in the quarter, with improvement expected as the quarter progresses and additional data center and critical power programs move into full production. For the full year, we refined our financial guidance by raising the low end of our previously announced guidance while maintaining the high end of the range. We now expect net sales of between $590 million and $620 million, adjusted EBITDA between $52 million and $60 million, and free cash flow of between $25 million and $35 million. This outlook reflects a full year of AccuFab ownership, $50 million to $60 million of incremental cross-selling revenue, and a gradual improvement in legacy end market demand primarily in the second half of the year. In summary, our first quarter results were consistent with the operating conditions we outlined coming into the year. While profitability and cash flow were affected by launch-related costs and continued softness in legacy markets, those pressures are temporary and remain embedded within our outlook. As production levels increase and utilization improves, we expect better absorption, stronger margin conversion, and improved cash generation over the remainder of the year. With continued working capital discipline and targeted capital spending, we believe we are positioned to support growth while also making measurable progress on deleveraging. With that, we are ready to open the line for questions. Thank you. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from the line of Michael Shlisky with D.A. Davidson. Your line is open. Please go ahead. Michael Shlisky: Yes, hi. Good morning. Thanks for taking my questions. I wanted to ask maybe a two-part question about the non-data center end markets and legacy end markets here, and your commentary in the slides. The ag market you were saying was going to be down mid-teens, and now you are saying it is flat. So my question is whether that change in outlook from down mid-teens to flat is due to how you feel about the very end of the year and what OEMs are telling you about ramping up for 2027, asking suppliers like Mayville Engineering Company, Inc. to build stuff in late 2026. If that is the first part of the question, then on the construction and access side, I have sensed so far this early season that most construction companies, including the largest ones, are taking their outlooks up, mostly construction equipment OEMs. You took your outlook here down from last quarter. So I am curious whether there is some kind of a year-end dynamic where they are asking you to slow down in advance of some challenges they might be seeing in 2027. Just some more detail about both those end markets would be appreciated. Jagadeesh A. Reddy: First of all, Mike, on the ag market, we are seeing good strength in the small ag turf care segment. We are approximately 45%/55% mix between large ag and small ag. So the small ag and turf care segment strength is offsetting the declines in the large ag segment. That is the reason for our change in our outlook for the ag segment. On construction and access, again, as you recall, we are approximately 45%/55% heavy construction versus access. Our heavy construction segment continues to show a good amount of strength driven by nonresidential demand, some of it driven by data center buildout as well. But in the access segment, we anticipated, coming out of last quarter’s earnings call, the access segment to accelerate this year. So far, we have not seen that. Hence, our change in our assumptions for the construction and access segment to be flat versus slightly up. Michael Shlisky: Turning to data center, I would like to get a feel for more detail as to how you are looking to accommodate some of the demand that has been rolling in or some of the quoting you have been doing. I think you mentioned elsewhere in the business you closed some footprint, so I want to make sure you have a plan. Do you plan to open brand-new footprint at this point, given the level of demand, or are you still looking to convert existing buildings to data center? Just some more detail as to how this might all play out, and the investments that you are making now. Are those in people or in machines to accommodate some of that near-term demand? Jagadeesh A. Reddy: Let me address that, Mike. We announced closure of four locations. Those are mostly warehouses that we consolidated into our manufacturing sites. That was the restructuring we announced last year in the second half, and we just wrapped those up. We are not in the process of closing any manufacturing footprint. We have converted approximately six plants, going to potentially a seventh plant as well, to data center manufacturing. So we are retooling between six and seven plants as we speak to produce data center products. We continue to add capital as needed in these locations and to offset existing manufacturing assets to take on additional data center volumes. We do see significant growth in the data center volumes. Every quarter, as you all have seen, we continue to step up our cross-selling synergies. Pre-acquisition closing, we were in the single digits; now we are up to $50 million to $60 million of cross-selling synergies in 2026 alone. I continue to be very bullish on data center volumes. At the same time, we have not exited any of our legacy customer programs. We continue to be able to support our legacy customers with their volumes. As we talk about multiple end markets, we really have not seen broad-based recovery in our legacy end markets, so at this stage, we are able to support our legacy customers as they continue to ramp and also take on incremental data center volumes in these seven locations. Michael Shlisky: A lot of headlines and stories about changes in the Section 232 tariffs and cost of steel and other metals. Could you outline how any of this might be impacting you directly over the last few months? Are you a beneficiary since you are almost entirely U.S. based? Are you seeing some customers, old and new, coming to you to say, how can you help us best structure ourselves for these tariffs? Jagadeesh A. Reddy: 100% of our steel is procured from domestic sources. That way, we have been reasonably insulated from supply challenges. We pass on any increases in steel prices to our customers, so I would say that it has not impacted us. At the same time, approximately 30% to 40% of our aluminum is imported from Canada, and we are trying to mitigate that, but it is challenging. The rest of our aluminum is sourced domestically. We are able to support many of our aluminum customers with their demand and needs. We are seeing some challenges where some of our customers are going on allocation with other suppliers on aluminum. Fortunately, we are in a good position to continue to support our customers as their demand increases or they switch from another supplier that is unable to supply aluminum to Mayville Engineering Company, Inc. In general, on tariff impacts, I would say that we have not been either positively or negatively impacted. You have seen some of our customers and their competitors publicly talk about it. It has not really impacted our mix so far. Operator: Your next question comes from the line of Ross Sparendlik with William Blair. Your line is open. Please go ahead. Ross Riley Sparenblek: Hey, good morning. Rachele Marie Lehr: Morning, Ross. Jagadeesh A. Reddy: Sounds like you guys have been busy with the problems I have here. Ross Riley Sparenblek: Maybe starting with the new customer wins and continued momentum in data centers in the first quarter. Anything one-time in nature to call out, or are you sensing that customer buying patterns have started to change here within the data centers power market? Jagadeesh A. Reddy: Good question, Ross. In the data center market, some of the significant wins we had in Q1 actually came from two brand-new customers to Mayville Engineering Company, Inc. and AccuFab. We never did business with them pre-AccuFab. Those two customers significantly contributed to the wins in Q1. We expect those two customers in particular to continue to grow with us as the year progresses and into the future. We are seeing a significant switch in our data center OEM customer purchasing behavior where, similar to our legacy end markets, many of these customers are looking to completely outsource fabrication and step up their manufacturing process to someone like Mayville Engineering Company, Inc. Think about our legacy customers in ag or construction or commercial vehicles — over the decades, they exited fab operations to suppliers like us. We are seeing a similar process happening, slowly but steadily, in data center and critical power customers. We see that as a long-term secular tailwind for the fabrication industry, and being the largest fabricator in North America, we are able to offer significant capacity to these OEMs and capture a significant portion of that outsourcing that is starting in this industry. All of those are positives and tailwinds for the industry and for Mayville Engineering Company, Inc. going into the future. Ross Riley Sparenblek: When we think about the larger potential OEM customers out there within data centers, can you give us a sense of where your penetration rate is as you think about the pipeline of opportunities and who you are speaking with? Jagadeesh A. Reddy: Our penetration at this point, taking the top 10 potential or existing customers, is low single digits or less. We are sub-5% penetration, and hence my optimism for the industry and for our customers is that as we go into the rest of this year or the second half, we continue to get significant inquiries. We continue to qualify these opportunities. Even after raising our cross-selling synergies for the year, our qualified pipeline remains really strong and gives me a lot of comfort that this is a multiyear secular growth opportunity for Mayville Engineering Company, Inc. Ross Riley Sparenblek: It sounds like the whole market is heading for a capacity squeeze. If the broader end markets start to recover here, how do you feel like you are positioned to handle legacy customers? Jagadeesh A. Reddy: Our intent is to continue to serve our longstanding legacy customers as they build out their volumes into the second half and into 2027. We are constantly evaluating plant by plant, manufacturing operation by manufacturing operation, and continue to see where we have to offset some capital to increase capacity. Some of my comments in our prepared remarks allude to the fact that we are looking at, potentially in the long run, a significant organic investment opportunity as we think about expanding capacity for data center customers while continuing to serve our legacy customers. Ross Riley Sparenblek: Would that imply the optionality at Hazel Park? I believe you still have additional square footage there. Jagadeesh A. Reddy: Absolutely. That has been a long time coming, the Hazel Park story. We just put approximately $55 million of data center products into Hazel Park in Q1 and Q2. We are ramping approximately $55 million worth of data center products in Hazel Park. We think we can fill up Hazel Park, and we have always said that. The current space we have — not the sublease space — supports $100 million worth of capacity. What we do need is some capital assets to continue to go in because the mix of operations for data centers is slightly different than our legacy customer products. With all of that, we continue to be bullish on Hazel Park being filled up in the next year or so. Ross Riley Sparenblek: Very nice quarter, all things considered. I will pass along. Jagadeesh A. Reddy: Thank you, Ross. Operator: Your next question comes from the line of Greg Palm with Craig-Hallum. Your line is open. Please go ahead. Jagadeesh A. Reddy: Good morning, Greg. Greg Palm: Thanks. Can you talk about how some of these early launches in data center and critical power are going, just in light of the comments last quarter? It seems like everything is on track, and you are starting to see the margin improvements. What else is top of mind as we launch more of these projects this quarter and in the second half? Rachele Marie Lehr: As we pointed out in the prepared remarks, we invested in these product launch costs and we spent about $1.2 million in Q1 and in Q4, and those were to be ahead of these launches. We see that continuing into Q2, but then after that, as we hit full run-rate production levels, we are seeing improvement. In fact, in Q1, as we exited the quarter, we saw that improvement happen as we had several programs hit full production run rate. We are very optimistic that we made those investments and did the right thing to create an effective onboarding program so that as we do new programs and new launches, we know what the upfront investment is, and then when we hit full run-rate production levels, we are back to the margin levels of the overall end market. Greg Palm: On the existing customers in data centers, what are you seeing in terms of order progression? Are orders getting larger because they are outsourcing more business to you, or because they are winning a lot more business themselves? It feels like you are going to have a big ramp from existing customers and will be layering on brand-new customers as well, which presumably would follow a similar path of accelerated activity. Walk us through those dynamics. Jagadeesh A. Reddy: You are asking in the context of data center customers, existing versus new. That is right. As I mentioned, we brought on two brand-new customers to Mayville Engineering Company, Inc. since the acquisition closed. We expect a couple more brand-new customers that are in the works to become our customers later this year. Outside of those brand-new logos, AccuFab’s legacy data center customers continue to ramp significantly. That has been another tailwind. I shared examples in the past about volumes doubling, tripling, quadrupling on products that AccuFab historically manufactured for some of these customers as they win significant new projects and volumes for their own product lines. Hence, those legacy customers are looking at their own footprint and resources and making choices around outsourcing additional work to suppliers like us. So there is new customer growth, existing customer volume growth, and existing customer market share gains. That is how I would position the growth we are seeing in this end market. Greg Palm: I want to follow up on a comment about Hazel Park. I think you said you could generate $100 million out of that facility, specifically related to data center. Is that correct? Jagadeesh A. Reddy: No. That is the total capacity. Historically, we have always thought of Hazel Park being a $100 million plant. As I just said, we put $55 million worth of data center work into that plant. We still have another $15 million to $20 million of legacy customer work in that plant today. You can do the math and say, can we put another $25 million of data center work into Hazel Park? Absolutely. That is what we are trying to do. Greg Palm: Last question from me is about the full-year guide. Backing into the second half, it implies an EBITDA run rate on a quarterly basis that is pretty close to $20 million. We would already be at low double-digit margins in the second half if that is the case. I assume next year, as volumes recover further and mix gets more positive from data centers, it would support even higher margins. It is a big step-up in both absolute EBITDA and margins that is being considered for the second half of this year. Rachele Marie Lehr: When you look at our legacy business, you can look back to 2024 when we were hitting roughly $600 million in that base business alone. Our margins were at that point well in excess of where we are today. We are on our way towards that 15% plus that we would like to be long term. You throw in 20% plus in the data center and critical power, which is 20% margins, and yes, we see a clear path to that 50/15% plus as we move into the future. Greg Palm: Thanks. Jagadeesh A. Reddy: Thanks, Greg. Operator: As a reminder, if you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your next question comes from Edward Randolph Jackson with Northland Securities. Your line is open. Please go ahead. Edward Randolph Jackson: Thank you very much. Congrats on the quarter. Jagadeesh A. Reddy: Good morning, Ted. Edward Randolph Jackson: I want to touch on the second quarter guidance. You are looking for a midpoint of $150 million. It is comfortably above the consensus view. The legacy markets themselves, at least in the first part of this year, are underperforming, with a better outlook maybe in some of them as you get to the second half. To hit the midpoint, that would tell me that perhaps you are going to see more business coming out of the data center and power side of things than perhaps you thought going into the year. Do you see that business being able to hit your 20% of revenue target in the second quarter alone? Rachele Marie Lehr: In the second quarter alone, no. We still really look at that being second half of the year when it is going to hit those levels and actually almost outperform at that point. In Q2, we will still be launching programs and probably will not hit full-run production rates until late in Q2. So really, it is a second-half focus for data center and critical power being at full production run rates. Edward Randolph Jackson: What is a full production run rate for data center and critical power? Jagadeesh A. Reddy: We have always targeted, and publicly commented, that our ambition is to be at 25% of our total volumes in the data center and critical power end market. I do see that target within our reach on an exit run rate for 2026 and certainly for 2027. Edward Randolph Jackson: Shifting back into the second quarter, is there any particular legacy market that you are expecting to have some kind of bulge in terms of ability to generate some revenue that then falls away? Powersports comes to mind because you have had some performance there, but you keep highlighting it has been driven by very project-oriented stuff, and it is not long-tailed customer wins. I am trying to understand how to get to the $150 million if it is not coming from a faster ramp in the data center and power market. Jagadeesh A. Reddy: We looked at commercial vehicles ramping starting in May. May and June could have a slightly higher commercial vehicle run rate as our OEMs ramp. Powersports is probably not the end market that I would expect to help us in Q2. We continue to see significant outsourcing to Asia from our powersports customers. The discrete programs we talked about were specific aluminum-related projects. As we had the materials and the capacity, we took on some quick-run projects that will exit in Q2. That is not a long-term run-rate type of business in powersports that is going to help us in Q2. Edward Randolph Jackson: Shifting over to capacity, you have one of the better problems that a manufacturing company can have, which is demand pushing you to capacity constraints. Given your current footprint and the potential for a lot of your legacy to turn around at the same time that the data center market is coming, how much revenue do you think you could run through your existing footprint, and what does it take to do it? At your current level, where could you take your revenue run rate to, and then, all else being equal with the same footprint, how could you take your revenue higher over the steps? Jagadeesh A. Reddy: I will give you a couple of numbers, Ted. As we look at our current capacity and current programs that we have won and those of our legacy customers, we are going to top out, with no further investments, around $850 million in revenue. What that means is we have to continue to invest. Given the mix differences between data center products and our legacy products, we will potentially run out of capacity after $850 million of revenue. More importantly, we probably have to think about an organic investment somewhere on the Eastern Seaboard, where we are currently running out of capacity for data center customers. We have capacity in the Midwest, but some of the products we are manufacturing for some data center customers are large in volume and significantly expensive to ship across the country. That is something that we are evaluating. We are at the early stages of that analysis: how to fill existing capacity first, the timeline by which we will run out of our existing capacity, and how we expand our capacity organically. Edward Randolph Jackson: That $850 million run rate without further investment — is that running the same shift counts, or are you getting there by adding shifts? Jagadeesh A. Reddy: We are feverishly adding people and shifts to our plants in the last four to five months. Some of our plants are running seven days a week. Some are running full 24 hours and five days a week. We are running 10% to 12% overtime in many of our plants right now and continuing to hire in many plants that are seeing volume growth, particularly driven by data center customers. Edward Randolph Jackson: It seems like the problems that you are solving are a lot of fun. It is pretty exciting to see what is in front of you. I will get out of the line. Thanks again for taking the questions, and congrats on the results. Jagadeesh A. Reddy: Thank you, Ted. Operator: There are no further questions. Oh, apologies. Your next question comes from the line of Andrew Kaplowitz with Citibank. Your line is open. Please go ahead. Natalia Bak: Hi, good morning. This is Natalia on behalf of Andy Kaplowitz. Jagadeesh A. Reddy: Morning, Natalia. Natalia Bak: As you continue to highlight strong momentum within data center and critical power, yet your broader other end market outlook is flat for FY 2026, can you help us unpack what areas within that category are offsetting the data center and critical power-related strength? I think you mentioned on your side there is modest activity from those growth initiatives. Jagadeesh A. Reddy: As we mentioned earlier, Natalia, ag is flat, construction and access is flat. Powersports we actually think will be a headwind for us in the second half and into 2027. Our commercial vehicle market — our current forecast guidance assumes a 240 thousand unit build for the year. That is higher than what we started the year with, but at the same time it is lower than what ACT is projecting today. We have not seen that ramp yet. We are in the window right now. We should see that in May and June going into Q3 with our commercial vehicle customers. That is giving us a bit of a pause in terms of legacy end markets all in, while we see strength in our data center and critical power market. Natalia Bak: I appreciate that, but I was curious about your “other” end market on your slide with the outlook. Rachele Marie Lehr: I think the biggest thing here is as we have been growing in data center and critical power, we have really been focused on growth initiatives there. “Other” is things that come in more as one-off pieces of business or different opportunities. Our extrusion business has a lot in here, but the extrusion business we are winning is actually data center and critical power classified. So we are seeing a big piece of what maybe would have been growth in extrusion here in “other” be extrusion growth in data center and critical power. Some of this is really reclassification from “other” into data center and critical power. Natalia Bak: Got it. Makes sense. Much appreciated. One last question: margins are still under pressure and leverage is elevated. What gives you confidence that Mayville Engineering Company, Inc. can generate sufficient free cash flow to both delever and continue investing in these growth initiatives? Rachele Marie Lehr: We are focused on delevering. That has been something that we have a proven track record of doing as we do acquisitions. There is a 12- to 18-month time of absorbing the acquisition and then working to pay that down. What we see as the true opportunity is as we move into the second half of this year and have both strong sales for data center and critical power at higher margin, plus some expectation of the commercial vehicle market coming back in the second half, we will be able to generate additional cash flow to focus on delevering, with the goal of being below 3x as we exit this year. It is very second-half weighted, but with what we are seeing with the launches and the confidence we gained exiting Q1 — sales coming to fruition and the margin and results associated with it — we feel good about it. Natalia Bak: Great. Thank you so much. Operator: We have a question from Greg Palm with Craig-Hallum. Your line is open. Please go ahead. Greg Palm: Thanks. I thought this one would have gotten asked, so since I am back in the queue, I will ask it now. As it relates to commercial vehicle, I understand and can appreciate your conservatism. Let us assume, hypothetically, that the build rate or the production increase ends up being at the 9% rate or something in the high single digits for fiscal 2026. Is there a reason why your segment results would deviate significantly from that? Jagadeesh A. Reddy: They should not, Greg. If the market actually builds up that 9% plus build rate — and let me remind you that the 9% is retail sales, which is how ACT would report, and that is pretty close to the build rates anyway — but if it is approximately 9% build rate, we should see a very similar tailwind for our segment revenue. Greg Palm: Going back to data centers, are most of the awards or contracts you are seeing today more project-based with a definitive timeline, and are there potential discussions to enter into more long-term frame agreements or multiyear capacity arrangements? Jagadeesh A. Reddy: Since the acquisition, a significant portion of our wins have been for long-running products. These customers continue to offer into various data center projects. I can only think of maybe one program where it was one customer-specific program, a small program. Generally speaking, these are long-tail, long-run product lines where we are winning. At the same time, we are beginning conversations with these customers regarding potential capacity reservations and potential long-term agreements. Those are the conversations our teams are beginning to have with our data center and critical power customers. Greg Palm: Appreciate the color. Jagadeesh A. Reddy: Thank you, Greg. Operator: And this concludes today’s Q&A session. I will now turn the call back to Jag Reddy for closing remarks. Jagadeesh A. Reddy: Before we conclude, I want to again thank our team members for their continued strong focus and execution, and our shareholders for their ongoing support. While we recognize the near-term challenges in several of our legacy markets, we are confident in the progress we are making to position Mayville Engineering Company, Inc. for durable, high-margin growth in the years ahead. We look forward to sharing our continued progress with you. Thank you for joining us today. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us and welcome to Agilon Health, Inc. First Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Evan Smith. Please go ahead. Evan Smith: Thank you, Operator. Good afternoon, and welcome to the call. With me are Executive Chairman, Ronald Williams and our CFO, Jeffrey Alan Schwaneke. Following our prepared remarks, we will conduct a Q&A session. Before we begin, I would like to remind you that our remarks and responses to questions may include forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. Additionally, certain financial measures we will discuss in this call are non-GAAP financial measures. Non-GAAP measures are supplemental and not substitutes for GAAP results. However, we believe that providing these non-GAAP measures helps investors gain a better and more complete understanding of our financial results and are consistent with how management views our financial results. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is available in the earnings press release and Form 8-Ks filed with the SEC today. With that, let me turn the call over to Ronald Williams. Ronald Williams: Thank you, Evan, and good afternoon, everyone. In 2026, we remain focused on disciplined execution and building a durable foundation for sustainable long-term performance. We are advancing the same strategy and mission—empowering best-in-class physicians through long-term partnerships to deliver high-quality, cost-effective patient care that delivers value for all of our stakeholders. In 2025, we made meaningful progress across all of our initiatives, which has translated into strong first quarter performance and increased expectations for our full-year 2026 outlook. As we announced last week, we are excited to welcome Tim O'Rourke as our new CEO beginning tomorrow, May 7, 2026. Tim brings significant experience across the payer and provider space with a deep understanding of what is needed to succeed in value-based care. Tim is fully committed to furthering our mission and strategy to continue driving improvement in Agilon Health, Inc.'s performance for all of our stakeholders. In the first quarter, we delivered results that were above our expectations. Our performance demonstrates operational discipline, the strength of our long-term physician partnerships, and early benefits from the strategic decisions we made last year. Operationally, we are building upon several key initiatives you have heard me discuss before: the enhanced data pipeline and improved actuarial visibility enabling earlier identification and validation of trends; continued advancement of our clinical and quality programs, with our congestive heart failure program now scaled broadly across the network; and ongoing execution of disciplined payer contracting and operating expense optimization focused on profitability and sustainability. Each of these efforts is designed to improve predictability and alignment with our physician partners, reduce variability, and support durable margin expansion over time. With the enhanced data pipeline, we now have more timely direct payer data feeds with validated and highly correlated member-level clinical and claims data, as well as member-level risk scores, on approximately 85% of our members. The increased visibility and alignment of our financial and operational data enable us to more quickly identify and drive improvements. As Jeffrey Alan Schwaneke will discuss in more detail, this has enabled us to increase our revenue and adjusted EBITDA expectations in part due to better progress on the validation of our burden of illness initiatives. Going forward, we will continue to enhance the data pipeline to support clinically actionable insights, as well as improved network design and care model innovation. In combination with our physician reviewers, we are integrating generative AI-based insights directly into clinical workflows to drive more informed physician decision-making at the point of care, and we are seeing encouraging results. This capability is helping physicians intervene at the most appropriate points of care earlier. We are continuing to increase our focus on high-risk patients, an increasingly important focus for all constituents in the Medicare space. We have grown the richness of our member-level data and are now aligning it better with PCP actions. This is helping physicians improve the quality of their intervention with higher-risk patients, identifying gaps in care, and leveraging industry-standard guideline-directed clinical pathways. Greater access to timely and high-integrity data has also improved the quality of our forecasting, as demonstrated in the ongoing development of our 2025 cost trends. We have favorable medical cost trend development from 2025 and are seeing slight moderation within inpatient census so far in 2026. With that said, given it is early in the year, we believe it remains prudent to maintain our net cost trend outlook of approximately 7% for full-year 2026. Our full-risk total care model is delivering clinical and quality outcomes and driving strong patient and PCP net promoter scores while demonstrating the ability to effectively manage utilization and medical cost trend. Next, let me discuss clinical and quality programs, focusing primarily on our clinical execution which is a core driver for our model. As a reminder, the congestive heart failure, or CHF, program remains the most mature pathway deployed across 90% of our markets. Let me start with why this program is important to patients. Approximately 40% to 50% of patients nationally are diagnosed at the time of first admission to the hospital. That means missed opportunities for earlier detection, leading to less than ideal care and unnecessary hospital costs. The second thing we know about heart failure is that less than 10% of patients are actually on the right therapies. Through a proactive and guideline-directed approach, our physician partners have been able to shift CHF diagnosis to earlier in the care continuum, with inpatient first diagnosis rates improving from approximately 25% to less than 5%. So less than 5% of heart failure diagnoses are now in the inpatient setting. Additionally, we are expanding our pharmacy-integrated management approach for heart failure patients across the network and observing positive trends in guideline-directed therapy rates, which we expect to improve functional outcomes for patients and prevent downstream complications of disease that lead to admissions. Current results reflect the combination of our early detection and diagnosis, supported by in-office or increased access to diagnostics, structured and physician-supported clinical protocols, and ongoing patient engagement, including virtual pharmacy support. These pathways are increasingly informed by AI-driven risk stratification and early detection models, enabling more proactive intervention with this high-risk population. We plan to utilize this evidence-based approach by rapidly scaling COPD and broader lung health pathways through 2026. The initial focus for these programs will be earlier identification of COPD, expanded lung cancer screenings, and increased use of advanced diagnostics by our physician groups, each of which is designed to drive earlier intervention, improve treatment adherence, or prevent avoidable complications and hospitalizations. In addition, we are seeing good engagement as we continue to roll out the dementia program in conjunction with our physician partners. Increased health care costs and the burden on caregivers are being driven by the approximately 50% of dementia patients across the broad population that go undiagnosed, increasing both health care costs and the burden on caregivers. We are working with partners to deploy enhanced caregiver models, structured early-stage pathways, and virtual diagnostics. Moving to our quality and STARS performance, Agilon Health, Inc.'s STARS performance is a result of a highly integrated quality operating model that combines data infrastructure, physician engagement, and payer alignment. Operationally, quality performance starts with our ability to identify care gaps early and deliver actionable insights directly to our physician partners. Because we are working closely with our physician partners, quality measures are embedded into their everyday clinical workflow. Our partners and their care teams have clear visibility into their performance and the actions needed to efficiently close care gaps for their patients. Looking ahead, we expect to see continued opportunity to expand our performance through deeper data integration and earlier intervention, leveraging analytics to identify patients at risk of missing key quality measures earlier in the measurement year. Ultimately, our approach is about building durable infrastructure that supports physicians in delivering high-quality care that is aligned with key objectives of the Medicare Advantage Program while ensuring performance is accurately measured and rewarded. Now let me move on to ACO REACH. As evidenced in the quarter's results, we continue to demonstrate the strength of our model and the ability to deliver superior performance across both Medicare fee-for-service programs and Medicare Advantage. In addition, we are pleased that CMS took a pragmatic approach to addressing fraudulent claims related to urinary catheter and suspect skin substitute claims for 2025. Finally, we have finalized 2026 payer contracts, which Jeffrey Alan Schwaneke will discuss in a moment. We are beginning our 2027 payer contracting process, and we plan to take the same disciplined and partnership-oriented approach with our payers, focused on shared profitability and durable margin expansion. In closing, we have had a strong start to 2026 and feel good about the progress we are making. We are seeing it across all areas that matter: payer contracting, burden of illness, clinical and quality initiatives, and cost discipline. First, the work we have done with our physician partners around burden of illness initiatives and clinical pathways is starting to show up more clearly in our clinical results and financial performance. Second, our AI-enabled technology platform and enhanced data capabilities are deployed in very close proximity to the physician, allowing us to identify opportunities earlier, act faster, and manage performance with greater precision. We are beginning to see the benefits of AI more deeply integrated into both physician and operational workflows. Third, the discipline we applied, particularly around payer contracting and cost structure, is starting to come through. We are raising our outlook for financial performance this year due to the early impact of these initiatives and remain confident in the long-term strength of our unique partnership model. With that, I will turn the call over to Jeffrey Alan Schwaneke to go through the financials. Jeffrey Alan Schwaneke: Thank you, Ronald, and good afternoon. As Ronald mentioned, we are very pleased that we exceeded our guidance for the quarter and are increasing our expectations for the full year. The positive results and increase to our full-year guidance were driven by the strategic actions we took throughout 2025 and the continued strong work of our physician partners across the country. These include the significant improvement in our data visibility and estimation process, execution of our clinical and quality programs across our network, cost management, and disciplined payer contracting, all of which were focused on improving our operations and creating a strong foundation for durable and predictable performance this year and beyond. During our call today, I will cover three key areas of our financials. First, I will discuss our financial performance for the first quarter. Second, I will provide an update on cost and macroeconomic trends, including the recently announced final rate notice for 2027. And finally, I will discuss our second quarter and revised full-year 2026 outlook along with key assumptions we have made. Moving to our financial performance for 2026, we exceeded the top end of our guidance range for total revenue, medical margin, and adjusted EBITDA. The performance in the quarter was driven by higher-than-expected revenue from risk adjustment, an additional full-risk contract with a new payer in an existing market, and strong performance in ACO REACH. Starting with membership, Medicare Advantage membership at the end of the quarter was 426,000, compared to 491,000 in Q1 2025. Our ACO REACH membership for Q1 was 110,000 members, compared to 114,000 in the same period of 2025. As a reminder, Medicare Advantage membership was affected by our measured approach to growth, previously disclosed market exits which were finalized as of 01/01/2026, and payer exits in certain markets which were a result of our discipline and profitability-focused contracting efforts. Additionally, a subset of our members are under care coordination fees. These contracts are primarily net neutral to Agilon Health, Inc. with financial opportunity based upon strong quality and cost performance. Next, revenue for the first quarter was approximately $1.42 billion compared to $1.53 billion in the same period of 2025. Our year-over-year revenue decrease is driven by the membership decline I just mentioned, partially offset by more constructive rates for 2026 from both the CMS benchmark and favorable payer contracting benefits, as well as increased revenue from higher estimated risk scores from our previous expectations. Revenue for the first quarter was higher than our expectations, driven by the execution of an additional full-risk contract in an existing market and the estimated benefit of higher-than-expected risk scores. Using the enhanced data pipeline, for a meaningful portion of our membership we calculated member-level risk scores for the midyear data period. This enhanced data is based on claims data as well as MAO-004 and MMR data that our payer partners receive from CMS. These data files are both claims and plan-submitted encounters that are accepted for risk adjustment. As a reminder, we did not have this increased visibility into member-level clinical and claims data as well as member-level risk scores until the pipeline went live at the end of 2025. Our revised estimate for the increase in risk scores over 2025 for the full year is now 1.5%, which is above our previous estimate of 0.4% for the full year 2026, both net of the V28 impact. This was driven by the improvement in our data and forecasting capabilities as well as the operational process improvements we put in place over the past 18 months. Moving on to medical expense, the cost trends for 2025 continue to develop favorably, further demonstrating our ability to effectively manage medical costs. The full-year 2025 cost trend is now estimated at 6.2%, down from the 6.5% we estimated when we reported our 2025 full-year results. The favorable development for 2025 medical expense was offset by additional reserves related to Part D costs for 2025 which, as a reminder, are recorded net in premium revenue. Given the lack of data for 2025 Part D costs, we continue to take a prudent approach to Part D reserving as we will not get final reconciliations of the cost typically until the third quarter of this year. Given we have limited paid claims visibility for 2026, we recorded a cost trend of 7.4% for the quarter. I would note that based on our census data, cost trends remain in line with what has been mentioned nationally by our payer partners and others. However, given our limited paid claims visibility early in the year, we took what we believe is a conservative approach in the quarter. Medical margin for the first quarter was $149 million compared to $128 million in 2025, which exceeded the high end of guidance. This was driven by higher revenue, as I previously discussed, and lower overall medical expenses in the quarter. ACO REACH adjusted EBITDA for the first quarter was $27 million and ahead of our expectations by approximately $5 million. The favorable performance was primarily driven by CMS's removal of fraudulent urinary catheter and suspect skin substitute costs from our 2025 performance and the corresponding benchmark changes. Adjusted EBITDA was $54 million as compared to $21 million in the same period of the prior year. The favorable overall performance reflects higher medical margin, OpEx discipline, and the favorable ACO REACH performance I previously highlighted. As Ronald mentioned, ACO REACH results underscore our confidence in our model and the potential for driving continued value creation as we look forward to the advancement of both the MSSP and CMS LEAD model in 2027. On the balance sheet, we ended the quarter with [inaudible] in cash and marketable securities and $47 million of off-balance sheet cash held by our ACO entities. Year-end cash position is still expected to be at least $125 million. Last, we executed a reverse stock split at the end of the quarter. Additional details can be found on our investor website. Now moving to guidance. We are revising our full-year 2026 guide to reflect the strength of the first quarter results, including better-than-expected revenue associated with higher estimated risk scores for the year, and the first quarter performance in ACO REACH. In addition, as previously mentioned, it also includes a new full-risk contract signed in Q1 2026 in an existing market with a new payer. Our confidence remains rooted in the same key tenets we have previously outlined, including operating execution across clinical and quality programs; improved data visibility and forecasting capabilities related to the enhanced data pipeline; payer contracting improvements, which emphasize profitability for both medical margin and cash flow; and a conservative cost trend assumption supported by factors previously mentioned. Utilizing the midpoint of guidance ranges provided within our earnings release, we now expect revenue of approximately $5.7 billion, medical margin of approximately $375 million in 2026, and adjusted EBITDA of approximately $25 million. As I indicated, while 2025 saw favorable claims development, we continue to be prudent in our reserving and are maintaining our full-year net cost trend outlook of 7%. Focusing on the second quarter and utilizing the midpoint of guidance ranges, we expect revenue of $1.45 billion, medical margin of $123 million, and adjusted EBITDA of $20 million. I will close by saying that we are very pleased with our first quarter performance, including delivering strong positive adjusted EBITDA. The enhanced data and reserving models are improving our visibility to claims and revenue trends. We have executed on our strategic transformation and continue to drive improved performance across all aspects of the business. As Ronald mentioned, we also remain optimistic about our runway for continued improvement beyond 2026 based on the continued execution across our initiatives and the final 2027 rate notice. With respect to the final rate notice for 2027, we believe our starting point across our markets is in line with the 5.33% effective growth rate CMS noted, with additional opportunities based on our BOI, quality, and contracting efforts. Based on our model review across the business, we believe we have minimal exposure to unlinked chart reviews, and with respect to the 1.12% normalization factor, I will remind everyone that we have been able to more than offset the V28 hurdle over the past couple of years. Further supporting our potential will be continued discipline around payer contracting, implementation of programs to lower overall medical costs, and further driving operating efficiencies. The team will remain focused on minimizing risk related to Part D, emphasizing our quality initiatives, and balancing payer priorities with our own profitability. And last, we believe CMS continues to demonstrate their support for full-risk value-based care models focused on clinical and quality programs that drive improved outcomes, reduce cost, and enhance member satisfaction, and, therefore, we remain optimistic about the potential for Agilon Health, Inc. With that, Operator, let us move to the Q&A portion of the call. Operator: We will now open the call for questions. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jailendra Singh with Truist Securities. Your line is now open. Please go ahead. Jailendra Singh: Thank you, and thanks for taking my questions. I want to ask about ACO REACH EBITDA—kind of nice number there, $26.5 million—but you are maintaining the guidance for full year at $25 million to $30 million for the full year. Why are you not expecting any further contribution for that business for the rest of the year? And then my follow-up: you talked about AI helping you to capture more efficiencies in the provider operational workflow and admin. The efficiencies you are seeing right now—should we think of those as incremental to the OpEx benefit of $35 million you have talked about for 2026, or is that already reflected in your guidance? Jeffrey Alan Schwaneke: The $5 million benefit that we saw, we increased that in the guide for the year for the REACH program. But the $5 million benefit that we saw in the quarter was really related to 2025 performance, and it was associated with the suspect skin substitutes and the urinary catheters. CMS decided to back those out of the cost for 2025, and so we got a pickup there. It is a little early in the year for us to adjust REACH performance beyond that at this point in time. On AI, I would bifurcate the programs. One is OpEx efficiencies; the other would impact more above the line—medical cost and revenue. We have mentioned the AI-driven risk stratification, which really looks at medical costs. We also use AI in our suspecting algorithms on the revenue side. So I would say limited early impact on the OpEx line, more significant on both the revenue and medical cost line, with value showing up later in health care cycles. Operator: Your next question comes from the line of Matthew Dineen Shea with Needham. Your line is now open. Please go ahead. Matthew Dineen Shea: Nice to hear about the scaling clinical programs. At a conference a couple months ago, you had talked about by end of Q2 expecting to get 50% to 70%+ of markets live on dementia and COPD pathways. Is that still the right way to think about the rollout? And on the financial side, how long does it take to generate benefit from these programs—does scaling COPD and dementia add benefit to 2026 profitability, or is that more of a 2027 benefit? Jeffrey Alan Schwaneke: I would say yes on the COPD and dementia rollout, and yes again that it could add value in 2026. However, it has to show up in the claims, and that takes time. We initiated the heart failure program a year ago; it is our most mature program, and we are seeing the benefit of that today with improved member outcomes. We are excited about rolling out the other programs and continuing to focus on additional clinical programs going forward. Ronald Williams: The only point I would add is how our physicians feel about being actively engaged in these clinical pathways. They see this as part of the reason they went to medical school—to improve the quality of people's lives. The ability to identify conditions earlier and get people on the right therapies not only avoids unnecessary hospitalization but, most importantly, improves patients' lives. They feel very positive about that. Operator: Your next question comes from the line of Analyst with Deutsche Bank. Your line is now open. Please go ahead. Analyst: I was wondering if you would talk about your conversations with your ACO REACH clients about how they are thinking about the LEAD program for next year. Are you expecting to see the same level of participation, and do you expect your economics to look the same? Jeffrey Alan Schwaneke: The details of the LEAD program just came out. We are analyzing that information and determining which path is best between LEAD or MSSP. The good news is we have participated in MSSP and REACH and have been very successful. We think we can be successful in both programs moving forward, and they will be positive contributors to financial performance in 2027 and beyond. It is a little early, but we are having conversations and running the calculations to figure out the best path. Analyst: As you think about the improvement in the guidance in 2026, do you feel like the results are something that can be built on for 2027, or is there a risk of a reset as you go into contracting? Jeffrey Alan Schwaneke: It is a foundation that can be built on. That is what we have been focused on over the last 18 months—driving toward profitability. We will take that same lens into 2027 contract negotiations, which are in active discussions now, for all the reasons Ronald previously mentioned. It is a solid foundation to build off. Operator: Your next question comes from the line of Stephen Baxter with Wells Fargo. Your line is now open. Please go ahead. Stephen Baxter: I want to make sure we understand all the sources of medical margin upside in the quarter versus your guidance. I think you sized the full-year expected benefit from the higher risk scores at the one level—on a quarterly basis something like $14 million to $15 million of additional medical margin. When we look at the balance of the beat, which I think was closer to $35 million, trying to make sure we have all the pieces there. You had a benefit from PYD, but you are also saying you are booking cost trends to guidance levels versus modeling any improvement. Can you clarify? Jeffrey Alan Schwaneke: For Q1, bridging to the prior guide mid for medical margin, the variance is roughly $26 million. There are a couple of components. The risk adjustment update is about $50 million for the full year; obviously, we would get roughly half of that in the first half, so a piece hits Q1. We also mentioned the new contract. Although we modeled it as breakeven margin for the year, given seasonality there would be margin on that contract in Q1. Those are the two primary items impacting margin versus the prior midpoint. On 2027 contracting objectives, our perspective has not changed. Percent of premium is at the top of the list, continued reduction of Part D exposure—we are at less than 15% exposure this year and would like to see that go down more—plus capture corridors and carving out items outside our control like supplemental benefits. The same levers we discussed a year ago are what we are focused on for 2027. It is early in the contracting cycle, but conversations with payers are productive and supportive of our model. Operator: Your next question comes from the line of Luismario Higuera with Citigroup. Your line is now open. Please go ahead. Luismario Higuera: Last quarter you said there was $15 million of new geography entry expenses. I know some are for current providers, but some would be for possible investments for additional growth. Can you provide an update on that? And are you able to break out the 7.4% cost trend embedded in guidance—any particular categories expected to drive much of that, and what would give you comfort to revise that down? Jeffrey Alan Schwaneke: On geo entry in the guide for the full year, those costs are generally in line with expectations in the first quarter—nothing out of the ordinary. To clarify on trend, the 7.4% is what we recorded in Q1 given limited paid claims visibility early in the year. For the full year, our guidance is 7% net. With limited data in Q1, what we are seeing continues the theme of escalated Part B costs and inpatient costs. That has been a common theme over the last year. As we get more data, we will reassess, but it is consistent with national commentary. Operator: Your next question comes from the line of Amir Farahani with Evercore. Your line is now open. Please go ahead. Amir Farahani: You previously discussed roughly 50 bps of tailwind from improved payer bids. How is that tracking year-to-date? And with the 2027 bidding season around the corner, what are you hearing from payer partners in terms of benefit design and premiums, and how might that impact next year? Ronald Williams: The messages we are hearing are a strong focus on margin improvement. We expect their bids, product positioning—everything—is about restoring to what they view as reasonable margins, which we think is good for us. Jeffrey Alan Schwaneke: On the benefit from payer contracting, the number we quoted in the initial guide was roughly $127 million for the full year. Those contracts were executed, so that benefit is flowing through in the first quarter. Amir Farahani: As a follow-up, on group MA mix, several payers flagged recovery in MA margin in 2026. Are you targeting structurally better economics in your book, and is that upside captured? Jeffrey Alan Schwaneke: Our group mix is roughly unchanged from last year—very consistent. Negotiations and the quoted contracting benefit are inclusive of that mix. Operator: Your next question comes from the line of Jack Garner Slevin with Jefferies. Your line is now open. Please go ahead. Jack Garner Slevin: To clean up the upside in the quarter, just to be clear—there was no PYD recognized in Q1? And on the favorable 2025 development, was that a continuation of outlier cases abating from late 3Q? Jeffrey Alan Schwaneke: The prior-year development is in the 10-Q medical cost roll-forward—roughly $12 million for the quarter related to 2025 dates of service. There was effectively no flow-through because during the quarter we added additional reserves to Part D. In 2025, 30% of our members had that risk, and we have limited information until final reconciliation in the third quarter of 2026. Part D is recorded in revenue for us, so the good news on the medical expense line from PYD was offset by a reduction in revenue representing Part D. Jack Garner Slevin: On 2027, last quarter you suggested you could expand margins even considering the advance notice, given BOI improvements. Given the more positive numbers now, has anything changed in your confidence for 2027 on the core business? Jeffrey Alan Schwaneke: The main change is our performance this quarter on risk adjustment. We now have more confidence going forward. This year we said we would outperform the final year of V28; now we have more confidence that it will be even higher. That gives us more confidence in 2027 and beyond to offset the 1.12 normalization factor. We do not believe we have material exposure to disallowed sources of diagnosis given our model’s design closely aligned with primary care physicians. For the 2027 growth rate, we are zeroing in on the 5.33% effective growth rate. Operator: Your next question comes from the line of Ryan M. Langston with TD Cowen. Your line is now open. Please go ahead. Ryan M. Langston: On the new full-risk contract with the new payer, what was attractive about that contract? Is this generally members you had before who switched to this payer, or a new cohort? And what was the pickup in guidance from this contract? Jeffrey Alan Schwaneke: It is in a market with an existing physician group, and it is a new contract with a payer. We modeled it at roughly $200 million in revenue and roughly breakeven margin for the year. For us, it is an opportunity for multi-year margin improvement, and we think we can deliver that. It is not uncommon for year zero to be modeled conservatively at breakeven. Operator: Next question comes from the line of Craig Jones with Bank of America. Your line is now open. Please go ahead. Craig Jones: You mentioned pretty much no impact from the unlinked chart reviews that we will see in 2027. CMS seems focused on leveling the playing field—looking to 2028 and beyond, what impact would you see from linked chart reviews and health risk assessments, and is there any other low-hanging fruit CMS could go after? Ronald Williams: We feel good about where we are. Our physicians see every patient, and charts are audited very carefully. That does not mean we will not have some issues, but we are much more rigorous than we believe some others have been historically. We expect CMS will continue to spend the taxpayers’ dollar wisely. Our focus on ensuring documentation is linked to real care delivered to real patients is the best approach. Operator: Your next question comes from the line of Michael Ha with Baird. Your line is now open. Please go ahead. Michael Ha: Regarding the LEAD model, as you run your calculations to determine which path to go down, how are you contemplating the eventual AI-inferred risk adjustment model that is being phased into the LEAD program? How much visibility do you have into how this AI model might impact risk adjustment? And then last quarter you mentioned the opportunity to possibly more than double payer incentive contributions in 2026, which were $25 million for 2025, and your 2026 guide conservatively assumed the same. How is that tracking, and how much visibility do you have today? Jeffrey Alan Schwaneke: There are not a lot of details on the AI-inferred risk model right now, so it is hard to model something without details. We will reassess as CMS provides more information. On payer incentives, the opportunity has roughly doubled, which underscores the importance of quality for payers. Our 2026 guide assumes a similar level of performance to 2025. It is very early, and we do not have data yet, but we feel confident we are delivering superior quality to our payer partners and members. Operator: Your next question comes from the line of Ryan Daniels with William Blair. Your line is now open. Please go ahead. Ryan Daniels: Given the operational improvements, clinical pathways, and better data feeds, when does the company consider going back on the offensive—growing the member base and reinvigorating the new partner pipeline—especially given payer demand to expand partnerships? Ronald Williams: Our partners are deeply embedded in their communities with large commercial panels, and every month people turn 65 and enter Medicare Advantage. There is embedded growth—nowhere near opening a new market—but it helps mitigate attrition. Some groups also add new physicians. Our focus right now is on in-market growth and execution. The time will come when we turn our attention to other things, but that time is not here yet. Operator: We have reached the end of the Q&A session. I will now turn the call back to Ronald Williams for closing remarks. Ronald Williams: I want to thank everyone who joined us this evening. Since stepping in as Executive Chair eight months ago, I have worked very closely with the leadership team. We have been highly focused on increasing the sense of urgency and heightening the focus on key priorities that drive improved performance for our members, our primary care partners, and payers. While the environment remains dynamic, we are confident that the actions we have taken will deepen the existing strengths of our partnership model. We think it is a very unique model because of the proximity to the physician. It gives us the ability to ensure that the suspects and things that we determine are resulting in real clinical interventions, which is extremely important to patients and to CMS. I want to close by welcoming Tim O'Rourke, our new CEO. I am thrilled to have Tim join us. He brings the right balance of understanding the payer, the provider, and the importance that primary care physicians bring to our unique delivery model. He conducted extensive due diligence, and we feel very good about having him as part of our team. Our employees have worked very hard to get us where we are, and I want to give a special thank you to everyone in Agilon Health, Inc. who helped us achieve the results we are reporting today. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, and welcome to Gold.com, Inc.’s conference call for the fiscal third quarter ended 03/31/2026. My name is Matthew, and I will be your operator this afternoon. Before this call, Gold.com, Inc. issued its results for the fiscal third quarter 2026 in a press release, which is available in the Investor Relations section of the company’s website at www.gold.com. You can find the link to the Investor Relations section at the top of the home page. Joining us for today’s call are Gold.com, Inc. CEO, Gregory Roberts; President, Thor Gjerdrum; and CFO, Cary Dickson. Following their remarks, we will open the call for your questions. Then, before we conclude the call, I will provide the necessary cautions regarding the forward-looking statements made by management during the call. I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of Gold.com, Inc.’s website. I would now like to turn the call over to Gold.com, Inc. CEO, Gregory Roberts. Sir, please proceed. Gregory Roberts: Thank you, Matt, and good afternoon, everyone. Thanks again for joining our call today. Our third quarter results reflect the strength of our fully integrated platform and our ability to capitalize on strong market conditions. As I noted on our last call, we were beginning to see a meaningful shift in market dynamics, and that momentum carried over favorably into this quarter. During the quarter, we experienced an unprecedented surge in activity across both our wholesale sales and our ancillary services as well as our direct-to-consumer segments. Market participants across the spectrum, from individual investors to institutional buyers, moved aggressively to increase exposure to precious metals. This environment created a highly dynamic two-way market with elevated levels of both buying and selling activity, which allowed us to efficiently deploy inventory and capitalize on favorable trading opportunities. The pace and magnitude of the movement was extraordinary. We saw one of the most volatile spot price environments in recent history, which drove significant transaction velocity across our platform. Operationally, our teams executed extremely well under these conditions. The rapid spike in demand challenged systemwide capacity, and we were positioned to respond by quickly scaling inventory and production levels at our mints as we leveraged our balance sheet. This resulted in record financial performance, including over $10 billion in revenue, over $175 million in gross profit, and $59.5 million in net income for the quarter. Our direct-to-consumer segment led the way during the quarter, reflecting strong customer engagement, higher order values, and increased transactional activity across our platforms. JMB outperformed and delivered record profitability. Our wholesale sales and ancillary services segment also delivered significant quarter-over-quarter improvement following the more challenging market conditions we experienced last fall. The favorable market conditions we experienced this quarter were also global, with LPM continuing to build momentum across Asia and benefiting from heightened regional demand and increased trading activity. Activity began to moderate toward the end of the quarter, as is typical following periods of heightened volatility. We are now seeing a more normalized environment. While geopolitical dynamics remain an important factor influencing demand, overall market conditions remain constructive; we believe the underlying drivers for precious metals investments remain firmly in place. We also benefited as last quarter’s backwardation moved into contango. We remain focused on driving synergies across our business units and maximizing at every level. Our acquisition of Monnex during the quarter is already delivering strong returns, and the addition of Sunshine Mint to our portfolio will meaningfully expand our production capabilities going forward. As previously disclosed, in February 2026 we entered into a securities purchase agreement with an affiliate of Tether Global Investment Fund whereby Tether agreed to purchase an aggregate of 3 million 370 thousand 787 shares of Gold.com, Inc.’s common stock at a price of $44.50 per share. The first tranche of the shares was purchased on 02/06/2026, corresponding to 2 million 840 thousand 449 shares for an aggregate purchase price of $126.4 million. Following receipt of regulatory clearance, the second tranche of 530 thousand 338 shares was purchased on 05/05/2026 for an aggregate purchase price of $23.6 million. This strategic equity investment further enhanced our overall capital and liquidity position. It is a powerful validation of our vertically integrated model. During the quarter, we also entered into storage, metal leasing, and trading agreements with Tether and their affiliates, and purchased $20 million of Tether’s gold-backed stablecoin XAUT. We believe this partnership represents a meaningful step forward in aligning our physical precious metals platform with emerging digital asset ecosystems, and we are encouraged by the early progress we have made. I will now turn the call over to our CFO, Cary Dickson, who will provide an overview of our financial performance. Then our President, Thor Gjerdrum, will discuss key operating metrics. After that, I will provide further insights into the business, our growth strategy, and we will take questions. Cary, please proceed. Thank you, and good afternoon to everybody. Cary Dickson: Our revenues for fiscal Q3 2026 increased 244% to $10.3 billion from $3.0 billion in Q3 of last year. Excluding an increase of $4.3 billion of forward sales, our revenues increased $2.9 billion, or 187%, due to higher average selling prices of gold and silver as well as increased gold and silver ounces sold. For the nine-month period, our revenues increased 142% to $20.5 billion from $8.4 billion in the same year-ago period. Excluding an increase of $7.4 billion of forward sales, our revenues increased $4.6 billion, or 95%, due to higher average selling prices of gold and silver as well as increased gold and silver ounces sold. Revenues also increased in both the three- and nine-month periods due to the acquisitions of SGI, Pinehurst, and AMS in late fiscal 2025 and Monnex in fiscal 2026. Gross profit for Q3 2026 increased 331% to $176 million, or 1.7% of revenue, from $41 million, or 1.3% of revenue, in Q3 of last year. The increase was due to higher gross profit in both our wholesale sales and ancillary services segment and our direct-to-consumer segment, including the acquisitions of SGI, Pinehurst, AMS, and Monnex, which were not fully included in the same year-ago period. For the nine-month period, gross profit increased 165% to $342 million, or 1.6% of revenue, from $129.2 million, or 1.53% of revenue, in the same year-ago period. The increase was due to higher gross profit in both our wholesale sales and ancillary services segment and the direct-to-consumer segment, including the acquisitions of SGI, Pinehurst, AMS, and Monnex, which were not fully included in the same year-ago period. SG&A expenses for fiscal Q3 2026 increased 134% to $78 million from $33 million in Q3 of last year. The change was primarily due to an increase in compensation expense, including performance-based accruals; higher advertising costs of $7 million; increased insurance costs of $4 million; higher bank service and credit card fees of $1.9 million; and an increase in facilities expense of a little over $1 million. SG&A expense for the three months ended 03/31/2026 included $33 million of expenses from SGI, Pinehurst, AMS, and Monnex, which were not included in the same year-ago period as they were not consolidated subsidiaries for the full year. Excluding the increase from these newly acquired subsidiaries, SG&A increased $11.6 million. In essence, 75% of our overall increase in SG&A period over period related to the acquisitions of our new subsidiaries. For the nine-month period, SG&A expense increased 130% to $197 million from $85 million in the same year-ago period. The increase was primarily driven by higher compensation expense, including performance-based accruals of $68 million, higher advertising costs of $17 million, an increase in consulting and professional fees to $7 million, an increase in insurance cost of $6.1 million, and an increase in banking service and credit card fees of $4.5 million. SG&A expenses for the nine months ended 03/31/2026 included $93 million of expenses from SGI, Pinehurst, AMS, and Monnex, which were not included in the same year-ago period as they were not consolidated for the full period. Excluding the increase from these newly acquired subsidiaries, SG&A increased $18 million year over year. In essence, 84% of our overall increase in SG&A period over period related to the acquisition of these new subsidiaries. Depreciation and amortization expense for fiscal Q3 2026 increased 88% to $9.4 million from $5.0 million in the same year-ago period. The change was predominantly due to a $4.6 million increase in amortization expense relating to intangible assets acquired through our acquisitions of SGI, Pinehurst, AMS, and Monnex, and a $1.5 million increase in depreciation expense, partially offset by a $1.6 million decrease in intangible asset amortization from JMB and Silver Gold Bull. For the nine-month period, depreciation and amortization expense increased 72% to $24.6 million from $14.3 million in the same year-ago period. The change was primarily due to a $10 million increase in amortization expense related to intangible assets acquired through our acquisitions of SGI, Pinehurst, AMS, and Monnex, and a 600 thousand dollar increase in depreciation expense, partially offset by a $5 million decrease in intangible asset amortization from JMB and SGB. Interest income for Q3 2026 increased 1% to $6.8 million from $6.7 million in the same year-ago period. The aggregate increase in interest income was due to an increase in interest income earned by our secured lending segment of 500 thousand dollars, partially offset by a decrease of the same amount in our finance product income category. For the nine-month period, interest income decreased 12% to $18.2 million from $20.6 million in the same year-ago period. The aggregate decrease in interest income was due to a decrease in other financing income of $2.6 million, offset by an increase in interest income earned by our secured lending segment of 200 thousand dollars. Interest expense for fiscal Q3 2026 increased 47% to $19 million from $13 million in Q3 of last year. The increase is primarily due to higher interest and fees of $3 million related to product financing arrangements, an increase of $2.6 million related to precious metal leases, and an increase of 300 thousand dollars associated with our trading credit facility. For the nine-month period, interest expense increased 44% to $47.9 million from $33 million in the same year-ago period. The increase is primarily due to higher interest and fees of $7.2 million related to product financing arrangements, an increase of $5.8 million related to precious metal leases, and an increase of $1 million associated with our trading credit facility. Earnings from equity method investments in Q3 increased to $2.3 million from a loss of 200 thousand dollars in the same year-ago quarter. For the nine-month period, earnings from equity method investments increased to $2.4 million from a loss of $2.1 million in the same year-ago period. The increase in both periods was due to increased earnings of our equity method investees. Net income attributable to the company for Q3 2026 totaled $60 million, or $2.09 per diluted share, compared to a net loss of $8 million, or $0.36 per diluted share, in the same year-ago quarter. For the nine-month period, net income attributable to the company totaled $70 million, or $2.65 per diluted share, compared to $7 million, or $0.29 per diluted share, in the same year-ago period. Adjusted net income before provision for income taxes, a non-GAAP financial measure which excludes depreciation, amortization, acquisition costs, and contingent consideration fair value adjustments, for Q3 totaled $87 million, an increase of $81 million compared to $5.7 million in the same year-ago quarter. Adjusted net income before provision for income taxes for the nine-month period totaled $115 million, an increase of $81 million, or 240%, compared to $33.9 million in the same year-ago period. EBITDA, another non-GAAP liquidity measure, for Q3 2026 totaled $103.4 million, an increase of $102 million compared to $1.3 million in the same year-ago quarter. EBITDA for the nine-month period totaled $151.6 million, an increase of $116 million, or 329%, compared to $35 million in the same year-ago period. Now turning to our balance sheet. We maintain a strong liquidity position supported by expanding financing capacity, including increased precious metal lease facilities and the recently completed Tether equity and financing investments to date. At quarter end, we had $143.0 million of cash compared to $77.7 million at the end of fiscal 2025. Our non-restricted inventories totaled $1.319 billion as of 03/31/2026 compared to $794 million as of the end of fiscal 2025. Gold.com, Inc.’s board of directors has declared a quarterly cash dividend of $0.00 per share, maintaining the company’s current dividend program. The dividend is payable in June to stockholders of record as of 05/20/2026. That completes my financial summary. I will turn the call over to Thor, who will provide an update on our key operating metrics. Thor, thank you. Thor Gjerdrum: Looking at our key operating metrics for 2026, we sold 538 thousand ounces of gold in Q3 fiscal 2026, which is up 25% from Q3 of last year and down 1% from the prior quarter. For the nine-month period, we sold approximately 1.5 million ounces of gold, which is up 17% from the same year-ago period. We sold 34.6 million ounces of silver in Q3 fiscal 2026, which is up 120% from Q3 of last year and up 86% from the prior quarter. For the nine-month period, we sold 63.6 million ounces of silver, which is up 10% from the same year-ago period. The number of new customers in the DTC segment—which is defined as the number of customers that have registered, set up a new account, or made a purchase for the first time during the period—was 292 thousand 800 in Q3 fiscal 2026, which is down 68% from Q3 of last year and up 205% from last quarter. For the three months ended 03/31/2026, approximately 58% of the new customers were attributable to the acquisition of Monnex. For the three months ended 03/31/2025, approximately 93% of the new customers were attributable to the acquisitions of Pinehurst and SGI. For the nine-month period, the number of new customers in the DTC segment was 458 thousand 300, which decreased 55% from 1 million 20 thousand 300 new customers in the same year-ago period. Approximately 37% of the new customers for the nine months ended 03/31/2026 were attributable to the acquisition of Monnex. Approximately 82% of the new customers for the nine months ended 03/31/2025 were attributable to the acquisitions of SGI and Pinehurst. The number of total customers in the DTC segment at the end of the third quarter was approximately 4.7 million, which is a 40% increase from the prior year. Changes in customer base metrics were primarily due to the acquisitions of AMS and Monnex, which were not included in the same year-ago period, as well as organic growth of our JMB customer base. Finally, the number of secured loans at March totaled 337, a decrease of 31% from 03/31/2025 and a decrease of 5% from December. The dollar value of our loan portfolio as of 03/31/2026 totaled $126 million, an increase of 46% from 03/31/2025 and an increase of 5% from 12/31/2025. That concludes my prepared remarks. I will now turn it over to Greg for closing remarks. Greg, you may be muted. Operator: Apologies. Greg, thanks, Thor and Cary. Gregory Roberts: This quarter was a clear demonstration of the strength and scalability of our fully integrated platform. We capitalized on a highly dynamic market environment, delivered solid financial results, and further strengthened our strategic and financial positioning. Our strategic focus remains on integrating and realizing cost savings and synergies from our recent acquisitions, expanding both our domestic and geographic reach, and further diversifying our customer base. With an expanded portfolio of category-leading brands and improved operational leverage, we believe Gold.com, Inc. is positioned to capture growth across multiple markets and continue to deliver long-term value for our shareholders. This concludes my prepared remarks. Operator, we can now open the line for questions. Operator: Certainly. Everyone, at this time we will be conducting a question-and-answer session. If you have any questions or comments, please press 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you are listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press 1 on your phone. Your first question is coming from Michael Baker from DA Davidson. Your line is live. Michael Baker: Great, thanks. A couple of questions. Unbelievable quarter. But Gregory, you said something about business as “normalized.” What does “normalized” mean to you? We track spreads and see they have come down so far in the June quarter versus the March quarter, but still well above where they were for much of calendar 2025. We would not consider 2025 to be normal—would you? Related to that, with the much larger platform because of all the acquisitions, even a “normal” earnings power for the company should be a lot higher than it was in the past. Is there any way to quantify what normal earnings power would be? Gregory Roberts: That is a lot. First and foremost, as we have always said, the environment is going to drive the profitability. Combined with the acquisitions that we do, clearly we are going to get different revenue streams, and the revenue streams are going to vary between the different divisions and parts of the company. I think last year was below par—below normalized—for most of calendar 2025. As we talked about on our last call, things really started to improve toward October and November, and December was pretty strong. When I said normalized, I was reflecting on how crazy and active January and February were and how March became what I would call a bit more normalized for the environment. In January and February of this quarter, we significantly outperformed what I would call normalized. There was a question on the last call—if these conditions continue, what is going to happen? I said if these conditions continue, we are going to have a great quarter. Clearly, we had a great quarter. A lot of the headwinds that we had through the fall of last year were attributed to the backwardation issues we had. We highlighted that as a major headwind on performance as it related to our cost of financing and our ability to collect contango, which is a more normalized environment. Backwardation is highly unusual. What we saw this quarter was a more normalized contango environment, which did help some of our other businesses, and that has continued in what I would call normalized conditions in March and into April, the first month of our Q4. We are still very active. Certainly, the war in Iran has caused a lot of change and disruption in overall volumes in the financial markets. Although our premiums are still quite nice, we have had a bit of volume retreat from where we were in January and February. Operator: Thank you. Your next question is coming from Thomas Forte from Maxim Group. Your line is live. Thomas Forte: Great. First off, Gregory, Cary, Thor—wow. Three questions, one at a time. First, how did the M&A enable you to capitalize on the demand versus previous spikes? Gregory Roberts: In January and February, we saw an environment where the tide rose for all of our businesses, which was great to see. Within DTC, we had a couple of overachievers, and as I mentioned earlier, JMB had a great quarter—great customer counts and premium spreads. We also saw a big uptick in our LPM business in Hong Kong and Singapore. That was new for us because we were able to see what customers in a geography we had not previously operated in were capable of. We were able to benefit from that this quarter. There were days or weeks where China in particular seemed to outperform our domestic businesses, and vice versa. It was great data for us, and we are enthusiastic about what we were able to accomplish there with that new acquisition. On the other side, the bullion business was an overachiever. Collectibles were strong in the quarter, but given the nature of that business, it did not benefit as much as bullion. Thomas Forte: Second, how, if at all, did your strategic partnership with Tether contribute to your performance? Gregory Roberts: In this particular quarter, it did contribute, but I would not say it was greatly significant. As we have onboarded Tether as a trading partner, one of the most exciting things you will see in our numbers is our storage business. With Tether’s help as well as Monnex, from 12/31/2025 to 03/31/2026 we have gone from $1.1 billion in storage to roughly double that, and where I think we are today in May is about $2.2 billion. As we said in our release related to Tether, storage is a big part of our strategic relationship with them, along with the gold leasing arrangements we have with them, which are now above what we had projected in the release. We are getting those benefits now, including in the current quarter. Thomas Forte: Lastly, can you give us your current thoughts on your one-time dividend philosophy? Gregory Roberts: We have explored special dividends in the past and rewarded shareholders when we have had a great year. We are very active right now and have a lot of opportunities in front of us. As I have said before, there are five things I look at for capital deployment: paying down debt, strategic inventory increases, acquisitions, share buybacks, and dividends. Based on the performance we are seeing from our acquisitions right now, I would continue to put acquisitions near the top of the list. We are doing a good job paying down debt and lowering interest expense. Dividends and share buybacks will continue, but I would like to see how the fourth quarter shapes up before we get too far down the road on a special dividend. Operator: Your next question is coming from Andrew Scutt from ROTH Capital Partners. Your line is live. Andrew Scutt: Hey, congrats on the really strong results, and thanks for taking my questions. First, can you help us understand the little bit over $1 billion increase in restricted inventory? And in the same vein, with the addition of Sunshine Mint, how will that help you manage your inventory going forward? Gregory Roberts: They are two different things. Regarding inventory, in January and February we had record spot prices. You had days where silver was $120 and gold was $5,500. That will naturally increase our restricted and total inventory because the spot price affects valuation—if we have the same number of ounces, we will have higher inventory dollars. We pivoted very quickly from November and early December, when holding more inventory cost us significantly due to backwardation. By mid-December and January, the environment was demanding more inventory from us to accomplish these numbers, and we pivoted. Our SilverTowne Mint ramped up and got us product when there were periods where competitors did not have product, allowing us to satisfy demand. As it relates to Sunshine, we moved from an approximate 45% ownership interest to 100%. We thank Tom Power, the founder, who has retired. It was great timing for us as we moved into a very active period. We benefited from our minority interest, and now, owning 100%, we will have greater control over what products Sunshine is making. A shout out to Jamie Meadows, our new president of minting, and Jason, the president of Sunshine. As Tom has retired, those two are going to really lead our minting operations. I am confident and looking forward to what they will do together having SilverTowne and Sunshine working with a closer relationship. Andrew Scutt: Thanks. Second, you have demonstrated an ability in the past to extract SG&A synergies from JMB and other acquisitions. As we look at recent acquisitions like Monnex and Sunshine, can you help us understand potential SG&A synergies over the next couple of quarters? Gregory Roberts: Everyone on our team is looking for SG&A synergies. We are also looking for synergies that create more gross profit across the companies. A quarter like this really throws some comparison numbers out of whack because to do $10 billion in sales, we are going to spend more money doing it. Not long ago a $5 billion year was good for us, and now we have achieved a $10 billion quarter. The variable parts of our SG&A will increase. The market environment over the next six months will dictate where we can find cost savings and optimize SG&A. We are always focused on it. Investors should recognize—and we are proud of—our ability to pivot when the market shifts to a strong tailwind, as it did this quarter. Our earnings potential, which I get asked about a lot, was illustrated by this quarter—given the environment, our acquisitions, and our ability to access capital very quickly. Operator: Thank you. Once again, everyone, if you have questions or comments, please press star then 1 on your phone. Your next question is coming from Seymour Jacobs from Jam Partners. Your line is live. Seymour Jacobs: Hey, Gregory. I have two questions. First, digging into the shift in hedging costs from negative to positive as silver went from backwardation to contango. I remember it was still really bad at the end of the year and into January—badly in backwardation and costing you money—and on the last call you quantified, generally, how much it was costing you. On this call, you are talking as if the return to contango really benefited you, but it seems to me that happened during the quarter, maybe halfway through. Is the coming quarter—the April through June quarter—effectively going to be the first full quarter where you are benefiting, or did you see the full benefit in the first quarter? Gregory Roberts: Definitely not the full benefit in Q3. You are correct that we experienced backwardation and higher lease and repo costs through the first half of the quarter. When we hit record spot prices, our transactional business was extraordinary, but we still had higher expense and the backwardation issue. Things normalized in March and definitely in April. The investment from Tether, both in the stock purchase and the leases we are transacting with them, has had a positive effect on our interest expense, our carry costs, and our ability to pay down our dollar lines. So Q4 will be the first full quarter in a while without those headwinds. Seymour Jacobs: Great. Second, on the $20 million of XAUT tied to the Tether transaction—what is the strategy and what does it lay the groundwork for? My understanding is XAUT is largely offshore with restrictions in the U.S., so I am guessing the $20 million is not just to be more long gold. Can you expand on the strategy? Gregory Roberts: I will expand a bit without giving away our launch codes. We invested $20 million in XAUT. I believe our average cost is around $4,700 spot, about where it is right now. We are unhedged on that, so we are long $20 million of gold. The exercise of opening the account and putting the plumbing in place—buying XAUT, holding it in a wallet—has been completed. We have completed onboarding with a digital bank and are working on onboarding with Tether directly. I believe there is an opportunity for us to get further involved in XAUT as part of our DTC network. There will likely be trading opportunities. The ability to trade Tether truly 24/7 at good volumes, and trade XAUT and Tether, is going to be valuable for us. We have seen the volumes and what we can expect in XAUT over weekends; there could be opportunities there. We are going down the path of a Gold.com, Inc. wallet. Giving our customers the ability to access XAUT and redeem XAUT for physical is important. The redemption feature—which is not currently in place for XAUT holders—I think is going to be a good opportunity for Gold.com, Inc. As to whether this is outside or inside the U.S. for holders of XAUT, we are still researching. At the moment, it looks like more of an international opportunity than domestic, but we are still vetting that. Seymour Jacobs: Lastly, on the rebranding to Gold.com, Inc.—we saw the launch of the unified website that feeds into all your different brands. What benefits have you seen so far on the marketing front, and what is the update on potential Gold.com, Inc.-branded financial services like a credit card? Gregory Roberts: So far, the rebranding has gone great. I am speaking to new shareholders all the time. In hindsight, it was an exceptional move and it is good for the company to get everything under one umbrella brand. We continue to work on a Gold.com, Inc. credit card to give our DTC customers an opportunity to connect even better with Gold.com, Inc. That is on the to-do list. We are not in the red zone yet, but we are on the other side of the 50. I am looking forward to that and exploring how the Gold.com, Inc. credit card may connect with other opportunities on the digital side. Operator: At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Roberts for his closing remarks. Gregory Roberts: Thank you, Matt. Once again, as I do every quarter, I would like to thank our many shareholders and our employees. We look forward to keeping you updated on our future progress and everyone’s dedication and commitment to Gold.com, Inc.’s success. Thank you all for joining today. Operator: Thank you. Before we conclude today’s call, I would like to provide Gold.com, Inc.’s safe harbor statement that includes important cautions regarding forward-looking statements made during this call. During today’s call, there were forward-looking statements made regarding future events. Statements that relate to Gold.com, Inc.’s future plans, objectives, expectations, performance, events, and the like are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. These include statements regarding expectations with respect to future profitability and growth, international expansion, operational enhancements, and the amount or timing of any future dividends. Future events, risks, and uncertainties, individually or in the aggregate, could cause actual results to differ materially from those expressed or implied in these statements. These include the following. With respect to proposed transactions with Spectrum Group International, the failure of parties to agree on definitive transaction documents, the failure of parties to complete the contemplated transactions within the currently expected timeline or at all, the failure to obtain necessary third-party consents or approvals, and greater-than-anticipated costs incurred to consummate the transactions. Other factors that could cause actual results to differ include the failure to execute the company’s growth strategy, including the inability to identify suitable acquisition or investment opportunities, greater-than-anticipated costs incurred to execute the strategy, government regulations that might impede growth, particularly in Asia, the inability to successfully integrate recently acquired businesses, changes in the current international political climate—which historically has favorably contributed to demand in the precious metals market but has also posed certain risks and uncertainties for the company—potential adverse effects of current problems in national and global supply chains, increased competition for the company’s higher-margin services which could depress pricing, the failure of the company’s business model to respond to changes in the market environment as anticipated, changes in consumer demand and preferences for precious metal products generally, potentially negative effects that inflationary price pressures may have on our business, the inability of the company to expand capacity at SilverTowne Mint, the failure of our investee companies to maintain or address preferences of our customer bases, general risks of doing business in the commodity markets, and the strategic business, economic, financial, political, and government risks and other risk factors described in the company’s public filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements. Listeners are cautioned not to place undue reliance on these forward-looking statements. Finally, I would like to remind everyone that a recording of today’s call will be available for replay via a link in the Investors section of the company’s website. Thank you for joining us today for Gold.com, Inc.’s earnings call. You may now disconnect.
