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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: 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: Greetings, and welcome to the Perimeter Solutions First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Seth Barker, Head of Investor Relations. Thank you. You may begin. Seth Barker: Thank you, operator. Good morning, everyone, and thank you for joining Perimeter Solutions' First Quarter 2026 Earnings Call. Speaking on today's call are Haitham Khouri, Chief Executive Officer; and Kyle Sable, Chief Financial Officer. We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, May 6, 2026, and these statements have not been nor will they be updated subsequent to today's call. Today's call may contain forward-looking statements. These statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate, and our actual results may differ materially from those expressed or implied on today's call. Please review our SEC filings, particularly any risk factors included in our filings for a more complete discussion of factors that could impact our results, expectations or assumptions. The company would also like to advise you that during the call, we will be referring to non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, LTM adjusted EBITDA, adjusted EPS and free cash flow. The reconciliation of and other information regarding non-GAAP financial measures can be found in our earnings press release and presentation, both of which will be available on our website. With that, I will turn the call over to Haitham Khouri, Chief Executive Officer. Haitham Khouri: Thank you, Seth. Good morning, everyone. We're pleased to report a strong start to 2026 with first quarter adjusted EBITDA of $41.2 million, reflecting both organic and acquired growth. Our Q1 results highlight 2 key points. First, our operational value driver strategy is translating directly to our bottom line. Second, we have built a durable and predictable earnings base. This predictability is driven by 3 things: number one, new and improved contracting structures in both our retardant and suppressants businesses; two, diversification within our Fire Safety segment due primarily to the growth in our suppressants and international retardants businesses. And three, organic and M&A-driven growth in our Specialty Products segment. As always, I will start with a summary of our strategy, then provide an operational update, after which Kyle will walk through the quarter's financial results and capital allocation in more detail. Starting with a summary of our strategy. Our goal is to fulfill our critical mission by providing our customers with high-quality products and exceptional service while delivering our investors private equity-like returns with the liquidity of a public market. Our strategy is built on 3 key operational pillars. First, we own exceptional businesses. These are niche market leaders that play critical roles in solving complex customer problems, qualities that support high returns on invested capital and durable earnings power. Second, we rigorously apply our 3 operational value drivers to the businesses we own. We drive profitable new business, achieve continual productivity improvements and provide increasing value to customers, which we share with through value-based pricing. And third, we operate our businesses in a highly decentralized manner, granting our business unit managers full operating autonomy paired with the accountability to deliver results with a tightly aligned incentive structure for our managers to think and act like owners. We believe that our operational pillars will optimize our durable long-term free cash flow. We then seek to maximize long-term per share equity value through a clear focus on the allocation of our capital as well as the management of our capital structure. Turning to our Fire Safety operations on Slide 4. Our Q1 Fire Safety results are a direct reflection of the 2 themes I highlighted in my opening, the successful implementation of our operational value drivers and the durability and predictability of our earnings. Starting with our value drivers. Fire Safety's Q1 performance was driven by profitable new business. Our international retardant business was strong based on both activity in existing markets and footprint expansion in new and early-stage markets. Our global suppressants business also delivered strong results based on both new wins and higher sales to our large installed base. In addition to the profitable new business results, we delivered year-over-year productivity across our business units in Fire Safety and our internal investment initiatives translated into value-based pricing. Turning to the predictability of our earnings base. The resilience of our model was clear this quarter. We delivered year-over-year adjusted EBITDA growth in Fire Safety despite lower North American retardant sales stemming from the tough comparisons of the Eaton and Palisades fires in Q1 2025. Moving to Slide 5, where we stay with Fire Safety, but step back from the first quarter. Last week, Perimeter inked 2 milestone Fire Safety contracts that will both grow our earnings and enhance their durability. First, suppressants. We worked hard over the past several years to align our products and services with the specific needs of the Defense Logistics Agency or the DLA. On the product side, we made significant R&D investments to develop products for the DLA's unique requirements and deployed capital to expand our Green Bay, Wisconsin facility to meet the DLA demand and redundancy needs. At the same time, we also invested heavily in our service capabilities, including standing up a customized vendor-managed inventory service for the DLA and optimizing our packaging to meet the agency specifications. And we did all this with a U.S.-based manufacturing footprint that supports the DLA's need for reliable domestic supply. These efforts have driven a steady increase in our business with the DLA, specifically on behalf of the Navy, the Coast Guard and the Army. In line with our efforts to establish mutually beneficial long-term contracting structures within our fire safety business, last week, we entered into a 5-year agreement to provide foams to the DLA with a maximum contract value of $500 million. Since we already provide suppressants to the DLA, we expect the incremental uplift from this agreement to be approximately 2/3 of the total contract value. We expect that the financial impact will begin in late 2026, ramp up through 2027 and reach a steady-state run rate in 2028 and beyond. We're making further investments to support this ramp-up, including further expansion of our Green Bay facility and a further increase to our staffing levels. These capital and operating investments directly support U.S. job creation. This contract is an excellent example of how our focus on understanding and meeting our customers' needs translates into profitable new business opportunities. Moving to our retardants. Last week, we renewed our CAL FIRE contract for a new 5-year term. Given the time elapsed since the prior renewal as well as the evolution of our offering on both the product and service sides, pricing on this contract increased relative to the previous CAL FIRE contract, bringing historically lower CAL FIRE pricing in line with our other large retardant customers. No state has more population exposed to wildfire risk than California. We are proud that CAL FIRE has once again trusted Perimeter to protect the lives, properties and environment of their state. Finally, let me comment on the national wildfire landscape. The formation of the U.S. Wildland Fire Service is an important development in the wildland firefighting space. Our existing federal contract already spans all of the federal wildfire fighting agencies that will be consolidated into this new service, and our contract will carry forward under this new organizational structure. We believe a more unified structure will improve coordination and streamline decision-making, supporting more effective wildfire response over time. Turning to the next slide, which covers our Specialty Products segment and starting with PDI. The first quarter of 2026 was the most challenging period of operational performance in the history of our Sauget, Illinois facility. The plant experienced substantial unplanned downtime. This disruption is the direct result of a sustained failure to provide the resources, personnel and operational discipline required to run the facility safely and reliably, a failure that has persisted ever since One Rock Capital acquired Flexsys. And as the controlling owner of Flexsys, One Rock is responsible for the strategic and financial decisions governing this facility, and One Rock bears the ultimate responsibility for driving performance to its lowest level on record. We are pursuing all available legal avenues to enforce our contractual rights. We have a proven track record of operating P2S5 facilities safely and reliably, and we are confident that upon assuming control of Sauget, we will restore operating discipline, safety standards and production consistency for the benefit of the facility, its workers and our customers. Our resolve in this matter is absolute. We are highlighting these operational failures publicly because our investors, our customers and the workforce at Sauget deserve transparency. We have a duty to protect this critical facility from One Rock's sustained mismanagement, and we will actively manage the near-term impacts while pressing our legal rights to their full conclusion. In contrast to Flexsys' performance, we're proud of how Perimeter's PDI team has performed. Despite the greatest operational headwind the business has ever experienced, our team grew revenue and adjusted EBITDA at PDI slightly year-over-year. This result speaks to the power of the operational value driver model and highlights our team's ability to fight through obstacles and deliver results irrespective of the external environment. Turning to MMT. Integration is proceeding smoothly, and we are making tangible progress across each of our operational value drivers. A key advantage of bringing MMT into Perimeter's forever hold structure is that it immediately unlocks significant new capital and resources for the MMT team. We are actively deploying these resources to implement our value drivers and further accelerate MMT's business. On profitable new business, this capital is directly supporting the MMT team's innovation pipeline. As a result, new product development has accelerated meaningfully with expected product launches at MMT stepping up from 2 in 2025 to 9 in 2026. On productivity, we are putting these resources to work to eliminate manufacturing bottlenecks and maximize throughput, driving permanent improvements to MMT's cost structure. And on pricing, we are applying our disciplined value-based approach. By combining our pricing frameworks with the MMT team's deep product expertise and strong customer relationships, we are ensuring that pricing fully reflects the exceptional value MMT delivers to its customers. Just as important as the operating model is the team. Cultural alignment has been excellent. MMT leadership shares our approach to value creation and our partnership is translating directly into performance. MMT is performing very well early in our ownership period. We see strong potential for upside as we back the MMT team and fully deploy our operating model. Turning finally to IMS. Similar to MMT, IMS' acquisitions to benefit from the resources we immediately make available to maximize the potential and value of these acquired product lines. Given the product lines IMS acquires are often orphaned or underinvested in prior to acquisition, the benefits of our forever hold structure can be particularly pronounced at IMS. The IMS team is focused on systematically applying our operational value drivers across the product line acquisitions completed in 2025. We are encouraged by our progress and look forward to further investing in these acquired products and to closing future product line acquisitions. In closing, our disciplined operational value driver strategy is delivering strong financial performance across both of our segments, while our commercial and contracting initiatives are driving durable and predictable long-term earnings. With that, I'll turn the call over to Kyle to walk through the financials in more details. Kyle? Kyle Sable: Thanks, Haitham. Perimeter delivered net sales of $125.1 million in the quarter, up 74% year-over-year, with adjusted EBITDA of $41.2 million, more than doubling from $18.1 million last year. Net income was $72.9 million or $0.44 per diluted share compared to $56.7 million or $0.36 per diluted share in the prior year. On an adjusted basis, the adjusted net income was $9 million, up from $4.1 million, while adjusted earnings per diluted share was $0.06, up from $0.03. Our consolidated results reflect disciplined execution of our operational value drivers, supported by contributions from recent acquisitions. Moving into the details of Fire Safety. Revenue for the quarter was $45.4 million, up 22% year-over-year, and adjusted EBITDA was $18.7 million, nearly double the $10.1 million in the prior year. This performance was driven by continued execution of our operational value drivers with strength across both our international retardant markets, notably Australia and our suppressants business, each contributing meaningfully in the quarter. Despite North American retardant volume headwinds, Fire Safety delivered strong results, demonstrating that the business can generate meaningful growth in earnings even in periods of weaker retardant demand, a dynamic that would not have been present historically. This quarter is another example of reported acres burned having low correlation with our U.S. retardant business' performance, given the low acreage but high impact of last year's Southern California fires and the inverse this year, with nearly 900,000 acres burning in Nebraska with minimal retardant used. We increasingly view acres burned as a poor indicator of our financial performance and expect that relationship to continue to weaken over time, given our effort to reduce variability and increase the contribution from our own execution. Looking forward to the rest of the year, wildfire activity to date is within a range we would consider normal for this point in the season with conditions that remain conducive to fire activity and the full range of outcomes from mild to severe remains possible. As always, we will be prepared to accommodate a more severe than normal fire season should such a season ultimately materialize. Our capacity planning also integrates recent comments from the Secretary of the Interior and the Secretary of Agriculture, indicating that the aggressive initial attack strategy employed in 2025 is expected to continue in 2026. We view this as an important development as that strategy drove more proactive and consistent use of retardant last year and helped support demand even in a lower acres environment and if sustained, should continue to reduce the downside sensitivity of our business to variability in fire activity while supporting more consistent and growing demand over time. As we look ahead, we remain focused not only on demand drivers, but also on ensuring our supply chain is well positioned. We have seen recent increases in fertilizer prices and lead times, but our contracts include mechanisms to address meaningful input cost movements. And combined with our inventory position, we believe that we are well prepared to effectively manage these changing dynamics. As we exit the quarter, our Fire Safety business is well positioned, driven by continued execution of our operational value drivers, supported by the stability of our contract structure and the diversification of our revenue streams and reinforced by the ongoing shift to more proactive wildfire response. Turning now to Specialty Products. Revenue for the quarter was $79.6 million, an increase of 128% year-over-year and adjusted EBITDA was $22.5 million, up from $8 million in the prior year period. The year-over-year increase was driven primarily by contributions from recent acquisitions. Importantly, the base business also delivered growth in the quarter despite increased operational disruption at the Flexsys-operated Sauget facility. As Haitham discussed, downtime at that facility was more severe this quarter than in prior periods, creating a headwind to both revenue and profitability. Despite those challenges, the underlying demand environment for PDI remains solid, and the team continues to work through these operational issues while delivering financial growth. Turning to MMT and building on Haitham's remarks, we are encouraged by the early performance of the business. Integration is progressing well, and we are seeing early benefits from the application of our operational value drivers. As we spend more time in the business and deepen our understanding of its customers and end markets, our conviction in the underwriting case has increased, and we currently expect MMT's full year results to exceed our initial expectations. Taken together, Specialty Products results reflect both the resilience of the base business in the face of operational headwinds and the growing contribution and momentum from recent acquisitions. I'll now turn to our long-term assumptions. Our assumptions are unchanged and with normal quarterly variation, first quarter results are consistent with those expectations. Our framework contemplates annual interest expense of approximately $75 million. And in the first quarter, cash interest expense was $24.4 million. The first quarter includes $6.25 million of cash interest expenses related to the bridge facility commitment provided to close the MMT deal, which will not recur in subsequent quarters. We expect tax deductible depreciation and amortization in the range of $60 million to $65 million annually, and first quarter taxable depreciation and amortization was $10.4 million. We expect our cash tax rate to be approximately 20% or better over time. And in the first quarter, cash taxes were a net benefit of $2 million, primarily reflecting timing dynamics. We expect capital expenditures of $30 million to $40 million per year and capital expenditures in the first quarter were $5.8 million, below run rate due to timing. As we look to the balance of the year, we are accelerating investment in areas, including suppressants capacity expansion and MMT productivity initiatives, which we expect will bring full year capital expenditures towards the higher end of our range. Finally, we expect working capital investment of approximately 10% to 15% of revenue growth and working capital performance in the quarter was consistent with that framework, reflecting seasonal dynamics and the impact of recent acquisitions. Turning to capital allocation. As previously announced, we completed the acquisition of MMT on January 22 for approximately $682 million, funded through a combination of cash on hand and new debt issuance. MMT represents an important addition to our portfolio and aligns directly with our strategy of acquiring high-quality businesses where we can apply our operational value drivers to drive meaningful value creation. We also continue to invest organically in our business through capital expenditures. These investments are focused on projects that enhance our ability to serve customers while driving productivity improvements and supporting profitable growth. As with all our capital decisions, we underwrite these investments to generate returns above our targeted thresholds, and we see a growing pipeline of opportunities across the business. Looking forward, we have ample capital to allocate even after our robust capital expenditure pipeline is fulfilled. Once CapEx needs are met, our primary focus is M&A. Our M&A framework remains consistent. We target businesses that provide a small but essential component within a broader solution to a critical customer need, operate in niche markets with strong competitive positioning and exhibit characteristics such as recurring revenue, high returns on capital and opportunities for reinvestment in add-on M&A. Importantly, we believe our value creation comes not from the acquisition itself, but from the disciplined application of our operational value drivers post close as we are already demonstrating with MMT. Our model allows us to repeatedly identify and improve businesses using the same operational value driver playbook, creating a repeatable engine for value creation. From a capital standpoint, we retain significant flexibility. Even after the MMT acquisition, we remain modestly levered and have ample liquidity with meaningful capacity to deploy additional capital into value-creating opportunities. We remain active in evaluating a robust pipeline of potential acquisitions and are focused on deploying capital into opportunities that meet our returns threshold and strategic criteria. Turning to our capital structure. We maintain a disciplined and flexible capital structure. During the quarter, we issued $550 million of 6.25% senior secured notes due 2034 to fund the MMT acquisition, complementing our existing $675 million of 5% senior secured notes due 2029. As a result, we have a long-dated fixed rate debt structure with no near-term maturities. At quarter end, we were approximately 3.2x net debt to LTM adjusted EBITDA, remaining below our target leverage level and preserving substantial financial flexibility. We also retained strong liquidity, including approximately $92 million of cash on the balance sheet and a fully undrawn $200 million revolving credit facility, providing significant flexibility to continue investing in the business while pursuing additional M&A opportunities. We ended the quarter with approximately 163.1 million basic shares outstanding. Overall, the quarter highlights the strength of our operational value driver model across both segments. Fire Safety delivered solid performance despite volume headwinds in retardant and Specialty Products demonstrated both resilience in the base business and strong contributions from recent acquisitions, particularly MMT. These results reinforce the increasing consistency and predictability of our earnings power. A growing portion of our earnings is driven by execution and capital allocation rather than external conditions, which we believe improves the quality of our earnings stream and position the business to compound earnings at attractive rates over time. We will continue to apply our operational value driver strategy across the portfolio and allocate capital towards opportunities that are well aligned to that strategy, further enhancing both growth and earnings stability over time. With that, I'll turn the call back to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Josh Spector with UBS. Gaurav Sharma: This is Gaurav Sharma filling in for Josh. Congrats on the solid quarter. Can you talk about the new suppressants contract a bit more? Is this effectively you winning share at more military bases? And then you framed this as an incremental $300 million sales opportunity, but how should we layer that in over the contract period? Haitham Khouri: Gaurav, it's Haitham. Let me take the first part of your question, and Kyle will handle the second part of your very good question. So yes, this is us taking share in the suppressant space. It's a continuation of a trend, which has been quite pronounced to us taking share in the suppressant space, both with the DLA and with commercial customers over the past 3 or so years. If you rewind 3 years, we did almost no business on the foam side with the DLA. We identified that as a commercial hole and spent a tremendous amount of time, effort and capital addressing it. As we typically do, the crux of that is listening very closely to our customers, understanding their needs very clearly and then moving heaven and earth internally to be responsive and meet their needs. And the hope is that, that ultimately translates into profitable new business. And that's exactly what you're seeing here. Again, we went from almost no business with the DLA. We listened to their needs. Our R&D team, which is an excellent R&D team in Green Bay, delivered a completely unique and bespoke formulation to meet the DLA's existing needs. We invested significant CapEx in our Green Bay facility to build capacity and redundancy required by the DLA. We spent a lot of capital, OpEx and effort building a vendor-managed inventory service from scratch, which we never had before for the DLA. As you can imagine, the logistics needs of the DLA are very complex and therefore, standing up the vendor-managed inventory to manage $500 million of product is a very complex undertaking. We have that up and running and humming. We upgraded our packaging to meet the DLA's needs, and we staffed up on the customer service side to best serve the DLA. And when you do all of that, you end up with a customer that very much wants to work with you that shifts meaningful share to you and that's ultimately not only willing, but eager to enter into this kind of long-term framework agreement that gives us the visibility into future volumes that allows us to continue to invest. So that's sort of the history there, and I'll let Kyle handle the second part of the question. Kyle Sable: Yes, Gaurav, as Haitham mentioned, we've already been doing business with the DLA, and so we're trying to frame our guidance to you as the amount of uplift. So we'll have another strong year with the DLA this year, but there will be minimal uplift relative to last year. As we look forward to 2027, we expect roughly $50 million of incremental revenue above our current run rate with the DLA in 2027. And then the balance of the contract value will come over the remaining years. Gaurav Sharma: That was super helpful. And then just a follow-up. Is this just a volume element? Or is there an annual price factor that's built in on the suppressants as well? And then on the CAL FIRE deal, the comment in the slide say price increase to align with other major buyers. So does that mean you expect a step up in year 1? And is that material? And then how would you talk about price increases beyond year 1? Haitham Khouri: Yes, Gaurav, it's Haitham again. We -- both contracts will have annual or do have annual price escalators in there throughout the 5-year term. And for CAL FIRE specifically, there is a step-up in year 1, which is this year to bring them sort of in line with our pricing structure, which they've been a little out of line with historically. Operator: [Operator Instructions] Our next question comes from Dan Kutz with Morgan Stanley. Daniel Kutz: Congrats on all the progress and updates this quarter. So just wanted to circle back on a few things that you guys have already kind of commented on in the prepared remarks and see if we could get a little incremental color. First one would be on input costs. Again, I know that you guys had commented that there's some level of contractual kind of cost protection or pass-through. But with everything going on in the world and specifically fertilizer or MAP or some of the key cost components in the Perimeter cost structure, seem like they've seen some pretty significant upward pressure. Just wondering if you could expand a little bit on what types of protections you have in place, how much that could be weighing on margins currently and whether in theoretical scenario where the Middle East conflict came to a resolution and those costs came down, whether that would be a margin tailwind or whether that's kind of already kind of protected in the cost structure and therefore, wouldn't change things too much. But yes, just wondering if you could expand a little bit on the input cost dynamics. Kyle Sable: Sure, Dan. It's Kyle. Thanks for the question. You're right. As we alluded to in the script, we have pretty strong contractual protections against these price increases. Our operational team has been running way out ahead of the changes that have been happening on, making sure we have adequate inventory as lead times have lengthened. And as we look forward, we don't see any material impact to our margins from these price increases this year. Daniel Kutz: Great. That's very clear. Then maybe on the preemptive fight strategy that some of the federal wildfire fighting agencies are alluding to. I was just wondering -- so I think, again, in your prepared remarks, you kind of flagged that this is definitely a hedge against, I guess, a below severity wildfire season. Last year was absolutely a testament to that. But just wondering, across a broader range of wildfire scenarios, below severity, normal trend above severity, is the preemptive strike strategy an incremental earnings tailwind or retardant demand tailwind across different wildfire season severity scenarios? Or is it more kind of a downside hedge? Just wondering if you could expand on that, on those comments as well. Kyle Sable: Sure, Dan. Kyle again. And thanks for the question. I think you've hit on 2 important points for the more aggressive initial attack. You're correct in that it can actually drive more retardant usage through a variety of wildfire season scenarios. We think that it will put increased emphasis on growth in the air tanker fleet. And by the way, that same memo that highlighted the initial aggressive attack also highlighted a number of other moves they're doing across the wildland firefighting landscape to support growth in the aerial tanker fleet, which is also a little bit of a tailwind for us. So we think that's a clear positive. The second element, as you started to hit here to the downside protection, I think you're exactly right. What we experienced last year and if we are again to experience a more mild acre season this year is that, that aggressive initial attack provided an increased retardant usage in that scenario, which did cap the amount of downside from a more mild season. Dan, the other thing I think I'd be remiss to not mention here as we think about the different scenarios as they play out is that we've really reduced our variability and exposure to that wildfire season. And at this point, if you look at a normalized season to a relatively mild season, that fluctuation in our EBITDA is something like mid-teens percentage. And when we look at the various tailwinds we have across our business, that really means that we should be able to grow EBITDA year-over-year even with a moderate decline in the fire season year-over-year in any given year. There may still be some more extreme scenarios where we can't always grow EBITDA, but for most of the scenarios, we're going to be growing EBITDA. Daniel Kutz: That's great to hear. And maybe if I could sneak one more in kind of along the same along the same comments there. So I think for the last quarter or 2, the 5-year contract with the U.S. Forest Service, which you guys confirmed today will extend to the new U.S. Wildland Fire Service, which includes the DOI agencies as well. I guess on the service component of that contract, you report product versus service revenue for the Fire Safety segment. And we can see that, that number was in the ballpark of $30 million a few years ago, and it's been trending closer to $100 million in the last couple of years. The question is basically, first of all, is there a suppressant component to service? Or is the lion's share of that retardant? And then how much does the new contract structure kind of lock in that service revenue at this higher revenue run rate from, I think, what you guys call the full-service air base infrastructure model. And I guess the question would be at the federal level, but then also see on the slide with the CAL FIRE contract that there's a service revenue component to that. So yes, just wondering if you could -- anything you could share on what has been a pretty substantial ramp in service revenue for the Fire Safety segment? And how much of that should be viewed as a new run rate? And I guess, any potential growth either from the service model expansion or just from kind of the normal growth trend that you guys seem to be putting out despite the wildfire season severity. Yes, anything you can share on that service revenue component? Kyle Sable: Dan, so a couple of points on here. One, the majority -- in fact, virtually all of that service revenue is, in fact, tied to retardants. There's a little bit of suppressants, but largely retardants. The second point I would make in there is that, that includes all service revenue for all of our various contracts, Forest Service, CAL FIRE and others. And then when you think about that uplift in the run rate, I think you're right, we've gone from $30 million to a little over $100 million in the run rate, and we do believe that is a new and sustainable baseline. Within that, the vast, vast majority of it is contractually fixed in any given year. And then we do expect to see another uplift, although not of the same magnitude that you just saw over the last few years going forward as we continue to convert more of the bases in the Forest Service contract from government run to Perimeter run. Daniel Kutz: Awesome. Sorry, one last real quick one. Product versus service margins, are they similar ballpark, one meaningfully different than the other? Kyle Sable: Yes, Dan, we think about those as just as a bundled suite when we think about margins. So while we separate them out for reporting purposes, we think of it all as kind of like one consolidated solution with one margin. Operator: Thank you. At this time, I would like to turn the floor back to Haitham Khouri for closing comments. Haitham Khouri: Thank you, LaTanya, for running a great call. Gaurav and Dan, thank you for the excellent work you do, and thank you to all our shareholders, as always, for all your support. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Unknown Executive: Our earnings release and Form 10-Q were issued earlier this morning and are available on our IR website. Our IR website includes a cautionary statement regarding the forward-looking statements. Today's webcast may include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including regarding the company's future business plans, prospects and financial performance are not historical in nature and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors, economic, geopolitical, operating and industry conditions and decisions and legal and regulatory developments. Refer to our IR website, the earnings release and 10-Q issued today and the risks and uncertainties described in our Form 10-K and subsequent filings with the SEC for more information on risks that could cause results to differ. A reconciliation of certain non-GAAP measures referred to on this webcast to the most comparable GAAP measures is on our IR website. Benjamin Daniel Swinburne, C.F.A.: Good morning. Welcome to the Walt Disney Company Fiscal Second Quarter Earnings Call. Thank you for joining us. I'm Ben Swinburne, Executive Vice President of Investor Relations and Corporate Strategy. With me today are Josh DAmaro, our Chief Executive Officer; and Hugh Johnston, our Chief Financial Officer. While we intend to keep our prepared remarks brief on future earnings calls. As this is Josh's first opportunity to speak to the investment community as CEO, we wanted to take the extra time for you to hear from him directly regarding his priorities for the company. You will notice that we've adjusted our earnings materials to shift our focus more toward the Walt Disney Company as a whole rather than its individual segments. This is deliberate as we hope it helps explain why we believe the company is uniquely positioned, lays out our strategy and illustrates how our various business lines operate together. We also shifted to a shareholder letter this quarter, with the intent of including all the information we hope is helpful to the financial markets in one place. After Josh's remarks, we will take questions from the analyst community. And with that, let me turn it over to Josh. Josh D’Amaro: Thank you, Ben. I want to begin by saying just how honored I am to be leading the Walt Disney Company. This is one of the world's truly great companies built over more than a century through powerful storytelling, constant innovation and a singular ability to forge deep emotional connections with audiences all around the world. I step into this role with genuine appreciation, a strong sense of responsibility and real optimism about what lies ahead. I also want to express my gratitude to Bob Iger. Bob led Disney with extraordinary vision. He led it with discipline and ambition. And because of that leadership, this company stands on a strong foundation with real momentum. I'm fortunate to be leading a company with exceptional assets, talented leaders and a well-defined strategic direction. My immediate focus, it's clear. We will execute with discipline against the plans and commitments we've already communicated to the market, staying focused on the priorities that we believe will unlock value for our shareholders. First, investing in the breakthrough creative storytelling that sets Disney apart; second, strengthening our streaming business through product and technology innovation; third, fully capturing the power of live sports as we continue building ESPN's direct-to-consumer business; and fourth, delivering on our bold growth plans at Disney Experiences. At the same time, while we execute our current plan with focus on precision, we're actively laying the groundwork for Disney's next phase of growth. Disney is uniquely positioned in the entertainment industry. No other company reaches consumers to the same degree across both digital and physical environments. Our goal is to leverage that position to extend our reach, deepen engagement and generate greater value from our world-class intellectual property. To fully capture this opportunity, we'll embrace technology more aggressively and build a more connected consumer experience with Disney+ right at the center. However, this morning, I want to stay focused on execution, how it's showing up in our results today and what it means as we head into the back half of the year. In the second quarter, we grew revenue and total segment operating income 7% and 4%, respectively, relative to the prior year and outperformed our guidance for the quarter. The outperformance was driven by stronger-than-expected revenue growth. Let's turn to our operating results in the quarter starting with streaming. Our focus remains consistent, improve the consumer experience, deepen engagement and continue building a healthy and more durable growth business. We made meaningful progress during the quarter on the platform itself with product enhancements that improve the Disney+ user experience. We were pleased with our entertainment SVOD financial performance this quarter notably a sequential acceleration in revenue growth from 11% in Q1 of '26 to 13% in Q2. Importantly, subscription revenue growth was driven by both rate and volume. Additionally, we saw double-digit advertising revenue growth compared to the prior year period. We are highly focused on churn, and we continue to see the integrated Disney+ and Hulu experience benefiting retention. Disney+ has meaningful opportunity for growth internationally, and we're focused on scaling outside the U.S. We are increasing our local content investments and early results that are encouraging. While more work remains, we're pleased with the progress we're making in both the consumer experience and underlying economics. Our IP remains central to our long-term streaming success. And we continue to invest in the great storytelling franchises and talent that define Disney and fuel our film and television content. Highlights in the quarter that demonstrated this focus included returning Series High Potential and Paradise along with our new limited series Love Story: John F. Kennedy Jr. & Carolyn Bessette. And we, of course, see the potential of the strategy in films like Zootopia 2, which not only generated $1.9 billion in global box office, but the franchise has now surpassed 1 billion hours streamed on Disney+. . During the quarter, we released Pixar's Hoppers to critical success. A strong reminder of Pixar's track record of creating meaningful original IP that resonates with audiences all around the world. We are thrilled with last weekend's opening of The Devil Wears Prada 2. And as we look ahead, we're excited about our upcoming film slate, including The Mandalorian & Grogu, Toy Story 5, the Live-Action Moana and Avengers Doomsday. When you look at our upcoming slate of franchise films, each has potential to resonate with our fans well beyond its initial release, moving across platforms, experiences and products in a way that deepens engagement and extends reach over time. At Disney Experiences, we continue to demonstrate strength in the core business and make progress against our growth initiatives with strong revenue growth of 7% and segment operating income growth of 5% in the quarter. Both revenue and segment operating income were ahead of our prior expectations and represent second quarter records. Over the past few quarters, the team has successfully navigated known attendance headwinds. We are now starting to lap these headwinds and expect attendance trends at our domestic parks to improve in Q3 when compared to the results we reported for Q2 today. Since our last call, Disney Cruise Line launched the Disney Adventure, our first ship homeported in Asia. And at Disneyland Paris, we opened World of Frozen as part of the reimagined Disney adventure world. These are meaningful milestones that extend the reach of our brands to new markets and new fans around the world. The strong demand that we're seeing for these attractions reinforces our confidence in the long-term opportunity across our portfolio of experiential assets, parks, cruise line and immersive experiences alike. We remain mindful of the near-term variability but are also well positioned to benefit from sustained consumer demand for live entertainment at a scale unique to Disney. Speaking of the power of Live, ESPN continues to build toward a stronger direct-to-consumer future. Enhancements to the ESPN app, including Multiview, Verts and SportsCenter for You are making the offering increasingly compelling for fans. As we manage this business in transition, we remain focused on serving sports fans in a way that fully captures the value of ESPN and live sports within Disney's broader direct-to-consumer offering. Looking at the first half of the fiscal year and our expectations for the second half, we're executing with focus, delivering against our stated commitments and investing in areas that we believe will drive long-term value. As we look ahead, my strategic priority as a CEO build directly on that foundation. Let me summarize my long-term perspective briefly here. First, creative excellence, it will remain at the center of everything that we do. Disney's greatest competitive advantage. It's always been the quality of our storytelling and the enduring connection our brands have with audiences all around the world. Second, we have a real opportunity to deepen our direct relationship with our fans by creating more connected Disney experience across streaming, sports, games and experiences with Disney+ playing an increasingly central role. Third, technology, it can be a powerful accelerant for Disney, improving the consumer experience across our business lines, driving operational efficiency and unlocking new possibilities for creativity, growth and returns. To wrap up, our immediate priority is disciplined execution, but I'm equally energized about the opportunities ahead. Disney has iconic brands, extraordinary creative talent, powerful platforms and unmatched experiences. Our job is to execute with rigor to invest with confidence and connect those strengths in ways that create lasting value for consumers and shareholders alike. With that, I'll turn it back over to Ben to begin our Q&A. Benjamin Daniel Swinburne, C.F.A.: Thanks, Josh. We will now turn to questions from the analyst community. So our first question is from Sean Diffley from Morgan Stanley. This is for you, Josh, on strategic priorities. What are your 3 biggest priorities going forward? What are the biggest synergies between the businesses today? And any examples to Disney can leverage learnings across its businesses? Josh D’Amaro: Okay. Great. Well, thanks, Sean. I guess, first and foremost, what I'm focused on is executing on the priorities that we've already communicated to the market. And I think this group knows these. In fact, I just hit them in my prepared marks -- prepared remarks. First, we're focused on creating best-in-class content. We're doing really well there. Second, we're strengthening our streaming businesses and driving top line growth and profitability as well. Third, we're continuing to take advantage of the growing power of live sports and build ESPN's direct-to-consumer business. And then, of course, we're turbocharging Disney experiences all across the globe. . while we're focused on executing these priorities, we're also starting to lay the groundwork for the next phase of growth. And you're going to hear more about this over time, but maybe today, I'll just share some high-level thoughts on that. First, we're going to continue to build and fully leverage all of our IP. Of course, this starts with great storytelling. But the opportunity is going to be much broader than that. We'll invest in both existing franchises and new IP, so that means building on brands like like Toy Story, while also at the same time, creating new stories that connect with generations of fans across the globe. And the key here is fully harnessing that IP across the whole company. That's in film and streaming across our experiences and products and games so that each of our successes it compounds and value over time. Then second, I think we have a real opportunity to deepen our direct relationships with our fans, and we can do this by creating a much more connected Disney experience, and we'll do that across streaming and sports. And games and experiences and we'll put Disney+ right at the middle, playing an increasingly central role. And then third, technology. I think it can be a real powerful accelerant for Disney. I think it can improve the consumer experience across our businesses. It will certainly drive operational efficiency for us and then unlock brand-new possibilities for creativity, for growth and returns. And then when you step back and you put all that together, our next phase of growth, it will be centered on creative excellence. It will be a more connected fan experience, and we'll use technology as an accelerate. But I just want to be clear, as I said in the immediate term, I'm staying focused on delivering the priorities that we currently have the motion. But thanks for the question. Benjamin Daniel Swinburne, C.F.A.: Great. Thank you, Sean. Thank you, Josh. We're going to now turn to 2 questions on our direct-to-consumer streaming strategy. First question is from Michael Ng from Goldman Sachs, probably for you, Josh. The success in the parks was built on driving per capita and attendance though high-touch immersive storytelling. As you take the helm of the company, how do you replicate this high LTV model within Disney+? Specifically, does Disney+ become less a video repository and more of an interactive hub, including merchandise park access and games integration? Josh D’Amaro: Okay. Well, thanks, Michael. I guess I'll start. Lifetime value is something that we're focused on across the whole enterprise. And -- you start with our fan base. Disney has the world's most passionate and loyal fans. It's something -- if you go to our theme parks, you see it all the time. They're a high touch, high LTV business and our biggest fans, they come off it and they tend to be repeat visitors. Now a large number of our park visitors, they're also Disney+ subscribers, but there are millions of Disney+ subscribers who aren't regular park visitors. And so this is where we're focused. Our parks -- they're essentially the physical center piece of the company. And similarly, we're building Disney+ to serve as the immersive interactive digital center piece of the company. And in the long term, what you'll see is those pieces of the company become increasingly connected. And when we do this well, which we will, the lifetime value equation, it starts to change fundamentally. A fan who watches a Disney film, for example, or visits a park or plays a game and buys our merchandise, it's not just a subscriber. They're in a relationship with a company, one that spans years and can generate value across every part of our business. And that's the model that we're building toward right now. Benjamin Daniel Swinburne, C.F.A.: Great. We're now going to take a question from David Karnovsky from JPMorgan. Again, I think for you, Josh. As you think about Disney+ domestically, what path do you see to organically grow engagement? How do you think about this in terms of your own content but also through making the platform a portal through which third parties can distribute programming? Josh D’Amaro: Okay. A lot in there. Thanks, David, for the question. So I'm happy to talk about engagement. I think you asked domestically, but truly around the world. I'll start with maybe something that's obvious. It's a competitive streaming marketplace out there right now, but despite that, we saw an increase in engagement in the quarter. And then when we look ahead, our key drivers for engagement growth, they include content and product enhancements. On the content side, we're obviously going to continue to deliver exceptional content, not just the popular franchise films, but across television and live sports and general entertainment and international local programming as well. On the product side, our team is really focused on improvements that reduce user friction that allow more intuitive discovery for our subscribers and help users decide what to watch and to decide sooner. So you think of it like a visual homepage, easier navigation, more personalized recommendations. There's a good example of this in our video and browse initiative. It launched in the United States back in January. And what it does is it lets subscribers preview content directly while still browsing. So they don't have to click in and out of titles. So yes, our tech team is making some really nice strides here, always learning and iterating and doing a lot of experimentation. And then engagement, of course, is critical to reducing churn on the service. All of the opportunities that we have to drive value at this company, reducing churn, Disney+ might be the single most significant opportunity that we have. And so it's probably not surprising on pushing the entire organization to prioritize against that goal. And then on third-party distribution, I guess that I'd position it as we're selective, but we're not closed off the right partnerships, whether it be on content or distribution, they have to strengthen the Disney+ experience and then deepen that fan relationship. And our bundling approach inside of Disney, I think it's a good example of how that works well. It drives lower churn, drives higher engagement than any of the services if they were just on their own. So we'll continue to evaluate those opportunities through that specific lens. Benjamin Daniel Swinburne, C.F.A.: Okay. Next question is from Rich Greenfield at LightShed Partners. I think this is for you, Josh. You recently stated Disney+ will continue to evolve beyond the traditional streaming service to become the digital centerpiece of the company a portal that connects stories, experiences, games, films and more in entirely new ways. Rich's questions are he's curious what you mean by digital center piece? Does it imply a shift away from third-party licensing, distribution to drive engagement with Disney+. How do you think about the trade-offs of reach and exposure on third-party platforms versus keeping content exclusive to Disney streaming platforms? And then the last piece is how do you reconcile Disney+ as the digital center piece, we are Epic Games partnership that will place a Disney universe into Fortnite? Josh D’Amaro: Okay. Great question. And it's -- I think, as I'm listening to that, it's really 3 questions. So I'm going to take them in turn here. So first, digital centerpiece means Disney+ becomes the primary relationship between Disney and its fans, the place where everything comes together, entertainment, sports, experiences, all of that convergence. So it's less about a product. It's more about how we're -- it's a strategic posture essentially. On third-party licensing, we've always distinguished between franchise, IP and general entertainment. So franchise and brand IP stays on the platform and general entertainment, that library content can find audiences elsewhere, and that's -- it's been working pretty well for us financially. And then on your question about Epic Games and its relation to our Disney ecosystem. I think -- so Disney+ is the hub, but the hub needs spokes. Epic gives us an interactive a gaming native environment to reach audiences that we don't currently own, and by the way, particularly younger audiences. So think of this as acquisition and engagement, feeding the centerpiece, not necessarily competing with it. The road map runs from near-term streaming optimization and content investment through medium-term interactivity, things like vertical video, personalized ESPN, the Parks AI work all the way to a longer-term single point of contact with our fans that drives lifetime value across everything that we're doing. The through line here is going to be the same on that fan relationship. So thanks for the question, Rich. . Benjamin Daniel Swinburne, C.F.A.: Okay. We're now going to move to 3 questions on Disney Experiences. So I think for Hugh, a question from Sean Diffley at Morgan Stanley. On core U.S. parks trends, can you unpack the international visitation and Epic-related headwinds that you are seeing and if they are sequentially better or worse over the last few quarters? Hugh Johnston: Right. Thanks for the question, Sean. Answering directly, we expect international visitation and Epic related headwinds to ease in the coming quarters as we begin to lap both of those impacts. Q2 experiences results came in ahead of our prior guidance despite the fact that these headwinds did have some impact in the quarter on segment OI, which was up 5%. And and attendance in domestic parks, which was down 1%. While Q2 were the full impact of those headwinds, excluding just the international visitation impact the domestic parks attendance would have grown. Despite this, our revenue growth for the quarter was 7% in experiences and the lack of flow-through to operating income this quarter was driven primarily by preopening costs for World of Frozen and the adventure, which we won't be incurring obviously, in the second half of the year. We recognize that domestic attendance is an important metric for investors and we're focused on it as well. However, as you know, we're investing to grow our global footprint, including plans to expand the cruise line fleet from 8 currently to 13 ships by 2031. So tying our guest demand to our capital plans more directly, global guests, which aggregates domestic and international parks attendance along with passenger cruise days grew more than 2% in Q2. The good news is, as we look forward, we expect growth to improve in the back half, and our forward bookings are very encouraging as we look to the rest of the year. Benjamin Daniel Swinburne, C.F.A.: Great. Another question. This is from Steven Cahall from Wells Fargo. Hugh, have you picked up any change in behavior at domestic or international parks due to the increased price of oil, gasoline, how are you managing around these risks? And at this point, do you anticipate any shift to your adjusted EPS growth guidance for fiscal '26 or fiscal '27 due to the macro factors? Hugh Johnston: Thanks, Steve. No, we haven't seen any change in consumer behavior from elevated gas prices thus far and are currently seeing a material impact on the remainder of the fiscal year based on forward bookings. Disney World bookings are pacing up strongly. And even with our 40% increase in cruise capacity, booked occupancy remains in line with the prior year. However, we're mindful of the macro uncertainty consumers are facing, and we're not immune to the impacts, including how a significant further rise in fuel prices from current levels could eventually lead to changes in consumer behavior. If that possibility were to occur, each business has levers in place to make adjustments in order to help offset those kinds of macro pressures. So as we communicated in our letter, we expect 12% growth adjusted EPS for fiscal '26 and double-digit growth of adjusted EPS for fiscal '27 both excluding the impact of the 53rd week. Benjamin Daniel Swinburne, C.F.A.: Great. Maybe over to you, Josh, kind of last question on experiences. So looking for an update, this is from Rick Prentiss at Raymond James, looking for an update on capital expenditure investment program. What are you most excited about? What have you learned from the recent openings of the World of Frozen at Disneyland Paris? When can we expect the investments to drive inflection upward in attendance at the parks? Josh D’Amaro: Okay. Great. Well, first, I'm excited about a lot. So thanks for the question, Rick. The capital investments that we're making to create these new experiences based on our most popular IP, they're obviously an important part of our strategy to continue growing our experiences business. And these investments, they're diversifying our portfolio and allowing us to reach a lot more Disney fans. I was at the opening of World of Frozen in Paris in March. And if you get an opportunity to go and see it, you can understand why the guest response has been so great. I mean it's completely transformed our second gate at Disneyland Paris. And we have so much more of this coming around the world, and the investments are working hard for us. I'll say that well, we haven't officially announced opening dates for some of our other major attractions that are coming, we have more projects underway around the globe than at any time in our history. So we're being very ambitious and very exclusive on this front. In '26, most of our forecasted CapEx and experiences includes the new ship and the ramp of major new expansions at Walt Disney World in Orlando, Disneyland and our Shanghai Disney Resort. And then when we think about the next decade, the majority of our CapEx is earmarked for investments that that are expanding our capacity. Our business has a solid track record of generating great returns and driving long-term earnings and cash flow growth. And each one -- this is important. Each one of these investments is individually justified and designed to entertain guests for literally generations to come. I think it's worth noting that we also have a few exciting expansions underway using what we're calling a capital-light model. So we've got a new cruise ship with the oriented land company in Japan and a new theme park in Abu Dhabi with our partner, Miral. And then finally, when we look forward, demand is healthy. We're expecting attendance at our domestic parks in Q3 compared to the prior year period to show improvement compared to the 1% decline that we had reported in Q2, and this will happen as headwinds related to international visitation stabilized, and we begin to lap the opening of Epic Universe. Benjamin Daniel Swinburne, C.F.A.: Great. We have 2 questions now on the content front. I think Josh, this one's probably from you. This is from Jessica Reif Ehrlich from Bank of America. Josh, some of Disney's greatest growth years were driven by original IP from Disney Pixar and Marvel. Can you provide color on how you plan to supercharge your content division? What changes should we expect now that content is unified under Dana Walden? . Josh D’Amaro: Okay. Thanks, Jessica. This morning, you heard me talk about how creativity is absolutely central to the execution of our strategy. And we're focused on investing in IP that really breaks through that builds those fan connections endure. And as you heard me say this morning, Zootopia is a prime example of this. We understand the importance of investing in existing franchises but then also taking creative risk to build brand-new ones. And I think the studio teams all over that, you take Hoppers as an example. So this is original IP from Pixar, great critical reception, and we're pleased with how fans have embraced the film and all the new characters that come along with it. And just -- just think about this relative to original films. Pixar, the Pixar alone has released 8 original films since 2017 as it feels like Coco, Soul and Elemental. And when you step back and think about it, that's more than all of the other major non-Disney animation competitors combined during that same period. So in an industry that's changed so much since the pandemic area -- pandemic era, I should say, we've continued to make bets on original stories and characters. And I think the team is doing a really great job continuing to push here. And then, Jessica, you asked about Dana Walden as well. As you know, we consolidated our creative engines and distribution under Disney Entertainment. And we did this to streamline operations to unlock synergies where we could and to accelerate decision-making and sharpen our strategic focus. And Dana is already moving on this. She I think, is uniquely suited to lead this new organization. She has a long track record of high-performing creative businesses. And under her leadership, we're starting to break down silos. We're prioritizing investment and maintain a quality audiences expect from the Disney. And a lot has already happened and what is it, 6 weeks, she's already made moves that signal what's ahead. We centralized television programming within Disney Entertainment DTC. So we're programming for Disney+ and Hulu, while being smart about window and content to linear so that we can expand reach and maximize monetization. And we also integrated our Games business into Disney Entertainment. And this creates new opportunities to cross-promote franchises and use games to extend storytelling and ultimately develop new IP. So essentially, Dana is making sure that every decision we make in content from development all the way through how we distribute that it's optimized for the fan and for the long-term strength of our brands. Benjamin Daniel Swinburne, C.F.A.: Okay. A question from Jason Bazinet at Citi. I think this is also for you, Josh. Does Disney believe there is a secular shift towards short form and user-generated content? And if so, how can Disney capitalize on this shift? Josh D’Amaro: Okay. Thanks, Jason. The short answer is yes. It's something that we're seeing and we're actively leaning into. So short form and creative content, they've exploded in the past few years. And it's an area we're focused on because we have deeply committed fans who love our brands and our franchises and characters, and they want to engage with them in this new way. And this is specifically important when we think about Gen Alpha, obviously, the newest generation of Disney fans. So what we're doing is we're experimenting a short form content in a variety of ways. You saw it, maybe some of you saw it in our creators collection initiative, which brought Predator and Lilo & Stitch creator led videos to our streaming platforms. And we're going to continue to advance that work in the months ahead. We're also really focused on making sure that our IP shows up in relevant ways across social platforms. Probably not surprisingly, our brands have an enormous following with people around the world, everything from short-form video to music videos, podcasts and the like. And then we're adjusting our own products to reflect the way consumers want to interact with our content. You probably saw that we recently introduced vertical video on Disney+. And we're still in early days here, but it's already driving deeper engagement. In fact, we did the same thing on our ESPN app and the early performance of the ESPN Verts, it's been really promising. So I think across the board on on our platforms, on social and how we're building our products. We're trying to meet fans where they are in terms that makes sense to them. But it's a great question. Thanks, Jason. Benjamin Daniel Swinburne, C.F.A.: Okay. Thank you. Question on the NFL for Hugh. The NFL appears intent on reopening -- excuse me, this is from David Karnovsky from JPMorgan. The NFL appears intent on reopening media rights deals, given Disney and ESPN have guaranteed programming through the 2030 season, how do you weigh the opportunity to engage with the league now versus sitting on your existing deal until the opt-outs? Hugh Johnston: Thanks, David. Our relationship with the NFL is as broad as deep as it's ever been, and we're excited looking ahead to the upcoming NFL season with the NFL network and with Red Zone linear now part of our distribution portfolio on top of Monday night football and broader NFL coverage. To get to your question specifically, we haven't yet engaged with the league on early renewal conversations. Well, we're not dogmatic about the process, and we're always willing to have a conversation with the NFL in an effort to find new opportunities for growth. We expect to be in the business with the league for years to come, and we'll, of course, evaluate this deal as we would any deal with discipline and a focus on driving value for Disney shareholders. In that regard, we're really looking forward to our year of the Super Bowl and all that it can bring to both all fans and Disney shareholders in the coming year. Benjamin Daniel Swinburne, C.F.A.: Okay. Our next topic. We have 2 questions on technology. This is from Robert Fishman from MoffettNathanson. This is directed at you, Josh. Given your second priority of embracing technology, should investors expect to see any differences in the way technology is already being used at the company and across your streaming services? Are there specific improvements or metrics like higher Disney+ engagement that we should use to judge success? Josh D’Amaro: Okay. Great. Thanks, Robert. Yes, embracing emerging technologies is one of the 3 priorities that we laid out in our shareholder letter this morning. So it's something that every part of our company is squarely focused on. That focus is on both our internal operations as well as our customer-facing areas across each of our business segments. In terms of what will be visible to you, maybe a couple of examples. First, you'll see a greater level of interactive entertainment for Disney+ subscribers. Second, you'll see more personalized content feeds across all of our streaming services. And that personalization effort, it's already starting. It's something that I use all the time is a big sports fan is SportsCenter for You. I hope some of you are using it. You can kind of think of it like your own personalized SportsCenter, where each day you get automatically curated content related to the teams in sports that are most interesting to you with all the familiar ESPN anchor voice is narrowing it. The goal with all of this is to drive higher engagement, obviously, which in turn supports greater retention, and then ultimately delivers on the bottom line for our shareholders. Benjamin Daniel Swinburne, C.F.A.: And then we have a question also on technology from Laura Martin at Needham. Probably probably each of you may want to chime in here. Where is Disney integrating generative AI to lower costs and/or accelerate revenue growth today? And what's on the road map to keep growing AI benefits to Disney shareholders? Josh D’Amaro: Okay. So Hugh, maybe we split this one up if you're good with that. Laura, as I touched on in the last question, we look at advanced technologies, including AI, is a meaningful long-term opportunity for us at Disney. At the same time, we're committed to implementing AI in a way that keeps human creativity at the center of everything that we do. And of course, respects creators and the tremendous value of our own intellectual property. And when we think about AI specifically, there's a lot of opportunity here. I'll take 3 categories or so, and then Hugh, I'll hand it to you, and you can talk about some additional ones. First, we want Disney to remain a leader in the use of technology to enhance creativity. This is -- it's just part of our legacy going all the way back to when Walt was pioneering synchronized sound and Steamboat Willie, and moves all the way through to Pixar's advanced computer animation and then even recently in series like The Mandalorian on Disney+. And when we do this right, will be a place where I think the best talent works because they'll have access to the deep dialogue of beloved characters with opportunities to tell new stories. And and even the potential to innovating content production using all the latest technology, including AI. Now for our shareholders, we see AI as a potential driver of improved returns over time, which will -- it will include making the production process more efficient and increasing the volume of content that we actually put out. In streaming specifically, we've got a lot of work going on to develop really like a hyper-personalized recommendation engine across Disney+ and ESPN. And then we're implementing AI to enhance our ad targeting capabilities, letting our partners develop and and execute truly dynamic brand messaging. If I move over to the experiences side, we see a significant opportunity to make it easier for families to plan their trip to optimize all the time with us and to personalize their experience. Disney Vacation means a lot to our fans, and we're using AI to reduce the complexities around planning and booking a trip and trying to make that whole experience specifically tailored to what our guests want most. So a fair amount going on there, but Hugh... Hugh Johnston: I'll jump in on the last couple, sure. On workforce productivity, we're focused across several areas. One of the ones I find particularly interesting is an initiative to implement precision labor demand forecasting across our theme parks. We think that one has the potential to create a better guest experience, a better employment experience and also better cost management for the company. So we're very excited about that. And then on enterprise operations, as is true with really many, many companies the pathways to both drive efficiency and reduce costs are really quite numerous across the enterprise. Last, Laura, you didn't specifically ask but we do see our experiences business as well positioned structurally in a world of rising AI-driven content. We think it may end up increasing even more the value consumers place on authentic real-life experiences to -- with those that they are close to like we deliver across the parks and resorts every day. Benjamin Daniel Swinburne, C.F.A.: Great. Okay. We're going to now take 2 questions on the portfolio of assets at the Walt Disney Company. I think these are probably both for Hugh. So this is from Robert Fishman at MoffettNathanson. How do you view the importance of ESPN and linear networks through the lens of your priorities to create -- to drive creativity, quality and global scale at the company? Hugh Johnston: Yes, it's a great question, Robert, and obviously, one that we hear a lot. So I'm going to try to be as clear as I can in the answer on this. We do understand there is a lot of focus on linear and entertainment assets and ESPN. So I'll explain our view here. Let me start with linear entertainment cable networks and 3 points. First, these networks are better thought of as brands with studios that produce content like the Bayer or show gun and we monetize that content across multiple distribution platforms. Separating those monetization platforms into discrete businesses is highly complex and in our view, unlikely to create incremental value for shareholders especially given where linear networks are valued in today's marketplace. Second, we're managing a monetization transition of these brands, and we are actually far down that migration path. We're generating more revenue at Disney Entertainment in streaming than in linear, more than double if we look at it in this most recent quarter. So the linear earnings base is becoming smaller and smaller every quarter within our P&L. Finally, yes, linear revenues are declining, but Disney Entertainment as a segment is growing nicely. Our guidance continues for double-digit segment OI growth. This fiscal year, excluding the 53rd week. So with all the cord-cutting pressure, we're all aware of. Disney Entertainment is actually one of the faster-growing media businesses out there, and we're actually very, very proud of that. Turning to sports in totality. We view ABC as strategically connected when we think about ESPN and sports in general. Sports is admittedly a separate discussion in that it is much earlier in its monetization transition, having just launched unlimited last year. However, when we look at the marketplace for streaming in our competitive set, Netflix, Prime video, YouTube, Paramount+, all of them are increasing their position in live sports. Sports rights are expensive and can be dilutive without scale but we have scale in our most important market, the U.S. and the biggest sports media brand in the world in ESPN. We view sports as a key part of our programming strategy and ESPN as an important contributor to our distribution portfolio. For sure, we have to continue to work through this economic transition for ESPN while also better leveraging it for our overall business. As we do this, we will continue to deliver healthy consolidated earnings growth for shareholders. More broadly, when it comes to capital allocation, we're always assessing and looking to maximize shareholder value of our portfolio. That is our responsibility to shareholders, and we will continue to do that in the future. Benjamin Daniel Swinburne, C.F.A.: Okay. Great. Thank you, Hugh. Next, on the portfolio. Can you expand on the One Disney strength as it relates to your sports businesses and general entertainment assets. Specifically, how do those businesses fit into a Disney focused paradigm that is strong across both entertainment and experiences? Are there any elements of the company that you would consider noncore in the context of One Disney? And I apologize, this is for Mike Morris at Guggenheim. Hugh Johnston: Sure, Mike. We do see One Disney as an important priority for the company. It really is more than a strategic headline. It's about how we create, distribute, engage and monetize our stories and brands across the company in a way that increases the lifetime value of our consumers and drives compounding returns for our bottom line, and thus for our shareholders. It's also about how we operate as a company, less a portfolio of assets and more a set of connected businesses that are focused on the fan, the consumer with an enterprise-wide lens store engagement and lifetime value. Turning to what is more of a portfolio optimization question. As I mentioned earlier, the entertainment networks are better thought of as brands with studios that produce content that we distribute across our platforms with the intent to increase reach and engagement. And at ESPN, we have the biggest sports media brand in the world, as I mentioned earlier. That now includes even more NFL content. In fact, I think it's the most we've ever had from the NFL, which is being made accessible to consumers across all distribution platforms and devices. And Mike, to your question on noncore assets, know that we're always evaluating the merits of our brands, org structure and business priorities to deliver long-term value for our shareholders. If there is a compelling case to consider strategic alternatives for any noncore assets, you can reasonably conclude that, a, we've already looked at it; and b, we'll continue to do so in the future as the marketplace and our businesses evolve. Benjamin Daniel Swinburne, C.F.A.: And then moving to a question from Steven Cahall at Wells Fargo on efficiency. I think for you, Hugh. It appears that one of the early initiatives is to increase efficiency, including some recently announced workforce reductions. How big is the opportunity as you take a fresh look at the operations, where is the most room for improvement? And should we think about efficiency gains as falling to the bottom line or being reinvested into areas of growth like content technology spend? Hugh Johnston: Right. Thanks, Steve. These are always difficult exercises for the organization. But let me assure you, this management team is acutely focused on this. At a high level, however, we're working towards driving efficiency and rightsizing our organization for the state of the business today and where we want to go over time. And second, shifting more of our expense base into areas that we expect to drive growth. That's content and technology. The most recent example you cited is a part of our push to unified enterprise marketing organization, and the recent staff reductions reflect a deliberate shift toward a more agile, technologically enabled and resilient workforce. We aren't going to size the opportunity or rank order the areas that we're focused on, in part because this is an ongoing exercise and a muscle we're building for the company. We want to build a culture of efficiency, and we want to fund growth opportunities from within the existing expense base. Across the company, we're aligning structures, capabilities and talent to what the business needs next. We're simplifying where we can, while investing where it matters most, and we're using technology to fundamentally change how work gets done. We have been and will continue to look for these types of opportunities to redeploy capital, both financial and human, to areas we see driving the highest returns for shareholders. Benjamin Daniel Swinburne, C.F.A.: Okay. With time for 2 more questions or 2 more analysts asking questions, and these are focused on our second quarter results that we just released in our outlook. So I think a few Hugh, worth hitting from David Karnovsky from JPMorgan, starting with -- on the sports OI guidance. So that is now mid-single digits, which includes the NFL network transaction. Can you help quantify if the change from the prior commentary of up low single digits, is that all NFL network? And any comment on what drove the stronger second quarter sports results versus our guidance? Hugh Johnston: Sure. As a reminder, the prior guidance of low single-digit increase was before the NFL transaction, as you probably know, but just in case. So yes, the primary change here is incorporating the NFL transaction. Regarding the quarter, sports OI in Q2 came in a little bit better than expected, simply because our revenues came in slightly ahead and programming fees slightly under, but really small variances to each. Benjamin Daniel Swinburne, C.F.A.: Okay. And then David asked, is there any additional detail here you can give us around the 53rd week impact by segment? Hugh Johnston: Yes. It really impacts all of our segments to a degree. So we wouldn't want to be overly precise on that. But think about it as essentially 153 or a little less than 2% benefit on our full year revenues. Then we had some modest margin uplift given some of the fixed costs that are accrued over the course of the year. So a bit of an uplift, overall, it delivers about 4%. Benjamin Daniel Swinburne, C.F.A.: Okay. And then lastly, on the park side, what drove the better-than-expected top line, which was up 6% relative to the guidance we provided? And any indicators that give you confidence on domestic attendance or international parks and the macro impact to consider? Hugh Johnston: Sure. The outperformance really came from core Park's revenue and it was broad-based. Admissions were stronger. Food and beverage, [ merch ], really everything came in a little bit stronger than expected. So revenue really came in nicely. Nothing unusual to call out other than a bit better on the top line than we thought earlier in the quarter. Right now, we're not seeing any macro weakness to point to, including at the international parts. We also obviously have the benefit of the Paris World of Frozen opening. So feel very, very good there. Benjamin Daniel Swinburne, C.F.A.: Okay. Great. And then I think our last question is coming from John Hodulik from UBS. So John asked about the cadence of SVOD entertainment margins now that we've hit double digits here in the second quarter, Hugh. Hugh Johnston: Okay. Yes. Thanks for noticing, John. We're proud to hit double digits this quarter. Look, we're focused on driving top line growth. And you noticed in the letter, we're investing. So we want to keep growing this business profitably. We're focused on the long term and making sure we maximize what Disney+ can be for this company over time, as you heard Josh discuss at length today. We had previously talked earlier about accelerating revenue growth in that business. And we feel terrific about the fact that we have, in fact, been able to do so. Benjamin Daniel Swinburne, C.F.A.: Great. That's all the time we have this morning. Thank you for your time. To close this out, I'm going to hand it over to Josh. Josh D’Amaro: Thanks, Ben, and thanks, everyone, for your time this morning. We realized that we packed a lot of information into a new format, both on the call and in the letter, with this being my first earnings call as CEO, we felt that it was important to spend extra time laying out our strategy and then, of course, taking your questions. We also felt it was important to discuss our results with more of a unified approach rather than focusing on individual segments. I'll conclude by saying that I look forward to engaging with the investment community and our shareholders in the future, including on our fiscal Q3 earnings call in August. Thanks for joining today, everybody.
