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Operator: Welcome to the 2026 First Quarter Results Announcement Conference Call for Budweiser Brewing Company APAC Limited. Hosting the call today from Budweiser APAC is Mr. YJ Cheng, Chief Executive Officer and Co-Chair of the Board; and Mr. Bernardo Novick, Chief Financial Officer. The results for the 3 months ended 31st of March 2026, can be found in the press release published earlier today and available on the Hong Kong Stock Exchanges and Budweiser APAC websites. Before proceeding, let me remind you that some of the information provided during this result call, including our answers to your questions on this call, may contain statements of future expectations and other forward-looking statements. These expectations are based on the management's current views and assumptions and involve known and unknown risks, uncertainties and other factors beyond our control. It is possible that Budweiser APAC actual results and financial condition may differ possibly materially from the anticipated results and the financial condition indicated in these forward-looking statements. Budweiser APAC is under no obligation to and expressly disclaims any such obligation to update the forward-looking statements as a result of new information, future events or otherwise. For a discussion of some of the risks and important factors that could affect Budweiser APAC's future results, the risk factors in the company's prospectus dated 18th September 2019, the 2025 annual report published and any other documents that Budweiser APAC has made public. I would also like to remind everyone that the financial figures discussed today are provided in U.S. dollars, unless stated otherwise. The percentage changes that will be discussed during today's call are both organic and normalized in nature and unless otherwise stated, percentage changes refer to comparisons with the 2025 full year. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Budweiser APAC's normal activities. As normalized figures are non-GAAP measures, the company disclosed the consolidated profit EPS, EBIT and EBITDA on a fully reported basis in the press release published earlier today. Further details of the 2026 first quarter results can also be found in the press release. It is now my pleasure to pass the time to YJ. Sir, you may begin. Yanjun Cheng: Thank you, Ari, and good morning, everyone. Thank you for joining today's call. We entered 2026 with a clear focus on recovering volume through disciplined execution across our market. For Bud APAC total volume returned to a positive growth, supported by continued strong momentum in India. In China, our increased investment shows a sign of progress. With the quarter-over-quarter volume decline tightening further as we remain committed to our strategy of enhancing our in-home route to market enriching our portfolio and innovating behind our mega brand to rebuild momentum. In South Korea, we gained market share in both on-premise and in-home channels. Before we go over our financial results, I wanted to take a moment to introduce Bernardo Novick, our new Chief Financial Officer, effective from April 1 this year. Novick joined ABI Group in 2009 through the global MB program and has worked across various functions in multiple markets. He brings deep finance and global resource allocation expertise, having led projects, delivering savings and meaningful value creation. I'm pleased to welcome him to the Bud APAC team. Let me now hand over to Novick for a brief introduction. Bernardo Novick Rettich: Good morning, everyone. I am delighted to join the Bud APAC team. I would like to thank you, YJ for your trust and invitation to join the team. I joined AB InBev 16 years ago and spent 5 years in finance roles, 5 years in commercial roles and 5 years in innovation roles where I led the corporate venture capital arm in New York. Most recently, I was responsible for our global capital allocation division reporting to the global CFO. I hope I can bring this experience to grow Bud APAC's business in a profitable way. I have already had the pleasure of meeting some of you joining the call today, and I look forward to meeting many more in the next weeks and months ahead. Let me share our financial results for the first quarter of 2026 in more detail. In the first quarter, APAC volume returned to growth, even if it's just 0.1% after many quarters, driven by strong growth in India, and a sequential improvement in the industry and our volumes in China, with volume decline narrowing quarter-over-quarter. This progress was driven by both enhanced execution as well as increased investments across channels and our portfolio, which added temporary pressure to our bottom line. We also maintained strong brand momentum in South Korea, despite a soft industry and a challenging comparable last year. In India, we continue to advance premiumization, delivering strong double-digit volume and revenue growth. In summary, for Bud APAC, total volumes increased by 0.1%. Revenue and revenue per hectoliter decreased by 0.7% and 0.8%, respectively. Normalized EBITDA decreased by 8.1%, while our normalized EBITDA margin contracted by 246 basis points. Now let me cover some of the highlights from each of our major markets. In China, volumes decreased by 1.5%, improving sequentially with a quarter-over-quarter decline continuing to narrow since the second half of 2025. Revenue and revenue per hectoliter decreased by 4% and 2.5%, respectively, impacted by increased investment to support our wholesalers and activate our brands in the in-home and emerging channel. Normalized EBITDA decreased by 10.9%, impacted by our top line performance and increased investments. We continue to make progress in expanding our distribution in the in-home channel, while increasing the distribution of our premium brands. This premiumization is more clear in the online to off-line or O2O channel, which grew strong double digits in the quarter. Now let me share with you some of the investments we are making on our brands through our marketing campaigns as well as liquid and package innovations