Operator: Good day, everyone, and welcome to Bristow Group Inc.'s first quarter 2026 earnings call. Today's call is being recorded. To ask a question, press star followed by the number 5 on your telephone keypad. At this time, I would like to turn the call over to Redeate Tilahun, Senior Manager of Investor Relations and Financial Reporting. Thank you, Michael. Redeate Tilahun: Good morning, everyone, and welcome to Bristow Group Inc.'s 2026 earnings call. I am joined on the call today by our President and Chief Executive Officer, Christopher S. Bradshaw, and Senior Vice President and Chief Financial Officer, Jennifer Dawn Whalen. Before we begin, I would like to remind everyone that during the course of this call, management may make forward-looking statements that are subject to risks and uncertainties described in more detail on slide 3 of the investor presentation. You may access the investor presentation on our website. We will also reference certain non-GAAP financial measures such as EBITDA and free cash flow. A reconciliation of such measures to GAAP is included in the earnings release and the investor presentation. I will now turn the call over to our President and CEO. Christopher? Christopher S. Bradshaw: Thank you, Redeate. The company delivered on our goal of zero air accidents in the first quarter, and the Bristow Group Inc. team remains committed to safety as our number one core value and highest operational priority. Bristow Group Inc.'s first quarter financial results place us on track for what is expected to be a transformational year for the company. We are pleased to affirm our financial guidance ranges for 2026, which notably reflect adjusted EBITDA growth of approximately 25% year over year. While geopolitical conflicts and tensions have driven turbulent and concerning global conditions thus far in 2026, these macro developments underscore the conviction we have in the outlook for Bristow Group Inc.'s business. I will have more comments on the strong tailwinds poised to benefit the company later in the call, but for now, I will hand it over to our CFO for a detailed discussion of Q1 results and our financial outlook. Jennifer? Jennifer Dawn Whalen: Thank you, Christopher, and good morning, everyone. Today, I will begin with a review of Bristow Group Inc.'s sequential quarter financial results on a consolidated basis before covering the financial results and 2026 guidance ranges for each of our segments. While the first quarter is typically our seasonally lowest quarter, Bristow Group Inc.'s total revenues were $11.4 million higher compared to Q4 2025, primarily due to increased activity in our Government Services business and increased rates and activity in certain of our key Offshore Energy Services (OES) markets. Adjusted EBITDA was $0.9 million lower in Q1, mainly due to higher repairs and maintenance costs and leased and equipment costs across our segments. We are affirming our 2026 guidance ranges of $1.6 billion to $1.7 billion for total revenues and $295 million to $325 million for adjusted EBITDA. Turning now to our segment financial results. Revenues in our OES segment were $6.9 million higher in Q1 versus Q4 2025, primarily due to increased rates and higher utilization in the U.S. and Trinidad and higher utilization in Africa, which were partially offset by lower utilization in Europe. Adjusted operating income was $0.7 million lower, primarily due to higher operating expenses of $5.6 million and lower earnings from unconsolidated affiliates of $1.8 million offsetting the higher revenue. Operating expenses in OES were higher primarily due to lower vendor credits recognized this quarter, coupled with additional aircraft leases, which were partially offset by lower personnel and other operating expenses. During the quarter, the company recognized additional noncash depreciation expense of $6.4 million related to S-76 medium helicopters used in our OES segment as it finalizes plans to retire this model and transition to newer models as part of Bristow Group Inc.'s ongoing fleet management efforts to better meet customer needs. The company plans to complete this transition of models by early 2027 and expects to recognize approximately $24 million of additional depreciation expense through the transition period. Our 2026 OES revenue guidance range remains between $1.0 billion and $1.1 billion, and our 2026 adjusted operating income guidance range remains $225 million to $235 million for this segment. Moving on to Government Services. Revenues were $7.8 million higher, primarily due to the transition of the Irish Coast Guard contract, including the full quarter impact of the base in Sligo that began operations last quarter and the commencement of operations at the final base in Waterford this quarter. Adjusted operating income was $1.9 million higher in Q1, primarily due to the higher revenues, partially offset by higher operating expenses of $4.8 million as a result of higher repairs and maintenance, increased headcount in Ireland, higher lease and equipment costs related to the ongoing transition activities in the U.K., and higher general and administrative expenses of $0.5 million largely related to professional service fees. Our 2026 Government Services revenues guidance range remains between $440 million and $460 million, and the adjusted operating income guidance range remains $70 million to $80 million, which is roughly double that of 2025. Finally, revenues from Other Services were $3.2 million lower in Q1, primarily due to lower seasonal activity in Australia, partially offset by favorable foreign exchange rate impact. Adjusted operating income decreased by $2.9 million due to the lower seasonal revenues, partially offset by reduced operating expenses of $0.4 million related to the lower seasonal activity. Our 2026 revenues and adjusted operating income guidance for this segment remain between $130 million and $150 million and $20 million and $25 million, respectively. Turning now to cash flows and liquidity. Net cash used in operating activities was $8.3 million in the current quarter. The working capital uses in the current quarter primarily resulted from an increase in accounts receivable largely due to timing of customer payments. In comparison to the prior year, working capital changes consumed more cash flow in Q1 2025 than was the case in Q1 of this year. The company does not have material amounts of aged receivables, so we expect to see improvements in working capital in the coming quarters. As of March 2026, our unrestricted cash balance was $342 million with total available liquidity of approximately $394 million. As a reminder, in January, Bristow Group Inc. closed a private offering of $500 million senior secured notes due in 2033 with a coupon of 6.75%. The company used a portion of the net proceeds to redeem its existing 6.875% senior notes, with the remaining net proceeds to be used for general corporate purposes. We are very pleased with the successful refinancing transaction highlighted by an upsized deal at a lower coupon rate and extended maturity. Bristow Group Inc.'s financial flexibility, positive financial outlook, and robust balance sheet represent a competitive advantage for the company and favorably position us to pursue various potential growth opportunities. Lastly, Bristow Group Inc. paid $3.7 million in dividends during the quarter, and on April 30, 2026, declared another dividend of $0.25 per share of common stock. This dividend is payable on May 29, 2026 to shareholders of record at the close of business on May 15, 2026. At this time, I will turn the call back to Christopher for further remarks. Christopher? Christopher S. Bradshaw: Thank you. Looking forward, we believe Bristow Group Inc. is favorably positioned to benefit from three global megatrends: increased defense spending, the importance of energy security, and the electrification of transportation. Taking each of these in turn, number one, increased defense spending. Given recent hostilities and the overall geopolitical landscape, we expect defense spending to increase significantly over a multiyear period. With the expected scale of these defense expenditures and the continued budgetary pressures for most countries in the Western world, we anticipate the need for increased public-private partnerships to realize these government and military objectives. We see additional growth opportunities in our core government search and rescue business as well as a broader spectrum of aviation services to government and military customers, particularly in Europe and the Americas. In the context of a complicated geopolitical landscape and expectations for higher defense spending, we believe there will be compelling organic and inorganic growth opportunities for a specialized aviation services provider with Bristow Group Inc.'s track record, operational expertise, and financial flexibility. Number two, importance of energy security. While oil and gas remain commodities, recent geopolitical events have placed an enduring emphasis on where hydrocarbon supplies are located. In the established offshore energy basins that Bristow Group Inc. services, these represent some of the most attractive and secure sources of supply. Deepwater projects are favorably positioned, offering attractive relative returns within the asset portfolios of oil and gas companies, and we believe offshore projects will receive an increasing share of future upstream capital investment. This positive demand outlook is paired with a tight supply dynamic. The fleet status for offshore-configured heavy and super-medium helicopters remains tight, and the ability to bring in new capacity remains constrained with long manufacturing lead times. This constructive supply-demand balance, combined with an increased prioritization of energy security, supports a positive outlook for the offshore helicopter sector. Number three, the electrification of transportation. We have continued to advance Bristow Group Inc.'s position as an early leader in the development of the advanced air mobility industry, which will incorporate the operation of next-generation aircraft powered by electric, hybrid-electric, and other new propulsion technologies. As a leader in vertical flight solutions over seventy-five years, Bristow Group Inc. has a unique opportunity to leverage our core competencies as an advanced, proven operator to serve the needs of this new industry sector. We believe the company has created significant option value with minimal capital commitment to date in what is expected to be a large and rapidly growing addressable market for these new-generation aircraft. In conclusion, we have a very positive outlook for Bristow Group Inc.'s business in 2026 and beyond as we continue the company's evolution as a scaled, multi-mission aviation services provider with complementary business lines. We will now open the call for questions. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number 5 on your telephone keypad. If you would like to withdraw your question, press star and the number 5 once again. We will pause for just a moment and compile the Q&A roster. Our first question comes from Savanthi Syth from Raymond James. Your line is now open. Savanthi Syth: Hey, good morning. First question was on fuel prices, especially the jet fuel price and availability. Is that affecting your business either directly or indirectly, and what are your expectations as you go through the year? Christopher S. Bradshaw: Good morning, and thanks for the question. There is a lot of attention, rightfully so, around the aviation jet fuel market globally. Fortunately, Bristow Group Inc. is naturally hedged, as fuel is a pass-through in the vast majority of our business. For example, in all of our OES contracts, there is a pass-through of fuel cost to the end customer. There is one of our government contracts that has a slight lag in the reset, but that is more of a timing issue. So again, we are naturally protected through our pass-through mechanisms. The one area of the business which is a bit different is the commercial airline that we own and operate in northern Australia. There, our recovery mechanisms are more around increasing rates and imposing, as we recently have, a fuel levy on ticket sales. In terms of supply of aviation fuel, thankfully, we have had ample supply to date, and our suppliers assure us that we should continue to do so. That is obviously something we will continue to monitor, and in a scenario where there may be some rationing, we think as a provider of critical transportation services and search and rescue services that we should receive priority. But again, availability has not been an issue to date, and we are naturally hedged and protected through the pass-through mechanisms in our customer contracts. Operator: Our next question comes from Joshua Ward Sullivan from JonesTrading. Your line is now open. Joshua Ward Sullivan: Hey, good morning. As we think about trends in global defense spending you are highlighting as an opportunity for Bristow Group Inc., historically we have primarily known you as a civilian search and rescue operator. As we think about Bristow Group Inc. fitting into the broader defense spending cycle, can you highlight where and how that conversation is going to evolve? And then on the new international sandbox project in Norway with Electro.Aero, how does that differ from the previous one with Dufour? Is it a continuation with just a different aircraft, or are you thinking new insights and different use cases? Finally, on operating expenses and working capital dynamics in the first quarter or even first half, what are the bigger tent poles that will keep us on track with guidance in the second half? Christopher S. Bradshaw: We believe there are multiple avenues of potential benefit for us. First, in our core civilian Coast Guard search and rescue services, where we are the market leader. What we are seeing in a lot of conversations, particularly out of Europe right now, is as those countries have committed to increase their defense spending, usually tied to percentages of GDP, they are looking for ways to balance their overall budgets. One of the ways they could potentially do that is, after spending more money on tanks and missiles, to outsource some of the civilian services like the Coast Guard. We are having conversations with more countries, again particularly in Europe, about potentially outsourcing their civilian services, which could be a source of growth for our core search and rescue business. In addition to that, we already provide other aviation services to militaries and government customers, such as troop movements and ISR, or intelligence, surveillance, and reconnaissance missions. We think those mission profiles will be an additional source of growth for Bristow Group Inc. as we look to expand our capabilities and expand our customer base by providing that broader spectrum of services. Regarding the new international sandbox project in Norway, we would characterize it as an evolution. It is a different aircraft that we are using this time. In the first test arena, there was a focus primarily on shorter routes around cargo logistics. In the new test arena, we are looking at broader regional air mobility applications, which could include both cargo and passenger transportation along longer routes, so more regional mobility with a different range and payload capability. Again, we would characterize it as an evolution of the exploration of this new market for these next-generation aircraft. Jennifer Dawn Whalen: To the question on operating expenses and working capital, this quarter the draw on working capital was related to timing of customer payments, which was similar to 2025. Those have since been almost completely collected. On working capital trends, it should potentially look similar to last year. As for the cadence versus guidance, we provide an annual guidance number. Our Q4 and Q1 are typically lower quarters than Q2 and Q3, and we expect that seasonal trend to continue in 2026. Operator: We will go back to Savanthi Syth from Raymond James. Your line is now open. Savanthi Syth: Thank you. On slide 13, could you remind us how global offshore production CapEx and OpEx translate into offshore opportunities? I am guessing there is a lag, but how do those progress through to Bristow Group Inc.’s P&L? Christopher S. Bradshaw: With reference to slide 13 in the investor presentation, there is an expectation that drilling and exploration activity will pick up in the latter half of this year, and we expect overall offshore spending, both CapEx and OpEx, to remain elevated at increasing levels through the end of this decade. For the two components, OpEx, or operating expenditures, relates to existing established projects, primarily production support, and 85% of the revenues that Bristow Group Inc. generates in our OES business are related to those production activities. That is a direct indicator of spend that goes to services like ours. CapEx is related to new projects, including new exploration and development activities. Any increases there provide upside to us through that 15% of our OES business. Successful new discoveries on the exploration side lead to next year’s or following years’ operating expenditures as production expands. The fact that both categories are expected to grow meaningfully over the next two years are positive tailwinds for our business. Savanthi Syth: Is there a general timeline to look for when these plans step up versus when it translates to Bristow Group Inc.’s P&L? Christopher S. Bradshaw: Project timelines have a spectrum. If it is a tieback to an existing platform, that is typically faster than an entirely new greenfield project. We expect activity to increase in the latter half of this year, and we will see almost an immediate benefit from that. The flow-through into the rest of our business should pick up in 2027 and beyond. For specifics, a subsea well tied back to an existing platform may have roughly a nine-month lead time. An entirely new greenfield project in a new exploration area might be closer to three years between the start of exploration and first production. It is a broad spectrum depending upon the activity. Operator: Our next question comes from an analyst with Capital. Your line is now open. Analyst: Thank you, and good morning, and nice quarter. Can you update us on the OES contract resets in the U.S.? Christopher S. Bradshaw: Good morning, and thanks for the question. Here in the U.S., effective at the beginning of this year, we have reset our largest OES contract in the U.S. Gulf. There are others that will reset over the course of this year. More broadly across our global portfolio, we expect by the end of this calendar year that essentially all of our legacy OES contracts will have reset. We will have the benefit of that this year and, of course, more of a full-year benefit in 2027 and beyond. Analyst: And can you elaborate on the specific operational and financial considerations that led to the decision to retire the S-76 helicopters earlier than expected? Jennifer Dawn Whalen: This decision was primarily based on operational considerations, including repairs and maintenance coverage with the OEM and our ability to procure parts and inventory needed to support the fleet. It has a small installed base, and it has been difficult to continue to keep those lines supported. To meet our customers’ needs, we have made the change. Operator: Our next question comes from Steven Silver from Arx Research. Your line is now open. Steven Silver: Thanks for taking my question. It is an interesting concept laying out these megatrends that Bristow Group Inc. might be in position to participate in over the coming years. Can you discuss timing of the opportunities and how you are balancing them with the continued tight equipment supply and the ever-changing geopolitical landscape? Christopher S. Bradshaw: From a timing standpoint, these are already tangible in many ways. For example, there is progress being made on projects in the advanced air mobility initiatives. Energy security is very tangible for everyone right now, and the importance of where your resources and supply are coming from is front and center. Around defense spending and government opportunity, this is also very tangible given headlines and developments globally and the conversations we are having with both existing and potential customers about new ways to support them. We expect traction and momentum to increase in the latter part of this year, and we see this as a multiyear opportunity set—quite durable in terms of opportunities to continue to grow the business. In the context of the tight supply market, that will always be a challenge in meeting increased demand. Thankfully, we are well positioned as the largest operator in the space with the largest global fleet. That presents both challenges and opportunities to optimize the portfolio—where the assets are and whether they are generating the best return potential. We also have a competitive advantage in our financial flexibility, a differentiator versus competitors. We can bring in aircraft on lease or purchase them when that makes more sense. Being the biggest operator for most of our key OEMs on the vertical aircraft side, we are as well, if not better, positioned than anyone to capitalize on that. Operator: This concludes our question and answer session. I will now turn the call back over to Christopher S. Bradshaw for closing remarks. Christopher S. Bradshaw: Thank you, Michael. Thanks, everyone, for your time. I look forward to updating you again next quarter. In the meantime, stay safe and well. Operator: This concludes today's call. You may now disconnect at any time.
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: Ladies and gentlemen, hello and welcome to the Bnode First Quarter 2026 Analyst Conference Call. On today's call, we have Mr. Philippe Dartienne, CFO. Please note this call is being recorded. [Operator Instructions] I will now hand over to your host, Philippe Dartienne, CFO, to begin today's conference. Please go ahead, sir. Philippe Dartienne: Thank you. Good morning, ladies and gentlemen. Welcome to all of you and thank you for joining us. I'm pleased to present you our first quarter result as CFO of Bnode. With me, I have Alexandra and Antoine from Investor Relations. We posted the materials to our website this morning and I will walk you through the presentation and will then take your question. As usual, 2 question each, which ensure everyone gets a chance to be addressed in the upcoming hour. I will start with our quarterly financial results, then provide an update on the progresses on our key strategic initiatives during the quarter before concluding with our financial outlook. As you can see on the highlights on Page 3, our group operating income for the first quarter amounted to EUR 1.063 billion representing a year-on-year decrease of EUR 56 million or 5%. This performance reflects a combination of factors. First, as expected, we saw the impact of contract termination at Radial U.S., which were announced in the course of last year and already incorporated in our outlook we presented earlier this year. This termination resulted in a 11% year-on-year revenue decline or EUR 38 million and together with temporary top line pressure at Staci Americas largely offset by the 4% top line growth achieved at Paxon Europe. Second, in Belgium in addition to the revenue decline following the termination of the 679 contract, domestic mail volumes declined by 14.3%. This was only partially offset by a parcel volume growth of 9.1%. In our cross-border activities, we also recorded higher inbound volume from Asia, which supports overall parcel flows. Overall, and as expected, the accelerated decline in mail volumes and the termination of the 679 activities weighed on the EBIT on the bpost segment despite the positive contribution from our ongoing reorganization measures. That said, at Paxon despite a sharp contraction in top line, we were able to deliver EBIT growth reflecting a strong cost discipline in North America and solid operational execution in Europe. As a result, group adjusted EBIT reached EUR 33 million, down EUR 8 million compared to last year and broadly in line with our expectations. Before turning to the financial performance of our business units, let me highlight as shown on Slide 4, that beyond the evolution of EBIT, our adjusted net profit reflects a EUR 12 million improvement in financial results. This improvement was mainly driven by favorable noncash FX effects and higher net income from our treasury investment partially offset by higher interest expense related to the bonds issued in June last year. Let me now move to detailed performance of the 3 segments. I am now on Slide 5 covering the bpost segment. Revenues for the segment declined by EUR 21 million to EUR 524 million year-on-year. Domestic mail revenue decreased by EUR 21 million or 7.2%. Mail and Press volumes contracted by 14.3% in the quarter compared with minus 7.5% last year and in line with mid-teens volume decline guidance we provided earlier this year. This accelerated decline mainly reflects lower transaction mail volumes following the introduction of mandatory B2B e-invoicing as of the beginning of the year as well as the termination of several advertising contracts. Overall, the decline in mail volumes had a negative revenue impact of around EUR 40 million, which was partially offset by roughly half by positive price and mix effect of plus 7.1% or EUR 19 million. Parcels revenue increased by EUR 7 million or 5.8% year-on-year driven by volume growth of 9.1% partially offset by a negative price/mix effect of 3.3% during the quarter. On the volume side, the reported 9% growth corresponds to an underlying growth of around 5% after adjusting for the estimated volume loss linked to the strike in February last year when parcel volume declined by 12% in that month and over 2% in the full quarter. As observed in recent quarters, growth continued to be driven by strong performance of marketplaces. This dynamic weighs on product and customer mix and explains negative price and mix evolution of minus 3.3% despite underlying price increases. Finally, revenues from other activities including retail value-added services and personnel logistics declined by EUR 7 million year-over-year. This mainly reflects our revenue following the termination of the 679 activities at the beginning of the year as well as lower revenue from Fines solution partially offset by higher revenue at DynaGroup. Let's move to the P&L of bpost on Page 6. Including higher intersegment revenues from inbound cross-border volume processed through the domestic network, total operating income declined by 3.1% or EUR 17 million year-on-year. On the cost side, OpEx including D&A decreased by 1.2% or EUR 6 million mainly driven by 2 opposing effects. First, we recorded a reduction of approximately 1,260 lower FTEs and interim staff representing a decrease of more than 5% reflecting the benefits from the ongoing reorganization of our distribution rounds and retail offices. And second, this was partially offset by higher salary costs per FTE, up 2% year-on-year following the March '25 and '26 salary indexations. Despite last year EBIT impact of around EUR 6 million for the 2-week strike, EBIT declined by EUR 11 million year-on-year. This evolution was mainly driven by the anticipated acceleration of the structural mail decline and the termination of the 679 contract, only partially mitigated by parcel growth and the benefit of our reorganization measures. Moving on to Paxon on Slide 7. Broadly in line with the trend we observed in the fourth quarter, 2 main effects came into play during the quarter. At Paxon Europe, revenues remained broadly stable year-over-year. We recorded around 4% growth across European businesses and geographies with some activities still achieving high single-digit growth. This positive momentum was, however, offset by a negative performance at Staci Americas which is reported within Paxon Europe, following a contract termination in the fourth quarter. This resulted in a significant revenue decline during the quarter compounded by an adverse FX impact of EUR 5 million. At Paxon North America, revenues declined by EUR 39 million. At constant exchange rate, this corresponds to an 11% decrease driven by 3 factors: revenue churn from contract termination announced last year together with mid-single-digit negative same-store sales evolution partially offset by the in-year revenue contribution of around EUR 27 million from new customers, of which 40% are Radial Fast Track clients. Let's move to the P&L of Paxon on Slide 8. Against this backdrop, total operating income declined by 9.3% or minus EUR 40 million year-on-year. Operating expenses, including D&A, decreased at a faster pace down 10.4% or EUR 44 million. This cost reduction was primarily achieved in North America driven by lower variable OpEx in line with the revenue evolution at Radial U.S. while maintaining a solid variable contribution margin. These effects were further reinforced by fixed costs and headcount actions. As a result, adjusted EBIT increased by EUR 4 million to EUR 11 million in the quarter with growth recorded in both Europe and North America. In Europe, this reflects top line growth combined with productivity gains. In North America, EBIT growth was driven by cost containment measures, which more than offset the ongoing top line pressure. Turning now to Landmark Global on Slide 9. At Landmark Europe, revenues increased by EUR 8 million or plus 10% year-over-year. Once again this quarter growth was driven by strong increase in volume from Asia across all major destinations, most notably Belgium supported by large Chinese e-commerce platform as well as the United States. In addition, other European lanes continue to grow as well. At Landmark North America, excluding unfavorable FX effect, revenue was slightly up year-over-year. This reflects on one hand, soft volume growth in the context of a macroeconomic slowdown and on the other hand, a negative mix effect with higher share of domestic volumes and lower Canada to U.S. volumes. Overall, Landmark Global operating income increased by EUR 5 million or plus 3.4% year-on-year. As shown on Page 10, OpEx and D&A increased by 7.7%. This was primarily driven by high transportation cost linked to volume growth including increased inbound volume with Belgium as [indiscernible] destination. In addition, the quarter was impacted by unfavorable phasing cost effects both in transport and payroll, which we expect to reverse over the coming quarters. As a result, adjusted EBIT decreased to just under EUR 15 million. This decline mainly reflects the temporary cost phasing effect, which offset the underlying profitable growth in Europe and to a lesser extent, in North America. Moving on to Corporate segment on Slide 11. The adjusted EBIT improvement is driven primarily by cost development. Strengthened cost management and a 1% FTE more than absorbed the 2% salary indexation resulting in an improved adjusted EBIT of EUR 3 million to minus EUR 9 million. Let's now move to the cash flow on Slide 12. The net cash inflow for the quarter amounted to EUR 110 million compared with EUR 91 million last year. This improvement mainly reflects favorable working capital movements and continued CapEx discipline. Overall, the key drivers were as follows. Cash flow from operating activities before changes in working cap amounted to EUR 114 million representing a EUR 17 million decrease year-on-year mainly driven by lower EBITDA. Change in working capital and provision contributed to EUR 74 million. The EUR 29 million positive variance year-on-year mainly reflects 2 effects. First, the settlement of a client balance; and second, the payment of a cash advance in the context of the 679 activities transferred to BNP Paribas Fortis. While a small part of these activities are still partially subcontracted to bpost, we received a working capital injection in return. It's important to note that this movement is expected to reverse over the course of the year. Net cash outflow from investing activities amounted to EUR 21 million, driven by CapEx for parcels. lockers and capacity expansion investment in our domestic fleet and international e-commerce logistics. This element largely explains the evolution of our free cash flow for the quarter. Finally, the net cash outflow from financing activities totaled EUR 57 million, broadly in line with last year and primarily reflecting payments related to lease liabilities. Let me now briefly turn to our strategy and transformation update. I'm on Page 13. Two months ago we outlined our annual plan and key priorities for the year. Today, I will share a few updates and Chris will provide you a more comprehensive review when we present our half year results in August. Let me start with bpost with transformation efforts around 4 priorities area. First, the shift in our operating model. We are making progress on the key tracks of our future operating model notably through the rollout of dense and nondense distribution rounds as well as optimized correct model, which correspond to 2 complementary round types and a further centralization and automation of mail preparation. These are designed to deliver operational efficiencies with FTE savings and space consolidation and optimization. As planned, this model was implemented during the first quarter in 5 distribution offices out of a national network of a bit less than 160 offices. We are progressing with the phased rollout over the coming quarters with a clear acceleration from Q3 onwards targeting around 50 distribution offices by year-end. In parallel, we continue to execute the reorganization of distribution offices and their delivery rounds together with the delivery of associated FTE savings. On the full year plan, around 140 organization leading to approximately 1,150 lower FTEs. We delivered close to 40 reorganizations in the first quarter, fully in line with our planning. Importantly, the April strike has not impacted this transformation stream and execution remains on track. For perspective, we completed 138 reorganization last year, which are now clearly delivering results and contributed as observed in this quarter of a reduction of around 5% or approximately 1,260 FTEs within the bpost business unit. Second, scaling out our out-of-home network. Building on the strong acceleration achieved last year where rollout already significantly increased, we continue to make solid progress on scaling out-of-home with the installation of 155 parcels, lockers or bbox, again fully in line with the annual plan and we also secured over 200 locations for future installations. As a reminder, our objective is to grow the APM network by 35% by year-end, which will bring us almost 1 year ahead of the ambition presented at the Capital Market Day. To date, we have a total of more than 2,700 lockers installed compared to around 1,250 at the end of '24 and around 2,550 at the end of '25. As a result, during this first quarter we doubled the number of parcels delivered through the bbox network compared to last year. In parallel, bpost continued to improve customer convenience by scaling same-day locker delivery notably when home delivery is unsuccessful, which translate into higher NPS and improved profitability compared with next-day availability at post offices. Third, asset utilization optimization. We are actively exploring opportunities to improve the utilization of our assets and in particular our transport fleet, which is today primarily used during night hours. As part of this effort, we launched a pilot transport of the future aimed at testing the creation of a stand-alone transport activity serving both internal and external customers. The pilot was initially designed around 20 trucks and 40 volunteer drivers, but interest has significantly exceeded expectation demonstrating strong engagement from the field and validating the relevance of the concept. The objective is to generate additional revenues, improve utilization of the fleet and drivers and progressively expand our service offering. Finally, strengthening our B2B offering. As previously communicated, we recently launched an Innight delivery solution for our B2B customers initially based on the bbox, parcel, locker model. This quarter we have upgraded the offering by expanding it through 2 additional logistics subsidiaries within the Bnode Group turning it to a multi-model solution, including options such as car boot delivery and on-site deliveries. Overall, this initiative reflects our continued progress in reshaping the bpost operating model, improving capital and asset efficiency and reinforcing our value proposition to boost consumer and business customers. Moving on to Paxon North America. At this stage, top line expansion in Paxon North America is progressing in a more challenging demand environment with same-store sales softer than initially anticipated while new customers contribution are progressively building up. In response and in order to remain on track to deliver our EBIT objective, we are implementing additional cost actions. These measures are not only designed to offset the near-term top line pressure, but also to further strengthen Paxon North America competitiveness in the market. We have already made significant progress on variable cost where discipline remains very strong and where we continue to maintain a record high variable contribution margin. Building on this, the focus is now on fixed cost. The additional actions include optimizing our real estate footprint, reducing discretionary spending and rightsizing nonoperational fixed overhead to better align our organization with our volume. Following the actions already taken on both variable and fixed operation FTEs, we are now focusing on the nonoperational fixed cost base. Let me now shift to Paxon Europe. The launch of our Forward plan marks the next steps in accelerating top line growth building on the now fully integrated and consolidated commercial platform that brings together Staci, Active Ants and Radial Europe led by Staci's commercial know-how. The plan is designed to amplify existing customers' momentum while expanding across products, geographies and customer relationship supported by more structured and disciplined sales execution. In practice, this includes improved account coordination and closer executive level engagement ensuring we continue to deepen relationship with our core customers and capture the full value of those partnerships. At the same time, we are strengthening lead generation, leveraging our rebranding and continuing to invest in the development of our sales team to support incremental and sustainable growth. Finally, I will conclude this section with Landmark Global where our focus in the first quarter remained twofold: expanding volume through new cross-border lanes while strengthening transport cost management. On the growth side, by leveraging agility and rapid opportunities capture in a challenging macroeconomic environment, we saw a strong acceleration of volumes towards the U.S. notably fueled by continued momentum on the China to U.S. lane. U.S. is, therefore, increasingly becoming a key destination alongside Belgium and Canada. And in Europe, we also see a solid pipeline of new lanes originating from Spain and the Netherlands. This leads me to the outlook update for '26 on Slide 14. As a reminder, 2 months ago we introduced our '26 adjusted EBIT guidance in the range of EUR 165 million to EUR 195 million. Based on our first quarter performance, group results are broadly in line with our internal plan and our expectation at this stage of the year. Since then, however, we have been impacted by industrial action at bpost in April. As a result, while we are maintaining the adjusted EBIT guidance that we introduced 2 months ago, we are today more exposed to the lower end of the range. This reflects an estimated direct EBIT impact from the strike of around EUR 15 million. Beyond this, fuel price development are currently not considered as a material risk for the group as we are largely insulated through a combination of pricing mechanism, contractual pass-throughs or internal cost hedging measures depending on the entity. That said, continued vigilance remains of course required as the current outlook does not reflect potential indirect and long-term commercial impact resulting from the April strike nor does it factor potential effects relating to the current geopolitical situation in Iran. This could include industrial disruption linked to fuel shortages, higher energy cost as well as a broader impact on inflation, consumer confidence, disposable income and spending and therefore, on the top line development. Overall, while we remain within our community guidance range, the April strike put significant pressure on the guidance. And although this has been widely and intensively covered by Belgium media, for those less familiar with the situation beyond our own market, let me briefly summarize what happened and the impact identified to date. In April, bpost experienced a 5-week nationwide strike in Belgium, which significantly disrupted our sorting and delivery operations. The impact was most pronounced in Wallonia and in the Brussels region. As a result, we accumulated a backlog of more than 16 million letters and 0.7 million parcels. In addition, we estimated a loss of approximately 3.2 million parcels volume mainly due to customers diverting shipments to competitors. The strike was triggered by employee opposition to certain elements of the ongoing transformation plan, in particular proposed adjustment to starting hours, which shifts up to 2 hours later in the morning. These changes are aimed at enabling later parcel cut-off times and better aligning our operation with customer requirements in an increasingly competitive parcels market. From a financial perspective, our current