Operator: Welcome to the LeMaitre Vascular's Q1 2026 Financial Results Conference Call. As a reminder to everyone, today's call is being recorded. At this time, I would like to turn the call over to Mr. Dorian LeBlanc, Chief Financial Officer of LeMaitre Vascular. Please go ahead, sir. Dorian LeBlanc: Thank you. Good afternoon, and thank you for joining us on our Q1 2026 conference call. With me on today's call is our CEO, George LeMaitre; and our President, Dave Roberts. Before we begin, I'll read our safe harbor statement. Today, we'll be making some forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, the accuracy of which is subject to risks and uncertainties. Wherever possible, we will try to identify those forward-looking statements by using words such as believe, expect, anticipate, pursue, forecast and similar expressions. Our forward-looking statements are based on our estimates and assumptions as of today, May 5, 2026, and should not be relied upon as representing our estimates or views on any subsequent date. Please refer to the Cautionary Statement regarding forward-looking information and the Risk Factors in our most recent 10-K and subsequent SEC filings, including disclosures of factors that could cause results to differ materially from those expressed or implied. During this call, we will discuss non-GAAP financial measures, such as organic sales growth. Reconciliations of GAAP to non-GAAP measures discussed in this call are contained in the associated press release and if applicable, in supplemental materials, both of which are available in the Investor Relations section of our website, www.lemaitre.com. I'll now turn the call over to George LeMaitre. George LeMaitre: Thanks, Dorian. Q1 featured 11% sales growth, a 72.7% gross margin and 42% EPS growth. Grafts were up 20%, valvulotomes 15% and carotid shunts 11% as each category posted record sales. Our 3 geographies also posted record sales. EMEA was up 20%, APAC 18%; and the Americas, 7%. Artegraft has become our largest product, and we're investing in its growth in 3 ways: number one, filing more international approvals; number two, making longer sizes available for leg bypasses; and number three, proving Quick Stick claims for AV access. Worldwide Artegraft sales grew 36% in Q1. International Artegraft sales in Q1 were $2.1 million, and we expect 2026 sales to be $10 million versus $4 million in 2025. Health Canada has approved Artegraft and the launch is now planned for H2 2026 as we finalize Canadian-specific packaging validations. Additional Artegraft approvals are expected in 2027 for Korea, Brazil, Vietnam and India. We're also working to make longer artegrafts available. Because European surgeons use Artegraft for leg bypasses, our longest Artegraft, which is 50 centimeters, is now in high demand, and we know we could sell longer sizes. Unfortunately, our current packaging tube is just 53 centimeters long. So the first step is to gain approval for a longer tube, and we plan to make these filings in the U.S. and Europe in H2 2026. First sales of these longer artegrafts could start in H2 2027. Separately, we've made a pre-submission filing to the FDA as we seek Quick Stick AV access claims on Artegraft's U.S. labeling. This pre-submission will help us collaborate with the FDA to develop the pathway for a PMA filing or to design a clinical trial. While Artegraft's current U.S. labeling restricts cannulation to 10 days after implantation, peer-reviewed literature indicates that artegraft can be cannulated 1 to 3 days after implantation. RFA grew 25% in Q1, led by strong U.S. results. We currently distribute tissues in 3 countries: the U.S., Canada and the U.K. German implants should begin in Q2, and we now expect to receive Irish approval in H2. Our Irish warehouse opened in April, and we'll begin shipping our core medical devices starting in June as we await an audit from the Irish Tissue Authority. This audit should enable tissue distribution from our Dublin warehouse to Irish hospitals in H2. Long term, this warehouse will be used for pan-European distribution. We filed for Australian approval in April, and we plan to file in Austria, Holland, Belgium, Spain and Switzerland in 2026. As for our RFA facility transfer, tissue processing is ramping up in Burlington, and we should complete the project by year-end. We ended Q1 with 158 sales reps, up 3% year-over-year, and we plan to end 2026 with 170 to 180. We currently have 16 open requisitions for new reps, mostly in the U.S. We ended Q1 with 35 RSMs and country managers, up 13% year-over-year. We expect to go direct in Poland in Q4, and this project will include an office, warehouse, a GM, customer service team and several reps. Poland will be our 32nd direct country. Higher ASPs, geographic expansion and disciplined spending produced 11% sales growth and 42% EPS growth in Q1. Full year 2026 also shows op leverage. Increased guidance implies 12% sales growth and 26% EPS growth. Our new 2030 goals are posted on the walls of all LeMaitre conference rooms. We call them the 2030 planks, and our playbook remains simple: produce quality devices, build our sales force, go direct in new countries, acquire niche products and focus on profitability, cash flow and dividends. I'll now turn the call over to Dorian. Dorian LeBlanc: Thanks, George. Organic sales growth of 10% over Q1 2025 was driven by average selling price increases of 8% and unit growth of 2%. Unit growth was impacted by a lower-than-average quarter in our distribution business, which can be lumpy. Excluding distribution, direct sales grew 12.8% organically, comprised of 8.4% price and 4.4% units. Total organic revenue growth excludes a $2 million foreign exchange benefit in Q1 2026 and $1.5 million of Aziyo distribution sales in Q1 2025. These 2 items largely offset one another. We discontinued Aziyo distribution in May 2025. In Q1 2026, we posted a gross margin of 72.7%. The 350 basis point year-over-year improvement was driven primarily by higher ASPs and manufacturing efficiencies. Our Q2 gross margin guidance of 72.1% reflects the impact of our new Billerica warehouse and the manufacturing transfer of our RFA processing to Burlington. Operating expenses in Q1 2026 were $30.6 million, an increase of 6% versus Q1 2025. Despite the continued expansion of the sales force, overall company headcount decreased 3% from 662 at March 1, 2025, to 641 at March 31, 2026. Q1 2026 operating income increased 41% year-over-year to $17.8 million, with an operating margin of 27% compared to 21% in Q1 2025. Fully diluted earnings per share were $0.68, up 42%, benefiting from strong operating income and an improved effective tax rate. We believe our effective tax rate will remain lower than our historical rates. Given the strong growth in high-margin international Artegraft sales and our overall geographic sales mix, a larger share of our income qualifies for the foreign-derived intangible income or FDII deduction, which structurally lowers our tax rate. Excluding the discrete items in this quarter, we expect an 80 basis point improvement from historical effective tax rate due to the higher FDII deductions, another benefit of our U.S. manufacturing footprint. Cash from operations generated $15 million in Q1 2026 as compared to $9 million in Q1 2025. We paid $5.7 million in dividends to our shareholders during the quarter. We ended Q1 2026 with $367 million in cash and securities, an increase of $8 million in the quarter. The LeMaitre playbook continues to drive broad-based revenue growth, supported by our differentiated products, direct-to-hospital model and strong commercial organization. We are affirming our full year revenue guidance of $280 million, representing 12% organic growth. We are increasing our annual guidance for gross margin to 72.3% and operating to $79.8 million, representing 24% growth over adjusted 2025 operating income. We are also increasing annual guidance for diluted earnings per share to $3 or 26% growth from adjusted 2025. Historically, Q2 has been one of our strongest quarters, and we're expecting revenue of $71.5 million and an operating margin of 30%. Our current guidance assumes a constant euro-U.S. dollar exchange rate of $1.17 and no dilutive impact from our convertible debt. For additional details, please see today's press release. Finally, we'd like to welcome Keith Hinton from Freedom Capital Markets to the call. Keith initiated coverage on LeMaitre on March 31. With that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Keith Hinton from Freedom Capital Markets. Keith Hinton: I have kind of a high-level question here on the pricing side of things. So EMEA has been growing faster than the U.S. for a few years. It's my assumption that the prices there start lower and there's less ability to take price over time. So considering that kind of balance against the ongoing mix shift towards grafts, where it seems like you do have good pricing leverage in the U.S. Just how should we think about the high sustainability of high single-digit blended pricing increases in the out years? George LeMaitre: This is George LeMaitre. Again, welcome to your firm for covering the company. And also welcome to the call in terms of asking about price increases and the sustainability. It's a question you can imagine we get frequently. We feel very comfortable with what's going on here. We have another year where I think we're validating all the way into Q1 that we're able to get these price increases. We got 8% in Q1. Did you want me to distinguish between European pricing flexibility and U.S. pricing flexibility? Was that part of your question? Keith Hinton: Yes, that would be perfect. George LeMaitre: Right. I would say it's not exactly answering it, but on that topic, I would say the floors, the pricing floors that we put in are largely in and installed in the United States and about 55% of our products, we have pricing floors and then we change them from year-to-year, of course. And in Europe, I still think we have a little room to go. I think only about 40% of our products have pricing floors. So you can do more -- you can add pricing floors to more of the different products over there. Also in Europe, I think it takes longer for prices to really get installed since particularly in Southern Europe, a lot of the stuff is sold on 3-year tenders. And so you can only change your price once every 3 years. So you change it and then it takes 3 years for it to fully get implemented. I hope that makes sense to you. So maybe a little more room over in Europe, given the fact that we're not as price floored over there and that it takes longer once you do a price -- to get to a price hike, it takes longer to get to. Keith Hinton: Great. And then just one specific, and again, apologies if I missed this, but can you talk a little bit about the performance for patches in the quarter? I know there was a bit of a tough comp there. You were lapping some supply issues for a competitor, and I think that was the last quarter of Elutia. So just talk a little bit about that and how we should think about patches growth going forward? Dorian LeBlanc: Right. And I can pull out, it was not such a great quarter for patches. XenoSure was up 5%. That's the core patch. And I can get you in a second, if you stand by, I can get you the full patch category. If anyone in the room has that, we can do that. XenoSure is the main piece of all this. And I'm getting closer here, Keith. I should know this off the top of my head. Let's see. Let's see that. That's going to help me. One second, I can do it. Organic growth for the whole category was 2.3% for the quarter. Again, 5% for Zeno and 2.3% for the whole category patches. Does that help? George LeMaitre: So we have his audio problem. Operator: Okay. Can hear you very well at the moment? George LeMaitre: Great. We lost you for a little while, yes. Operator: Our next question is coming from the line of Michael Petusky from Barrington Research. Michael Petusky: So George, I guess I'm curious with the stuff of the last, I guess, 2 months in the Middle East. Are you guys seeing any impact from that either just in terms of customers that you may have in that part of the world or just in general in terms of the cost of transporting things and so on and so forth? Just wondering any impact from sort of the international problems. George LeMaitre: Sure. So we have a very concrete topic about that, but it's not large. We weren't able to ship $175,000 worth of export towards the Middle East, at the end of the quarter. So we ended the quarter Q1 without having shipped that. But in general, Mike, I would say, no, we're not really being bothered by this. This is a big topic for everyone in the world. But for our little world LeMaitre Vascular so far, we've been okay. Probably as time goes by, the supply chain will put extra cost on us for transportation and things like that. But I would say, for now, we're crossing fingers and toes, and I think things are okay for us vis-a-vis what's going on in Iran. Michael Petusky: Great. And I don't know if David is there, but if he is, I'd love an update on M&A, any commentary he has there. David Roberts: Mike, yes, it's Dave. Nice to hear your voice. Yes. So we're out hunting. We're active. We've put out 2 or 3 term sheets so far this year. The hunting ground remains the same of open vascular, where there are a couple of dozen targets and cardiac surgery, which, of course, is about 12% of the revenue. And the revenue sweet spot stays in that sort of $15 million to $150 million, give or take. We do look small, we do look bigger. And certainly, we have cash and dry powder to execute. So we're just trying to find a good target that's the right fit at the right price. Michael Petusky: Obviously, you guys were pretty active for a long time in the last 5 years or so, it has been less so. Have you guys -- other than maybe looking bigger, I mean, have you guys changed the approach at all in terms of hurdle, internal hurdle rates or anything like that? Or is it just, hey, we're waiting for a pitch, and we just aren't seeing our pitch. David Roberts: I would say we haven't really changed it. I mean, obviously, the last sizable acquisition we did was Artegraft, which was almost 6 years ago. We did a very small one acquisition, which some people might have missed in December. It was just a few hundred thousand of revenue over in Europe. But high level, no, I mean, I would say, since Artegraft, we did that, and it was COVID and then we're integrating. But we've been hunting. I think one factor is that there just aren't that many targets left in open vascular. So that's piece A. Then piece B is, I think it's taken us a little while to sharpen our focus in cardiac surgery, and I feel like we're there now, which is why I think you hear me saying we're fairly active with respect to making these nonbinding offers. So we're out there. And yes, I mean, on the one hand, I'm fully cognizant of the amount of cash we have, but I've done enough bad acquisitions to know that you're really better off waiting for your pitch. And so we're waiting for our pitch. George LeMaitre: Mike, maybe a small add to that from George would be, I think in the last 6 years since we did the last big acquisition in June of 2000, I do think -- and I think I mentioned this on one of these calls, I think we've gotten more self-confident about our ability to grow this company organically. So the last 3 or 5 years, the stock price has moved a lot based on organic growth. And I think when you prove that to yourself that you can run a business organically that well, you start feeling less pressure to do acquisitions. So I think maybe that sort of implicitly made the bar go up a little bit as well. Operator: Our next question comes from the line of Michael Sarcone of Jefferies. Michael Sarcone: Just wanted to start, George, you opened up the call talking about some opportunities and then growth drivers for Artegraft. I wanted to hone in on the Quick Stick claims. Maybe I was hoping you could help us frame the volume opportunity. I believe Gore Acuseal is kind of the primary competitor there. Help us frame the opportunity for what you could gain in share or volume growth if you did get the Quick Stick claim. David Roberts: Mike, it's Dave Roberts. I'm going to jump in on this and George can add color. Yes, you are right in identifying the Gore Acuseal. Whenever you buy a Gore Tex raincoat, you support Acuseal. So there's that. And then there are FIXIN, there are other Quick Stick grafts on the market. Of course, Quick Stick really is focused on dialysis access and not peripheral bypass. Artegraft, it's funny. Over in Europe, as George mentioned, it's being used primarily for peripheral bypass. So a Quick Stick indication once the Europeans take up using grafts as part of their algorithm for dialysis access, the Quick Stick feature will really just help us in the U.S. And last year, our Artegraft sales in the U.S. were around $40 million. We don't really speak in TAMs too much around here. Do we think that Quick Stick will expand our sales of Artegraft? We do. And because we see these competitors, we know there's a market. And so -- but we feel also like this regulatory path is long for us. It could be 2 years, but it could be 5 or 6 years. And so we know the market is big enough that it completely justifies us investing the dollars to pursue that indication. But in terms of exactly how much bigger we expect the market to be, I don't think we're prepared to say that. We do think it will be materially bigger than our U.S. Artegraft sales today. But beyond that, I'm not so sure we're ready to say exactly how much bigger. Michael Sarcone: I guess just another one on Artegraft, just about the 53 centimeters, the longer length. How much -- I guess I'm trying to figure out what does that do for pricing for you? Obviously, as George mentioned, one of the central focuses here is sustainability of pricing. So what kind of ASP bump do you get as you elongate the length of some of these grafts? George LeMaitre: I think there's a good market out there, and we've proven it with our Omniflow II product, which we've had out there for 5 or 8 years now. That's the Ovine-based device out there, Mike. And so when we get to the longer Artegraft, and we'll get there at some point, we've already proven the 50-centimeter has significantly premium pricing versus the rest of the entire Artegraft portfolio of catalog numbers, if you will, the other lengths. So I would say when you get up to 53, 55, 58, you are going to be able to get into premium pricing there. So as good as possible. And some other good news is that when we went into Europe, our manager over there put pricing above the American pricing, which is kind of rare, and it seems to be working. So it should be nice gross margin devices when we get there. Operator: Our next question comes from the line of Brett Fishbin from KeyBanc Capital Markets. Unknown Analyst: This is Will on for Brett. Quick question on gross margin. You expanded around 350 basis points, and you called out higher pricing as well as some manufacturing efficiencies. Could you just speak a bit to the split between those 2 items? And then can you just double-click on some of the manufacturing efficiencies? And how much more room do you see to take out cost? Dorian LeBlanc: Yes. This is Dorian. Thanks for the question. The 350 bps year-over-year, it's largely the pricing is also driven by some positive mix. We talked about the distribution business being down a little bit. That's a lower-margin business overall. We also talked about the success of Artegraft, and that's a very high-margin business. So that price and that positive mix helped to that 350 bps. And the manufacturing efficiencies, we've talked about this on several calls now. And it's hard to identify really one single individual thing that we've done in the operations. But other than really maybe the theme of consolidating here in Massachusetts, which we do think long term gives us better operational efficiencies. But we have seen really good -- Trent Kamke who runs our operations, Ryan Connelly, our engineering team, Andrew Hodkinson, who runs quality regulatory, I think have done a nice job of just building a culture of continuous improvement here. So we've seen that come through in a lot of just discrete, what you call lean or Kaizen projects. Maybe the best way to articulate it is at the end of 2023, we had 211 direct labor employees in the company. And at the end of 2025, we had 175. So we continue to increase the number of devices that we're manufacturing, and we can continue to do it with fewer and fewer direct labor heads. And that's really a result of these automation projects, these lean kaizen type projects. And then we've also elsewhere in the cost structure, try to drive cost out over the last year. We did do some initiatives around freight and logistics in the back half of last year that really helped margins. We have been building out that footprint of warehouses across Europe, in particular, where we used to ship all the products from our German facility in Sulzbach to cover the European customers. We now have operations with warehouses in Switzerland, in Italy, in Spain, in France and the U.K. And just being closer to the customer has a lot of commercial benefits, but it also has a lot of cost benefits around freight. So I think we're just trying to continuously improve and drive cost out. And I think there continues to be opportunity for us there. But it really has been a great story, gross margin with the pricing and the abilities to just keep trying to continuously improve the operations. Unknown Analyst: Then maybe just sticking with the theme of margins. The guidance implies material ramp up in operating margin to hit 29% for the year. How should we think about the next few quarters and eventually getting to a 4Q exit rate? George LeMaitre: I think material here is that we have a 30% op margin coming at us in Q2, which is historically one of our better sales quarters. So that one is a little bit more obvious. But 29%, I don't know what do we have keyed in here for the back half. We have 29% for the H2. So that implies H2 at 29%, but we don't -- we're not splitting the quarters exactly right now. I hope that's cleaning up. But I mean 30% is very close to 29%. So it's a nice exit rate in any event. And what are we at this quarter? We're at 27% right now. So a little bit better. Dorian LeBlanc: This is Dorian. Maybe just to jump in a little there. Again, I think we did just talk through some of the investments that we plan to make in the back half of the year, some of the investments around Artegraft, talked about the Billerica warehouse and the Burlington manufacturing transition for RFA. But also, we do expect to ramp the sales force in the back half of the year and make other commercial investments. So 2025 was a year where the front half of the year was -- had a little more expense, and we had a little less expense in the back half. 2026 will probably be a more normal year where you see the second half of the year have a little bit more OpEx than the first half. Operator: Our next question comes from the line of Rick Wise from Stifel. Unknown Analyst: This is Annie on for Rick. So my first one is just on the first quarter OUS Artegraft performance. I think I heard you call out $2.1 million in sales this quarter, which would sort of imply this annual run rate that's a bit below your $10 million target for the full year. So I guess I'm just curious how you're thinking about the sales cadence through the rest of the year, if you're expecting sales dollars to continue stepping up each quarter or if there are any sort of seasonal dynamics that we should be conscious of and how you're expecting to sort of get to that $10 million target? George LeMaitre: Sure, sure. And if you go on a day adjusted look at this, Annie, 2.1 in those -- in the first quarter winds up being an 8.6%, not an 8.4%. So we did do the math on that. But you have plenty coming at you. Q1 is always your lightest quarter at this company, always. Canada has approval. We should be shipping devices in Q4 or I think we're saying H2 here at some point in the back half. And you also have the Southern European region kind of ramping up right now. So we felt good about that. We put that number out there at the last quarter, so we're validating again this quarter. Makes sense to us. The ramp makes a lot of sense to us to get to $10 million. Unknown Analyst: Great. And then maybe just one on RestoreFlow Allografts. I heard you highlight that you're beginning distribution in Germany in the second quarter, I believe, and you're expecting RFA to be approved in Ireland in the second half. Maybe you could just share your latest thoughts about the European RFA market opportunity and sort of the potential speed of adoption and revenue ramp there. George LeMaitre: Right. That's a good question. I would say it's been a little -- the Artegraft thing happened so suddenly. It sort of took front and center stage as a company last year and in this year. And I think RFA is kind of not as much focus from a regulatory perspective. But I think now the focus is on that, and these things will start coming soon. So I would say it's been a little bit slow to start with and that we should see it speed up as we get more regulatory focus on that product line. Also in Germany, we got the approval, if you remember, in October, and we have not done one implant yet, and we're still sort of building our supply of "German approved items" and they're slightly different technical reasons. They're slightly different than the American approved items. And so it's taken a little bit longer for us to build up stock there. Then maybe the Irish approval and audit by the Tissue Authority there is a little bit slower in coming than we expected. It took us a little bit longer to set up our Irish office, and you're not allowed to ask them to inspect your facility until the facility is truly open. So a couple of those items there. But to go back to this, we just filed in Australia, and then there's 5 European filings, which will take place in H2 of 2026, Austria, Holland, Belgium, Spain and Switzerland. So it's starting to happen here. But we would admit it's been a little bit light over there until now. Operator: Our next question comes from the line of Danny Stauder from Citizens JMP. Daniel Stauder: Just my first one on Artegraft, specifically on the point on making the longer sizes for light bypass. Could you talk about this decision? I mean it sounds like it's higher dollar in terms of the sell point and maybe it's more common in Europe. But are there any more recent trends from vascular surgeons that you're seeing that's leading to higher demand for these longer sizes? I guess in summation, the question is why now? And why are you pursuing this at this point? George LeMaitre: Right. I think it's always been very clear to our European colleagues that a 50-centimeter wasn't going to make them happy and that it just barely qualified for what we'll call fem-pop bypasses, which is just below the knee. They've always told us, yes, well, we can sell a 50, but George, we want 60s and 58 and 53s just like you provide us with that Omniflow graft. Again, I'm talking again about what I said. We sell Ovine Omniflow over there, and they're longer, and that's the market. They don't really do AV access in general in Europe. And so in the U.S., where we sell mostly AV access artegraft, 50 centimeters has always been sufficient for the whole entire history of this device. So we figured, oh, let's get going in Europe, but then we always knew. So this has been a project that's been on our drawing board for a while, but it's starting to get real now that we've got that CE mark. David Roberts: I would add, Dan. This is Dave Roberts. The backdrop, if a patient has peripheral vascular disease, especially distally down the calf towards the foot, the smaller diameter, the artery, the more likely it is that an endovascular intervention, whether it's an angioplasty or stent or atherectomy or whatever you have, isn't going to be durable over the long haul. So that's why we always see with our valvulotome a long bypass is what surgeons want to do with our allografts here in the U.S. and in Canada and the U.K., we've always seen the most demand for the longest allograft. So clinically, there's a very good reason for it. But as George said, for us, our U.S. Artegraft business has been mostly dialysis access. It's only since we got into Europe where they're really adopting it for peripheral that it's highlighted the need for a longer artegraft. Daniel Stauder: Just following up on that line of questioning. Just in terms of the market opportunity, how much would approvals here expand your total addressable market for this business? Are there certain procedures that this unlocks? It sounds like it might be more so in Europe, but any more detail on patient population sizing or growth here would be great in terms of what this could offer you? George LeMaitre: Right. Slightly complex answer, but the answer is we've given you a TAM, and I think we upped it the last time we met at $30 million for biologic grafts in Europe or international rather, OUS, let's call it. And that always included the bovine graft, and we sold something like $6 million last year of bovine, and we plan to sell $10 million worth of this bovine graft Artegraft. So that's 16 of the 30 TAM, but in knowing that we are already selling, it's a little complex, in knowing that we're already selling bovine for the distal bypasses for these longer bypasses, we already felt that was part of the TAM. So in the very short run, does this affect our TAM of 30 million? No. Though we should think about it for a while and come back to you guys on it. But in the short run, no, let's stay with 30 million as the TAM. Operator: Our next question comes from the line of Nathan Treybeck from Wells Fargo. Nathan Treybeck: Just thinking about capital allocation, I guess, as we think about your opportunity set, either organically or through M&A, are there any product categories you would call out in open vascular, open cardiac where you're seeing outsized momentum or maybe strategic underinvestment? David Roberts: I mean for us -- Nathan, this is Dave. It's a great question. I think the first level consideration is open vascular versus open cardiac. And for us, open vascular is still the center of the fairway. But like I've said, there are limited targets set in open vascular. When you get to cardiac, we're generally steering away from capital equipment, never say never. But the more important attribute for us is the niche market. And George emphasized that when he rattled off, I think, 5 of the key tenets of the LeMaitre playbook. We're looking for these niche markets where we can acquire into a leadership position. We really like physician preference items that are differentiated that the surgeons are going to gravitate towards over time. So the cardiac surgery market devices is, I'd say, at least 4x the size of the open vascular surgery market. So there are a lot of targets there. I'm not going to get specific for obviously competitive strategic reasons about the targets we're interested in, but there are plenty of these interesting niches that we could acquire into. And then hopefully, they would exhibit the same financial characteristics over time that our organic products are these days. Nathan Treybeck: How are you thinking about the RestoreFlow German launch in Germany? How are you thinking about the ramp and the contribution to growth this year? George LeMaitre: I mean -- this is George again. It's all baked in the guidance, but I think we're being quite cautious with what we're baking into guidance because we don't know. We've had one European launch over there, and it went fantastic. It was the U.K. But we haven't seen it yet. We have less supply. We didn't have supply issues the last time. The American and the British -- what the Americans and the British accepted for acceptable tissue was the same. So we didn't have a distinction. Now we have a distinction. Every single tissue that we send to Germany has to be sort of German qualified, if you will. So we've had a slower time. So I don't -- we don't know. We've got very cautious numbers baked in the guidance. We shall see maybe there's a little upside for everyone in this launch. Nathan Treybeck: I could squeeze one more in. As we think about your guidance philosophy, I mean, we see 10% organic growth, and there was this distribution dynamic in Q1. Your guidance implies an acceleration through the rest of the year. I guess, how derisked is this guidance at this point? George LeMaitre: I mean -- if you look at tough comps, easy comps, I think the summer quarter is an easy quarter to beat up on. So you have that going for you. And in general, maybe even Q4 is something that we can do better than what we had here. But you look at our guidance history, I think, Dave, what do we hit like 77% of the quarters for sales guidance. We haven't written on the investor preso out there. I think it's something like that, Nathan. So this is like our 78th call. So we're getting better and better at doing guidance, I think. But yes, there's always risk. We don't -- I don't think you would accuse us of sandbagging if we're "on making it 75% of the time". So we try to give you the best -- the right number and then and we chase it, too. We'll chase those numbers. They mean a lot to us. Operator: Our next question comes from the line of Jim Sidoti from Sidoti & Company. James Sidoti: Can you tell me what the operating cash and the capital expenditures were in the quarter? Dorian LeBlanc: Sure. This is Dorian, Jim. Cash from operations was $15.1 million, and the CapEx was $2.8 million. James Sidoti: You talked about the consolidation of the Chicago plant. Is that something you expect to be done by the end of this year? George LeMaitre: Yes. James Sidoti: I feel like I'd be missing something because I didn't ask an autograph question on the call. It seems like that's the topic of the day. You brought up Korea, Brazil, Vietnam, India. When do you expect those approvals? George LeMaitre: 2027. James Sidoti: Those are all 2027. So early, late, will they be contributing? George LeMaitre: I mean, I wrote in the -- we wrote in the script H2, but I bet you get one of them in H1 and 3 of them in H2, something like that. James Sidoti: Okay. So they'll be moderate contributors to 2027. George LeMaitre: We haven't even thought that through. We're thrilled to get them, and that would make us have 56 approvals instead of 52, but they're okay countries for us. Operator: Our next question rather, comes from the line of Frank Takkinen from Lake Street Capital Markets. Frank Takkinen: I was hoping to follow up on the distributor. Is there a chance that swings back in Q2 and the back half of the year? And then is this potentially a geography where you may elect to go direct? George LeMaitre: Okay. So you're talking about -- when we talked about export in Q1 being a little bit light, yes, there's a very good chance that it will swing back. Maybe if we look at maybe one fact that didn't come out yet, which is if you look at April, you guys -- we usually don't do this, but just to give people some comfort there. In April, sales growth was 13%. It was 7% price and 6% units. And that's a big hint that, yes, it was a temporary passing phenomenon. And one little step further here, Frank, the export business, interestingly enough, because we run around touting ourselves as a direct-to-hospital company. And lo and behold, if you really look at the facts, the export business of this company has a CAGR of 20% for the last -- since 2019, so skipping over the pandemic, starting in 2019, the 7-year CAGR, if you will, is 20%. And so that business continues to just do fantastic. And all it says to me is that the world is a very big place. We ignore it and the business keeps coming in, and then we use that to pick off places to go direct. You can see Poland, Mexico and Greece. If you're in our building and you look at the walls at all these 2030 plank sets, it says Poland, Mexico and Greece. So you're probably going to see that happen over the next 2 or 3 years, certainly Poland this year and then Mexico and Greece coming after that. But not worried. Very excited about the export business always. And we have 4 export managers right now or 3 and 1 being filled right now. And on our plank set, we plan to get to 8 export managers by 2030. So a place where we heavily invest because of the growth of the business as well as it produces great opportunities for us to go direct. Frank Takkinen: Perfect. Thanks for the April bonus. And then on the Artegraft R&D projects you mentioned, my assumption to this answer is no, but is this at all kind of marking a transition to maybe looking more internally at the portfolio for other R&D opportunities in light of maybe the M&A -- lack of appropriate M&A currently? Or is this just kind of one-off because Artegraft has had so much momentum? George LeMaitre: That's a good question. It's a good way to look at it. I mean one of the nice things about being a company that doesn't do too much R&D is that the R&D projects scream at you and you can't ignore them for too long. So maybe we could put that in that category. This is very, very obvious stuff. And also, you're allowed, if you don't do too much R&D, you're allowed to do some really low-risk, low beta projects. Making a longer tube is a very low-risk projects where we have high confidence that we'll get that approved by Europe and the U.S. So I hope that gives you some color on the choice of R&D projects. Probably -- I think we've said this before, and again, it's on these plank sets. We do plan to do a little bit more R&D around here. I think in the old days, we were targeting 10%. Now we're maybe targeting 8% just because we're at 6% and saying 10% seems false. But we should do more R&D around here. There's a lot of projects. The larger you get, the more important -- the more helpful a little bit of R&D is to each one of your 160 sales reps. And I think we're becoming conscious of that. Operator: Our next question comes from the line of Keith Hinton from the Freedom Capital Markets. Keith Hinton: I just have a high-level question on business development. If you do decide to execute on a sizable deal in the cardiac space, just beyond the purchase price, kind of how should we think about the potential need for incremental investment to just bolster your commercial presence in cardiac? Is there kind of a level of near-term margin dilution that you're willing to live with in order to bring in another growth driver for the out years? David Roberts: Keith, it's Dave. It's a good question. And the answer is it depends. And what it primarily depends on is if the cardiac surgery product is a product that's also used in vascular surgery because there are 5 or 7 crossover products like surgical sealants and figating clips and atraumatic occlusion devices like that and a relatively easy short learning curve, the answer might be no. We may not need a dilutive cardiac sales force. But if the product is a product that's used exclusively in cardiac surgery, then I would say it's much more likely. And the way we look at that is, okay, so maybe there is the need to establish some size of a cardiac sales force depends, of course, on the size of the acquisition and its geographic reach. But if that's the first step into cardiac surgery, then future cardiac acquisitions would leverage that channel to derive sales. So we're always taking a very long-term view around here. We've done vascular acquisitions for almost 30 years. And I think we would do -- we would have a long runway of cardiac acquisitions. So we pay attention to it, but it doesn't really deter us because we have a long-term viewpoint. Operator: Thank you. Ladies and gentlemen, that concludes today's conference. I would like to thank you all for your participation, and you may now disconnect. Have a great day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Prudential Financial, Inc.'s Quarterly Earnings Conference Call. At this time, participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Tina Madon. Please go ahead. Tina Madon: Thank you. Good morning, everyone, and thank you for joining us. Representing Prudential Financial, Inc. on today's call are Andrew Sullivan, Chairman and Chief Executive Officer, and Yanela del Frias, Chief Financial Officer. We will start with prepared remarks by Andrew Sullivan and Yanela del Frias, and then we will address your questions. Before we begin, I want to remind you that today's discussion may include forward-looking statements. It is possible that our actual results may differ materially from those statements. In addition, remarks made on today's call and in our quarterly earnings press release, earnings presentation, and quarterly financial supplement, which can be found on our website at investors.prudential.com, include references to non-GAAP measures. For a reconciliation of such measures to the most comparable GAAP measures, and a discussion of the factors that could cause actual results to differ materially from those in these forward-looking statements, please see the slides titled Forward-Looking Statements and Non-GAAP Measures in the appendices to our earnings presentation and quarterly financial supplement. With that, I will now turn the call over to Andrew Sullivan. Andrew Sullivan: Good morning, everyone, and thank you for joining our call. This is my fifth earnings call as CEO and the first of my second year in the role. An important point to take stock of where we are as a company, and where we are headed. Over the past twelve months, we have made meaningful progress against the priorities I established at the onset, and we are seeing tangible evidence of stronger execution across the business. The issue we encountered in Japan was unexpected, but we are navigating through it and it does not change our assessment of the path forward. Results across the organization reinforce my confidence in our direction and in the operating discipline we are building. Last year, I laid out three priorities: evolving and delivering on our strategy, improving on our execution, and fostering a high-performance culture, aimed at delivering stronger performance, more consistent results, and sustained long-term value creation. Since then, we have sharpened our focus, raised the bar on accountability, and made foundational changes to our leadership and operating structure to support that agenda. Prudential Financial, Inc. is at a defining moment. We have a strong foundation, distinctive businesses, and significant capabilities. We compete in large, attractive, but highly competitive markets, and that puts a premium on accountability and strong operating discipline. Since that first call last year, I have been clear: delivering the level of performance our shareholders expect requires a simpler company, clearer priorities, and a relentless focus on execution. The status quo is not an option. Our business is anchored in real strengths. We have a trusted brand, deep distribution, and long-standing customer relationships in markets where demand is durable and growing. Nowhere is that more evident than in retirement and asset management, where powerful secular trends are creating significant opportunity. Institutions with the scale and capabilities to manage long liabilities, deliver reliable income solutions, and generate strong investment outcomes will win. A defining strength of Prudential Financial, Inc. is the integration between our retirement capabilities and our asset management platform. That connectivity enables us to source and manage assets in ways that support our retirement and protection liabilities, while positioning PGIM as a sustainable, capital-efficient growth engine for the enterprise. These differentiated competitive advantages matter, but positioning alone is not enough. Success requires clear choices. It means concentrating on the businesses and capabilities where our advantages are real and sustainable, and stepping back where they are not. You have seen us act on this conviction with our recent portfolio actions, specifically, the sales of our PGIM operations in Taiwan and India, as well as our insurance businesses in Kenya and Indonesia. The decision to exit markets where we do not see a scale opportunity or a path to market leadership reinforces our commitment to redeploy capital toward areas where we can generate high cash flows and attractive returns over the long term. It also means building an operating model supported by a culture that is grounded in accountability, candor, and consistently delivering at the highest level for customers, shareholders, and our employees. Our work towards these goals is well underway. While there is more to do, the direction is clear and our momentum is building. We will share more details on Prudential Financial, Inc.’s long-term vision and strategy on our second quarter call in August. With that, let me turn to the quarter. Pretax adjusted operating income was $1.6 billion, or $3.61 per share, up 10% from the year-ago quarter, with an adjusted operating return on equity of approximately 15%. These results reflect solid underlying performance, improved consistency and discipline in how we operate, and early benefits from the actions we have taken to sharpen focus and strengthen execution across the company. Let me now briefly highlight progress across the businesses. Starting with PGIM. PGIM delivered strong investment performance and continued to advance the simplification and integration of its organizational platform. This momentum translated into strong year-over-year earnings growth, and the business is on track to deliver the run-rate savings and margin expansion we previously committed to, both in magnitude and timeline. PGIM’s earnings profile is steadily improving, even as the rate environment and market uncertainty have weighed on certain asset classes and challenged flows, particularly fixed income and real estate, which comprise over 70% of PGIM’s assets under management. That said, we are pleased with the momentum in our expanding private assets business, both in capital deployment and fundraising, which have continued to increase since 2023. Our efforts, specifically in direct lending and asset-backed finance, are yielding strong results, driving approximately $5 billion of the $13 billion we deployed in private assets this quarter. These businesses are higher fee, higher margin, and vital to the competitiveness of our retirement business. We are also seeing good momentum in our active ETF retail, another important growth area for us. This platform reached nearly $30 billion in assets under management at quarter end, almost doubling over the last year. Additionally, PGIM's total flow picture improved meaningfully on a sequential basis. Third-party net inflows from institutional and retail sources totaled nearly $2 billion in the quarter, despite ongoing pressure from active equity outflows, consistent with industry trends. Affiliated net outflows were $1.9 billion, primarily driven by annuity runoff. Across our U.S. businesses, results reflect the actions we have taken to strengthen our competitive positioning. We have been very intentional and methodical in broadening our distribution and diversifying our product offerings. This is enabling us to capture demand and improve the underlying fundamentals of our retirement and insurance businesses. In Retirement, momentum remained strong. Retail Annuities delivered more than $3 billion in sales in the quarter, supported by continued strength in RILA and fixed products. Our new FlexGuard 2.0 product delivered the highest quarterly RILA sales in over a year. Additionally, we completed $1.4 billion in PRT transactions across multiple middle-market cases. These results underscore the depth and breadth of our franchise across both the retail and institutional markets. On the retail side, our broad product set is a key competitive strength, enabling us to meet customer preferences across various market environments. On the institutional side, our leadership spans from executing large, complex transactions to growing opportunities in the core middle market, as our scale, asset capabilities, and customer-centric expertise differentiate us. In Group Insurance, we continue to strengthen the foundational capabilities of this business and position it for improved outcomes. Our focus on product diversification, including supplemental health, and a pivot toward broader market representation through our premier middle-market segment, are driving momentum in this business. However, results this quarter reflect increased macroeconomic uncertainty, which impacted disability underwriting as experience continued to normalize from unusually favorable prior-year levels. This was partially offset by improved life underwriting due to favorable mortality experience, resulting in a total benefits ratio that increased year over year but was within our targeted range. Yanela will provide more details on these dynamics in her remarks, but it is important to keep in mind that our diversified portfolio of group life, group disability, and supplemental health products, supported by our disciplined pricing approach, positions us to navigate effectively as conditions evolve. We remain confident in the long-term fundamentals of our group business and our ability to perform through the cycle. In Individual Life, our focus on portfolio diversification, disciplined pricing, and expanded distribution has resulted in a more resilient earnings profile and enhanced capital efficiency. With the resegmentation of Guaranteed Universal Life, both the strength and quality of our ongoing Individual Life business is more visible, with this segment generating $139 million in AOI this quarter. Now turning to International. Sales and earnings this quarter reflected the financial impact of the sales suspension in Prudential of Japan. As we discussed on our April 21 call, voluntarily extending the POJ sales suspension through November 5 reflects our current judgment of the time required to make the operational, governance, organization, and related changes necessary for POJ to resume sales. We are confident in the underlying fundamentals of the franchise and in our ability to return POJ to the market as a stronger, more resilient business. Importantly, when looking more broadly across our Japan businesses, we have a sustainable and increasingly diversified platform. On the product side, our work to diversify into more yen offerings and build on our retirement offerings is paying off. This quarter, over 35% of our sales came from products launched in the last thirty-six months. On the distribution side, we are continuing to broaden and specifically strengthen our third-party distribution through banks and independent agents. Our independent agency sales were up 7% year over year, and third-party are approximately one-third of our total sales, demonstrating reduced reliance on our captive channels. Together, these factors reinforce the underlying strength and durability of our franchise in Japan. Outside of Japan, emerging markets delivered a very strong first quarter, led by a record earnings quarter in Brazil, where broader distribution, including agency and third-party expansion, and high productivity continue to support profitable new business growth. I would also like to note that we have now exceeded 1.2 million policies through our MercadoLibre relationship, demonstrating our ability to grow through digital platforms. With that, let me close with some final thoughts. What you are beginning to see across Prudential Financial, Inc. is a higher standard for how we are managing the business and positioning it for future success. We are simplifying the organization, allocating capital with greater discipline, raising the bar on execution, and increasingly leveraging technology and AI to become more productive and efficient. As I said at the beginning of my remarks, we operate in attractive but competitive markets. We have a clear understanding of the opportunities and challenges ahead. We are building a stronger Prudential Financial, Inc., one that is positioned to meet those challenges and deliver durable value to all stakeholders across cycles. This work is well underway. While changing the performance trajectory of a company of this size is a multiyear endeavor, our direction of travel is clear and our momentum is real. I affirm conviction in our path forward. With that, let me turn it over to Yanela. Yanela del Frias: Thank you, Andy, and good morning, everyone. Our first quarter results reflected continued momentum entering the year. We reported after-tax adjusted operating income of approximately $1.3 billion, or $3.61 per common share, reflecting a 10% increase from the prior-year quarter. This performance was primarily driven by higher spread income in our U.S. and International insurance businesses as well as more favorable life underwriting results. These increases were partially offset by higher operating expenses, including costs related to the sales suspension at Prudential of Japan. As I have highlighted previously, optimizing our expense base is a key area of focus. Excluding the impact of one-time items, our operating expenses were flat year over year. We are taking targeted actions to reduce costs across the enterprise to support investments in critical areas, including enhancing our service and distribution, and elevating our customer and advisor experience. We anticipate that the benefits of these actions will be evident in 2027. Let me now review the key performance highlights for each of our businesses. PGIM reported pretax adjusted operating income of $190 million, up 22% from the prior-year quarter. These results reflected higher asset management fees, driven by market appreciation, and higher other related revenues from agency earnings. These increases were partially offset by increased expenses related to growth initiatives, including the expansion of our direct lending and private asset-backed finance platform. PGIM is on track to deliver approximately $100 million of gross annual run-rate savings and more than 200 basis points of margin expansion in 2026, accelerating progress towards its 25% to 30% margin target. In the first quarter, PGIM delivered a 19.1% margin, reflecting a 260 basis point increase year over year, which demonstrates meaningful progress toward that goal. Recall that first quarter margins are seasonally the lowest of the four quarters due to the timing of annual long-term incentive awards. Assets under management totaled $1.4 trillion, increasing 3% from the prior-year quarter, driven primarily by market appreciation and strong broad-based investment performance across public and private fixed income. Total flows across third-party and affiliated sources were essentially flat, representing a substantial sequential improvement in all channels. Importantly, third-party net inflows totaled $1.8 billion, as strong fixed income inflows more than offset equity outflows, which, as Andy noted, remain pressured consistent with broader industry trends. Away from active equities, net outflows in PGIM’s affiliated channel totaled $1.9 billion, primarily driven by runoff in traditional variable annuities. Our U.S. Businesses generated pretax adjusted operating income of approximately $1.0 billion, a 3% increase compared to the prior-year quarter. Higher spread income in Retirement and Individual Life was partially offset by higher expenses across all the businesses related to the investments I mentioned earlier. Lower fee income associated with the runoff of our traditional variable annuity block, now reported in the U.S. Legacy Products segment, was also an offset. As disclosed in April, we established a new U.S. Legacy Products reporting segment in the first quarter. This segment includes certain traditional variable annuity and guaranteed universal life products that we no longer sell. The resegmentation improves transparency and better aligns our financial reporting with how we manage the business, while providing improved visibility into the underlying growth and earnings profiles of Retirement and Individual Life. We also believe that the combination of institutional and individual retirement will provide a clearer view of the growth trends in the predominantly spread-based earnings of this business. Now turning to the details of our Retirement segment. Retirement delivered pretax adjusted operating income of over $570 million in the first quarter, 9% higher year over year. These results primarily reflected higher spread related to new business growth as well as approximately $25 million of prepayment income, which is episodic. These increases were partially offset by higher distribution expenses associated with business growth along with the investments I mentioned earlier. Less favorable underwriting results were also an offset. Total sales in the quarter were $7.4 billion, including $3.3 billion of retail annuity sales, reflecting strong momentum following the December 2025 launch of FlexGuard 2.0, our newest RILA product. Pension risk transfer sales totaled $1.4 billion and were across four middle-market transactions. Net account values were $356 billion, up 8% year over year, reflecting market appreciation and broad-based growth across our diversified retirement product set. Of note, retail annuities grew to $58 billion in account values, representing a 34% increase from the prior year, driven by over $13 billion in sales over the last year. Now turning to Group Insurance. Group reported pretax adjusted operating income of $38 million compared to $89 million in the prior-year quarter. Excluding the impact of a favorable reserve refinement of approximately $30 million last year, the decline primarily reflected less favorable disability underwriting driven by higher incidence and severity amid increased macroeconomic uncertainty. This impact was partially offset by improved Life underwriting results driven by favorable mortality experience in the working-age population. This result also reflected higher expenses primarily related to investments supporting business growth and operational efficiency in both our claims and service organizations. The total benefits ratio increased to 83.7% in the quarter, as less favorable disability experience was partially offset by more favorable life experience. The benefits ratio remains within our target range of 83% to 87%. As a reminder, our total Group benefits ratio reached a first quarter record low of 81.3% last year, driven by the favorable reserve refinement I mentioned earlier and very favorable disability experience. Sales totaled $526 million in the quarter, up 32% year over year, driven by continued momentum in our Premier segment across our diversified product sets as we continue to execute on our market segment and product diversification strategy. This outcome also reflects strong supplemental health sales, which nearly doubled year over year. Individual Life generated pretax adjusted operating income of $139 million in the quarter, more than doubling year over year. This increase primarily reflected improved underwriting results due to more favorable mortality experience from lower severity of claims. Higher spread income also contributed to this result. Sales of $251 million marked a record first quarter, driven by strong momentum in variable accumulation products where we continue to lead given our robust distribution and service capabilities. Our new U.S. Legacy Products segment generated pretax adjusted operating income of $207 million in the first quarter, a 22% decrease compared to the prior-year quarter. This decrease primarily reflects lower net fee income driven by the continued runoff of the traditional variable annuity block, partially offset by market appreciation. Also contributing to the decline were less favorable underwriting results related to the GUL block. Our International businesses generated pretax adjusted operating income of $810 million in the first quarter, down 4% year over year. This result was driven by higher spread income along with more favorable underwriting results, primarily due to new business growth in Brazil, which had a record earnings quarter. These increases were more than offset by expenses related to the Prudential of Japan sales suspension. The financial impact of the suspension totaled $130 million in the quarter, in line with our expectations. Approximately $50 million of this amount related to customer reimbursements, $50 million related to Life Planner compensation. The remainder was attributable to lost sales and higher surrenders. As a reminder, and consistent with our comments on April 21, we continue to expect the aggregate impact to our 2026 pretax adjusted operating income will be approximately $525 million to $575 million. Sales in our International businesses of $424 million were down 27% on a constant currency basis compared to the prior-year quarter, primarily driven by the sales suspension at Prudential of Japan. Now turning to capital, ESR, and cash flows. Our capital position and strong regulatory capital ratios reinforce our AA financial strength and provide the flexibility to grow our core businesses. Our cash and liquid assets were $3.7 billion at the end of the quarter, which is well above our minimum liquidity target of $3.0 billion, and we have substantial off-balance sheet resources. Our Japan entities remain well capitalized and are managed to levels aligned with our AA objective. We estimate that our ESR results as of March 31 were in the range of 170% to 190%, well above our 150% operating target. As I mentioned on our April 21 call, we do not anticipate any material impact to our capital, ESR, or cash flows over 2026 and 2027 as a result of the voluntary sales suspension at Prudential of Japan. Before closing, I want to take a moment to update you on a revision to our tax rate guidance. We are lowering the range for full year 2026 from 23%–24% to 21%–22%. There were several factors which drove this, including lower expected earnings in our Japan business, and asset allocation changes we made in our Japan portfolio during the first quarter to optimize the after-tax investment return. To close, let me again reiterate that we are a large, diversified company with multiple sources of earnings and cash flow, and we remain confident in our broader trajectory. We look forward to discussing our strategic direction in more detail on our second quarter call in August. And with that, we are happy to take your questions. Operator: We will now open the call for questions. To ask a question, please press star one. Please ask one question and one follow-up. Our first question is coming from Tom Gallagher from Evercore ISI. Your line is now live. Tom Gallagher: A couple of questions about Japan. If I could start with Gibraltar, can you shed a little light on what is happening with that part of the business? I think there is the secondment issue that Pru has, but several other Japanese insurers are also dealing with that. And also, Andy, I think in the update call you did recently, you made the comment that you felt good that Gibraltar did not have the same systemic problems that occurred at POJ. So just want to understand maybe a little further elaboration on that and also how you feel about sales and persistency outlook at Gibraltar? Andrew Sullivan: Yes. Good morning, Tom, and thanks for giving me the opportunity to build on what we shared on the 21st. Remember, our Gibraltar segment consists of really two components: our 7,000 person strong captive Life Consultants, and our independent agent business. On top of that, we have a very strong bank channel business, and you mentioned the secondments. Secondments are what happens in the bank channel. The changes that are going on there, we are navigating just fine. So there is nothing really to report around that. But we have these multiple components that provide a great deal of diversification well beyond just Prudential of Japan and our Life Planner business, and that can help you understand the resilience that we are seeing in the overall platform. As far as sales go in Gibraltar, for our Life Consultants, we saw lower sales year over year that were unrelated to our compliance issues in POJ. That was counteracted by stronger independent agent sales. We have been very methodically adding independent agencies and deepening the number of agents in those agencies, and we are seeing that strengthen our overall independent agent sales. And as I referenced in my remarks, we are really seeing a strengthening third-party overall, which is beginning to balance our captive channels. As far as surrenders go in Gibraltar, the only effects that we believe we have seen relate to the weaker yen and the FX rate, and at the quarter end, surrenders were at normal levels in our Gibraltar platform. Tom Gallagher: Appreciate that. The follow-up is just on POJ. I know you gave the guidance of in-force earnings being down 10% year one, 15% in year two. Can you shed a little light on what kind of sales and lapse expectations are embedded in those numbers? Maybe just if we focus on the sales number, are you assuming a very gradual recovery, like sales levels are going to be half of the normal levels one year out and then gradually recovering? Any kind of directional help on how we think about the sales recovery and how that builds back over time? Yanela del Frias: Yes. Hi, Tom. Let me give you some details there. In terms of sales, the assumption is that there are no sales through November 5 during the suspension period, and then there is a gradual ramp up through 2027. The 2027 average LP production assumption is 50%. So through 2027, we are ramping up and we get to an average of 50% LP productivity. On surrenders, we are assuming that they remain at elevated levels above baseline and FX-related activity throughout the suspension period. Tom Gallagher: Great. Thanks for the detail, Yanela. Operator: Your next question is coming from Ryan Krueger from KBW. Your line is now live. Ryan Krueger: Thanks. Good morning. First question is just on the earnings power of the International business at this point. If I look at the earnings excluding variances, they were up 6% year over year, despite about a 4% drag from the POJ sales suspension and lapses. Can you give us some more color on just what factors led to this in the current quarter, and to what extent some of these things you would not expect to recur, or if we should view this as a pretty good run rate from here? Yanela del Frias: Hi, Ryan. I think there are a few things that you need to consider here, so let me walk through them. First is the timing of the cost and the impact of the POJ misconduct. As you heard in the prepared remarks, in the first quarter we had $50 million of customer reimbursements—that is nonrecurring—$50 million of LP comp, and then about $30 million of impact of sales and surrenders, half each. A few things to keep in mind: there were only two months of impact in the first quarter, as the suspension began in February. Second is that the impact is not linear. The impact of lost sales and surrenders builds as the year progresses. Similarly, the LP compensation grows through the year as well, because the payments are based on new business production, and the longer they are not selling, the higher that our payments will be. That is what impacts the timing. So it is not linear, and we expect the impact to grow throughout the year. Second, what you are seeing is the resilience of the Japan business coming through, as 90% of the earnings in POJ are driven by the in-force. So that is definitely contributing. And of course, you have strong earnings from Brazil. Brazil has been steadily growing. Typically, it has been contributing up in the high single digits in terms of earnings in International—a bit higher this quarter as Japan earnings were lower. Again, Brazil has grown steadily. You see the resilience in Japan earnings and the strength in Brazil. And then third, we did have prepays that impacted results. In total, we had about $50 million in prepays in the quarter. These are episodic and generally impacted several businesses, but mainly Retirement and International. Ryan Krueger: Thank you. Sorry, actually just one quick follow-up. The $50 million of prepays, that was total for the company or is that all in Japan? Yanela del Frias: That was total for the company, across several businesses, mainly impacting Retirement and International. Ryan Krueger: Got it. And then I know you updated the tax rate. Any change to your corporate guidance that you had given last quarter, given the favorable expenses this quarter? Yanela del Frias: No. We are not updating the corporate guidance. We did have some one-timers and also some expense timing. If you look at our normalization, there is about $70 million of one-timers—half of that is timing, half of that is real one-timers. At this time, we do not expect to update. The first half will be lighter, but the second half heavier, getting us to the $1.65 billion. Operator: Thank you. Next question today is coming from Suneet Kamath from Jefferies. Your line is now live. Suneet Kamath: Great, thanks. Starting with Andy, I appreciate the business exits that you mentioned in your prepared remarks, but it strikes me that they are not particularly needle moving. You can correct me if I am wrong there, but they did not seem to be that big. So I guess the question is, are you open to something bigger in terms of shifting the business mix? And in terms of setting the stage for this August call, should we think about that as the conclusion of a strategic review, or is this just updating guidance based on everything that has happened since the last time you gave it to us? Thanks. Andrew Sullivan: Yes, Suneet, thank you for the question. I appreciate the broader question. I have been very candid that the performance of the organization has not been good enough. We believe that a key contributor to that underperformance is a lack of focus. Both capital and investment dollars are spread too thinly. We have too many businesses in too many markets where we are either subscale or we are not competitive, and that is not a great use of the company’s capital. Our team has done work over the last year or so—and it has been a continual process. Strategy is always ongoing; it is not a start-and-stop type thing—but we have done a broader review as we did the step back and looked in the mirror. Our team is very committed to leaving the next generation of PRU leadership with a stronger performing company, a much more valuable company that is materially better focused and clearly winning in the spots that we compete. That means that we are a top player in a more focused set of businesses. We will focus our capital and investment dollars more than you have seen, and we are going to focus those on big markets with tailwinds where we clearly have the product and distribution capabilities and brand to win, and where we know that we could deliver a differentiated value proposition to drive strong shareholder returns. You mentioned you have already seen, I would call it early evidence, of where we are getting out of—obviously we mentioned those in the prepared remarks—and you have already seen areas we are leaning into, like retirement and asset management. But I would frame it that it is early in our business mix shift. Yanela and I are looking forward to providing you greater detail on the August call about that shift and about our change in focus as an organization. This is an iconic company with incredible capabilities, and we want to make sure that we do everything that we need to to put the company on a strong growth trajectory. Suneet Kamath: Okay. And then I just wanted to drill into the group disability business. I know it is not a huge business for you, but if I think about the loss ratio—let us call it in the high 70s—I think some of the other players that we cover are probably in the mid-60s. There is a pretty sizable gap there. Is there a structural reason why your loss ratio is so much higher? And at the end of the day, is this business producing adequate returns relative to the mid-teens ROE target that the company has overall? Thanks. Andrew Sullivan: Yes, Suneet, thanks for the question. I would say it is very important, when you look at group businesses across the industry, to look closely at both the size segment that they are in, as well as the product mix that they are in between Life, Disability, and voluntary products/supplemental health. All of those have different benefit ratio and admin ratio characteristics. The fact is a lot of competitors across the space have business mixes that are more down market than ours. I think, as you are well aware, our strongest asset in our business is National Accounts and the higher end of the middle market. Industry-wide, that segment has higher benefit ratios but lower admin ratios. So you have to be very careful comparing benefit ratios and admin ratios across companies. As we look at the performance of our business, to your question, this is a business that has cycles. We are coming off a year in 2025 of very low disability benefit and very low benefit ratios in general. This quarter, we saw underwriting pressure in the disability block, almost entirely related to LTD incidence and severity. That was offset by good performance in the Life block from working-age populations. This is a business that is producing returns in excess of our cost of capital. We are happy with the deployment of capital to this business, and it is a focused area of growth for us as we look forward. We fully expect to see performance to be in the guidance range of 83% to 87%. Operator: Thank you. Next question today is coming from Wesley Carmichael from Wells Fargo. Your line is now live. Wesley Carmichael: Hey, thank you. Good morning. Just wanted to talk about the Retirement segment for a second. It was good earnings in the quarter. I am trying to get an idea for run rate. I think, Yanela, you mentioned $25 million of prepay income. There is also some unfavorable and positive underwriting. If we net all that together, I get somewhere in the neighborhood of, call it, $600 million on a run-rate basis. Is that the kind of math you are doing? Yanela del Frias: Yes, Wes, I think that is right. I mentioned total prepays of $50 million, mainly in International and Retirement, in my prepared remarks. I did mention $25 million in