to better connect with our consumers across more occasions and increased sales momentum particularly in the in-home channel. On Budweiser, we accelerated the national expansion of Budweiser Magnum, building on its strong consumer traction and sustained sales growth. In March, Budweiser Magnum, launched an integrated nationwide campaign, anchored by a strategic partnership with global football icon Erling Haaland, and the FIFA World Cup mega platform to drive geographic and channel expansion. Regarding our Harbin family, we introduced Harbin 1900, celebrating its brewing heritage as the birthplace of Chinese beer. Position in the Core++ segment, which is the RMB 8 to RMB 10 price range. This new innovation is 100% pure malt classic lager, pairing distinctive vintage packaging with a rich authentic taste. The launch reinforces Harbin's role in driving innovation and placing new bets in this growing and important Core++ segment. In South Korea, volumes decreased by low teens and revenue decreased by mid-single digits, mainly due to a challenging comparable in the first quarter of last year, driven by shipment phasing ahead of a price increase that if you recall, was in April 2025. Revenue per hectoliter on the other hand, increased by low single digits, also comparing with the first quarter last year before the price increase. This led to a normalized EBITDA decreasing by low teens. Having said that, we maintain a good commercial momentum in both in-home and on-premise channels, and we foresee a recovery in the second quarter. Finally, India continues to grow and will play a bigger role in our footprint. Industry momentum continued in the first quarter, and we gained total market share. We delivered strong double-digit volume and revenue growth led by a strong growth in our premium and super premium portfolio. We also continue to see momentum in the moderation agenda with states like Maharashtra and Karnataka introducing changes that decreased the current relative tax advantage of hard liquor versus beer. We see this as a step in the right direction and a sign that some states understand the importance of evolving towards an alcohol tax policies that are consistent with global policy standards where high alcohol products are taxed higher than low alcohol products like beer. And with that, YJ and I are here to answer any questions that you might have. Operator: [Operator Instructions] Our first question is coming from Xiaopo Wei from Citi. Xiaopo Wei: Can you hear me now? Operator: Yes, we can hear you very well. Xiaopo Wei: I'm sorry. That -- I have two questions on China. I'll ask one by one. The first one, in the past 2 years, we have seen a few senior management leadership changes in the company. So far is any achievement or breakthrough that the company would like to share with us with the new leadership? [Foreign Language] Yanjun Cheng: I'm YJ. Let me take these questions. So let me start in English, then let me turn to Chinese, if needed. So the changes we have, mainly happened first half year last year. And the reason for the change is kind of retention between either global other between the region in China. So and also between Headquarter in China versus operation in the field in each sales region. And the reason for that is to share some best practice and to further strengthen their strengths in each area or each function and also learn each other best practice sharing. So that's kind of a normal retention changes. And to be able to share the more the answer to your question about the changes of the people. As I mentioned earlier, we keep a consistency of our strategy which is focused on portfolio, brand portfolio, which is meaning Harbin and Budweiser and also focus on in-home and market. And third one is focus on execution. So those are the 3 strategies we set up early last year and we have no changes. And also, you see the progress we have been made as Novick just mentioned, quarter-over-quarter on decline narrow quarter-by-quarter and see very good trends. And also, we see the execution in each area make a huge improvement, and we put a lot of effort to invest in our brand and also further focus on the in-home channel that the channel changes reached which and that's our further opportunity in our operation. So we see starting from second quarter last year and the fourth quarter last year, and first quarter this year, the things getting improved quarter-by-quarter. So I think that's I tried to answer your question. Xiaopo Wei: Shall I start a second question? Yanjun Cheng: Yes, go ahead. Xiaopo Wei: Okay. The second question is about the channel inventory. As far as I can recall, the company in China start destocking the channel in 4Q '24. It has been a few quarters of destocking and I remember in the last quarterly earnings call, you mentioned that actually, our China inventory actually was young and lower versus historic level. But we know that China is a very dynamic market and the changing areas on a daily basis. So were you foreseeing the future that the China channel inventory will be below historic level as a new norm? Or is any factor you expect to see before you become more exciting and try to restock the channel looking forward. [Foreign Language] Yanjun Cheng: Thank you for your question. You're right. We have been proactively taking steps to adjust our inventory given the current business environment. [Foreign Language] Operator: Our next question is coming from Ye Liu from Goldman Sachs. Ye Liu: Thanks. Can you hear me? Yanjun Cheng: Yes. Ye Liu: This is Liu from Goldman Sachs. Thanks for the opportunity and welcome Novick for your first earnings call with Bud APAC. I have 2 questions. The first one is on China. So basically, our ground check shows that there has been some volume recovery in the super premium segment, including Corona, Blue Girl in the first quarter. So how to look at the sustainability of this trend? How to comment on the on-trade consumption recovery so far, including any color on 2Q to date on the on-trade performance in China? I will translate to Mandarin by myself. [Foreign Language] Yanjun Cheng: Let me take this