assessment is that the direct EBIT impact of the strike is estimated around EUR 15 million expected to materialize in the Q2 result. This estimate excludes any potential future indirect impact and mainly reflects 3 direct elements: revenue losses in both Mail and Parcels including quality-related penalties, incremental costs linked to contingency measures and the cost associated with clearing the accumulated backlog. Our operational and commercial teams are currently fully mobilized to clear the backlog as quickly as possible while actively working to rebuild customer confidence and address the reputational impact resulting from the strikes. As mentioned, while we consider this estimate to be robust for the direct impact, it does not capture potential longer-term and indirect impact. which is why we continue to closely monitor the situation. With this, I'm now ready to take your questions. As usual, 2 questions each. Operator, please open the line. Operator: [Operator Instructions] The next question comes from Michiel Declercq from KBC Securities. Michiel Declercq: I have 2, please. The first one is on the strikes in Belgium. I appreciate the direct impact of EUR 15 million. But is there a bit more color that you can give on those quality penalties and these contingent measures? How we should look at that when these costs will be booked? Will that also be Q2 or I think it will also be a bit later in the year for the quality penalties? That's 1 angle of course. Secondly, you also have the commercial impact. You had strikes last year. The lasting impact remains a bit more limited I would assume looking at the volumes in the remainder of 2025. But now second year on a row and a bit of a bigger strike, let's just say. What has been your feedback here from customers? You say that you estimate to have lost 3.2 million parcels to competitors this quarter, which I assume is 3% to 4%. Will they be coming back or how have your discussions with these customers been? So that would be my first question. And then secondly, we have seen in the news that Amazon is also opening its supply chain logistics network. I'm just wondering if you look a bit at the Amazon offering today in the U.S., how does this overlap with your existing activities at Radial and Landmark and how you are looking at this given that the same-store sales at Radial are already down mid-single digits in the recent quarters. So any comment on that would be useful. Philippe Dartienne: Okay. Thank you, Michiel, for your question. So strike direct impact, they will mostly be booked in the second quarter. The top line impact is in the month of April. Pure technically there were 2 days of strike in the month of March, but it's really immaterial. Most of it is in the month of April so the loss of revenue will materialize definitely in the second quarter. The contingency cost that we had to support was some storage cost. I'm sure you have read in the newspaper that we had some of our customers ask us to store the parcels in a location because their own warehouse were totally full. So there are some costs associated with that. Sometimes we have redirected some parcels to some of our subsidiaries to deliver the parcels. These are extra cost that we have supported. And there will be also a bit of the cost linked with the decrease of the backlog where we are injecting roughly 200 temporary workers on top of the usual one to decrease the backlog as soon as possible. So this is a bit what it entails in terms of direct cost and contingency costs. When it comes to the commercial aspect of it, I will be as transparent as I used to be. Our customers were not delighted to say the least, especially in the context that you rightly mentioned. We already had a strike last week like last year once again and customers have indeed diverted their volumes. Now it's really up to us to demonstrate that from an ongoing basis, we are capable of coming back to a high level quality service as we used to do when we are not on strike. And I think it will be a discussion customer by customer and a decision customer by customer at the speed at which they will reinject volume into the network. They are already reinjecting volume into the network, no discussion, but some customers have not returned back. And as I said, it will be a more one-on-one discussion with each of them. So the commercial impact will be seen on one hand in the second quarter by the speed at which the customer come back and at which level and potentially more longer effect as some customers have definitely opted for a dual-carrier strategy while some of them were only mono-carrier with us prior to this strike. So it's up to us and it's really the willingness of the management and the people on the ground to deliver as much qualitative service as possible and as soon as possible. As we speak right now, we could say that we are back in full operation. There is no strikers anymore since roughly a week so we are in full operational mode. Your question on Amazon, yes, but it's not the first time that a major player is developing this kind of activities. It will be 1 more competitor than we had in the past. We had some big retailer chain not so long ago who decided to do the same. So fundamentally, I don't think it will have a direct impact on us. Indeed, you pointed out the same-store sales evolution, the negative one. Indeed, it was in the first quarter more than what we had anticipated. And you will be reminded that same-store sales evolution has been negative for multiple quarters in a row. We told that Q3, Q4 last year we had reached the bottom, but it seems that it's not the case and we had, as you mentioned it, a mid-single-digit decrease again in the first quarter of '25. I hope this answers your question. Michiel Declercq: If I can ask a small follow-up on the strikes. I know commercial impact you won't see or have visibility on that in the short term or maybe a bit of course. But on the indirect costs for the storage and the quality penalties, is it fair to assume that we will get a number on that during the second quarter results? Philippe Dartienne: It's already partially included. Frankly, in the impact, the biggest part is relating to the lost volume and the related EBIT and not so much about those contingency costs because those measures that have been put in place are rather limited if you look at the total operation cost. Operator: The next question comes from Frank Claassen from Degroof Petercam. Frank Claassen: My first question is on Paxon on the financial performance. If I look at Q1, minus 9% on top line and 2.8% on EBIT margin yet if I recall well, one of the building blocks of your full year guidance was Paxon to reach low to mid-single-digit growth for the full year with a 6% to 8% EBIT margin. So I'm struggling to see how we can get there in the rest of the years because that's quite a gap. So could you elaborate how you think you can bridge this gap? That's my first question. And then secondly, on the automatic wage inflation in Belgium, you just made a step of 2%. When do you expect to see the next step and what is, let's say, baked into your current guidance on that one? Philippe Dartienne: Let me start with the second one and I will come back with the first one. So indeed, we learned late afternoon yesterday that there will be an additional 2% step increase. We had anticipated to have 1 in 2026. We had anticipated that to happen a bit later in the year. We had 1 month we have -- this step-up comes 1 month ahead of what we had in our forecast. Coming to Paxon, your point is absolutely right and we will not be able to catch up. We will not be able to catch up. Different reason to that one if you allow me to elaborate a bit. If we look at Radial U.S. or Paxon U.S., if you want; as I said, we are facing same-store sales which are significantly higher than anticipated. It depends if it's a negative, it goes up. Antoine will try to correct me, but I repeat to make sure that the message is clear. There is a decrease and the decrease is bigger than what we anticipated and it's across the board on all customers. The second point is that we were anticipating a pickup of the contribution of new customers especially in the second half of the year. We don't see it coming to the expected level. So we will be worse than one anticipated. This being said, there is a top line discussion. And there is a second one when it comes to EBIT contribution and cash contribution and there we believe that with all the measures that have already been taken and the ones that are in the pipe as we speak, we could be able to offset that negative evolution in terms of top line. What kind of measures are we talking about? Some of them we already mentioned them and now we are implementing them, Optimization of real estate footprint including sublease of underutilized facilities, divesting some noncore assets, reduction of discretionary spending travel and entertainment and also rightsizing fixed cost and headcount aligned to lower volume. Again there is nothing new on that one except the fixed cost one, as I said, that was not the primary focus over the last quarters, now it has become. So all in all, I do believe that those measures will be able to offset largely the decline or lower the development -- the top line development at a lower than anticipated -- the lower top line development. That was for Radial. Staci Americas, indeed we are low in the top line evolution. We lost a major customer at the end of 2025, which is materializing in the Q1 result. So 2 elements on that one and I don't want to oppose them, but I want to make the comparison. As much as I said that at Radial, we see a lower revenue contribution from the pipeline development, it's not the case in Staci Americas. The pipeline of Staci Americas is very strong and we believe that it will be able to offset part of the losses of the volume related to the departure of 1 customer combined with fixed cost measures to protect the top line evolution to a lesser extent than Radial, but it will contribute as well. So to summarize, we have to recognize that, yes, we are a bit behind. This being said, element that I really want to point out is that all over the place within the Paxon world, the profitability is and remain very high. Variable contribution at Radial, you might tell me, Philippe, you tell us that. Since I will be close to 4 years in bpost, I'm telling you that every quarter, but it's reality and it's still there. So this is an achievement. And also despite a lower top line development, when you look at the Paxon Europe environment, we see still significant or very strong gross margin in the existing business, which is very reassuring. It's very, very robust. And we also see thanks to the fact that in Europe, the 3 former brands are now being operated together so Staci, Active Ants and Radial. We see a pickup on the performance in Central Europe mainly by operating all these 3 brands on the same territory altogether. So it's a bit of mixed bag, but there is still very good and reassuring positive element. Operator: The next question comes from Henk Slotboom from the IDEA!. Henk Slotboom: I've got 1 clarification question and 1 other question. The clarification question relates to what you just talked about, the impact on margins and the mitigation impact on margins. We are talking about margins in the U.S. and not about the absolute EBIT I assume. Philippe Dartienne: On one, it's yes and no, Henk. So we maintained the margin. But if we compare to the guidance that we had that expected a development of the top line, since there will be less top line, it will be additional EBIT contribution to offset that one. So it's a bit yes to both in fact. Henk Slotboom: Okay. That's clear. Then on Landmark and that's basically 2 questions folded into 1. The higher transportation costs, Philippe. I thought that the organization was structured in a way that there are back-to-back agreements. So you know on forehand roughly what you're going to pay, what you have to ask your clients based on your estimated costs. The transportation cost impact, didn't you use a fuel surcharge for example or something like it? You're an asset-light player in that field or is this reflecting the disadvantage of an asset-light model that when capacity is scarce, we saw a lot of disruption in sea transport, in air freight and that sort of things that you end up paying a higher cost price anyhow no matter what to get the stuff from for example China to Europe. That's the first question. And connected to it, is it fair to assume that Landmark had a bit of tailwind in Europe because the French have introduced the EUR 2 levy per product line already in January whereas the rest of the EU is doing that as of 1st July. So I've been hearing a lot of stories about Chinese taking their goods to Schipol Airport, Amsterdam and Liege in Brussels instead to avoid this hassle of the EUR 2 and to avoid the EUR 2 as a whole. Perhaps you can highlight that. Philippe Dartienne: Sure. I will start with the second one. Indeed, you are well informed. We see in Liege, I was just right before this call with our guy in charge of the inbound volume in Belgium, we see an increase of activity in Liege. But what we are seeing is that the planes are coming, that they are offloaded, but the containers are directly loaded to trucks to go either to France, go to the Netherlands or to Germany. So we might have a small ripple effect in our last mile activities in Belgium because we only do that in Belgium. But I would not say that it's significant, but it's a fact. This being said, it's also something we are contemplating since we are the operator. We are the incumbent in Belgium, can our activity and the transport one could play a role into capturing part of those volumes. But most of them, as you rightly pointed out, are not directed to the Belgium market. They are mostly directed to the non-Belgium market. So that's for the EUR 2 taxes. When it comes to Landmark and transport cost, I would like to broaden a bit the debate and also emphasize the fact that Landmark is managing the transport for all the group for Bnode. Of course transport for Belgium last mile is limited because we do the last mile activities. But for all the fulfillment activities within the Paxon world, it's managed through Landmark and the one who are benefiting -- everyone is benefiting from the good condition that we could get. So it's important to notice that that activity is not only limited to Landmark business unit. Now your question about transportation cost and the fact that they are evolving upwards due to different elements, it's really a pass-through for us and we do not see an EBIT impact from that. Operator: The next question comes from Marc Zeck from Kepler Cheuvreux. Marc Zeck: Really on, let's say, consumer sentiment or the impact of higher energy prices on the consumer. Could you elaborate a bit what you currently see both for the U.S. and Europe in your business? You talk about, let's say, lower same-store sales in the U.S. for Radial. Do you feel like this is related to the energy price increases and therefore drain on consumer finances and therefore mostly concentrated in March and looking forward maybe in April or have you seen lower same-store sales for the entirety of Q1 that obviously includes then January and February as well? And what you can see in your European business not only Paxon, but maybe also Landmark Global and the parcel business in Belgium. How did March compare to January and February? Was there any impact from higher fuel prices on the consumer and what do you see currently for April? That would be the first question. Second question, if you could elaborate a bit on why you don't see a material impact from Amazon in the U.S. I guess from what we can get from Amazon's press release, it's at least to me not entirely clear where they are actually really competing. Do you feel like they are opening up really contract logistics proper 3PL services in the U.S. or it's more like warehousing with not too much direct management of inventory there. So I could guess that if it's just warehousing, there wouldn't probably be much of an impact. But if they do proper 3PL contract logistics as well, I can imagine that maybe that is a bit higher. So it would be great to hear your thoughts on what you believe Amazon is actually doing in the future. Philippe Dartienne: Okay. It's going to become an habit. I will start with the second and we'll continue with the first one. So I'm not in the shoes of Amazon. So I recommend you to direct your question to them on that one because I don't want to speculate on what they are doing. What I'm telling you is that we do not see impact from that at least so far. They have always operated their warehouse sometimes themselves, sometimes outsourcing to contract logistic players. They have been active in transport. They are permanently starting testing or going with new activities around the 3PL. That's true. But so far, we don't see any impact from that and again I cannot speak for Amazon. When it comes to the consumer sentiment, I don't have the figures for the U.S., but I think the same-store sales is a good proxy for measuring what is happening there. As I said, 7 quarters in a row, then the same-store sales is going down and it even accelerated in the first quarter of this year. I don't know what the next -- the further part of the year will bring us. As I said, we already thought that at the end of Q3, Q4 we had reached the bottom. We have been proven wrong on that one. So it's difficult to speculate on that. When it comes to Europe, I have the consumer sentiment numbers in front of me. And if we ended up the last quarter of last year something which is, I would say, breakeven; slightly positive in November, very slightly positive in December. The beginning of the year was -- Jan and Feb were more positive, but we saw a total flip of that consumer confidence in the month of March and even more so in the month of April. So again in terms of trend, it's difficult to speculate. But currently, we see a downwards trend. Operator: The next question comes from Marco Limite from Barclays. Marco Limite: I've got couple of follow-ups on your strikes in Belgium. So first question will be I mean what sort of confidence have you got in terms of the strikes to be totally over or do you see a risk of the strikes coming back? And to what sense negotiations and discussions are sort of stopping you to go through your transformational change, operational changes you wanted to make. So what is, let's say, also the negative impact from implementing your operational changes slower than what you had thought maybe at the start of the year? And the second question is on your volume growth in April. I appreciate you quantifying the hard numbers. But if you could give us a bit of color of what has been the volume growth or the volume decline in April for parcel volumes in Belgium? And have you seen, let's say, the growth rate picking up in May post end of strikes? Philippe Dartienne: Again I will start with the second one. Thank you for your questions, Marco. Volumes decline that we have seen in the month of April is around 25% and it's still too early to comment on what is happening in May. When it comes to the strike and the risk associated with them so I just want to remind that several elements. So there is in the mind and I don't want to speak for them. But based on what my colleagues are telling me while discussing with our social partners is that there is a clear understanding of the need to change the business model. They clearly understand the fact that the mail is no longer bringing growth. It's declining at high pace and it will not come back. They totally acknowledge it as well as that the change in the demand from the customer, they totally acknowledge it. What is very difficult for them from a human standpoint for all the affiliates and all our colleagues. If we look back 3 to 4 years back when we still had the press concession, we had colleagues who were waking up at 3 or 4 in the morning coming back at the office to be able to have delivered all the press and the magazine prior to 7:30 in the morning. Those volumes are gone because the press concession ended up and we are no more except in Wallonia still for until the end of this year. We are no more distributing those volumes. So that was already a first shock for them, which is impacting their life because we have that concept which is very usual in the mail business, which is when your job is finished, you can go. So those guys have since years not to say decades used to have a life organized about you start early, but you also finish early and if you want to have some activities after your hours or potentially if you decide to go for a second job, you had plenty of time to do it because most of these people, especially the one distributing the press; around 11, 12 in the day, they were done and they could do revert to other activities either professional or leisure or going and pick up the kids at school. Then there has been a second element to that one is with declining mail volumes, the number of people that we need in our distribution network is decreasing. I mentioned the fact that last year we have been able to reorganize the offices. It has always been done over the last 15 years the reduction, the adjustment of the FTEs in the distribution network, but it accelerated I think over the last 2 years. Last year we reduced the headcount by more than 1,000 employees. We will continue doing the same in 2026 and people understand that. It's a mechanical consequence of the evolution of the business, but it's not easy to take it on board. Also, the way we reorganize the offices with the combination of some routes, we have some dense and non-dense routes. We also want to extract more efficiency on that part. So it's an additional pressure on these people who sometimes in some offices when we adjust the headcount, it could lead to reduction of 15% to 16% of headcount in 1 particular distribution office. So it's tough on people, we have to recognize that. But there is a very clear understanding and no discussion on the need for change and the society is changing. Again the fact that we want for some of our colleagues to delay the start of their day to be able to deliver the parcels -- to accept parcels, the cutoff time in the sorting center a bit later. Again it's a disruption into their private life. We have to recognize it. I do believe that it will take maybe a bit of time, but people will adjust to that one. I think I would be more worried if there would be a strong opposition on the need for change than, I would say, the short-term impact of the direct impact on their private life if I could say so. So can we guarantee that strikes are over? No. Also, what I see is that our colleagues have at heart the willingness to serve the customer in a qualitative way and I don't think it has changed during the course of the strike. That gives a bit of time for people to swallow, digest, adjust and I'm very confident for the future. Marco Limite: Can I sneak another question, please? So you have kept today the guidance despite a EUR 15 million EBIT negative from the strikes plus wage increased 1 month before, let's say, your business plan, which from memory I think is about low single-digit million higher OpEx per month. So rough numbers, you now have got EUR 20 million EBIT headwinds compared to your original guidance, but you're still holding on the old guidance. Does this mean that beyond -- I mean you think you are sort of tracking or you were tracking at the upper end of the guidance and therefore minus this EUR 20 million, now you are at the low end of the guidance or how do you justify you keeping the guidance? Philippe Dartienne: Thank you for your question. Indeed, we maintain the guidance; but as we said, we are more exposed to the low end of it. I think during the presentation and with the question of your colleagues, I had the opportunity to emphasize on the reaction on the cost side that we are putting in place everywhere. Good example again in Belgium, the reorganization has not stopped in the first quarter. They have not even stopped during the strike meaning that all this positive evolution in the cost development mean being more efficient. We are still planning and confident that we could execute them. For all the other entities especially on Paxon, those guys are really committed to compensate the temporary shortfall or the slower development of the top line by cost measures and we have levers. It's not just a task that we put in an excel spreadsheet. We have detailed plans at various entity level, which lead us to believe that it could materialize. And hence, we have concluded that at this stage based on the direct impact, we still maintain our guidance though guiding more to the low end of it. Operator: Ladies and gentlemen, there are no further questions. So I will hand it back to Philippe to conclude today's conference. Thank you. Philippe Dartienne: We would like to thank you, everybody, in the call for having taken the time to be with us and for your very pertinent questions. As a reminder, bpost NV will hold its AGM next Wednesday and our second quarter results will be released on August 7. In the meantime, we look forward to staying in touch. And thank you very much and have a great day. Operator: Thanks for participating to the call. You may now disconnect.
Operator: Good day, and welcome to the Magnite, Inc. 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, there will be an opportunity to ask questions. To ask a question, you may press star, one on a touch-tone phone. To withdraw your question, please note this event is being recorded. I would now like to turn the conference over to Nick Kormeluk, Investor Relations. Please go ahead. Nick Kormeluk: Thank you, Operator, and good afternoon, everyone. Welcome to Magnite, Inc.'s First Quarter 2026 Earnings Conference Call. As a reminder, this conference call is being recorded. Joining me on the call today are Michael G. Barrett, CEO, and David L. Day, our CFO. We have posted financial highlight slides on our Investor Relations website to accompany today's presentation. Before we get started, I will remind you that our prepared remarks and answers to questions will include information that might be considered forward-looking statements, including, but not limited to, statements concerning our anticipated financial performance and strategy, including the potential impacts of macroeconomic factors on our business. These statements are not guarantees of future performance. They reflect our current views with respect to future events and are based on assumptions and estimates and subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from expectations, or results projected or implied by forward-looking statements. A discussion of these and other risks, uncertainties, and assumptions is set forth in the company's periodic reports filed with the SEC, including our quarterly reports on Form 10-Q and our 2025 annual report on Form 10-K. We undertake no obligation to update forward-looking statements or relevant risks. Our commentary today will include non-GAAP financial measures, including contribution ex-TAC, or less traffic acquisition costs, Adjusted EBITDA, and non-GAAP income per share. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings press release and in the financial highlights deck that is posted on our Investor Relations website. At times, in response to your questions, we may offer additional metrics to provide greater insight into the dynamics of the business. Please be advised that this additional detail may be one-time in nature, and we may or may not provide an update on the future of these metrics. I encourage you to visit our Investor Relations website to access our press release, financial highlights deck, periodic SEC reports, and the webcast replay of today's call to learn more about Magnite, Inc. I will now turn the call over to Michael. Please go ahead, Michael. Michael G. Barrett: Thank you, Nick. Thanks, everyone, for joining us today. We delivered a strong first quarter, exceeding expectations across both revenue and profitability. Top line came in ahead of consensus, with DV+ outperforming our guide and CTV in line. Adjusted EBITDA exceeded consensus by $5 million, driven by earlier-than-expected cost efficiencies, and we are encouraged by the margin expansion we are seeing. Importantly, the broader market trend remains unchanged: ad dollars continue to shift towards streaming. In Q1, CTV contribution ex-TAC grew 30% and represented 51% of total, maintaining the momentum we saw in 2025. That strength was broad-based. We saw continued growth across leading publishers, including LG Ads, Netflix, Paramount, Roku, Vizio Walmart, and Warner Bros. Discovery. Our top 10 accounts grew in the mid-30% range year-over-year, with the rest of the base growing in the mid-20s. This is not isolated performance. It reflects a platform that is gaining share as the market scales. The acceleration we are seeing in CTV is not surprising. We are materially outpacing the market, and we believe that is sustainable. This is driven by both new wins and expanding partnerships, but more fundamentally, by SpringServe. SpringServe has evolved from a best-in-class ad server into the operating system for CTV monetization. We sit at the center of the transaction, unifying demand, optimizing yield, managing ad experience, and orchestrating data across the workflow. There are point solutions in the market, but no other scaled platform in CTV combines ad serving, mediation, and monetization infrastructure in a single unified layer. For publishers, this drives higher yield and better control. For buyers, it provides a direct path to the broadest set of premium inventory. And this capability scales across every cohort we serve. We support OEM monetization across home screens in emerging formats, partner with streamers to build and support their offering, and help broadcasters optimize their sales efforts, particularly as live and SMB demand grows. And in live TV, where performance requirements are highest, our differentiation is even more pronounced. Live sports remains one of the largest and least penetrated opportunities in programmatic. We are seeing strong traction here, including more than 80% growth year-over-year in revenue from March Madness. On the demand side, buyer marketplaces are scaling, ClearLine adoption is increasing, and buyers are prioritizing more direct and efficient access to premium CTV supply. We are also seeing commerce media emerge as an important driver across both DV+ and CTV. These partners are bringing valuable first-party data and incremental demand into the ecosystem, increasingly activating across streaming environments. Our recent announcements with Expedia Group, Walmart Connect, and Roku Curate show further traction on the commerce media front. Across all of these areas, our role is consistent. We are the infrastructure layer that connects the ecosystem. As our capabilities expand, so does our position. We are increasingly the single entry point for buyers to access premium CTV inventory at scale, becoming the easy button for CTV. And as the market consolidates around scaled platforms, we believe our lead is durable and widening. Turning to DV+, DV+ declined 5% in Q1, which was better than expected. While budget shifts towards CTV continue, we remain confident in the long-term role of DV+. Trends improved exiting Q1 and into Q2, with signs of stabilization driven by mobile in-app, online video, audio, and commerce media. Mobile in-app grew 8% year-over-year and remains a durable growth segment supported by deeper integrations and new publisher and DSP onboarding. Commerce media continues to build momentum, with 21 partners and 13 now deployed and ramping, expanding both our demand footprint and data capabilities across DV+ and CTV. On the Google AdTech remedies, our view remains unchanged, and we continue to believe the potential upside is meaningful. Stepping back, what ties this together is how our platform is evolving, particularly with AI. We are embedding AI across the platform to improve how media is bought and sold. At the core, AI enhances how inventory is valued, how campaigns are executed, and how decisions are made in real time. For publishers, AI is improving monetization through dynamic pricing and demand optimization. And with ClearLine, AI is simplifying activation, curation, and optimization, reducing friction and enabling faster execution. Across the platform, we are beginning to see the emergence of agentic workflows, enabling greater automation and efficiency for both buyers and sellers. What matters is not a single feature; it is how these capabilities work together across our scaled infrastructure. We are already seeing adoption from the leading players across the ecosystem, using our AI to automate workflows, act on real-time signals, and improve performance. This is still early, but the direction is clear: AI is increasing efficiency, expanding working media, and driving more volume through platforms like ours. This is a tailwind for Magnite, Inc. Before I conclude, I want to address David's retirement. As previously announced, David has decided to retire after more than 13 years of exceptional service. He has been an invaluable partner and a steady leader whose financial stewardship helped shape Magnite, Inc. into the company we are today. We are grateful for his leadership and for his commitment to ensuring a smooth transition, as he remains in his role through September 30 while we evaluate internal and external candidates. On behalf of the board and the entire Magnite, Inc. family, I want to thank David and wish him and his family all the best. With that, I will turn the call over to David for more details on the financials. David L. Day: Thanks for those kind words, Michael. I appreciate it. We are off to a good start to 2026. Q1 total contribution ex-TAC grew 10% and came in at the top end of our guidance range. As Michael mentioned, CTV increased an impressive 30% year-over-year, and DV+ declined 5% but exceeded our previous expectations. We are pleased with the results and are encouraged by the many positive catalysts that are driving momentum in our business. Total revenue for Q1 was $164 million, up 6% from Q1 2025. Contribution ex-TAC was $161 million, up 10% at the high end of our guidance range. CTV contribution ex-TAC was $82 million, up 30% year-over-year. DV+ contribution ex-TAC was $79 million, a decrease of 5% from the first quarter last year. Our contribution ex-TAC mix for Q1 was 51% CTV, 34% mobile, and 15% desktop. From an overall vertical perspective, health and fitness, retail, and food and beverage were the strongest performing categories, while automotive and technology were our weakest performing categories. Total operating expenses, which include cost of revenue, were $157 million, flat from last year. Adjusted EBITDA operating expense for the first quarter was $118 million, $4 million better than our guide and an increase from $109 million in the same period last year. Operating expense was better than expected due to significant improvements in cloud spend and some early AI-related productivity gains. Our net income was $4 million for the quarter, compared to a net loss of $10 million for 2025. Adjusted EBITDA grew 16% year-over-year to $43 million, reflecting a margin of 27% as compared to 25% in Q1 last year. As a reminder, the first quarter is always seasonally our lowest margin quarter. We calculate Adjusted EBITDA margin as a percentage of contribution ex-TAC. GAAP earnings per diluted share were $0.03 for 2026, compared to a net loss of $0.07 for 2025. Non-GAAP earnings per share for 2026 were $0.13, compared to $0.02 in Q1 last year. The reconciliations to non-GAAP income and non-GAAP earnings per share are included with our Q1 results press release. Our cash balance at the end of Q1 was $185 million, a decrease from $553 million at the end of the fourth quarter. The drivers of the change were the $250 million payoff of our convertible debt, planned capital expenditures, share repurchases, and normal seasonality in working capital. Operating cash flow, which we define as Adjusted EBITDA less CapEx, was $23 million. Capital expenditures, including both purchases of property and equipment and capitalized internal-use software development costs, were $20 million, in line with the expectations we discussed last quarter. Net interest expense for the quarter was $5 million. Net leverage was 0.7x at quarter-end, consistent with our target of less than 1x. During the first quarter, we repurchased or withheld over 2.2 million shares for approximately $29 million. As of quarter-end, $186 million remained available under our current repurchase authorization, which is effective through February 2028. Now that we repaid our convert, we plan to be more aggressive with share repurchases given our expected free cash flow generation. As discussed last quarter, our capital allocation strategy aims to return approximately 50% of free cash flow to shareholders via share repurchases. We believe our shares currently trade at very attractive levels. For the second quarter, we expect contribution ex-TAC to be in the range of $177 million to $181 million, which represents growth of 9% to 12%. Contribution ex-TAC attributable to CTV to be in a range of $90 million to $92 million, which represents growth of 26% to 29%. DV+ contribution ex-TAC to be in the range of $87 million to $89 million, which represents a decline of 4% to 2%. We anticipate Adjusted EBITDA operating expenses to be in the range of $115 million to $117 million, which implies Adjusted EBITDA margin of 34% to 36%. And for the full year 2026, we reaffirm total contribution ex-TAC growth to be at least 11%, reaffirm Adjusted EBITDA percentage growth in the mid-teens, raise Adjusted EBITDA margin to be at least 35.5% from greater than 35%, raise free cash flow growth to be in the mid-30% range from greater than 30%, and reaffirm CapEx of approximately $60 million, a reduction from prior year. I want to point out that our estimates do not include any potential market share gains as a result of remedies from the Google AdTech trial. Lastly, a note regarding our tax position: we would not expect to have any significant increases in cash taxes. Finally, on a personal note, I am incredibly pleased with our performance and the robust financial position the company maintains today. It is from this position of strength that I have decided to retire, marking the end of what has been the most rewarding chapter of my professional life. My journey here from the early days of Rubicon Project through our 2014 IPO, transformative merger with Telaria, and the acquisitions of SpotX and SpringServe has been an exhilarating ride. I am immensely proud of the durable company we have built, our winning culture, and a world-class finance team. While I am looking forward to spending more time with my family, I will continue to energetically serve as CFO through September 30 to ensure our momentum continues uninterrupted and to assist Michael and the board in identifying my successor. I leave with full confidence that Magnite, Inc. is extremely well positioned to lead the future of digital advertising. Thank you all for an unforgettable decade-plus partnership. We will now open the call for questions. Operator: We will now open the call for questions. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. We ask that you please limit yourself to one question and one follow-up. If you have additional questions, please rejoin the question queue. At this time, we will pause momentarily to assemble our roster. The first question today comes from Daniel Louis Kurnos with Stifel. Please go ahead. Daniel Louis Kurnos: Great. Thanks. Good afternoon. And let me be the first, David, to wish you the best. It has been a pleasure working with you. Michael, let me jump in and unpack DV+ a little bit. Your comments suggest that we are still seeing mix shift to CTV, but your guide suggests— I mean, you talked about stabilization — your guide is almost flat in Q2. I am trying to figure out how much of that is these commerce media wins backing up here and how you think that might trend as we proceed through the year, understanding there is uncertainty in the macro and the pressures we are still seeing in the traditional desktop business. And then, since you brought up live sports, we have a very big event coming up, the Summer World Cup. We are starting to see more of Fox’s strategy, and we are finally going to get real games on Tubi. They have DTC out there now. How should we think about the impact of that event? It seems like every time we get one of these big events, even starting with the Olympics this year, and you mentioned March Madness, more and more inventory shifts to programmatic. Is that also an incremental catalyst for more inventory to keep moving in that direction? Michael G. Barrett: Yeah, Dan. I noticed you did not say it was a pleasure to work with me, so that is kind of hurting. But good observation. We do think we have seen stabilization to DV+, driven largely by the fact that the open web display is certainly under siege, but other pockets — mobile in-app, commerce media, as you pointed out, and audio — are growth areas for us. The macro weighs heavy on DV+ particularly, but seeing it return to flattish is something that I think would still outperform the market, and that is kind of where I think we should be in either one of our businesses. On the World Cup, it will certainly be a good guy for us. Given the volume of games and some of the added ad breaks — for instance, the mandatory water breaks — that is going to be a big ad load. We are expecting good things from it. I am not so sure it will be something that we will be citing as a comp issue in 2027, but it will certainly be part of the portfolio of sports that is going to add to the revenue growth. Operator: The next question comes from Shyam Vasant Patil with Susquehanna. Please go ahead. Shyam Vasant Patil: Hey, guys. Congrats on the results, and David, congrats on your retirement as well. I had a couple of questions. David, in your remarks, you talked a little bit — almost a side comment — about an uncertain macro. Did this have any impact on you in Q1 or Q2? Obviously very strong results, but would they have been even better if it were not for some of the macro events? And then, Michael, strong CTV growth and outlook — is there any reason to think that CTV cannot continue to grow at these levels on a secular basis? And related, how are you thinking about the secular profile for desktop and mobile? David L. Day: Great. On the macro front, it certainly was not an overwhelming drag on the quarter. But you see it in a couple of verticals in particular. Automotive, most importantly, and that is a large vertical, was down significantly. Technology also. So you see some impacts from tariffs, supply chain challenges, and then just uncertainty with things in the Mideast. Those are the data points underlying my comment. It is not booming, but we are not prognosticating doom and gloom either. Michael G. Barrett: Yes, Shyam. On the CTV front, we are really pleased with the growth rates and feel very strongly that they are sustainable. The market as a whole, from peer reports and analyst expectations, looks like it is growing in the low teens, so we are significantly outperforming market growth, and that has been a stated goal of ours. I think that will continue given the penetration we have with all the top streamers, their growth profiles, and increasing wins across the globe. An untold story for us is the success of these US-based streamers going international — when they go international, we go with them, and they disrupt the local market, forcing adoption of programmatic and streaming. It is a real positive story for us internationally. As far as DV+ is concerned, it is a portfolio. High-growth areas include in-app mobile and audio — both are promising — and even digital out-of-home is growing fast. We think DV+ as a whole is an important part of the business and will be a positive contributor. It is just hard to swag on a specific basis going forward. Operator: The next question comes from Jason Michael Kreyer with Craig-Hallum. Please go ahead. Jason Michael Kreyer: Great. Thank you. Michael, I wanted to ask on AI. I know you have brought some new solutions to market in the last several weeks. Can you talk about demand and adoption trends of AI-enabled tools? And what pain points exist in the industry that you can leverage AI to make more efficient? And then, David, congratulations on your retirement. It has been my pleasure working with you for most of that 13 years. I wanted to touch on the EBITDA OpEx that came in better in Q1, and you are guiding better for Q2. You outlined cloud and AI benefits. How durable are those savings, and is there more to squeeze out as we move forward? Michael G. Barrett: Great question, Jason. Wow. No love for David. AI in 2026 will be the story of AI with modest amounts of revenue flowing through. There are several working initiatives, several different standards. A lot of it is replacing direct-sold — not truly real-time programmatic — but bringing more dollars into the programmatic ecosystem because it is so much easier to do it agentically. The biggest benefit you are going to see is workflow and productivity. Instead of toggling between 13 different dashboards, you can use natural language to ask the agent to perform a task. It will free up a lot of bandwidth for traders, be more efficient, and drive more working media. We are exceptionally well positioned with the tools we have built and are building to catch it when the dollars start to flow. I would imagine 2027 will be the year where AI results in real revenue, and we are well positioned to take advantage. David L. Day: I think as a general matter, the savings are very durable. The primary drivers are twofold: moving some of our activity from the cloud to on-prem, and our dev team optimizing how we run more efficiently on the cloud. I am excited about that. That said, we have resources going into product development later in the year. We have a lot of new business and volume increases. I would not go too crazy with lowering costs, but the trend line is definitely durable. We have more to come as we bring a new data center in Northern California online later in the year. There is lots of opportunity, particularly as we spring into 2027 on the margin expansion front. Operator: The next question comes from Laura Anne Martin with Needham. Please go ahead. Laura Anne Martin: Hey. I have two. Taboola said on their call this morning that they see programmatic workflows being replaced by agentic. You just mentioned you thought it might be additive, but why do we not have agentic buy-side agents talking directly to agentic sell-side agents in the ad business and therefore getting rid of most of the 40% to 50% take rate that currently sits in the open web programmatic ecosystem? Second, on pricing power — at Possible, everybody is introducing AI products, and nobody is charging for them. They are table stakes, making products more interesting, more automated, higher ROAS, but are we actually going to get price uplift from these AI innovations, or does it just become table stakes where we spend money on AI but do not get revenue upside? Michael G. Barrett: Hi, Laura. On agentic replacing the need for software companies: as we said in our previous quarter script and this one, AI is a real tailwind for us. It makes things easier to work with. It lets our publishers go from a dozen dashboards — a SpringServe dashboard, a DV+ dashboard — to one, and they can execute more seamlessly. The agent-to-buyer connection makes a ton of sense. But who is to say that the buyer agent is not ours that they are utilizing, just like they utilize ClearLine? There is real upside there. Also, if you want to conduct conversations, execute plans, and buy programmatically from tens of thousands of buyer agents, that is where we really shine. We ensure those are the agents you want to talk to, that it is brand-safe inventory, we are collecting payment, policing fraud, and our plumbing and servers are being utilized to make it happen. We feel there is going to be more volume on the platform than we have ever seen, and yes, we will charge for that and it will improve, not pressure, our margin profiles. David L. Day: Building on that, particularly in CTV where we do have lower take rates at the moment, those are stabilizing. There is so much value-add. As we provide additional value-added services, we only see those increasing in the future, and that value-add will be accelerated with the AI implementations we are making. Operator: The next question comes from Analyst with B. Riley. Please go ahead. Analyst: Great. Thank you very much. A couple of questions from me. And, David, all the best. First, on commerce media, you have talked about 21 partners and 13 now deployed. Can you give us a sense of the scale of this business currently and how fast it might be growing? And then on live sports, you called it out as a sizable opportunity. Can you talk about penetration levels of live sports with programmatic and where it could be over time? Thank you. Michael G. Barrett: Sure. Commerce media is super exciting for us. We mentioned the number of partners, and that total keeps growing. The most important thing is how quickly the strategy has changed for commerce media players. Chapter one was: take my valuable retail data, park it in one DSP, and force all the advertisers that want to utilize that data to go through that DSP. Now you are seeing that unwind. The strategy now is to keep the data close to the retail media partner, working with an SSP like Magnite, Inc. That way you can democratize it and allow multiple DSPs to access it in a safe, privacy-compliant way. That is a huge tailwind for us. As far as contribution, it has been a significant contributor and will expand because many of these players are now adding CTV to the inventory mix. They start with owned and operated inventory, then go off-net; typically that has been in DV+. Now their advertisers are saying, “I do a lot of advertising on TV, and I want to do that with your data.” We are the perfect on-ramp for that to occur. On live sports, we are just scratching the surface. As a consumer, you see live sports everywhere in streaming. But programmatically, very little inventory is bought and sold programmatically. So when we say gains like 80% plus for March Madness, it is still minuscule compared to the opportunity that is coming. We are super excited about the World Cup and the fall slate of sports. Little by little, it is getting more programmatically driven, and it is a big tailwind for us. Operator: The next question comes from Shweta Khajuria with Wolfe Research. Please go ahead. Shweta Khajuria: Hi. This is Ken on for Shweta. Congrats, David, on the retirement. Two for me. Michael, can you provide us an update on the impact of OpenPath, particularly with smaller advertisers and agencies? And David, can you provide the puts and takes of EBITDA in the second half of 2026? Thank you. Michael G. Barrett: Yeah. On OpenPath, as we have talked about, it came as a shock to the system a couple of quarters ago. We stated that all the big buyers from the agencies that use Magnite, Inc. as an invaluable partner had flipped it back on. You can see in our results it is certainly not deteriorating. So the OpenPath extinction event came and went, and we are still here and doing quite well. David L. Day: On EBITDA in the second half, we mentioned we expect 11% or greater growth on the top line — stable and steady. On the cost side, we have cloud usage savings, but we also have volume growth and resources that will neutralize some of that savings at least this year. As mentioned, EBITDA margin is increasing — we expected something north of 35% and now expect about 35.5% this year. We are in a great spot. What is really great is our EBITDA margin is increasing and it is cost-driven at this point. To the extent we have upside on revenue, that upside will flow almost 100% to free cash flow. We feel really well positioned. Operator: The next question comes from Robert James Coolbrith with Evercore ISI. Please go ahead. Robert James Coolbrith: Good afternoon. Congratulations on a great run to David, and best wishes on your retirement. Michael, you are great too. On AI creative generation, any update on the role you are playing there? We are beginning to see more tools released to general availability. Are you seeing more AI-generated creative showing up in the market? Could that catalyze incremental demand and creative refresh, and what does that do for CTV? And related on AI, we heard some speculation about different ad tech players monetizing AI engine inventory itself. Do you think there is an opportunity for Magnite, Inc. there? Michael G. Barrett: Hey, Robert. As you know, we purchased a couple of quarters ago a company called SpringServe Streamr, which is one of the leading tools that allows small to medium-sized businesses to create TV ads, track them, measure them, and buy them on our platform with access to all the premium streamers. That product is really taking off. Our role is not to chase down the SMB directly, but to put those tools in the hands of folks that have those relationships — either large aggregators that now bring that demand onto our platform, or publishing partners that offer it as self-serve to their small advertisers. It has turned out to be a wonderful acquisition, and we are starting to see the benefits reflected in the growth rates of CTV. On monetizing AI engine inventory, it is very early, but the encouraging thing is the ad-supported ones are reaching out for third-party demand. History is pretty clear: initially, if you are just going to work with one DSP, maybe there is not a need for someone like Magnite, Inc. But once you work with three, four, five, six, seven — and do it globally with specialty DSPs — SSPs become invaluable. We feel very encouraged by the initial direction and believe we are well positioned when the time is right. Operator: The next question comes from Barton Evans Crockett with Rosenblatt. Please go ahead. Barton Evans Crockett: Thanks for taking the questions. First, perspective on an environment where agencies could be working with a single integrated interface — through Quad or something — to place outcome-driven marketing dollars across social walled gardens, search, AI environments, and the open web. If the front end is simplified and built on an LLM, does that impact take rates or revenue flows? Do you think that is where it is going? And second, on Google AdTech antitrust: we are sitting here in May without a decision on remedies. If a remedy decision were to come out today, when could you begin to see the impact? Is it pushed into 2027, and how much time would implementation take given legal and technical considerations? Michael G. Barrett: I certainly think simplified buying tools for agencies that deliver on marketers’ goals are where many people want to go. Our role remains quite valuable and necessary in that world. We are the system of record — the rails upon which the transactions take place. It is one thing to have an agent talk to another agent; it is another to be involved in complex transactions in real time, doing it trillions of times a day. You really need the infrastructure, and that is where we shine. I do not think there is a change to our take rates in that world. It is just easier for sellers and buyers — fewer interfaces and knobs — perhaps freeing up more working media. Our role remains unchanged as that system of record, so I feel confident in the durability of our take rates. On Google AdTech antitrust, it really depends upon the remedy. Some are behavioral; some would require Google to do technical work. Even in their case, they cited a six- to nine-month window for changing two of the things they were talking about. But I definitely think there would be some instant gains. We see all the inventory, bring it to auction, and our win rate is very low when it goes up against Google. If there were a behavior change, the impact could be somewhat instantaneous. I do not think all the benefits are pushed to 2027. We are disappointed there has not been a ruling yet, but we anticipate a favorable ruling for us and impact in 2026. Operator: The next question comes from Matthew John Swanson with RBC Capital Markets. Please go ahead. Matthew John Swanson: Hey, guys. This is Cameron on for Matt Swanson. Congrats on the quarter, and congrats, David. Going back to CTV and DV+ for a second, we have seen CTV hit an inflection point for the business. Last quarter, we talked about accelerated reallocation of budget from DV+ to CTV. While there are areas of growth in mobile and commerce for DV+, to what extent does this reallocation remain a headwind? Has it accelerated this quarter, and do you expect it to continue for the year? Michael G. Barrett: Great question. I do not know if we have seen an acceleration, and you can see the freshening of DV+ growth rate exceeding our expectation. I think there is stabilization. A big slug of that portfolio is open web display, and it is safe to say that is going to be a negative grower. But could that be outpaced by mobile app, audio, commerce media, and digital out-of-home? Certainly. Our long-term expectation for DV+ is that it is a grower, but it is certainly not going to have the profile of a CTV growth rate. Increasingly, our revenue balance will be more CTV than DV+. Operator: The next question comes from Analyst with Lake Street Capital Markets. Please go ahead. Analyst: Hey, guys. Thanks for taking my question. Just a quick one. CTV is now over 50% of total contribution ex-TAC. How should we look at incremental margins on CTV versus DV+? Is there a mix shift that structurally lifts margins by itself, or are there offsetting costs? David L. Day: It is generally equal. We do not see headwinds by having a greater proportion of our business be CTV. In fact, as we mentioned earlier, we have significant gains in the cost basis on our CTV business with our cloud costs going down. It will not be one of the more significant drivers — more neutral — but positive on the cost side. Operator: This concludes our question and answer session. I would like to turn the conference back over to Michael G. Barrett for any closing remarks. Michael G. Barrett: Thank you, Operator. CTV’s long-awaited ramp in programmatic has clearly arrived, and the investments we have made over the past several years are now translating into profitable, scalable growth. We believe CTV is in a powerful phase of its evolution. The shift to programmatic is real, and as the channel matures, it is increasingly taking share from both linear television and other digital formats. Before we close, I want to thank our team at Magnite, Inc. The progress we discussed today is a direct result of your hard work, innovation, and commitment to our partners. Your efforts continue to position us at the center of this transformation. We are confident in the momentum of the business and in the long-term opportunity ahead. Thank you for joining us today. We look forward to updating you next quarter. With that, I will turn it back over to Nick to cover our upcoming marketing events. Nick Kormeluk: Thanks, Michael. We look forward to seeing many of you at our upcoming investor events. To tick through them for your info and participation: we have a post-Q1 virtual NDR tomorrow hosted by B. Riley; an in-person AI tech demo with SSR in New York City on May 12; the Needham Conference in New York on May 13; the B. Riley Conference in Marina del Rey on May [inaudible]; the RBC Bus Tour in New York on May 27; the Craig-Hallum Conference in Minneapolis on May 28; the BFA Conference in San Francisco on June 2; Rothschild Redburn Investor Meeting in San Francisco on June 3; Evercore’s conference in San Francisco on June 3 as well; a Bronto NDR with RBC on June 9; a Chicago NDR with Benchmark on June 10; the ROTH Virtual AdTech Summit on June 15; and analyst and investor meetings with a variety of our covering analysts in Cannes the week of June 22. Thank you, and have a great evening. We look forward to seeing many of you at our events. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good afternoon, and welcome to Sunrun Inc. First Quarter 2026 Earnings Conference Call. Please note that this call is being recorded and that one hour has been allocated for the call, including the Q&A session. During the Q&A session after the prepared remarks, please press [inaudible]. I will now turn the call over to Patrick Jobin, Sunrun Inc.'s Investor Relations Officer. Thank you. Please go ahead. Patrick Jobin: Thank you. Before we begin, please note that certain remarks we will make on this call are forward-looking statements related to the expected future results of our company, including our Q2 and full year 2026 financial outlook, and other statements that are not historical in nature, are predictive in nature or depend upon or refer to future events or conditions such as our expectations, estimates, predictions, strategies, beliefs, or other statements that may be considered forward-looking. Although we believe these statements reflect our best judgment based on factors currently known to us, actual results may differ materially and adversely. Please refer to the company's filings with the SEC for a more inclusive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward-looking statements. Please also note these statements are being made as of today, and we disclaim any obligation to update or revise them. Please note, during this conference call, we may refer to certain non-GAAP measures, including cash generation and aggregate creation costs, which are measures prepared not in accordance with U.S. GAAP. These non-GAAP measures are being presented because we believe they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance. Reconciliations of these measures can be found in our earnings press release and other investor materials available on the company's Investor Relations website. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. On the call today are Mary Powell, Sunrun Inc.'s CEO; Danny Abajian, Sunrun Inc.'s CFO; and Paul Dickson, Sunrun Inc.'s President and Chief Revenue Officer. A presentation is available on Sunrun Inc.'s Investor Relations website along with supplemental materials. An audio replay of today's call along with a copy of today's prepared remarks and transcript, including Q&A, will be posted to Sunrun Inc.'s Investor Relations website shortly. And now, let me turn the call over to Mary. Mary Powell: Thank you, Patrick, and thank you all for joining us today. At Sunrun Inc., we are rapidly ramping sales and operations to fulfill the surging customer demand we have generated for our offering. Sunrun Inc. is solidifying and expanding its leadership position as the nation's largest residential distributed power plant developer and operator. Our addressable market is no longer solar-driven savings. It is America's need for power to fuel our economy. Our strategy is working. In Q4, we told you we had reached an inflection point. Today, we are here to tell you that the momentum we built is holding and accelerating. In a market environment that continues to test many participants, our scale, our vertically integrated model, our product strategy, and our relentless focus on execution and customer experience are proving to be genuine, durable competitive advantages. Put simply, we believe the market dislocations occurring around us present opportunities for us to extend our lead and accelerate profitable, high-quality growth. Let me start with our Q1 results. We added approximately 19,000 customers in Q1, and our storage attachment rate increased again to 73%, reflecting our continued commitment to a storage-first strategy as we build the nation's largest distributed power plant. Aggregate subscriber value for Q1 was $1.1 billion, above our guidance range of $850 million to $950 million. Contracted net value creation was $108 million, near the high end of our guided range of $25 million to $125 million. Cash generation came in at negative $31 million, excluding equipment safe harbor investments. We chose to shift certain project finance transaction activity from Q1 into Q2, negatively impacting our cash generation for Q1. We remain on track for our full-year guidance of $250 million to $450 million. Danny will walk you through the details of the financials in a moment; I want to give you the strategic picture first. We closed 2025 having installed more than 237,000 solar-plus-storage systems, approximately 4 gigawatt hours of network storage capacity. In Q1, that number grew to 4.3 gigawatt hours. Our fleet of dispatchable storage has grown over 50% compared to the prior year. That is not just a metric. It is infrastructure. It is real distributed, dispatchable power woven into American homes and the energy system. And it is something no one else in this industry has at our scale. This is the business we have been building: not a company that sells solar panels, but a company that operates critical energy infrastructure that stabilizes the grid and provides customers price certainty and backup power. In a moment of unprecedented electricity demand, driven by AI data centers and electrification, coupled with an aging grid, that distinction has never mattered more. I want to spend a moment on the dynamic industry environment we are operating in. Sunrun Inc. is incredibly well positioned to capitalize and extend our lead in the industry. The changes happening in the industry are difficult for many companies to navigate, but we believe that they play directly to Sunrun Inc.'s strengths. Let me hit the big changes in the industry and our position. First, the consumer ITC under Section 25D of the Tax Code associated with cash purchases or loan financing sunset at the end of December. Many smaller dealers and some of our affiliate partners that had significant volume dependent on the 25D tax credit have suffered significant volume declines this year. Sunrun Inc.'s origination volume is almost entirely subscriptions, and thus we are not seeing similar impacts from changes to the 25D tax credit. Second, utility rate structures have become increasingly complex, and customer value propositions hinge on and can be expanded by storage that is properly designed and actively managed to ensure consumer value. We believe that our vertically integrated model has allowed us to provide the best customer experience and offerings. We train our sales force and operations teams and ensure end-to-end alignment. This is one of the reasons we have very deliberately shifted our growth mix towards our direct business. Third, the regulatory complexity navigating domestic content and FIAT rules is increasing. We believe that our experience and scale give us tremendous advantages to navigate these items from equipment procurement, logistics, and compliance. Fourth, we have focused on margins and cash generation well ahead of others in the industry. This allows us to operate with a strong balance sheet that has low parent recourse leverage, enabling us to strategically invest in profitable growth and make the right long-term business decisions from a position of strength. Our balance sheet strength, along with our large-scale operations, has also afforded us the ability to prudently invest in safe harboring, enabling maximum ITC levels through 2030. Sunrun Inc.'s end-to-end visibility, our vertical integration, and our sophisticated capital markets experience are precisely what allow us to drive competitive advantages and thrive. We are leaning in during this moment of industry change. We are seeing strong momentum in direct sales force recruiting. We are matching direct sales momentum by ramping our direct installation capacity, enabling us to approach year-over-year growth in overall installations later this year. We hired more than 1,000 people in sales year to date. We are onboarding hundreds more, representing some of the best talent in the industry from sales dealers who have recognized Sunrun Inc.'s sustainable approach and appreciate our customer experience focus. These talented sales representatives understand the shifts in the industry have made the dealer model unstable and unattractive. We are driving strong, profitable growth with expanding margins for new customers. We are also deep into our strategy of building capital-light sources of recurring cash flows that are independent of new customer origination. We will be monetizing our base of customers and providing at-scale resources to the grid. We plan to also offer these services to orphaned customers across the industry. We expect these recurring cash flows to scale and augment our cash generation growth in the coming years. Our full-year 2026 guidance remains intact, and we are excited about our long-term growth trajectory. I wanted to close by returning to what I believe most deeply about this company and this moment. America needs more power, and Americans want more independence and control. The proliferation of AI data centers, the electrification of transportation and homes, the decarbonization of the grid—these all demand new solutions. The answer is not going to come from a single large plant that takes years to build. Instead, we believe distributed, intelligent, flexible resources deployed into homes and communities today will be a meaningful part of the solution. That is Sunrun Inc. We have over 1.1 million customers across the country. We have the largest residential battery fleet in the country. We are dispatching energy to the grid. We are protecting families from outages. And we are doing all of this while generating meaningful cash, paying down debt, and building a balance sheet that gives us flexibility to invest in the future. Before handing it over to Danny, I also want to take a moment to celebrate some of our people who truly embrace our customer-first and service-focused mentality. This quarter, I specifically want to call out our team members in Hawaii. As we all saw, Hawaii experienced severe and catastrophic flooding this past March, affecting thousands of residents including many Sunrun Inc. customers. Over a dozen of our team members in Hawaii, ranging from electricians to installers to sales leaders, spent many hours assisting in recovery efforts on the island of Oahu. I am so thankful for their contributions. Darius, Kelton, Chad, and to all our Hawaii team members, mahalo. We are incredibly proud to have you representing Sunrun Inc. Danny, over to you. Danny Abajian: Thank you, Mary. Our Q1 volume performance exceeded our expectations as we expanded our sales force and increased productivity at a robust clip. We added nearly 19,000 customers this quarter, with average system sizes up 5% from Q4 and a 73% storage attachment rate, up two points from Q4. While customer additions are down year over year given the effect of reduced lead generation and sales activities in mid-2025 around the budget bill and our decision to reduce affiliate partner volume, early-funnel sales activities this year have seen an inflection point toward growth. Based on the strong sales in our direct business, we are on track to resume overall year-over-year growth in installations later this year. To provide some more color on early-stage activities in our direct business, our active sales force has grown over 20% since the start of the year, and March saw over 30% growth in sales bookings month on month. These trends are outpacing the typical ramps we have seen at this point in prior years. Importantly, this growth is occurring in higher-value geographies and with our desired product mix. Aggregate contracted subscriber value was $980 million in Q1. On a unit basis, contracted subscriber value was up 14% year over year driven by higher system sizes, a higher storage attachment rate, a higher average ITC level, and lower capital costs. Aggregate creation costs were $872 million in Q1. On a unit basis, creation costs were 18% higher year over year driven by higher system sizes, a higher storage attachment rate, and adverse fixed-cost absorption from lower volumes. Upfront net value creation was $91 million in Q1, or approximately 9% of aggregate contracted subscriber value. This represents the cash margin we expect to obtain once systems and their tax attributes are monetized before working capital and recourse debt interest costs. On a unit basis, upfront net subscriber value was $5,136, up over $4,000 per subscriber compared to the prior year. Cash generation was negative $59 million in Q1, or negative $31 million excluding the $28 million net investment in equipment safe harboring. Cash generation was lower than our guidance due to our decision to shift certain project finance transaction activity from Q1 into Q2. We repaid $92 million of recourse debt in Q1, ending the quarter with $680 million of unrestricted cash and $626 million of parent recourse debt. Turning now to our activity in the capital markets. Investor demand for Sunrun Inc.'s assets remains strong. We have executed and closed several traditional and hybrid tax equity funds and tax credit transfer agreements so far this year, and have developed a pipeline of several transactions we expect will close during Q2. Corporate ITC buyers and traditional tax equity investors are actively engaging in their 2026 tax planning, and we are capturing a broadening base of investors. According to industry data, approximately 27% of Fortune 1,000 companies purchased tax credits in 2025 in a market which grew nearly 50% from 2024. Tax credit investment has become common practice for hundreds of corporate treasurers and CFOs who are generating savings and reducing their corporate tax rates, and we expect more of them will catch on this year. Market activity has picked up considerably from 2025 when tax law changes created temporary tax planning uncertainty. Pickup in activity has also driven modest recovery in market pricing for ITCs. Certain multinational tax equity investors have paused 2026 activity as they await Treasury guidance on FIAT ownership restrictions to confirm that their capital structure does not present any complications. The broader universe of tax credit investors is not impacted by ownership restrictions and remains active. We have built a supply chain and operating process for full FIAT compliance. Through today, we have raised $774 million in non-recourse asset-level debt financing year to date. The publicly placed tranche of our recent $584 million securitization priced at a spread of 220 basis points, a 20 basis point improvement from our most recent transactions in Q3 of last year. As of today, closed transactions and executed term sheets, inclusive of agreements related to non-retained or partially retained subscribers, provide us with expected tax equity capacity, or equivalent, to fund approximately 1,000 megawatts of projects for subscribers beyond what was deployed through the first quarter. We also have over $675 million in unused commitments available in our non-recourse senior revolving warehouse loan to fund over 250 megawatts of projects for retained subscribers as of the end of Q1 pro forma to reflect the announced securitization. Approximately 23% of our subscriber additions in Q1 were monetized through the non-retained or partially retained model. A reminder: proceeds from these transactions are equal to or better than our on-balance-sheet retained monetization, while also providing simpler GAAP treatment and further diversification of capital sources. Under the joint venture structure, we retain a share of long-term cash flows along with grid services and the ability to cross-sell customers. Turning to our outlook on Slide 23. We are reiterating all of our 2026 full-year guidance. We expect strong volume growth in our direct business and to produce cash generation of $250 million to $450 million for the year, excluding the use of approximately $50 million to $100 million related to equipment safe harbor investments. We expect to continue to allocate cash generation to reduce parent leverage and make final equipment safe harbor investments. In the coming quarters, we will evaluate additional value-accretive capital allocation strategies depending on the market environment and our outlook. We will now open the call for questions. Operator: Thank you. And with that, we will now be conducting a question and answer session. Once again, we ask that you please limit yourself to one question and one follow-up. If you would like to ask a question, please press star [inaudible] on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset. One moment while we poll for questions. Our first question comes from the line of Philip Shen with ROTH Capital Partners. Please proceed with your question. Philip Shen: Thanks for taking my questions. First one is on that tax equity pause, Danny, that you mentioned earlier. I just wanted to understand what the impacts to your business are and whether you have been able to pivot away to other sources of capital or funding. Ultimately, this can drive the cost of funding higher. As a result, do you see any impacts to your volumes? I know you maintained your full-year guide. But the reality is, it is impacting the wider market. You cut affiliate volumes down 40% year over year a quarter ago. So is the bigger impact more with the affiliate business, and you have everything buttoned up for the direct business? Thanks. Danny Abajian: Yes. I would say there are two different questions in there, and I do not know that they are necessarily related if you are tying them together. Our strategy decision to lean into the direct business for all the reasons that we articulated is pretty much independent of our observations of conditions in the capital markets. So those two are not necessarily linked in the way the question suggests. On the capital markets side, I would not categorically refer to it as a pause in the market. Certainly, there have been a few who have paused their activity in doing transactions. We did see, as we noted on the last call, a slowdown in activity in late 2025. We noted that was a few cents per credit in terms of pricing impact. We had been seeing low-$0.90 per credit pricing move into the high-$0.80s, and we also noted a modest, partial recovery as market activity picked up early this year. Corporate buyers have resumed their buying activity sequentially. Once they had clarity on what they needed for 2025, the appetite was there; they then swiftly moved into filling their needs for 2026. It has been noted there are a few players who have paused over FIAT, and I would say that is not related to our supply chain; it is related to ownership-side FIAT restrictions. They want to be certain of their qualification before they resume activity, but that characterizes a rather small portion of the market. That does feed into supply-demand fundamentals that led to modestly lower pricing, but we are seeing nice recovery building. Matching that with the volume trajectory and demand we are seeing, we feel nicely balanced overall. Philip Shen: Thanks, Danny. Shifting over to the Freedom Forever bankruptcy, historically I think you worked with them. Can you talk about the exposure you have there, if any? And when did you cut off Freedom from your affiliate network? Was it back during the Q4 call, or earlier? Thanks. Danny Abajian: Yes, great question. Our partnership with Freedom has declined in volume programmatically over the last three years and gotten to a place where we have relatively little exposure or ongoing new sales generation with them. From a run-rate perspective, it is quite small. To be amply clear, the dislocation between our strategy on deemphasizing affiliate partner business and ramping up our internal business is not driven by capital. We are raising capital and growing that internal business swiftly, as Mary highlighted, and we are seeing robust growth there. It is really a focus around becoming an organization that has control over more aspects of the business, which is paramount as we transition to be a distributed power player and build and own those assets. On financial exposure, we have participated in the affiliate partner space for nearly two decades and have lots of safeguards to manage exposure regardless of the partner. The nature of the exposure is related to projects that are in flight. They may have been installed but not fully interconnected, so there is an exercise of working through in-flight pipeline for us. Because we are vertically integrated, should we need to step in and complete installations, we can do that, giving us more direct control over outcomes. We are not going to disclose specific figures here on the call. Philip Shen: Danny, Paul, thank you very much. Mary Powell: Thank you. Danny Abajian: Thank you. Operator: Our next question comes from the line of Colin Rusch with Oppenheimer & Co. Please proceed with your question. Colin Rusch: Thanks so much. I want to get into some of the assumptions on the net subscriber value. There is a little fewer megawatts getting amortized over the offers, that is clear. But having a higher percentage of non-contracted value, I want to understand the underlying assumptions around that and what is driving some of that value capture. Danny Abajian: Are you doing the comparison sequentially, just so I follow which numbers you are looking at? Colin Rusch: I am looking at almost $6,000 of non-contracted net subscriber value, which is substantially more than what we have seen historically. I am trying to understand what is driving that. Danny Abajian: There are a few factors at play. Some of it is system characteristics, some is mix. System sizes are larger, which you will note in the metrics. The storage attachment rate is higher. The average ITC level is higher as we had more domestic content qualification in the period; that will range a little for the balance of the year. Most notably, you will see fluctuation across the last several quarters related to the retained and non-retained mix; that is the biggest driver to the non-contracted value and a big driver overall. Of course, discount rate will fluctuate. On the creation cost side, it is more heavily driven by lower fixed-cost absorption in the period related to sequential volume declines over the last few quarters, which we expect to inflect and gain back. There are also mix effects as we shift toward our direct business away from affiliates; some lagging costs are blending up the creation cost figure, weighing on us in period, and that drag should alleviate over the coming few quarters. Colin Rusch: Thanks. Looking at the market, we are going through a substantial shift in end market dynamics with competition as well as where some of these crews are. What are the most prominent gating factors for megawatt growth right now—sourcing deals, construction availability, or tax equity? How are you managing those limitations? Mary Powell: Great question. We are ramping meaningful, profitable growth. Our access to capital to support it is strong. Our approach is an extension of what we have been doing for years: very sharply focused on where we can do that with the best customer experience and the highest margins, while positioning strongly from a distributed power plant perspective. Paul Dickson: Adding to that, as Mary has articulated on prior calls, we have been appropriately selective around hiring and onboarding sales talent to generate more volume in profitable markets at attractive returns, and to attract the best talent we can. Some of that talent swirled around with the 25D expiration and market turmoil—finance shops pulling back, changing pay, exiting; several installation shops struggling or closing. More of the thoughtful sales talent is realizing the unsustainable and unattractive nature of that model, and more of that business is flowing to us. Where previously we were cautious around internal growth, we are now seeing steep upticks and are increasingly bullish on approaching year-over-year growth overall later this year, absorbing the dealer decline and seeing attractive growth in the internal direct business. Colin Rusch: Perfect. Thanks, guys. Operator: Our next question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question. Brian Lee: Hey, everyone. Good afternoon, and thanks for taking the questions. Danny, going back to your comments around tax equity—it has been a key focus since your commentary from last quarter. It sounds like on the margin you are seeing some improvement in trends. You quantified it in terms of pricing, and it is not a systematic pause, maybe just a few lenders holding off. Is that a fair assessment of your view of the market today versus the end of last year and early this year? And how much does tax equity availability and cost play into the low and high ends of the range for cash generation this year? Danny Abajian: Your recap is spot on. We are seeing more buyer activity pick up. There is a narrow focus on the tax credit transfer market; that market was $28 billion in 2024 and $42 billion in 2025, growing 50% year over year despite the widely noted slowdown. It is still only 27% penetrated in the Fortune 1,000. Among buyers in 2023 and 2024, there was an 80% repeat rate in 2025. Once corporate treasurers and CFOs overcome the entry cost of learning how to do this, it becomes part of planning and is going mainstream. The amount of unsold credits exiting 2025 was half of what it was exiting 2024. Trends are positive, and we see research indicating potential full price recovery, with second-half pricing as high as the first half of last year. Beyond transfers, we have a broad base of capital: non-retained asset sale monetizations, traditional tax equity with new investors, and pref equity structures. We saw through enough transactions to get 2025 done; our focus is on 2026. Brian Lee: Super helpful. Any thoughts on how the low-to-high-end ranges of cash generation embed tax equity availability and cost? Danny Abajian: It is still approximately $25 million per penny on a dollar-per-credit basis, plus or minus. Operator: Our next question comes from the line of Praneeth Satish with Wells Fargo. Please proceed with your question. Praneeth Satish: Good afternoon, thank you. So just to understand it correctly, Q1 cash generation was impacted by a shift of financings into Q2 in the tax equity market. Can you help frame how much volume got shifted and what Q1 cash generation would have looked like absent that timing shift? And for Q2, now that we are in May, how far along are you in terms of proceeding with those transactions you shifted from Q1? Danny Abajian: The negative $31 million is the number that excludes the $28 million safe harbor investment. On a pro forma basis, starting from negative $31 million, you would have to believe that $31 million or more of a draw from a fund that closed earlier would have taken us to breakeven or positive. The delay is not related to a slowdown in the market; it is inherent to transactions that some close before the quarter, some after. All deals need to be right to close. We could see lumpiness over quarters. Our job is to keep transactions tightly on the calendar; sometimes they straddle quarter ends. We are generally fine with that. Zooming out over a rolling four-quarter period, we want a high magnitude of cash generation, which is what we are looking to for the whole year. Praneeth Satish: Got it, helpful. Switching gears, fleet servicing costs have been trending down quite a bit over the last few years, including this quarter. What is driving those reductions, and do you expect those costs to continue to decline, or are you nearing a natural floor? Mary Powell: Thanks for that observation. It is the result of a team relentlessly focused on improving customer experience and service while leveraging our scale and capabilities as the largest installer in the country, with a continued focus on driving down costs. We have also done a lot to leverage AI to get next-click improvements that drive down cost. We are pleased with what we have seen and expect more improvements in the coming months and years. Danny Abajian: Thank you. Operator: Our next question comes from the line of an Analyst. Please proceed with your question. Analyst: Good afternoon. Thanks for taking my question. Danny, you gave a number of 1,000 megawatts of closed transactions and executed term sheets. Can you speak to the mix within that tax equity pipeline between the different buckets—corporate buyers, big multinational financial institutions, etc.? Danny Abajian: In terms of investor mix, it ranges from very large global institutions to more specialized domestic players. On the ITC buyer side, it now spans across all industries, including companies not traditionally tied to the solar space. Analyst: Would you say corporate buyers are a bigger part of the mix today, and if so, how much? Danny Abajian: We noted 23% of systems were sold into the non-retained model—that is quantified and represents a single investor acquiring assets in a JV structure. Apart from that, there is a mix of traditional and hybrid tax equity funds—sometimes the tax credit purchase is stapled with the same investor participating in the fund, and sometimes we sell out tax credits to the ITC transfer market. There is also an emerging set of pref equity JV structures, such as what we announced with Hannon Armstrong last quarter. In those transaction types, there is also transfer activity going out to the same market that spans all industries. Analyst: Okay. Sounds good. Appreciate it. Operator: Our next question comes from the line of an Analyst. Please proceed with your question. Analyst: Good afternoon, thanks for the time. First, can you talk about the nature of the change in the partnership a little bit more? Does that impact anything around your cash flow and cash generation—reiterated guidance, etc.? Why do it now? And Mary, on the direct business ramp, is there any change in your strategy and go-to-market with the new sales talent? How are you shaping sales tactics versus the affiliate channel? Paul Dickson: Can you clarify which partnership you are referencing? Analyst: I apologize—on the financing side, the JV structure. How does retaining cash flows change, and how does that impact your cash guide? Danny Abajian: We have the same disclosures as in the past. There is the non-retained model with an energy infrastructure investor, and the Hannon JV transaction we discussed. We like the efficiencies of those structures. The economics are in a very similar range. We have noted that upfront proceeds look very similar in the non-retained model versus the retained model. All of that is assumed in the $250 million to $450 million cash generation guide. Paul Dickson: On market dynamics, the major point is understanding the market itself. Historically, people categorized consumer demand as solar savings, but consumers are generally unaware a better solution exists. As we scale salespeople to educate Americans about this alternative, we continue to see the same take rates, adoption, and excitement, which are accelerating. The real change is we are selling critical infrastructure: resiliency with a battery that insulates them against outages and price uncertainty due to energy shortages, while also being a grid infrastructure resource. Framed that way, the market is: does America need more power, and is dispatchable power useful? That is the market we serve. We have evolved how we train our salespeople and deliver the value proposition over the last 24 months, and we are seeing higher take rates and efficiency. Sunrun Inc. is focused on being stable and sustainable, underwriting assets correctly. As the broader market sees more turmoil, Sunrun Inc.’s stability becomes more attractive, and more people are flowing into our program. Mary Powell: Simply put, what we sell has become more sophisticated. Policy changes have become more sophisticated. Meeting customer needs requires a company like Sunrun Inc. that is very focused on the customer and has sophisticated capabilities around training the sales force and ensuring we provide the best fit for customers. We continue to make strategic changes to deliver world-class NPS, the right product, and the right program design for both the consumer and the grid. We can scale that significantly and effectively in the direct business, which is why you have seen us focus on it. Analyst: Excellent. Thank you very much. Operator: Our next question comes from the line of Maheep Mandloi with Mizuho. Please proceed with your question. Maheep Mandloi: Thanks for the questions. First, on products going forward, could you see selling a battery storage product similar to what we have seen in Texas with 25 to 50 kilowatt-hour batteries with utilities? Any opportunities there? Paul Dickson: Yes. We have launched our standalone battery offering, and it is being received extremely well. We have sold thousands of units. As that continues to grow in size and scale, we will likely start providing more reporting on it in the future. Maheep Mandloi: Great. And one housekeeping on recourse debt. Is the plan still to get to two times below cash generation, or any plans to pay down even further? Danny Abajian: We expect to get to that number, if not a little through it, by the end of the year. We had a big paydown in Q1, and we expect more paydown before year-end. We are trending towards less than 2x total parent debt to trailing four-quarter cash generation. Operator: Our next question comes from the line of Robert Zolper with Raymond James. Please proceed with your question. Robert Zolper: Thanks for taking the question. On your last call, you said across the portfolio you experienced roughly 75 basis points of annual net defaults. How has that been trending since the last call? Danny Abajian: Across the board, starting with the macro, we have seen a bit of credit cycle consumer performance degradation. There is a range based on different markets and average FICO profiles. Our affiliate and non-affiliate mix is also changing; we see elevation of default rates with greater affiliate mix and some market mix implications. We typically see an initial period of a couple of years where default rates look elevated, then annual default rates start to fall as we get through early issues on the customer-facing service delivery side. Our service costs are down more than 30% year over year with greatly improved SLAs, which is related. We remain in the less-than-1% per year territory—very small—but we have seen some elevation recently. We have reasons to believe those will come down and are generally contained. Robert Zolper: Understood, thank you. As it relates to renewal rate assumptions, if you have 75 basis points of net defaults annually, roughly 20% over a 25-year life, how could you have renewal rates in excess of 80%? Danny Abajian: On Slide 30, we show default-rate-affected sensitivities on contracted value, not on the non-contracted piece. For renewals, it is not linear. Our contracts typically allow us to renew at a 10% discount to the then-current utility rate. Our renewal assumption in the tables uses a percentage of our year-25 Sunrun Inc. solar rate. If initial savings and utility rate inflation outpace our annual rate of increase, we are well discounted to the expected utility rate in the future. Mathematically, you can get to these renewal rates even assuming customer attrition. Also, annual default rate reflects billed versus collected amounts. Many customers who do not pay for some period may be going through a foreclosure or short sale; ultimately a new, creditworthy homeowner often resumes payments. So it is not full attrition. Operator: Our next question comes from the line of Vikram Bagri with Citi. Please proceed with your question. Vikram Bagri: Good evening, everyone. One quick question. You are more sophisticated in raising and recycling capital than the average TPO. We have seen a lot of stress in the market with a few blowups; there was discussion about another one this morning by a supplier. Where do you see your market share at the end of this year or next year? Do you think the TPO market as a whole in the U.S. grows or shrinks after the dust settles on safe harbor, tax equity, and your guidance? Fully understanding you manage for profitable growth, how do you see the market evolving? And based on that, if there is an opportunity to gain market share given your hiring, would you layer on more safe harbors? Paul Dickson: Today, Sunrun Inc. represents one-third of subscription volumes in the United States on the solar product. We are more than 50% of the storage market. On those two metrics, we anticipate increases as we execute our strategy. We expect continued consolidation in the space and to be a recipient of that consolidation. Danny Abajian: On safe harbor, with our $50 million to $100 million use of cash for safe harbor activity this year, we have a July 4 deadline—one year from the date of bill passage. As we complete that exercise, we will have safe-harbored the use of the solar ITC out through 2030 with a combination of vendors, with redundancy and buffer for growth. That gives us a window to play the market opportunity and enables market share capture over time, especially with the 25D credit no longer there; a lot of demand will access solar via our product. On operational fulfillment, we coordinate very specifically by geography. We see how many retail stores are generating leads, how many new reps are selling at the doors; we get the exact signal we need to hire on an existing platform already at scale and can grow cost-efficiently. Pull-through on fulfillment is a coordination task; we do not see bottlenecks. Operator: With that, ladies and gentlemen, this concludes our question and answer session as well as today's conference call. We thank you for your participation, and you may disconnect your lines at this time. Have a wonderful rest of your day.