Retirement. What you are seeing in Retirement—and it is probably easier to look year over year because you have the full impact of sales for the past year—is strong growth. That is due to the sales that we are seeing in retail annuities and in our institutional markets. If you adjust for the prepays and some other noise, you are seeing the growth in the business coming through. We also did have some higher operating expenses. As I mentioned, we are investing in service and technology and driving enhanced customer experience. We are funding that at a total company level with efficiencies throughout the company. Net-net, year over year at the total enterprise, expenses are flat. Wesley Carmichael: Got it. That is helpful. And just a different subject: when going through the resegmentation, you can kind of pull out the income statement for Guaranteed Universal Life. I think that business generated something like a $200 million loss in 2025 and I think $500 million in 2024 on a reported basis. Given that business seems to be generating a loss, how do you think about reserves there? You have already taken some charges, but do you need to do more to increase the reserves in that business? Yanela del Frias: The way to think about that is that the GUL losses are mainly driven by the reserve accruals. We have reinsured a portion of the block, but the retained portion still includes exposure to the underlying economics and is still in that stage where GAAP reserves are building up. GAAP dictates that reserves be accrued at a higher pace than the best estimate liability would require as you are building the reserve, and this is what leads to the GAAP losses that we are seeing earlier in the life of the block. These losses will reverse over the long term as the expected benefits are paid and the reserves are released. You are seeing that dynamic because we are still building the reserve, and over the long term that will reverse. Andrew Sullivan: Wes, I would just add a real positive of the resegmentation: you are seeing the strength and the quality of the go-forward Individual Life business. It is much more evident. We have been very methodical about executing the strategy to diversify the portfolio, to reduce expenses, and to write new business at attractive margins. This was a record sales quarter for us in Individual Life, and those sales are coming in well in excess of the cost of capital. We are pleased that you are now able to see the quality and growth of that Individual Life business now that we have resegmented out GUL. Wesley Carmichael: Got it. That is helpful. Thank you. Operator: Thank you. Our next question today is coming from Joel Hurwitz from Dowling & Partners. Your line is now live. Joel Hurwitz: Hey, good morning. Just on expenses, you mentioned in the prepared remarks that you expect some of the actions you are taking to be evident in 2027. Any more color on the expected benefits that you expect to emerge next year, and where would we see that show up in the financials? Yanela del Frias: Yes, Joel. In terms of expenses, taking it up a level, you have heard me speak a lot about our focus on continuous improvement and gaining efficiencies to be able to reinvest in the business. That is what is really funding these investments. We do expect these to have benefits in 2027. We are not necessarily quantifying that, but it will come through in our results. These are investments in things like modernizing and driving efficiencies in onboarding and claims management in Group, and investments in service delivery throughout all our U.S. businesses. These do lead to efficiencies. One thing I would highlight and remind you of is that last quarter, we took a $135 million restructuring charge that will result in run-rate savings of $150 million in 2027. Those are separate from the benefits of these investments. Joel Hurwitz: Got it. And then, Andy, going back to Gibraltar sales, I heard you say no issues on any of the POJ issues carrying over to Life Consultants. Any color on why Life Consultant sales have been a little subdued the past two quarters? Andrew Sullivan: Yes, Joel. We actually changed some of the incentive programs and rewards programs in our Life Consultant channel. It is part of our ongoing work around making sure that the business is as efficient as it needs to be, and that had an influence on the level of sales. We do not expect that to inhibit us in any way over the longer term in our ability to grow that Life Consultant channel. That is a channel that we consider pretty unique, in that it has specialized access to teachers and the Self-Defense Forces across Japan, and is literally in every geography across Japan with 7,000 agents. Joel Hurwitz: Got it. Thank you. Operator: You are welcome. Thank you. Next question is coming from Michael Ward from UBS. Your line is now live. Michael Ward: Hi, thank you. I just wanted to dig in on the group disability real quick. I get that it is a small business, but conceptually for the industry, you specifically mentioned macro-driven uncertainty driving claim incidence and severity. I was curious what specifically you meant by that? Andrew Sullivan: Yes. Mike, let me take the question overall and then hit your specific about the macroeconomic environment. It gets down to specifics that you have to look at across the books of business and the mix of products, etc. We experienced a weakening in our disability benefit ratio as you saw this quarter versus last year, but it did improve materially sequentially over 4Q, so we are seeing that recover. There were three main drivers, all LTD-related—not STD or paid leave, and we sometimes get that question. On LTD, we saw an increase in new claims incidence. The comment about the macro environment is when there is greater uncertainty around job loss, and you have seen tens of thousands of jobs being eliminated from a variety of big names. Remember that we tend to have a book of business that is up market, and we cover and service a lot of larger employers. That leads to higher incidence and higher severity. You also have to look at the segmentation of industry mix. We have many white-collar type cases, and you sometimes see greater impacts in those than blue-collar. So, increase in claims incidence and severity, and the other thing is we had somewhat lower resolutions in the quarter. That is going to vary quarter to quarter. We are comfortable with our capabilities and the way we are managing that, and we know that will be where it needs to be over the long term. Taking a step back, we have been in the Group business over a hundred years. We have seen cycle after cycle. We are very comfortable with our capabilities, and this is an important area of focus for us. Michael Ward: Thank you, Andy. And then on Japan, I think you have said no anticipated free cash flow impact over 2026–2027. But longer term, should we expect some free cash flow and ESR impact? Yanela del Frias: Hi, Mike. We did talk about, when you think about the earnings of POJ, that 90% come from the in-force, and the impact of the sales and surrenders will result in a 10% earnings power reduction in 2026 and another 5% in 2027, so getting to 15%. That is a small portion of the earnings in POJ. Obviously, the earnings will decline and then we will be ramping up. I also talked on the April 21 call about the fact that cash flows from Japan are driven by Japanese statutory versus GAAP, and that is a big piece of the difference in terms of why we have about a $1 billion impact on GAAP earnings, but that does not come through in statutory. That is also dampening the impact on cash flows. Over the long term, as we begin sales again, we will have earnings, and we also will not have the subsidy that we are paying the Life Planner, so that is an offset to the capital that we are putting in for the new sales. Net-net, we do not expect a longer-term significant impact assuming what we are seeing today. Michael Ward: Thanks, Yanela. Operator: Thank you. Next question is coming from Pablo Sengzon from JPMorgan. Your line is now live. Pablo Sengzon: Hi, good morning. First question: can you talk about what was new with the RILA product that you launched in December? And maybe use that as a stepping stone to discuss the broader competitive environment for RILAs. Are you still able to innovate on features or distribution, or are you having to give up economics to remain competitive? Andrew Sullivan: Thanks. Let me start with the competitive piece and then I will talk about the innovation in FlexGuard. The RILA market is competitive. You do not go from five competitors to 25 without it having a competitive effect. We have seen some well-established players enter the space, and we have seen some level of aggressive pricing. We always take a very consistent, disciplined approach to ensure that we generate profitable sales. It is not about revenue; it is about profit. Pricing is only one element of winning in this market. There are clear ways that we are differentiated other than pricing—our product features, our distribution, which continues to deepen and expand, our world-class service, and our brand. All of that matters. We are strong on all those facets, and that produces success. On the innovation in FlexGuard, recall when we launched FlexGuard 1.0, it was one of the fastest growing buffered annuity launches in the history of the industry. We are expecting very strong success from 2.0. In essence, we have tweaked the design so it offers more opportunity for growth with also more downside protection, in the way that the product is designed, all linked to market performance. We are now reporting total sales in our individual annuities market because these are all spread-based products, and given market conditions and competitive conditions, you need to lean in and lean out of different spots. It is a pretty dynamic market week to week. We know we have an all-weather portfolio, we are disciplined in our pricing, we have a lot of differentiation, and we will grow this overall in total from that set of capabilities. Pablo Sengzon: Thanks, Andy. And then for my follow-up about POJ, I was wondering if you would be willing to give a more current update on the Life Planner count or most recent trends and the persistency. I think if you look at the reported 1Q 2026 there was some slight deterioration, and I was wondering how the trend has developed through May. Thanks. Andrew Sullivan: Yes, Pablo. To reiterate what we shared on the April 21 call, what we saw in the first quarter is the Life Planner headcount was down less than 1%. Since the start of the year, the rate of LP resignations has been at a similar level compared to what we saw last year, and everything we have seen since announcing the 180-day extension of the suspension has been consistent with the expectations and financials that we put out to the street. We think the reason we are seeing such success is really due to a couple reasons. First, we are providing material financial support. It goes beyond the money that we are providing to the Life Planners. What they see is us stepping forward and being very committed to this business, being very committed to them, and they are very appreciative of that. We have also done a lot of work on improved and delivered training, and we are clearly painting a picture of where this business is going for those Life Planners. That is all being done so that Life Planners can see a sustainable career path, and we believe that is why we are seeing such good results—still early in this suspension period—from a Life Planner retention perspective. Operator: Our next question today is coming from Jack Magnus from BMO Capital Markets. Your line is now live. Jack Magnus: Hey, good morning. Just a question on risk transfer. Wondering how you view the outlook both for you and for the industry regarding volumes this year. Specifically, do you think we could see more jumbo cases come to market? Andrew Sullivan: Thanks, Jack. As you know well, PRT is a transaction-oriented business. It is not a flow business. It will be episodic, especially in the jumbo space. We have seen reduced activity in the market given the economic uncertainty and the geopolitics that are being experienced. Volatility and uncertainty make business leaders slower in decision-making. We have absolutely seen that in the marketplace. We expect that 2026 will mirror 2025 and that demand should get stronger in the second half. That is generally what happens, in particular in the jumbo space. It is hard to say exactly how much that will strengthen, but we believe that will be the pattern. Importantly, what you have now seen two quarters in a row is we are writing more middle-market deals. While we are clearly a leader in jumbo, we have a very good and growing presence in the middle market, and that will help balance out our success in the jumbo space. We are very well positioned. We are one of the best at this business, and now that we are participating more broadly across segments, we believe we will be even more successful going forward. Jack Magnus: Thank you. And then maybe on PGIM, can you talk about the outlook for the private markets business and some of the investments that you referenced earlier? Where do you feel that business is differentiated versus its competitors? And any impacts you are seeing related to some of the recent headlines around private credit? Andrew Sullivan: Sure. We are very proud of our privates business, and the biggest part of our privates business is credit. We are one of the largest and most successful credit managers in the industry. We have about $1 trillion of credit assets under management, about $750 billion or so of that public and $250 billion private. That is in addition to our roughly $150 billion in real estate. This is a focused business for us. In particular, in the private credit space, we have had a fast-growing direct lending and asset-backed finance capability. Our strength comes from the fact that, since we have the public side and the private side, we can serve customers with a range of risk and collateral types, and across the liquidity spectrum. That is a differentiator. On the private side, we have a vast origination network where we have direct access to companies around the globe. That enables us to source a significant share of non-sponsored deals. As for the space around private credit and the stress, most of what is in the headlines is around the retail side of the business. On the institutional side, we have seen strength. While institutions are slowing down a bit in their decision-making, they are still leaning into private credit and into the highest quality managers that have track records over decades of underwriting. That is what we are seeing, and that is why we are producing very good levels of private capital deployment as well as fundraising. Operator: Next question is coming from Tracy Benguigui from Wolfe Research. Your line is now live. Tracy Benguigui: Thank you. Just a quick follow-up on the GUL retained. I appreciate the GAAP commentary, but how do you think of the adequacy of those reserves on a statutory basis? Yanela del Frias: Yes. Tracy, first on a GAAP basis, I spoke about the reserving and the trend. I would also note that another data point in terms of adequacy on a GAAP basis is that we have to undertake loss recognition testing every quarter, which is required to ensure that the GAAP reserves are sufficient. As of 3/31, the GUL reserves held on our balance sheet exceed what is required under loss recognition. Under statutory accounting, the chief actuary signs off on those statutory reserves every year, affirming that they are sufficient as well. We go through all the processes, track assumption updates, and book them, and we have the actuarial sign-off on the statutory reserves. Tracy Benguigui: Okay. Switching gears a little bit, I am wondering, could VM-22, the principle-based reserving, reduce incentives to cede FA risk to your Bermudian affiliates? And how does VM-22 stack up against the BMA rules, which are also principle-based? Andrew Sullivan: The current proposed version of VM-22 is a helpful step towards a more economic principle-based standard. The relative benefits of Bermuda would be lower based on the current proposal, but our current view is that Bermuda continues to be an attractive option for us. We will continue to assess that over time as the VM-22 rules are finalized. Operator: Our final question today is coming from Wilma Jackson Burdis from Raymond James. Your line is now live. Analyst: Hi, this is Chris on for Wilma. There is a lot of growth opportunity in Japan reinsurance right now. Pru is one of the largest there. Could you discuss that market opportunity? Yanela del Frias: Hi, Chris. We do not participate in the reinsurance business as a business line, but we can participate in that opportunity through Prismic, our sponsored entity. An update on Prismic: we continue to work on an active pipeline for Prismic, including ongoing balance sheet optimization, financing new business growth, and working on third-party blocks. Prismic has made really good progress. In February, we entered into our first flow reinsurance transaction with Prismic, reinsuring MYGAs out of our Retirement business. In the first quarter, we executed a second flow reinsurance transaction with Prismic covering U.S. dollar-denominated Japan liabilities. Also in the first quarter, more relevant to your question, Prismic reached an agreement with Daiichi to reinsure a yen-denominated in-force block of whole life and annuity policies, and that is Prismic’s first third-party transaction. Andrew Sullivan: Chris, maybe just one add. We are very pleased with how Prismic has continued to move forward. As a reminder, as Prismic succeeds in third-party reinsurance, PGIM is able to manage a lion’s share of the assets that go into that relationship. That is a good growth engine for PGIM as well. Analyst: Great. Thank you. And then could we expect the POJ pause to have any effect on the pace of capital return to shareholders through the remainder of the year or through 2027? Yanela del Frias: No, Chris. As we said on the April 21 call, we do not expect the impact of the POJ sales misconduct to materially impact our cash flows or our capital position. We do not expect any changes to our capital deployment or shareholder distribution. Operator: Thank you. We have reached the end of our question and answer session. Ladies and gentlemen, that does conclude today’s teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.
Operator: Good morning, and welcome to the J&J Snack Foods Corp. Second Quarter 2026 Conference Call. All participants will be in 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. Please note this event is being recorded. I would now like to turn the conference over to Reed Anderson with ICR. Please go ahead. Reed Anderson: Thank you, operator, and good morning, everyone. Thank you for joining the J&J Snack Foods Corp. Fiscal 2026 Second Quarter Conference Call. Before getting started, let me take a minute to read the Safe Harbor language. This call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, expectations, and objectives, as well as our anticipated financial performance. This includes, without limitation, our expectations with respect to the success of our cost savings initiatives, customer demand improvements, and the sales channels in which we operate. These statements are neither promises nor guarantees and involve known and unknown risks, uncertainties, and other important factors that may cause results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Risk factors and other items discussed in our Annual Report on Form 10-Ks and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on the call today. Any such forward-looking statements represent management's estimates as of the date of this call today, 05/06/2026. While we may elect to update forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause expectations to change. In addition, we may also reference certain non-GAAP measures on the call today, including adjusted EBITDA, adjusted operating income, or adjusted earnings per share. All of which are reconciled to the nearest GAAP measure in the company's press release, which can be found in the Investor Relations section of our website. Joining me on the call today is Daniel J. Fachner, our Chief Executive Officer, along with Shawn C. Munsell, our Chief Financial Officer. Following management's prepared remarks, we will hold the call for a question and answer session. With that, I would now like to turn the call over to Mr. Fachner. Please go ahead, Dan. Daniel J. Fachner: Good morning, everyone, and thank you for joining us today. We are excited to discuss our second quarter fiscal 2026 results. I am pleased to share continued progress this quarter on our strategic priorities. We delivered positive earnings and margin expansion despite a quarter that was impacted by demand softness amid rising fuel costs. Adjusted EBITDA increased 9.5% year-over-year to $28.7 million, and adjusted EPS increased 14.3% to $0.40, while sales declined 3.2% to $344.8 million. Foodservice sales declined 5%, with most of the decline attributed to the anticipated sales reductions in our bakery business, consistent with Q1. And while retail sales declined 4.1%, the decline was due to higher slotting fees and trade investments to support our innovation pipeline and brand share growth objectives. Frozen beverage results improved due to an increase in beverage volume and cost control. Apollo initiatives and mix improvements helped to drive gross margin expansion in the quarter. Our ability to improve earnings and margins as we reshape the portfolio demonstrates that our transformation initiatives are working. Our plant consolidations have created significant plant efficiencies, and we are on track to deliver at least $20 million of annualized Apollo savings once all initiatives are implemented. We are now focused on driving administrative and distribution cost reductions. To that end, we executed several of the administrative initiatives later in the second quarter as we reduced corporate expenses, and we expect to achieve the remaining initiatives in the third quarter. Overall, given the implementation later in the quarter, we realized just a modest level of administrative savings in the second quarter, and our distribution efficiencies initiatives will ramp up in Q3. I want to share a few other highlights from the quarter. First, an update on our innovation pipeline. It is important to note that we are still early in the process as several products begin shipping later in the quarter. However, the sell-in process has been progressing very well, and we are securing distribution across multiple retail and foodservice channels. In the quarter, we shipped over $2 million in new products, including about $0.9 million of Dippin’ Dots for retail, $0.9 million of new Dogsters ice cream products, and $0.2 million of Luigi’s Mini Pups. Our pretzel innovation shipments are ramping up now, and we expect that these new products will deliver exceptional consumer experiences and sales growth. We had another quarter of standout performance in foodservice pretzels. Sales were up $6.7 million and dollar share increased 4.3%. As in prior quarters, the primary growth driver was Bavarian-style pretzels. In retail, our Dogsters products continue to perform well. We shipped volumes up over 20% versus the prior year. Again, we are encouraged that the new Dogster sandwich will be well received by our four-legged consumers. We have entered into a new licensing partnership with the Peanuts character Snoopy, to be used in conjunction with our Dogsters brand. We are now also introducing the Dogsters product lineup to pet stores. In frozen beverage, our themed brand activation around some solid movie releases supported segment performance. Looking ahead, we are encouraged by the slate of releases for our fiscal second half. We are optimistic that movies like Super Mario Galaxy, Star Wars Mandalorian, and Toy Story 5 will support theater performance in 2026. Additionally, the ongoing ICEE test with a West Coast QSR has expanded to additional markets. We are encouraged by the progress and believe that we are nearing completion of the test phase. I am also proud to share that in honor of our nation's 250th anniversary, we are rolling out several themed products including a star-shaped SUPERPRETZEL, red and blue ICEE squeeze tubes, and red, white, and blue cups for our Luigi’s Real Italian Ice. Our financial position remains strong with a clean balance sheet. During the quarter, we repurchased $22 million of shares at an average price of $84.56, along with dividends of $15.2 million, returning over $37 million to shareholders in the quarter. With that, I will now turn the call over to Shawn to walk through the financial details. Shawn? Shawn C. Munsell: Thanks, Dan, and good morning, everyone. As Dan mentioned, we are pleased with the profitability improvements we delivered in the second quarter, reflecting continued progress on our transformation initiatives. Foodservice segment net sales declined $11.4 million, or 5%, to $214.7 million. The largest driver of the decline was the anticipated reductions in our lower-margin bake business of about $8 million. Additionally, cookie sales to a large customer declined about $4 million in the quarter due to the customer working through elevated inventory levels. We expect their orders to rebound in the third quarter. Churro sales declined about $3 million, while handheld sales declined $3.4 million. Partially offsetting these headwinds was continued strength in pretzels, which increased $6.7 million. Overall, our foodservice segment demonstrated resilience with notable bright spots and a significant improvement in profitability. Foodservice operating income increased $3.4 million to $10.9 million, largely reflecting gross margin improvements from plant consolidation and mix improvements. Retail segment net sales decreased $2.2 million, or 4.1%, to $51.6 million. Frozen novelty sales declined about $3.9 million during the quarter, which was partly offset by an increase in handheld sales. Retail sales were impacted by an increase in slotting fees of approximately $2 million to support new product innovation, along with increased trade investment primarily in frozen novelties. Retail segment operating income declined $3.9 million due to slotting fees, trade, and mix shift. Looking ahead, we intend to continue investing in trade and promotion to support our retail business in the second half. Frozen Beverage segment net sales increased $2.3 million, or 3.1%. Beverage sales grew 13%, driven by an increase in theater sales and favorable foreign exchange. A decline in service sales of $3.2 million is expected to persist due to a customer decision to insource maintenance. Despite this decision, we do not expect a meaningful margin impact as we temporarily downsize our tech network until we onboard prospective replacement business. Frozen Beverage operating income increased $2.1 million to $4.6 million. Consolidated gross margin improved 190 basis points to 28.8%, primarily reflecting Apollo initiatives and favorable mix in foodservice and frozen beverage. Operating expenses increased $7.8 million to $97.5 million, which included $6.5 million in nonrecurring items related to plant closures and other restructuring costs, of which $4.1 million was noncash. Selling and marketing expenses increased 5.5%, or $1.6 million, compared to the prior year, representing 8.7% of sales compared to 8% last year. The increase includes investments in marketing equipment and brands. Distribution expenses increased and represented 12.1% of sales compared to 11.7% in the prior-year period. Distribution costs included a $0.4 million headwind from higher fuel costs. If fuel remains at current rates, fuel costs would be expected to increase approximately $3.5 million in the second half versus the prior year if not mitigated. Administrative expenses were $21.2 million, an increase of $1.4 million, or 7.2% from the prior year, primarily due to an increase in nonrecurring charges in the quarter. The charges, which totaled $1.7 million, are primarily associated with legal expenses and other restructuring charges, including severance. Adjusted operating income was $9.6 million compared to $8.9 million in the prior year. Adjusted EBITDA increased 9.5% to $28.7 million versus $20.2 million last year. The effective tax rate was 28.1%. On a reported basis, earnings per diluted share were $0.09 compared to $0.25 last year, primarily reflecting the impact of one-time charges. On an adjusted basis, earnings per share were $0.40, a 14.3% increase from last year. Our balance sheet remains strong with approximately $31 million of cash, net of debt. We had approximately $181 million of borrowing capacity under our revolving credit agreement. During the second quarter, we generated approximately $16 million in operating cash flow and invested $16 million in capital expenditures. Over the past twelve months, we have repurchased approximately 0.705 million shares for an aggregate of $72 million. In 2026, we have returned $95 million in cash to shareholders through share buybacks and dividends. That concludes our prepared remarks, and we are now ready to take your questions. Daniel J. Fachner: Operator? Operator: We will now open the call for questions. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. At this time, we will pause momentarily to assemble our roster. Our first question today is from Jon Andersen with William Blair. Please go ahead. Jon Andersen: Hi, good morning everybody. Thanks for the questions. Daniel, you mentioned at the top of your prepared comments that in the quarter you experienced some demand softness amid rising fuel costs. I am wondering if you could talk a little bit more about maybe where you experienced that the most, and when I say where, maybe if you could discuss it in the context of categories and maybe channels, and then how you expect that to play out in the back half of the year based on what you know right now? Daniel J. Fachner: Good morning, Jon. Right. Yes. Thanks, Jon. Thanks for the question. Where you get hit the most right off the bat with fuel costs rising is in your convenience store business. That is where you feel it the most at the gas pump. The price is high when they are filling up the tank, and they decide not to go in and purchase something more. We also see that in our foodservice side of our business too. That is an area that gets hit quicker than some of the other spots. We are seeing a consumer that already has a sentiment around worries about costs rising, and then the fuel uncertainty makes it that much more live to them. Jon Andersen: Okay. Fair enough. I know you do not offer guidance per se, but if we look to the back half of the fiscal year, given that you also have quite a bit of good innovation coming or in the works or in flight right now, and it sounds like some tests may be coming to some kind of resolution—hopefully resolution—how are you thinking about growth in the back half of the year? And then I guess part of that question is also whether we need to consider the ongoing impact of SKU rationalization in bakery or just the business rationalization you are doing in the low-margin part of bakery. Does that continue at the levels you have experienced in the first half? Any thinking around that would be helpful from a modeling perspective. Thanks. Shawn C. Munsell: Sure. Daniel J. Fachner: Yes, good question, Jon. And you are right. We do not really give specific guidance in that space. What we do know is we have some planned volume reductions like what we have talked about in both Q3 and Q4. In Q3, I think that is about 3.5%; in Q4, about 2.5%, consistent with the 3% that we have talked about for the year. We also know, like I just talked about with you, we have that wary consumer sentiment with the higher oil prices, and that is bouncing around even as we speak this morning. And we also know we have some really strong benefits coming from Apollo in the second half. We saw that in the first half of the year. We saw that this quarter. I am proud of the way the teams are working towards that, and so we see that benefit. As I sit today, I would see the environment in Q3 being pretty much the same as the environment we saw in Q2. Jon Andersen: Makes sense. Maybe pivoting to Apollo and the benefits from that, could you just bring us up to speed on what the run-rate benefits are as we exited the first half—run-rate annualized benefits from Apollo—and then it sounds like you are making good progress on the next phase of benefits, administration and distribution. Where might that mean for run-rate annualized savings exiting fiscal 2026? Shawn C. Munsell: Yes, sure. I will take that. The plant savings, or the plant consolidation work, is materially complete. And if you recall, that was about $15 million worth of annualized benefits at our estimate. In the quarter, we actually achieved above $4 million in plant savings, so a bit above that run rate. The balance, that $5 million, is coming from a combination of G&A administrative savings as well as the distribution savings. On the administrative savings front, we implemented a number of initiatives later in the second quarter, so you did not really see a lot of the benefit show up in the second quarter. The remaining initiatives were actually completed in April, so we will be at the full run rate on the G&A savings, which is at least $2 million annualized. And of the $3 million of distribution cost savings, we will be ramping that up in Q3 and Q4. By the time we get to the end of Q4, we should be on the full run rate for all the initiatives. We feel good about where we are. Jon Andersen: Great. Maybe I will get one more in. It seems like you have been buying back stock a little bit more regularly. As you look ahead, and obviously supporting the dividend, as you think about returning cash to shareholders going forward, could you talk a little bit about the priorities there? Would you continue the approach you have taken over the last twelve months? Thanks. Shawn C. Munsell: Yes, sure. We continue to see compelling value in the shares. We bought back $22 million in the quarter, and I can tell you that we will continue to buy back stock. We have seen an increase, I would say, in potential M&A activity, and so that is probably going to factor into the calculus here in the back half. But our stock buyback does reflect our conviction. Jon Andersen: Thanks so much. Shawn C. Munsell: Thanks, Jon. Operator: The next question is from Todd Morrison Brooks with The Benchmark Company. Please go ahead. Todd Morrison Brooks: Hey, thanks for taking my questions, I appreciate it. Good morning, Dan. Shawn, can we lead off on oil? Because I think it touches you in multiple places, right? It is at the consumer level, it is at the raw distribution level, it is also in the packaging. So I think you gave some color on what the incremental pressure from fuel would be, the $3.5 million in the second half if we stay at current levels. But is that just on the distribution side? And then I know there is no way to really gauge the consumer demand, but how about on the packaging side? Shawn C. Munsell: Yes, it is a great question. That is just the direct fuel piece. There is some potential risk around packaging as we get later into Q3 and Q4. But the lion's share of the impact is going to be on those direct fuel costs. We have not attempted to quantify what it means from the consumer outside of the comments that Dan made earlier. But that $3.5 million is representative of the second half within distribution. Now I will say that we are taking steps to try to mitigate some of that exposure, and hopefully we get a little bit more relief than what is modeled there. Todd Morrison Brooks: That is where I wanted to go next. Is this something that you can fuel-surcharge immediately to customers? Is it something that has to be negotiated price increases at least in retail? And given the volatile nature of what we are living through now and how the markets are spiking up and down, do people want to try to price to offset this pressure yet, or do we need to have more of a permanent resolution before you try to take those actions? Daniel J. Fachner: I will take that, Todd. It is one of those things you have to watch really closely. We have some disciplines in the business on both the ICEE and Dippin’ Dots side that allow us to be able to almost take those immediately. On the foodservice side of the business and retail, it is a little bit more difficult than that. But we are meeting and talking about it, and we will take price action if need be. Todd Morrison Brooks: Perfect. If I can pivot, and you are one of the few calls I have been on this cycle that did not call out the impact from the winter weather reality that we lived within January and February in a good-sized footprint of the country. Have you sized either lost revenue from weather disruption or margin pressure or anything that you would want to share with us as we are evaluating the results? Daniel J. Fachner: There is no way in our business that weather does not impact you. We do not have a number that we have been able to put to that, Todd, but it certainly has an impact on our business, especially in some of our products that are in locations that are outside in foodservice and areas that people just cannot get to. But it certainly has an impact. We have not put a number to that, though. Todd Morrison Brooks: Great. And then if I could squeeze one more in. You talked about the West Coast ICEE test progressing, which is great to hear. Can you update us on how the Taco Bell limited time offer performed, and their thoughts on the performance and maybe where that relationship could go from here? Thanks. Daniel J. Fachner: Two questions there, I think. Let me talk about the West Coast QSR test with ICEE. We are excited about that one. It is continuing to expand. We are actually rolling out into another market right now, which is claimed to be the last test phase of this, with a potential decision to be made before we even exit summer. So we are really excited about where that one is going. The Taco Bell volume in the quarter was not as great as we originally had anticipated. There is some volume from it that will still come through in this next quarter. The relationship is strong, and we think there is an opportunity to be able to come back and do some more with that customer. Todd Morrison Brooks: Great. Thanks, Dan. Shawn C. Munsell: Thank you. Operator: The next question is from Scott Michael Marks with Jefferies. Please go ahead. Scott Michael Marks: Hey, good morning, Dan, Shawn. Thanks for taking our questions. I wanted to ask a little bit about the retail business, if I could. I know you called out some of the innovation initiatives and some of the higher trade and slotting fees associated with getting those in store. Wondering if you can help us understand demand for some of those products where they are in market, just in terms of volumes and consumer response, even beyond the trade and slotting fees that you called out. Daniel J. Fachner: It is early still. They just started to roll out in the back half of the quarter. But we are really excited about the opportunities that we have in retail. One of the things we learned last year as you get into the second quarter is you do need to up your trade spend to get your frozen novelties in place as you get into the third and fourth quarter. That was a mistake we called out last year. And so some of that trade spend that is in Q2 will benefit us now in Q3 and Q4. The slotting fees associated with some of our new products appear to be paying off. Those new products appear to be kicking off really well. We have the Dogsters brand that is doing really good. Luigi’s is rolling out Mini Pups really nicely. The Soft Sticks are doing pretty good. And then the one that we keep touting more than anything is the high-temp Dippin’ Dots, and we expect that to do really well for us as we get into the back half of the year. Scott Michael Marks: Understood. Appreciate the thoughts there. If I could shift over to the foodservice side of things, I know Shawn called out—if we put aside the bakery SKU rationalization—a few moving pieces in the quarter with, I think, cookie inventory at a certain retailer and also some weaker volumes from the Taco Bell program that you have been running. Wondering if you can help us understand how we should be thinking about cadence or trajectory for that foodservice business moving ahead, just given some of these moving parts that we saw in the quarter? Shawn C. Munsell: Yes, good question, Scott. As it relates to the cookies with the customer that had reduced its volumes because of inventory levels, we are already seeing those volumes pick up. So we do not expect that to be a headwind in upcoming quarters as it was in Q2. Pretzels continue to be strong. We did $6.7 million in pretzel sales in foodservice in the quarter. I think in the prior quarter, we were up around $4 million in foodservice pretzels, so it continues to perform well, and we are confident that we are going to continue growing that business. And I can tell you too that even though we unfortunately did not quite realize the benefits from that LTO that we were hoping, we do have a couple of initiatives in the pipeline around churros for the back half of the year that could have some promise. I will not get into any more detail on it now, but hoping that maybe with the next call, we will be able to update you. Scott Michael Marks: I appreciate the thoughts there. And maybe if I turn over to the OpEx side, you made some comments about the distribution cost and not having realized the efficiencies from Apollo in that yet. Can you help us understand, is that the main driver of distribution as a percent of sales being up on a year-over-year basis? Was there some other dynamic in the quarter that had an impact on that part of the P&L? Shawn C. Munsell: Great question. You have got about $0.4 million in fuel that we flagged. That was really all coming from the exposure in March when diesel prices started to rise. The other piece of that is we had about $0.2 million worth of higher dry ice costs, and that was weather-related, so we do not expect that to be recurring. The other piece is we did have some cost shift around between distribution and cost of sales, and so that led to about a $0.5 million increase in distribution relative to cost of sales. Scott Michael Marks: Understood. Appreciate it. I will leave it there and pass it on. Daniel J. Fachner: Thanks, Scott. Operator: This concludes our question and answer session. I would like to turn the conference back over to Daniel J. Fachner for any closing remarks. Daniel J. Fachner: Thank you, operator. In closing, I want to emphasize that our Q2 results demonstrate that our transformation project is taking hold and we can drive earnings growth despite some top-line softness. We are building momentum for sustainable growth. Our strong balance sheet provides flexibility to invest in growth opportunities while returning capital to shareholders. We remain confident in our ability to deliver the full benefits of Project Apollo and drive long-term value creation. Thank you again for your continued support, and we look forward to updating you on our progress throughout fiscal 2026. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the SuRo Capital's First Quarter 2026 Earnings Call. My name is Ellen, and I will be your coordinator for today's event. Please note this call is being recorded. [Operator Instructions] I will now hand you over to your host, Evan Schlossman, to begin today's conference. Evan Schlossman: Thank you for joining us on today's call. I am joined by the Chairman and Chief Executive Officer at SuRo Capital, Mark Klein; and Chief Financial Officer, Allison Green. Please note that a slide presentation corresponding to today's prepared remarks by management is available on our website at www.surocap.com under Investor Relations, Events and Presentations. Today's call is being recorded and broadcast live on our website, www.surocap.com. Replay information is included in our press release issued today. This call is the property of SuRo Capital, and the reproduction of this call in any form is strictly prohibited. I would also like to call your attention to customary disclosures in today's earnings press release regarding forward-looking information. Statements made in today's conference call and webcast may constitute forward-looking statements, which relate to future events or our future performance or financial condition. These statements are not guarantees of our future performance, or future financial condition or results and involve a number of risks, estimates and uncertainties, including the impact of any market volatility that may be detrimental to our business, our portfolio companies, our industry and the global economy that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including, but not limited to, those described from time to time in the company's filings with the SEC. With respect to the externalization, these risks and uncertainties include, but are not limited to, the ability to obtain the required stockholder approval, the ability to retain key personnel, the ability to realize anticipated benefits of the externalization and the impact of the externalization on the company's business, financial condition and results of operations. Management does not undertake to update its forward-looking statements unless required to do so by law. To obtain copies of SuRo Capital's filings, please visit our website at www.surocap.com or the SEC website at sec.gov. Now I'd like to turn the call over to Mark Klein. Mark Klein: Thank you, Evan. Good afternoon, everyone, and thank you for joining us. This is a defining moment for SuRo Capital. Our strong performance in 2025 carried directly into the first quarter of 2026. For the quarter, our net asset value increased from $8.09 per share to $14.24 per share. That is a $6.15 per share increase or approximately 76% quarter-over-quarter. This is the largest quarter-over-quarter NAV increase in our history. This increase reflects the strength of our portfolio and the quality of the companies we have invested in. It also reinforces the strategy we have followed for more than a decade, giving public market investors access to high-growth venture-backed private companies that are otherwise difficult to access. We believe this access is especially valuable when it is paired with selectivity, identifying important private companies before they're strategic is broadly reflected in public market awareness. At the same time, NAV is a point-in-time measurement. It does not, by itself, capture the full opportunity we believe remains ahead. The larger story is what is in front of us as our portfolio companies continue to mature, scale their businesses and move toward potential liquidity events. Several recent financings illustrate the larger story. WHOOP recently announced a $575 million Series G financing at a $10.1 billion valuation. The company reported that 2.5 million members globally, 103% year-over-year bookings growth in 2025, a $1.1 billion exit run rate and positive operating cash flow in 2025. For us, WHOOP sits within a broader shift towards health, longevity and actionable self-knowledge. As the category evolves, we believe WHOOP can benefit from AI's ability to convert personal data into more useful individualized guidance for users. OpenAI closed its latest financing round with $122 billion in committed capital at an $852 billion post-money valuation. This financing speaks to the scale of capital formation around artificial intelligence. AI is no longer a narrow software category. It is becoming a foundational technology layer across compute, data centers, enterprise software, developer tools, healthcare, education and productivity. VAST Data was valued at $30 billion in its recent Series F financing, more than tripling its prior $9.1 billion valuation from 2023. The round included approximately $1 billion of primary and secondary capital and reflects continued demand for infrastructure supporting artificial intelligence, including data centers and high-performance computing. Canva launched an employee stock sale at a reported $42 billion valuation, led by existing shareholder, Fidelity, with JPMorgan Asset Management joining as a new investor. The transaction came as Canva continued investing in AI tools for its more than 265 million monthly active users. Taken together, these are not isolated events. They tell a consistent story. Private market capital is concentrating around scaled private companies with durable growth, strategic relevance and credible path to liquidity. These financings are significant not only for their scale, but for what they signal. Private market capital continues to validate the companies and infrastructure layers that we believe are becoming increasingly important to the next phase of technology. Our objective is to build exposure to those opportunities with discipline before they are broadly available. We are not simply observing this market. We continue to participate in it. Recent hyperscaler results continue to reinforce the scale of demand behind AI infrastructure. The next phase of AI growth depends not only on models and applications, but also on the compute capacity, power, data center infrastructure and specialized systems required to support them. During the quarter, we funded $5 million to a Magnetar special purpose vehicle invested in TensorWave. This investment was part of a commitment of up to $20 million. The remaining commitment of up to $15 million is subject to the satisfaction of certain conditions, including company-level operational milestones. TensorWave fits within our broader investment strategy and further expands our exposure to AI infrastructure. We view it as the type of opportunity we seek to identify before it becomes more broadly familiar to the broad investor base. The company is positioned around a significant technology shift with meaningful room to scale in part of the market where demand for performance, capacity and specialized infrastructure remains structurally important. That approach is consistent with the discipline we applied in building our exposure to CoreWeave, where we sought exposure to an important infrastructure company before its role in the AI ecosystem was more broadly recognized. We also believe the stage structure gave us a measured way to increase exposure to TensorWave within a framework tied to execution. More broadly, we intend to remain disciplined in how we deploy capital while being decisive when we see opportunities aligned with our strategy and with areas we believe long-term value is being created. This participation continued after year-end. Following quarter's end, we made a new investment of approximately $10 million in ClickHouse, a company we believe is well positioned at the intersection of data infrastructure, artificial intelligence and real-time analytics. ClickHouse helps enterprises query, analyze and act on massive volumes of data quickly and efficiently, a capability that is becoming increasingly important across observability, security analytics, product telemetry, cloud data warehousing and AI-driven applications. This matters because as AI moves from experimentation to deployed enterprise use cases, the infrastructure required to store, analyze and act on data at scale becomes increasingly critical. ClickHouse's relevance is already visible in demanding AI environments, including Anthropic, which ClickHouse has publicly described as using its technology to scale observability for all AI workloads. ClickHouse is another example of the kind of company we seek to invest in. It is already a scaled venture-backed technology leader, but we believe its strategic relevance is becoming greater as real-time data infrastructure becomes more important to enterprise AI deployment. For SuRo, the opportunity is to build exposure while companies like this remain private. Because this investment was made after the quarter's end, it is not part of our March 31 net asset value. It is, however, an important example of how we intend to build the future portfolio. Now I want to turn to what we believe is one of the most important strategic steps in SuRo Capital's history. Our Board of Directors approved a proposal to transition SuRo from an internally managed BDC to an externally managed structure through Neostellar Advisors LLC, an adviser jointly owned by members of our current team and Magnetar. The proposal remains subject to stockholder approval. This is not a sale of the company. The company will continue to be a publicly traded BDC, and our investment focus will remain centered on high-growth, venture-backed private companies. While the core strategy will remain the same, we believe the proposed structure will enhance the platform, supporting the strategy and better positioning us to pursue high-quality investment opportunities. Since 2019, our internally managed structure has served us well. Our team has built the portfolio, navigated volatile markets, returned significant capital to stockholders and delivered meaningful value. The NAV increase this quarter is evidence of that work. At the same time, the market has evolved. Leading private companies have more choices today, and they increasingly look for investors who can bring more than capital, including scale, relationships, strategic support, capital markets experience and a long-term partnership. We believe the proposed partnership with Magnetar positions us to compete more effectively in this environment. Magnetar brings significant scale with approximately $18 billion in assets under management, more than 20 years of investment experience and a track record of investing in differentiated technology, venture-backed companies across artificial intelligence and technology-enabled sectors. The strategic logic is straightforward. We are preserving the investment strategy and leadership continuity that brought us to this point while adding Magnetar scale, sourcing reach, diligence capabilities, portfolio support and institutional infrastructure. In addition, Magnetar's experience across the AI infrastructure ecosystem gives us additional depth in one of our core focus areas and in a market we believe will be increasingly important to broader technology growth. As many of these businesses become more capital-intensive, Magnetar's experience with cost of capital, balance sheet management and transaction structuring becomes even more relevant. We also expect the proposed structure to strengthen our origination and diligence capabilities while creating a broader platform to support portfolio companies. Put simply, we believe this gives us greater scale, broader capital solutions and deeper institutional capabilities to support private companies as they grow. If approved by stockholders, we believe this combination would position us to be one of the largest platforms focused on publicly traded access to venture-backed private companies. Public venture capital has historically been a fragmented market, and we believe greater scale, stronger infrastructure and deeper sourcing capability can matter in competing for high-quality private company investments. This would be a significant change and positive for us in our competitive position. For stockholders and portfolio companies, we believe the benefit would be a broader platform, deeper resources and a stronger ability to support ambitious private companies building in large markets. I want to speak directly about shareholder alignment. Being shareholder-friendly is not just a slogan for us. It is how we evaluate major decisions. The value created in the existing portfolio belongs to our shareholders. Under the proposed advisory agreement, pre-existing investments are not included in the incentive fee calculation. In plain English, the value already created in this portfolio is preserved for stockholders and is not subject to a new incentive fee simply because we are changing the management structure. We believe this is an important and stockholder-friendly feature. Additionally, subject to the conditions described in the proxy materials, an affiliate of Magnetar is also expected to invest $20 million in our company. We believe this is a meaningful signal of commitment and alignment. Magnetar and the Board think like owners because we are owners. Our goal is not simply to report a higher NAV. Our goal is to convert portfolio value into long-term stockholder value. This means disciplined investing, thoughtful liquidity management, expense discipline, transparency and continued focus on returning value to our stockholders. Let me close with this. This is one of the most important moments in SuRo Capital's history. We delivered the largest quarter-over-quarter NAV increase we have ever reported. Our NAV increased approximately 76% quarter-over-quarter. This is not a routine result. It reflects the strength of our portfolio, the quality of companies we have backed and the power of our strategy, giving public stockholders access to high-growth venture-backed companies aligned with important technology trends. We do not view the quarter as the finish line, but as the beginning of the new chapter. Our recent investment activity, including TensorWave and ClickHouse, reflects the same discipline, identifying private companies where strategic relevance is emerging, building exposure selectively and giving public stockholders access to opportunities that remain largely outside of the public markets. Our proposed partnership with Magnetar through Neostellar Advisors is designed to provide SuRo Capital with greater scale, stronger infrastructure, broader sourcing reach and deeper diligence capabilities as we seek to invest in and partner with the next generation of high-growth private companies. NAV captures the progress we have made, the opportunity is what comes next. Our focus now is straightforward, build on this momentum, maintain our discipline and translate portfolio progress into lasting shareholder value. To our stockholders, thank you for your continued trust and support. With that, I will turn the call over to Allison Green to review our financial results. Allison Green: Thank you, Mark. I would like to follow Mark's update with a review of our investment activity and portfolio company realizations during the first quarter and subsequent to quarter end, a high-level review of our investment portfolio as of quarter end, including the investment theme breakdown and a more detailed review of our first quarter financial results, including our current liquidity as of March 31. I'll also touch on notable items during the first quarter and subsequent to quarter end, including our announcement of the Board-approved externalization. On December 31, SuRo Capital's $20 million to Magnetar Opportunity 2025-4 LP, a special purpose vehicle invested in TensorWave, Inc. During the quarter, on January 2, SuRo Capital funded $5 million of the $20 million capital commitment. As of May 5, $5 million of the $20 million capital commitment to Magnetar Opportunity 2025-4 LP had been funded. The remaining commitment of up to $15 million is subject to the satisfaction of certain conditions. Throughout the first quarter, we sold 440,246 common shares of GrabAGunDigital Holdings Inc following the removal of lockup restrictions on January 15. These sales resulted in net proceeds of approximately $1.4 million and a realized gain of approximately $891,000. As of March 31, we hold 599,754 public common shares or approximately 58% of our original position. Additionally, during the quarter, we received a distribution from our True Global Ventures 4 Plus venture capital fund investment for approximately $246,000. Subsequent to quarter end, on April 8, SuRo Capital completed a $225,000 investment in the common stock of Huntress Labs, Inc. through a secondary transaction. Additionally, on April 22, we completed a $9.5 million investment, excluding fees, in the Series A preferred shares of ClickHouse Inc. through a secondary transaction. Subsequent to quarter end, SuRo Capital received 2 distributions from CW Opportunity 2 LP, totaling approximately $3 million in net proceeds. CW Opportunity 2 LP is an SPV for which the Class A interest is solely invested in the Class A common shares of CoreWeave, Inc. SuRo Capital has invested in the Class A common shares of CoreWeave, Inc. through its investment in the Class A interest of CW Opportunity 2 LP. The distributions were categorized in aggregate as approximately $902,000 of return of capital and a $2.1 million realized gain. The realized gain is calculated based on the current reporting by the fund and confirmed through our accounting, but may be subject to change or adjustment due to the impact of performance fees that may be charged by the fund. I would now like to turn to our portfolio as of quarter end. Our top 5 positions as of March 31 were WHOOP, OpenAI, VAST, Blink Health and CW Opportunity 2 LP. These positions accounted for approximately 72% of the investment portfolio at fair value. Additionally, as of March 31, our top 10 positions accounted for approximately 88% of the investment portfolio. Segmented by 7 general investment themes, the top allocation of our investment portfolio at March 31 was to consumer goods and services, representing approximately 43% of the investment [Technical Difficulty] and Software as a Service were the next largest categories with approximately 29% and 12% of our portfolio, respectively. Approximately 6% of our portfolio was invested in education technology companies and the Financial Technology & Services segment accounted for approximately 5% of the fair value of our portfolio. The Logistics & Supply Chain accounted for approximately 4% of the fair value of our portfolio, and SuRo Sports accounted for 2% as of March 31. We ended the first quarter of 2026 with a net asset value of approximately $361.6 million or $14.24 per share, which is consistent with our financial reporting. The increase in NAV per share from $8.09 at the end of Q4 2025 was primarily driven by a $6.25 per share increase from the net change in unrealized appreciation of our investments, a $0.04 per share increase resulting from net realized gain on our portfolio investments during the quarter, and a $0.02 per share related to stock-based compensation. The increase in NAV per share was partially offset by a $0.16 per share decrease due to net investment loss during the quarter. At March 31, there were 25,387,393 shares of the company's common stock outstanding. Finally, regarding our liquidity at quarter end. We ended the quarter with approximately $46 million of liquid assets, including approximately $43.3 million in cash and approximately $2.7 million in unrestricted public securities. Not included in our unrestricted public securities are approximately $15.9 million of public securities subject to lockup or other sales restrictions as of quarter end. This represents our remaining investment in CoreWeave via our Class A interest of CW Opportunity 2 LP. Subsequent to quarter end, the purchaser of 6.5% convertible notes due 2029 elected to exercise their conversion option on multiple occasions and convert a total of $5 million of principal into 682,815 shares of SuRo Capital's common stock and $19.56 in cash in lieu of fractional shares. Upon completion of these conversions, the remaining principal balance of the 6.5% convertible notes due 2029 was approximately $30 million. As Mark mentioned, subsequent to quarter end, on April 2, SuRo Capital's Board of Directors, including all of its independent directors, unanimously approved a proposal to transition from an internally managed BDC to an externally managed structure through a new investment advisory agreement with Neostellar Advisors LLC, an entity jointly owned by certain current SuRo Capital employees and Magnetar Holdings LLC, which is affiliated with Magnetar's multi-strategy alternative investment platform. The externalization is expected to process to enhance investment sourcing and due diligence capabilities through Magnetar's fully integrated platform, preserve all realized gains on the company's existing portfolio for the benefit of stockholders through the exclusion of pre-existing investments from any incentive fee calculations and result in an annual expense savings. In connection with the externalization, an affiliate of Magnetar will make a $20 million investment in the company and the company's current management team, including Mark Klein and myself, will continue in our current capacities. The externalization is subject to stockholder approval and additional details are set forth in the company's current report on Form 8-K filed with the Securities and Exchange Commission on April 7. That concludes my comments. We would like to thank you for your interest and support of SuRo Capital. Now I will turn the call over to the operator for the start of the Q&A session. Operator? Operator: [Operator Instructions] We will take our first question from Alex Paris, Barrington Research. Alexander Paris: Congrats on the superb Q1 and the plan for externalization. So that's going to be my question, the externalization. As I recall, prior to 2019, the portfolio was externally managed. You took it in and now you're externalizing it again. So point number one. Point number two, I had a quick review of the process, and I see not only are you creating a joint venture with Magnetar under the name Neostellar Advisors LLC, but actually SuRo's name will be changed to Neostellar Capital Corp. under the symbol NSLR. I guess it's a 2-part question. Number one, I think the shareholder meeting, the special shareholder meeting is scheduled for June 10. When do you hope to close this transaction? And then the related question is both you and Allison noted that this is expected to result in cost savings. So I'm wondering if you could just provide a little additional color on how that's done. You're obviously going to pay the external manager a management fee plus an incentive fee. What costs are we eliminating from the internal management of the fund? Mark Klein: Thanks, Alex. That's the longest one question ever, but I appreciate it. So let's start with we were externally managed. We made a determination to be internally managed as we took the management -- the group that managed the portfolio and brought it in-house. As I noted in my prepared remarks, I think a lot has changed in the public venture capital markets. And we came to the conclusion that in order for us to be at the top of the pyramid of all have the largest asset management platform available to invest in public markets, having greater depth from both investment, sourcing, diligence, support, infrastructure, et cetera, to partner with a firm like Magnetar, which we have done an awful lot of investing with over the years, just simply made sense. It makes us the largest platform to invest as a public investor in venture-backed securities. I think that matters right now. I think size matters, I think scale matters. I think the ability to bring other aspects to portfolio companies as opposed to just writing a check matters. And if you look at the success Magnetar has enjoyed and the fact that we invested with them in CoreWeave, we're investing with them in TensorWave, they are really on top of the game in the venture space. And as capital becomes more important and different capital solutions become more important to private companies, they are a great partner and significantly enhance what we are doing. And again, we're the first ones ever to do it, and we started 15 years ago, and we continue to pioneer as having a terrific partner. As far as cost savings, it's in the proxy, this will be less expensive for our investors, certainly to start in respect to expenses related to the management of the portfolio. As far as incentive fees, we made a point of saying that the entire portfolio and all the unrealized gains and all the success that has occurred to date and will occurs up until the externalization. There's no incentive fee being charged at all. That is for all of our shareholders in the future as we invest money and we realize profits on those new investments, there may be an incentive fee on that at that point in time, which candidly will be quite some time away from now. So we are really excited about this. This is really differentiated. This makes us as significant as we are now, much more significant. And it was a decision our Board took and we took as management, and we're really excited about that. The vote is on June 10. This -- upon approval by our shareholders, we will enter into a management agreement with Neostellar. We will rebrand to Neostellar, and that will be effective on July 1. Thank you. Operator: We will take our next question from Marvin Fong, BTIG. Marvin Fong: Congrats as well and looking forward to the externalization. I just have a big picture question after all the success, we can all see that the private and public markets around AI are quite excited here. Can you just kind of talk about what you're seeing now in terms of investment opportunity and ClickHouse is another you were able to get in on. But can you -- are you seeing opportunities like you're done with TensorWave to -- that are milestone based and can offer some protection and that these companies actually have to succeed in order to gain access to further capital. Can you expect kind of more structures like that? Or just kind of describe in general what are you seeing out there? Mark Klein: Thanks, Marvin. Great question. And I'll answer it in 2 parts. First of all, we are really excited about ClickHouse. ClickHouse has quickly become the de facto real-time analytics platform. They position themselves to benefit from AI applications, which demand real-time data. This company is growing at 250% year-over-year. It's phenomenal. It provides they're 10x that the rate, the speed of their competitors at approximately 1/10 of the cost. It is truly an amazing company. I suspect most people on this call probably haven't heard about it. We view this as we're in front in the same way we were in front with VAST when no one heard of it or even CoreWeave when no one heard of it. That's how we view ClickHouse. And I suspect as we move towards the end of the year, they will become more notable. That's one. Two, I think -- and you and I have talked about and I talked about it publicly, the markets are robust or perhaps broadly in the AI space, specifically in the private market side. We see an awful lot. We are seeing more deals now than we've ever seen before. And as we talked about it, you have to start is -- are you in the right -- are the tailwinds still there? Are you in the right sector, subtenant sector? Are you one of many in the space or one of a few? Do you have the right to win? Once you get to all that, can we actually [ invest ], whether it's like TensorWave, which I think is extremely well structured, or can we simply price it in a way that there's an opportunity to invest and see returns. And that leaves an awful lot of companies that candidly at this point in time are tough to invest in. But we have found opportunities, whether it was ClickHouse and TensorWave, as we've discussed before, we are really set up to win. They are to AMD what CoreWeave was to NVIDIA. As most of you can probably see, AMD just reported a blowout quarter. TensorWave is going to be where they're housing their AMD chips. It's an extremely exciting investment. The investment is structured in a way that we put $5 million in, $15 million will be following on, assuming certain conditions are met. And we think that's going to be an absolute [ raging ] success. We're really looking forward to TensorWave's future. Operator: We will take our next question from Jon Hickman with Ladenburg. Jon Hickman: I have a question about -- in the past, the top 5 positions have generally around -- they've been around 50% of your portfolio. And currently, the Top 5... Mark Klein: Jon, you still there? Operator: Participant line disconnected. We will take our next question from Brian McKenna, Citizens. Nate Saur: This is Nate Saur on for Brian McKenna. So first of all, congrats on the great moves this quarter and the especially impressive results so far this year. Maybe just extending the discussion on externalization real quick. I was wondering if you guys could provide a little -- or get a little bit more specific on the timing? Like why is right now the... Mark Klein: I think we lost him as well, operator. Operator: Yes, we lost Brian's line. We will take our next question from Alex Fuhrman, Lucid Capital Markets. Alex Fuhrman: I'll try to ask it real quick here and sneak it in. But congratulations guys on the really strong start to the year. I wanted to ask about your portfolio composition here in terms of your sector allocations. Obviously, your investment in WHOOP has been tremendously successful here when you think about that as well as the wind down in your position [Technical Difficulty]. You're kind of at a unique moment here where health and wellness is actually a really large percentage of the portfolio right now. Should we expect to see incremental investments kind of back in that AI area to get that part of the portfolio back up? I guess you already did that subsequent to the quarter here with ClickHouse. But just any kind of high-level thoughts on sort of the composition of your portfolio by sectors and what we should expect to see going forward? Mark Klein: Sure. Thanks, Alex. Yes, in some ways, I guess, we're victims of our own success with WHOOP as WHOOP just completed a $575 million funding over a $10 billion valuation. It's obviously been sort of knocked it out of the park with that. That was -- that is a unique situation for us. It's a great situation, but unique. As you can see, we did just put $10 million into ClickHouse. We're funding another $15 million into TensorWave. And you will see the concentration more into the technology, AI, AI infrastructure, et cetera, again, be the largest focus of our fund. But as you did note, right now, with the success of WHOOP, that has caused a bit of concentration in that space. Operator: There are no further questions on the line. So I will now hand you back to your host for closing remarks. Mark Klein: Thank you all for joining this call. We greatly appreciate it. Sorry for a couple of the problems apparently with the questions. But we're very excited here. We had obviously the best quarter we've had on a quarter-over-quarter basis ever. We're extremely excited about our partnership with Magnetar and the rebranding to Neostellar. We're always available for your questions or comments, feel free to reach out to us. And thank you again for attending the call. We greatly appreciate it. Operator: Thank you for joining today's 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: Welcome to the IonQ First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Hanley Donofrio, Director of Investor Relations. Please go ahead. Hanley Donofrio: Good afternoon, everyone, and welcome to IonQ's First Quarter 2026 Earnings Call. My name is Hanley Donofrio, and I am the Investor Relations Director here at IonQ. I'm pleased to be joined on today's call by Niccolo de Masi, IonQ's Chairman and Chief Executive Officer; and Inder Singh, IonQ's Chief Operating Officer and Chief Financial Officer. By now, everyone should have access to the company's first quarter 2026 earnings release issued this afternoon, which is available on the SEC's website and on the Investor Relations section of our website at investors.ionq.com. Please note that on today's call, management will refer to non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information to investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. You are directed to our earnings release for a reconciliation of adjusted EBITDA and adjusted EPS for the closest comparable GAAP measures. During the call, we will discuss our business outlook and make forward-looking statements, including those regarding our guidance for 2026. These comments are based on our predictions and expectations as of today and are not guarantees of future performance. Actual events or results could differ materially due to a number of risks and uncertainties. Therefore, you should not put undue reliance on those statements. We refer you to our recent SEC filings, including our annual report on Form 10-K for the year ended December 31, 2025, for a more detailed discussion of those risks and uncertainties. We undertake no obligation to revise any statements to reflect changes that occur after this call, except as required by law. Now I will turn it over to Niccolo de Masi, Chairman and CEO of IonQ. Niccolo de Masi: Thank you all for joining us today. 2026 is off to a strong start at IonQ, and our results this quarter serve as a powerful validation of what we built throughout our transformational 2025. Financially, we have delivered the biggest quarter in IonQ history thus far, and our fourth consecutive quarter of record-breaking results. $64.7 million of GAAP revenue in the first quarter of 2026, is more than 8x what we delivered in the same period last year. Our strong momentum is a testament to the demand for our industry-leading quantum computers as well as the commercial impact of our entire quantum platform. As I outlined on our fourth quarter call in February, a key objective for 2026 is to drive superior financial performance by leveraging our scale and Quantum product families, combined with increasing geographic breadth and depth. We are executing well and have today raised our full year revenue expectations to $270 million at the high end. Our results were underpinned by accelerating global quantum computing system sales, increasing high-margin cloud utilization and deepening application layer partnerships with our enterprise customers. I am tremendously excited about IonQ's ecosystem progress, which was on full display at the New York Stock Exchange when we rang the bell with over 50 customers to celebrate World Quantum Day. IonQ is defining the Quantum technology market and establishing the leading hardware and software quantum industrial ecosystem. Our organic performance is a direct reflection of this leadership as we architect and deliver the Quantum platform for the next century of computation. We continue to widen our lead across commercial and technical frontiers. Our parallel gate architecture with electronic qubit control will allow us to solve problems at a scale and cost that we believe will be unmatchable. On April 14, we rolled out clear third-party validated benchmarks, showcasing the incredible time to solution and cost to solution advantages that our Quantum computers already possess. These metrics represent the speed and economics with which our systems deliver accurate solutions to the world's hardest problems. As you can see on Slide 6 of our investor presentation, we presently enjoy up to 10,000x faster time to solution on key quantum algorithms, including 1,000x faster for the Quantum [ Ferrer ] transform. The Quantum [indiscernible] transform, in fact, enables many critical use cases, such as cryptography, molecular drug discovery, advanced material synthesis and unlocking fusion energy, making this timely solution valuable today and into the future. It is not a coincidence that several of the key utility scale applications, described by DARPA's quantum benchmarking initiative could take advantage of quantum farer transforms under the hood. IonQ's time to solution advantage with Quantum ferrer transform and other benchmark algorithms today, underscores our fidelity and connectivity advantages that we expect to endure throughout the coming decades. I am proud to report that we have presold our first chip-based 256-qubit system in the first quarter. We are moving with conviction to demonstrate this technology by year-end with customer systems expected to begin commissioning by the end of the second quarter of 2027. While much of the industry remains in the scientific research phase, IonQ has been able to focus on delivering production-ready systems that are shaping the quantum market globally. We remain the first and only quantum company in history to have demonstrated the critical technology components at the performance levels required for full fault tolerance. The next critical frontier in our industry is the efficient use of quantum error correction to convert high-quality physical qubits into even higher quality logical qubits, unlocking new frontiers of scale and impact. This is the bridge to utility scale, fault tolerant quantum computing. And it should be no surprise that IonQ is leading here as well. Just last month, we published our complete architectural blueprint for our flexible modular framework that describes how our technology scales through to 2030 objectives of a fully fall tolerant system with millions of physical qubits and logical error rates as low as 1 in 1 trillion. Our walking cat paper described IonQ's end-to-end architecture for full fall tolerant quantum computing, spanning compiler design and error correction to hardware, control systems and ion movement. This historic paper outlines in manufacturable detail, how we will move from today's IonQ commercial systems to deploying and commissioning INQ's utility-scale quantum computers to customers. The level of detail and completeness in our blueprint is a global first and historic milestone for the quantum industry as a whole. Along with the academic community, there has been strong and broad recognition that this is the industry's first clear detailed manufacturable path to scaled fall tolerance systems. For those able to follow along in our investor presentation, please see Page 7 for details. IonQ's specificity sets a new standard and distinguishes IonQ with its tangibility resting on capabilities our hardware has already demonstrated including 99.99% 2-qubit fidelity and reliable ion transport. This historic work demonstrates precisely why IonQ is on track to be the first to unlock fully full-tolerant quantum computers as we published clearly in June 2025. Our level of transparency is only possible through our 30 years of innovation. Only IonQ has the operational maturity and engineering predictability of generations of deployed systems as we now accelerate into a new phase of manufacturing and scale. Moving on now to SkyWater and our merchant supplier activities. As most listeners know, in January of 2026, we announced our intent to acquire SkyWater, in order to accelerate the U.S. quantum industry and deepen our commitment as a merchant supplier. We expect the transaction to close in the second or third quarter of 2026, subject to customary regulatory approvals. Over the past quarter, our commercial collaboration with SkyWater has already yielded multiple test iterations for our 256-qubit chip. As we shared in February, we hit the ground running with multiple initial tapeouts. Today, I am pleased to report that we have already received some of the first ion trap samples back from SkyWater and have demonstrated on the sample chips the critical performance we need for the complete 256-qubit chips. To design, fabricate and test these chips with SkyWater within a single quarter has been a delight. Our commercial partnership with SkyWater is a demonstration of the kind of acceleration, we hope our investment will bring for all customers of our quantum merchant supply function. And we expect these benefits to grow even further once the combination is complete. We already act as a merchant supplier with our industry-leading atomic clocks, sensors and networking products being sold to other quantum companies. When the SkyWater transaction closes, IonQ will be the largest quantum merchant supplier in the world, but [ Thomas Sanderman ] continuing to lead SkyWater. We view this transaction as not only accelerating IonQ's commercialization of fall tolerant quantum computers, but also using our balance sheet to secure the scalability of the entire U.S. and allied quantum market. As it is a frequent question from our community, I will now walk through our application and quantum algorithm momentum in a bit more granularity than in prior quarterly calls. This work can be seen in our investor presentation on Page 8. Applications and quantum algorithms are another cornerstone competitive advantage for IonQ. We know that for customers, value is measured not just on a machines architecture, but by how that architecture ultimately delivers customer value and results. We are confident IonQ already delivers a potent combination of orders of magnitude faster time to solution. The most accessible cost solution, reliability and quality that customers cannot find anywhere else. We have more than doubled our quantum algorithm and applications team size in the past few quarters, in response to strong demand. We continue to grow internationally, adding both application engineers and field engineers to support customer appetite for implementing IonQ's Quantum solutions in their organizations. We are deliberately focused on early advantage verticals, pharmaceuticals, financial services, energy and logistics. Real-world examples from just the past few quarters include the following partnerships. In the financial sector, we ran the world's first large-scale portfolio optimization, quantum algorithm using real S&P 500 data. This showcased along with [indiscernible] Quantum, our systematic improvement in portfolio quality and execution time in a production environment. Our trapped ion hardware has a long-term structural advantage for dense portfolio optimization such as these, because of its all-to-all connectivity industry-leading single qubit and 2-qubit gate fidelities. With Synopsis, we demonstrated accelerated computer-aided engineering workloads through quantum enhanced graft partitioning. We achieved double-digit percentage advantage in end-to-end time for large-scale structural models such as the Rolls-Royce jet engine and automotive models also. Trucially, this demonstration was integrated into their existing cloud workflow with 0 new infrastructure required. Ion Ride is using IonQ to optimize shipment allocations and fleet orchestration for electric and autonomous freight, delivering measurable gains in real-world logistics efficiency. We have already demonstrated real-world commercial validation using anonymized logistics data and historical cancellation logs. By achieving an increase in shipments delivered, this work will underpin very significant revenue gains for our partner at fleet scale. With Quantum Basel, we are advancing hybrid quantum classical techniques to optimize large language models and reduce energy consumption. Our results show that IonQ quantum computer energy consumption scales approximately linearly with qubit numbers for shallow circuits. By comparison, classical simulation exhibits exponential scaling. We are on track to demonstrate significant energy savings with improved inference performance as we scale these capabilities. These 4 production-oriented applications are just some of the examples our customers are deploying to actively drive business advantage and growth. We are proud to announce in parallel that our work to positively and powerfully impact humanity itself has this quarter seen a step change. We are now working with participants from the welcome [ LEAP ] initiative out of the U.K., which is a program designed to accelerate human health to apply our quantum optimization to improve cancer research. Our work introduces new computational approaches for reconstructing difficult regions of DNA that are often missed or misread by existing methods. This could become a useful foundation for future studies of genetic changes that matter in human disease, including cancer. Last quarter, we also announced a commercial partnership with CCRM and which is 1 of the world's leading accelerators for advanced therapies. We are very excited about the work we are doing with them, which includes cell and gene therapies for cancer and immune system rebuilding. This work is truly world-changing offering a powerful new future for human health. We have also begun work on combining our quantum optimization technology with computational methods for gene therapies. That includes optimization of mRNA sequences that get delivered into cells. Long term, we anticipate personalized medicine acceleration. For those following along in our investor presentation, this can be seen on Page 8. Let us now turn to the rest of our unique and expanding Quantum platform. Building on the momentum of our recent deployments of Quantum Communication Networks in Switzerland, Romania and Slovakia, IonQ has now successfully deployed Poland's first national quantum communications network. This is 1 of the largest terrestrial quantum key distribution networks in Europe, and it cements our position as the partner of choice for sovereign quantum security. We are similarly expanding our Quantum platform leadership domestically by announcing a new statewide Quantum networking initiative in the great state of Florida and the first commercial sale of a quantum memory node into the Mid-Atlantic regional Quantum Internet hosted at the University of Maryland. These partnerships underscore that IonQ is proudly playing a central role in the development of our secure national quantum infrastructure. On the technical front, we continue to innovate and lead the market as the only public company with a scaled quantum networking division. Last year, in partnership with the Air Force Research Lab, we achieved the first qubit to telecom frequency conversion in a field deployable system, enabling real-world quantum networks on existing telecom infrastructure. Last month, on World Quantum Day, we announced that in conjunction with AFRL, we connected qubits from 2 separate systems. This is the first demonstration of connected commercial quantum computers, demonstrating the operationalization opportunity of Quantum interconnects and paving the way for distributed quantum computing that will underpin the future of secure global communications. Our contract with DARPA's [ HARC ] program is another testament to our leadership in Quantum memory, modular quantum computing and scalable networking architectures using quantum interconnects. IonQ is playing a critical role in enabling a new class of networked quantum computers that can combine multiple qubit types into an interconnected high-performance architecture. To our knowledge, we are the only industry player to win a hardware award as part of [ HARC ]. This contract is another powerful example of how IonQ is already serving as the leading merchant supplier to the entire quantum industry with key IP, including the world's most accurate commercial clocks that matter to any modality's long-term scaling and manufacturability. Turning now to Slide 9 in the investor presentation. Momentum remains strong at IonQ Federal. We continue to advance through DARPA's quantum benchmarking initiatives and are building out our capabilities to support next-generation GPS, alternative PMT and other mission-critical initiatives for our nation. We were awarded a $39 million contract to advance next-generation space communications on the Space Development Agency's halo program. This paves the way for mission-ready quantum space systems for national security. Just this week, we expanded our space mission and sensing capabilities with a new product launch delivering persistent change monitoring intelligence from space. We were also awarded a spot on the Missile Defense Agency's Shield contract, which is focused on the rapid delivery of innovative capabilities to the war fighter with increased speed and agility. Our technology platform represents a dual-use advantage for our nation and its allies underpinning both economic growth and national security. We are proud to be the partner of choice for U.S. and allied governments in this geopolitical quantum space race. In order to do this work with U.S. government agencies, high-technology readiness levels are an imperative. Our quantum sensors and clocks have reached TRLs for deployment on land, sea, air and space. At this very moment, we have quantum sensors currently deployed on a Navy ship and in space on the X-37B spaceplane. Our Quantum Security products similarly have already reached deployment-ready TRLs across critical infrastructure, telecommunications and national networks, providing mature deployable quantum security solutions today is vital to ensuring continuity for communications as quantum computers become ubiquitous. Before I close, I would like to touch on [indiscernible] and talk through Page 10 in our quarterly investor deck. Lately, Q-Day, the threshold where Quantum Systems render current RSA encryption obsolete has dominated industry conversation. We have been transparent in our assessment of Q-Day's time line since publishing our technology road map in June 2025. Based on our public road map, we expect to achieve the logical qubit count required to challenge RSA 2048 encryption in the 2028 to 2029 window. China's stated goal is 2029 and their government quantum efforts. It's worth noting that our peers have now recognized this accelerated time line with Google very recently bringing forward its expectation for Q-Day from the mid-2030s to 2029. As we continue to accelerate the time line toward Q-Day, we view it as a strategic responsibility to also provide the solution. We are not just identifying the future risk we are delivering mature field deployable hardware and software cybersecurity solutions that allow global governments and enterprises to both enhance cybersecurity today and ensure our nation's protection in the age of Quantum ubiquity. IonQ is uniquely positioned to deliver post-quantum security solutions precisely because we're the ones defining the offensive frontier. Our deep understanding of how advanced Quantum Systems challenge RSA and ECC encryption allows us to build superior defenses. This creates a powerful strategic flywheel, our hardware leadership informs our security and innovation and our security expertise derisks the quantum transition for our customers. As I said in our full year call in February, 2025 was a strategic and financial inflection point for IonQ. Today, I am confident that 2026 is in turn the year we move from platform building blocks to platform execution at scale. We will continue to deliver superior financial performance, unlock exponential value through applications and system-level breakthroughs and operate with both discipline and speed. IonQ's mission is to pioneer and globally commercialize the world's Quantum solutions, positively impacting every aspect of applied science while ensuring U.S. and ally leadership in this generational and geopolitically vital technology race. I want to thank my colleagues for their extraordinary efforts and the broader quantum industry for their partnership. With our strong capitalization, unmatched talent density and clear road map, IonQ is 1 platform, 1 team primed and poised to win. I'm now delighted to hand the call over to Inder Singh, our COO and CFO. Inder Singh: Thank you, Niccolo. We are very proud to report our strongest quarter in the company's history, delivering $64.7 million in GAAP revenue, which is 755% year-on-year growth. This is now our third straight quarter of record-setting revenue growth. These results exceeded our revenue guidance by over 30% and our own expectations. Importantly, our results are underpinned by strong organic growth, which we expect will continue through the remainder of the year. In fact, as we indicated last quarter, we are expecting organic revenue growth to be 100% for the full year even exceeding 80% that we reported for 2025. I'll now cover our financials in more detail, which you can also see in our investor presentation on Pages 12 through 18. Consistent with the additional color we started to provide you last quarter regarding the different areas of our revenue and the composition of our revenue I'm going to touch on 4 key aspects: One, is commercial. Two will be geography. Third, we're introducing a metric around multiproduct sales, and of course, I'll again talk about remaining performance obligation, also known as RPOs. Number one, let me address our commercial revenue. I'm pleased to report that approximately 60% of our revenue came from commercial customers this quarter, similar to what we reported for all of full year 2025. This demonstrates that we are firmly entering the commercialization of our quantum technologies. Commercial revenues consist of Quantum platform contracts with non-U.S. government customers. We are happy to see this metric remain high as our revenues grow. We are happy that our commercial sales have now become a major part of the business and importantly, a takeaway for us is that our Quantum solutions have moved well away from the lab and squarely into real-world applications and deployment, as Niccolo described. Number two, our global revenue mix. I'm also pleased to report that we are seeing demand for our products come from around the world and from more countries than ever before. In Q1, approximately 35% of our revenue came from international markets. We've now sold solutions in over 30 countries compared to a year ago when we had customers in just a few. As I said last quarter, we're working on pursuit and capture in a very methodical way, and it is now starting to pay off as we begin to see revenues come from many more parts of the world. Number three, we are providing you with an additional metric, a new view into our revenues, which you look at and I would best describe it as multiproduct sales. Multiproduct sales means what percent of our revenue came from customers who have now bought more than 1 product from us, for example, computing, networking, sensing, security, et cetera. I'm pleased to report that in Q1, over 1/3 of our revenue came from multiproduct sales. The reason this is important is consistent with the strategy that Niccolo laid out last year, we have become the go-to place for all things Quanta. Under the leadership of [ Scott Mallard ] who head global sales for us, we have created a methodical approach to our go-to-market strategy. This includes cross-selling across our business, very disciplined pipeline development and conversion, our land and can strategy and yes, an amazing group of sales leaders that we are deploying around the world. While we may or may not always share all metrics every single quarter, we want to provide you color that will help you look at our business. You should know that we are investing in growing our revenues across our entire suite of products. It was Niccolo vision a year ago to develop this Quantum platform company, and we are seeing that play through our financials now. This multiproduct metric represents how that platform strategy has turned into financial outcomes. Number four, let me spend a moment on our remaining performance obligations or RPOs, which is a widely accepted measure that companies use to gauge their visibility over several quarters. As of March 31, 2026, our reported performance -- the remaining performance obligations or RPOs stood at $470 million compared to approximately $72 million a year ago. That represents a growth of 554% year-over-year. From our lens, RPOs help us get context around the continuing growth of our company as well as provide visibility potentially beyond the next few quarters. As all of you know, RPOs turn into revenue as performance obligations are met and RPOs get replenished with TCV from new sales. In Q1, to give you some context, for every $1 of revenue we recognized, we added roughly $2.5 in RPOs. And again, some use this as a proxy for backlog. To summarize my revenue comments, this first quarter of 2026 was another record-setting quarter with a revenue profile of 60% commercial, 35% international, 35% multiproduct and RPOs grew 554% year-on-year. And yes, we expect 100% year-on-year organic growth. Let me turn to our investments and profitability metrics now. First, let me talk to you about R&D. As of last quarter, our biggest investment area continues to be R&D and GAAP R&D in Q1 grew 215% year-over-year to $125.7 million. For some context, last year, our R&D exceeded the entire reported R&D in the quantum industry. Our strategy is to accelerate our innovation deliver the most powerful quantum computing solutions to the market, connect all things quantum them and secure our customers in a post quantum world, as Niccolo described. As a prime example of our innovation leadership and the compute power we intend to deliver and are delivering. Today, we're deploying our fifth-generation compute system called Tempo. We are now well on our way to the 256-qubit sixth generation system, and we are starting to turn our focus also on the seventh generation 10,000 qubit solution. We will maintain this relentless focus on innovation and our financial firepower allows us to do so. Turning now to adjusted EBITDA. We recorded a loss of $96.8 million for the first quarter. In this quarter, adjusted EBITDA included approximately $12 million of expenses related to our commercial agreement with SkyWater for the fabrication of our industry-leading ion trap. This commercial agreement remains in place until the approval and close of SkyWater. Excluding the SkyWater, commercial agreement end of $12 million, adjusted EBITDA would have been $85 million. Turning now to net income. In Q1, we reported a positive $805.4 million in GAAP net income, which was mainly due to an approximately $1.1 billion mark-to-market warrant valuation. As in prior quarters, let me remind you again that this warrant mark-to-market is a noncash item and depends on the stock price at any given time. Therefore this net income, including the volatility does not represent the operating performance of our business. Let me now turn to our financial [indiscernible] as a company. Cash cash equivalents and investments as of March 31, 2026, were $3.1 billion. This provides us with the visibility in financial firepower to accelerate our R&D road map, invest in new product development, scale our go-to-market engine and also to acquire critical capabilities. In addition to supporting our investment capabilities, our financial firepower provides comfort to our customers as well that we will be there for them, not just today, but in the coming years. This helps us create stickier relationships with top-tier customers who want to align with our multiyear road map. With my COO hat on, let me highlight a few areas we are driving towards excellence in our execution. As Niccolo shared last quarter, that is 1 of our prime objectives for 2026. Last quarter, I noted that near-term demand for some of our products in compute was outpacing our ability to perhaps meet that demand. And so this quarter, I'm happy to report we've addressed that and already strategically accelerated our ability to address the demand by growing our deployment teams, forward deployed engineers, manufacturing capacity and field operations. For 1 small example, we have more than doubled our manufacturing over the Tempo to meet the demand that we are seeing. Looking into the future for our 256-qubit system. Last quarter, I shared that we had completed tapeouts A, B and C and have started working on tapeout D. This quarter, I'm pleased to update you that tapeout D has been completed. The designs have been handed over to the foundry and their chips are now progressing well through the fabrication process. As part of this process, we received the first fully fabricated ion intra prototypes. I'm happy to share that they're already beyond the critical quality metrics needed for 256-qubit devices. Not only that, but also these metrics are approaching what we will eventually need to our 10,000 qubit device and beyond. This is an important milestone, it means we're proving out the path for the 256-qubit chips that are in fab at this time as well as the generations beyond. Building on our progress at the chip level, I'm pleased to share that we are also now wrapping the first engineering prototype for the full 256-qubit computer. This means that we're now moving from component-level testing to system-level testing. These are very important strides towards delivering the full 256-qubit system to the market in the future. And we're not stopping there. As I mentioned, our team is already starting stride towards our seventh generation 10,000 qubit chips. The key to scaling into our 10K high cubic count system is the integration of active CMOS design where SpyWater really helps. By moving control functions directly on to the silicon with CMOS, we are taking advantage of the scaling techniques of the existing global semiconductor industry in a nutshell, we're executing on our strategy. Let me now turn to financial guidance. As you have heard today, we have built a strong foundation for what we expect will be another historic year for IonQ in 2026. With that in mind, we are pleased to raise our revenue guidance for the full year 2026 to be between $260 million and $270 million. For context, even the lower end of that guidance doubles the company's year-over-year revenues. For the second quarter, we are projecting revenues of between $65 million and $68 million. We are also reaffirming our projections for full year 2026 adjusted EBITDA, to be in the range of negative $310 million to negative $330 million. We look forward to the remainder of 2026 with confidence and believe that IonQ is well positioned with the talent density, the processes, the technology and the innovation investment to remain the trail basing and quantum leader that we're establishing and have established already. With that, operator, please open the call for Q&A. Operator: [Operator Instructions] Our first question comes from John McPeake of Rosenblatt Securities. John McPeake: Thanks. Nice work. So I think you've got 3 customers now for the 256. You just called out Cambridge. I think last call, you talked about Quantum Basel and also there's Horizon Quantum out there. Could you talk a little bit about the likely delivery schedule and how the -- how we should think about the revenues coming in from these? And then I just have a quick follow-up. Niccolo de Masi: Yes. Thanks, John. Thank you for the comments as well. Look, we are laser-focused on our fifth-generation machine because customers are laser focused on it. The demand that we're seeing is actually for many more customers that I can share today. You mentioned if you a few important, but as I look at the demand for our fifth generation machine, and in fact, customers will look at it and say, well, we might also want to look at your next and your [indiscernible]. That remains very, very strong. So we will continue to announce new wins. I mean, first quarter is obviously just the beginning. As I look at through the rest of the year, the demand is strong. The need for us to have the manufacturing and deployment capabilities was necessary, as I mentioned last quarter. And we've made those investments by bringing on board and deploying, frankly, folks that will be building these. You'll see many more announcements coming in the future. I mentioned, Scott and team are busy responding to some of the demand signals that we're seeing for Tempo. And importantly, early demand signals also for our 256. Remember, when customers buy something as unique as a computing platform they're buying the platform, meaning a multiyear view, not having to shift direction 12 months from now. So we're ensuring that we are in the right places with the right customers. who not only have the desire and interest in our solutions, yes, but also the long-term conviction to remain with us over multiple years. Quantum Basel is an excellent example of that. And there are many more we'll be announcing. Our focus is to make sure that 2026, we deliver on the guidance we've provided you and hopefully see and Tempo will be a big driver of that as well as the rest of our platform. But also 256 is just around the corner, looking into 2027 and beyond. So hope both of that addresses your question? John McPeake: It does. I just have a quick follow-up. The road map has 12 logical very respectable 10 to negative 7 2-qubit gate error rate. Will that be calibratable? In other words, could you have more logicals with slightly higher error rates? Is that in the cards because that's a very low error rate, but it's lower logical as a result. Niccolo de Masi: Yes. So I said in my script, this is Niccolo, that we're expecting 10 to the minus 12 error rates as our architecture matures. And so you're going to see even lower error rates in the coming generations of systems. The other thing that we are making progress on is reducing the ratio still further between the physical and logical qubit ratio. So I think there's probably some modest upside in the public road map that we published last June in terms of physical and large low qubit counts, accelerating a bit further, at least on the logical front. But as we've said consistently for the last year 2, if not 5, frankly, the advantage of our architecture is we have the highest fidelity qubits naturally. And that makes everything easier, right? It makes the ratio of physically lower as it starts out lower even before we start trying to optimize it. And it means their rates are lower, right? And you can see, particularly the advantages in having lower error rates on things like Page 6 in the investor deck, right, where we're talking about time to solution and the high fidelity 2-qubit parallel gate architecture we've developed. Time to solution is obviously a product of how many times you got to take what's called a shot and a certain algorithm and of course, how accurate the shops are. Our shots are all very accurate, so we don't have to take very many of them, right? And that's an advantage that we expect is going to endure throughout our entire architecture. And we're already obviously demonstrating in Grand style now. And obviously, with the walking cat architecture now all publicly available, you can see how we're going to hold that all the way through 2030. Operator: Our next question comes from Craig Ellis of B. Riley Securities. Craig Ellis: Congratulations on the momentum to start with your guys. I wanted to go back to the point that you made, Nicolo on the April 14 Photonic Interconnect announcement. And it's great to see something that I think some people are calling an Ethernet moment. But the question is, as you look at what that means and how customers are engaging what are the revenue implications of that either later this year or out on the road map as we look at that advancement in technology. Niccolo de Masi: Well, we're not going to give you a precise guidance on the revenue impact in out quarters. But I will say that the beauty of our lead in quantum networking and photonic interconnects, is threefold, right? So one, we think we can push our systems a long way vis-a-vis getting 2 million physical qubits on a single chip. At some point though, we may want even bigger systems. And so data center opportunities arise at some point in our architecture, whether it's 2 million per chip or it's 4 million per chip or even 10 million per ship. At some point, we may want 100 million qubits, right? I mean I'm very bullish on humanity's ability to take advantage of more compute power, and particularly more quantum computing power. And I think at some point in the future generations of quantum computers themselves will help us figure out how to optimize and take advantage of even bigger quantum computers. The second thing that does is it builds us an expanded merchant supplier capability. right? So I talked in my prepared remarks about the fact that our Quantum memory solutions and IP actually will allow multiple modalities to potentially connect together in a pretty seamless fashion and work together. And I think that's exciting vis-a-vis again, where the world will be in the coming years and decades. And then, of course, thirdly, we've talked a couple of times about the fact that we have multiple customers in the networked quantum computer category. Air Force Research Lab is obviously the first of those, and that continues to be a large contract that we prove out every quarter every year. My colleague, Inder mentioned a few other customers, both last quarter and this quarter is taking Quantum network computers. So in summary, there's really 3 great lever points for us, and we continue to invest and of course, protecting our Quantum networking and photonic interconnects because it's something that we've been working on, including from our founder, Chris Monroe early on. And believe it or not, Chris Monroe continues to work on that. So we're very excited that our lead there we believe, to be as prodigious as the computing one. The world is going to need, obviously, protected communications between quantum computers. And this is precisely why we expanded the vision of the company 15 months ago, 18 months ago from computing into networking. Inder Singh: Yes. And I'll just add, what Niccolo, I agree with everything you just said. So in Q1, we saw growth in every product line, Craig, year-on-year. And if you look at our guidance for the year without commenting on individual quarters, just look at the math, the company is doubling. Organic will be doubling. Therefore, it needs the rest of the company other product lines that we have also have a doubling effect on the company in total to get to the guidance that we've provided you. The interconnects, the ability to narrow our computers together, the ability to deliver hybrid compute. Those are the things that we are uniquely positioned. We can compute -- we can connect an ion tract type of quantum machine with someone else's. So we are, in that way, being very agnostic. We want the whole industry to grow. We want to become the networking and the compute leader in many ways in terms of our own innovation and we want the rest of the industry to succeed as well because that's how you make it the successful, durable industry. We have moved ourselves out of the lab into the commercial market. We want everyone else to do that as well, and that's how we grow. We are happy to see the results that we're delivering. We keep investing and Niccolo is all constantly getting calls in for, would you like some more investment and things like that. So I think there are ideas always that are in front of us. We are very happy with the portfolio we have. It was put together about a year ago by Niccolo strategy, become the first quantum platform company, and you will establish basically a critical mass that allows the industry to scale but also all set innovate and scale. So strong first quarter across every product line, a strong year. I think you can sort of do the math around the growth of the other products, not discontinued. Craig Ellis: That's really helpful, guys. And Inder, I'll ask a follow-up question that relates to the COO hat that you also were and it's directed that how go-to-market changes as you bring [ Scott Millard ] in from Dell. And you talked about wanting to be a service provider and span a range of solutions. You would seem to have just an ideal background for that. But how does go-to-market change as we think of the next few years in the company pursuing the road map that you laid out at Analyst Day? Inder Singh: Yes. Look, becoming a successful technology company is a team sport. You have to have the legal professional to do the commercial negotiations. So [indiscernible] you're seeing deployed around the world, working in partnership with Scott, my teams in the finance area, helping to Scott succeed at force. Scott himself developing a methodical pursuit and capture. These are not things companies do until they have critical mass. We think we're there, right? So that's where we're now investing not just R&D, but go to market. And some of the leaders that have joined the company would amaze you in terms of their knowledge of the market, the mindset of the customer. There's not a vertical that I think Quantum not touch eventually, it will touch everything. Some will be early adopters, some will lag. Areas like financial services, which needs protection now to the Q-Day comments that Niccolo made, life sciences companies that need faster innovation because they're competitive and they're trying to solve some of the most intractable problems that humanity faces and others. So we're happy to be the 1 that actually brings all that together, whether it's connecting our machine to someone else's or our's with interconnects, as you mentioned. But I'm happy to see kind of the flywheel effect starting to take over, Craig. Happy to follow up with you offline as well. Operator: Our next question comes from Troy Jensen of Cantor Fitzgerald. Troy Jensen: Congrats on the results and all the technical milestones. Maybe to start here with Niccolo. I agree 100% around the cusp of all your guys' quantum advantage, really helping to solve some commercial applications that we haven't done previously. But I was just curious, how do you think about like pricing the value that you guys are creating, because if you are enabling like new drug discovery and new material science, I mean, there are huge market opportunities. So can you just talk about how you kind of price and think through the value you're delivering here? Niccolo de Masi: Yes. So look, we obviously are innovating business models at the same time as we are building the Quantum ecosystem here. Inder as eloquently talked in the last few quarters about the platform strategy translating into real momentum. And so obviously, we are pricing things differently when there's a network Quantum computer and we're providing more value there than obviously just a single system that's not quantum networks. And there's going to be a fair amount of price exploration, frankly, on a global basis as our Quantum platform continues to mature. What I am excited about this quarter, in particular in this year really is that the market continues to come towards us. And Inder mentioned the fact that, at times, there is greater short-term demand and able to supply it. So we're very focused on improving manufacturing capacity at IonQ in total across the entire platform. We are working on both individual customer sales that can at times be multiproduct, but we're also working on some very large initiatives at the national scale. And I think it's safe to say that -- there is a fair amount of bespoke consultative selling that's going on. If you think about the breadth and depth of our product families as well as the geographies that we now have traction in. Now obviously, because of our cost advantages and because of the fact that we have always tried to forward invest in manufacturing capacities, I mean we did that obviously on both coasts in the U.S. years ago, for example, we have, we believe, the greatest power per unit dollar that's on offer in the marketplace. And that's, of course, our goal. I have talked in prior quarters about the fact that we do 3 things at IonQ across the company, right? We meet and beat financial expectations. We meet and beat expectations, and we continually refine our internal operating system. So as we see how market demand evolves, we will get more efficient about what we're bundling and how we're deploying configuring and delivering that. But right now, we're very much at the start of that S-curve, if you will. And I think there's orders of magnitude of growth to be had here and orders of magnitude of maturation to be had in our sales ops, manufacturing, deployment organization. We're proud of the fact that we believe we lead the industry right now in maturity, but we recognize that as revenue continues to grow, this organization will have to keep getting standardized and keep growing up. So we'll keep you posted as we standardize, but we're not quite at the point whereby we're listing rack prices on our website. Inder Singh: I think less about pricing to me, it's more about meeting the customer where they are. So a customer can choose to buy a system. They can choose to access it via the cloud, they can choose to ask us to provide them an edge device that connects them to something. So we meet them where they are. It's less about competing with price. It's more about ensuring that we give them what they want and frankly, can afford, and so cloud access is obviously cheaper than buying a computer device. So not everyone will buy a computer, not everyone will be happy with a [indiscernible]. Troy Jensen: Easy follow-up for you, Inder, did you report a number of 10% customers in size at all? Inder Singh: We did not in this quarter, Troy. Operator: Our next question comes from Quinn Bolton of Needham. Shadi Mitwalli: This is Shadi Mitwalli for Quinn. Congrats on the progress. I guess as IonQ transforms into a quantum platform company. Can you just talk about some of the solutions you've been bundling for customers, and then has the bundling been more IonQ driven or customer-driven? Inder Singh: Yes. Great question. The customer journey in Quantum is not very dissimilar than the customer journey in traditional networking and compute. I mean sometimes customers start in 1 area and expand it to another or vice versa. So we have claimed examples where we can say a customer started with buying a network from us and then saying, okay, please add a computer now and then maybe saying add security. On the other hand, somebody may start with the compute device sitting next to a GPU cluster or an AI factory. And what they want is to have hybrid workloads. The types of sort of like large-scale matrix multiplication that is required for LLM runs on the GPU. But where you need simultaneous analysis of all possible outcomes in a fraction of the time you need to give. So we're seeing both. And I think over time, you'll see the industry evolving into something that resembles frankly, networking. And I do think that we want to be in every part of that. And I think 1 of the really important parts to consider here is there's a Quantum Advantage Q-Day coming up and whether have as rapidly, whether we do it as a nation or someone else does it, there's a protection angle that has to be pursued as well. So we're finding some customers say, well, protect me first. Lock down my crown jewels, help me understand how I can protect what I value most and then go from there. So all those conversations are happening. They're starting from different places, maybe ending in other places. That multiproduct thing that we introduced and Niccolo and I introduced this quarter is around how many customers or what percentage of our revenue at least is now employing more than 1 product. And I think that's the network effect. Operator: Our next question comes from Richard Shannon of Craig-Hallum. Tyler Perry Anderson: This is Tyler on for Richard Shannon. I just wanted to first understand -- when does the architecture that you had recently published intersect into your road map? Like when do you have a -- what size QPU would that architecture be implemented? Niccolo de Masi: You're talking about the semiconductor road map, right? Tyler Perry Anderson: So yes, the most recent paper. Niccolo de Masi: Walking cat architecture, I think, is your question, right, for full fault tolerance? Tyler Perry Anderson: Yes. Niccolo de Masi: Yes. So I mean, look, we're going from 256 to 10,000 qubits out to 1 million, right? So this full-fault tolerant architecture kicks in every generation but obviously, 10,000 qubits is when you start to see all of the full benefits of the fault tolerant architecture. So next year and beyond. Inder Singh: And then basically use that as a jumping off point to go from 10,000 to 20,000 to 200,000, 2 million. And that just leverages a semiconductor ecosystem that is well tested, developed and we can just take advantage of. Niccolo de Masi: So we're working on like 3 generations of systems at the same time, right? So we're trying to obviously continue to accelerate here, as I said, every quarter. If we can find ways to go faster, we will. Tyler Perry Anderson: And then could you level set on how many satellites you have up in the space right now? And if you could what you think you would have exiting the year and whether or not you have a quantum memory in a satellite. And I presume that would be connecting Florida and Maryland, but any information on that would be helpful. Niccolo de Masi: Look, I think some aspects of our business are highly classified. We have a constellation of satellite is what I can say. I think that we look at the ability to connect things on the ground from ground-to-space, space-to-space space-to-ground under the water even. So we want to make sure that we can meet the customers' needs and not everyone needs everything. To your point, we're very uniquely positioned that we have the most accurate atomic blocks, the most accurate sensing. And yes, we have satellites, too. So I look at it as that platform story, not everybody needs everything. But some of the things that we invest in are ground-based and to your point, some are not. Inder Singh: All I'd add to that is, I think it's safe to say, I said in my script that we're focused on next-generation PNT, positioning, navigation and time. This is obviously dual-use. It's important for our Department of or it's also important for things like the future of autonomous driving and more precision and more reliability and robustness in GPSs, obviously vital. We're a very unique company in the sense that we have obviously, a leadership position in QKD. We have a leadership position in optical interconnection space and also leadership position in quantum sensing and space and atomic clock. So there's a good amount of I think both U.S. and allied enthusiasm for different configurations of what we're opting we'll update the market, obviously, as we can and as we make progress. Operator: Our next question comes from Antoine Legault of Wedbush Securities. Antoine Legault: Congratulations on the results as well. With regards the time line compression for Q-Day. I think, Inder, you mentioned it briefly, but are you seeing a shortening of the sales cycles within enterprise customers? Or put differently, is there more impetus for enterprises to migrate to PQC standards? And has that driven any acceleration in revenue growth recently? Inder Singh: Look, I can't comment on industrial customers before. We are seeing customers wake up to the fact not just because we're saying it, but Google saying it others are saying it, right? I mean there's an acceptance now that things are about to change in a very radical way in a very short time line. And if you look at our road map, our road map probably gets us there before many other companies. So when we look at the need for creating solutions that solve chemistry problems or, to your point, encryption as well. We also have to ensure that we are ready to secure our customers. And we're starting to see the conversations start around let's talk about security. So as I said earlier to a prior question, that has become more prevalent now than it was a year ago for sure. I'm not going to tell you that everyone is thinking, "Oh, I need to do something for tomorrow. I think people are realizing it's not 20 years away. So that's what they were hearing from some others in tech. We were saying quite the opposite, right? We were saying we're going to build the most powerful computing devices on the planet, and we are. So I think that the national conversation when you have the compute power that creates enormous amounts of exponential amount of compute, energy and power and then solutions that help guard us today so you can deploy the compute solutions you want and secure what matters to you. We're very unique in that mission. Antoine Legault: And just a quick follow-up. On the recent Florida [indiscernible] announcement, can you give us a sense of the scope of that engagement, what it means for the company? Or just more broadly, do you see that as a replicable model in other states or jurisdictions. Niccolo de Masi: Yes. So it's a phased contract. And obviously, it will connect a limited geography to start with, but there's ambitions from Florida's Secretary of Commerce to expand that to be a statewide initiative Universities are leaning in, obviously, in Florida. The state is also leaning in. And I think they recognize that as Q-Days coming earlier, the need to secure critical infrastructure for the state continues to climb. And it's now inside the planning horizon for both enterprise and government partners when we're talking about something that is 2 or 3 years away, not a decade away, right? And so all of a sudden, and there's broad agreements, we were the early mover and leader on this last summer, but there's now a very broad agreement, right, between geopolitical competitors through to large enterprise, non-Quantum enterprise and, of course, ourselves and Quantum enterprise that this is very much something that if you're a CIO, CTO, a CISO, you now need to plan in because the chances of your job, life expectancy running right through this have just skyrocketed, right, in the last year. So it has been a nice piece of momentum uptick for sure, Inder mentioned landing and expanding. And I think this is, for sure, part of that precise strategy. I think we're just getting started here, obviously. And so we will be growing in sophistication. As you can see in our presentation. We talk about security as a key tenet of what it is that we provide, and we've been investing in this as well. So I'm looking at Page 10 in particular, when I talk about the full stack of cyber for the Quantum era, right? And that stack is going to get deeper and broader itself also, and we intend to be the leading player here, obviously, as we are today. Operator: Our next question comes from [ Nehal Koski ] from Northland Capital Markets. Unknown Analyst: The $12 million impact from SkyWater, is that 100% realized in COGS? Would that have been 100% realized in COGS? Inder Singh: The expenses I talked about? Unknown Analyst: Yes. Inder Singh: Yes, it's more R&D tooling and things like that. Unknown Analyst: Okay. So then can you talk to the driver of gross margin being down about 600 basis points Q-on-Q. Inder Singh: Yes. I mean I've said this on prior calls, and I want to make sure that I make this very, very clear. This is a nascent industry. This industry in which scale will build over time. We are very focused on gross margin, obviously. We start with a huge advantage. Niccolo mentioned this earlier. We have a bill of material that is a fraction of the cost of any other modality. So you start with that and then you add capabilities on top of it. The better way to think about a business like this or frankly, any other high-tech business on the cutting edge, whether it's AI companies or sell to others, is EBITDA, and that's why we guide EBITDA because R&D is a big component as much as you're focused on COGS, yes, I am, too. But R&D is an important ingredient in our recipe right now, to maintain and accelerate into our road map. So that's what we look at. Yes, as our revenues are doubling this year and maybe more than doubling this year for the guidance, and continue to grow, we have the ability to then drive a cost margin across the goods sold focus as well. At the moment, it's a mix of things. It depends on what you sell more of in any given quarter. So I would not assess on the gross margin. I'd urge you to think more about a more fulsome view, which is EBITDA margin. Unknown Analyst: Okay. Great. Two more questions, please. Niccolo, the walking cat architecture, can you discuss what you see as the advantages relative to some other new relatively qubit architectures, specifically qubit architecture, specifically? Niccolo de Masi: Yes. I mean, look, the main advantage is ours is shop ready, and we're ready to go, and we've gotten there first as we have with everything else in more detail and more constructability, right? It is simple. It is all to all communication. It is parallel gate, okay? And we're going to have a lot more physical qubits, which means more logical qubits given our error correction ratio is very low on a single chip, right? So we'll be able to tackle problems in the fault tolerant era that simply will not be tackleable by other architectures because they won't have enough logical qubits. 100 large qubits will not do, what, 1,000 or 10,000 large qubits can do on a single chip where it can communicate quickly to each other and seamlessly to each other. The parallel gate aspect, I'll highlight because that's really quite unique. And I would also say that if you go through our BOM, or bill of materials, we announced last September, our Analyst Day at the NYC that our bill of materials in 2025 was under $30 million. That's truly astonishing. It's manufacturable. It is low. It is modest energy consumption. It is modest BOM. And because of the way architecture is built, it's really quite robust, right? We don't have a bunch of dilution refrigerator requirements that drives energy cost, space, and BOM up a long way quickly. What we have is something that can fit near the front line, can fit in your basement type thing, can fit in a normal data center, right, section of an office or a building. And because we also control a lot of the IP, I would argue all the best IP for networking and memory, we have extensibility to full data center offerings already being worked on already being built in. My friend Inder here mentioned hybrid workflows, hybrid data centers are coming. There's a recognition of that need. And IonQ, because we're networking forward and always have been, has thought about obviously how that component will fit into our architecture as and when we would like to roll out. You see customers beginning to obviously work on that, whether it's AFRL and others as early as last year, that's going to accelerate, obviously, an enthusiasm is my prediction. So built for scalability is really my summary here, right? It's modular, it's simpler, it's regular and it uses, of course, manufacturing techniques that are well proven, so we can move quickly and we can move at global scale. Unknown Analyst: One of the things that jumps out to me from the explanation that you just gave was the scalability. And I think that you're intimating towards a better error correction capability, lower physical to logical qubit ratios. Is that contemplated in the long-term road map that you guys had laid out a year ago where when you're talking about a 200,000 physical qubits, you're at 8,000 logical qubits, that basically implies 25 to 1 -- is that -- was that already contemplated that you were going to be moving forward with a walking cat architecture that enables the relatively low physical to logical qubit ratios? Niccolo de Masi: Yes, for sure. I mean this is -- we've been very clear on this, I think, in every meeting call and presentation we've done, right? Because we have the highest fidelity, 49s because we've proven ion transport and ion 49s and we -- yes, we've been working with architecture for a long time. I mean it's a multiyear effort, not a multi-week effort type thing. So yes, I mean, when we publish things in our road map, we have a very high, what I would call, do say or say do ratio, right? So end of the day, we do what we say we're going to do both technically and of course, financially each quarter and each year, and we're proud of that. And these are the goals that our entire team very much prides himself on delivering step 1 and then overdelivering against thereafter. So yes, I mean I'm very proud of the team. We're proud to be there first yet again. I'm not surprised because I said that we would get there last summer. First, and we continue to march right up this curve right on schedule. Unknown Analyst: Okay. Great. And real quickly, do you have the average duration on the RPO. Inder Singh: I mean -- but you can imagine that it's multiyear. In our [indiscernible] that will be filed, we'll break out for you what percent of that will turn into revenue in this year and then the rest of it turns into future years. What I like about it is we're talking years, right? I'm not talking about 1 quarter visibility. You start to look beyond a quarter, you can now focus on the long term. You can talk about R&D investment for the next 5 years. And you asked a really go question. And by the way, congratulations on launching coverage on the quantum sector and welcome to the party and the enlightened side. The thing that I would urge you to keep in mind though, and I know you know this, modalities that have lots of errors to start with, talk about error correction, modalities that have very few errors do not talk about error correction. Whether lucky or smart, the founders of this company 3 decades ago, [ victor ] modalities that have highest coherence, best fidelity, lowest error rate. 3 of the 4 ingredients that you absolutely must have. The fourth speed, so we are now trying to build the fastest, most powerful computing devices on, I think, the market today and probably in the coming years. We talk a lot about U.S. questions around cost of goods and things like that. customers think about total cost of ownership. Think about what it means to buy a superconducting based solution, which is great, no NOC. But then you have the operating costs after day 1. So we don't suffer from that. We don't suffer from the bill of materials issue. We are more around creating the best and most, I'll call it, app and App Store and iPhone analogy, which Niccolo talked about a lot. And if you think about that, as we build the next computing device, i.e., the next iPhone, we're also, at the same time, building the applications that can run on. That's really important. Keep that in mind just as much as we think about the power of the machine. That's number one. Number two, we're not just a maker of machines anymore. We are a maker of solutions, entire solutions end-to-end. So it's a platform company. And I think customers are starting to talk more around that and saying, let's talk about that other side of your portfolio, and then we'll come back to [indiscernible]. Operator: Our next question comes from Peter Pang of JPMorgan. Peter Peng: Just on the near-term question, you guys gave an updated annual revenue guidance. And just based on your second quarter guidance, it would imply a pretty flattish revenue through the remainder of the year? I know you guys talked about expanding capacity to accelerate the demand. To what extent are you still constrained as we look out in the back half of the year here? Niccolo de Masi: We're exercising proven look, it's a nascent industry, right, Peter. I mean, thank you for the question, by the way. It's a good one. Look, when we guided for Q1, a quarter ago, we guided for a number you saw. We beat that by $15 million. Not that we expect it to be the -- $15 million, but we knew we would work towards what we've been doing for 4-plus years, providing guidance on technology and financials, and trying to either meet or exceed on both. So I think stay with us on the journey. As we look at this company and the potential it brings, the total cost of ownership differentiation, which no 1 is really talking about yet. The fact that we can deliver the 10,000 machines and then the 20,000 beyond. And to someone's question earlier, it becomes a modular upgrades, modular upgrades, not a machine replacement at that point. So you get a sticky, very, very sticky relationship with the customer and the mutual dependence. So thank you. I appreciate your question. We are trying to be responsible stewards of investment, capital and what we say to investors with the hope that we can at least meet those expectations that we set out there. And last 4, 5 years would suggest we can actually even beat them. Peter Peng: Great. And then just for your next -- the 10,000 qubit chip, can you update us on the time line? Is that a calendar '27? Or is it calendar '28? Maybe just update on timing of that? Inder Singh: Yes. Look, I think we are focused this year on the Tempo, right? So 2026 when we last spoke, 2026, Tempo, 2027 in market 256 year after that in market 10K. Now because we have a team that is integrated across our compute now under leadership unified leadership, I would say, Matt, perhaps we can do things differently, perhaps we can do things more efficiently, maybe even faster. So we will invest in continuing to move our road map to the left. You've seen us do that twice. When we bought Oxford ionics, we moved our 5-year road map to the left. And when we announced the proposed acquisition of SkyWater, and we'll wait for the right approvals to happen, of course, and all that, we will be able to perhaps move, as you saw in our announcement, the road map yet again to the left. So the investment dollars that we have and the capacity to keep putting money into this business and delivering solutions faster and yes, financial outcomes also perhaps earlier and better, is what we're focused on. So 10k and this year, Tempo, next year, the 256 year after that 10k, my colleague, [ Chris Balance ] at Oxford who obsesses over this 24/7 and his entire team are making sure that they can execute with precision for more and more demanding customers. Our devices are not in the labs anymore, remember. Our devices are deployed in hybrid compute environments around the world, and those folks expect machines to work like turn on day 1, work, and provide the compute power that they need and the application development. So it's a continuing dialogue. We're happy to have it with you, Peter. It's an interesting evolving area. And when Niccolo and I joined the board 5 plus years ago, we didn't think the industry would be where it is perhaps 5 years from now, we'll look back and say, wow, so $3 billion of investment power, perhaps more singular focus on meeting the customer where they are, not trying to outcompete anyone else except ourselves, compete against ourselves, that's how you win, and that's our focus. Operator: Our next question comes from Vijay Rakesh of Mizu. Vijay Rakesh: Great to see solid guidance. Just 2 quick questions, 1 on short term and 1 on longer term. On the short term, as you look at that mix of hardware and platform services, should that mix be about the same going forward? Or do you expect 1 to accelerate? Inder Singh: Again, I think it depends on where the customer begins their journey with us, right? So again, #1 rule in business meets the customer where they are, meet their current need, understand what they need before they try to sell them something, and then do the land and expand and anything else in cross-selling that you want to do. So rather than worrying about which part, which product of our doesn't would be growing more than others. I look at the whole company -- that's how Niccolo looks at it, we look at it as 1 P&L, and we're trying to drive outcomes for our customers. The good news is the multiproduct sales that we just talked about, are demonstrating that customers are maybe starting with 1 and then adding more than one. And I hope that number will continue to grow over time. Our focus on 1 P&L, 1 R&D capability across the company, teams focused on the best efforts in terms of driving innovation. And our job is basically making sure that they succeed and create innovation to happen faster and faster. This is not about Moore's Law. This is way faster than Moore's law, right? You know. So that's how we look at it, Vijay. Vijay Rakesh: Got it. And then on your 2027 you have the ambitious plan of getting to 10,000 physical and 800 logical, how is that looking, I guess? Inder Singh: Yes. Early indicators, as we said in the prepared remarks on the 256, last quarter, we said we had already started to make progress on the tape-out. This quarter, we started to do system-level testing on 256. So when you get comfort with that generation of product, you can now turn your focus to the next, right? And it's always like a learning curve. Niccolo well. There's always an curve, but there's also a learning curve. And each learning curve helps you with the next one. Niccolo, I don't know if you want to add something. Niccolo de Masi: Well, no, I want to add to this is we're working on 3 generations in parallel. Obviously, we've talked in my prepared remarks about our success in the first quarter on the 256 tape-out with SkyWater. We expect continued progress, momentum, success there. Obviously, the difference between our architecture and what you might see in the marketplace is we've published the shovel-ready blueprints, right? We've been working on that for quite some time. We've published it. And our architecture is very scalable, very unique, very modular. And ultimately, it is something which is fully proven already in terms of what the components need to be, right? It's simple. It's regular. It has unified error correction, it's got parallel gates and execution. And ultimately, it's got subroutines with dedicated components tiled in the hierarchy on each chip. And so going from 10,000 to 100,000 to 1 million is not a particularly demanding leap. I think if you looked at what has been driven between generations of classical GPU architecture, I would argue that we are on parallel or simpler, right? And so we look at this scaling now, as we've said repeatedly last year as really an engineering challenge. Everything in our blueprint is extremely realistic in terms of the constraints and the specific details on the competitive design, the error correction, the hardware control systems, ion movement, parallel gates, the fidelities that we're acquiring are all less than what we've proven in the lab already, right? So I'm not saying that it's not hard. I'm not saying that there won't always be some things that sort of crop up when you move from a few systems to dozens or hundreds or even someday thousands or millions of systems. I mean that's all possible with this architecture. But nevertheless, it is all very digestible and it's been done many times in the history of humanity, right? So I think every -- of course, every year, it becomes yet more proven out. We sell more systems, and we prove out another generation. But the hard work has been done on this architecture on the components of the architecture that have all been demonstrated in the last year and years for that matter. This is really the culmination of 30 years of work. And the reason we're ahead is we've been thinking about it longer than everybody else. We built the first Quantum Longi gate in '95. And today, we have the highest 2-qubit gate fidelity. And of course, we also have the first shovel ready blueprint because we're not resting on our laurels. We can continue to put the pedal to metal and we keep pushing this. And we keep investing, and we will continue to do that. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Niccolo de Masi for any closing remarks. Niccolo de Masi: Thank you, operator. As I shared in our annual letter to shareholders last week, my personal journey with IonQ dates back to reading our founders seminal paper on the world's first phonologic gate as an undergraduate physics student in the 1990s. That moment was a shot heard around the world for anyone passionate about quantum mechanics and it cemented my commitment to this company's mission. Today, 1 year into my role as Chairman and CEO, IonQ has evolved from a quantum computing pioneer into the world's preeminent full stack Quantum platform and U.S. merchant supplier. We're the only company delivering integrated solutions across quantum computing, networking, sensing and security in all major and allied geographies and in all domains from submarines to satellites for the warfighter. We believe passionately in the importance of our merchant supply mission for the U.S. and allied quantum industry. We are investing and building a foundation to support the acceleration and commercialization of the entire quantum ecosystem as we have already done with our atomic clocks, sensors and quantum networks. Our North Star is the pioneer of Quantum Solutions and quantum applications that create durable value across global industries, and we are poised to transform sectors spanning pharma, finance, energy, defense, materials, logistics, GPS, cybersecurity and far beyond. Our revenue momentum underscores how we are already positively our global customers in these domains. We have 1,500 world-class professionals, comprised of over 300 PhDs and the deepest IP portfolio in the industry with over $3 billion of cash on the balance sheet. We are now moving from Quantum platform building blocks to Quantum platform execution at scale. IonQ is 1 platform, 1 team, primed and poised to win. I want to thank our shareholders for their continued trust and our colleagues for their extraordinary efforts. Thank you again for joining our call. We look forward to 2026 with confidence. Operator: Thank you. This call has now concluded. Thank you for attending today's presentation. You may now disconnect.