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to today's Hamilton Beach Brands Holding Company 2026 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question, please press star and the number one to raise your hand. To withdraw your question, please press star and the number one again. Thank you. So without further ado, I would like to turn the call over to Brendan Frey, partner with ICR. Brendan, you have the floor. Brendan Frey: Dustin, are you there? Operator: Yes. Hello? Mr. Frey, you might be muted. Brendan Frey: Am I back in? Alright. Sorry about that. We will give this another shot. Good afternoon, everyone, and welcome to the first quarter 2026 earnings conference call and webcast for Hamilton Beach Brands Holding Company. Earlier today, after the stock market closed, we issued our first quarter 2026 earnings release, which is available on our corporate website. Our speakers today are R. Scott Tidey, president and CEO, and Sally M. Cunningham, senior vice president, chief financial officer, and treasurer. Our presentation today includes forward-looking statements. These statements are subject to risks and uncertainties that could cause results to differ materially from those expressed in either our prepared remarks or during the Q&A. Additional information regarding these risks and uncertainties is available in our 10-Q, our earnings release, and our annual report on Form 10-Ks for the year ended December 31, 2025. Hamilton Beach Brands Holding Company disclaims any obligation to update these forward-looking statements, which may not be updated until our next quarterly conference call, if at all. We will also discuss certain non-GAAP measures. Reconciliations for Regulation G purposes can be found in our earnings materials. I will now turn the call over to Scott. Scott? R. Scott Tidey: Thank you, Brendan, and good afternoon, everyone. Thank you for joining us today. We are pleased to report first quarter profitability that exceeded our expectations. First quarter revenue was expected to be down year-over-year as we are up against a challenging comparison, and while it declined slightly more than planned, we delivered exceptional gross margin expansion of 510 basis points, which drove operating profit growth of 115% to $5 million. Sales were modestly below our expectations, primarily because March was softer than planned. Consumers remained under pressure and discretionary spending weakened in parts of our business. The impact was most pronounced in our U.S. consumer business, where shoppers in our price segments appear to be especially affected by elevated fuel costs. At the same time, our gross margin performance was significantly stronger than planned. Thanks to the implementation of the foreign trade zone last year at our distribution center, we were able to quickly capitalize on the Supreme Court's ruling on IEPA tariffs in late February, shipping certain products in March that had no additional tariff charges. First quarter gross margins also benefited from other tariff mitigation actions, including diversifying our sourcing strategy and selectively raising prices, the latter of which will continue to be a tailwind in the second quarter due to the delta and the timing between the price increases and higher costs hitting our P&L. This margin expansion more than offset modest sales shortfalls and resulted in profitability that exceeded our expectations. Besides the recent global uncertainties, we continue to make meaningful progress on our five strategic initiatives, and I wanted to update you on each of these. Starting with driving growth of our core business, we are executing well on our product innovation pipeline. Our three new innovative blender kitchen systems are gaining traction in the market, bringing fresh innovation to one of our strongest categories. The redesigned Durathon iron platform launched during the quarter with exceptional reception, building success on an established Durathon technology. We are particularly excited about our expansion into garment steamers with new models and believe we are well positioned to capture share in this large and growing segment. Looking ahead, our two new single-serve coffee platforms launching in the second half of the year will bring needed innovation to another important category. Additionally, we recently picked up placements for multiple product categories. This includes expanding several programs with a leading department store in the fall, adding shelf space at two top wholesale membership clubs, and increasing penetration with a leading mass market retailer. These wins are being supported by our significantly increased investment in digital, social media, and influencer marketing, which is helping us connect with consumers in new and more efficient ways. Moving to accelerating our digital transformation. The consumer shopping journey continues to evolve rapidly, and we are adapting our approach to meet them where they are. We are leveraging our strong foundation of e-commerce capabilities and our consistently higher consumer reviews and ratings, which average above four stars across our brands, to drive discoverability and conversion. Our increased advertising investment is focused on ensuring we are present and relevant when consumers are making purchase decisions. We have added resources specifically focused on improving our discoverability across platforms and sharpening our AI shopping tactics to stay ahead of the curve as generative AI increasingly influences shopping behavior. And we are excited to announce that we recently selected a new advertising agency that will help oversee and drive our digital marketing strategy starting in the second half of the year. Gaining a larger share in the premium market is our next strategic initiative. The premium market represents approximately half of the $9 billion U.S. appliance market, and we currently hold only about a 1% share in this segment, providing us with tremendous runway for growth. Our LOTUS brand expansion continues to exceed expectations. Following the strong double-digit sell-through results we achieved with the LOTUS Professional launch in 2025, we are preparing for the fall launch of LOTUS Signature. Our key retail partner has committed to expanding shelf space based on the brand's performance, which validates our strategy and provides a platform for accelerated growth. Turning to leading in the global commercial market. Our commercial business continues to gain traction and represents a significant growth opportunity. The Summit Edge high-performance blender remains a cornerstone of our commercial strategy. We are deepening our relationships with large foodservice and hospitality chains with particular emphasis on regional and global penetration. To that end, another of our commercial blenders, the Eclipse, will soon be added to a leading national coffee chain. Meanwhile, we recently picked up a spindle maker placement for a leading U.S.-based fast foods chain for their Central America location. Lastly, our Sunkist commercial juicers and sectionizers, which we launched in the second quarter of last year, continue to exceed expectations with accelerating demand from leading restaurants, hospitality chains, and schools. Finally, accelerating growth of Hamilton Beach Health. The first quarter marked the third consecutive quarter of profitable growth for this business, and we are on track to increase sales by 50% this year. We are making excellent progress expanding our injectable reach by adding more specialty pharmacy and pharmaceutical company partnerships. We recently signed on a new injectable drug that will be available on our SmartSharp Spin platform starting this quarter. At the same time, we are broadening our connected medical device platform beyond our core injectable medication management. In the third quarter, we will launch the pilot of our pill management platform, which is designed to improve medication adherence and provide valuable patient feedback. We were initially targeting oncology and mental health treatments, with plans to expand to other therapeutic areas as we validate the platform's effectiveness. This expansion represents a significant opportunity to address additional patient pain points and grow our distribution network with large specialty pharmacies. As Sally will discuss shortly, we remain confident in delivering our 2026 financial goals despite the recent downturn in consumer sentiment. In addition to comparisons beginning to ease starting in April, which has helped our recent trend line, we plan to reinvest the margin upside from the first quarter into additional promotional programs to help drive demand in the current environment. Looking past the current headwinds, we believe our diversified business model across consumer, commercial, and health, combined with our strong brand portfolio and the strategic initiatives we are executing, provides multiple avenues for growth and positions us well to capitalize on opportunities as market conditions continue to stabilize. I want to thank our teams for their continued dedication and execution. Their agility in navigating the March consumer headwinds while delivering exceptional margin performance exemplifies the resilience and commitment that defines our organization. With that, I will turn it over to Sally. Sally M. Cunningham: Good afternoon, everyone. Echoing Scott's comments, we are pleased with our start to the year, especially our gross margin and operating profit performances. For the first quarter, revenue was $122 million compared to $103.4 million a year ago, a decline of 8.6%. The revenue decline was primarily driven by lower volumes in our U.S. consumer business as we lapped our highest growth rate from last year. The lower volumes in our U.S. consumer business were partially offset by higher prices, and our overall results include another quarter of robust sales growth from our health care division. Turning to gross profit and margin. Gross profit was $36.2 million in the first quarter, up 10.4% compared to $32.8 million in the year-ago period. Gross profit margin was 29.7%, compared to 24.6% of total revenue in last year's first quarter. This 510 basis point improvement in gross profit margin was due to favorable pricing and customer mix, partially offset by higher product costs. I want to highlight that the margin improvement included a one-time benefit of 190 basis points related to the sell-through of inventory that was priced in anticipation of IEPA tariffs that were eliminated following the Supreme Court ruling. This benefit is nonrecurring and will not persist beyond the sell-through of affected inventory. The other 320 basis points of improvement was driven by the timing of our price increases that Scott touched on earlier that will normalize as we get into the second half of the year, and increased penetration of our higher-margin commercial and health care business. Selling, general, and administrative expenses increased to $31.2 million compared to $30.5 million in 2025. The increase was primarily driven by $1.4 million of accelerated depreciation of our legacy ERP system, which we are in the process of replacing, partially offset by the benefit of restructuring actions we took during the second quarter of last year. Our strong gross margin gain allowed us to more than double operating profit to $5 million compared to $2.3 million in 2025. Income tax expense was $1.4 million in the first quarter compared to $700 thousand a year ago, and net income in the first quarter was $3.5 million, or $0.26 per diluted share, compared to net income of $1.8 million, or $0.13 per diluted share, a year ago. Now turning to our balance sheet and cash flows. For the three months ended 03/31/2026, net cash provided by operating activities was $3.3 million, compared to $6.6 million for the three months ended 03/31/2025. The decrease was primarily driven by higher net working capital, including a planned increase in accounts receivable following our decision to exit the arrangement with a financial institution to sell certain U.S. trade receivables of a single customer, which shifted the timing of cash receipts. This was partially offset by lower incentive payout compared to 2025. During 2026, we allocated our cash flow to repurchase approximately 55 thousand shares totaling $900 thousand and paid $1.6 million in dividends. At the end of the first quarter, net debt was $2.6 million compared to net debt of $1.7 million on 03/31/2025. Turning now to our outlook for 2026. We are reiterating our previously issued guidance. We continue to expect revenue growth to approach the mid-single-digit range. Gross margins are still projected to be similar to slightly better than 2025's level, as we reinvest the upside from Q1 into additional promotional programs to drive demand. While operating profit on a reported basis is expected to decline low-teens on a percentage basis, inclusive of an incremental $6 million in planned advertising spend in 2026 to support our strategic growth initiatives and approximately $6 million in accelerated depreciation associated with our legacy ERP system. Cash flow from operating activities less cash used for investing activities for 2026 is expected to be in the $35 million to $45 million range. Our current earnings and cash flow outlook excludes any potential impact from IEPA-related refunds, which total approximately $41 million of tariffs paid in 2025 and early 2026 that the company is actively pursuing; however, the timing and ultimate recovery remain uncertain. In closing, we entered 2026 with building momentum and renewed confidence in our ability to deliver sustainable growth and shareholder value. Our diversified business model, strong brand portfolio, and the work we have done strengthening our foundation positions the company to capitalize on improving market conditions this year and create a platform for long-term growth. This concludes our prepared remarks. We will now turn the line back to the operator for Q&A. Operator: Thank you. We will now open the call for questions. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star and the number one on your telephone keypad. To withdraw your question, please press star and the number one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from the line of Adam Bradley from AGB Capital. Your line is open. Please go ahead. Adam Bradley: Hi, Scott and Sally. Question about LOTUS. The investment behind them and just how things are going, and if we should expect additional investment behind LOTUS beyond 2026. R. Scott Tidey: Hey, Adam. This is Scott. Yes, as we indicated, we had a great launch with our initial exclusive national chain in 2025. That exclusivity with that chain ended in 2026, so we are now rolling LOTUS Professional out to other retail customers as we speak. And as mentioned, we are super excited about launching LOTUS Signature later in the year. That will be closer to the holiday time period. We did support the business with several million dollars last year, and we expect to do so with more this year, and that would continue through into 2027 as well and beyond. Adam Bradley: Alright. So will there be a time—given the level of investments—what are your kind of long-term expectations for LOTUS? R. Scott Tidey: I do not think we have a dollar revenue amount that we are going to put out there and project. We believe that we can go in and grab multiple share points in this very large segment of the small kitchen appliances. We have what we believe are very targeted retailers to be able to do that. Those are both brick-and-mortar and online customers that we feel are more in the premium position, and the revenue will come. Again, we are willing to commit. We know this is building our own brand, so we are willing to commit to the advertising investment behind it to build that brand awareness. Adam Bradley: Okay. Thank you. R. Scott Tidey: Thank you. Operator: Again, if you would like to ask a question, please press star and the number one on your telephone keypad. There are no further questions in the queue. That concludes our question-and-answer session. That also concludes our call for today. Thank you all for joining, and you may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the 908 Devices First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I will now hand the conference over to Barbara Russo in Investor Relations. Barbara, please go ahead. Barbara Russo: Thank you, and good morning. On this call, we will be discussing our financial results for the first quarter ending March 31, 2026, which were released earlier this morning. Joining me from 908 Devices is Kevin Knopp, Chief Executive Officer and Co-Founder; and Joe Griffith, Chief Financial Officer. During today's call, we will make forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. For a discussion of these risks and uncertainties, please review the forward-looking statement disclosure in the earnings news release as well as in our most recent annual report on Form 10-K and other SEC filings. These forward-looking statements reflect management's beliefs and assumptions as of the date of this live broadcast, May 6, 2026. Except as required by law, we disclaim any obligation to update forward-looking statements to reflect future events or circumstances. Our commentary today will also include non-GAAP financial measures, which should be considered as a supplement to and not a substitute for GAAP financial measures. The non-GAAP reconciliations can be found in today's earnings press release, which is available on the Investor Relations section of our website. With that, I now turn the call over to Kevin. Kevin Knopp: Thanks, Barbara. Good morning, and thank you for joining our first quarter 2026 earnings call. We entered 2026 from a position of strength with a streamlined cost structure, a solid balance sheet and an expanding recurring revenue opportunity. In the first quarter, we continued to build on that momentum, delivering $13.4 million in revenue, up 14% year-over-year. Sales to U.S. state and local customers remained a key driver, representing approximately 50% of our first quarter revenues. This marks the third consecutive quarter that orders from these customers have exceeded our internal targets. And based on our current pipeline visibility, we believe we can continue this trend in the second quarter. Importantly, this channel is delivering consistent high-quality run rate demand, helping to drive greater visibility and predictability while complementing larger international and U.S. federal enterprise opportunities. Over the past 24 months, we have made deliberate investments to scale this segment alongside the successful integration of our RedWave FTIR portfolio, and we are now seeing those efforts translate into sustained durable growth. FTIR products are becoming a meaningful contributor to [indiscernible] expanding their approach nationally, reinforcing a broader and accelerating demand environment. In parallel, we anticipate that the passage last week of the Department of Homeland Security funding bill will provide additional support for our second half objectives. And to kick things off here in Q2, we closed a $3 million order in April with another state Department of Corrections. We are continuing to drive momentum as we execute our law enforcement narcotic strategy. On our last earnings call, we outlined 3 focus areas for 2026, scaling our proven platforms, extending our handheld leadership through differentiated capabilities and disciplined innovation and strengthening revenue durability through recurring and program-based opportunities. This morning, we are excited to announce the acquisition of NIRLAB AG. We believe this acquisition is additive to each of our existing initiatives for the year and will be a very strong strategic fit over the short and long term. This acquisition brings together highly complementary drug detection capabilities, increases our international revenue mix and provides a high retention recurring software subscription model. Just as important as the strategic fit is the cultural alignment. NIRLAB is a founder-led, highly technical organization with deep expertise in spectroscopy, data science and cloud-based AI analytics. Their mission-driven focus on enabling safer, faster decision-making in the field closely aligns with our purpose of protecting frontline responders and addressing critical public health challenges. So prior to reviewing our first quarter financial results, I wanted to walk you through a handful of slides about this acquisition and how it aligns to our focus areas and with our broader law enforcement narcotic strategy. Very simply, this acquisition does 4 things for 908. First, it expands our handheld franchise into a high-volume, widely deployable sub-$40,000 segment, unlocking about a $200 million market. This is a solution purpose-built for frontline narcotics detection, increasing accessibility and driving unit volumes in markets we know well and already serve. And while not yet at scale, it's already validated with 100-plus active customers and approximately $2 million in law enforcement revenue. Second, it strengthens and extends our leadership in narcotics for law enforcement. It builds directly on the momentum we're seeing with MX908 and complements VipIR, expanding a market-leading portfolio that's driving growth at the state and local level. Just as importantly, it completes our end-to-end coverage. With nearIR-based optical spectroscopy, which we have core expertise, we now span from everyday screening to confirmatory analysis, driving higher customer value and deeper adoption. Third, it accelerates our software and recurring revenue strategy. This is a proven high-retention subscription model, about 50% recurring revenue with a demonstrated annual retention of greater than 99%. It fits directly into our connected services vision with Team leader and NIRALAB's live cloud-connected AI-driven analysis. This gives us a faster path to scaling recurring revenue, increasing lifetime customer value and improving visibility. And fourth, this is a highly levered growth opportunity. The business today is largely international, and we see a clear path to accelerate U.S. adoption using our commercial infrastructure while also benefiting from the technical know-how to further advance our platform. So taken together, we believe this deal expands our market, strengthens our portfolio, completes our workflow and accelerates our software strategy, all tightly aligned to where we're taking 908. From a financial standpoint, NIRALAB's growth and recurring revenue mix are accretive and support our long-term margin targets as high-margin software subscriptions scale. For the remaining 8 months of 2026, we expect approximately $2.5 million in revenue, growing under our model to more than $5 million in 2027. We do expect a modest roughly $1 million adjusted EBITDA headwind in 2026 with the business planned to be profitable and contributing positively in 2027. The upfront transaction value is $15 million, $13 million in cash and $2 million in equity with up to $8 million in additional equity tied to recurring revenue and customer capture performance milestones over the next 20 months. As we step back and look at what we're acquiring, it's important to recognize that this is not just a single product or point solution, but a fully integrated platform that is ready to scale. At its core, NIRLAB combines purpose-built hardware with a cloud-connected software ecosystem and a subscription model, enabling rapid field-based chemical analysis with a simple, scalable workflow. This platform approach is what drives both adoption and long-term customer value. A key component of that value is the underlying data, know-how and IP. NIRLAB has built what we believe is the world's largest nearIR spectral database for narcotics, supported by proprietary AI and machine learning models informed by tens of thousands of laboratory characterized seized drug samples. This creates a meaningful and defensible data moat that strengthens over time as more data is collected in the field. As part of the acquisition, we're also integrating a highly specialized and mission-driven team of 15 people based in Switzerland with deep expertise across spectroscopy, software, cloud infrastructure and machine learning. Their scientific foundation anchored through the relationship with the University of Lausanne brings both credibility and continued innovation to the platform. The NIRLAB experience is designed to be simple, fast and highly accessible for frontline users with a straightforward workflow of just downloading the app from the App Store, pairing the device, analyzing a sample and then receiving results in seconds, users can detect, identify and quantify the most common illicit drug directly in the field, approximately 400 substances, including THC and CBD in cannabis, which are important analytes not covered by our Mass Spec or other optical products. For reference, the initial device will be roughly $10,000 and its required subscription will be roughly half that again per year. Note, these are approximate as pricing varies by market and is still being established. We believe nearIR's ease of use on top of that, the platform leverages AI and advanced compute to continuously improve performance. As more data is collected, the system becomes more accurate, more robust and more valuable to the end user. This creates a powerful flywheel effect with increased usage driving more data, more data driving better insights and better insights driving further adoption. From a strategic perspective, this is also highly aligned with our broader team leader software vision. It strengthens our ability to deliver connected data-driven solutions, expands our recurring revenue opportunities and enhances the overall value of our ecosystem to customers. NIRLAB is embedded in the day-to-day workflows of customers with over 1 million analyses performed to date. This level of usage demonstrates both reliability of the technology and the value it delivers in operational settings. NIRLAB's customer base spans across continents from the Australian Federal Police and Oceania to state police forces in Switzerland and Germany, local police forces in the Netherlands, Italy and Spain and more broadly across Europe to a forensics laboratory in Malaysia, customs authorities in Mauritius and anti-narcotics units in Nigeria, among many others. These are not pilot programs or limited trials. This is an active recurring use by frontline personnel who rely on the platform to make fast informed decisions in the field. That consistency of use underpins the strong retention and subscription model we discussed earlier. At the same time, this platform is early in its broader market adoption. It has not yet been scaled globally, has not penetrated the U.S. and has not been fully leveraged through a larger commercial engine, which creates a significant opportunity ahead for us. From our perspective, this combination of proven validation and early-stage scale is particularly compelling. It reduces execution risk while preserving meaningful upside as we expand adoption, especially in the U.S. and connect this installed base into our broader ecosystem. Our combined platforms provide end-to-end coverage for narcotics detection supporting the law enforcement market broadly. This is timely for 2 reasons. One, global drug markets are expanding in both scale and complexity with cocaine seizures up 68% over the past 4 years and more than 55 tons of new psychoactive substances seized in Europe alone in 2024. At the same time, over 1,000 emerging compounds, including highly potent synthetic opioids like nitazenes are driving a growing need for traceable detection in complex and hazardous environments. And two, low-cost, widely deployable colorimetric field tests are increasingly falling out of favor and a growing number of U.S. states and jurisdictions are restricting their use for arrest decisions due to accuracy concerns and lack of an electronic record. This is expected to drive a shift towards scientifically validated field-ready alternatives such as our products. With NIRLAB, we now address the full spectrum of use cases from high-frequency in-field screening to advanced confirmatory analysis. NIRLAB enables rapid frontline awareness. Our flagship MX908 supports trace level detection for high-consequence scenarios, including fentanyl and the synthetic opioid crisis and our new product, VipIR, expands our capability in bulk and unknown substance identification with its ability to identify 39,000-plus chemicals, cutting agents and more in customs and clandestine lab response settings. These platforms are becoming increasingly connected through our software ecosystem, enabling data sharing and coordination and insight across users and environments. This transforms isolated measurements into a unified actionable workflow. Importantly, this drives pull-through across the portfolio where routine screening can lead to demand for more advanced capabilities or the opposite, increasing both utilization and customer lifetime value. Overall, this positions us with a differentiated full stack solution that spans everyday to specialist use cases and is difficult to replicate. The acquisition directly aligns with the 3 strategic priorities we outlined for 2026. First, it scales our proven handheld platforms by expanding to low-cost, widely deployable segment, enabling broader adoption across law enforcement and global frontline users. Second, it extends our handheld leadership by completing the end-to-end workflow from screening to confirmatory analysis, strengthening what we believe is the most comprehensive handheld detection portfolio in the market. And third, it strengthened the quarter and our updated outlook. Joseph Griffith: Thanks, Kevin. Total revenue was $13.4 million for the first quarter 2026, increasing 14% from $11.8 million in the prior year period. Handheld product and service revenue was $12.8 million for the first quarter 2026, up 16% from $11 million for the first quarter 2025. The increase was primarily driven by our FTIR products, including more than 25 VipIR shipments, which offset a reduction in protector shipments. MX908 product and service revenue was up overall, driven by an increase in device placements but was offset by a $0.7 million decrease in service revenue. In total, we shipped 167 devices in the first quarter, bringing our installed base to 3,903. As anticipated, program product and service revenues was 0 in the first quarter of 2026 as we await funding for the next phase of the AVCAD program, and it was $0.1 million in the first quarter of 2025. OEM and funded partnership revenue was $0.6 million for the first quarter of 2026 compared to $0.7 million in the prior year period. Recurring revenue, which consists of consumables, accessories, software and service revenue represented 30% of total revenues this quarter and was $4 million, a 7% decrease over the prior year period, primarily related to the expected reduction in Mass Spec service revenue. Gross profit was $6.9 million for the first quarter of 2026 compared to $5.5 million for the prior year period. Gross margin was 51% for the first quarter of 2026 compared to 47% for the prior year period. The increase was driven by several factors: one, higher product revenue volume; two, a shift in channel mix with fewer international placements that are at a lower gross margin; and three, the decreased facility costs related to the move of our Boston facility in 2025. This was offset in part by a lower service gross margin related to the decreased service contract revenue in the first quarter of 2026. Adjusted gross profit was $7.7 million for the first quarter of 2026 compared to $6.4 million for the prior year period. Adjusted gross margin was 57%, an increase of approximately 290 basis points compared to the prior year period. The increase in adjusted gross margin was driven by the higher revenues, channel mix and the reduced facility costs, as mentioned above. Total operating expenses for the first quarter of 2026 were $19.8 million compared to $16.6 million in the prior year period. The increase was due to a noncash $3.9 million increase in the fair value of contingent consideration. All other operating expenses for the first quarter decreased year-over-year by $0.7 million, driven by a reduction in facility expenses and a $0.2 million decrease in acquisition and integration costs. Net loss from continuing operations for the first quarter of 2026 was $12 million compared to a net loss of $9.8 million in the prior year period. This increase was primarily driven by the $3.9 million noncash charge for revaluing contingent consideration, offset in part by the improved gross margins and reduced operating expenses. Adjusted EBITDA for the first quarter of 2026 was a negative $2.5 million compared to a loss of $4.6 million in the prior year period, representing a $2.1 million improvement. In the first quarter, we cut our adjusted EBITDA loss by 45% due to realizing growth at improved margins with a lower operating cost base. We ended the quarter with $111.7 million in cash, cash equivalents and marketable securities with no debt outstanding. Operationally, we are executing with discipline using only $1.2 million of cash in the quarter. Looking ahead in 2026, we now expect revenue to be in the range of $67 million to $70 million, representing growth of 19% to 25% over full year 2025. Our guidance range has increased $2.5 million and includes the following assumptions. First, we now expect handheld product and service revenue to grow 18% to 21% year-over-year, which equates to a range of $62 million to $64 million. The increase in guidance reflects initial expectations around our acquisition of NIRLAB as we integrate it into our commercial model. Second, we continue to expect OEM and funded partnerships, including contract revenue to be approximately $3 million. And third, we continue to expect revenue contribution from the AVCAD program to be in the range of $2 million to $3 million, likely in the second half of 2026. As previously stated, Smiths Detection has responded to a request for proposal and are negotiating for an anticipated spring award for an initial production run of approximately a few hundred systems with component and subsystem contributions from 908 Devices. This timing and quantities are validated by the Department of War's fiscal year 2027 Chemical and Biological Defense program public request to Congress just last week. Moving down the P&L, we continue to expect adjusted gross margins to be in the mid- to high 50% range for full year 2026. And on the bottom line, we expect to reduce our adjusted EBITDA loss to the mid-single-digit millions, making another significant step down year-over-year while we go after the growth opportunity. We expect that NIRLAB will represent approximately $1 million of the adjusted EBITDA loss in 2026. However, as Kevin mentioned, we anticipate it to be adjusted EBITDA positive in 2027. At this point, I would like to turn the call back to Kevin. Kevin Knopp: Thanks, Joe. The progress we're seeing is a direct result of disciplined execution and a strategy that is working. Only 4 months into the year, and we're encouraged by the trajectory of the business. We're executing well, building momentum and expanding from a position of strength. Our end goal is clear to be the #1 provider of handheld detection solutions globally. And every move we're making from organic investments to tuck-in M&A is reinforcing that leadership. We're broadening the portfolio with purpose, extending beyond MX and assembling what we believe is the strongest and most comprehensive suite of handhelds in this market. In parallel, we're scaling our commercial organization to match the opportunity and drive consistent execution. Every piece ties back to our narcotics and chemical detection strategy, addressing real pain points across performance and price points, expanding the market while taking share as we solve more of the problem. RedWave is a clear proof point. We identified a unique asset, moved early, integrated successfully, and we're now scaling the business through our sales model. As of March 31, 2026, RedWave exceeded its earn-out threshold, delivering more than $37 million in cumulative revenue over the past 2 years compared to $13.7 million for the full year prior to our acquisition. This demonstrates our ability to create value through integration and execution under our model. We're also adding depth to our leadership team with the addition of Kola Otitoju as Chief Business and Strategy Officer, bringing proven execution across both organic and inorganic initiatives following 6 successful years at Repligen, including growing the analytics technology business and executing more than 15 M&A transactions and strategic partnerships for the company. The takeaway is we're building a scaled category-defining handheld platform with greater recurring opportunity positioned to deliver a higher quality, more predictable and more durable growth profile. With that, let's open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Matt Larew with William Blair. Matthew Larew: Joe, I wanted to follow up on NIRLAB. It looks like a really interesting acquisition. Just curious what sort of investments you think you're going to be making this year, maybe from the team perspective, the 15 people, what the mix looks like in terms of product folks versus sales, what they're doing today from a manufacturing perspective and how you might be able to achieve some synergies there? Yes. So just thinking through sort of what the next 12 months looks like as they brought in-house and scale revenue even further. Kevin Knopp: Yes. Thanks, Matt. I appreciate the question. Yes, we're very excited to now have NIRLAB under the fold of 908 Devices. And we're really excited because it fits very clearly into our already established narcotics detection strategy. And so because of that, it really dropped right into the resources we have on the commercial side. So we're really able to leverage the great talent that we've been developing. We've seen great strength across the U.S. state and local market as we articulated in the prepared remarks and are seeing good scale across Department of Corrections and others. So we really feel that with the existing resources we have on hand from the commercial side, it's going to really be able to accelerate because they have had very little penetration in the United States. Joseph Griffith: And as Kevin mentioned, I mean, NIRLAB is subscale today, and it is mainly international revenues. In 2026 and beyond, we see it as accretive to the top line. And I know the team is excited to get their hands on the product and visit the customers. We saw a path that NIRLAB can be -- maybe breakeven in 2027 for adjusted EBITDA, leveraging the 908 channel and those investments in the software model. And on the cash flow side, with the multi-year upfront commitments on software and subscriptions, we expect the cash burn to be minimal here in 2026 and positive thereafter. So it's an exciting opportunity, existing product, solid channel to get access to the devices that really can be accretive over the longer term. Kevin Knopp: Yes. So not a significant up of investments