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: Good morning, ladies and gentlemen, and welcome to the HelloFresh SE Q1 2026 Results. [Operator Instructions]. Let me now turn the floor over to your host, Dominik Richter, CEO of HelloFresh. Dominik Richter: Good morning, ladies and gentlemen. Thank you for joining our Q1 2026 earnings call. Before my colleague, Fabien, takes you through our detailed financials, I want to spend a few minutes addressing our current standing, the progress we've achieved over the past 12 months and what this first quarter reveals about our trajectory for the remainder of the year. To be direct, we are in the midst of a deliberate transformation of the business. This process involves clear trade-offs, which are visible in our reported results today, but constitute a conscious choice to allow the business to be set up for long-term success. Over the past year, we've fundamentally overhauled our customer acquisition strategy, marketing spend and product proposition. We've made the conscious choice to walk away from unprofitable volume, tightened our marketing ROI thresholds and redirected capital from acquisition into product quality while restructuring our fixed cost base. None of this was accidental. It was a sequenced effort to fix the foundation even if it comes with a near-term trade-off to reported growth, but will allow for better revenue quality in the long run. The central question is whether this logic is working? I believe the evidence is clear that it is, and we've seen success in those metrics that are most associated with the long-term health of the business. First, let's take a look at our Meal Kits Products segment. One year ago, meal-kit revenue was declining at roughly 14.5% in constant currency in Q1. In Q1 2026, that decline narrowed to 8.5%, marking our fifth consecutive quarter of sequential improvement. The trajectory is moving clearly in the right direction. On efficiency, we have delivered structural improvements. Fulfillment costs as a percentage of revenue improved by 0.8 percentage points year-over-year. We reduced absolute marketing spend by EUR 62 million to about 21.8% of revenue. That's not a onetime squeeze, but a permanent shift in our operating cost discipline. Regarding the product, we've executed the most significant investment cycle in our history. Under the ReFresh, we have substantially broadened menu choice, doubling the recipes we offer in markets like the U.S. or the Nordics, while upgrading ingredient quality and expanding protein variety across all geographies. The sum of these investments leads to a materially better product value proposition, which will only compound from here as more and more initiatives come to life. That's the backbone of our strategy to drive higher customer lifetime value. Crucially, this means the quality of our revenue has improved. Our tenured customers are ordering more frequently and they're ordering higher baskets. Group level average order value rose EUR 4.2 in constant currency with meal kits specifically up 4.5%. Revenue retention and thus customer lifetime values of our tenured cohorts have been improving and trend at the best levels ever seen in the business. These are not temporary effects but rather the response of a healthy customer base to a fundamentally better product and a stronger value proposition. The sum total of these changes have to date most positively affected our tenured customers, which was clearly our primary focus area. However, it's not yet been enough to fully offset the impact of front-loaded product investments, inflation and the volume-led operational deleveraging. We expect the trend improvement for meal kits to continue going forward and also to see more proof of a return to eventual revenue growth by H2 when we will have the benefits of our product investments and the outstanding parts of the efficiency program materialize more forcefully in our P&L. I also want to address ready-to-eat and specifically factor U.S. directly. Again, our primary goal for 2026 is to return the RTE product segment to full year profitability on the basis of product excellence and strong operations. We are on a good trajectory to achieve this. The operational setbacks we faced in the U.S. last year, which impacted customer experience and retention, are now fully resolved. The underlying indicators have turned strongly. NPS is now trending at the highest level since 2023. Our tenured active customers grew double digits in Q1. A direct consequence of better product excitement among them and validation of our strategy to add more variety into the menus. RTE adjusted EBITDA losses also narrowed by about EUR 18 million in Q1. That's a 40% improvement year-over-year. This represents a very encouraging trend line in our P&L and is the result of improving both the unit economics and a more disciplined marketing investment approach. The remaining challenge now is rebuilding the active customer base, which reduced in the last 9 months due to those earlier mentioned operational issues and our subsequent response to not invest aggressively behind a product and supply chain that needed fixing. While conversions are improving, switching the acquisition engine back on does not happen overnight. It rather requires multiple touch points with consumers. New customer volume in Q1 was not yet enough to fully offset the gap in active customers accumulated over the past 12 months, which has come as a result of the aforementioned weaker retention and reduced new customer volume. However, we are now restarting the growth engine on top of operational confidence and strong ROI discipline. Outside the U.S., our RTE businesses in Australia and Canada continued to post healthy double-digit growth. Furthermore, our new production facility in Germany has opened and will soon be fully operational, providing the dedicated capacity needed to scale factor also in Europe in the second half of the year. In addition, we are excited about our product and menu expansion road maps, which should help to drive positive outcomes with regard to retention and order frequency of our tenured RTE customer base. We expect the combination of all of these improvements to flow through our P&L more visibly in the second half of the year. With that, let me come to the highlights of Q1. Revenue for the quarter was approximately EUR 1.7 billion, a 7.7% decline in constant currency, which was in line with our expectations. Meal kit revenue trends improved for a fifth consecutive quarter in a row, while RTE revenue trend showed a stable trend versus what we saw in Q4. Adjusted EBITDA came in at about EUR 24 million. To put this in context, severe winter storms in the U.S. and Europe, including a once in 75 years event in the U.S., disrupted our logistics and impacted adjusted EBITDA by approximately EUR 25 million. This is a one-off event that does not change the underlying trajectory of the operating model. Excluding this weather impact, our underlying adjusted EBITDA run rate was closer to EUR 49 million. This gives a much more accurate read of where the business structurally sits today. Fabien will bridge these numbers in more detail. Contribution margin for Q1 sat at 25.6%. We saw strong operational improvements on the fulfillment side, which were offset by our investments into better product value for consumers. That's a deliberate strategy, which will help us to divest from marketing and improve customer retention and order frequency in future quarters. Critically, we generated EUR 49 million in positive free cash flow, our fourth consecutive quarter of positive free cash flow despite the EUR 25 million impact from the adverse weather events. Finally, we're reconfirming our full year 2026 guidance, constant currency revenue decline of 3% to 6% and an adjusted EBITDA in the range of EUR 375 million to EUR 425 million. The delivery will be second half weighted. We front-loaded the ReFresh investments because we saw clear evidence that they were working. These costs hit the P&L now by the revenue benefits compound as retention and order frequency improve. In H2, the investment drag will moderate and structural savings from our efficiency program will flow through more fully. There are also variables we do not fully control such as consumer sentiment in North America and inflationary pressures. However, the leading indicators we track about the health of the business and our customer base, such as the customer order patterns I referenced and cohort retention, all point in the right direction. 15 years in, our mission to change the way people eat is more relevant than ever. By focusing on product quality, customer loyalty and cost discipline, we're building a business that creates lasting value. We're not only optimizing for the next quarter. We're building a company that earns its place on the dinner table every single week. Thank you. I will hand over to Fabien now. Fabien J. Simon: Thank you, Dominik, and good morning, everyone. Let me take you through the financial details of the quarter before we open for questions. You would have noticed that we have only a handful of slides this quarter, but I will make sure that I bring the necessary level of detail to understand how the trends that Dominik just described are showing up in our financials. So starting with revenue. The group net revenue was EUR 1.68 billion in Q1, a 7.7% decrease in constant currency. If you recall, in the previous quarter, Q4 2025, that figure was 9% negative in constant currency. But definitely, this represents another step in the right direction as we anticipated. As of next quarter, we will start reporting a full P&L split by product category. So allow me to already discuss with you the drivers for each of our key product categories now. Meal kits delivered close to EUR 1.2 billion in revenue, 8.5% lower than last year in constant currency. As Dominik noted, this is the fifth consecutive quarter of sequential improvement in constant currency rates. The makeup of this number is defined by the trajectory of orders and of AOV. Order growth in meal kits, while still negative, also improved sequentially for the fifth consecutive quarter. What we are seeing today is our tenured customer base ordering more on a per customer basis. On the other side, the cumulative impact of the marketing reduction over the past 18 months means that orders from recent customers are still down comparatively and more than offsetting the resilience in our tenure base. Average order value for meal kit was up 4.5% in constant currency, supported by fewer discounts and some marginal price increase and some positive mix. Ready-to-eat delivered EUR 466 million, which is lower than last year in constant currency by 6.9%. This is made up of average order value up by 1.4% in constant currency and lower order by about 8%. So let's pause for a second to understand the underlying drivers of order decline, which I believe is not necessarily fully understood by the market. First and most importantly, the cumulative impact of the preceding 9 months of operational issues precluded us from acquiring as many new customers as we would have liked while we were fixing those issues. Second, some underperformance in conversion in Q1 this year as we start to ramp up quality conversion, and we optimize our channel, our product and our marketing messages. Nevertheless, the tenured customer for ready-to-eat in Q1 displayed double-digit revenue growth, which is a great trajectory. But basically, because the category is in early stage, the conversions still represent an outside part of the revenue dynamics. So the takeaway on revenue is that the direction of travel on Meal Kits is improving as anticipated. On ready-to-eat, the slope of improvement is not yet visible in the revenue because the customer base entering this year was smaller than a year ago. The improvement will materialize progressively through the second half of the year as we rebuild the customer base on top of improving profitability. For contribution margin now. The contribution margin, excluding impairment and share-based compensation was 25.6%, down 1.4 percentage points year-on-year. I want to be specific about what drove that decline because the composition matters to understand how our strategy is being implemented. The first factor is the severe winter storms. EUR 25 million of nonrecurring disruptions that hit primarily in North America. I mean, I don't need to remind anyone, certainly not our U.S. listeners that the winter storm front in the U.S. was widely reported to be the heaviest winter storm in 75 years. This event affected ingredient delivery, wastage, increased credit and refund cost and disrupted last mile delivery operation. This is a weather event that has no bearing on the underlying structural margin trajectory. The second factor is deliberate. We have accelerated product investment ahead of the revenue curve, investment in higher quality protein, expanded meal choice significantly or onboarding of new ingredients have been rolled out across countries. Just to give an example, our customer in the Nordics can have 100 different recipes in their weekly menu, roughly doubling the size of the menu in 6 months. But these are recipes that now, for the most part, have a minimum of 200 grams of vegetables and fruits and better quality and better variety in their protein source. These investments increased gross cost in the near term. The returns come through higher retention, better frequency of orders and larger basket, i.e. better customer lifetime in subsequent period, especially as some of this investment compound and turn HelloFresh meals into being perceived as a higher value options. In this particular case of Nordics, I explained before, we registered a very encouraging positive total revenue growth in Q1 already. Overall, we still expect the impact of the product investment cycle in 2026 to take up approximately 150 basis points of gross margin, net of the impact of price increases. On the positive side, our efficiency program continued to deliver. Fulfillment costs declined 0.8 percentage points of the share of revenue when we exclude the impact of impairment and share-based compensation. This is a direct output of the network optimization and productivity improvements we have been embedded into the operating model. These savings are structural in nature. Marketing spend came in at 21.8% of revenue in Q1, down 30 basis points year-on-year with absolute spend reduced by EUR 62 million with only an 8% reduction in relative term in constant currency. So the marketing efficiency model we established in mid-2024 with tighter ROI thresholds, the elimination of unprofitable acquisition channels and a more disciplined and product-led approach to acquiring high-quality customers is now the baseline and it is embedded in how we operate. We do not expect to revert to prior spending levels, but we also do not expect to reduce marketing in 2026 in the same way we did in 2025. And this dynamic is particularly clear when you look at the meal kit product category, where absolute spend was down only slightly year-on-year and as roughly flat as a percentage of revenue. What is critical now from a marketing perspective is that the value of the product investment land well. This is not an overnight type of occurrence as word of mouth, public reviews, top of funnel and performance marketing, all need to work in unison to crystallize those advantages and become top of mind for new consumers. On ready-to-eat, spend was down. And it was down substantially year-on-year in both absolute and relative terms and this reflects 2 things: First, we are lapping an elevated Q1 2025 in terms of investment when we were running significant brand campaigns for Factor. Second, we have been deliberately conservative on acquisition spend while rebuilding the operational foundation. Now that the operational issues are behind and we were able to also invest in the product propositions, we will lean back into acquisitions progressively, but we will do so from a position of disciplined ROI, not volume at any cost. Remember, our primary goal for 2026 is to drive Ready-To-Eat back to sustainable profitability and establish the right foundation for long-term profitable growth. Group EBITDA was EUR 23.6 million absorbing, as I mentioned, EUR 25 million of weather-related disruption. [indiscernible] that, nonrecurring item, the underlying group adjusted EBITDA run rate was EUR 49 million. By product category, Meal Kit adjusted EBITDA was EUR 105 million, representing a margin of 9%. This reflects the weather impact, which fell disproportionately on North America and the front-loaded product investment cost. The weather adjusted Meal Kit adjusted EBITDA margin would be closer to 10.3%, still below last year 11.4%, primarily due to the deliberate product investment pull forward and the impact of volume-led operational deleverage. And that, as Dominik said, that is a trade we have made. Q1 is typically the quarter with the lowest margin. So we are confident we can finish the year with double-digit adjusted EBITDA margin for this product category. On Ready-To-Eat, the adjusted EBITDA loss narrowed to EUR 27.6 million from EUR 45.9 million in Q1 2025. I mean this is a EUR 18 million improvement or a 40% reduction of the loss. This is, in my view, the most compelling trend in the P&L right now. And the improvement has come from marketing efficiency, operational cost recovery and the resilient economics on the active customer base. And obviously, we want to maintain this momentum in the subsequent quarters. All-in costs of EUR 48 million are up modestly year-on-year, reflecting continued investment in IT and tech inflations, while personnel expenses has gone down. Free cash flow for Q1 was EUR 49 million. It reduced by EUR 18.8 million year-on-year, which is entirely explained by 2 items: Lower adjusted EBITDA, primarily weather-driven; and higher CapEx. Q1 CapEx was EUR 44 million, up from EUR 34 million a year ago. The majority of that increase reflects the Factor Europe facility investment in Germany. I mean this is a growth CapEx with a clearly identified strategic return. And going forward, we expect CapEx to normalize within our full year guidance range as the year progresses. The free cash flow this quarter was also supported by the positive inflow of operating working capital which was approximately EUR 30 million better than last year, of which 1/3 is structural and 2/3 is, phasing and therefore will be unwinds for you. On the outlook, I want to reconfirm what we had previously communicated for the group for 2026, which is constant currency revenue growth of minus 3% to minus 6%. Adjusted EBITDA in constant currency of EUR 375 million to EUR 425 million. I also acknowledge that if you take into consideration the result we are presenting today and the directional guidance I will communicate for Q2, we are looking at a second half weighted delivery, and I will explain that. Q2 still has 2 months to go, obviously. But for now, we expect the top line for the group to remain relatively stable in terms of rate of decline driven by some underperformance in Q1 conversion, which impacted -- the impact of the product investment in top line is also expected to be more tangible in the second half of the year. On the bottom line, we expect Q2 to be between EUR 30 million to EUR 40 million below Q2 2025. This is driven by primarily the fact that investment in product has been accelerated between H2 2025 and H1 2026. With the data we are seeing in terms of how product investments are resonating with existing customers and the learning from the peak period, we are expecting to hit the guidance for 2026. With that, I will open the line for questions. Thank you. Operator: [Operator Instructions] We have the first question coming from Joseph Barnet-Lamb from UBS. Joseph Barnet-Lamb: A couple of questions from me, please. You referenced pricing a few times in the release. I'm interested if you could give us some more color on what's driving the uptick in pricing? Is it just reduced discounting, pricing up as a response to inflation or some form of pivot in underlying approach to pricing? And then maybe a second question, you sort of referenced no improvement in underlying trends year-on-year in Q2. I'm interested as to why that's the case? I mean you referenced that the benefits of investment will kick in more in H2 than in H1. But regardless of investment, if you didn't have investment, comps are getting easier, would you not expect the underlying trend to be improving regardless of the timing and benefits of your investment program? I'm just interested as to why things are not getting better in Q2 versus Q1? Fabien J. Simon: [indiscernible] one and Dominik maybe can answer on pricing, or otherwise, I will. So on Q2. So I understand your question was more what is the fabric of our Q2 year-on-year? What I would say is most of what I've been describing for Q2 is something that we have been already anticipated where we gave the guide -- guidance for the full year. So it's not totally a surprise. What you see year-on-year is, I would say, 3 key components. You have the [indiscernible] as we expected, which we see impact on the P&L. And on the other side, you will see investment in products to increase the value propositions to our customers, which is hitting the P&L as we have been scaling that up from H2 to H1, which, of course, is giving a negative comparison to last year. But we still have the operational leverage, especially on meal kit. And I would say, last year, we were having a very meaningful reduction of marketing to offset that, which we don't want to do this year. And it is a choice we have been looking for supporting long-term growth. As a reminder, total company last year, we have been reducing marketing spend by more than EUR 200 million with an increase in ready-to-eat. So you can imagine the magnitude of the reductions we have had in meal kit, which is not happening this year, which is why you have an uptick of a lower EBITDA. But on a like-for-like basis, it is roughly where we expect it to be, which means that from Q3 already, we are expecting year-on-year improvement on our adjusted EBITDA trajectory. But what's important to notice as well, despite the numbers that we have just been talking about, we are expecting in Q2 on ready-to-eat most likely to be already on a positive trajectory as we continue to improve, and we will keep on a very solid double-digit adjusted EBITDA margin. Dominik Richter: Other question was on pricing. So the way I would be -- so on pricing, I wouldn't say there's a massive shift in strategy. There's 2 things that I would like to call out. Number one, yes, we have reduced some of the incentives. So that is then coming through in higher net AOVs. And secondly, we've taken sort of like some pricing action, but mostly in line with inflation, sometimes a little bit over inflation, but also giving more value to customers. So you see the net impact in our COGS line, but the gross impact of investments has actually been higher than what you in the COGS line because we've also got some pricing changes, but not across all geographies, et cetera. So that's not the hugest impact of what you see. The incentives definitely play a part here. Joseph Barnet-Lamb: And if I can have a quick follow-up, Fabien, on your point about Q2. You were breaking up a little bit, but it sounded to me like you were basically saying that it's due to sort of like a progressive reduction in marketing, leading to a compounding effect on your cohorts effectively. But firstly, is that what you were saying? And then secondarily, given the product investment, I would imagine that your lifetime value of your customers would be going up. And as such, I'm not entirely sure why marketing continues to reduce. Is it because you're seeing CACs trending up and as such, you're progressively reducing marketing further to compensate for that to get your CAC versus LTV lining up? Or is there another driver behind that, that I'm not quite understanding. Fabien J. Simon: I was maybe -- sorry, maybe I apologize if I was not clear on breaking up on my earlier comment. I was referring to still the dynamic of operational deleverage we still have on meal kit because we are still on negative order year-on-year. But last year, some of these declines were offset by a very meaningful reduction of our marketing spend. I was reminding how much we reduced overall marketing spend last year by about EUR 200 million and even more than that if we take meal kit alone, which do not have this year because we want to ensure we can support long-term conversion momentum. And on product investment, we -- it is clear that today, what we see is already a positive trajectory on tenured customers, which are ordering more than before, which is a very good news. What we don't see yet is the impact on ability to drive new conversions because we know this will take time. And that's why we believe that we probably need a still few quarters to be able to show that in the P&L and it's what we have anticipated from Q3 onward. Operator: And the next question comes from Nizla Naizer from Deutsche Bank. Fathima-Nizla Naizer: Great. I have 2 questions as well, please. First, just to clarify Dominik, did you mention in your comments that you would expect a return to overall revenue growth for meal kits in H2 based on the trends you all are seeing? Or just would that still be more for 2027 type of outlook? Any color on that return to growth trajectory based on the trends you all are seeing, whether it was for meal kit or for the group in H2 would be great? And second, one of the questions we're getting is on the health of the consumer, particularly in the U.S. with the worries around energy prices and cost of living going up. So just wanted to understand how you all are seeing an impact on that, whether you're offsetting it by other means? And if all of this is now baked into the outlook that you reconfirmed today, some color on that would be great. Dominik Richter: Sure, Nizla. So let me be clear. What I said is that in H2, you should see evidence more clearly for an eventual return to growth, also in line with Fabien's answer just now. So given sort of like the massive year-over-year reduction in marketing in Q1, some of that carries over into Q2, so where you don't see sort of like the revenue growth inflecting in Q2, but you should see more evidence for an eventual return to growth in the second half of the year. That's what I was referencing. On your question with regards to consumer health in U.S., I would say it's definitely not the sort of like best environment that we've been in. There's obviously definitely also on the part of consumers like a lot of fear of inflation coming back and other things. That's also why we want to be very strict in our ROI thresholds that we target with new customers and not overshoot, especially when a lot of the impact of our strategy is basically for consumers to order more over time. We want to make sure that as we switch back on the acquisition engine that we are cautious and do not invest aggressively into a consumer sentiment that is very much weakening when a lot of the return should come from better lifetime retention, better frequency, higher AOVs, et cetera. So I would say we don't see it massively right now, but we definitely see some of the indicators. We see a lot of the research et cetera, coming, and we want to be cautious in that environment. Operator: And the next question Comes from Andrew Ross from Barclays. Andrew Ross: A couple for me, please. So first 1 is to come back on the Q2 guidance where, to be clear, I think you're guiding to revenue declining in constant FX, similar to what it did in Q1. And to be clear, are you saying that meal kits should also decline at a similar cadence in Q2, like we did in Q1? If that is the case, can you just remind us again why has been no sequential improvement in meal kits in Q2? I hear you in terms of having had less marketing last year, maybe that's flowing through in cohorts. But historically, you've always pointed to each quarter about year-on-year trajectory meal kits gets a couple of points better. And you'd always kind of point to that continuing sequentially throughout this year. So why is meal kits not improving in Q2 is my question? And then the follow-up to that is, you said on the Q2 guidance that most of the softer outlook was anticipated when you reported for Q4. What was not anticipated? And can you give us some sense as to what's happening in April? Fabien J. Simon: Andrew, on the outlook -- so you had 2 questions was more around top line, the other one more around the bottom line. I think on the bottom line, I've answered already the question, which is we are expecting, as I've said, a double-digit adjusted EBITDA for meal kit, but lower than last year because of the phasing of product investment and the operational leverage where we don't have a similar level of marketing reductions than last year. I think it's pretty simple. On the top line, indeed, we are expecting a similar rate than what we have seen in Q1. With meal kit, and it's probably similar across the category with meal kits around same level, maybe slightly better because if you strip out the fact that we are going to stop delivering to Italy and Spain in Q2. They were still in our Q1 number, but they will not be in Q2. So if you factor on that we might have another slight improvement, which, of course, we would like because then we'll be able to say 6 consecutive quarters of improvement. But it's not always completely linear by quarter, but it's what we are expecting for Q2, while on ready-to-eat, we know it's going to take a bit more time, as Dominik described, and we think Q3, Q4 will be more defining trajectory for our ready-to-eat segment. Andrew Ross: Okay. That's helpful. And then on the second question in terms of what you had not anticipated in terms of the Q2 outlook when you reported the Q4 results? Dominik Richter: So I think I was answering to Nizla's question before. Obviously, since we've reported that, everything going on in the Middle East sort of like inflation, customer sentiment, those are things that I think at this time, we're not sort of like as clear, I think there's still obviously, a lot of distribution of outcomes over the course of the year. But those are definitely things that let us also take somewhat more conservative stance and making sure that we only invest behind strict ROI discipline as we restart the acquisition engine. Andrew Ross: So you are seeing some softening in trends on the back of Middle East conflict, or it's more in anticipation, but you could see some softening? Dominik Richter: That's not something that we see right now. But in anticipation, also in anticipation, obviously, if sort of like inflationary pressures kick in or not, I think if you have sort of like any more uncertainty, then obviously, it's the prudent approach to take a more conservative stance even though right now in the business, I don't really see it. I do see it as leading indicators from consumer research, et cetera. I don't see it in the data right now. But against that environment, we feel it's prudent to have a strict and disciplined ROI approach. Andrew Ross: Okay, cool. And one more follow-up, I really do apologize. But just on this Q2 outlook for meal kits not being better Q1. I hear you on the impact of shutting down Italy and Spain, but didn't Q1 also have a negative impact from weather? I appreciate those not necessarily the same magnitude, but I still would have expected that Q2 would improve. In this is obviously a very important number for investors who are looking for stabilization in trends in the meal kits, but it's not continuing to improve. I guess, is a big focus. I just want to make sure we're 100% clear on this. Fabien J. Simon: Yes. So let's be clear on meal kits. We are expecting further improvement as the year pass, but of course, the improvement is not always linear, and I don't want to come to too much detail, but sometimes you have a big quarter [indiscernible] where you have not fully on the same month as mostly go. There we are on track with what we were expecting. And that's for me the most important message. Operator: That concludes our Q&A session, and I will hand back to Dominik Richter for some closing words. Dominik Richter: Thank you so much for attending our call. I think to sum up, we feel that the primary objectives that we're focused on making sure that our tenured customers are happy that they're ordering more that we can basically price better with them because they get better value in the product. I think all of those metrics are pointing in the right direction. We obviously still need to work hard now to get the acquisition engine back on. We will do that in a -- with a strict ROI focus, especially within the environments that we're in and some of the uncertainty over the course of the year when it comes to macroeconomic environment, consumer sentiment, et cetera. But we do feel that those are metrics that we're focused on that are the defining metrics for a long-term, healthy business are very much trending in the right direction and we look forward to updating you in August about the progress that we will achieve in Q2. Thanks a lot.
Operator: Welcome to Devon Energy Corporation's first quarter 2026 conference call. At this time, all participants are in a listen-only mode. This call is being recorded. 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 on your telephone keypad. To withdraw your question, press star 1 again. I would now like to turn the call over to Christopher Carr, director of investor relations. You may begin. Christopher Carr: Good morning, and thank you for joining us on the call today. Last night, we issued Devon Energy Corporation's first quarter 2026 earnings release and presentation materials. Throughout the call today, we will make references to these materials to support prepared remarks. The release and slides can be found in the Investors section of the Devon Energy Corporation website. Joining me on the call today are Clay Gaspar, president and chief executive officer; Jeffrey Ritenour, chief financial officer; John Raines, SVP, asset management; Tom Hellman, SVP, E&P operations; and Trey Lowe, SVP and chief technology officer. As a reminder, this call will include forward-looking statements as defined under U.S. securities laws. These statements involve risks and uncertainties and may cause actual results to differ materially from our forecast. Please refer to the cautionary language and risk factors provided in the SEC filings and earnings materials. With that, I will turn the call over to Clay. Thank you, and good morning, everyone. Thanks for joining us. Clay Gaspar: Today, we will focus on Devon Energy Corporation's strong first quarter 2026 results, which once again demonstrate the operational excellence and financial discipline that define this organization. After walking through our Q1 results, I will turn to a quick update on our transformative merger with Cotera Energy. Now let us turn to slide three for a deeper look at our first quarter results, which reflect strong execution across the business. As you can see on the slide, beating on production and capital once again resulted in impressive free cash flow for the quarter. Our production optimization efforts drove oil to 387 thousand barrels per day, reaching the top end of our guidance range. Capital spending came in 6% below the midpoint of our guidance, as we continue to capture drilling and completion efficiencies through advanced technology and focused execution across the program. Combined, these efforts translated to $816 million of free cash flow in the quarter, demonstrating the capital efficiency of our program and positioning us to return substantial value to shareholders. I want to emphasize that these results are not isolated wins. That kind of consistency does not happen by accident. It is the direct outcome of the exceptional talent and commitment of our teams across every basin. Turning to slide four, what makes this story even more exciting is where we are headed. On a stand-alone basis, Devon Energy Corporation is entering the second quarter with significant upside torque to free cash flow. Production is expected to step up, our cost structure remains well controlled, and the commodity backdrop is meaningfully stronger than what anyone underwrote coming into this year. You can see the sensitivity of this business to commodity prices on the right side of the slide. This is a very compelling yield profile in any environment, and it reflects both the operational gains we have delivered and the natural leverage of a high-margin portfolio. We are running the program we laid out, capturing the operational gains we committed to, and letting free cash flow accrue to our shareholders. Turning to slide five, the key free cash flow strength I just walked through does not happen on its own. It is the direct output of the business optimization work we launched just over a year ago. I am pleased to report that we will achieve our $1 billion target well ahead of schedule. We will accomplish this major milestone with contributions from every part of the business, including capital efficiency, production optimization, commercial improvements, and corporate cost reductions. I want to thank the entire Devon Energy Corporation organization for making this happen. When you challenge this high-quality team with a clear mission, you might as well consider it done. Business optimization has transitioned from a one-off project to a new cultural mindset. The focus and accountability that we built will translate directly into our integration work with Cotera, and I am confident this foundation will allow us to attack the merger synergies with the same urgency and rigor. The engine behind that innovation is technology and AI. I want to spend an extra minute here because I think it is the most important insight about Devon Energy Corporation today that is not intuitive from just a cursory analysis of the financials. The AI revolution is real, and what is happening across this organization is incredibly exciting. Internally, we talk about the three waves of AI impact. Wave one is a much more immediate connection to Devon Energy Corporation's massive stores of data, transforming what was inefficient data-hunting time into data analysis and value-creation time. After years of cleaning and organizing our data, we have a fully firewalled internal tool called ChatDVN that has been up and running for three years and is today a standard part of our daily workflow. We are now deep into seeing the benefits of wave two, where the AI is doing the heavy lifting of complicated calculations and time-consuming work. Examples of this are leveraging AI to write code for new apps, and also translating the massive drilling, completion, and production data flow into actionable intel that our engineers can immediately act upon. Wave two value is showing up in cutting-edge drilling and completion time, directly translating into lower capital costs. We are also having very significant wins in production, leveraging AI-created tools to do real-time artificial lift optimization. We now have over 850 wells on fully autonomous artificial lift optimization with a very impressive productivity improvement. We are now moving into wave three, where we are redesigning internal processes from the ground up with AI at the center. That is the frontier, and Devon Energy Corporation is leading the industry there. Slide six is a great example of where technology and AI are showing up across the business. We have shown this slide in past quarters to highlight some of the key initiatives that have contributed to the success of the business optimization plan. I am not going to walk through all of these today, but the one thing I do want to point out is this: the ability to see business optimization show up in the financials is what gives the program its credibility. On the right side of the slide, we have highlighted key milestones, along with where we started and where we ended, so that you can track the progress directly. This is the same playbook we will leverage with the Cotera integration. Turning to slide seven, as we have discussed in past quarters, parallel to driving incremental value out of the day-to-day business, we are also regularly evaluating opportunities to optimize our portfolio and enhance shareholder value. The strategic transactions and portfolio actions we have executed have already collectively delivered over $1 billion in present value uplift to our enterprise over the past year. These gains are in addition to the improvements from our business optimization initiative. The primary update this quarter is on Fervo, which recently filed its S-1 for an IPO, an important milestone for Fervo and for our investment. This milestone is significant in providing a public marker for our investment, highlighting the value uplift we have created. The partnership is pioneering next-generation geothermal technology and leveraging our core skills in geoscience, horizontal drilling and completions, and data analytics, while positioning Devon Energy Corporation in a power-generating sector with more significant growth potential. Now turning to slide eight, to what I know is top of mind for many of you: the status of our transformative merger with Cotera Energy. I am pleased to report that both the Devon Energy Corporation and Cotera shareholders voted overwhelmingly to approve the merger on May 4, and we expect this transaction to close tomorrow. I could not be more excited about what this combination means for our shareholders. The industrial logic is undeniable, and combining two strong operational teams overlapping in each other’s best basins creates substantial opportunity to enhance efficiency and drive results. Pro forma, Devon Energy Corporation will be one of the largest independent E&P companies in the United States. In addition to scale, our asset quality, inventory depth, and balance sheet strength position us to deliver durable free cash flow and returns through any commodity cycle. Our go-forward shareholder return framework will be thoughtfully designed and competitive with our highest-quality peers. It will be balanced between dividends, share repurchases, and debt repayment. Subject to formal board approval, our dividend will increase by over 30% on a per-share basis starting in the second quarter. Additionally, both companies paused their share repurchase programs between deal announcement and close, building cash during a period of unexpectedly strong commodity prices. With the repurchase program immediately resuming post close, we are positioned to increase repurchase activity beyond our legacy level and capitalize on any discount to our intrinsic and relative value. Integration planning is progressing extremely well, and I want to be clear: the $1 billion synergy target is the floor, not the ceiling. In fact, as of this morning, our integration teams have already identified 156 distinct value-capture opportunities, underscoring both the depth of the upside and the sense of urgency we are bringing to this work. Once we close, we will move quickly to bring the same business optimization discipline to the integration effort and provide transparency in every step along the way. Before I close, I want to address something directly. Naturally, on the back of the announcement of our merger, we have fielded questions about the opportunity to reallocate capital within our pro forma portfolio, and also the opportunity to evaluate the go-forward asset composition of the company. First, I am confident that with our new combined portfolio, we will have opportunities to further enhance the efficiency of the capital investment program. Second, actively managing our portfolio is core to who we are as a company. Devon Energy Corporation has a 55-year history of buying and selling assets, and we are always seeking opportunities to enhance near- and long-term shareholder value. Every asset in the combined portfolio has to compete for its capital and earn its seat at the table. We have initiated a complete review of all assets against our strategic and financial criteria. While we do not have any preconceptions about future actions, we are excited to thoroughly review the portfolio with the soon-to-be combined board and remain open to all alternatives that enhance long-term value. We will be thoughtful, disciplined, and move with speed. Every option will be measured against one test: does it leave Devon Energy Corporation a stronger, more focused company on the other side? To be clear, this merger has added depth and quality of our inventory in the Delaware Basin and positions Devon Energy Corporation to deliver peer-leading capital efficiency for the foreseeable future. Our discipline paired with operational excellence, financial strength, and unwavering commitment to shareholder returns is what gives Devon Energy Corporation its unique investment proposition. With the Cotera merger on the verge of closing, we are entering an exciting new chapter that builds on this strong foundation. We expect to provide combined full-year guidance in mid-June once management and the board have appropriate time to align on the company's plan. With that, operator, I would like to turn to our first question. We will now open the call for questions. Operator: Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. 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 Arun Jayaram of JPMorgan Securities LLC. Your line is open. Arun Jayaram: Good morning, Clay and team. Clay, I was wondering if you could provide more details on this portfolio review process, which obviously will pick up steam when you close the merger in a couple days. Perhaps you could articulate the criteria that you and the team are looking at to establish what you believe are going to be core assets at Devon Energy Corporation? Could it be inventory durability, commodity price mix, etc.? And also, if we look forward and you do decide to monetize assets in the portfolio, should we think about your intention to redeploy those proceeds into coring up existing positions or potentially looking at buybacks given what looks to be really compelling valuation of the equity? Clay Gaspar: Arun, there is a lot there. You hit all of the top five of the questions we presumed we would get today. I will try to be as specific as I can. Of course, you realize the last thing we want to do is box ourselves into something preconceived before we actually do the work, have the deep conversations, do the real critical and objective review, move swiftly, and then make sure we are aligned with our board going forward. What I would tell you is we are highlighting capital efficiency, inventory depth, free cash flow, and overall fit—how all these pieces fit together—as the tone and nature of the analysis. But I can tell you, it is not a simple formula that we goal-seek on and it spits out an answer. This is stress testing from every conceivable scenario—thinking about near-term wins, thinking about long-term lenses, thinking about the market, and the use of proceeds that you are talking about. And again, going back to that test of how do we make Devon Energy Corporation a better Devon Energy Corporation? How do we deliver more value near term and long term for our shareholders? We are going to move swiftly, decisively, and aggressively into this. We just do not think it is prudent to box ourselves into any preconceptions of what that could look like with an ill-conceived timeline or any kind of cadence like that. But I appreciate the question. Arun Jayaram: Got it. And I have a housekeeping question for Jeff. There are some moving pieces regarding 1Q taxes and your forward look on taxes. Could you provide us an updated view on what is going on there, assuming it is related to the move in commodity prices, and what the go-forward cash tax guide could look like? Jeffrey Ritenour: Yeah, you bet, Arun. You are right. We had some noise in the Q1 tax outcome to the positive. It was a flip from deferred to current, which created a real benefit for us in the first quarter. And then, as you saw with the second quarter guide, we moved the rate higher as a result of that. That is a function of the flip that we had between current and deferred, but also a function of the higher commodity prices and the capital efficiency that we are seeing. As Clay mentioned in his opening remarks, none of us were expecting to have the level of oil prices that we have seen here in the back half of the first quarter and here into the second quarter, and we are projecting that at least to some degree into the back half of the year. As a result, we are generating significantly more pretax income. As you have heard me say in the past, free cash flow generation is a good proxy for pretax income. With the capital efficiency that we are seeing from the teams, which has been phenomenal, married with the higher commodity prices, we are getting into a position where we are just seeing some of that tax shield get utilized on a faster basis. As a result, we have moved our expectation for current taxes into the back of the year a little bit higher. For the full year for Devon Energy Corporation on a stand-alone basis, it will still work out to be somewhere around that 10% level, but it will be a little bit higher in the next coming quarters given the low rate we had in the first quarter. Arun Jayaram: Thanks, Jeff. Operator: Your next question comes from the line of Neal Dingmann of William Blair. Your line is open. Please go ahead. Neal Dingmann: Morning, Clay. My first question is on Permian activity. Specifically, as we continue to see negative Waha prices, how much does this impact your future Permian decisions based on what you are seeing there, and how much exposure you have to Waha? Clay Gaspar: Let me pick up on that, and then Jeff can add a little bit of color. I am really proud of the team’s proactive work. As you know, we have been very aggressive in participating in additional pipe. We have helped underwrite some of the pipe. We have additional capacity coming on with Blackcomb later this year. We are positioned well but certainly have marginal exposure to Waha prices. Inevitably, what we are doing in those environments is looking to the highest gas-oil ratios—the gassiest of our assets—and pulling back on that production during that time. We saw a little bit of that in the first quarter. We can manage that with the nominal amount of exposure we have by pulling back on some of that activity. We will continue to fight the good fight. When there is a call for Permian gas, think about the opportunities that we will have, especially with the positive realizations once we get the infrastructure built. I am really excited about the future for Delaware when the inevitable call for the gas will come. Jeff, additional comments? Jeffrey Ritenour: Yeah, Clay, you nailed it. When Blackcomb comes online later this year, that will further limit our exposure to Waha. We will be, call it, 10% to 15% exposure to Waha at that point going forward. As Clay mentioned, the team has done a great job managing the exposure, shutting in some of the high GOR wells, which has helped us, in addition to the infrastructure takeaway that we have. We continue to believe there is going to be a need for more takeaway from the basin as we move into 2027 and beyond, and the team is very much focused on evaluating opportunities to further limit our exposure as we move forward. Clay Gaspar: One other final comment on that: make sure everyone is paying attention not just to the realized gas price, but also some of the value the hedge comes through other line items. We are being thoughtful about how we are protecting; it is not always physical—sometimes it is financial hedges that we have in place that show up in other lines of the financial statements. Neal Dingmann: Great point. And then, Clay, a second quick one on what I would call new ventures. You all continue to own a decent size of Fervo. Do you anticipate continuing to take positions in additional geothermal or other newer-type ventures? Clay Gaspar: It is exciting. We have dabbled in a few ideas thinking about how we leverage the amazing talents that we have—geoscience, drilling and completing horizontal wells, and building facilities. That is what we do. Where else can we extrapolate these skills? What we found is an incredible Fervo team we have really enjoyed the partnership with. Happy to be alongside those guys, and we will continue to look to other ways to expand Devon Energy Corporation’s footprint. Trey, do you have other comments there? Trey Lowe: Appreciate the question. There is a lot of exciting things happening at Fervo. We took our stake in the Series D and led that round. We have obviously been very happy with the investment that we have had there financially, as well as the investment that our teams have poured into them with different technical advice over the years, and seen them continue to de-risk enhanced geothermal systems operationally and technically. The thing that we did not expect going into that first investment was the power demand that we see for firm, always-on, 365-day power across the United States, especially the Western United States. We continue to be pretty bullish on that power demand story. This gives us some exposure to it, and we are definitely interested as the technology continues to get de-risked. But I think back to the spirit of the initial question: we are pouring ourselves into the success of Fervo at this point, and that has been our focus as a company. Operator: Your next question comes from the line of Neil Singhvi Mehta of Goldman Sachs. Your line is open. Please go ahead. Neil Singhvi Mehta: Good morning, Clay and team, and congrats on the shareholder vote. That is where I wanted to start—the synergies. It sounds like you are tracking towards the $1 billion of cost optimization and the margin stuff and the corporate cost stuff, but could you talk about early wins and thoughts on whether you could pull forward the year-end 2027 target? Make this a little more tangible for us. Clay Gaspar: Neil, I love the attitude. We have not even started the race, and you already want to pull forward the finish line. That is my kind of thinking. I am exceptionally confident in this combined team’s ability to pull the rope in the same direction, get integrated, and get a unified culture. I mentioned the 156 projects that are already identified. What does not come through in the numbers is the mutual excitement of the wins we are seeing from both sides of the ledger. It is really a true synergistic opportunity. We are seeing those things in all the major categories—from D&C capital optimization, which will come really quickly, to upside in production, to thinking about how we reallocate capital inside of the portfolio. Even the hardest work that we do around what is the optimal spacing, staggering, sequencing, and completion design in the Delaware Basin—we have two really strong teams that have worked these very hard problems in isolation. Now you have the benefit of two strong teams, brilliant folks, coming together and sharing their best ideas. If I have ever seen synergy, it is that. Rewinding back to the WPX–Devon merger: we signed the deal, worked so hard to get to that point, and then looked at each other and said, okay, what do we do now? We started scrambling to figure out how to capture these things, monitor, track, hold ourselves accountable, and make sure it is flowing through the financials. The beautiful thing about our position today is we have established some really great mechanics behind this. Trey led the business optimization project. It is already very fluent on this side of the family—how that works. I do not anticipate any issues in getting those mechanics applied to all of the opportunities. And I will go back to my comments from the script: technology is the key innovative underwriter of so much of this, and we are just getting started. We are in the exceptionally early innings of those wins. With this combined footprint—this amazing Delaware Basin is our crown jewel asset—you combine the two positions together and then apply all of these brilliant ideas and people and technology. Just watch out. We cannot wait to deliver on this. As I said, I consider it the floor, certainly not the ceiling. Neil Singhvi Mehta: That is a great point about the Delaware really becoming the star of the portfolio on a pro forma basis. You already have a Delaware-concentrated program, but it is only going to be more so. Maybe you can comment on the advantage of moving a little bit more toward being Delaware-focused versus diversified, recognizing you have a portfolio process that you are looking at, but at a high level, what would be some advantages of being more focused as an organization? Clay Gaspar: I do not want to presume that we are in any way not focused. We certainly have the scale, the capabilities, and the teams in place that it is not like we can only work in one basin at a time. We want to be exceptionally objective about all possibilities to enhance this company’s value, both short and long term, for our shareholders. I will go back to the prepared remarks about the opportunities that we have to really do the thorough work, diligently evaluate every scenario, and not just which basins we are in, but thinking about all of the potential upside we have in other areas and how these pieces work together. Do not forget, this ranking in opportunities can significantly change when you apply $1 billion of synergies. Think about the enhancement of opportunities that we have with much lower D&C cost, with better production, thinking about how we stack and stagger these wells and improve outcomes. That can really change the game and put us in a strong position. Maybe with the assets we have, maybe we see something else that fits even better into the portfolio as a bolt-on opportunity. All of that is on the table, as it always is. We do not want to presume one direction before we actually do the work and have the important alignment conversations that we need to have with the new management team and, importantly, with the board as well. Operator: Your next question comes from the line of Scott Andrew Gruber of Citigroup. Your line is open. Please go ahead. Scott Andrew Gruber: Good morning. Clay, you are obviously flush with cash here, and you have the integration in front of you, so you and the team may not be inclined to change the combined activity program much and just focus on synergy capture. I am thinking about where you could deploy some extra cash. I think about refracs in the Eagle Ford or even the Bakken in this environment. Those appear to be an area where you can deploy some modest incremental capital and get a quick payback but not really deplete core inventory. Just some thoughts there. Clay Gaspar: Appreciate that. We are always looking to enhance within the existing portfolio through capital allocation, and refracs are a great example of that. One thing—we have probably gone quieter on refracs over the last several quarters, and here is the leading indicator that came from that. We have improved our D&C cost and efficiency so much that now the drilling side of the equation, which is basically the part that you are eliminating in a refrac, has improved to the point that refracs now have to compete with new wells. We have probably done less of those. We are excited about other things we have in the hopper—some longer-term wins around enhanced oil recovery, some exciting early projects we have there. We have talked about surfactants we have tested in the Permian and other areas we are working on as well. Those are really impressive returns. That probably accrues more to the LOE side of the ledger than the capital side. We want to remain disciplined on our capital. We ultimately have our long-term best interests in mind, along with shorter-term wins, and however we can improve those wins along the way, we are happy to deliver. Scott Andrew Gruber: With this extra cash, you mentioned EOR and surfactants being a hot topic. What do you do with extra cash around the margin? Do you push harder on EUR or deploy more into AI and try to accelerate incorporation of those technologies into your operations? Clay Gaspar: I think there is a disconnect from these projects to the billions of dollars of free cash flow. Surfactants are incredibly cost effective. Some other ideas we are investing in and de-risking over time are relatively small investments and probably will remain that way for a bit. The cash you are talking about—the billions of dollars of free cash flow that we, stand-alone Devon Energy Corporation, and certainly as a combined company, will generate—we think about dividend policy, share repurchases, and debt repayment. We optimize those and want to be nimble, as different quarters can present different opportunities. It is important we get aligned with our board. These are absolutely board-level conversations. Structurally, what we have talked about pre-close is enhancing the dividend, likely announcing a very significant share repurchase program we could move aggressively on, and then looking at the debt. Inevitably, when you combine companies, just like when I look back at WPX, there were some real day-one early wins we were able to do on the debt front to enhance value to shareholders. Those are the more material opportunities for cash return to shareholders. Operator: Your next question comes from the line of Analyst of UBS. Your line is open. Please go ahead. Analyst: Thanks. Good morning, guys. On the merger webcast, you put out that you had 10-plus years of inventory at the current development pace. I know this was a third-party estimate, but given that you are going through this big cost-reduction program, once you start adding those into the equation, how are you thinking about the pro forma depth of that base? Does it push toward 15 years or greater? It feels like the cost of supply of that base is moving much lower for you. Clay Gaspar: Certainly, the cost of the wells can materially extend the runway. Think about the creaming curve and that tail that is just on the bubble—as you lower those costs, more of those yellow lights turn into green over time. I might ask John to add color on combining the Delaware Basin footprint. John Raines: Yeah, we need to go do a lot more of that work to get you more specific numbers, but I will give you a corollary back to 2025. With all the capital efficiencies we had in 2025, we saw our costs consistently move lower. That allowed us to do really good work on downspacing. When I go back and look at the risked resource replacement we had in the Delaware Basin from our appraisal and specifically downspacing, we replaced almost 100% of our consumption. When I think about that kind of additional resource gain and combine that across the two-company asset base, third-party estimates already pushed our inventory well beyond 10 years. I have to imagine that as we see learnings—from better staggering, better landing, and completion design—and lower cost, we are going to see that same trend over the two companies. Analyst: Got it. Thanks for that. Given the pro forma asset base and stronger balance sheet, is this opening up new investment opportunities and doors for you? Do you foresee more of these earlier-stage investments in companies like Fervo or WaterBridge? Or do you want to get more integrated, build your own midstream infrastructure, or look at long-cycle exploration opportunities? Clay Gaspar: Thanks for that question. That is part of our DNA. We have a bunch of entrepreneurs here, and what is really awesome is when we get aligned on what winning looks like. We did this work as stand-alone Devon Energy Corporation over the last six quarters with our board. Last year’s September strategy session was a magical moment. We walked out understanding what long-term success really looked like, and it was empowering for people around the company who are thinking about amending and extending the opportunity set we have above and beyond just drilling additional wells. While that is always going to be our core business, I am excited about leveraging the knowledge, position, scale, and footprint that we have and turning additional opportunities. Going forward, Tom Hellman is going to lead a lot of that effort for us. Thinking about the firepower we are going to have and the combined skills the company is going to bring together, there is definitely more to come. It helps longer-term investors think about Devon Energy Corporation’s value longer term and the sustainability of our ability to hold on to this free cash flow. It is all positive, and I am excited about where this could evolve over time. Operator: Your next question comes from the line of Phillip Jungwirth of BMO. Your line is open. Please go ahead. Phillip Jungwirth: Thanks, and first, congrats on achieving the $1 billion business optimization savings, which some of us were skeptical of. On the AI discussion, could you give more color around the fully autonomous artificial lift optimization—how to think about this relative to gas lift or ESP or basin-specific—and any estimate on how much you think this is improving runtime, which is very important at current oil prices? Clay Gaspar: Phil, thank you for the acknowledgment on the business optimization. There were a lot of skeptics, and rightfully so. This was about creating a sustainable $1 billion of incremental value without a transaction to lean on. I knew the organization had it; there was an untapped resource. It has moved from a project to more of a cultural norm, and it goes back to this hunger for data and the power of technology to do something with that data. I could not be more proud of the organization’s achievement. On artificial lift, essentially every well is on some form of artificial lift. We started with gas lift as a primary opportunity, and this extends to every other form as well. John can add additional color. John Raines: Extremely proud of the Smart Gas Lift program. We are using AI models to develop a physics-based calculation to optimize gas-lift injection rates on a closed-loop system that goes directly to the wells. We piloted this back in 2025, and we saw about a 2% to 3% uplift. We have now moved into full implementation in the Delaware Basin. We are over 850 wells at this point, and we have seen uplift in excess of what we saw in the pilot phase. We are on our way to 1.5 thousand wells across the portfolio. I do not want to give a specific number on uplift yet—just that it is better than what we saw in the pilot because it is early. We are already taking similar AI-derived models to look at other forms of artificial lift—ESPs and rod pumps. Those models are calculating the optimal rate for those wells. We are in the pilot phase on subsets of wells, identifying wells that may be producing below optimal injection rates, leading to actionable insights for our engineers. We are testing these insights and already seeing production uplift. Much like Smart Gas Lift, these are programs we will be able to scale. Smart Gas Lift has been a massive success for us, and I am looking forward to rolling these programs out as well. Phillip Jungwirth: Great. And a question on cash taxes as it relates to the portfolio review process. I know you have been buying and selling assets at Devon Energy Corporation for over 55 years, but you have probably never generated as much free cash flow, with Cotera in a similar position. Is there any ability to shield taxable gain for the pro forma company, or is this something that will have to be factored in and overcome in any value-creation analysis? Jeffrey Ritenour: Phil, we have to go away and do the work to give you a more definitive answer. Without question, to the extent that we land on executing some divestitures, we will evaluate that all on an after-tax basis. Some of the assets that we hold today certainly have a low basis, so we will have to be thoughtful about how we structure those transactions and be creative—how we work through them and structure appropriately to maximize free cash flow. We will look at all of it on an after-tax NPV basis. We will have the opportunity to look at different exchanges and even some JVs where it makes sense to try to minimize the impact as we work through. Operator: Your next question comes from the line of John Freeman of Raymond James. Your line is open. Please go ahead. John Freeman: Following up on the prior discussion on AI benefits on the artificial lift side and tying that into synergies: when I use the last 12 months of what you achieved on business optimization as a roadmap on synergies, certain buckets got realized quickly—corporate overhead and commercial opportunities—while the bucket that took the longest was production optimization. Looking at the buckets on slide nine for synergy capture and the AI artificial lift discussion, am I thinking about it right that now that you have the benefit of that, the bucket that took the longest in optimization may not have to take as long for these synergy buckets? Clay Gaspar: You are exactly right. Some of these will be early wins. Production is notoriously one of those slower-burning opportunities—you are talking about relatively small wins on hundreds or thousands of wells, and that takes time to work in. The great news is we have been doing the work and have the flywheel effect going. We have been methodical and thoughtful in how we built toward this. The $1 billion synergy will benefit from the work we have done to date—so more to come. I will turn to Trey—there are many other exciting things on the AI front in that category, and Trey is also co-leading the integration and has an insightful purview into the synergy goals. Trey Lowe: Appreciate the question, John. One of the outcomes I am optimistic about is that the tailwinds we are seeing on business optimization will carry through the synergy work, specifically the production items like Smart Gas Lift, as well as another collection of workstreams. The process we have built around which ideas become workstreams that we track, measure, and push forward—and the AI and technology, data-driven solutions that work—we are going to continue to push all of that forward with our structure. We have built a culture around it. The other thing we have learned over the last year is what our investors and analysts care about and how we can keep you updated as we make progress, and how we categorize and communicate it in a transparent way. We are 100% excited about the tailwinds on the production side, and the flywheel in all categories should set us up really well. John Freeman: Thanks, Trey. This was another really active quarter on the ground game side, especially in the Delaware Basin. Should we assume that is going to remain robust as you work to complement both companies' positions in the Delaware? John Raines: Yes, you should assume that is going to remain fairly robust. We have been very successful with our ground game. Since last year, we have added well over 100 net locations, predominantly in the Delaware Basin, with our ground game. In Q1, we had another great success. Our acquisition capital was roughly $150 million—90% Delaware Basin. That was not only success in the January lease sale but a lot of good knife-fighting behind the scenes and good work by the land team. It has been an instrumental part of our business, and you can expect us to remain very active on that front. Operator: Your next question comes from the line of Betty Jiang of Barclays. Your line is open. Please go ahead. Betty Jiang: Good morning. A follow-up on the buyback. Clay, could you speak to the logistics of having a new buyback authorized under the new board? You alluded to going beyond the legacy level. Could we see a catch-up on the buyback going forward to make whole on the repurchases that would have happened by the two stand-alone companies? Clay Gaspar: That is one way to look at it, but I would not presume we are trying to make up for lost time on any specific numbers. When we get the authorization of the new board, which is imminent, then we will be able to communicate that and get to work on a go-forward approach. Obviously, we had a cadence before, Cotera had a cadence before—how do we combine that and think about the best approach? There is an art and a science to share buybacks. There is real excitement from both legacy teams that we have an opportunity to return shareholder value with a tremendous amount of free cash flow and leverage that to buy back material shares. Betty Jiang: Makes sense. And a follow-up on target debt levels. The combined entity is going to generate a lot of free cash flow. How do you view the optimal debt level going forward? Would you ever want to be at net zero net debt, or how do you think about the right leverage at a mid-cycle price level? Clay Gaspar: You are on the track of one of the most common debates we have had with our board over the years—how best to return shareholder value: dividends, share repurchases, and, of course, debt. I do not want to jump in front of the important conversations we are going to have with the new combined board. You are hitting on the right opportunities, and all will be evaluated when we think about the incredible free cash flow of the combined entity. I look forward to updating everyone once we get alignment on the go-forward plan. Jeff, other thoughts? Jeffrey Ritenour: Betty, both companies historically have had phenomenal balance sheets—investment grade—with a lot of flexibility for the company. I think investors should expect that to continue as we go forward. As Clay said, we have to do some work with the board, but I expect you will see a philosophy on both the share repurchase program and the balance sheet consistent with what you saw from each company on a stand-alone basis historically. Betty Jiang: Great. That makes sense. Very much look forward to the pro forma update. Clay Gaspar: Thanks, Betty. Operator: Your next question comes from the line of Doug Leggate of Wolfe Research. Your line is open. Please go ahead. Doug Leggate: Thanks so much. Good morning, everyone. I have two questions. You talked about the number of initiatives you have already identified, obviously upside to the synergy target. Have you been able to get under the hood on the combined company and Cotera’s portfolio and assets, given the merger has not closed yet? How should we think about the veracity of the $1 billion target versus the number of opportunities you mentioned in your prepared remarks? Clay Gaspar: We have moved aggressively. For a combined 70 billion company to do a sign-to-close in three months is moving with incredible speed. At the same time, we have been incredibly disciplined on what we can and cannot do—there are very strict rules around what we could and could not share. There is an ability to use something called a clean room, where we can exchange certain data with third parties, and we have done some things like that. We have been able to exchange a certain amount to now, but had to work a lot of this independently. Of course, even to get to the merger agreement and get the deal signed, both teams needed to work this independently and understand the why for their shareholders. Between sign and close, we have been able to share some data and get closer by leveraging third parties and staying well inside the lines, but working together closer and closer. Starting tomorrow, it is full speed ahead. We will find additional opportunities. I feel very confident in the outcome. I am not raising the $1 billion number or accelerating the timeline. What I want to give investors confidence in is when we say $1 billion by the end of next year, we feel confident, and we will be able to deliver, much like we delivered on our last business optimization goal. The difference is the flywheel effect Trey mentioned—we already have a running start on some opportunities. When we really unleash the combined organization without restraints, it will be even more exciting in unlocking value. We will be incredibly disciplined each quarter, holding ourselves accountable, and as you have done, hold us accountable to delivering on these numbers. Doug Leggate: Thank you. My follow-up is on portfolio mix. There has been discussion about the mismatch with gas and oil assets and with the Marcellus. Do you agree or disagree that having a skewed mix toward gas has risks in terms of confusing investors? Clay Gaspar: While I will not talk about any specific investor, we get investor feedback all day, every day. I am excited about the combination. Two of the three basins have significant overlap from the Cotera side, and we are seeing synergies to make those assets better. Certainly, we have some other assets that either were solo Devon Energy Corporation or solo Cotera, and all of those, as I said earlier, need to earn their seat at the table. I am not presumptive on which assets will compete or not. We will move with thoroughness, diligence, and swiftness to evaluate all options. Part of the evaluation is what investors want from us—investors plural, as there are many views. We are not just trying to answer the question du jour, but thinking about investor sentiment that can stand the test of time—what investors will be excited about six months, 12 months, two years, four years from now. That is what we are goal-seeking. It is not just solving for a specific geography. We are thinking about capital efficiency, inventory depth, free cash flow, and how it all fits together. Do not underestimate what applying $1 billion of synergies could mean to one asset or another. With the skill set that we have, how do we unlock additional potential? That all needs to be thoroughly evaluated. We are moving fast on this, and we are not going to slow down, but it is right to be very thoughtful and make the right decisions before showing our hand on any of these important considerations. Operator: Your final question comes from the line of Analyst of Pickering Energy Partners. Your line is open. Please go ahead. Analyst: Thanks for getting me on. Clay, I would be interested in your take on the macro environment here given the supply disruption, and what signals you are looking for that would drive you to contemplate more than a maintenance program. Clay Gaspar: Historically, we have said we think the world is well supplied in oil—that was two or three quarters ago—with OPEC still bringing barrels back on. We are watching demand from Asia, Europe, and the U.S., and trying to watch at a macro level how supply and demand line up. Over the last couple of months, that dynamic has changed significantly. I think it is too early to call the end or how this resolves itself. Meanwhile, there are a lot of barrels off the market. We are watching international storage levels come down over time. That influences where we think the back end of the curve is trading and where it normally should be. We will continue to watch this. We have talked about not steering the ship with the front end of the curve. Oil price can bounce around $5 to $10 at a time, and trying to optimize on that can be ill-sought. We are watching the back end of the curve and the macro fundamentals. From our view, things are evolving, and we will continue to watch closely. Analyst: Shifting gears a bit on oil realizations, they were a little lower this quarter than prior quarters. Any comments on that pricing, and will you see any benefits from the Brent–WTI spread that has materialized across any of your assets going forward? Jeffrey Ritenour: You bet. I want to brag again on our marketing team. They have done a phenomenal job with our oil export program, and in the back half of the first quarter we started to see real benefit from that—getting some premiums to what we could have achieved domestically via the export program. I expect the same in the second quarter. We should see strength on a relative basis as a result of that export program. Kudos to the team—they have been really thoughtful as we built that out over the last couple of years, and it is starting to pay dividends, particularly in the volatile environment Clay just described. Analyst: Appreciate the answers. Thanks, guys. Operator: I will now pass the call back to Christopher Carr for closing remarks. Christopher Carr: Thank you for your interest in Devon Energy Corporation today. If there are any further questions, please reach out to the investor relations team. Have a good day. Thanks. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Randall Giveans: Ladies and gentlemen, welcome to the Navigator Holdings Conference Call for the First Quarter 2026 Financial Results. On today's call, we have Mads Peter Zacho, Chief Executive Officer; Gary Chapman, Chief Financial Officer; Oeyvind Lindeman, Chief Commercial Officer; and myself, Randy Giveans, Chief Investor Relations Officer. I must advise you that this conference call is being recorded today. Now, as we conduct today's presentation, we'll be making various forward-looking statements. These statements include, but are not limited to, the future expectations, plans and prospects from both a financial and operational perspective and are based on our assumptions, forecasts and expectations as of today, May 6, 2026, and are as such, subject to material risks and uncertainties. Actual results may differ significantly from our forward-looking information and forecast. Additional information about these factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commission. With that, I now pass the floor to our CEO, Mads Peter Zaco. Go ahead, Mads. Mads Zacho: Thank you, Randy. Good morning and good afternoon and thank you for joining this Navigator Gas earnings call for Q1 2026. Before I get into the highlights of the quarter, let me again address the Middle East. As of today, we have no vessels operating in or transiting the Hormuz Strait. And just to be clear, we have experienced no significant negative operational or financial impact from the conflict, only commercial tailwinds. We are watching the developments closely. And we will keep our crew and assets safe. Please turn to Slide #4. The first quarter of 2026 was a quarter of resilient trading, and a quarter of record net income for Navigator Gas. And now in Q2, which is starting strong. In terms of our operations during Q1, TCE rates came in just below $30,000 per day, about $1,000 below Q4 and just below same period 2025. Utilization was slightly better than Q4 and within our guided range. Net income was $36 million or $0.55 per share and EBITDA was $80 million. All 3 are strong numbers. The balance sheet remains strong. Total liquidity less restricted cash was $241 million at quarter end. This is essentially flat versus year-end even after paying down debt and returning capital to shareholders and completing a significant share repurchase. On that note, in March, we repurchased and canceled 3.5 million shares from BW Group at $17.50 per share for a total of $61.2 million. This is a substantial transaction. And it reflects our strong conviction of the value in our company. We're also improving our capital return policy. From Q2 onwards, our policy will be to return 35% of net income each quarter, up from the 30%. The Board has declared a fixed dividend of $0.07 per share for Q1. And we expect to add $6.3 million worth of buybacks to bring the total to 30% of Q1 net income. Now, to what I consider the real highlight of the quarter. Our ethylene export terminal at Morgans Point delivered record throughput at over 300,000 tons. This is up 57% from Q4 and more than 2.5x up compared to the volumes from Q1 of last year. Both European and Asian demand for U.S. ethylene is growing. European crackers are undergoing restructuring and Asian producers are switching away from naphtha-based production given the elevated oil prices. Three new offtake contracts for the Morgans Point terminal were signed in the quarter and more are expected shortly. On vessel sales, in January, we sold the Navigator Saturn and the Happy Falcon, at attractive prices and generating substantial book gains as we communicated last quarter. In April, we also sold the Navigator Pegasus, for approximately $31 million, generating a book gain of about $15 million. As I've said a couple of times before, I view these asset sales as recurring income stream. We have been able to consistently sell well above book and at or above market estimates. The proceeds fund capital return and our fleet renewal ambitions. And then, there's the Unigas news. In April, we signed a letter of intent to sell our 8 gas carriers in the Unigas pool for an aggregate price of approximately $183 million. This is a significant strategic step. And I'd be pleased to discuss any of this in more detail during the Q&A. On newbuilds, financing is in place for the first 2 of the 6 vessels that we've ordered at an attractive margin of 150 basis points, equal to the best ever. Expect more good news on our newbuilding financings to come in shortly. Looking at the Middle East, the commercial angle, only 3% of global handysize volumes load in the Persian Gulf. These exports have been disrupted, but that creates demand for substitute product, U.S. ethane-based ethylene over Middle East and naphtha-based production and longer ton miles on ammonia. We also expect to see more LPG volumes from Venezuela that will come into the regular fleet. The supply side remains in our favor. The handysize order book is only 10% of the fleet, while 22% of the fleet is more than 20 years of age. Net fleet growth is likely to be flat or even negative. And then on to the outlook for Q2. This is where it gets exciting. Both TCE and utilization are expected to be above Q1 levels. April has already set some monthly Navigator records. Ethylene export volumes are also expected to set a new record in Q2. But I'll leave it to Gary to talk a little bit more about the financial details. So over to you, Gary. Gary Chapman: Thank you very much, Mads. Hello, everyone. As we entered 2026, we saw a slightly softer start to the quarter than we would have liked, but we ended with a resilient outcome overall for the quarter. And by the time we reached the end of March, supported by the strength and diversification of our platform. This was, of course, against the backdrop of ongoing geopolitical uncertainty, including continued disruption and risk across key global shipping corridors, which influenced and continues to influence trading patterns. However, many of these influences have turned into a positive tailwind for Navigator as we entered the second quarter and Oeyvind will talk more about this later. Turning back specifically to the first quarter on Slide 6. We're reporting an average TCE of $29,684 for this first quarter of 2026 compared to $30,647 in the fourth quarter of 2025 and $30,476 in the first quarter of last year. The slight softness in TCE this quarter arises principally from quarter end revenue recognition under U.S. GAAP due to having more vessels on voyage charters at the end of this first quarter compared to the end of the fourth quarter of 2025 or at the end of the first quarter of last year. And considering loading dates, revenue from a number of these vessels being recognized in the second quarter as a result. Utilization was above our benchmark at 90.6% for the quarter and was above 95% for April 2026. EBITDA for the quarter was $80.3 million, benefiting from strong terminal performance and fleet renewal gains on vessel disposals and adjusted EBITDA was $65.9 million, lower mainly due to the factors around TCE revenue recognition mentioned just now. Vessel operating expenses were down compared to the first quarter of 2025 at $45.8 million, but very slightly below in dollar per vessel per day terms due to timing of vessel sales, and there's more guidance for 2026 on Slide 9. Depreciation was slightly down compared to previous quarters, due to our now slightly reduced fleet size, and due to our remaining older vessel, Navigator Pluto, that reached the end of her 25-year accounting life during the fourth quarter last year and hence, is no longer depreciated. General and admin costs are higher in this quarter, primarily due to one-off project-related activities and associated legal and professional fees, which are not expected to recur at the same level. Randy will discuss more about our ethylene terminal. But as Mads mentioned, throughput volumes for the first quarter were a record high of 300,537 tons, up compared to 191,707 tons in the fourth quarter of 2025 and up from 85,553 tons in the first quarter of 2025, resulting in a profit to Navigator from our Morgan's Point terminal in this first quarter of $2.6 million. Our income tax line reflects movements in current tax and mainly deferred tax in relation to our equity investment in the ethylene export terminal. Net income attributable to stockholders for the first quarter of 2025 was $35.5 million or $0.55 per share, as Mads mentioned, and is the highest Navigator has ever reported. And in the quarter, we completed the sale of 2 vessels recording a gain of $12.1 million and completed the $61.2 million share buyback as part of the secondary offering from BW Group. The EPS figure also represents a significant increase versus both the prior quarter and the same quarter in the prior year. We continue to actively use, strengthen and build our already strong balance sheet, as shown on Slide 7. Our cash, cash equivalents and restricted cash balance was $199.6 million at March 31, 2026, and including our available but then undrawn revolving credit facilities of $91 million gave total liquidity of $291 million at the same date. Taking out restricted cash leaves a total available liquidity of $241 million. This strong liquidity position is despite paying out $29 million for scheduled loan repayments, $5 million under our capital return policy in respect of the fourth quarter of 2025 and over $61 million for the 3.5 million shares repurchased and then canceled as part of the secondary offering from BW Group. Our ethylene export terminal is currently unencumbered. And we also owned 9 unencumbered vessels at March 31, which gives us significant additional available leverage to tap when and as needed. Alongside this, we have paid from our own cash a total of $110 million as at March 31, 2026, towards the 6 vessels we have under construction. The difference of this figure to our balance sheet figure represents capitalized interest under U.S. GAAP. A significant part of these construction payments will be recouped as we fix financings for our newbuild vessels. And together with a still growing operational cash flow, this all helps to demonstrate our financial stability and strength. And to bring you up to date, we had around $310 million of available liquidity or $360 million, including restricted cash at the close of business on May 4, 2026. We continue to maintain a conservative and well-managed capital structure. And on Slide 8, across the quarter, where with a very supportive banking group and a strong underlying business, we were able to return capital to shareholders, raised funds for the construction of our newbuilds, reward our shareholders through buybacks and continue working on managing our debt and financing needs. We successfully entered into a new secured term loan, signing a 5-year post-delivery facility for up to $133.8 million, which will be used to finance up to 65% of the delivery and also predelivery installments for the construction of 2 of our new ethylene Panda newbuild vessels. As of March 31, we have partially drawn down $26.8 million of this facility to recoup some of our cash already paid out for these vessels. This transaction was executed at a very low margin of 150 basis points plus SOFR. And we would very much like to thank our banking group for supporting Navigator on this transaction. We believe the deal and the very keen pricing not only reflects the banking market today, but also the strong and stable credit position of the company. We expect financing for the remaining 2 of our 4 Panda vessels to be completed in May 2026 and financing for our 2 Coral ammonia vessels to be completed in June 2026. This would result in all 6 of our newbuild vessels being financed by the end of the second quarter this year. Then in terms of debt repayments, in addition to scheduled repayments of $29.3 million in this first quarter, we have only 2 relatively small debt balloons due before 2028, with payments due in 2026 of $54 million in total. And we expect to pay down an average of $128 million of annual scheduled pro forma debt amortization per year across 2025 through 2028. Net debt to last 12 months adjusted EBITDA stood at 2.5x at March 31, materially consistent with prior periods and remains at a level where we believe is comfortable for the business. Our loan-to-fleet value ratio was approximately 32% or below 30% when including a reasonable value for our Morgan's Point, terminal investment. Then finally, as at March 31, 2026, 56% of the company's debt was either hedged or was on a fixed interest rate basis with 44% open to interest rate variability. And this is another key metric that we keep under close review, particularly in today's economic environment. Hopefully, that you can see we continue to prioritize returning capital to shareholders, while maintaining balance sheet strength. And we'll continue to balance growth, deleveraging and shareholder returns in a disciplined and careful manner. On Slide 9, this slide highlights 2 of the core strengths of our Navigator platform, our ability to generate consistent operating cash flow and our structurally lower all-in cash breakeven. Starting with cash flow. Over the last 12 months to March 31, 2026, the business has continued to generate strong underlying operating cash flows with a pre-CapEx cash flow yield averaging around 15%. Whilst post-CapEx free cash flow has seen some variability, this is largely a function of CapEx timing and investment in our newbuild program rather than any change in the underlying earnings capacity of the business. Operating cash flow generation itself has remained quite stable. Our latest estimate for 2026 all-in cash breakeven shown below is $21,230 per vessel per day, which incorporates over $180 million of operating costs, $119 million of debt amortization and approximately $44 million of net interest expense. This level remains significantly below current and historic TCE levels, providing significant headroom for the business and should allow us to deliver positive EBITDA and cash generation even through more challenging market conditions. Our cost guidance for 2026 remains materially unchanged from that provided in the fourth quarter 2025 when adjusting for changes in fleet composition. And you can also see the expense guidance across vessel OpEx, G&A, depreciation and interest expense for both the second quarter and the full year. As noted, this guidance includes our 8 Unigas vessels. And of course, should the sale of those vessels complete, there would be a corresponding reduction in certain of those cost lines, particularly OpEx and depreciation, reflecting what would then be a smaller fleet. Slide 10 outlines our historic quarterly adjusted EBITDA, adding this first quarter's results. We now have 13 quarters in a row since the beginning of 2023 of reporting at least $60 million of quarterly adjusted EBITDA at an average of $71 million over that period. On the right-hand side, as we've highlighted previously, our earnings remain sensitive to TCE movements with approximately $17 million to $18 million of annual EBITDA uplift for every $1,000 increase in TCE rates, all other things being equal. As for previous quarters, an update on our vessel drydock schedule, projected costs and time taken can be found in the appendix, Slide 30, should that detail be of interest. So then overall, Q1 started a little more slowly than we would have liked, but accelerated well as we moved into March. And the resilience of our results and the flexibility of our fleet have again been shown with another very solid set of numbers and record net income. And with market tailwinds translating into improving second quarter conditions, we can look forward with confidence and from a position of strength. So with that, I hand you over to Oeyvind to provide some more details on Q1, but also on what we're seeing as we move forward. Oeyvind? Oeyvind Lindeman: Thank you very much, Gary, and good morning, everyone. Let me start with one of the big topics, the Strait of Hormuz on Page 12. The Strait has essentially been closed for over 2 months now. Since the 28th of February, we've seen commodity prices across the board, LNG, LPG, petrochemical gases and of course, oil moved sharply higher. And that makes sense because the Strait of Hormuz carries roughly 20% of the world's energy supply. When that gets turned down, prices goes up. Now there's still some traffic moving through, but it's a trickle. And most of what's moving are what we call shadow fleet vessels, ships that are sanctioned in one country or another. Many of them switch off their tracking equipment, so it's genuinely difficult to know exactly what is passing through. What we can say with confidence is that LPG flows have fallen from around 1 million metric tons per week down to about 1/5 of that. The vessels still moving these cargoes are largely Iranian flagged or ships that have specific permission from the Iranian government to discharge into places like India. For Navigator directly, our exposure is limited. As Mads mentioned, we do not have any vessels inside. And we do not have any vessels waiting to enter. Our last vessels actually loading LPG from Iraq passed through the Strait exactly on the 28th of February. So we got out just in time. But the indirect impact on our business has been very meaningful and very positive. With traditional supply chains disrupted, buyers around the world started looking hard at North America as an alternative to Middle East supply. And that shift in behavior has created a strong tailwind for us and I want to walk you through what that looks like. Turning to Page 13, which covers fleet utilization and our ethylene terminal. I'm pleased to say that our first quarter utilization came in about 90%. And April has continued building on this strength, reaching 95%. What happened is that when the Strait first closed, the market was a bit caught off guard. No one knew, if this was going to last a week or a month or longer. But once it became clear that this wasn't going away quickly, our customers moved decisively to lock in stable supply from North America and that drove our utilization higher as we moved into April. That same urgency showed up at our joint venture ethylene export terminal. From March onwards, the volumes have been at record levels, not just above normal capacity, but above the expanded nameplate capacity as well. That means the flex feature we built into the terminal is actively adding value today. More volume means more ship movements, which feeds directly into higher utilization and stronger rates. These things go hand-in-hand, and I'll come back to spot rates in a moment. Now, Page 14 gives you a really clear picture of the competitive position North America finds itself in right now. The chart on the left tracks the price of U.S. ethane and U.S. ethylene compared to international markets. And here is what's remarkable with every other energy commodity has been impacted by what's happening at the Strait of Hormuz. U.S. ethane, however, that price have barely moved. [ Technical Difficulty ] Mads Zacho: I think we will need to just hold off a second while Oeyvind is getting back on. And if he's not back in half a minute, then, we will take over and continue on his behalf. Randall Giveans: I'll keep going while we wait for him. So the chart on the left tracks the price of U.S. ethane, U.S. ethylene versus the international markets. And really, the more remarkable thing is while every other energy commodity was squeezed by what's happening at the Strait of Hormuz, U.S. ethane prices, as Oeyvind was saying, has really barely moved. So this is an extraordinary situation. So think about it from a producer's perspective. If you can buy ethane in the U.S. for under $200 per ton, cracking into ethylene versus dealing with oil at $100, $110 a barrel, there's really no contest. Now North America is, by a long way, the cheapest place in the world to make ethylene right now. And the gap to Asian naphtha producers is enormous. It's about $1,800 per metric ton in terms of a U.S. advantage. And the arbitrage, really the price difference between U.S. ethylene and markets in Europe and Asia, it's at an all-time high, a $900 per metric ton gap to Europe means much higher revenues for us as a shipowner and higher revenues for us as a terminal owner, which I'll get to in a minute. So you might ask, is this really a short-term bump or something more lasting? We believe it's the new normal, not just the situation in the Middle East, but the competitiveness of America, right? Yes, maybe the Strait of Hormuz reopen soon, but the U.S. cost competitiveness remains. Now on Page 15, we'll explain why. So the 3 major U.S. shale gas basins, they're all producing gas that is getting richer and richer over time, right? The crude depletion curve is much steeper than that of gas. So the gas streams are what we call wetter, right, meaning they contain more NGLs, which means more LPG and more ethane. That's really the raw material that underpins everything that Oeyvind and us have been talking about. So for the global handysize fleet, North America has really become the center of gravity. Around 45% of all of our handysize cargo is linked here to North America. Now 4x what it was back in 2017. So this is clearly a structural shift, not just a cyclical change. Turning to the supply side on Page 16. Picture really hasn't changed much since our last update. We're looking at around 10% of our order book in terms of potential fleet growth over the next 3 years. Conversely, 22% of the existing fleet is already over 20 years of age. So it's a pretty healthy setup from a supply standpoint. So what does this all mean for freight rates? Looking at the next slide, ethane and ethylene capable vessels are earning record daily numbers right now in the range of $45,000 to $750,000 that is not a typo, $1,000 per day for some spot voyage charters. Now to understand really what you're looking at, we want to explain something important. So this green line you see on chart, it's the 12-month assessment. So this is not the spot rates, right? In other words, what it would cost to hire one of our ships for a 1-year contract today. That number is assessed by third-party brokers to be around $33,000 a day. Now, that line is almost theoretical because the time charter market has really gone quiet. Customers don't want to really lock in rates at these very elevated levels at this time of uncertainty. And ship owners like us have really little incentives to tie up our vessels for a year long when the spot market is offering such strong elevated levels. So if you're trying to understand the real earnings power of the ships right now, look past the green line and focus on those spot fixtures. That's where the real premiums are. Now clearly, not all of our vessels are able to capture those spot rates. Some are committed to time charters. Some, frankly, aren't even capable of carrying ethane and ethylene on our semi-raps, on our fully raps. So Page 18 gives you a breakdown of our 2026 time charter coverage profile, again, with most of them being on time charters. Now our semi-ref vessels, they're around half and half. But the ethane and ethylene capable ships, those are the ones that are predominantly in the spot market earning those premium rates. So those are the ones capturing the upside right now. So bringing it all together, the gap between North American commodity prices and the rest of the world has widened dramatically. Buyers are chasing U.S. supply. Demand for ethane and ethylene shipping is strong. Our terminal is running at record volumes. Utilization is up. Rates are up and the underlying competitiveness of North American supply, driven by that shale gas that just keeps getting richer means it isn't going away. So April shaping up to be a record month. May is looking very strong as well. So with that, I'll turn it over to myself to find out what else is happening at Navigator Gas. So with that, we've made several announcements in recent months. We want to provide some additional details and updates on these recent developments. So starting on Slide 20. We've been saying how attractive we valued our shares are. And we've been putting our money where our mouth has been, right? In March, we repurchased and canceled 3.5 million shares of NVGS directly from BW for $61 million or $17.50 per share. Now a few things to note. This transaction was done at a discount to the prevailing market price at the time. It removed some of the overhang. It had no negative impact on our free float and has further increased our earnings per share and NAV per share. So importantly, our recent buybacks really answer 3 key questions. Do we have a strong balance sheet and ample liquidity? As Gary said, yes. Is the earnings outlook attractive? As Oeyvind said, yes. Is the share price undervalued? As Mads has been saying, yes. So for a quick recap, you can see on the bottom left chart, we had about 56 million shares outstanding for many years up until the merger with Ultragas in 2021, in which we issued 21 million shares in exchange for those 18 vessels. So since peaking at around 77 million shares outstanding in December 2022 and including the capital return here in March, we just continued to reduce this number. We've repurchased and canceled 16 million shares, totaling $236 million for an average price of around $15 per share. Additionally, we paid $41 million of cash dividends for a total of $277 million of capital return to shareholders over just the past 3.5 years. So this equates to around $4 a share, greater than 26% return during that time. Now as seen over the past few years, and you'll hear about it here in a minute. We want to reiterate that returning capital to shareholders will remain a priority for us going forward. Now looking at Slide 21, we recently celebrated the 5-year anniversary of the Navigator Gas Ultragas merger, a match made in handysize heading. So I want to show you 3 graphs that cover the past half decade. Now starting on the left, our share price has more than doubled from $11 to about $22. And thus far this year, we're up around 30%, but still trading at a 25% discount to NAV, which we do not think is warranted based on the positive outlook for our shipping business, terminal throughput, our strong balance sheet and our steadily climbing earnings. Now, focusing on the center chart, our ownership structure has had quite the transition during this time. Our shares are now 55% in free float that's publicly traded. Ultranav owns 34% and BW is down to 11%. Looking at the table on the right, this increased free float, coupled with many new shareholders coming aboard has led to much higher daily trading liquidity, right? We're currently averaging more than 7 million per day and that's year-to-date. Some days, we're doing 10 million, 15 million as you see there on the table. So that covers the past. But now let's look to Slide 22. Looking ahead. Our capital return policy, it includes a fixed quarterly cash dividend of $0.07 per share. And as part of that quarterly payout percentage of 30% of net income. So as a result, for the first quarter, we paid a $0.07 quarterly cash dividend totaling $4.3 million and repurchased over 50,000 additional common shares in the open market. And that totaled $1 million for an average price of around $19.34 per share. Looking ahead, we are announcing that we're returning 30% of net income, a total of $10.6 million to shareholders during the second quarter. The Board has declared a cash dividend of $0.07 per share payable on June 10 to all shareholders of record as of May 20, equating to a quarterly cash dividend payment of $4.3 million. And additionally, with our shares still trading below our NAV of more than $30 a share, we'll use the variable portion of the return of capital policy for share buybacks. As such, we plan to repurchase $6.3 million of our shares between now and the quarter end, so that the dividend and the share repurchases together equal 30% of net income, $10.6 million this quarter. But wait, there's more. Now starting next quarter, we'll be increasing our capital return policy to 35%, more than 1/3 of our net income. Now to fund this incremental capital return policy, the Board has also approved a new $50 million share repurchase plan authorization. So based on our current expectation of improved earnings in 2Q '26, coupled with a higher payout percentage. We expect to announce even more than $10.6 million of return to shareholders under our quarterly capital return policy next quarter. Stay tuned. Now turning to our ethylene export terminal on Slide 23. All of us touched on it earlier because it's pretty exciting news here. But ethylene throughput volumes rebounded to a record high of 300,000 tons during the first quarter. And that was including a monthly record high of 150,000 tons in March. And this was despite the domestic ethylene prices ticking up, but multiple European crackers underwing turnarounds and both European and Asian demand for U.S. ethylene also increased due to that recent surge in oil-based naphtha prices that Oeyvind was discussing earlier. Now, to even better news, as you'll see in the bottom of the chart, that strong demand for U.S.-sourced ethylene has continued into the second quarter, leading to another record high monthly throughput in April of around 151,000 tons. And we expect a third consecutive record high month in May with around 160,000 tons currently scheduled. To note, this is above the nameplate capacity of 130,000 tons per month. That's really proving the upside of the flex train that we've alluded to in recent quarters. So as such, we expect to report another record quarter of throughput on our next earnings call for the second quarter. Now, looking at the bottom right chart, despite that near-term increase in U.S. ethylene prices, the ARB remains wide open, and that's driven by the much higher international ethylene prices. So that's led to numerous new spot customers buying cargoes from the terminal. And longer term, the forward curve remains very stable at around $0.25 per pound throughout 2027. So and when it comes to contracting the expansion volumes, we recently signed 3 new offtake contracts for various quantities and durations. And the robust demand has resulted in multiple customers now in advanced discussions for take-or-pay contracts commencing in the coming months. So as such, we expect that additional offtake capacity will be contracted soon as new customers continue to request updated terms for the terminal and for shipping. So in the meantime, we'll continue to sell those volumes on a spot basis at very attractive rates. Now, finishing with our fleet and the fleet renewal on Slide 24. We're continuing to rightsize our fleet by selling our older vessels and our noncore assets. So on the same day in January, we sold both the Navigator Saturn and the Navigator Falcon. And then in April, we sold the Navigator Pegasus, a 2009-built 22,000 cubic meter semi-refrigerated gas carrier for $30.5 million. And that's netting a book gain of $15.2 million, which will be booked in our second quarter 2026 results. Furthermore, as Mads was mentioning, we announced the upcoming sale of 8 Unigas vessels for $183 million. We'll repay around $54 million of associated debt so that the net cash proceeds will be around $129 million. Now these 8 vessels will also result in a book gain of about $65 million, which we will book upon vessel deliveries throughout the second, third and maybe into the fourth quarter of this year. So looking at all 17 of our vessel sales over the last 4 years and including those Unigas vessels, the total proceeds are expected to be $342 million. And after all the associated debt repayments, total net cash proceeds of $288 million, which we'll be sure to use prudently. Now, our current fleet consists of 54 vessels with an average fleet age of 12.3 years, average fleet size of 21,000 cubic meters. Now excluding the Unigas vessels, our fleet would be a little younger on average at 12.2 years and a little larger on average of close to 23,000 cubic meters. So we continue to upgrade our vessels with some various energy savings technology. You can see that on Slide 30. And we continue to roll out new artificial intelligence AI programs to make our fleet even more efficient. So with all that, I'll now turn it back to Mads for some closing remarks. Mads Zacho: Good. Thank you, Randy. And it's great that you illustrate we have good redundancy, not only in our vessel operations and our financing structures, but also in our investor presentation. So that's great. The first quarter of 2026 was a quarter of resilient cash generation, continued structural tailwinds and once more a demonstration of our disciplined capital allocation. It was also a quarter where we delivered the strongest quarterly net income in the history of Navigator Gas. The strong net results include both tailwinds from vessel sales, but also some headwinds. Importantly, some of those headwinds that Gary just reviewed with us, they will translate into tailwind in Q2, which is a quarter that has already taken off to a good start. Our resilient earnings and strong cash generation are underpinned by the structural advantaged U.S. exports, particularly the low-cost ethane and a tightening supply fundamental. These effects will outlast the more cyclical effects that we are seeing from the war in the Persian Gulf. With record terminal throughput anticipated and improving fleet utilization and TCE and supportive macro dynamics into Q2 of 2026. We enter the remainder of the year from a position of strength and we are well positioned to sustain this momentum. A strong balance sheet and clear capital return policy continues to drive attractive shareholder returns. So with that, I'll round it off. Thank you for listening. And back to you, Randy, to open the Q&A. Randall Giveans: Thanks so much, Mads, and great to see Oeyvind. It looks like he's back. We missed his calm and strong Norwegian voice. Operator, we'll now open the lines for some Q&A. [Operator Instructions] Spiro Dounis: Spiro here from Citi. I want to start with the Middle East. Obviously, a very fluid situation, seeing some of that play out today. But you did note the disruption has been a net positive for you commercially. And so to the extent you do see a return to normal, however you defined it. It doesn't sound like you guys are expecting business to go back as usual. So curious to get your thoughts on maybe the durability of some of these tailwinds to last longer. Oeyvind, you talked about renewed interest in U.S. cargoes. So I kind of wanted to get a glimpse of maybe what you're hearing from customers? How those conversations are going? And when do you think this starts to convert maybe into longer term commercial success for you guys? Oeyvind Lindeman: I think the most important feature, what is happening now is what we mentioned at the boardrooms around the world when they're looking at the supply chains. They're looking for reliability. And what the issue in the Middle East have shown is that it is not reliable. So when you're running your multibillion-dollar production system crackers and so forth, you can't rely on that anymore. So that has highlighted that issue. And that is hurting many of those customers to the U.S. talking about ethane and ethylene. So I think that is a lasting change in the supply chain strategies around the different companies or customers. In short term, in terms of freight and so forth, et cetera, I think this is going to be if the Strait opens, there's going to be a long lag on the prices and to settle and so forth, et cetera. So I think long term, it's a structural shift. Short term, I think we'll see a strong market continue for the foreseeable future until things are settled. But when that happens, it may takes time. Spiro Dounis: Understood. That's great color. Second one, maybe just going to capital redeployment here. Liquidity getting pretty healthy, looks strong at these levels following these vessel sales. And just wondering if you guys provide a little more color on how you're thinking about redeploying that capital. Maybe where the best value is, if there's any obvious holes in your portfolio? And if some of that capital can maybe find its way to infrastructure development. Mads Zacho: Yes. There's still a continuation of the strategy we have communicated in previous occasions that we still see some opportunity for consolidating the markets that we are in. That goes for both the handysize market and also the midsized market that we're looking at. The midsized market is a little bit more fragmented and there may be more opportunities. And here, we just need to find the right deals at the right price at the right time. But we clearly see that there are opportunities for consolidation here. We also see opportunities in infrastructure. And that can be both export infrastructure out of North America and it can be import infrastructure into Europe. We have a pretty active business development portfolio. The infrastructure projects will tend to take a little bit longer before they materialize. Whereas you could say the secondhand consolidation on vessels could maybe happen a little bit faster. But we still -- we are a company that want to grow over time, nothing wild, but just gradually, as you've seen in the past, quite predictable in how we look at it. And that leaves also ample cash on hand to deploy both into repayment of debt and at the same time, in particular, capital return to shareholders. So it's a little bit the same story that you heard before that we think we can do all of the things at the same time, growing gradually, but also deploying gradually more cash over time to shareholders. Christopher Robertson: This is Chris Robertson at Deutsche Bank. Just wanted to start with the terminal. I think you're currently around 23% over nameplate capacity at these levels, around 160,000 tons for April. How confident are you in maintaining throughput at that level sustainably, I guess, across the year without periods of increased maintenance due to the increased throughput? Are there any technical or physical limitations that you could continue to optimize further on here? And is there any low-hanging fruit in terms of some minimal CapEx investment to continue to improve the total capacity number? Randall Giveans: Yes. I'll start there. A few questions. I was actually up there on Monday at the terminal. So back in February, you saw that dip. We did 60,000-ish tons. And during that time, we did some maintenance, did a few little capital improvements, added an additional pump, and that really bode well for us. Obviously, in the last few months, you're seeing us operating above nameplate capacity. Now this is our partner, the operating partner, enterprise products, more than Navigator turning screws. But all that being said, we can operate above nameplate for an extended period, not at the 160,000 ton level probably for multiple months. Once we get into the summer, June, July, especially August, you're here in Houston, you know very well, when the temps are over 100 degrees Fahrenheit, it's a lot harder to chill this commodity down to negative 104 Celsius, right? So there are some technical difficulties to keep going at these levels. On the commercial standpoint, right, the flex train does ethane and ethylene. So there's a balance there. So we have a contractual agreement that we're buying 1/4 of the capacity. There's upside above and beyond that when it's not being used for ethane. So it's hard to really say, yes, every month we'll be at x level. We have the kind of the throughput that we expect and hope 130,000 tons a month. But it would be hard to get above that continuously in the short term. Now, longer term, when some of those contracts roll over to the Neches River ethane export facility that Enterprise has, there will be some opportunities for that. But for the time being, yes, I think the 130,000 tons, 140,000 tons, 150,000 tons is a great level, probably not going to stay at those levels perpetually. But we're hoping for some strong throughput here in the second quarter and beyond. Christopher Robertson: Got it. Fair. This is a follow-up question. Just as it relates to the ethylene pricing we're seeing in both Europe and Asia have moved up. Obviously, Europe is still at an advantage here, but less so, let's say, from a ton-mile perspective as Asia is a further distance away. So as it relates to ethylene, are you guys still doing 100% of the cargoes to Europe? Is there any Asian buyers on that? Or is that more on the ethane side? Randall Giveans: Oeyvind, welcome. Oeyvind Lindeman: The ARB to Europe is the widest. So logically, most of the volumes will go there, because that's the -- those are the guys who pays the most for the product, which means that there's scope -- more scope for the terminal, which we're part owner and for the freight side to extract more additional value. So most of the ethylene is currently heading to Europe for those reasons. Some are starting to go to Asia as well. We believe that the Asian producers, the naphtha producers and so forth had quite large storage available in oil. Now those are dwindling and therefore, appetite for ethylene to Asia is coming on the scene. Ethane, however, have been flowing to both locations simultaneously. Climent Molins: Climent Molins from Value Investor's Edge. My first one, I think, is going to be for Gary. Considering that if the sale of the Unigas vessels goes forward, it will include the pool, will any working capital be included? Would the $183 million transaction price be adjusted for that? Or is it already accounted for? Mads Zacho: You're muted, Gary. Gary Chapman: Climent, yes, good question. The price that we've quoted for the vessels, there's a small administrative pool that we own 1/3 of. And there's a small couple of millions attached to the value of that pool entity. But the vast majority of the value here is on the vessels. I can go into a lot more detail should you want me to, but that's the crux of the answer, I think. Climent Molins: Yes, makes sense. And I also had a question regarding the ethylene export terminal. You may not be able to provide exact commentary, but pro forma for the addition of the 3 contracts you mentioned year-to-date. What percentage of the 1.55 MTPA are currently fully fixed? Randall Giveans: Yes. We won't go into the exact percentages. But the vast majority, we're still in some offtake discussions with additional customers. So we'll just leave it at that. Thank you. All right. It looks like that's all the questions we have. Mads, final thoughts. Mads Zacho: No, good. Thanks a lot. Thanks a lot for listening in. As you can see, we had a quite resilient first quarter. And it seems like the Q2 is going to be a pretty exciting one. And we definitely look forward to meeting same place, same time in about a quarter and just reviewing with you the Q2 results. So thanks a lot for all the good questions from the analysts and thanks for listening in. So have a fantastic day and evening, and see you next time. Randall Giveans: Thank you.