that can all fit in with the profile Joe just described. Matthew Larew: Okay. That's great. And then just asking on the VipIR launch, 40 units in Q4 and you did over 25 in Q1. I know that was something you were excited about really ramping this year. So just curious how that kind of that first quarter matched up versus your expectations and what maybe the pipeline or funnel looks like for the balance of the year? Kevin Knopp: Yes, absolutely. So VipIR is our newest product that does unknown and solid and liquid ID. And it integrates, as you recall, probably the 2 technologies of FTIR and Raman and puts it together with what we call Smart Spectral Processing to give a nice increased capability and increased confidence of an answer. Yes, we launched it in July. We shipped approximately 50 devices in 2025. And in the first quarter of '26, we did -- as you mentioned, we shipped about 25 devices there. And our expectation is that, that will double or potentially triple the placements for 2025. So essentially, we're on track to meet that as we've previously articulated. So we do expect and continue to expect the full year impact from VipIR to be significant for us in 2026 for the FTIR growth profile. And then I also get excited from the technology front because we've got a great road map of features and enhancements planned that we think that's going to continue to increase the product value over time and make it even more compelling out there. So a lot of good things to come on that. Operator: Your next question comes from the line of Puneet Souda with Leerink. Michael Sonntag: You have Michael on for Puneet. Congrats on the quarter. My first question has to do with NIRLAB and your recurring revenue mix. I'm curious how material you think it will be to recurring revenue in 2026, what you're thinking as far as the mix? And as you're augmenting your Team Leader and software capabilities, like how should we think about maybe sort of the near-term ramp for the recurring mix growth? Kevin Knopp: Maybe I'll start with the Team Leader side and pass it to Joe on the numbers of the recurring. But thank you, Michael, for that question. I mean we're very excited because it fits very well in with Team Leader. So together, NIRLAB and Team Leader both create that connected services vision that we've been talking about. So it really accelerates our access on Team Leader. As you may recall, we've got hundreds of devices now with Team Leader and now NIRLAB really adds to that. And together, being able to position that and create more features on Team Leader that makes it a paid additional offering. So our recurring revenue over time, we think we're really putting the pieces together to drive it significantly as we go forward. But Joe, do you want to? Joseph Griffith: Yes. Maybe touching on the NIRLAB revenues as a whole, and we'll own NIRLAB for 8 months, and we increased our guidance by $2.5 million. And we see that growth to be accretive to our portfolio overall. It will likely double our current growth on our base products. Given the scale, we feel there is a healthy growth opportunity, and we expect this to really kick in, in 2027 as we plug in our U.S. sales team and build pipeline. We expect the revenues to be north of $5 million in 2027 and good growth thereafter. You asked specifically about kind of the mix of recurring and the impact to '26. So on that $2.5 million, maybe 40% to 50% is kind of recurring from the existing installed base and ramping device sales, and we'll really be focused on driving the penetration of the device placements and the ultimate opportunity of scaling that recurring revenue in the future. So definitely some pickup on the recurring side, but much more so as we get to '27 and beyond. Michael Sonntag: I got it. And then you talked about the state and local momentum you're seeing. I'm curious if you have any visibility on flow-through from the One Big Beautiful Act grant funding or if that's still to come? And what do you think about the sustainability of the growth momentum throughout 2026 based on the booking? Kevin Knopp: Yes. It's a great question. We certainly are encouraged that we now have all the appropriations bills were complete all but one essentially earlier this year. And then now as of last week, we've got the DHS department funded. As you know, DHS provides significant funding from the federal level to state and local entities. Often, that funding is multiyear funding. So we really didn't see any suppression of interest over the first 4 months of this year. I do think by having that complete, it enables some of our pipeline that we anticipate for the second half of the year, whether that's across the DHS or other related large federal and military accounts. So I think it's all very, very supportive and better than it's been in past years. Now some of that is a direct result of increased funding that's flowing down to our customers, but it's usually trickling down through a grant program metric or we'll see what continues to happen in the U.S. military side with some of the reconciliation bills and some of the increases there as well as the international conflicts that inevitably, over time, create opportunity for our types of technologies as people prepare and modernize. Operator: Your next question comes from the line of Brendan Smith with TD Cowen. Brendan Smith: Congrats on the deal. I wanted to ask maybe kind of a follow-up on kind of combining a couple of the last questions here. But can you just help us maybe understand really from kind of a pricing power standpoint, how some of these planned updates and rollouts even within VipIR and your lab integrating in, but also with Team Leader, like if you're able to squeeze some pricing premiums into any of these and really just how we should think about that over the coming quarters as some of those get to customers? Kevin Knopp: Yes. A great question. Thank you, Brendan. The pricing power, I think we are very fortunate across the portfolio to have very differentiated products and that bring a lot of value to our customers. So whether it be VipIR, very unique in the marketplace on how it combines the results, integrated them from 2 technologies to give a more confident answer, whether it's our MX, which is really the only handheld Mass Spec that's on the market. And NIRLAB, we think as well, it's quite differentiated in its capabilities, and it has a lower price point that's very, very different there. So it's about a $10,000 upfront device and then it has a required subscription that's about half of that again per year. So that then implies that each in the following years, it's 100% recurring, right, because you're just buying a subscription on a device per device look and basis. So yes, I think collectively, we feel we have a lot of levers on the pricing side. And we are combining your questions, as you said, we are really looking at this as a strategic way to increase our recurring percentage. We've talked last year that we're kind of operating in about 1/3 of our revenues. Q1 was about 30%. A lot of that was driven by service and consumables, some accessories that are in there. And we really look at NIRLAB and Team Leader and the other software components as great ways to increase the stickiness of this over time and at the same time, provide a lot of value to the customers that want that interconnectivity and want the ability to share that data. Operator: Your next question comes from the line of Dan Arias with Stifel. Rohan Walcott: This is Rohan on for Dan. Thinking about synergies, how quickly do you think your domestic sales force can begin cross-selling NIRLAB products to your U.S. and local customers? Joseph Griffith: Yes, I think it can be relatively quickly. We're super excited to plug in the -- especially our U.S. channel that is very experienced, has a great proof point that as we brought on the RedWave products, we're able to plug it in and drive growth over the last 2 years. And NIRLAB has had very few sales to date here in North America and really see it as an opportunity. So I expect to get the products in our customers' hands or I should say, in our salespeople's hands in the next week or 2 and then out on the road with customers. And it is a lot of the same customers, right? It's more that end-to-end workflow from a narcotics detection perspective. So talking to our existing customers, driving the penetration. So super excited to get out there and see a lot of synergies that we can start to plug in, and we put out that initial assessment of the $2.5 million. A good chunk of that is international, but it does assume some level of ramp-up here in the U.S., but I think there's a lot of opportunity as we move forward. Kevin Knopp: Yes. And I would just further add, it's really about that people and culture. And I think we have a good combination there and the team at NIRLAB is ready really to jump in on that. That said, it does take a couple of quarters to kind of get our arms fully around it and get it into the our understanding and get it into the U.S. markets. I think RedWave, though, is a great example, and we're going to execute that same playbook. We integrated very efficiently, and we're going to apply that same playbook here because I think that we've demonstrated that we've been able to drive a lot of growth that way and a lot of efficiencies and scale. Rohan Walcott: Okay. And you previously used your manufacturing to the U.S. to mitigate tariff impacts. With the current geopolitical climate, do you see any risk to your European supply chain for NIRLAB components? Or is this business sort of fully insulated? Joseph Griffith: Yes. It is -- a lot of the sales today are Europe-based. And as Kevin mentioned, in Oceania and APAC and not much in the U.S. We also have an avenue to source the product here in the U.S., which protects some of the device opportunities, too. So I think from a tariff perspective, it's a bit insulated, but we'll continue to monitor and learn as we integrate and ramp up. But don't see it as a major impact. Operator: There are no further questions at this time. I will now hand the call over to Kevin Knopp for closing statements. Kevin, please go ahead. Kevin Knopp: Okay. Thank you. Thank you all for your attendance today. And hopefully, you can understand that we are feeling pretty good about our momentum and trajectory and very excited to have NIRLAB and welcome them on to the team. So thank you all for the time today. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to the conference call on the results of the Second Quarter of Fiscal 2026 of Infineon Technologies AG. I'm Matilda, your Chorus Call operator [Operator Instructions] And that the conference call will be recorded. [Operator Instructions] The conference may not be recorded for publication. I would now like to hand the floor to Florian Martens, Chief Communications Officer. Please, sir, go ahead. Florian Martens: Thank you so much. Good morning, ladies and gentlemen, and dear colleagues and coworkers, welcome to our conference call regarding the results of the second quarter of fiscal 2026. Representing the Infineon Management Board at this conference are, as usual, Jochen Hanebeck, Chairman of the Board of Management; and Dr. Sven Schneider, Chief Financial Officer. Dear listeners, as usual, Mr. Hanebeck will first provide you with an overview of the business performance and the outlook. Afterwards, both members of the Management Board will be available to answer any questions you may have. Our conference call will end promptly at 8:45 a.m. Of course, our press team, led by Andre Tauber and I will remain at your disposal afterwards. Having said that, I'll hand the floor over to Jochen Hanebeck now. Jochen Hanebeck: Thank you very much, Florian. Hello, and a warm welcome from me as well. Esteemed listeners, after 10 days in space, the Artemis I mission returned to earth about 3 weeks ago, 4 astronauts landed back safely on earth. The successful mission has once again proven that Infineon semiconductor solutions function reliably in all situations even under the extreme conditions of space from critical power supplies and control systems to data communication, our technologies and radiation hardened components made a significant contribution to the electronic backbone inside the Orion capsule. My heartfelt congratulations to all of our engineers. They truly contributed to the success of this historic mission. However, we're also seeing some success on our planet, a broader upswing across many end markets is clearly on the horizon. We are seeing rising demand in several key markets. While geopolitical conflicts continue to weigh on people and markets, our business indicators such as order intake, delivery times, cancellation rate and inventory levels are showing a significantly improved picture. This picture continues to vary by application area. In the field of artificial intelligence, momentum continues to grow. It is also having positive ripple effects on adjacent sectors. The market development in industrial applications is being supported by rising demand for energy infrastructure. In the Automotive sector, order intake is rising as customers begin to replenish their low inventory levels. However, electromobility remains in difficult waters, while we are seeing a positive global trend in software-defined vehicles. Overall, demand in our end markets is improving significantly. We are preparing for a broad-based upswing. Now let's take a closer look at the performance in Q2 of fiscal 2026. Infineon delivered results that were fully in line with expectations. Our company generated revenue of EUR 3.812 billion, which represents a 4% increase over the previous quarter. Compared to the same quarter last year, revenue rose by 6% and by over 14% on a currency-adjusted basis as the U.S. dollar was significantly stronger 12 months ago. Segment earnings reached EUR 653 million. The segment earnings margin was at 17.1%, down from 17.9% in the previous quarter. This development reflects, on the one hand, the positive effects of rising volumes. On the other hand, however, the usual price adjustments that take effect at the beginning of each calendar year. In addition, a decline in the high-voltage business in the Automotive segment and costs associated with its realignment created significant headwinds for profitability. More on this in just a second. Now the recovery momentum mentioned at the beginning is clearly evident in our order backlog. This rose by EUR 4 billion quarter-on-quarter and stood at around EUR 25 billion at the end of March. Year-on-year, this represents an increase of around 25%. And the order backlog continues to grow in the current quarter. To the extent that our capacities allow, we are now confirming customer orders well into the next fiscal year. Free cash flow in the second quarter was minus EUR 63 million, following minus EUR 199 million in the previous quarters. Now let's turn to the results of our 4 business segments in the second quarter, starting with Automotive. Before we look at ATV's quarterly performance, let's take a brief look back. We are very pleased to have defended our global leadership position in automotive semiconductors for the sixth consecutive year in 2025. This is shown by the recently published data from TechInsights. Ranking first or second in all major regions in the world confirms our outstanding position as the automotive industry's preferred partner. We were even able to extend our lead over our main competitors, particularly in the crucial microcontroller category. In this segment, we actually increased our market share year-on-year from 32% to 36%. Now to the quarterly figures. Automotive achieved a slight increase in revenue to EUR 1.830 billion during the reporting period. We were able to offset price declines in the low single-digit percentage range with high unit volumes. Segment earnings amounted to EUR 331 million. The segment earnings margin was at 18.1%, down from 22.1% in the previous quarter. The decline was primarily attributable to 2 factors: charges related to our businesses with high-voltage power semiconductors for electric powertrains as well as the price adjustments mentioned earlier. I will discuss the former again in more detail in just a few seconds. Looking at the automotive market, the short-term outlook remains subdued. In April, the market research firm, S&P Global, revised its vehicle sales figures for 2026 downward. The forecast now largely aligns with our original assessment. For our company, however, structural semiconductor growth driven, for example, by the rapid proliferation of software-defined vehicles is more important than actual vehicle sales figures. The trend towards electromobility also remains intact. However, the adoption of electric vehicles is proceeding more slowly than expected. Market pressure is particularly pronounced for high-voltage power semiconductors for the electric powertrain. Intense competition driven in part by the significant expansion of the manufacturing capacity in the sector and the shift in attitude towards e-mobility promotion has led to prices and volumes falling faster than expected. The result of this, the profitability level in our automotive high-voltage business is unacceptable to us. That is why we are fundamentally realigning it. In addition to the restructuring of our back-end production of automotive frame modules at the Warstein site, which was already announced in November, we're also taking further targeted measures to reduce our operating costs, including by streamlining our portfolio. However, this is also an opportunity to reallocate available front-end capacity to our rapidly growing business in the AI data center segment. There, demand continues to significantly exceed the supply. Let me now take this opportunity to emphasize 2 important points. First, Infineon is committed to electromobility, and we will continue to drive it forward, but we will not chase market share at any cost. Our focus remains on profitable growth. Second, the situation described is limited exclusively to high power voltage -- high-voltage power semiconductors, which account for about 7% of the automotive revenue. It does not affect other products such as microcontrollers, analog semiconductors and sensors in any way, not even MOSFET transistors. Infineon has a strong technology and manufacturing base for power semiconductors and an outstanding system understanding. This gives us all the key levers we need to reposition our high-voltage business in the field of electromobility for future success. Now in the meantime, Infineon is driving the adoption of software-defined vehicles. The combination of powerful computing power, fast and secure connectivity and intelligent power management forms the foundation of these vehicles, and Infineon is a leader in all of these areas. A great example is the BMW iX3, the first model based on the Neue Klasse platform. The Neue Klasse features our AURIX and TRAVEO microcontrollers, the connectivity from the BRIGHTLANE family, our power management ICs as well as smart power switches and eFuses. And of course, it has an electric powertrain. This just demonstrates how closely the 2 structural trends in the automotive sector, software-defined vehicles and electromobility are actually intertwined. We're also very pleased about recent design wins with the leading Chinese automaker, Geely. These include a large number of microcontrollers and analog semiconductors. These are used, among other things, in battery management systems and central control units in various Geely vehicle models and brands. These successes underscore the strong value proposition that Infineon offers to its Chinese customers. Let's now turn to Green Industrial Power. This business segment recorded revenue of EUR 403 million. This represents a significant increase of 15% compared to the previous quarter, which was very weak due to seasonal effects. This growth was primarily driven by energy infrastructure, HVAC and home appliances. Segment earnings improved to EUR 47 million, which corresponds to a segment earnings margin of 11.7%, up from 8.9% in the previous quarter. We were able to more than offset negative price effects with positive effects resulting from higher sales and lower vacancy costs in our factories. The situation in the market for industrial power applications is also improving. We're seeing signs of a broader economic recovery. Inventory levels in the supply chain are reaching low levels. And as a result, order intake is picking up significantly again. In addition, there are structural growth opportunities in certain areas. The necessary modernization of the power grid is driving investment in related infrastructure. This includes energy storage systems as well as equipment for power transmission and distribution. The expansion of AI data centers is fueling demand for uninterruptible power supplies and cooling systems. And in some cases, semiconductors are ideally suited to replace electromechanical components. Infineon is ideally positioned to capitalize on this trend. We're seeing strong demand for semiconductor-based power converters, so-called solid-state transformers. They enable higher efficiency, significantly greater power density and improved scalability. As a result, they will increasingly replace conventional transformers. We are already generating initial revenue in this area in the current fiscal year. We have also built up a robust design in pipeline and our business with solid-state power switches is developing well. So we have a solid foundation for future growth. But let's now move to the Power & Sensor Systems segment. Revenue here reached EUR 1.260 billion in Q2, which represents a plus of 8% compared to the previous quarter, driven primarily by our business in power supply solution for AI data centers and radar sensors for automobiles. Along with the rise in revenues, segment earnings also increased. They rose to EUR 257 million. The segment earnings margin jumped to 20.4%, up from 17.4% in the previous quarter, another major step on PSS path to profitable growth. This is closely linked to our leadership position in AI power supply solutions. Sustained high levels of investment in AI data centers and the associated infrastructure are driving demand. And currently, our AI-related business is in allocation. We're shifting spare manufacturing capacity from other areas while simultaneously ramping up new capacity as quickly as possible. We, therefore, confirm our revenue forecast for power solutions for AI data centers, EUR 1.5 billion in this fiscal year as well as EUR 2.5 billion in fiscal year 2027 despite a weaker U.S. dollar. With our solutions, we serve the entire energy supply chain from the power grid to the AI processor. To this end, we offer the most comprehensive product portfolio and stand out, thanks to deep system understanding, quality and delivery capabilities. All of this helps our customers scale AI clusters and deploy increasingly sophisticated power architectures. A key milestone in this context is the ramp-up of gallium nitride solutions for AI data centers. We're already supplying increasing volumes of these solutions to select customers and more and more customers are actually incorporating our solutions across multiple stages of power conversion. This is where gallium nitride makes a clear difference in performance. Demand for silicon carbide solutions from AI-related applications is also very strong. Our silicon carbide business at Infineon is benefiting from this in the current fiscal year with low double-digit growth numbers. These developments underscore our excellent market position. We collaborate with leading companies in the AI ecosystem and are represented in virtually all platforms of the relevant key players. The semiconductor value per kilowatt of installed power ranges between $100 and $250. The average has now risen further to around $175. This semiconductor value per kilowatt installed capacity replaces our previous forecast of an addressable market size for Infineon of EUR 8 billion to EUR 12 billion by the end of the decade. Now the background of this, gigawatt installation plans are growing rapidly, also significantly increasing the market potential for Infineon, of course. Using the aforementioned semiconductor value per kilowatt of power as a benchmark allows us to better account for this dynamic. Let's now turn to our Connected Secure Systems segment. At EUR 319 million, revenue in Q2 remained virtually unchanged from the previous quarter. Revenue growth in our microcontrollers and connectivity was offset by a decline in the Government Documents segment. Segment earnings declined to EUR 18 million. The segment earnings margin was 5.6%, down from 7.2% in the previous quarter. Now the shift from the Internet of Things to Edge AI, meaning the use of artificial intelligence directly in the end device or in its immediate vicinity is opening up new opportunities for innovation across multiple end markets. We're pleased with the growing momentum in design wins for our next-generation connectivity solutions and our AI-enabled microcontrollers. This momentum spans various application areas from servers to security cameras and wearables to in-vehicle monitoring systems. Another positive impact of AI adoption for Infineon is growing demand for our secure element to safeguard data integrity in servers. This specialized security chip uses encryption to protect the confidentiality and authenticity of data. Ladies and gentlemen, before I turn to the outlook, I would like to inform you about an important strategic decision at Infineon. Effective July 1, we will be changing our divisional structure and organizing our business into 3 divisions instead of the previous 4, namely, Automotive, Power Systems and Edge Systems. This reorganization is the next logical step of our evolution, moving beyond a merely product-centric mindset towards solutions based on a deep understanding of our systems. Our previous structure enabled us to achieve strong growth over many years. However, today, our customers expect innovative system solutions at an ever-increasing pace. And we aim to meet these demands by further enhancing customer value, reducing complexity and thereby becoming more agile. Now the guiding principles of these new structures is clear ownership of applications. Each of these 3 future divisions is responsible for strategically advancing the focus applications assigned to it. Automotive, of course, remains responsible for the key trends in the Automotive sector, software-defined vehicles and e-mobility as well as for all other automotive applications. Power Systems, or PS for short, will assume responsibility for all power supply applications outside the automotive sector. This includes, in particular, power supply for AI from the power grid to the AI processor, power generation from renewable energy sources and grid infrastructure. In addition, this division will serve all applications in the consumer communications and industrial sectors. PS is, therefore, formed from the combination of GIP and the power business of PSS. Edge Systems or ES for short, focuses on applications at the interface between the physical and digital worlds. The interplay of sensors, microcontrollers, connectivity and security is a key driver of future innovation and growth. Examples here include Edge AI robotics, medical wearables, industrial automation and smart home applications. ES brings together the current CSS division as well as PSS' sensor high-frequency and USV business. The sensor portfolio of ams-OSRAM will also become part of Edge Systems. We expect to complete the acquisition this quarter. With the 3 divisions and clear responsibilities for our focus applications, we're gaining speed, simplifying decision-making processes, reducing coordination efforts and can better leverage our deep system understanding even more effectively. Based on the 2025 financial figures, this new structure corresponds to a revenue breakdown of approximately 50% to Automotive, 30% for PS and 20% ES. The new divisions can thus also leverage economies of scale. Ladies and gentlemen, let's now move to the outlook. The upswing is gaining momentum and scope. The recovery is spreading to more and more of our target markets, although geopolitical risks and macroeconomic uncertainties remain, which we are, of course, monitoring closely. We're seeing higher order volumes, which are leading to a growing order backlog. As customer orders for the coming quarters are building up encouragingly, our outlook beyond the current fiscal year is also improving. In the Automotive sector, we see manufacturers replenishing their semiconductor inventory to reasonable levels. On the supply side, localized bottlenecks are emerging, particularly in areas adjacent to product categories related to the AI boom. Of course, the dynamics vary across different application areas, but we expect a broader upswing to be on the horizon. We are, therefore, raising our full year forecast despite unfavorable currency movements. For the current June quarter and the remainder of our fiscal year, we are adjusting our assumed exchange rate between the U.S. dollar and the euro from EUR 1.15 to EUR 1.17. For the current third quarter of our fiscal year, we expect revenue of approximately EUR 4.1 billion, which corresponds to an 8% growth compared to the prior quarter. We expect the segment profit margin to be in the high single-digit percentage range. In addition, a positive volume effect, we anticipate rising prices in certain areas, particularly in the AI sector and related product categories. This development is offset by rising costs for energy and precious metals, which are dampening our margin growth. For fiscal 2026, we now expect revenue of more than EUR 16 billion, which is, of course, a significant increase over the previous year. In 2025, Infineon generated approximately EUR 14.7 billion in revenue. The ATV business unit is expected to post slight revenue growth, driven by its broad product portfolio and the continued proliferation of software-defined vehicles on the one hand, but weighed down by the decline in our high-voltage business on the other hand. Now to put this in perspective, excluding our high-voltage business and the Ethernet business, which is being consolidated for a full year for the very first time and assuming exchange rates remain stable compared to the previous year, ATV would grow by nearly 9% in fiscal 2026. Now for the GIP segment, we expect moderate growth. PSS should grow significantly faster than the group average, driven by strong demand for our AI power supply solutions. For CSS, we expect revenue to remain stable compared to the previous year. With increased revenue forecast for the group, expected profitability is also rising. The segment profit margin should reach around 20%. Previously, we had anticipated a margin in the high single-digit percentage range. In addition to the positive revenue effect and pricing that is advantageous for us, we also expect vacancy costs to decline. However, the planned reduction of inventory levels is having a dampening effect here. These positive effects are also offset by unfavorable currency movements as well as rising costs for precious metals, energy and freight due to the war in the Middle East. We also have factored in these direct impacts. However, the outlook does not account for potential indirect effects from a prolonged or even escalating Middle East conflict or from other geopolitical tensions. Now to our investments. In the current fiscal year, we continue to plan our capital expenditures of approximately EUR 7.2 billion. As we reported in our last quarterly conference call, this figure includes around EUR 500 million in accelerated investments to support the steep revenue growth with power supply solutions for AI data centers in the coming fiscal year. In this context, I am pleased to confirm the date for the official opening of our smart power fab in Dresden on July 2. We cordially invite you to celebrate this important milestone with us. The factory will focus on state-of-the-art analog and mixed signal and power semiconductor technologies. Production is starting at exactly the right time to strengthen our growth opportunities in highly attractive markets such as AI data centers, software-defined vehicles as well as robotics and Edge AI in the coming years. Finally, here our expectations for free cash flow. Due to the improved business outlook and the planned reduction in inventory levels, we are raising our forecast for reported free cash flow to approximately EUR 1.25 billion, up from EUR 1 billion previously. Free cash flow adjusted for major investments in front-end facilities and acquisitions is expected to be around EUR 1.65 billion, up from EUR 1.4 billion previously. Ladies and gentlemen, this concludes my remarks. And now together with Sven Schneider, I'm happy to answer your questions. Operator: [Operator Instructions] The first question comes from Hakan Ersen from Thomson Reuters. Hakan Ersen: Mr. Hanebeck, earlier you mentioned that if capacities allow, you could confirm customer orders through to the next fiscal year. Does that mean that you're fully booked through to the next fiscal year? Jochen Hanebeck: No. This doesn't generally translate into that message. But in some areas, we see an upcoming allocation, especially in all product groups, which also go into AI power supply solutions and also potentially in other markets. There, we are doing all we can to continue expanding our capacities. But whether this will be sufficient for everyone and everything isn't something I can say today. Hakan Ersen: Okay. You're saying that you're fully booked in some areas, but that you're not fully booked in other areas. Is that correct? Jochen Hanebeck: Yes, that is correct. Especially the 300-millimeter fabs really have very, very high capacity utilization. That I can tell you. Operator: [Operator Instructions] The next question comes from Joachim Hofer of Handelsblatt. Joachim Hofer: I have 3 questions. The first one is just for the sake of clarification. You're talking about significant revenue growth, EUR 16 billion, that is roughly 10%. Is that correct? Jochen Hanebeck: Yes, that is correct. Joachim Hofer: Okay. Great. The second question, because you -- a lot of people have been speaking about the critical situation in helium supply because of the situation in the Gulf region. What about Infineon? Are you lacking helium and other raw materials? Jochen Hanebeck: Sven Schneider will answer that question. Sven Schneider: Yes. Indeed, we see that, but it is safe for you to assume that the industry has learned its lessons from the past crisis in order to come up with a multi-sourcing strategy and network so that you don't depend on deliveries from individual suppliers. This is something that we do with helium as well. So we see that, but we can always work around such problems. So from our current standpoint, we don't have any material effects. But as Mr. Hanebeck alluded to earlier on, we have been witnessing price increases, for instance, for copper, for gold, for the gases that you spoke about for logistics and freight. We see substantial cost increases. However, they are also factored into our outlook. Joachim Hofer: The third question I have is this, perhaps you can give me a more detailed explanation of what you want to do with the high-voltage business because it was rather complex in your presentation. So what you're doing is fitting out the portfolio, if I understood it correctly. But what are you doing above and beyond that? Jochen Hanebeck: Yes, that's correct. But let me put it in these words. We believe in the mobility trend, and we sell a lot of products that are built into EVs. Now there's one area, the high-voltage products. And here, we're talking about the inverters, in particular, which take the current from the battery. They turn the AC current into DC current. And in the past, this was done by IGBTs. And now and in the future, we're moving increasingly to silicon carbide. This market, especially in China, is under substantial price pressure. IGBTs are increasingly manufactured in China. This isn't surprising to us because a while ago, our R&D was orientated towards silicon carbide. In the area of silicon carbide in this application, however, we also see a very aggressive pricing strategy from other market participants outside of China. This coupled to a drop in worldwide volumes because you mustn't forget that the market in the United States has basically collapsed. It is growing in Europe, but not as fast as anticipated. And China as a local market is running into a phase of stagnation. So unit figures are going down. And therefore, in turn, revenues are going down. The idle costs are increasing in this area. However, in this respect, the front end, the wafer capacities can be repurposed or rededicated quickly, for instance, into AI applications, if needed. And when it comes to assembly, we need to adjust capacities. And this is why we are taking the measure in Warstein, which we announced in November. Above and beyond that, we are taking a look at our portfolio to figure out where in the future, when new price points are formed, we can generate customer benefits. And here, in the future, we will invest into R&D in these areas because we believe that we have all of the key elements necessary to do so. We have the technological expertise. We have the right manufacturing footprint and of course, the system competence that's necessary as well. Certain other product families may perhaps not be developed or maybe put on the back burner. So what we are doing is to refocus the business because the margins that we're currently earning with it in this special situation, as I said before, revenue today is about 7% of the ATV revenue for the high-voltage components for the inverters. It used to be far north of 10%, and we need to realign this business, put it on new pillars, and this is what we intend to do. Thank you very much. Operator: [Operator Instructions] We do not have any further questions. I hereby close the Q&A session, and I would like to ask Mr. Hanebeck to make his concluding remarks. Jochen Hanebeck: Dear listeners, I'll summarize. The second quarter of the current fiscal year was closed by Infineon fully within expectations. We have achieved our targets for the first half of the fiscal year. The growth outlook is improving. We are seeing a broader upturn in several of our markets. However, the momentum varies by application area. Based on an overall more positive business outlook, we are lifting our full year forecast. We expect significant revenue growth to more than EUR 16 billion and a segment profit margin of around 20%. In the future, we will transition from 4 to 3 business divisions with a streamlined structure and clearer responsibilities for the various application areas, we will deliver value to our customers even faster and thus further accelerate our profitable growth trajectory. Thank you for your interest, and goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning. Welcome to Voya Financial, Inc.'s first quarter 2026 earnings conference call. All participants will be in a listen-only mode. After today's presentation, we will follow up with Q&A. Please note this event is being recorded. I would now like to turn the call over to Mei Ni Chu, Head of Investor Relations. Please go ahead. Mei Ni Chu: Good morning and thank you for joining today's call. We will begin with prepared remarks by Heather Hamilton Lavallee, our Chief Executive Officer, and Michael Robert Katz, our Chief Financial Officer. Following their prepared remarks, we will take your questions. Also joining the call are Jay Stuart Kaduson, CEO of Workplace Solutions, and Matthew Toms, CEO of Investment Management. As a reminder, materials for today's call are available on our website at investors.voya.com. As noted on slide two of our analyst presentation, some of the comments during today's discussion may contain forward-looking statements and refer to certain non-GAAP financial measures within the meaning of federal securities law. GAAP reconciliations are available in our press release and financial supplement found on our Investor Relations website. I will now turn the call over to Heather Hamilton Lavallee. Heather Hamilton Lavallee: Good morning and thank you for joining us today. Let us turn to slide four. Building on our 2025 performance, we are off to a strong start in 2026. In the first quarter, we delivered significant growth in revenues, earnings, and cash flows. We grew adjusted operating EPS by 13% year-over-year through strong execution across the enterprise while continuing to deliver a return on equity above 18%. And we generated approximately $200 million of excess capital, returning that same amount to shareholders through repurchases and dividends. Executing on our priorities, we are building on our strong momentum, maintaining robust margins in Retirement and Investment Management, and continuing to drive margin and earnings improvement in Employee Benefits. Our momentum is clear and our advantage comes from our diversified, resilient business model built to perform across markets and business cycles. I would like to touch on a few highlights from the quarter. In Retirement, we generated over $200 million in adjusted operating earnings, delivering trailing twelve-month margins of 39% while continuing to invest in future growth. We continue to expect positive net flows for the full year, more than offsetting the exit of a large recordkeeping plan in the first quarter, which was expected. Revenues grew year-over-year supported by more than $50 billion in annual recurring deposits, giving the business a resilient foundation across market conditions. Our acquisition of OneAmerica has been a strategic and operational success. It has meaningfully strengthened both the scale and earnings power of our Retirement business, which now serves nearly 10 million retirement accounts. We expect to complete the integration in the second quarter. And we are building on that strong foundation by expanding the advice, guidance, and planning we provide through our Wealth Management business, helping customers better meet their financial needs. In Wealth Management, expansion remains on track, with first-quarter revenues up more than 12% year-over-year. In Investment Management, we entered 2026 with strong momentum driven by continued demand from clients across both institutional and retail markets. We remain confident in our ability to deliver 2%+ organic growth this year. We drove margin expansion by continuing to scale key strategies across insurance, private and alternative assets, and international retail markets. These are the channels where we have clear competitive advantages and are seeing strong commercial momentum. Our investment performance shows we are delivering for our clients, with 78% of assets outperforming peers or benchmarks over three years, and 82% outperforming over ten years. In Employee Benefits, we generated significantly higher operating earnings through disciplined execution across the portfolio. Across all lines within the business, decisive underwriting and pricing are resulting in higher margins. In Stop Loss, the pricing, underwriting, and reserving actions we took last year have us firmly on the path to full margin recovery in this business. Our near-term focus on restoring the profitability and earnings power of this business is the most value-accretive path we can take for shareholders. And this value is already emerging in the results we delivered this quarter. Michael Robert Katz will provide additional detail in a moment. Our strong results this quarter reflect the durability of our cash generation, our strong earnings power, and our continued commitment to disciplined execution. With that, I will turn it over to Michael Robert Katz to walk through the financials in more detail. Michael Robert Katz: Thank you, Heather. Financial results this quarter were strong, providing a solid start to the year. In the quarter, adjusted operating EPS was $2.26 per share. On a trailing twelve-month basis, adjusted operating EPS totaled $9.11 per share, representing growth of over 20%. EPS growth highlights our consistent execution and capital discipline. We generated higher revenues across all segments, and our continued expense discipline is sustaining our robust margins in Retirement and Investment Management while expanding margins meaningfully in Employee Benefits. In the quarter, GAAP net income was lower than adjusted operating earnings primarily due to non-cash items. Overall, our results highlight the durability of our business mix and the resiliency of our capital generation. With that, let me turn to our segment results. Turning to Retirement on slide seven. Retirement continues to demonstrate the strength of our scaled franchise. We generated $209 million of adjusted operating earnings in the quarter and $960 million over the trailing twelve months, representing a 14% year-over-year increase. Higher net revenues were primarily driven by an 8% increase in fee-based revenues. Fee-based revenues have grown meaningfully over the last several years and now represent close to 60% of total net revenues for the segment. Spread income remained resilient, reflecting disciplined portfolio management and continued focus on risk-adjusted returns. Margins remained strong at over 39%. Looking ahead, we expect expenses to step down in the second quarter due to normal seasonality and, as the year progresses, we anticipate further reduction in spend as the OneAmerica integration work concludes and the organization transitions to steady-state operations. Turning to flows. Our outlook for flows remains unchanged. We expect strong net inflows in the second quarter and full year supported by healthy retention and a robust pipeline. The first-quarter commercial result was primarily timing-driven and as expected. Reinforced by disciplined execution, Retirement is delivering strong profitability and is well positioned for continued growth. Turning to Investment Management on slide eight. The business’s differentiated client-focused solutions continue to deliver investment performance and financial results. We generated $46 million of adjusted operating earnings in the first quarter, up 12% year-over-year and up 8% on a trailing twelve-month basis. Overall net revenues drove the result, supported by higher institutional and retail fees. Our trailing margin of 28.6% reflects the benefit of these higher revenues and expense discipline. Net flows were positive in the first quarter and the pipeline remains healthy. In institutional, we continue to see strong demand from clients for private market strategies including private fixed income and commercial mortgage loans. Clients continue to value high-quality investment grade private credit solutions where we have a long track record, and we see structural demand for the asset class. In retail, international demand for our differentiated income and growth strategy remained resilient, which helped to offset industry-wide headwinds in the U.S. market that affected domestic flows. Over the past year, we generated approximately $7 billion of net inflows. And with a healthy pipeline in place, we remain confident in building on that success and driving strong organic growth at attractive margins in 2026. Turning to Employee Benefits on slide nine. We continue to execute a deliberate strategy to expand margins, which has meaningfully improved run-rate earnings in Employee Benefits. Our progress is clear in both the $63 million of adjusted operating earnings we generated in the first quarter and the $169 million we reported over the last twelve months. The key driver of the year-over-year improvement was strong net underwriting results. In Group Life, claims experience was favorable in the quarter, driven by lower frequency and severity. And in Voluntary, results are tracking in line with our expectations. In Stop Loss, the actions we have taken with underwriting and risk selection have us well positioned to return margins back to target levels. In the quarter, we released $25 million of reserves. 