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 day, and thank you for standing by. Welcome to the Q1 2026 DHT Holdings, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, CFO, Laila Halvorsen. Please go ahead. Laila Halvorsen: Thank you. Good morning and good afternoon, everyone. Welcome, and thank you for joining DHT Holdings First Quarter 2026 Earnings Call. I'm joined by DHT's President and CEO, Svein Harfjeld. As usual, we will go through financials and some highlights before we open up for your questions. The link to the slide deck can be found on our website, dhtankers.com. Before we get started with today's call, I would like to make the following remarks. A replay of this conference call will be available on our website, dhtankers.com, until May 13. In addition, our earnings press release will be available on our website and on the SEC EDGAR system as an exhibit to our Form 6-K. As a reminder, on this conference call, we will discuss matters that are forward-looking in nature. These forward-looking statements are based on our current expectations about future events as detailed in our financial report. Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic report available on our website and on the SEC EDGAR system, including the risk factors in these reports for more information regarding risks that we face. As usual, we will start the presentation with some financial highlights. In the first quarter of 2026, we achieved revenues on TCE basis of $157 million and adjusted EBITDA of $133 million. Net income came in at $164.5 million, equal to $1.02 per share. After adjusting for the $60 million gain on sale of DHT Europe and DHT China and a non-cash fair value gain related to interest rate derivatives of $1.1 million, we had ordinary net income for the quarter of $103.4 million equal to $0.64 per share. Vessel operating expenses for the quarter were $19.1 million, which included approximately $2 million in non-recurring costs related to spares and consumables. And G&A for the quarter was $5 million. In terms of market performance, our vessels trading in the spot market earned an average of $91,700 per day, while vessels on time charters achieved $61,300 per day. The average combined TCE for the fleet in the quarter was $78,800 per day. We continue to maintain a very strong balance sheet, supported by conservative leverage and robust liquidity. At the end of the first quarter, total liquidity was $350 million, consisting of $126 million in cash and $230 million available under our two revolving credit facilities. Following the repayment of $56 million in April under the Nordea revolving credit facility, current availability under our 2 RCFs stands at $285.8 million. At quarter end, financial leverage was 16.8% based on market values for the fleet and net debt was $16.5 million per vessel, which is well below estimated residual values. Looking at our cash flow, we began the quarter with $79 million in cash. From operations, we generated $133 million in EBITDA. Debt repayment and cash interest totaled $20 million. Proceeds from sale of DHT Europe and DHT China amounted to $201 million and $66 million was distributed to shareholders through a cash dividend. $2.8 million related to investments in vessels and $160 million was deployed towards investments in vessels under construction, which included delivery of our first three new buildings. We also issued $91.5 million in long-term debt. Changes in working capital and other items amounted to $30 million, and the quarter ended with $126 million in cash. With that, I will turn the call over to Svein to go through the quarterly highlights. Svein Moxnes Harfjeld: Thank you, Laina. We are very pleased with the well-time delivery of the first three of our four new buildings in the Antelope class. The DHT Antelope delivered in January, the DHT Addax and DHT Gazelle in March. The fourth vessel, DHT Empower is expected to deliver this summer. This represents fleet renewal in conjunction with planned divestment of our three older ships built in 2007, two of which have been delivered. The last of the three, DHT Bauhinia, was sold for $51.5 million in the quarter and is expected to deliver in June, July. We expect a capital gain of $34.2 million and cash proceeds of $50.5 million from this last sale. Our planned increase of market exposure for the first half of this year had the objective not only to benefit from the spot market, but also to balance this with selective new term employment. It has been a busy period with numerous contracts secured. First, the DHT Harrier built 2016 with their existing time charter due to expire, extended the contract for 5 years from January 26 at $47,500. It has two optional years priced at $49,000 and $50,000. We then secured three new 1-year time charters. DHT Opal built 2012 for 1 year at $90,000; DHT Taiga built 2012 for 1 year at $94,000; DHT Redwood built 2011 for 1 year at $105,000. Further, one of our newbuildings delivered into a 5 to 7-year time charter with a key customer. Subsequent to the quarter end, we secured two additional 1-year time charters for DHT Sundarbans built 2012 and DHT Amazon Built 2011 with average rate of $109,000 per day. As such, our Five older ships are then out on 1-year time charter contracts averaging $101,000 per day. Back to you, Laila. Laila Halvorsen: Thank you. In line with our capital allocation policy of paying out 100% of ordinary net income as quarterly cash dividends, the Board has approved a dividend of $0.64 per share for the first quarter of 2026. This marks our 65th consecutive quarterly cash dividend. The shares will trade ex-dividend on May 21, and the dividend will be paid on May 28 to shareholders of record as of May 21. Here, we also present our estimated P&L and cash breakeven levels for the last 3 quarters of 2026. Our PLM breakeven for the period is estimated at $29,700 per day, while our cash breakeven is estimated at $23,400 per day, which reflects all through cash costs. The difference between our P&L and cash breakeven is estimated at $6,300 per day for the last 3 quarters. This discretionary cash flow will remain within the company and be allocated for general corporate purposes. On this slide, we present an update on bookings to date for the second quarter of 2026. We expect 997 time charter days covered for the second quarter at an average rate of $73,900 per day. This rate includes profit sharing for the month of April and the base rate only for the months of May and June for contracts with profit sharing structures. We also anticipate 1,025 spot days for the quarter, of which 88% have already been booked at an average rate of $168,300 per day. The spot P&L breakeven for the quarter is estimated to be less than zero as the time charter earnings are expected to exceed forecasted costs. Turning to our 2026 dry dock schedule. As shown on this slide, we have seven vessels scheduled for dry docking during 2026. DHT Lion completed its second special survey in dry dock in the first quarter, and this was completed on time and within expectations. Looking at the remainder of the program, four vessels, DHT Osprey, DHT Panther, DHT Puma and DHT Harrier are scheduled for their second special survey in dry dock. In addition, DHT Amazon and DHT Redwood are scheduled for their third special survey in dry dock. Overall, the 2026 dry dock schedule is well planned, fully incorporated into our operating and capital expenditure outlook and does not change our underlying view on fleet availability or cash flow generation. Importantly, this reflects our continued focus on maintaining a high-quality fleet while preserving operational reliability and asset value over the long term. And then I'll turn the call back to Svein. Svein Moxnes Harfjeld: Thank you, Laila. We will now spend some time on what we see as the current market pillars, the future catalysts and our strategic positioning. We will here start with the current market pillars. The VLCC market is, in our view, influenced by the following primary drivers. First, the basic supply-demand fundamentals continue to support freight rates as evidenced during the second half of 2025 when the freight market strengthened without any special events taking place. Second, we experienced strategic fleet consolidation with the market structure having been strengthened by significant consolidation activity from a private aggregator during the first quarter of 2026. This is a historical first and the fleet demographics and fragmented ownership made this truly possible. We don't see this effort as a fly by night and expect it to positively influence our market going forward. Third, risk premiums driven by regional volatilities involving Iran have introduced significant risk premiums on certain trade routes, resulting in substantial earnings differences between the various trading routes. This is not a fundamental driver, but has alert to the entire industry to how vulnerable it is to curve balls. Fourth, near-term loss in crude oil available for transportation from the Middle East Gulf is a risk. We believe, however, that this could be compensated by reduced vessel productivity through: one, increased transportation distances as refiners source barrels from further away; and two, approximately 10% of the VLCC fleet being tied up either with cargo waiting to exit the Gulf or waiting to load from Saudi Arabia's Western export facility. For the sake of good order, we have no ships inside the Gulf when the conflict broke out. We have no ships inside currently, and our fleet is fully operational. Now let's discuss the future catalysts. We believe several emerging trends warrant specific attention as they are expected to provide longer-term tailwinds for the large tanker market and our operations. Sanction relief and trade normalization. Assuming conflicts will be resolved, potential sanctions relief on Venezuelan and Iranian crude exports would likely shift volumes from the shadow fleet to compliant operators, thereby expanding the addressable market for our vessels. Fleet modernization and demolition. We anticipate that the shift toward compliant trade will deprive the aging non-compliant shadow fleet of employment, likely accelerating the retirement of substandard tonnage and further tightening global vessel supply. These two teams in combination could shrink the working fleet by 10%, maybe 15% of capacity. Energy security and inventory replenishment, a heightened focus on national energy security could trigger long-term crude oil inventory building, supporting transportation demand beyond immediate consumption needs. This team will likely change customer behavior from just in time to just in case. And finally, what is DHT's strategic positioning. Consistent with the outlook presented in our previous reports, we observed that end users are increasingly seeking to secure vessel capacity in response to tightening market conditions. As you will have noted, we positioned our fleet for the first half of the year to seize on this development, capturing spot market rewards while selectively securing term employment to reduce volatility and enhance earnings visibility. The delivery of our four VLCC newbuildings this year is proving well timed with one vessel already commencing a long-term charter with a key customer. Our disciplined capital allocation policy remains a priority, ensuring that the positive market development and our positioning will reward shareholders through quarterly cash dividends equal to 100% of ordinary net income. And with that, we open up for questions.Operator? Operator: [Operator Instructions] Our first question comes from the line of John Chappell from Evercore. Jonathan Chappell: So, starting with that last slide on strategic options, a quick 2-parter. Obviously, you signed a lot of contracts at rates that no one could blame you for. Could you just help with the Gazelle rate? It's the one that wasn't disclosed in the press release and can help with transparency. And two, I know you like to keep some spot market exposure, keeps you in the conversation, helps you understand flows. even though the rates are still somewhat elevated and generating fantastic returns. Do you think for the most part, you'd like to keep the remainder of the fleet in the spot you see in the information flow? Svein Moxnes Harfjeld: Thank you, John. As for your first question on the rate on vessel, that is the explicit agreement with the customer not to disclose the rate. So we are not at liberty to do that. I apologize for that. Secondly, for this year, we are now sort of closing in on 50% cover on time charter. Keep in mind that two of those ships have base rate with profit sharing elements on top with no ceilings. So they are partly taking part in the spot market. When it comes to adding term business, we are quite content for now, and we might revisit this sort of later on. But as of this moment, we are very satisfied with the general positioning of the company and the opportunities we see ahead. Jonathan Chappell: Okay. Great. And then for a follow-up, just kind of understanding the operational challenges and opportunities since your last conference call. Obviously, we're seeing these headline rates that are eye-watering, but they're very inconsistent depending on where the source is. When we see a headline rate, do we assume that, that's something that DHT can achieve? Or do we have to take into account maybe some theoretical elements of that? Is there more waiting time or ballast time as you're moving the fleet around to areas that are maybe safer for the crew and also taking into account bunker fuels. Just trying to understand when we see a number, is that a number that you can really get? Or is there a lot of different elements in it that maybe it's not quite the headline rate? Svein Moxnes Harfjeld: Yes. So the most referred to index and route has been what is called TD3C which is cargo loaded in Saudi Arabia and discharged in China. Obviously, that route has not really been operational in general terms of the market with some exceptions, obviously, as many shipowners were not entertaining to enter the person Gulf. So it has been produced a derivative pricing on two other sort of load ports in the region, one being Yandu, which is in the Red Sea, i.e., the Western load ports of Saudi Arabia. And secondly, Fujairah, which is outside of the strait of Hormuz, which is in the UAE. So those pricings have been below the TD3C, but certainly related to that there's many similarities to the trade. But I think it's fair to say that there's a limited number of ships that have captured what the TD3C index has referred in the market. That's just the nature of how the game has been played in the last few weeks. So on our part, we managed to keep our fleet efficient without any operational disruptions. We have not taken on any excessive ballast or cost or expenditure to keep our fleet going. We're trying to -- as good as we can to be sort of ahead of the game a bit. We've done a fair amount of business from the Atlantic, where we also have a big COA with export of oil from the Atlantic Basin to Asia. So that has sort of occupied also a few ships. So on our part, we haven't really been impaired on our earnings, if I can say it that way. Operator: Our next question comes from the line of Sherif Elmaghrabi from BTIG. Sherif Elmaghrabi: Starting with the fleet, your fleet, the sale of your oldest vessels lines up pretty nicely with the delivery of newbuilds this year. So looking ahead, I'm curious how you're thinking about continued fleet growth. It seems like there's a fair amount of on the water opportunity, but maybe that tonnage skews older. Svein Moxnes Harfjeld: Yes. So we are very happy with the fleet that we have, and there are no ships in our fleet that are planned for divestments. We have a balance sheet that is sort of able to entertain fleet growth. So we're always on the lookout for opportunities. Right now, that's been very hard to find, frankly. I wouldn't say because there's been other competing buyers for ships, but the competition has been a very healthy freight market. So potential sellers have opted to retain their ships in their operation to earn money simply. But as I said, we would like to continue to build the DHT. So at some point, hopefully, there will be opportunities for us to invest in additional ships for the fleet. Sherif Elmaghrabi: Got it. And then second question, you talked about the risk premium from the war in Iran. Obviously, that -- hopefully, that ends sooner rather than later. But whenever it does, how quickly could we see activity return to the Gulf? And -- more specifically, obviously, charters want you to go back as soon as possible. But what are some of the puts and takes there that you have to consider things like mariner risk or insurance coverage, stuff like that? Svein Moxnes Harfjeld: I think we need to see a high level of credibility to a resolution to the conflict and that we can expect whatever agreements that will be put in place will have -- they can last because in all fairness, the news flow over these last 2 weeks have been rather volatile with good news, bad news almost trading each other every second day. So we cannot sort of react, I think, to good news one day and assume we can all sort of enter in the second day and the market sort of goes back to normal. And I don't think we will be alone in consider the situation like that. So credibility to sort of a solution has to be in place. And I think that, that will take a bit longer than just a few more days, right? So I think the key action we need to see now, of course, is that all these ships that are trapped inside the Gulf that they can exit safely. That will take a while. We believe there are some 57 VLCCs inside the Gulf with cargo that is waiting to exit, plus there are a lot of other ship types and not only tankers, but also inside that are waiting to sort of resume operations. So I guess a lot of this has to be unwind, if you like, for -- to demonstrate that the passage to the strait is safe. Operator: And our next question comes from the line of Omar Nokta from Clarksons. Omar Nokta: Maybe just a follow-up a little bit on kind of the discussion points of Hormuz and risk premiums. Are you able to talk a little bit about how, from your perspective, the risk premium across the different routes for getting inside Hormuz since that's not really transacting. But outside of that, you mentioned Yanbu, Fujaira. Can you just talk a bit about how that risk premium has developed as this crisis has gone on and then also your willingness to transact in those areas? Svein Moxnes Harfjeld: Yes. So firstly, to entertain trades inside the strait of Hormuz was a non-starter for us. We think it's also a very easy decision. We have 25 on average on our employees on board the ships and to expose them to trades like this is not something we are willing to discuss. So secondly, I think initially, Yanbu, Fujairah also had at least some academic risks to these areas. As people have gotten a bit more comfortable with these areas, those freights have sort of moved differently from where sort of the person Gulf freight potentially could be. So it's now closing in to be sort of more aligned with what Atlantic trades are offering. So now -- as of now, there's not a really big delta between this. There could be some positional issues and stuff like that. But I see there's some more normalization in pricing in those two routes, i.e., Fujairah and Yanbu compared to the rest of the markets. Omar Nokta: Okay. And then how do you think, I guess, about in a reopening scenario, and let's say, things go back to normal, which clearly seemingly that seems difficult to anticipate. But just how do you think about the permanence of these new routes or at least these routes have gotten a bit more active? Do you think these are here to stay? And what do you kind of think about how that affects this market long term? Svein Moxnes Harfjeld: Yanbu in the Red Sea has the capacity to sort of super efficient operation, about 4 million barrels a day, so they can load 2Vs a day. That is not a new trade. That terminal has been there for many years, have been serving certain markets, maybe not to its full capacity though. So I think whether that route is keeping that capacity or whether some of that cargo shifted back to the Gulf doesn't really impact the general efficiency of the market because it's a very similar type of duration for those voyages. When it comes to Fujairah, I think in the near term, it's a bit hard to say. But what we would be curious to see how UAE's exit from OPEC will sort of unfold. I think they have had ambitions for quite some time to increase their quotas. And as they now become free from OPEC, they will, of course, also be free to decide how much they will produce. And whether that will go out of Fujairah only or also from the ports inside, we don't know yet exactly the ratios and how that will play out. But -- but I think we should expect there to be more cargo in the water in general. And maybe that will have a downward pressure on oil price, but which will stimulate our business in general. The next question comes from the line of Geoffrey Scott from Scott Asset Management. Geoffrey Scott: I have a question about the couple of ships that are on long-term charter with profit sharing. I've always thought that the 50-50 break for profit sharing was a very fair division of kind of risk and reward for the long-term chartering market. But it requires some estimate of what that profit sharing is. How do you get to the profit sharing number? Index? Svein Moxnes Harfjeld: Thank you for asking. So we don't disclose the details of these contracts. But the profit sharing mechanism is calculated on our ships particular specification for fuel consumption and efficiency, all of that. And it is the index-based profit calculation. So one charter has only one index as sort of at the pricing base and the other one has a mix -- so -- but none of these contracts are frustrated in any way by the call it, changes we have seen recently. And we also noted that there somebody now trying to pursue Baltic legally. -- whether that is -- whether that case has a probability of going one or the other way, I don't know. But again, the basis, which is the price mechanism in our charters are operational, and we get paid by our customer, and there's no frustration in these systems. Geoffrey Scott: There is no conflict in that conversation. Svein Moxnes Harfjeld: No. Operator: There are no further questions at this time. So I'll hand the call back to Svein for closing remarks. Svein Moxnes Harfjeld: Thank you very much to all for being interested in DHT, and wishing you all a good day ahead. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.
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: Good morning, ladies and gentlemen. Welcome to Ternium's conference call to discuss the results for the first quarter 2026. We would like to inform you that this event is being recorded. [Operator Instructions] We would like to remind you that this conference call is intended exclusively for investors and market analysts. We request that any questions from journalists be dedicated to the Media Relations through our website in the Press section. With this, I would like now to turn the floor over to Mr. Sebastian Marti. You may proceed. Sebastián Martí: Good morning, and thank you for joining us. My name is Sebastian Marti, and I am Ternium's Global IR and Compliance Senior Director. Yesterday, we announced our financial results for the first quarter of 2026. Today's call is intended to provide additional context to that presentation. I'm joined by Maximo Vedoya, Ternium's Chief Executive Officer; and Pablo Brizzio, the company's Chief Financial Officer, who will discuss Ternium's operating environment and performance. Following our prepared remarks, we will open up the call to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on Page 2 in today's webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that, I'll turn the call over to Mr. Vedoya. Maximo Vedoya: Thank you, Sebastian. Good morning, everyone, and thank you for joining our conference call. Earnings margin in the first quarter continued on a recovery path, reaching 12%. This improvement reflects a combination of factors: an improving market environment in Mexico, a focus on profitability over volume in Brazil, and the continued work of our teams to increase efficiency across our industrial operations. In Mexico, apparent steel consumption fell around 10% in 2025, driven by uncertainty triggered by U.S. trade actions. In 2026, however, we see an improvement. The Mexican government has been actively working to mitigate the negative effects of U.S. trade measures on the Mexican economy by defending the local industry against unfair imports from Asia. These actions not only support the continued development of the Mexican industry but are closely aligned with the U.S. government's own trade strategy. Plan Mexico is also central to this effort. It promotes industrial development, increases domestic content in manufacturing and strengthens regional supply chains. In this same line, last week, the steel industry and the Mexican government signed a landmark agreement to prioritize domestically produced steel in all public procurements, a clear sign of the opportunity ahead. Taken together, these policies support our expectation of a recovery in Mexican steel demand. In this context, we expect volumes in Mexico to continue improving in the second quarter, driven mainly by the commercial market. The significant destocking that took place across the value chain in 2025 is now giving way to a normalization of apparent demand. Beyond that, we are seeing early movements in several infrastructure projects, which could add meaningful demand in the coming quarters. Turning to our Pesqueria project in Mexico. The ramp-up curve of the cold rolling mill and the galvanizing line are running ahead of plan. We expect both lines to be operating close to a full capacity by October. The slab facility is also advancing in line with expectation. This project is central to our strategy. It will significantly increase our vertical integration in Mexico, reduce our [ resilience ] on externally sourced slabs and enhance our product capabilities across automotive, industrial and construction applications. Importantly, as the automotive USMCA rule of origin enters into effect next year, this facility will position Ternium as a key player in meeting a growing demand. In this respect, I am pleased to share that we have been granted a patent in the United States for our new electrical steelmaking process, which will enable us to produce exposed steel at scale. This innovation leverages the integration of direct reduction at the same site. In addition, innovations such as virtual stamping solution, which utilizes artificial intelligence to streamline certification process for the automotive industry, enforcing our drive for operational excellence. This commitment continues to be recognized by our customers. In February, we were honored by [ Ariston Group ] with their [ Strategic Partner ] award, the highest recognition for quality and partnership. And in April, Ternium Mexico received the 2025 John Deere Crop Award and achieved the partner level, John Deere's highest distinction for cost-effective and long-term collaboration. Brazil steel consumption remains broadly stable with some sectors showing resilience and others facing more pressure. The automotive industry continues to perform well, with production expected to grow around 4% this year. On the other hand, sectors like agribusiness has been weakened -- have seen weaker demand. A key challenge in the quarter was a significant increase in steel imports, up around 30% versus the previous quarter. Imports accelerated ahead of the government's antidumping measures on cold-rolled and coated products. This has resulted in elevated inventory levels of imported material in the market, which we expect to normalize by the second half of the year. As these trade defensive measures gain traction and inventories level normalize, we expect Usiminas' market share to improve. However, it is also worth noting that import pressure is not limited to China. Volumes from Southeast Asia, particularly South Korea and Vietnam, have increased significantly, reflecting the indirect effects of China oversupply on the region's trade flow. In March, we were honored to welcome President Lula to the official inauguration of the Roberto Rocca Technical School located near our Rio de Janeiro plant. The school provides full-funded technical education to young people from the surrounding communities, offering them access to world-class education. Built with an investment of $50 million, we expect to welcome close to 600 students by next year. In Argentina, after a 2024 record, one of the lowest steel consumption levels in 2 decades, the market began to recover in 2025. However, 2026 did not start as we had expected. Demand is growing unequally. Mining, energy and agriculture are performing well. Automotive remains at reasonable levels. Constructions remain soft. Metal, mechanical and home appliance sectors are lagging, affected by weak domestic consumption. As I bring my remarks to a close, I am pleased to share that Ternium has once again been recognized as a Sustainability Champion by the World Steel Association. This recognition is granted to companies that [ integrate ] sustainability into their core strategy, combining environmental management, safety performance, innovation and responsible community engagement. Looking ahead, we are constructive on our market and our ability to continue improving performance. In Mexico, the combination of normalizing demand, supportive industrial policies and the ramp-up of our downstream projects position us well for the quarters ahead. In Brazil, as trade defensive measures gain traction and imports inventory normalize, we expect to see a healthy competitive environment. In Argentina, we continue to monitor the recovery closely, while remaining -- maintaining our operational discipline. Across all our operations, our teams remain focused on driving efficiency and lowering cost, and we're already seeing the benefits. Overall, the recognition we continue to receive from our customers reflects the quality of what we are doing every day. We are confident in Ternium's ability to deliver even stronger performance in the periods ahead. With that, I'd like to move to a review of our quarterly performance. Pablo, please go ahead. Pablo Brizzio: Thanks, Maximo, and thanks, everybody, for participating in our call. So let's review our operational and financial performance for the first quarter of this year. Starting the webcast presentation on Page #3, we can see that the adjusted EBITDA increased sequentially by 21% in the first quarter, in line with our expectations and reflecting margin improvement. Looking ahead, we expect adjusted EBITDA margin to continue increasing, supported by higher revenue per ton, particularly in Mexico and Brazil, partially offset by higher cost per ton across our main markets. Let's move to the next slide. Net income for the first quarter of 2026 reached $372 million. This reflects improved operating performance, stronger net financial results, primarily driven by foreign exchange gain in Mexico, Argentina and Brazil, and positive deferred tax results. Deferred tax gain amounted to $122 million, driven mainly by currency fluctuations in Argentina and Brazil and inflation effects in Argentina. Net income in the quarter also included a $48 million loss from the quarterly update of the value of a provision from ongoing litigation related to the acquisition of the participation in Usiminas in 2012. Let's turn to Page 5 to review the Steel segment performance. Overall, shipments were broadly in line with the previous quarter. In Mexico, volumes increased, supported by solid commercial market activity. This was driven by more effective trade defenses against unfair imports, healthier inventory level across the value chain and a seasonal recovery in demand. In Brazil, Usiminas prioritized profitability in the face of increased cost volatility, particularly in energy and logistics, resulting in a modest sequential decline in shipments. In the Southern region, demand softened, reflecting weaker industrial activity in Argentina, alongside typical seasonal factors, leading to a sequential decrease in shipments. Looking ahead, we expect shipments to trend higher, mainly driven by Mexico and Argentina, as trade measures gain traction in Mexico and demand conditions gradually improve across both markets. Let's turn to Page 6 to review the performance of our Steel segment. Steel cash operating income improved during the period, driven by higher margins, resulting from realized prices gains, which were partially offset by higher raw material and purchased slab costs. On next slide, the Mining segment reflects a different dynamic. In this case, shipment declined sequentially due to operational disruptions in Brazil caused by an unusual intense rainfall. Finally, let's turn to the cash flow and balance sheet performance on Page 8. The company continues to generate strong cash flow from operations, although this quarter, we saw an increase in working capital, driven by an increase in trade receivables, mainly due to higher steel prices and volumes in Mexico. We anticipate that sales will grow in the second quarter of this year, likely requiring a further rise in working capital. Capital expenditures continue to reflect our progress in the expansion of our industrial center in Pesqueria, now mostly focused on the construction of the slab making facility. Finally, we ended the quarter with a net cash position of $327 million. On top of our CapEx needs, the cash position decline included a $350 million payment for acquisition of Usiminas shares from Nippon Steel, partially offset by $150 million loan collection from Techgen, our nonconsolidated energy joint venture that supplies power to our operations in Mexico. Okay. This concludes our prepared remarks for the first quarter. We will now be happy to take your questions. Thanks, and please proceed with the Q&A session. Operator: [Operator Instructions] Our first question comes from Mr. Rodolfo Angele from JPMorgan. Rodolfo De Angele: Okay. So I wanted to just hear your thoughts on 2 aspects that I think are relevant for Ternium's future performance. So first, there's been a lot of discussion on USMCA. So if you could share your thoughts on what happens there and what it means in terms of different scenarios for the company's performance? And I also wanted to hear from you a little bit about the expectations for the slab market in terms of pricing outlook for the [ remainder ] of the year, especially. And that's all. Maximo Vedoya: Thank you, Rodolfo. Let me start with the USMCA question. And as you know, there have been a lot of discussion and talks about USMCA. Look, I believe that there will be a trade -- a deal between U.S. and Mexico. And as you know, the U.S. administration through the USTR and the Mexican government through the Ministry -- or Secretary of Economy holding meetings. There is a formal meeting on the 25 of May, which is going to start formally the revision -- or the discussions of the USMCA. Most of that discussions are probably going to be on discussing mainly stricter rule of origin and some other issues that have [ arisen ]. And I think my thoughts on this is that this is going to take some time. So I am positive, there is going to be an agreement. But I don't know exactly the timeline, probably won't be by the 1st of July and probably would get most of this year. So this is, I mean, the -- my thoughts of what is happening in the USMCA. There's also some discussions going on, on the Section 232. As you know, I don't think -- my thoughts is, and I always said, there is no -- there's incomparability between Section 232 and USMCA. It doesn't make sense, makes Mexico subject to 232 in steel as the U.S. has a steel trade surplus -- a very big steel trade surplus with Mexico. I know the Mexican administration has also stated that there is a priority while the USMCA negotiate that there has to be a relief in steel and automotive Section 232. And I know they are discussing this during the following weeks. Nevertheless, I think it's important that the Mexican administration, as I said a little bit in my remarks, Rodolfo, has been very proactive in launching initiatives to strengthen the steel consumption in Mexico. While all this is going on, the Plan Mexico, the target measures against unfair competition, the imposition of tariffs for countries that don't have trade agreement with Mexico, all this -- I think it's a very active way of the Mexican government to attack the problems of the Mexican economy, while these 2 things are negotiated. So in the end, I think USMCA, as I said, is going to be renewed probably with much tougher rule of origin, which I think is a very good thing. But I'm not that certain on the timing. Probably the timing -- it takes a little bit more longer. So I hope with this large answer, I did answer your question, Rodolfo. Rodolfo De Angele: Yes, you did. Maximo Vedoya: The slab market, what did you refer with the slab market? Rodolfo De Angele: It's just a market that -- I think it's more unique overall in terms of how pricing dynamics work. So I just wanted to hear your thoughts on what do you see, especially on pricing, what do you expect for the coming quarters? Maximo Vedoya: Prices, as it has been in most of steel products, has been increasing recently. Clearly, the increase in fuel increases the logistics for slabs. And also, there has been some increase in iron ore and in other raw materials, which have made the slab market a little bit more expensive. I mean, from all our production -- our buying of slab is not as big as it used to be because most of the slabs come from our Ternium Brazil facility. But nevertheless, we are buying in the market, and we are seeing some increase in that. It's compensated probably with the increase in prices in finishing products also. Operator: Our next question comes from Mrs. Timna Tanners from Wells Fargo Securities. Timna Tanners: So I wanted to ask, if I could, about a few things. One is to follow up on the USMCA discussions. The U.S. government is more interested in granting relief on tariffs if there is a construction of production in the U.S. So just wondering if you would expand your U.S. presence. Also wondering along those same lines about -- hearing about a Mexican dumping case against U.S. galvanized imports. If you could address those? Maximo Vedoya: Timna, we are not thinking in making some production or increased production in the U.S. now. We don't have that as a plan today. And second, there is a dumping case against cold rolling products. There's no dumping case against galvanized in Mexico, at least in the U.S. There is a dumping case in galvanized against Vietnam and I think other countries. Timna Tanners: Okay. I heard that Mexico was working on one against the U.S. I thought that could be positive for your operations. So we'll stay tuned there. Second, can you expand a bit more on the mention of electrical steel -- sorry, EAF capabilities to make exposed automotive and remind us what might be the time frame for doing that? Maximo Vedoya: Yes, for sure. I mean, as you probably remember, the steel shop, it's going to start the ramp-up in the last quarter of -- between the last quarter of this year and early next year. As you know, the operation, it's -- I mean, the facility is huge. I hope all of you can one day visit it because it's worth visiting the facility. So the ramp-up facility -- the ramp-up curve should take at least all 2027. In the meantime, during all this ramp-up, we are going to work with the automotive customers to certify our products, certification process for all automotive products. Not only the exposed material, but also all the other parts of the car need certification. But we are working very close with all of them because they are very eager to accelerate the certification process. And so, we are working already with them on how to accelerate the certification process as much as possible. We have recently increased the capacity of our Ternium Lab in Pesqueria, which we are working -- certifying all the lab equipment, so we can certify part of the process they need in that site. And I mean, the capacity that this EAF is going to have to have, the capacity of producing exposed material in a sustainable way and in a continuous way is going to be unique because of the process we are doing and all the patents we are developing, especially to decrease all the nitrogen that the EAFs usually have. So this is a unique process that we are developing with our technical people and the supplier of equipment that is Tenova, some sister company of us. So I mean, again, the timing should be around next year, probably by the third and fourth quarter of next year, that we are going to supply in a sustainable way to the automotive industry. Timna Tanners: So it'll be qualified for 2028 or qualified for 2027? Maximo Vedoya: No. The idea is to qualify everything for 2028. Operator: Our next question comes from Mr. Alfonso Salazar from Scotiabank. Alfonso Salazar: A couple of questions from my end. The first one is regarding the outlook in Argentina. I want to see if you can give us more color on what's going on and what are your expectations for future demand. Also trying to understand better what's the situation regarding imports. It seems to be more problematic than in the past. And also exports from Argentina to other Latin American countries, what is the outlook there because of the same thing, imports from -- to other countries from Asia? The second question is, some comments on the decarbonization trends in Latin America, it seems that -- we always knew that it was going to take longer than Europe. But any comment on what is the outlook there as well, these trends of decarbonization and green steel? Maximo Vedoya: Yes. Thank you, Alfonso. So outlook in Argentina, I mean, in the short term, shipments in the second quarter are going to increase because, as you know, the first quarter in Argentina is always a seasonably low quarter. January and February usually are holidays in Argentina. So the demand is quite -- then further down the road, I think, some of the sectors present a good opportunity, mining, oil and gas, and agriculture. They are compensated by others like mechanical goods and like electrical and white goods, sorry. That demand is not very good in the final goods. So it's going to be a little bit better, but we don't expect a huge growth compared to 2025. Imports, although there have been a lot of talks about imports, we are not seeing imports in our products. We have seen some imports in the value chains, but these are stable today. I think the problem in our value chains is that the demand or the consumption is not very good. So that's the situation we have in Argentina. Decarbonization in Latin America, [ you're seeing ] the path is slower than in Europe. I think the pace in Europe has also decreased a lot. I mean, there's a lot of projects that have been announced in Europe that today are not going through, and they continue building up in blast furnace. In Latin America, I can say 2 things. I think one, there is increasing -- in Mexico, where you have the opportunity to change from coal to natural gas. So Mexico will continue on a path of having probably the lowest steel production emissions per ton of production of probably the world. And in Brazil, there's more difficulty to change blast furnace. So the decarbonization there is going to go through -- by small decreases by efficiency, but still working with blast furnace. Alfonso Salazar: And the outlook for other Latin American countries, demand in other countries that you source from Argentina? Maximo Vedoya: No. The regional countries, I mean, usually, they don't have a huge impact in the shipments. We continue to ship to Uruguay, Paraguay. Those are the countries that we ship from Argentina. But the consumption there is marginal. So it's not going to have a huge impact on our shipments. Operator: Our next question comes from Mr. Marcio Farid from Goldman Sachs. Marcio Farid Filho: Obviously, another follow-up on USMCA and Section 232. I think what's changed maybe this time is that obviously, Mexico has put some import barriers to steel coming into Mexico to try and reduce triangulation as well or rerouting. And I'm just wondering, right, once -- assuming Section 232 to Mexico is either removed or reduced, do you think the competitive environment would be different versus where we were a few years ago when we did not have those import barriers? And I remember well, I think in Mexico, import is about 40% of all the steel that you need. So just wondering if you can think about a structural change in terms of the competitive environment between North America, Mexico and the U.S. And second point, demand was very weak in Mexico last year. I think it was down 10%. Part of the reason was, as you mentioned, destocking, but also weak activity as companies wait for better visibility on their relationship with the U.S. You mentioned restocking helped -- has been helping pricing. I'm just wondering if you're seeing demand or activity also recovering or we need to see a final agreement with the U.S. for investments to really resume in Mexico. Those are my questions. Maximo Vedoya: Thank you, Marcio. Yes, I mean, the first question about the triangulation and the efforts that the Mexican administration is doing to control this, I think there is already a structural change. I think the Mexican administration, way before Trump was elected and all this discussion began, was very focused on increasing the value-added content of all what is produced in Mexico. I mean, Mexico was a huge exporter, but the value added of those products, the regional content of those products were not very high. The Plan Mexico, which President Sheinbaum already announced in the campaign, in her campaign, was a plan for doing exactly this, for changing this dynamic. So all the things that the Mexican administration is doing, as you mentioned, are a way of decreasing the dependency of Asian products, especially in those products that Mexico or the region is able to produce. The clear example of that is steel. So I think there is already a structural change. And probably this is going to be even better once the 232, as you said, is reduced or removed from the site between Mexico and the U.S. So clearly, you are correct in your assessment. There is a demand -- regarding the second question, Marcio, there is a demand increase in Mexico. It's not as high. We are -- well, World Steel has just [ released ] that the demand in Mexico is going to grow around 4% in the year. Considering that the demand decreased by 10%, as you said, in 2025, it's not a huge increase, but it is an increase, and we are seeing some recovery in demand. I expect that this is going to be higher once the USMCA -- or where the USMCA is going is more clear. We are seeing this increase at least in a small space, but we are seeing it today. I hope that answered the question, Marcio. Marcio Farid Filho: Yes, for sure. Operator: Our next question comes from Mr. Rafael Barcellos by Bradesco BBI. Rafael Barcellos: So first question, last week, the Mexican government signed an agreement, which I believe they called as an agreement for the promotion of the Mexican steel industry, right? And so, I just wanted to understand, I mean, when do you expect that these measures will finally translate into incremental demand for the country? And what else you think the government can promote to incentivize the sector in the short term? And as a second question, in your outlook, you mentioned a bit of the cost pressure that we have seen for all industries, and I understand that steel is not an exception. But if you can elaborate a bit more on what we can expect for cost in the third Q, for example, it could be helpful. Maximo Vedoya: Thank you, Rafael. Well, the agreement in Mexico, as I said, is an agreement between the government and the steel industry of Mexico to commit that most -- that all of the government use of steel is used -- Mexican steel is used in those infrastructure -- main infrastructure. I think it's very important because there was already a commitment to use Mexican steel. But in some cases, especially all this new infrastructure that is coming by Pemex, by CFE, that is the electricity company, that our investment -- joint investment between public and private sectors, this is going to be -- it's going to be an impact in the demand of steel, especially with all the investment in gas lines, in renewable energy, solar and wind. It has a huge consumption of steel. So it is important in that sense. I don't expect the investments to start in the next quarter or the following. But I think that by year-end, all this effort that the government is doing will have an impact in demand. Too early to say how much, but it's going to have an impact. The second question, sorry? Pablo Brizzio: Cost. Maximo Vedoya: The cost. Well, I mean, it's going to be an impact in cost. But for Ternium, it's not going to be a huge impact. The big impact is going to be in logistics and import of some slabs and some logistic costs in Brazil and probably in Argentina. But it's -- probably, that is going to compensate, as we said in the outlook, by also the price increases. I think that the real risk, let me say, of the conflict in the Middle East is that if it's not resolved quickly, it could cost more a recession. So we are thinking that, that's the real risk for us. We see a little bit increase in cost, but again, more than compensated by the increase the prices of steel are having. Rafael Barcellos: As a follow-up, sorry, can you just elaborate on what you're seeing as for cost trends in the third Q? And on the price side, I understand that prices are outpacing the cost increase. But can you just help us understand, in your view, what is the main driver for this recent good price momentum that we are seeing in Mexico? Maximo Vedoya: Well, the good momentum, I think it's everywhere. You see, in Europe, prices increasing. You see in Brazil. You even see, in China, prices increasing. So I think part of that is motivated by the increase of cost, which is bigger than increase in Southeast Asia and is bigger in Europe than it is in the Americas. So I think that's the motivation, Rafael. Operator: Our next question comes from Mr. Caio Ribeiro from Bank of America. Caio Ribeiro: So I have 2 questions linked to your investments at Pesqueria. So first off, as you complete your upstream investments this year, what are some of the investment avenues that you're contemplating right now? Where does the MUSA expansion fit in within your list of priorities? And then, secondly, assuming that you don't greenlight another investment right away or a large investment like the Pesqueria upstream, downstream investments that you've done in the past years, those CapEx figures, they should drop considerably versus your recent run rate, which, together with that earnings increase that you get from your investments, should drive significantly higher free cash flow generation in the coming years, right? So with that in mind, just wondering how you think about dividend payments going forward? Is there room in your view to boost those to cover a larger part of that positive free cash flow generation that you should have in the coming years? Those are my questions. Maximo Vedoya: Thank you, Caio. Well, yes, the upstream investment, as you know, will -- as I said before, we will start the ramp-up curve by the end of the year or early next year. But I mean, we are still -- but it's still a long way to go. Today, the big investment that, as you say, we are analyzing is the expansion of MUSA. Usiminas has continued to analyze the different alternatives we have regarding CapEx and the cost of production and the material that we can take on each one of these alternatives. And by the end of the year or early next year, we have to take a decision -- or we will have a decision on where to go on that. Those are so far the investments we are considering. I mean, we are not seeing yet a necessity or, I mean, the willingness to make another large investment so close as to bring in heavier project online. So yes, CapEx is going to decrease. As you remember, 2025, we have $2.5 billion of CapEx. This year, it's going to be lower than that -- much lower than that. Probably in 2027, it's going to be even lower, around $1.2 billion or $1 billion. So yes -- and I mean, regarding the dividend, if the numbers improve and we have generation, as you know, we have a track record that the dividend -- our dividend has a very good yield, although we decreased a little bit the dividend -- or the Board decided to decrease a little bit the dividend because of the uncertainty, which I completely agree. Still, the yield dividend with the price of Ternium's [ ADS ] today, it's around 5%. So we will probably continue with this policy of taking a good dividend. Operator: Our next question comes from Mr. Caio Greiner by UBS. Caio Greiner: Two questions. The first one on Brazil. I wanted to hear your thoughts on the strategy that the company has following the recent antidumping duties implementation for the operations that you have there, especially at Usiminas. I wanted to know if you're going to favor, over the next few quarters and maybe even years, higher prices, higher profitability, value over volume, somewhat of what we saw during the first quarter? Or if the strategy is going to be more in the sense of gaining market share, expanding volumes? And if that's the case, I wanted to know how much do you see in terms of volume gain potential over the next, again, quarters and years, and if you believe that you have enough capacity for this amount of volumes that you could increase going forward? And if you don't, what will be the strategy there? Relighting blast furnace, could it be on the pipeline? Or is that more in the sense of just purchasing more shares and raising capacity utilization? And the second one, just a follow-up to the previous capital allocation question. Maximo, you mentioned that you don't have plans of doing another large CapEx project while you still have the MUSA investment. But could you still maybe -- could it be on the pipeline to, again, perform corporate simplification measures, more bottom-up or in-house initiatives like the Usiminas stake that you acquired during the first quarter or anything related to Argentina? That would be very, very helpful. Maximo Vedoya: Thank you, Caio. The first one, I mean, if we have to choose between the 2 strategies you said, probably it's the first one. And we don't want to produce more in order to sell something that the market doesn't need. And so, we are going to start to -- we will always prefer the first strategy. It's clear that with all the measures that the Brazilian government is taking -- as I said, Brazil is kind of a little bit late. I mean, Mexico, U.S., Canada, Europe, even India are taking measures a little bit more quickly than Brazil. But nevertheless, the trade measures in Brazil, it's a very good first step in the very right direction. So if unfair trade comes down, probably it will increase also volume. But we are very -- going to be very cautious. Regarding our capital allocation, Pablo? Pablo Brizzio: Thanks for letting me answer one question. So yes, regarding capital allocation and following on what Maximo said before, we are in the middle of a huge capital allocation structure, taking into consideration the rest of the capital expenditure in the facility in Mexico with the dividend payment and with the capital -- working capital increase because of the increasing volumes and decreasing prices that we saw. This year, as you know, we will be moving from a net cash position to a net debt position. And next year, you are totally right that we will be reducing the level of CapEx, but we will be sustaining probably the other outflows of capital. This could lead to an increase on our position, our cash position, which is not bad and will prepare us for any opportunity that may appear in the market. Among these opportunities, you know that we have talked a lot in the past and we have worked a lot in order to simplify our corporate structure, and this is on our list of priorities. And if there is an opportunity to move in that direction, clearly something that we need to fully analyze and to carefully analyze because it's not that you have an opportunity and you can take it immediately. You need to do all the calculations in order to see the best way to proceed. With that, as Maximo already explained, continuing with the dividend is a policy that we have. And if there are opportunities to improve that, if the numbers reflect it, it's something that we will consider. Additionally to that, we take -- if you want some rest -- our analyzing the next CapEx plan -- internal CapEx plan because the effort that we have to put in order to take this project to work is very significant. And as Maximo explained, we need to go through the ramp-up to certification. So this takes some time. That's why usually when we have this big CapEx plan, then we take at least 1 or 2 years to design the new ones. But as also was explained here, we still believe that Ternium has opportunities to grow in all our markets, especially in Mexico and in Brazil. So there will be opportunities for us to analyze, but it will take some time for us to analyze them and present it to you. Caio Greiner: Maybe just a follow-up to the first -- actually to the second one as well. So in terms of volume gains in Brazil, Maximo, you mentioned that if the unfair trade comes down, you should be able to increase volumes as well. Do you see the current capacity that you have in Brazil as enough for the volume gain that you could have for an expected market share gain? Or could you have -- think about an alternative of, again, relighting one of your blast furnaces there, think about maybe relighting or revamping Cubatao? Maximo Vedoya: Yes, Caio, I mean, today, we have spare capacity in Brazil, especially in the Cubatao plant. As you know, it's a plant that is not working at full capacity. And we will also have slabs available from our Ternium facility in Rio once -- we don't have to ship as much slabs to Ternium Mexico because of the new mill coming -- the upstream project coming online. So I mean, yes, we have capacity in Brazil to grow. And I think it will be enough, I mean, if imports go down in Brazil. Operator: That concludes the question-and-answer session. I would like to turn it back over to Mr. Maximo Vedoya for closing remarks. Please, Mr. Maximo, you may proceed. Maximo Vedoya: Well, thank you very much all for joining us. We welcome, as usual, any feedback or additional questions that you have. In the meantime, have a great day. Bye. Operator: Ternium's conference call has now concluded. Thank you for attending today's presentation. You may now disconnect, and have a good day.
Operator: Good morning, ladies and gentlemen, and welcome to the Flotek Industries, Inc. first quarter 2026 earnings conference call. At this time, all lines are in listen-only mode. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Wednesday, May 6, 2026. I would now like to turn the conference over to Mike Critelli. Please go ahead. Mike Critelli: Thank you, and good morning. We are thrilled to have you with us for Flotek Industries, Inc.’s first quarter 2026 earnings conference call. Today, I am joined by Ryan Ezell, chief executive officer, and Bond Clement, chief financial officer. We will begin with prepared remarks on our operations and financial performance followed by Q&A. Yesterday, we released our first quarter 2026 results, full-year 2026 guidance, and an updated investor presentation, all available on our investor relations website. This call is being webcast with a replay available shortly afterward. Please note that today’s comments may include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from our projections. For a full discussion of risk factors, please review our earnings release and most recent SEC filings. Please also refer to the reconciliations in our earnings release and investor presentation for non-GAAP measures. With that, I will turn the call over to our CEO, Ryan Ezell. Ryan Ezell: Thank you, Mike, and good morning to everyone. We appreciate your interest in Flotek Industries, Inc. and your participation today as we review our first quarter 2026 operational and financial results. In 2026, Flotek further positioned its industrialized pivot and transformational growth storyline through the continued execution of its corporate strategy. Driven by the power convergence of innovative real-time data and chemistry solutions, as shown on slide 3, Flotek has laid the foundation for a data-driven growth trajectory built on diverse recurring revenue, high-margin services, and proprietary technologies that create value for our customers and improve returns for our shareholders. The strategic transition of the company into a data-as-a-service business model continues to gain momentum while expanding the total addressable market for the company. As a result, Flotek’s data analytics segment grew exponentially while our differentiated chemistry segment outpaced the market in a challenging environment through an unwavering commitment to safety, service quality, innovation, and total value creation. Now, before I discuss the company’s vantage point on the evolving geopolitical and macroeconomic dynamics within the sector, I would like to touch on some key highlights for the first quarter referenced on slide 4 that Bond will discuss later in the call. Company total revenue grew 27% compared to 2025, highlighted by 295% growth in data analytics, which was the highest quarterly revenue for data analytics in the company’s history. Industry technologies revenue increased 13% despite three-year lows in completions activity in North America, which was also the highest quarterly revenue in over seven years. Company gross profit climbed 25% versus 2025. It is impactful to note that data analytics accounted for 50% of the company’s gross profit versus 8% in the prior-year quarter, marking a major milestone in Flotek’s transformation. Total company adjusted EBITDA grew 44% year over year. Flotek’s XSpec Analyzer was named Product of the Year at the 2026 Analyzer Technology Conference. Finally, 2026 guidance builds upon a multiyear trend of revenue and profitability growth as the company executes on its strategic initiatives to provide long-term resiliency and profitability as shown on slide 5. Most importantly, these results were achieved with zero lost-time incidents in the field operations. I want to thank all of our employees for their hard work and commitment to safety and service quality in achieving these outstanding results. Now turning to the larger picture for the energy and infrastructure sector, we share the viewpoint that the ongoing situation in Iran will have impactful and potentially long-term implications on global supply and energy security that will demand action. The structural disruption in the Middle East has catalyzed a fundamental shift in supply-side dynamics, establishing a higher baseline for energy security and recalibrating the risk profile for regional supply. As cumulative production deficits and reductions in strategic reserves are trending towards 1 billion barrels, we expect increased investment in localized oil and gas developments, while geographies that do not possess resources look to rapidly diversify energy security exposure. All of these factors point towards a fundamentally tighter energy market than what existed just 60 days ago and support a stronger commodity pricing environment for increased upstream activities. Layering in the expanding power demand driven by AI, data centers, and industrial reshoring, combined with the reliability issues of an aging transmission infrastructure, the expectations for tailwinds within the energy sector further strengthen. North America is already showing early indicators of recovery. Completions activity white space has all but disappeared for 2026, with spot work interest increasing throughout the remainder of the year. Our legacy pressure pumping customers continue to capitalize on the portfolio diversification opportunity provided by the demand for remote power generation. Flotek is poised to support emerging customers with products and services that help protect their assets while optimizing their operational performance and fuel efficiency. With multiyear waiting lists for turbines and reciprocating engines, protecting these capital-intensive investments is critical along with enabling reliability standards that exceed the greater than 99% uptime requirements. Transitioning from the macro view, let us dive into the details starting with slide 9. I want to spotlight the remarkable progress in our data analytics segment. We saw service revenues increase 785% in 2026 versus the first quarter of 2025, driving gross profit margin to 75% versus 38% in the prior-year period. This strong growth is powered by our flagship upstream applications Power Services and Digital Valuation, both of which are generating significant contracted wins and a robust recurring revenue backlog shown on slide 10. Highlighting these wins are: first, 21 Power Services measurement units added since closing our original PowerTech deal. These are in addition to the primary long-term PowerTech contract assets. There is a 27-unit order from a large OFS customer with an expanding distributed power fleet to monitor field gas for power generation and digital evaluation of fuel quality and consumption. A 15-unit order from a major midstream customer for real-time crude and condensate quality measurement. And also a deployment of a smart skid rental to a major IOC to optimize gas quality with real-time blending of field gas and CNG, which is one of the first applications of its kind. We also deployed rental assets to support our large utility recovery power contract in Montana. This momentum has accelerated with these new contracts, expanding our expected backlog for the remainder of 2026 to $34.1 million and our three-year expected backlog to more than $90 million. Power Services led this growth, further reinforcing our shift towards high-margin recurring revenue streams. Flotek’s Power Services has evolved from a novel analytical approach into a transformative platform for the energy infrastructure sector that we call PowerTech. What began as advanced analytics has grown into a comprehensive end-to-end fuel management platform, redefining performance standards and operations within the sector as shown on slide 11. Our expanding portfolio of patents and field-proven use cases position Flotek as a leader across the natural gas value chain. When considering the velocity of our measurement, we deliver unmatched real-time fuel monitoring, conditioning, blending, and engine control to optimize performance and safety for behind-the-meter distributed power operations. The success of Flotek’s Power Services applications is expanding rapidly as we expect to have proprietary real-time analyzers on more than 50% of the currently active North American e-frac and natural gas-powered fleets by year-end. Additionally, on March 3, 2026, Flotek announced its first contract within the utilities infrastructure sector, seen on slide 12. Leveraging our patented PowerTech platform, Flotek will partner with leading distributed power providers to coordinate installation of up to 50 megawatts of state-of-the-art power generation equipment, including advanced gas distribution and smart conditioning systems, to support critical federal disaster recovery initiatives. We are pleased to announce that we have initiated phase one of the project, which includes the mobilization of 12 megawatts of distributed power combined with our proprietary gas conditioning and distribution skids to the in-field staging area while the site prep work is completed. First power is expected in 2026. Now let us transition to slide 13 and dive into our second upstream application, digital valuation. This groundbreaking use case sets a new standard in the oil and gas industry, delivering unprecedented transparency and minimizing enterprise risk for producing wells like never before through real-time digital twinning of the custody transfer process. In 2025, Flotek reported a historic milestone in natural gas measurement. The XSpec spectrometer became the first optical instrument to achieve the stringent reproducibility and repeatability requirements of the oil and gas industry standard for custody transfer, GPA 2172, also known as API 14.5. We believe the XSpec’s speed, accuracy, durability, and qualification under the rigorous measurement standards outlined in GPA 2172 will provide a significant advantage in discussions with prospective customers as we aggressively expand its manufacture and field deployment. In March 2026, the XSpec Analyzer was named Product of the Year at the 2026 Analyzer Technology Conference, further exemplifying its differentiated capabilities. Since completing our digital valuation pilot program in 2025, we exited the year at 25 active units deployed. Furthermore, 2026 is off to a great start with that number more than doubling to 57 units currently deployed or contracted for delivery. It is clear that execution of our transformational strategy to grow the data analytics segment with upstream applications is gaining traction. What is most important is what it means for our stakeholders and investors. First, our DAS-driven strategy ensures predictable, recurring revenue and cash flow, delivering stability and long-term value. Secondly, our proprietary data technologies and superior measurement accuracy enable velocity and decision control that establish a high barrier to entry, secure client loyalty, and support our value-based service model. Finally, long-term, high-margin subscriptions position Flotek for sustained growth and margin expansion, driving significant shareholder value over time. Lastly, let us move to our chemistry technology segment, which continues to deliver robust performance driven by the differentiation of our Prescriptive Chemistry Management services and our expanding international presence. Slide 15 highlights the resilient performance of our 13% increase in total revenue for 2026 compared to 2025 despite a 21% decline in the average North American frac fleet count over the same period according to Primary Vision data. As mentioned earlier, we believe we have reached the trough of the cycle and see encouraging indicators for cautious optimism in the second quarter of 2026 and beyond. We continue to closely monitor operational and supply chain risks to our international operations amid the ongoing conflicts in the Eastern Hemisphere. It is evident that our chemistry team has executed our strategy flawlessly. As we move into the second quarter of 2026 and beyond, the opportunities leveraging the convergence of Prescriptive Chemistry Management and data services move to the forefront through high-margin services that improve operator ROI. These advanced services include smart chem-add units, real-time flowback monitoring, and implementation of prescriptive geological targeting. Looking ahead, I am more confident than ever in Flotek’s momentum and our ability to drive sustained, profitable growth as we execute our transformative corporate strategy. We are firmly positioning Flotek as a high-growth technology leader in the energy and infrastructure sectors, accelerating innovation through the powerful integration of real-time data analytics and advanced chemistry solutions that are tailored to precisely meet our customers’ evolving needs. Now I will turn the call over to Bond to provide key financial highlights. Thanks, everyone, and good morning. Bond Clement: Our first quarter results build upon a record-setting 2025. We issued our initial guidance for 2026 that points toward continued strong growth in revenue and adjusted EBITDA. Quarterly highlights included achieving our highest quarter of total revenue since 2017, driven by the largest quarterly contribution from ProFrac in the more than four-year history of our supply agreement, and the second consecutive quarter in which our data analytics segment surpassed $10 million in revenue. Total revenues for the quarter increased 27% year over year and 4% sequentially, driven by continued strength in related-party revenue, which increased $21 million, or approximately 70%, compared to the year-ago quarter. Of that increase, roughly $14 million was related to chemistry revenue, while approximately $97 million was attributable to the PowerTech lease agreement. External customer chemistry revenue declined 33% year over year but was flat on a sequential basis, which we view as an encouraging sign. As Ryan touched upon earlier, we expect external chemistry revenue to increase in the second quarter amid improving customer engagement, reinforcing our belief that completion activity levels are stabilizing and may be in the early stages of recovery as we move through the year. Data analytics delivered another strong quarter with service revenue increasing significantly compared to the prior-year period. As highlighted on slide 9, service revenue accounted for 82% of data analytics revenue this quarter, up sharply from the year-ago quarter, helping to drive first-quarter data analytics gross profit margin to 75%, a 200 basis point improvement sequentially. Data analytics segment revenue represented 15% of total company revenue in the first quarter, significantly up from 5% in the year-ago quarter. As highlighted in the earnings release, we began mobilizing equipment related to our disaster recovery Power Services contract. As a result of this incremental revenue, we are forecasting sequential growth in data analytics during the second quarter. As noted on slide 12, we currently expect 2026 revenues from this contract to total approximately $12 million before consideration of the contract extension. Gross profit increased 25% as compared to the year-ago quarter. First-quarter gross profit as a percentage of revenue totaled 22%, which equated with the year-ago quarter despite the nearly $5 million reduction in the order shortfall penalty as compared to the first quarter of last year. SG&A expenses increased 10% year over year, primarily driven by higher non-cash stock-based compensation related to the timing of our long-term incentive grants. For context, our 2026 grants were issued in the first quarter, whereas the 2025 grants were made in the fourth quarter. On a sequential basis, SG&A declined 9%, reflecting lower legal and professional fees. As revenue continued to scale this quarter, we saw meaningful leverage in our G&A expenses. Excluding stock compensation, G&A declined to 8.7% of revenue, down from 10.5% in the year-ago quarter. That nearly 200 basis point improvement below the gross profit line reflects the efficiency of our cost structure and was a key driver in the year-over-year expansion in adjusted EBITDA margin in the first quarter of this year. Net income for the quarter was $4.7 million, or $0.12 per share, compared to $5.4 million, or $0.17 per share, in the prior-year quarter. The year-over-year decline was primarily driven by higher depreciation and interest expense related to the PowerTech acquisition that closed during 2025, as well as a higher effective tax rate. For the first quarter, our effective tax rate was approximately 26% compared to only 1% in the year-ago period, reflecting adjustments that we previously discussed related to our valuation allowance on deferred tax assets. As an update to our prior expectations, we now anticipate our effective tax rate to be in the range of 23% to 26% going forward, the vast majority of which will be non-cash, and that incorporates estimated state taxes on top of the 21% federal rate. Per-share metrics for 2026 as compared to the year-ago quarter also included a higher share count as a result of the 6 million shares issued in conjunction with the PowerTech acquisition in the second quarter of last year. The earnings release yesterday included our guidance for 2026. As shown on slide 4, we are estimating total revenue in a range of $270 million to $290 million and adjusted EBITDA in a range of $36 million to $41 million. The midpoints of these metrics imply growth of 18% and 17%, respectively, as compared to 2025. As a reminder, our adjusted EBITDA numbers presented in the release and the presentation, including our guidance, do not add back non-cash amortization of contract assets, which totaled $2.2 million in the first quarter and are expected to total $6.2 million for the remainder of 2026. On the balance sheet, you may note a new line item called “equipment credit—related party.” As part of the settlement of the 2025 order shortfall penalty, we agreed to receive a $12.5 million allowance from which we can place orders for construction of Power Services equipment. We have already placed POs for approximately $10 million of additional distribution and conditioning assets that we expect to have in service throughout 2026. We expect to fully utilize the equipment credit in 2026, which will represent the bulk of our estimated capital expenditures budget. We believe 2026 is shaping up to be a significant year for Flotek. Importantly, we have been able to deliver consistent growth metrics while maintaining a disciplined balance sheet and low leverage. As shown on slide 16, using the midpoint of our 2026 adjusted EBITDA guidance, our leverage ratio is approximately 1.0x based on net debt outstanding as of March 31. When you factor in the estimated $8.4 million in 2026 non-cash amortization of contract assets, we are less than 1.0x levered. We believe that this ultimately positions us to continue investing in growth while maintaining financial flexibility. With that, I will turn it back to Ryan for closing prepared remarks. Ryan Ezell: Thanks, Bond. Our first quarter 2026 results extend our multiyear track record of consistent improvement as we continue transforming Flotek Industries, Inc. into a data-driven technology leader. The data analytics segment delivered strong growth, highlighted by triple-digit increases in service revenue, expanding recurring revenue streams, and a robust multiyear backlog. Together with our resilient Prescriptive Chemistry Management services, Flotek is well positioned to gain additional market share and drive further top- and bottom-line improvement with substantial upside opportunities in our data-driven services. We remain committed to shaping the industry’s digital and sustainable future by leveraging chemistry as our common value creation platform. With our proven execution, expanding high-margin capabilities, and clear pathway to scaled growth, Flotek is poised for the next phase of value creation for our investors. We will now open the call for questions. Operator: Thank you. Ladies and gentlemen, to ask a question, please press star then 1. [inaudible] One moment, please. We will begin the Q&A. Operator: Our first question comes from Jeffrey Scott Grampp. Your line is open. Jeffrey Scott Grampp: Hey, good morning, guys. Wanted to start first, Ryan. The data point to get to 50% of your units on e-frac is impressive. As I recall, that was how things initially started with the ProFrac relationship and the value you brought there and then obviously scaling that to a much larger deployment with them. Is that kind of the goal or outcome on some of these deployments, or where are we in terms of traction or state of conversations to potentially expand the market opportunity with some of these customers? Ryan Ezell: Yeah, Jeff, that is a great question. I will try to give you some tangible color on our approach. In our Power Services business, we have taken a very methodical approach. Our background in monitoring hydrocarbon flow through our data analytics group has over 15 years of experience. We evaluated all the different basins, hydrocarbon and gas quality, and geography to look at where frac fleets are going to be, where potential data center locations will be, and other power generation sites, and we built our equipment and measurement techniques for those specific locations. We executed a pursuit plan of proving out our measurement, then moving into control, and then finally the distribution piece. What you are seeing now is we targeted our primary experienced customer base around e-frac and natural gas power. Most of these customers are now aggressively moving to other behind-the-meter distributed power platforms. Looking at our original work that started back in 2022 with ProFrac and the continued growth of North America’s e-frac and natural gas fleets, the team has done a great job working with a multitude of clients to get our Varex or XSpec units on location to start measuring gas quality, whether for evaluation and volume or for potential conditioning. That is always the first step in our sales process. We are proud to announce that between currently awarded work and recent POs we have received, by the end of the year we will have an analyzer on location for over 50% of these higher-tech fleets, which is a phenomenal step. We hope that evolves into our ability to further advance their conditioning and optimization, whether reciprocating engines, turbines, or even their natural gas pumping fleets. That is part of our execution of the sales process. Jeffrey Scott Grampp: Got it. Thanks for those details. My follow-up on the utility infrastructure side, appreciate you putting some data on the impact in 2026. Where do you think it potentially builds beyond this phase one and the 12 megawatts you put out? Are there additional phases under consideration, or is that your best guess for steady-state work on that contract? Ryan Ezell: Right now, after our initial assessment, there are two primary sites, which are phase one and phase two. Phase one is moving forward. We have mobilized the first 12 megawatts to location with our proprietary conditioning and distribution equipment and plan to have that site active in the back half of the year. We believe with the success of that project we will initiate phase two, which will probably be an additional 15 to 20 megawatts. The timing on that at best would be the very end of the year, probably more into the 2027 timeframe, given site prep requirements. We do expect this work to continue past just our six-month measurement part of the contract, but we will be conservative until we officially lock that down. We expect this project in the end to be between 25 to 30 megawatts with all of our gas distribution equipment on location. Another point to note, while our primary goals are growing Power Services in oilfield power, we are now seeing our tentacles stretch into other areas around data center growth and other behind-the-meter power generation opportunities. We are seeing line of sight into 200-plus megawatts of power generation and conditioning opportunities coming into the pipeline that we are actively pursuing through the back half of the year and into 2027. The pipeline is continuing to grow. We also have Varex units on two different large turbine gas-fired power plants where we are monitoring fuel quality, ethane percentage in natural gas, and optimizing fuel. A lot of exciting things are happening in Power Services for Flotek, which offer potential upside to our numbers in the back half of the year, particularly rolling into 2027. Operator: Thank you. Our next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead. Rob Brown: Good morning. Congratulations on all the progress. Following up on the 200 megawatt pipeline you discussed, how does the cadence of quotes in that market work, and how does revenue flow through for you as those come into the mix? Ryan Ezell: Our primary goal is around gas conditioning and fuel optimization services. They come in different ways. Traditionally, we are the primary gas conditioning equipment for emergency power startups or peak power support because they are using very raw field gas that could be wet or otherwise out of spec. Often there are power shortages, so we can leverage relationships with current customers to help pass through or greenlight some of those power generation assets. Moving into data centers, those are longer-term plays where we improve fuel efficiency and, depending on geographical location and gas or pipeline quality, we come in heavily. Those tend to be on the longer end of our sales pursuit cycle due to engineering, proving out, gas testing, and sampling. Given we are already into May, those are more likely 2027 revenue-generating opportunities. However, there are opportunities to pull some forward, particularly where power assets are already on location and having gas quality issues. We are being pulled in to fix those problems. Rob Brown: Great. On the 57 units you have deployed or on order, how is the order book pipeline looking for that product? How do you see that building? Ryan Ezell: When we talked a few weeks ago, those numbers have more than doubled on issued POs, contracted deliveries, and field installations. It is not linear. We are seeing double-digit orders of units, we get them installed, and then amplified opportunities follow. We are having a lot of conversations with midstream providers, our main target audience. Once we get solid acceptance, we have two major midstream customers right now who, on any scale purchases, could triple the current active number with a couple of POs. We expect growth in a nonlinear fashion. Our target is roughly 150 units by year-end, which is within striking distance for custody transfer, with potential upside. Operator: Thank you. The next question comes from Gerard J. Sweeney with ROTH Capital. Please go ahead. Gerard J. Sweeney: Thanks for taking my call. On digital analytics, lots of opportunities are starting to emerge. As you look at the playing field, what do you need to solidify some of these orders and get the product out there further? Any choke points? Do you need more investment in sales, or is it more time-oriented and more testing? Ryan Ezell: Breaking down Power Services into phases—measurement, conditioning, then control and distribution—we are making great headway. The majority of measurement POs are already received, and we are manufacturing and deploying analyzers. The next revenue growth step is conditioning. We mentioned our first modified smart blending skid that monitors volumes of CNG to field gas for a flat BTU quality every five seconds—the first of its kind. Once analyzers are on location, adding equipment like that is the next step. As Bond mentioned, we have already issued POs to build out $10 million dedicated to the next generation of conditioning and distribution assets. We expect a big majority online by midyear, then you will see impact and uptake. We are investing at least $12 million into capital assets for conditioning, with potential for more as business cases arise. We have amplified our sales force and have open positions to put more salespeople on the ground. We picked up a couple of large-scale engineering firms involved in data center design-builds that are getting comfortable with our equipment. Lastly, we are in in-depth conversations with OEM engine providers—most are sold out for the next three years and are doubling or tripling capacity. We are far along on the ability to control engines by methane number and Wobbe index. Look for exciting things on that front, which could provide additional upside depending on distribution schedules in the back part of the year. Gerard J. Sweeney: Are those conditioning skids that you are building and expect to be available at midyear all factored into your guidance, or are they layered in as you go through the year into next year? Ryan Ezell: They are layered in conservatively. As they come online, we have objective utilization rates, with room for higher utilization and earlier in-service dates. This is a new frontier for us, and we are getting a better understanding. We lean conservative with opportunities to push asset utilization and returns. We have a positive outlook for the back part of the year. Operator: Thank you. Our next question comes from Donald Crist. Please go ahead. Donald Crist: Hope you all are doing well. Ryan, I wanted to ask about your comment on the U.S. pressure pumping business, either on the third-party side or with ProFrac. What are you seeing out there? We are hearing that a lot more pressure pumping is going to work. Thoughts around that and chemical sales, domestically or through ProFrac? Ryan Ezell: We break the year into first half and second half. A lot of potential items in the first half have now solidified. The majority of the spot-call white space is gone, particularly with our target customers using Tier 4 dual-fuel, direct-drive natural gas, or e-fleets. We are starting to see an uptick. Our expectation is external chemistry customers will continue to strengthen from Q2 onward. Visibility is improving for the back half, with spot work increasing. Availability of upper-tier equipment is almost gone now, which is good for the market. In chemistry, you have seen that play out with our related-party revenues with ProFrac. These fleets have moved into a lot of gas basins where they have strong positioning, and we picked up a lot of chemistry. We expect that to translate to other customers. Our external business was slightly impacted by weather in early Q1 and some normal repair and maintenance cycles, and now businesses are picking up. Importantly, there is a lot of optimism for our frac business in the Middle East. We got through trial stages and expect large deployments of our chemistry to hit the ground this quarter. We are now on two operating fleets and looking to pick up one to two more by the end of the year. You will see a lot of stage work coming from the Middle East, which will bolster our external chemistry revenue mix. Bond Clement: Don, to give you some numbers, when you look at first-quarter external chemistry revenue in 2025 of $22 million, we are obviously down this quarter. We believe by the end of the year we could see those kinds of numbers again on a quarterly basis—getting back to where we were last year—which would be a big growth driver from here. Donald Crist: That was my next question—whether the Middle East impacted the $14 million you generated this year or not. Any comments around that and getting chemicals into the Middle East, including logistics? Ryan Ezell: International business was extremely light in Q1 due to logistics delays. I have been very pleased with our team’s logistics plan. In Q2, we are seeing chemicals get on the ground a few weeks earlier than expected. Our biggest customer there is pleased, and we are seeing a pickup in total stages. Domestically, our chemistry team has done a phenomenal job finding opportunities and growing the business. We are seeing the convergence of our data and chemistry businesses play out, with opportunities to utilize our XSpec units and dual-channel Varex units for flowback control, crude, and gas quality, as well as our advanced real-time chem-add units that use micro-dosing on concentrates. These drive differentiation and significant growth opportunities for chemistry and high-margin data services. Operator: Thank you. Our next question comes from Gaushi Sriharan with Singular Research. Please go ahead. Gaushi Sriharan: Good morning, and thank you for taking my call. On gross margins coming in at about 22%, with data analytics already at 50% of gross profit, as the shortfall penalty mechanism resets through 2026 and data analytics share continues to grow, how should we think about the pace of gross margin expansion? Is a 25% to 27% range realistic by 2026, or are there other offsets we should model? Ryan Ezell: We have continued to see overall gross margin improvement even with reductions in the order shortfall penalty, which is now minimal. The factor that will play the biggest role is how much distributed power revenue runs through the P&L. When we pass through distributed power with one of our big customers, we typically have a minimal markup, which can dilute profitability, for example on our Montana contract. By contrast, our conditioning skids alone can come in at roughly 80% gross margin. Depending on how many additional megawatts move into the back half, it could dilute the consolidated margin. Bond Clement: In the back half, we expect margin expansion, but it is hard to forecast precisely because we also expect a sizable increase in external chemistry revenue, which carries lower margins, while data analytics grows at higher margins. We think 25% by the end of the year is possible, and we are forecasting gross margins to continue to move up. Gaushi Sriharan: Thanks. One more. On the Q1 deck, you flagged EPA flare monitoring enforcement being rolled back. Given that Veracal was generating around $2 million to $2.5 million at around 60% gross margin in 2025, how much of that demand has deteriorated versus what you originally expected? Is that business pivoting toward voluntary or international regulatory frameworks to offset that headwind? Ryan Ezell: There has been some softness domestically. We still have a fleet staying relatively busy, but as a rapid growth mechanism in the U.S., it has slowed. International deployments are picking up. In the U.S., New Mexico and Colorado are advancing utilization even as Texas softens. We are seeing customers move from mobile 14-day test pad use to ongoing operational efficiency and real-time tuning of flares to achieve lower emitter status and operational efficiency targets. That trend is occurring domestically and internationally. Operator: There are no further questions at this time. I will now turn the call back over to Mike Critelli for closing remarks. Mike Critelli: Thank you. Join us at our upcoming investor events. In May, you can catch us at the Louisiana Energy Conference for meetings and an investor presentation. In June, we will be at the Planet MicroCap 2026 conference at the Bellagio in Las Vegas. In August, we will be at EnerCom Denver at the Westin, featuring an investor presentation and one-on-one meetings. For all other events and the latest information, please see the events section of our website. Ryan Ezell: Thanks, everyone, for your time today and your questions. We will speak to you soon. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to Adient's Second Quarter Earnings. [Operator Instructions] I'd like to inform all participants that today's call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Linda Conrad. Thank you. You may begin. Linda Conrad: Thank you, Denise. Good morning, everyone, and thank you for joining us. The press release and presentation slides for the call today have been posted to the Investors section of our website at adient.com. This morning, I'm joined by Jerome Dorlack, Adient's President and Chief Executive Officer; and Mark Oswald, our Executive Vice President and Chief Financial Officer. On today's call, Jerome will provide an update on the business. Mark will then review our second quarter financial results and our outlook for the remainder of our fiscal year. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Jerome and Mark, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. These statements are based on the environment as we see it today, and therefore, involve risks and uncertainties. I would caution you that our actual results could differ materially from these forward-looking statements made on the call. Please refer to Slide 2 of the presentation for our complete safe harbor statement. In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. And with that, it is my pleasure to turn the call over to Jerome. Jerome Dorlack: Thanks, Linda. Good morning, everyone, and thank you for joining us to review our second quarter results. Today, we will focus on the quarter's solid performance and provide an update to our fiscal year 2026 outlook. Overall, Q2 results came in line with our expectations, reflecting typical seasonality in China and some temporary production inefficiencies on a few key programs. Despite that, revenue was up 7% year-over-year, driven largely by FX tailwinds with underlying growth in both the Americas and Asia. Adjusted EBITDA was down modestly year-over-year, reflecting temporary mix, launch costs and customer-driven inefficiencies, partially offset by favorable FX and SG&A. Free cash flow in Q2 reflected the normal seasonality of the second quarter, and we ended the quarter with a cash balance of $831 million and $1.6 billion of liquidity. Given normal cash flow seasonality and the increased geopolitical uncertainty, we paused stock repurchases during the quarter, consistent with our approach last year. Turning to growth. We continue to aggressively pursue new business in all regions. In the Americas, more OEMs are announcing their intention to onshore production in the United States. We are working with our customers to capitalize on these opportunities as their plans materialize. We have also won significant conquest programs in South America and China. And in China, our growth over market remained strong despite the overall production volume challenges in the region. Finally, as we look beyond the quarter to the full year, based on what we know today, we are increasing our guidance modestly for revenue, adjusted EBITDA and free cash flow. Favorable volumes and strong business performance are being muted by $35 million of expected input cost headwinds, which Mark will outline further in his remarks. Turning now to Slide 5. While I just noted that Adient is raising guidance slightly for fiscal year 2026, we acknowledge that the overall macro environment remains volatile. The ongoing geopolitical conflicts, elevated energy and commodity costs, trade policy uncertainty and shifting consumer sentiment continue to influence the industry. While nobody can predict what will happen for the remainder of the fiscal year, what differentiates Adient in this environment is our operating model. We combine strong commercial discipline and pricing mechanisms with exceptional operational execution, flexing labor, controlling costs and launching flawlessly, supported by a strong balance sheet with ample liquidity. That allows us to execute at a high level even amid production volatility and supply chain challenges. Despite these external headwinds, our year-to-date results reinforce our ability to execute. We continue to drive positive business performance despite temporary disruptions and customer-driven inefficiencies. We continue to outpace the market in China as expected. And we maintain margin discipline across regions, while preserving a strong and flexible capital structure. This is how we manage what's within our control and why we continue to deliver on our commitments and maximize long-term shareholder value. Before I get into the regional update, I want to recognize our global team's exceptional performance year-to-date. We have received over 60 awards in the last 2 quarters, comprised of recognition from our customers, industry organizations and independent quality assessors across the globe, a testament to our operational excellence and the trust our customers place in Adient. In addition to these noteworthy accomplishments, Adient continues to be recognized as an employer of choice in the regions we do business, validating our commitment to our people and enabling us to attract and retain top talent worldwide, which strengthens our ability to execute. These recognitions validate that our strategy is working. We are winning with customers, investing in our people and delivering the consistent quality that builds long-term partnerships and shareholder value. Now, let's talk a bit more about the regions on Slide 6. While our business is global, each of our regional businesses is impacted by unique market dynamics, and each is facing its own set of opportunities and challenges. In the Americas, we are navigating a complex and dynamic environment, driven in part by tariff policies, which are manageable at current rates but continue to be fluid. Onshoring and growth remain a key focal point for the Americas team, especially as onshoring momentum continues. In addition, the teams are driving margin improvements through our continuous improvement programs, automation and optimizing our manufacturing footprint. The team is also focused on launch execution for multiple programs, including the Kia Telluride, Rivian R2 and the Toyota RAV4. In EMEA, market uncertainty and overcapacity persist and continue to impact not just Adient, but the overall industry. Our team continues to rise to these challenges. We are pursuing and winning new and replacement business and continue to strengthen our supplier-of-choice status in the region. Operationally, the European team is driving favorable business performance through commercial execution, cost discipline and restructuring actions that more than offset the current volume headwinds, all while successfully executing more than 30 launches so far this year. Turning to Asia. The market dynamics with shorter vehicle development cycles and innovation are a key differentiator. As we will highlight in a few slides, our Asia team continues to commercialize innovation products, which our customers are excited to invest in. Despite industry pressures in China, we continue to outperform the market through launches with local OEMs, which now represent about 70% of our wins. Our world-class JV structure further strengthens our local presence and expands our market. Beyond China, Asia outside of China is also positioned for above-market growth in the second half of this year as new launches ramp. While we do expect some manageable margin compression, the region is expected to remain accretive to Adient's EBITDA and cash generation. While each region is distinct, what ultimately defines Adient is that we operate as one unified company. Across every region, our teams are aligned around the common purpose, serving our customers, supporting our employees and delivering value for our shareholders. We do that through disciplined execution, seamless collaboration across borders, a strong culture of integrity and the ability to adapt quickly as conditions change. Turning to Slide 7. This page highlights how our growth strategy has continued to gain momentum. In the Americas, onshoring and conquest wins continue to drive meaningful volume gains. This quarter, we secured roughly 200,000 incremental units from the Chevrolet Equinox U.S. onshoring and conquest win, along with approximately 180,000 units from Volkswagen conquest programs in South America. These wins reflect the strength of our footprint and our ability to execute reliably as customers regionalize production. That momentum is showing up in our forward book as well. FY '27 booked business has increased to about $400 million and FY '28 to roughly $630 million, representing close to 700,000 incremental vehicles and market share gain. Importantly, that figure reflects what we booked to date. Onshoring trends continue, and we remain in active discussion with global OEMs on additional opportunities that extend beyond what's captured here. We continue to see ourselves as a net beneficiary of customer onshoring. In Asia, our team has done an exceptional job of competing and winning in a highly dynamic market. As I mentioned in the last slide, approximately 70% of our new business wins in China are with local OEMs, reflecting strong customer relationships, faster development cycles and Adient's ability to localize engineering and execute at scale. That execution is translating into above-market growth with China up 10% in Q2 versus a declining industry. Taken together, this reinforces the momentum we're building across regions as onshoring, conquest and localized execution continues to expand our growth runway. Moving to the next slide. After the quarter-end, we announced the completion of a tuck-in acquisition that expands our foam manufacturing footprint in the Americas. We acquired a foam production plant in Romulus, Michigan, which supports multiple OEM seating programs, expanding our Americas foam network to 10 plants and 30 plants globally. This is a strategic core business move that strengthens our vertical integration capabilities and helps improve supply assurance and responsiveness for our customers. Our focus is on a smooth integration with uninterrupted service, and we see opportunities over time from logistics advantages, operational flexibility and productivity improvements. This targeted acquisition strengthens Adient's operational model by further improving control over critical inputs, lowering execution risk and supporting more resilient margins. We are thrilled to welcome the Romulus employees to Adient and are excited about the capabilities and commitment they bring to our organization. Moving on to Slide 9. I want to spend a moment and talk about our recent launches and the new business wins because these are important proof points on how Adient is growing. These wins aren't about volume alone. They reflect higher content, more complex seating systems and deeper integration with our customers across the regions. In the Americas, Adient continues to be a net beneficiary of customer onshoring trends. We are happy to announce the recent conquest win with the Chevrolet Equinox, highlighting once again our world-class footprint, consistent operational execution and strong customer partnerships reinforce our supplier-of-choice status. We also recently won conquest business on several Volkswagen platforms in South America. This is strategically important growth for Adient as it deepens our footprint with a major global OEM, strengthens our regional manufacturing relevance and positions us for sustained revenue growth and incremental opportunities in the market over the coming years. In EMEA, program wins such as the new Porsche SUV and recent launch of the Citroen C4 demonstrate continued momentum with leading global OEMs. Importantly, these wins reflect disciplined, selective growth, where we are prioritizing programs that align with our operational strengths, higher value content and improved earning resilience in the region. In Asia, growth is being driven by domestic OEMs and EV platforms, including Xpeng, Leapmotor and Changan, where we are delivering advanced comfort features, high adjustability and multivariant seating architectures, often with Adient-led engineering development in region. Importantly, many of these awards involve premium comfort content, higher complexity and greater value per vehicle. When you look at this slide, I think it's important to step back and look at the balance of our growth portfolio. On one hand, programs like the Chevrolet Equinox represent disciplined growth on high-volume onshore ICE platforms, where Adient is winning complete seat content, taking share through conquest and leveraging our market-leading North American footprint, delivering strong execution and solid cash generation. At the same time, launches like the Rivian R2 and Leapmotor D19 position us on next-generation EV platforms, where higher complexity, tighter integration and engineering-led execution support higher content per vehicle and stronger higher-quality earnings over time. Together, these programs demonstrate that we're not making an either/or choice between legacy and next-gen. We're deliberately building a portfolio that balances scale and cash flow today with complexity-driven higher-quality earnings tomorrow. That balance is exactly what underpins the sustainability of our results and our confidence in the long-term outlook. Overall, this slide reinforces why Adient continues to be the supplier of choice, winning across regions, technologies and vehicle segments, while executing complex launches at scale. Turning to Slide 10. I want to highlight 2 recent innovation milestones that underscore how Adient continues to turn technology leadership and realize commercial execution. Most recently, we achieved an industry-first launch of our StepJoy foot massage system on the NIO ES9. This is a key example of how we're expanding seating comfort beyond traditional lumbar and back applications, while maintaining compact packaging, cost efficiency and automotive-grade reliability. Importantly, this is not a concept. It is in production today, validating our ability to industrialize differentiated comfort solutions at scale. In parallel, we're advancing our mechanical massage portfolio with ProForce Massage Flow, which builds on our already validated ProForce platform. ProForce Massage significantly expands massage coverage and gives customers the ability to offer premium seating experience, providing differentiation over traditional highly commoditized massage offerings offered by our competitors. The modular design and production validation allows this technology to be deployed across multiple seat architectures and vehicle segments within an OEM, enhancing scalability, and is already scheduled for production on 2 C-OEM models. The ProForce system is differentiated from what our competitors offer. Together, these launches demonstrate how we're leveraging innovation to drive higher content per vehicle, deepen OEM relationships and support higher-quality earnings over time. This is how innovation plays into Adient's operating model, disciplined, scalable, differentiated and commercially focused to help our customers enhance their overall in-vehicle experience. Before turning this over to Mark, I want to pause here on Slide 11 because this slide really connects the dots between our operating model and what it delivered this quarter. We speak a good deal about operational excellence, profitable growth, innovation and being a supplier of choice, but these are not abstract concepts. They are the foundation that allows us to execute consistently, especially in an environment like this one. In the second quarter, that execution showed up in very tangible ways. We delivered multiple complex launches as planned, continued to convert supplier-of-choice recognition into conquest and onshoring wins, and advanced innovation programs that are already in production and generating value for our customers. We also strengthened our footprint and reduced execution risk through a targeted tuck-in acquisition. Our teams have received more than 60 customer and industry awards across the region over the past 2 quarters, reflecting Adient's day-to-day execution and quality, launch performance, responsiveness and employee satisfaction. This recognition is translating directly into outcomes, key talent retention, deeper customer trust, conquest and onshoring wins, and the ability to launch more complex, higher-content programs consistently. That external validation reinforces why our operating model continues to scale in a challenging environment. These proof points are the direct result of how we run the business every day, and they're what gives us the confidence in our ability to convert performance into cash flow generation and sustainable value creation going forward. Now, I'd like to turn it over to Mark to walk you through the financials. Mark Oswald: Thanks, Jerome. Let's turn to financials on Slide 13. Adhering to our typical format, the page shows our reported results on the left side and our adjusted results on the right side. As a reminder, the prior period included a onetime noncash goodwill impairment charge of $333 million related to the EMEA goodwill impairment, which impacted our GAAP reported results in Q2 of fiscal year '25 and affects the year-over-year comparability. My comments will focus on the adjusted results, which exclude special items that we view as either onetime in nature or otherwise not reflective of the underlying performance of the business. Full details of these adjustments are included in the appendix of the presentation for reference. Moving to the right side, high level for the quarter. Sales for the quarter were $3.9 billion, up 7% year-over-year, reflecting favorable FX, solid volumes and strong underlying business performance. Adjusted EBITDA was $223 million. While this was down year-over-year, the comparison reflects the impact of near-term customer-driven production inefficiencies and increased launch expense as we continue to invest in future growth. Equity income was lower year-on-year as a result of lower volumes with certain of our customers in China. Adjusted net income was $41 million or $0.52 per share. Let's dig a bit deeper into the quarter, beginning with revenue on Slide 14. I'll go through the next few slides relatively quickly as details for the results are included on the slides, allowing sufficient time for Q&A. We reported consolidated sales of $3.9 billion in the quarter, which was an increase of $254 million compared to the same period last year, primarily reflecting better FX tailwinds, along with favorable volume and pricing. On the right side of the page, we are presenting regional performance on a trailing 12-month basis. This view helps normalize seasonality and timing effects inherent to our operating model and provides a clear picture of the underlying trends. In the Americas, we are seeing growth of 5%, outperforming a flat market, primarily driven by Adient's customer profile, pricing and new vehicle launches. In EMEA, sales have trailed the market, reflecting customer volume and mix and deliberate portfolio actions such as the recent closure of our Saarlouis Ford plant. For China, while the trailing 12-month view is influenced by earlier-period softness, recent performance has notably been stronger. This quarter, sales in China grew at double digits, while the overall market declined, building on first quarter's significant outperformance. We expect this trend to continue over the next several quarters based on our book of business and launch schedule. Unconsolidated revenue declined year-over-year, reflecting planned program exits in Europe and lower volumes in China. Turning to Q2 EBITDA performance. Adjusted EBITDA of $223 million included approximately $8 million of temporary customer-driven production inefficiencies, which we expect to recover in future periods, and $11 million of launch expense, which supports future growth in our expanding program portfolio. Excluding these items, Adient's underlying business performance remains solid, reflecting the strength of our operating model and the continued focus our teams have on operational excellence and delivering on our full year commitments. As shown on the chart, volume and mix was an approximate $18 million headwind, mainly driven by the shift to China OEMs versus foreign manufacturers in China, which, as mentioned previously, will result in margin compression that we view as manageable, plus a variety of higher volumes on lower-margin platforms in North America in Q2. As in prior quarters, we've provided detailed segment-level performance slides in the appendix of the presentation for your review, but I'll briefly summarize each region at a high level. In the Americas, we had a solid underlying business performance, reflecting strong execution and program momentum. Results for the quarter were partially impacted by mix, temporary production inefficiencies and launch costs to support the region's future growth. In EMEA, the team continued to focus on driving positive business performance despite a challenging macro environment. And along with FX tailwinds, this helped mitigate the ongoing mix headwinds in the region. In Asia, results were impacted by equity income, the timing of commercial negotiations and planned increases in launch as the region invests in new programs and growth. Equity income was unfavorable year-on-year, primarily reflecting lower volumes in our China joint ventures. Moving on, let me flip to our cash, liquidity and capital structure on Slides 16 and 17. Starting with cash on Slide 16. For the quarter, the company generated $8 million of free cash flow, defined as operating cash flow less CapEx. In addition to the typical seasonality of our business, second quarter cash flow benefited from approximately $90 million of timing-related items, specifically related to a commercial agreement and a hedging transaction. Both items will reverse and become outflows in the third quarter. On a year-to-date basis, free cash flow totaled $23 million and included the benefit of the same $90 million timing effect just mentioned. Excluding this impact, year-on-year cash flow performance reflects favorable working capital fluctuations, driven by typical period-to-period swings, lower cash restructuring outflows in Europe, timing of dividend payments, and an increase in cash spending, supporting Adient's growth initiatives and automation spend. Important to point out, last quarter, we highlighted a nonrecurring tax settlement in a certain jurisdiction that increased our tax -- cash tax forecast for fiscal year '26. That settlement was paid out in our second quarter. Despite the expected $90 million outflow in the third quarter, we continue to expect strong free cash flow in the second half of the year, consistent with our historical seasonality, and remain confident in delivering on our free cash flow commitment. Turning to our balance sheet on Slide 17. Adient continues to maintain a strong and flexible capital structure. As of March 31, we had a total liquidity of approximately $1.8 billion, consisting of $831 million of cash on hand and $957 million of undrawn revolver capacity. Again, worth mentioning, the $90 million, which benefited second quarter free cash flow, was also included in the March 31 cash balance. I would also point out, Adient did draw on our ABL during the quarter due to typical seasonality and normal working capital fluctuations for our business. The ABL was fully repaid within the quarter. On a trailing 12-month basis, our net leverage was 1.8x, which remains comfortably within our targeted range of 1.5x to 2x, reflecting both disciplined capital management and the underlying earnings power of the business. Importantly, we have no near-term debt maturities, providing us with significant financial flexibility as we navigate a dynamic operating and macro environment. Overall, the capital structure remains strong and flexible. Turning now to our expectations as we move from the first half into the second half of fiscal year 2026. The first half of fiscal 2026 delivered solid business performance that was in line with our internal expectations despite a challenging operating environment. We remain focused on what was within our control, maintained discipline in execution and cost management, and exited the first half with a solid cash position and a healthy balance sheet. As we look to the second half of fiscal year '26, we currently anticipate approximately $35 million of input cost headwinds. Approximately $25 million is related to Middle East conflict through higher chemical and freight costs, and additional $10 million is driven by higher costs as a result of the LyondellBasell chemical supply disruption. This $35 million of higher input costs is expected to be more than offset with the benefits from volume and the acceleration of business performance. The team remains focused on driving business performance and generating cash. Turning to our updated outlook for fiscal 2026. Based on our performance year-to-date, improved customer production schedules, we are modestly increasing full year guidance for revenue, adjusted EBITDA and free cash flow. We now expect consolidated revenue of approximately $14.8 billion, up from our prior outlook of approximately $14.6 billion, reflecting solid first half performance, updated near-term customer production schedules and the latest S&P Global production assumptions. Adjusted EBITDA is expected to be approximately $885 million, up from our prior guidance of $880 million, reflecting the impact of higher revenues and increased business performance, which are helping to offset the $35 million of anticipated higher input costs. As a result of these updates, we now expect free cash flow of approximately $130 million, up from $125 million previously. This improvement reflects the pull-through of incremental adjusted EBITDA and continued focus on working capital discipline and cash generation. Cash taxes are still expected of approximately $125 million, no change from prior guidance. CapEx also remains unchanged at approximately $300 million. We have included a simple adjusted EBITDA bridge within the materials on Slide 20 that illustrates the components of our revised guidance. Before wrapping up, I want to spend a moment on Slide 21 because this page speaks to the durability and trajectory of our cash generation. As we've discussed, the $130 million of free cash flow expected this year reflects several elevated and transitional cash uses that are not structural to the business. As these items normalize, we expect materially stronger EBITDA to free cash flow conversion. Capital expenditures are expected to remain at about $300 million, supporting growth, innovation, operational excellence, while remaining aligned with our long-term capital allocation framework. Restructuring cash flows are expected to normalize as European actions progress. Similarly, interest expense is expected to ease with opportunistic repricings and voluntary debt paydown. And finally, cash taxes are expected to revert to a more normalized level following this year's nonrecurring settlement payment. Taken together, these actions clearly outline the path to a structurally higher free cash flow profile. Longer term, as business performance and volume continue to scale and calls for cash remain relatively stable, we believe Adient is well positioned to generate materially stronger free cash flow, supporting disciplined and balanced capital allocation, driving enhanced shareholder value. With that, let's move to the question-and-answer portion of the call. Operator, can we have our first question, please? Operator: [Operator Instructions] Our first question does come from Colin Langan with Wells Fargo. Colin Langan: Any color on why the revenue increase? I mean, we've seen S&P actually lowered numbers, at least on the calendar year. Anything in particular that's driving that? Is that just a geographic mix, certain platform mix? Mark Oswald: Yes. Colin, I'd say it's a combination of, one, you have to adjust that we're on the September 30 fiscal year, right? Obviously, we're 2 quarters through. Third quarter, we have pretty good visibility now based on production call-offs, right? And then, it's -- as you indicated, it's based on geographic mix, it's customer platforms that we're exposed to, et cetera. Colin Langan: Okay. And any color on the onshore bidding? I mean, you seem to have won a pretty large chunk of that so far. Has this been sort of a short-term action wave and then more actions will come in a few years? Or is this actually still even early days for some of the onshoring opportunities, and we'll see the larger numbers coming as more stuff gets bid and onshored? Jerome Dorlack: Yes. I think we're -- in terms of the discussions with the customers, I think they're still very active, still very dynamic. At the point where we're at now, I think a lot of them are waiting to see how the USMCA negotiations and discussions go. Once there is clarity on how that shapes up and what the rules in terms of content, how long that agreement will be, whether it will be an annual evergreen or another 7-year bilateral or trilateral, whatever that shapes up to be, I think that will then free up the next wave of onshoring discussions. I think what's important though and how you think about Adient and how we're positioned, and we've presented figures on this in the past, among seating suppliers, we have the best footprint to be able to capitalize on this. We have more JIT facilities than anyone -- than any other seating supplier in the U.S. From a geographic standpoint, we're best positioned to be able to capitalize on this. We have the capacity to be able to do it. And then, because of our leading modularity, ModuTec, and capabilities, and now with the foaming acquisition, we have the capital ready to be able to deploy the footprint to be able to deploy it and the customer relationships to be able to capitalize on this. And I think we still feel pretty strongly we'll be a net beneficiary of onshoring. Operator: Our next question comes from Nathan Jones with Stifel. Andres Loret de Mola: This is Andres Loret de Mola on for Nathan Jones. Just on margins, the decline of 70 bps, can you maybe give a little bit more color on the temporary customer-driven costs? And are they recoverable later on? Mark Oswald: Yes. So good question. So yes, if you look at that 70 bps, I'd say 60 bps is really related to mix. And as I indicated in my prepared remarks, a lot of that mix was -- obviously, we were very transparent that as we continue to shift and pivot to the Chinese local manufacturers there, there's going to be margin compression. That's the majority of that. There was also some, I'd say, higher-volume, lower-margin business in the Americas that we saw for the quarter. We do view the mix shift over in China to be very manageable. We've indicated that's going to be falling up somewhere around 100 basis points when we get through the year. So 1 quarter does not make a trend. We have a pretty good line of sight in terms of what launches are coming on, where production is heading over there. Same thing with the Americas just in terms of where we see the volumes heading over there in the next couple of quarters. Andres Loret de Mola: Got it. That's helpful. And then, just on the split domestic versus foreign OEMs in China, I mean, can you guys -- I know you said 70% launches with local OEMs. Can you provide a kind of breakdown of what that mix is now and sort of what you expect for 2026? Mark Oswald: Yes. So last year, we ended 2025, we were somewhere just north of 60-40 mix over there. And so, as we continue to win -- and we indicated last year, our 2025 wins was also skewed about 70% local Chinese to 30% foreign. So, as we continue to launch this year, that's going to be trending from, call it, that low-60% to that 70% mark over the course of the next 12 months or so. Jerome Dorlack: Yes. And I think as we indicated in the prepared remarks today, our bookings this year are mirroring that same bookings rate, so 70% domestic, 30% [ transplant ] for the win rate. So if you look at our forward roll-on, we would expect our roll-on to continue to drive mirroring that 70% domestic, 30% [ transplant ], so continuing a very aggressive roll-on business and rotation into the domestic OEM. And it really is leveraged by our world-class joint venture footprint that we have there, working with our joint venture partners and really the way we operate our business in China for China with local Chinese leadership, local Chinese management and leveraging our technology. And that's why we talked a lot today about technology, bringing technology to scale there, and it's not commoditized technology. It is leading-edge technology there that allows our customers to be able to price for value, price for the customer in that region through the products we deliver there. Operator: The next question comes from Joe Spak with UBS. Joseph Spak: Mark, I want to go back to your comments on normalized free cash flow. And I want to sort of bridge that a little bit to sort of next year as well. And I realize like you're not going to guide '27 now and a lot can happen between now and then. But you are talking about $400 million on the backlog. So even if we assume 10% incremental margin, that's like $40 million in EBITDA. The recoveries from the Middle East is another $25 million. The supply disruption is another $10 million. You have business performance. There's the $100 million in free cash flow timing items you mentioned in '26. So I guess what I'm getting at is, it seems like based on what we know now, and I know things can change, it seems like free cash flow could be up over $200 million next year. I'm just wondering if we're thinking about that correctly, if there's any other offsets we should be thinking about? And if we do see that, I know you said you paused the buyback activity for uncertainty, but why wouldn't you sort of try to maybe get ahead of what seems like a pretty good inflection of cash flow and buy back the stock when it's at relatively attractive valuations? Mark Oswald: Yes. Great questions, Joe. I think you're thinking about the buckets the right way. Clearly, there's going to be revenue growth that we've been very transparent in mentioning. So obviously, that will convert. If I look at my calls from cash, as I indicated, those will be relatively stable to improving, right, as my cash taxes trends back to its normalized level. Restructuring -- now, again, restructuring over time will trend back to its normal level in Europe. We obviously still have to look to see the European landscape over there. I don't think anybody is expecting that to get much better over there, right? So we have to see what our customers do with their programs, what that means for our restructuring. But all in all, that will trend back down to its normalized level. Interest expense, as I indicated, we're opportunistic with repricing like we've been doing with the Term Loan B as we basically do some voluntary debt paydown because we do recognize that the disciplined capital allocation policy includes not only share buybacks, but also debt paydown, right, inorganic growth opportunities as we demonstrated this past quarter with the Woodbridge business. Yes, I think you're right. I think the cash definitely trends higher. So I think you're thinking about that in the right way, Joe. In terms of why not get in front of it earlier and we hit the pause button this year on the share repurchases, as I indicated, we got into Q2 -- because of normal seasonality and working capital needs, we actually did draw on the ABL, right? So we drew $150 million that will be called out in our Q this afternoon when we release that. When we paid that back, clearly, the war in the Middle East, it started, it escalated. We started to see chemical prices increase. We had the supplier [indiscernible] right. So there was greater uncertainty. So it was prudent for us to do that as we went through Q2. As we go through the balance of the year and we go into next year, there's really been no change in our capital allocation policy. We still expect to be good stewards of capital. We'll still be balanced with our allocation policy right. So, no change from that perspective. Joseph Spak: I guess, the second question, just I want to go back to China. Again, on the one hand, you're talking about 70% of the wins in China is domestic. That's coinciding with margin degradation in the region, which I know you said you can expect, and I think the slides had a comment about how it's manageable. But can you just help us like level set like -- because it's sort of tied up within the -- what you show for APAC. I know some of the China business is unconsolidated. Like, where are we now? What level does that backlog really come on at from a margin perspective? And like where can we see margins going? I think you've been very clear, and we can appreciate that, that's going to be a margin headwind. But what's sort of the steady-state level for that business? Mark Oswald: I think as we go through the balance of this year, as I indicated, do I still expect us to be down about 100 bps in 2026? Absolutely. As we continue to win new business over in that region, the team has been working very hard just in terms of, again, using automation over there, right? They're basically being sourced, the whole seating, whether it's trim, foam, JIT, right, metals, right, which continues to help out the overall earnings profile of that business over there, right? So the team is working hard to continue to maintain it at 100 basis point degradation. We view that as manageable. As we get into 2027 and start to finalize 2027, and we'll be back out with that. But again, I think that 100 basis points is probably good for your modeling at this point. Operator: The next question comes from Mike Ward with Citigroup. Michael Ward: Mark, maybe just to follow up a little bit on what Joe was asking. On the excess cost, the $25 million, $35 million, does that -- if you're able to recover it by the end of this year, does that provide some upside to your current forecast? Mark Oswald: Yes. So again, Mike, if you think about chemicals in particular, right, we have pass-through agreements and escalators with our customers, right? Those typically come on at a 2-quarter lag, right? So third quarter, I'm not expecting any recoveries. Am I going to start getting some of those recoveries in the fourth quarter? Absolutely. Will some of that bleed into '27? Yes. Some of the, what I'd say, customer production inefficiencies, right, we called that out. Is the Americas team going to go back and work with our customers to try and recoup some of that in the back half of this year? Yes, there will be tough commercial negotiations. So could there be some upside, Mike? Possibly. But again, tell me when the war in the Middle East is going to end, tell me what oil prices are going to do, tell me how fast LyondellBasell can get their facility up and operating, right? So those -- we're trying to balance what I'd say is the risk for the balance of the year versus, as you indicate, some opportunities for the balance of the year. That's why we came out with the $885 million guide. That's our best 50-50 look right now in terms of where we think the year is going to end. Michael Ward: Makes sense. And maybe, Jerome, on more of a strategic standpoint, I mean, the trim acquisition, in North America, what type of level of vertical integration do you have for a typical seat? Jerome Dorlack: Yes. So the Woodbridge plant is a foaming plant for us. If you look at our business in North America, I mean, on an average contract, given our customer mix and our customer platform mix, especially when we talk about the large truck platform that we acquired, it would have been 2 quarters ago when we went from just having the JIT and foam, we acquired JIT, trim and foam on that, we will be well over 80%, probably 85% vertically integrated on our business in North America. It is a very, very healthy level now in our North America business. And when I say vertically integrated, I speak about JIT, trim and foam. We've talked a lot about the metals business and trying to look at the metals business and wind out some of our non-healthy metals business. So we've been, I think, very transparent on that. But on the JIT, trim and foam level, it's a very healthy level of vertical integration now in the Americas business. And it's one of the reasons why you've seen the Americas business really have a, I think, nice progression on the margin expansion and the cash flow progression as well. Operator: Up next is Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: I was hoping to first follow up a little bit on the commodities outlook. I know obviously, a lot of moving parts between the disruption and the conflict. But at least in terms of the disruption piece, do you have good visibility in terms of the supply? Is it really just a question of higher pricing and basically recoveries coming with a lag? Or is there also -- I guess, what sort of visibility do you have in terms of essentially ensuring supply? And then, what does that look like into 2027? Jerome Dorlack: Yes, I think you have to -- I think, Emmanuel, you have to break it down into 2 pieces. I think you have to break down the LyondellBasell issue and then maybe break down the Middle East/Strait of Hormuz issue. So on LyondellBasell, I think our team in the Americas, with our customer group, has done a very good job of working through alternative means of supply and securing alternate supply chains. So I think we have good line of sight, alternative chemicals supplied, validation underway with our customers. I think we've been able to tie that off. On the Strait of Hormuz, at the moment, I think we have line of visibility as much as anyone in the industry can have when it comes to supply. I'll go back to Mark's comments. I don't think we can sit here today and be any better forecasters or prognosticators that would say, if it remains the way it is, I can't tell you what's going to happen in 3 months, 5 months, 6 months or anything along those lines. I don't know that I can give you a better answer than anyone else can on that topic, Emmanuel, nor should we really be doing that. So again, on LyondellBasell, I think we've done a very good job working with our teams. I think we're supplied. We have supply secured. On Strait of Hormuz, I don't think we're in any better condition or any worse of a condition than anyone else in the industry on that topic. Emmanuel Rosner: That's helpful. And then, one follow-up on the normalized free cash flow. So obviously, a decent piece of it would be normalization of restructuring spending. It doesn't seem like 2027 would necessarily be the year, first, with potential restructuring needs in Europe. I guess, what would need to happen to be able to sort of like lower this restructuring need? It just feels like in Europe, there's maybe some structural industry trends that would require ongoing restructuring for longer. Jerome Dorlack: I think it's too early to say, Emmanuel, whether 2027 is normalized or not normalized, whether there's a tail-off or not a tail-off. I think we're very much in active discussions with a couple of key customers around the key -- a couple of key JIT manufacturing sites right now and what the future of those sites will be. So it's just -- it's too early to say what '27 and even '28 look like at this point. In terms of what needs to happen in Europe, I think there needs to be stabilization within the European theater on industry volumes and capacity rationalization across not only the JIT landscape and the seating landscape, but also our customers' manufacturing landscape. And I think there's still announcements coming out at our customers, where they're trying to repurpose their manufacturing facilities. You've seen announcements around that. And with that, that opens up opportunities for us to be able to service them in different ways than maybe we would traditionally do. And it's some of those discussions that we're in with them. So I think it's too early to say what our '27 restructuring looks like, whether it tapers off or it doesn't, and the same would go for '28. Operator: The next question comes from Dan Levy with Barclays. Dan Levy: Your second half guidance, you're basically saying that you're offsetting the weaker half-over-half revenue and the onset of some of these commodity costs with better business performance, which you've done a really good job putting up. Maybe you could just remind us sort of like what's hitting now? And then, you've broadly talked about a number of different work streams in terms of restructuring, balance-in, balance-out, labor efficiency. Maybe just give us a sense where you are on your journey on business because it's been so good for so long. And what else is sort of the next front here on continuing to drive those benefits as opposed to sort of clearing out already the low-hanging fruit? Mark Oswald: Yes, Dan, maybe I'll start on what we see first half, second half, and Jerome can comment just in terms of certain of the automation, which is going to contribute to the efficiencies and business performance. But you're absolutely right. When I look at first half, second half, sales are going to be down slightly where we called out $35 million of higher input costs. But I've also got the benefit of lower launch costs in the second half of the year. I've got better business performance. As we indicated, business performance starts to accelerate, whether that's through the lower launch costs, my ops waste, my C&I efficiencies that the plant builds as I go through the second half of the year, right? Some of the, what I'd say, frictional costs that [ hit ] in Q2 with the customers, we'd expect that to subside as we go through Q3, Q4. So it's really the acceleration of business performance that really gives me comfort in terms of confidence in what I think I can do in second half versus first half despite the lower levels of [ buying ]. Jerome Dorlack: Yes. And then, to your -- second part of your question, what is the -- I'll use my words, the next frontier of driving business performance? We've talked a lot about automation starting to flow in. And even this year, if you look at the capital expenditures that we're putting into the business, that step-up year-over-year in automation, that will start to pay dividends as we get into '27 and '28. And we're really leading the industry in terms of some of the automation we're doing in our foaming business, some of the automation we're putting into our metals business, our trim business, and then, on the JIT side of it, what we've been able to do with our modularity. The feedback we get from our customers is your modularity offerings are leading edge. It's one of the reasons we've been able to conquest and expand our backlog in the JIT side is through our modularity offerings. With that, we're not only able to offer more competitive pricing to our customers, but it also leads to some of this margin expansion story, better roll-on, roll-off into the business. And so, when you look at the restructuring coming in, in Europe starting to pay dividends, but then also modularity, better roll-on, roll-off and then the automation piece of it, that's really where we see this then starting to fuel some of the additional margin expansion that we'll see in the Americas and in our European business going forward and that sustainability piece. And then, just coming back to some of the questions that we had earlier in the call around Asia and China in particular. I think it is worth continuing to highlight that even though there will be margin compression on the Asia side -- or the Asia Pacific business, as revenues grow there, even with that margin compression, it will still be cash-accretive, margin-accretive and still expanding cash flows for Adient overall. I think it's always important to keep that in mind. Dan Levy: Great. As a follow-up, I wanted to just -- I asked a similar question on the last earnings call, but I think it just gets to a broader theme on where we are on market share dynamics in the seating market and more specifically within North America because one of your competitors has talked about sort of a growing pipeline and traction on awards. So can you just give us a sense, broad strokes, what we are seeing on market share dynamics? Is there sort of a consolidation within yourselves and another one of your competitors away from the rest of the field? Jerome Dorlack: Yes. I think that that's a fair way to characterize it. I think if we look at where the wins are occurring, where some of the market share is coming from and how that pie is shaping up, I think based on the competitive offering that we're able to bring forward, our modularity solutions, the technology that we're able to put in place, I think the pie continues to shrink into those who are able to bring the most competitive offerings forward, who have the balance sheet to be able to do it, who are able to deploy the capital and who are the suppliers of choice into their customers. And I think Adient is certainly one of those, if not the preeminent one in the space. And I think with that, we're at the bottom of the -- or I guess, the midpoint of the hour. I just want to close the call by first thanking all of the 70,000 Adient employees around the world for your commitment to making the company what it is, and then thank all of our customers for your continued support to the business and to the company, and then thank all of our owners and shareholders for your ongoing support. Thank you very much, everybody. Mark Oswald: Thank you. Linda Conrad: Thank you. And in closing, I want to thank you once again for your interest in Adient. If you have any follow-up questions, please feel free to reach out to me. With that, operator, we can close the call. Operator: Thank you. That does conclude today's conference. We thank you for your participation. Have a wonderful day. And at this time, you may disconnect your lines.