2024 is now behind us, which drove the majority of the reserve release. We also released a portion of the reserves for the 2025 blocks as experience improved in the first quarter. We are now over 90% complete with the 2025 business and are well reserved heading into the second quarter. The work we did last year has positioned the 2026 business for meaningful improvements. We strengthened the team with new leadership and specialized resources, improving risk selection through more selective quoting and deeper clinical reviews. That discipline, combined with an industry-wide repricing environment and an increase in RFP volumes, helped drive approximately 24% rate increases while keeping in-force premium flat. With pricing and underwriting actions now firmly embedded, we are on a clear path to restore Stop Loss margins back to long-term targets. Looking ahead, our first-quarter results reflect continued progress in improving earnings power, and we remain confident in the path to further margin expansion in Employee Benefits. Turning to slide 10. This was another strong cash flow quarter as excess capital generation was approximately $200 million. We continue to convert cash at 90%+ levels. In the quarter, we returned approximately $200 million of capital to shareholders through a combination of share repurchases and dividends. And we are executing an additional $150 million of share repurchases in the second quarter, underscoring the durability of our cash generation. Our business mix and earnings growth are driving a return on equity of over 18%. In summary, our balance sheet remains a strength supported by durable free cash flow generation that positions us well to drive long-term shareholder value across a range of market conditions. Turning to slide 11. This view looks beyond any single quarter and reflects how execution supports capital deployment over time. We have steadily grown dividends over the past five years and at the same time we have returned significant capital through share repurchases. This has reduced diluted shares outstanding by roughly 14% since 2022. Our ability to consistently repurchase shares allows us to increase dividends each year while maintaining a payout ratio of approximately 20%. Importantly, these returns have been balanced with ongoing investment in our business to enhance customer and client outcomes and support future business growth. In closing, we delivered a strong quarter driven by consistent execution, high free cash flow, and disciplined capital deployment to create long-term shareholder value. We are executing on our strategy and our priorities are unchanged: grow the franchise, maintain balance sheet strength, and return excess capital to shareholders. With that, I will turn it back to Heather Hamilton Lavallee. Heather Hamilton Lavallee: Thanks, Mike. Turning to slide 12. Looking ahead, our priorities are clear and compelling and are driving tangible financial results. We are growing excess cash generation while maintaining balance sheet strength and flexibility. We are advancing commercial momentum across Retirement and Investment Management, and we are laser focused on realizing additional margin improvement in Employee Benefits. Together, these priorities define how we run the company with unwavering focus on creating long-term shareholder value. Before we close, I want to share that we are encouraged by the recent legislative and regulatory momentum that is expanding access to retirement savings for Americans who have historically been underserved, especially workers at small and mid-sized employers who have lacked a clear path to workplace savings. These policy initiatives include coverage mandates, mandatory auto-enrollment, and protections for caregivers and non-traditional workers. These important measures will help address the overwhelming need for additional retirement savings, particularly among the most vulnerable segments of our workforce. Voya Financial, Inc. is a leader in providing retirement security to the American worker and their families. We welcome these policy developments and are among those companies best positioned to serve the growing demand for financial solutions that will allow more Americans to retire securely. I want to thank our employees, who relentlessly work to create better financial outcomes for the customers and clients we serve, which is always our number one priority. We remain focused on executing our strategic priorities, returning capital to shareholders, and driving outcomes for our customers over the long term and across market cycles. With that, I will turn it over to the operator so we can take your questions. Operator: We will now open the call for questions. Our first question is from an Analyst with Morgan Stanley. Please proceed. Analyst: Hi, good morning. My first question is actually on the Group Life business. Group Life loss ratio was very favorable, 70 versus a long-term target of 77 to 80. It has been trending fairly favorable over the past four quarters, and the industry does look like that is where things are going. Can you maybe give us a little bit more detail about what you are seeing there? Generally, first quarter tends to be the worst quarter for the loss ratio for Group Life. Are we thinking the 77 to 80 maybe is not where we are going to land this year? Maybe give us a little bit of color on that? Michael Robert Katz: Hey, Bob. It is Mike. Look, I think you are thinking about it right. And we do typically see Group Life running a little higher than the 77% to 80%. Q1 usually is the worst mortality quarter for Group Life. So we are certainly very encouraged by what we are seeing in the quarter and it has been a good trend for us. We are spending a lot of time. We talk a lot about Employee Benefits and the margin expansion there. Group Life is another area we are focused on. I think it is a little early right now for us to suggest a lower loss ratio for the balance of the year. If you factor in the first quarter from a calendar-year perspective, certainly we would expect to be better than the 77% to 80% given the result in the first quarter. But right now I think the base case is back to range in the second, third, and fourth quarter. Analyst: Okay. Got it. Really helpful there. Thank you. My second question is on the net flows. You gave some decent color in terms of where things are going. But if we think about Investment Management, net inflow was about $65 million for the quarter. If we are thinking about positive flow, we are looking at probably $6 billion or $7 billion of net inflows in the rest of the year. Is that ballpark sound about right? Can you give us a little bit more color on how to think about Investment Management flows going forward into the rest of the year? Matthew Toms: Sure, Bob. This is Matt. I will unpack that a little for you. Looking back, the trailing twelve-month number is right in that ballpark that you referenced. That is a $7 billion number and that is roughly a 2% organic growth rate for the trailing twelve months. As you acknowledged and as we mentioned, the flows in the individual quarter this quarter were a little light. But as we look forward, our confidence around maintaining that growth level is driven by, in the institutional space, our continued strength in insurance. We saw a good first quarter in insurance, and we have good visibility into the second quarter and the rest of the year in insurance. And again, that is a channel that has demonstrated really nice growth over recent years, a differentiated value prop, and one where you can see volatility quarter to quarter but feel very good on the forward look. More broadly on the institutional side, we see opportunities we have been working on for some time internationally on the fixed income side. And then domestically, CLO creation is likely to improve into the second quarter and the rest of the year. On the retail side, a little bit more detail there. The income and growth franchise internationally continues to be a stalwart for us. Nice performance first quarter. We think that continues for the year. Where there is some in broader equity markets, where we had market volatility, was in thematic equities internationally. We are already seeing, with stronger markets in the second quarter, some bounce back there. We will see where that ends. Obviously, there is a lot of dynamism in the broader markets. But broader strength, including U.S. fixed income, makes us feel pretty good about the forward look. Bottom line, organic growth expectation, the 2%+ for the remainder of the year remains intact. Operator: Our next question is from an Analyst with TD Cowen. Please proceed. Analyst: With regard to the Group Stop Loss business, if I am reading slide 43 of the supplement correctly, it appears that the 2026 loss pick is 87%. And my sense is, given all the rate increases you have attained, that it is a pretty conservative loss pick and perhaps we could see releases as we are seeing for the 2024 and 2025 years. Am I thinking about that right? Do I have the number for the loss pick right? Michael Robert Katz: Hey, Andrew. It is Mike. Maybe first on the reserving part of this. We continue to set reserves on the high end of reasonable outcomes. And so I think you are thinking about it right from that perspective. What gives us a lot of confidence around how the 2026 business is really going to perform are some of the things I mentioned in my remarks. When you look at this from a price perspective, getting 24% on that book of business, we feel really good about that. But more importantly, the work we did last year around strengthening the teams, ensuring we got the best risk selection, and getting to do that with even more RFPs. RFPs continue to build in Stop Loss. So we are getting a look at a lot of different things. This is really the best we have felt around Stop Loss in quite some time. We feel good about the 2026 business. Stepping back, we are seeing improvement now. That is encouraging, but we think there is more to come. Analyst: Got it. Thank you for that, Mike. And then it is pretty clear in the media we have been hearing about an activist and the talk has been around their interest in you either divesting Group Stop Loss and/or putting the company up for sale. So it has been out there. Hate to ask about it, but maybe you could comment a little bit about that. Heather Hamilton Lavallee: Yes. Good morning, Andrew. It is Heather and I certainly appreciate the question. We are regularly engaging with our shareholders. And at the end of the day, our actions and how we deploy capital are guided by what is in the best long-term interest of our shareholders, as well as our customers. As part of our normal governance with our Board, we are constantly evaluating different strategic options that we can pursue across the whole portfolio to drive shareholder value. But where we have aligned very clearly is that the path we laid out eighteen months ago—continuing to grow Retirement and Investment Management, where we had a terrific 2025 and are off to a great start—and importantly, the earnings improvement in Stop Loss, where we demonstrated real value in 2025 and again are off to a great start. That is where we have full alignment and full conviction. And there is no daylight between the Board and management on the strategic path forward. What we have laid out very clearly in the presentation and what you heard Mike and me talk about in our prepared remarks, we have tremendous conviction in our ability to deliver on that and drive further shareholder value. Operator: Our next question is from Ryan Joel Krueger with KBW. Please proceed. Ryan Joel Krueger: Hey, thanks. Good morning. I wanted to come back on Stop Loss. Last quarter, you said you expected calendar-year improvement. The Stop Loss loss ratio was 84% last year. I think just mathematically, if I take a loss pick of 87% and your 1Q loss ratio, it would imply it would be higher than 84%. So the only way to get that is more reserve releases. Am I looking at that right? Are you still confident that you will get calendar-year improvements this year? Michael Robert Katz: Hey, Ryan. It is Mike. That is the base case. Maybe just first: when you think about claims experience and the emergence of claims that we saw 2024 into 2025, or what we are seeing now from 2025 to 2026, claims are coming in faster. When we were in the fourth quarter, we were only two-thirds complete. Now, as you look at the 2025 business, we are about 90% complete. And as Andrew was asking, we still are on the high end of reasonable outcomes from a best-estimate reserving perspective. So the base case, if that gets to more middle or low end of the range, absolutely we would expect the calendar-year loss ratio to perform better than 84%. One way you can look at that is seeing where the reserves were set a year ago on the 2024 business versus where we have 2025 right now. It is a couple points better. That is what we are seeing. We are seeing that through April. If we continue to see that in May and June and in the third quarter, that is exactly what is going to happen. Heather Hamilton Lavallee: And, Ryan, it is Heather. The only add that I would have is I quite honestly have not been this confident on Stop Loss for eighteen months. For all the reasons that Mike laid out, we have real conviction in our ability to drive continued margin improvement and get this business back to the full earnings potential we know it can generate. Ryan Joel Krueger: Thanks. And then this is slightly different, but also on Stop Loss a little bit. How intertwined is your Stop Loss business with the Voluntary and other group products in Employee Benefits? In other words, as you have been pulling back on Stop Loss to reprice the business and improve profitability, to what extent is this having a negative impact on the growth of the other product lines in that business? Or are they not that interrelated at this point? Jay Stuart Kaduson: Hi, Ryan. It is Jay. I will take this one. We see Stop Loss right now as another important risk transfer solution. It is rising in demand from our employers. While we are not seeing Stop Loss and broader Employee Benefits in a bundled sale today, it is another important solution for our employers and, even more importantly, for brokers who are actively looking to grow their Stop Loss books given the heightened demand in the market. So Stop Loss we see as a door opener for new brokers who are entering the space as the demand is increasing. It is also driving tighter alignment and value with the existing Employee Benefit broker relationship. Since I joined sixteen months ago, we have been focused on the workplace strategy, structure, and the people. I could not be happier with the new workplace leadership team, specifically for Stop Loss. We focused on bringing in strong leaders with deep expertise, and what you are seeing today is a really tight flying formation with our leaders in risk, pricing, underwriting, and distribution. As you can see in our results, the new team is already driving meaningful change. Our commercial momentum and results, as you referenced and talked about the impact it is having in our Employee Benefits business—Employee Benefits sales are up 8% year-over-year with persistency remaining strong. In our Supplemental Health and Voluntary business, where we continue to grow from a top-three provider position, we are really pleased with the results to start 2026. Our pipeline is up 10%. Sales are up 13% over prior year. And that has resulted in block growth of 4%. Overall, the positive commercial momentum we are seeing in Employee Benefits is deepening our relationships with our intermediaries and our customers through this connection point on additional risk transfer and Stop Loss. Heather Hamilton Lavallee: And, Ryan, if I can just add, it is Heather again. Three additional points on Stop Loss and why it is so important. First, we are seeing increasing demand from employers for Stop Loss. RFP volumes are up 200% year-over-year, and it shows there is a real need in the market for this, but there is also limited supply. And why that is so important is if you think about that increased RFP activity, we can continue to be selective when we are doing our underwriting. That limited supply also holds up the hardening market and our ability to get price for this business. Operator: Our next question is from an Analyst with JPMorgan. Please proceed. Analyst: First question is for Mike on Stop Loss. You had mentioned that Stop Loss claims are coming in faster. Is there something you changed in your operations that is driving that? Or is it claim amounts being larger and therefore hitting retentions faster? I think one of the difficulties with Stop Loss is your excess position, but I was wondering if you are getting better line of sight into the claims even before they break retention level. Michael Robert Katz: Hey, Pablo. I think it depends if you look at it from a reported or paid perspective. If you are looking from a paid perspective, absolutely, the operational effects matter and we are turning through claims faster. We have got more people. Jay just talked about the talent we brought in. We are excited about that. What we are trying to get at more is around the reported side and what we are seeing from 2024 to 2025 and now again 2025 to 2026, where the claims experience is coming faster. We have talked a lot about cell and gene therapies. We have talked a lot about the severity of claims coming in and, frankly, some of the health care providers trying to move that through the system because they are thinking about their P&L faster. Stop Loss is a tail product. We would typically see that more on the later side. Q4 2025 was the first time we saw that. As we were sitting here in the fourth quarter only two-thirds complete with experience, we were not sure if that was necessarily going to be a trend once again. So you are certainly going to want to be on the higher end of a best-estimate range being put in that position. The good thing now that we are 90% through, we are seeing that again. We think this is the new normal post-COVID. That is a good thing. Again, we are running a couple points better when we look at it from a reported perspective year-over-year. You can see that through the reserves and the disclosure. That has us feeling really good. And April has us feeling really good. This is, as Heather was mentioning, a big part of the cash generation expansion story for us in 2026 and beyond. We are really looking forward to letting the experience speak for itself, and we expect it to in the balance of the year. Analyst: Thanks for that. And my follow-up is also on Stop Loss. Taking a step back, if you look at results of other insurers you compete with in the market, they have historically reported loss ratios in the low 70s. You have run high 70s, low 80s in a more normal environment. And then you have the health insurers that run much higher. Given the experience of the past couple of years, does that entail a change in your approach to pricing, given the fact that maybe there is more volatility in this business than previously appreciated? Maybe running at an 80% ratio is not the right level considering the volatility. Thank you. Michael Robert Katz: Hey, Pablo. I think you are thinking about it very similarly to how we do. Maybe just the only caveat is that sometimes when you are looking at other companies, they do have captive businesses. That is different than more fully insured Stop Loss. Sometimes that can conflate what you are looking at. But as far as where is the end state on this, I think we are thinking about it exactly like you are. Operator: Our next question is from an Analyst with Raymond James. Please proceed. Analyst: Hey, good morning. From some of the healthcare insurers’ 1Q 2026 reporting, it sounds like medical trend is moderating somewhat. Still high and, of course, it has been unprecedentedly high over the last couple of years, but maybe rising at a more modest pace. Are you seeing any of that? And just talk about what you are planning for for this year. Thanks. Michael Robert Katz: We are definitely seeing a bit of that. I think it is really early. It is a good sign. Yes, if you look peripherally at some of the healthcare companies out there, you are definitely seeing some of the turnaround there. That is very encouraging for us. It is really early though for us to in any way declare that that is going to come through results in a big way. But as we have been talking about, the fact that we got 24% on this 2026 business, everything Jay talked about on the team, the risk selection we are getting, as Heather mentioned, the number of RFPs we are getting a look at—I think these are all very good signs around the trajectory of where this business is headed. We are encouraged by that. We are going to let the results play out and that will illustrate the progress. Analyst: Okay. Thank you. And then this kind of goes back to the question on the activist a little bit, but we think Voya Financial, Inc.’s management team is strong and we think you are doing a great overall job running the company. But results were a bit soft across a few important metrics this quarter. Of course, there is a lot of volatility in the market and also medical inflation. Could you give us some visibility into the coming quarters and some of the areas where you plan to show progress on growth? Thanks. Heather Hamilton Lavallee: Let me start, and first appreciate the support. We do not necessarily look at progress on a quarter-by-quarter basis, but really on a full-year basis. We are pleased with the results in the quarter with earnings up, but let me toss it to Jay to talk a little bit about the commercial momentum, specifically what we are seeing in Retirement. I think Matt answered the commercial momentum question, but if not, we could certainly circle back to that. Jay? Jay Stuart Kaduson: Thanks. I will highlight a little bit of what we are seeing in Retirement and Wealth. I talked briefly about Employee Benefits and where we were seeing the growth. I am happy to answer any follow-up questions on that. As it relates to Retirement, as I referenced last quarter, we expected strong flows in 2026 with most of that growth back-half weighted. We had visibility into the planned first-quarter outflows, which are largely timing-driven in OneAmerica and due to a known single large plan outflow. We equally have visibility into the known plan implementations in 2026 and that is going to result in positive net flows not only in Q2, but for the full year. Our full-year 2026 outlook is unchanged. We are on track for a fifth consecutive year of positive organic DC net flows. It is worth noting, our sales momentum remains solid across our key segments. In large recordkeeping, our wins are scheduled to begin funding in Q2 and Q3. Additionally, in Q1, we saw full-service sales in Emerging Markets, which is an important market for us, up 13% year-over-year. And in Government, where we are a leader, we were up 200% year-over-year. In addition to all that, I also look at plan retention and see that our plan retention was over 95%. A reminder, this includes the expected impact of OneAmerica surrenders. All of that speaks to the strength we have right now with our sponsors and intermediary relationships. Overall, in Retirement, I am seeing really strong commercial momentum for the business in 2026. Translating that over to Wealth Management, we are starting to see early days in the build, but I am seeing success. I am pleased with the team, and they have achieved meaningful growth year-over-year of 12%. That is both on a revenue and an asset view. In addition, we have seen really strong adviser productivity, particularly those we have onboarded in 2025 and 2026, as we have been stepping up our recruitment of advisers. Stepping back on the Wealth Management build, it is embedded in the Retirement business’s strong 39% margin. This is a really solid result. Our clients are increasingly asking for more advice and guidance at the workplace. We are well positioned to fill this demand. Overall, I am pleased with the Wealth Management build and the overall growth, particularly in alignment with our Retirement business. Heather Hamilton Lavallee: And if I can add one other perspective from the enterprise: if you think about the collection of points made today about commercial momentum in Investment Management, the confidence we have in the Employee Benefits earnings outlook, and the Retirement momentum Jay just talked about, all of those collectively give us the confidence in further growing cash generation, which is one of our number one priorities, and our commitment to returning that capital to shareholders. Operator: Our next question is from Thomas George Gallagher with Evercore ISI. Please proceed. Thomas George Gallagher: Good morning. Just a few follow-ups on Stop Loss. Heather, if I listen to your comments about everything, including the activist and the way you are thinking about things, is it fair to say that you think Stop Loss is a core part of the long-term Voya Financial, Inc. franchise? Or is that something you would consider divesting if the situation was attractive enough? Heather Hamilton Lavallee: Good morning, Tom. Thanks for the question. We have talked about seeing the earnings improvement in Stop Loss as the most immediate source of value creation for shareholders. We have already made great progress with $100 million earnings improvement in 2025 on a year-over-year basis and $140 million earnings improvement on a trailing twelve-month basis if you just look at the first quarter. It is very valuable for us in terms of earnings and cash generation. More broadly across the portfolio, we see this as a valuable part of our portfolio. There is a lot of client demand, growing client demand, limited supply, hardening of the market, and the ability to get price. We see this as continuing to be an earnings grower for the firm. At the end of the day, Stop Loss is one where it is going to be value creation for shareholders, and it is also a strategic asset for Voya Financial, Inc. at the enterprise. Thomas George Gallagher: Got it. Thanks for that. And then based on your description of what you are seeing, it sounds like you are more constructive on where this business is headed. As you approach the midyear 2026 renewals, are you thinking about leaning into growth now? Or are you still at the part of your process where you need to further reselect and you may not grow yet? Heather Hamilton Lavallee: The quick answer is no, we are not pivoting to growth. We continue with our focus on margin improvement in Stop Loss and being very disciplined with pricing. Frankly, we are focused on margin improvement across overall Employee Benefits. So right now, steady as she goes on that margin improvement plan and delivering on the earnings that we know we can deliver with this business. Operator: Our next question is from Wesley Collin Carmichael with Wells Fargo. Please proceed. Wesley Collin Carmichael: Hey, good morning. Thank you. A couple of follow-ups as well. One question on Stop Loss and loss trend. Any update on how that is tracking relative to your 24% rate increase? You mentioned that claims are coming in faster. Are you seeing any change in trends in the type of claims that are inflecting inflation? And, Mike, I think you made the comment that maybe the range of outcomes for the business has kind of doubled—maybe that was last quarter or the quarter before. Do you still have that view? Michael Robert Katz: Wes, it is Mike. First, we are pricing everything to get back to target. As you alluded to, at the end of the fourth quarter with two-thirds complete, there definitely was a wider range of outcomes. That has narrowed for the 2025 block as we get into the first quarter, now 90% complete. As I mentioned, we are running a couple of points better than where we were a year ago relative to 2024 business. That is a good sign. And what we are seeing in April is also a good sign. If this continues, then we will see some reserve release in 2025. Similarly, we feel well reserved on the 2026 business, given all the actions we have taken. We are heads down on it, and we are going to take the same approach in the middle of the year and let the results speak for themselves. We believe this is going to be a big part of that cash generation expansion story for Voya Financial, Inc. at the franchise level that we have been talking about. We are in the second year of the journey, and we like where we are right now. Wesley Collin Carmichael: Got it. Thanks. Switching to Retirement, during the quarter it looks like there were some elevated outflows. I know you spoke to the net inflows for 2Q and the full year, but what are you seeing in terms of shock lapses from OneAmerica in the quarter and how long that should continue? Jay Stuart Kaduson: Thanks, I appreciate that question. On the OneAmerica integration, we are near complete. We are really pleased with where the retention is landing. OneAmerica’s retention is embedded into the comments around positive net flows in Q2 and for full-year 2026. This transaction has enhanced our scale and our distribution. On distribution, we have onboarded the Edward Jones relationship and are fully engaged in this new distribution relationship. On completion, the team is nearing completion of the final migration wave later this month, which will include approximately 3 thousand plans. I am focused on the team’s execution on this integration. The value we are delivering for our customers and our intermediaries that we have onboarded through this integration has been really strong. You are seeing the results of that. I am really pleased with where we are on overall retention and OneAmerica’s embedded outcomes. Heather Hamilton Lavallee: And, Wes, on the finer points specific to OneAmerica: we had always expected to see higher surrenders than our normal book—the shock surrenders—through the migration period, which ends at the end of the second quarter of this year. After that point is when we should expect things to moderate, but you are seeing those in the first quarter. Operator: Our next question is from Joel Hurwitz with Dowling & Partners. Please proceed. Joel Hurwitz: Another one on Stop Loss. Mike, you mentioned you are running a couple of points better on 2025 at this point, but I think you might have pointed to the loss ratio on that. Can you talk about paid trends? Are paid trends at this point running a couple of points better year-over-year? Michael Robert Katz: Paid is roughly a point better. It gets to the question earlier around operations. Year to year, it is one of the things you always have to be careful with on paid. Our staffing levels are much higher in 2025 than they were in the prior year, and that will have an effect on paid. That is why I would point you to reported and why we are trying to anchor you to approximately two points better at this point in the journey. Joel Hurwitz: Got it. And then back to Retirement. How much of the full-service redemption pressure is OneAmerica? Can you comment on how the legacy Voya Financial, Inc. full-service book has been performing from a retention standpoint? And sounds like the pipeline is very strong for the back half. Any color on the mix between recordkeeping and full service there? Jay Stuart Kaduson: What we are seeing right now is with the OneAmerica planned surrenders and outflows, we are still sitting at over 95% retention, which is a really strong number. On the back half, I talked about where we see flows coming in and it being back-half weighted last quarter. A positive development is we are seeing some early funding in Q2, and we will be seeing positive flows. On the mix of business, I do not think you are going to see a materially different mix of business between full service and recordkeeping. As a reminder, providing advice and guidance in Wealth Management—those recordkeeping plans provide tremendous value to us as we are bringing advice and guidance, and plan sponsors are looking for that. There is value through the ecosystem in those recordkeeping plans. You should see a very similar mix as we complete the year with a high retention rate. I am pleased with where that is, and you should see a fifth consecutive year of positive flows through the end of the year. Operator: Our next question is from Joshua David Shanker with BofA Securities. Please proceed. Joshua David Shanker: Thank you for taking my question. Much of it has been answered. One more Stop Loss question. Given that you are marking the new book at 87% combined with double-digit rate increases and 2% premium decline, I am trying to better understand the unit volume. As Mike said, it is being booked with the hope that it is conservative, so it might later yield favorable development. How should I think about that 100 to 300 basis point reduction in the benefit ratio against the backdrop of double-digit price increases? Michael Robert Katz: Josh, I would just think of it as—and this is what Heather was talking about—we are being really careful about what we let into our block. That includes what already exists in our block and new business that could potentially be in our block. We are being very selective with risk selection coming out of this health care cycle. We understand that the relative value of a point of margin is meaningfully better than a point of growth. So even into the middle of the year, it is the same philosophy. We want to make sure the block is as clean as possible. We think that is the most productive and fastest way to the earnings expansion that we have been talking about and the progress in the second year of this two-year journey. Heather Hamilton Lavallee: And, Josh, it is Heather. I would reiterate the parts and pieces: the 24% rate increase, reserving on the high end of the range, and the strengthening of the underwriting. Those are all the components of why we feel so confident in our ability to get continued margin improvement within 2026. Joshua David Shanker: Is there any relationship between policy renewal persistency and the potential for adverse selection in you putting up such a conservative mark? With these amount of rate increases, presumably, the year-over-year improvement in the margin should be much better, but maybe you are somewhat worried that you have a book of business that is at greater risk. Michael Robert Katz: Not really, Josh. Not to get too deep into this on an earnings call, but happy to get into it deeper with you afterwards. We look at the block under different risk dimensions. There are parts of the block that are going to get rate increases much higher than 24%. There are parts of the block that are getting rate increases that are much lower than 24% because we like that risk and we want to keep it on the book. Think of the 24% as an aggregate and think of us as being very selective around what we like and what we think requires much higher rate increases. It is the right question thinking about it in aggregate, but we really dive into this to make sure the block is as healthy as possible. Operator: Our next question is from Suneet Kamath with Jefferies. Please proceed. Suneet Kamath: Thanks. I wanted to go to Stop Loss again, specifically the comment about the most value-accretive path is to return it to full margins. Does that imply that you tested the market in terms of interest from external parties when you make that statement? What is behind that? Heather Hamilton Lavallee: Suneet, as I mentioned, with our Board we are always looking at different options across all of our portfolio. We are laser focused on the earnings improvement as the most immediate and value-accretive action that we can take for this book of business. Suneet Kamath: Okay. Sticking with the Board, and I appreciate the comments about alignment between management and the Board and all the commercial momentum you have shown over the past couple of years, including the first quarter here. But if I look at the stock’s P/E, it is at a significant discount to what I would consider to be your peers. That has occurred despite the fact that you have exited some risk businesses like CBVA and Individual Life, and that was even before Stop Loss had issues. When you think about these conversations with the Board, how do you explain that? And what is the path to try to get a better valuation here? Heather Hamilton Lavallee: It all comes down to execution. If you go back and look at the priorities we have laid out, our focus is on executing every quarter, every year, and delivering shareholder value. I would look to the proof points. First, it starts with how we are delivering for our customers, and our customers are voting with their feet. Look at the commercial momentum—we are coming off two record years in Investment Management, strong margins, great investment performance, and the confidence we have in continuing to drive that growth. As Jay mentioned, five years of positive flows in Retirement and margins that are industry-leading. We have a lot of confidence in continuing to grow. The proof points we have delivered already on Employee Benefits—$100 million earnings improvement in 2025 and $140 million on a trailing twelve-month basis. The collection of those businesses ties back to our focus on continuing to drive growth in our free cash flow generation and then returning and deploying that into the most accretive opportunities, including returning capital to shareholders. We think doing all of that will continue to drive our share price and the value of the franchise. Operator: Our next question is from Michael Augustus Ward with UBS. Please proceed. Michael Augustus Ward: Thanks. Good morning. In Retirement, can you give us an update on the inorganic pipeline potential? Heather Hamilton Lavallee: Good morning, Mike. Thanks for the question. We have been active and vocal on how pleased we are with OneAmerica—the integration and adding new clients—and delivering over a 30% return on that acquisition. We are active and looking for Retirement roll-ups, but we do not see anything imminent. That goes to what Mike and I have been talking about: with the excess cash we generate, the expectation is that we will deploy it into the highest value, which is buying the company we know—Voya Financial, Inc.—through share repurchases. Michael Augustus Ward: Thanks, Heather. And then on the Wealth business, you said revenues up 12%. How is that going so far and how much of that is driven by organic conversion versus markets? Overall, how is the reception in terms of turning on the advice switch? Heather Hamilton Lavallee: You are right. Our focus there is on revenue growth, and that is the metric we are looking at for success. It has been just ten months since we stood up this office and we are really pleased with what we are seeing. I will turn it to Jay to elaborate. Jay Stuart Kaduson: If we look at the Wealth business and where we have a right to win—between the roughly 10 million customers we have through our Retirement business and equal that through our Employee Benefits and benefit-focused business—and looking at the request for advice, in my career this is probably the loudest employers have been in seeking advice at the workplace. We are well positioned. When we service our customers the right way through Retirement and Employee Benefits, we build their trust. That trust translates to the ability to bring advice to the workplace. Because that advice is being sponsored by employers and plan sponsors, and we have an existing relationship and solution with that client, we think we have a unique advantage to continue to build lifetime value for our customers. That also allows us to connect into Matt’s business where he is helping us build some unique solutions in the marketplace. When you look at the overall Wealth Management business and how we have been building it, we have been building it through recruitment of our advisers. We are happy with the early development and productivity of those advisers. The tools we have onboarded have helped us create efficiencies. There is more and more demand for digital self-service, which is a future component of our build. I like where we are at. I also like that the build is sitting inside our 39% margin in our Retirement business. Overall, a really productive build for us and aligned with where our employers and plan sponsors are looking for advice and guidance. Operator: Our next question is from Alex Scott with Barclays. Please proceed. Alex Scott: Hey, thanks for taking it. I have one follow-up on Stop Loss. I heard a comment that we are two years into a two-year journey, and that sounds like next year you would be back at targeted margins. I want to understand if I am hearing that correctly and the timing associated with that comment. Maybe help us understand how we get there. Even if we give you the benefit of the doubt on some of the reserve development, it still seems like we are a decent amount above where you would be targeting right now. Do I have that right? Anything you can tell us about the IBNR or something you are seeing to help us put numbers behind your optimism? Heather Hamilton Lavallee: Alex, thanks for the question. I will start with the thematics and then toss it over to Mike. You are right. When all of this started coming out of COVID and we saw the impact on the broader industry, we have always said we expect this to be a two-year journey and not something that was done in one year. We really like the progress. As Mike mentioned, we are pricing the business to be back within target loss ratio. That is the goal we have laid out. We will see how things progress through the year, but we are confident in seeing that improvement. Alex Scott: Follow-up question related to a couple of peers engaged in a merger of equals. Both of them were much smaller peers in terms of their group retirement businesses, but it does indicate an increase in importance on scale. Where is Voya Financial, Inc. situated relative to that competitive positioning? As a result of some peers scaling up, do you see any more fee compression in the competitive environment? Are you expecting to see that? Heather Hamilton Lavallee: I appreciate the question because it gives me an opportunity to highlight that our businesses are firing on all cylinders and the scale we have. In Retirement, we are a top-five provider in the space. The acquisition we did last year with OneAmerica now serves close to 10 million participants. We would not be a scaled provider if we could not operate at a 39% margin for ten years. The expansion into Wealth Management is the right strategy where we are building on a core foundation. In Investment Management, two years of outpacing the industry in terms of organic growth, delivering strong investment performance, fees holding up well, and improving margins—those are signs of scale. It is really about client demand in the market and the fact that we are winning, retaining business, and delivering for them. In Employee Benefits, you are still seeing sales growth in the core business while we are on this margin improvement plan. We like our position in the market. It is also supported by a solid balance sheet. We do not have a lot of noise in our balance sheet. We generate a lot of free cash flow, and we have scale where we play. Operator: You have reached the end of our question and answer session. This will conclude today’s conference. You may disconnect your lines at this time and thank you for your participation.