question. I will start the summary of the answer first, then I'm going to talk a little bit detail in sort of answer in Chinese. Indeed we grow Super Premium volume by double digit in the first quarter 2026 as we focus on premiumization in the in-home channel and O2O. In terms of on-trade recovery nightlife channel contribution was stable, and we grew volume in the nightlife the first quarter 2026. However, Chinese restaurant channel remains under pressure. [Foreign Language] Ye Liu: The second question is to our new CFO, Novick. So I would like to know what's the 3 key focus for you this year, would you please share with the investors on the call. Thank you so much. Bernardo Novick Rettich: Thank you, Liu. Nice to hear from you, and thanks for the question. So let me share the 3 priorities that me and my team will focus this year. The #1 priority is growth. And the main objective here is to stabilize the volumes in China. The second priority is to improve execution. And the third priority is value creation. So on the #1, the #1 is consistent to the business strategy that YJ was describing. And the main objective of the business is to grow volumes here, right? And in order to do that, we really need to stabilize volumes in China. And the finance role to do that is increasing investments and making the investments more effective. I think it's important here, when we manage to stabilize volumes in China, given our footprint in India and in Southeast Asia, will be able to reignite growth for the whole Budweiser APAC. Number two priority is execution. I think here, finance has an important role, collaborating with our commercial team in China to enable and upgrade our route-to-market model to help on this transition to more volume in the in-home channel. That's another important priority for us. And the third one is value creation. Here, we are reviewing internal investment decisions, improving efficiencies, cost controls. One example here, for example, we are reviewing the unit economics of different packs to make decisions that can help us be more efficient with resource allocation. But ultimately, Liu we are here for growth, and that's our main priority for this year. Thank you very much for the question. Operator: Our next question is coming from Elsie Sheng from CLSA. Yiran Sheng: Thank you management for taking my questions. Thank you, YJ, and also welcome Novick. I have 2 questions. My first question is on China in-home development. Do you have any update or progress to share on the development of off-trade channel in China. I will translate myself. [Foreign Language] I will ask my second question later. [Foreign Language] Yanjun Cheng: Thank you, Elsie. This is YJ. Let me take this question. As a channel shift to in-home channel, we are taking actions to expand in the in-home channel to adapt. As we have a relative low exposure in in-home channel, which means we have a massive growth potential. We are investing to catch up. [Foreign Language] Yiran Sheng: My second question is on China commercial investment. So previously, management mentioned that you will increase marketing this year. Is that plan still on track? And what's the marketing plan for the coming peak season and sport events like World Cup? [Foreign Language] Yanjun Cheng: Yes. So as Novick mentioned, as I mentioned earlier, in 2026, our top priority in China is a stabilized volume. To achieve this, we have given room to the team, to the commercial team to increase commercial investment. So that's the direction we set up for the commercial team. [Foreign Language] Operator: Our next question is coming from Mavis Hui from DBS. Mavis Hui: My first question is on China. Could we have some more updates on the growth of your emerging channels such as O2O instant retail and e-commerce in China. More importantly, how do margins and pricing dynamics across these channels compared with traditional off-trade and how are we managing potential channel conflict with our distributors? But let me translate first. [Foreign Language] Yanjun Cheng: Thank you for your question. I will take this question as well. O2O is one of faster emerging channel in China. We have started to make a fair significant effort to increase our presence with it. And we see this as a great opportunity for us in 2026 and beyond. We partnered with a major O2O platform to further expand our participation. [Foreign Language] Mavis Hui: And my second question is on Korea. Excluding shipment phasing effects, are we still seeing underlying share gains in South Korea? What are the key challenges to sustaining outperformance in the market? [Foreign Language] Yanjun Cheng: Thank you. Let me take this question again. Total industry in Korea have remained soft in the first quarter 2026. With a soft consumer environment continued to impact overall alcohol consumption. However, our underlying momentum in Korea continued and we outperformed the industry in both the on-premise and in-home channel. [Foreign Language] Operator: Our next question is coming from Anne Ling from Jefferies. Kin Shun Ling: I have 2 questions here. First is on the cost of goods sold in general. We saw some raw materials price volatility, and this has been coming up recently for example, like aluminum. So what will be our view on the raw material costs for year 2027? [Foreign Language] Yanjun Cheng: In 2026 of first quarter our cost per hectoliter has decreased by 0.8%, mainly driven by efficiency improvement, partially offset by commodity headwind. [Foreign Language] Kin Shun Ling: [Foreign Language]. So my second question is on the India side. So could you share with us now on the Indian market update? How do we see the market competition and our strategy over there? I understand that we are focusing on more market share. So may I know when the company will start focusing on the profitability of the market? Is it still a little bit too early? And that competition is still very keen? Should -- I mean should Carlsberg be listed? What is your view on the competitive environment afterwards? [Foreign Language] Yanjun Cheng: Thank you. In India, we are focused on sustainable and meaningful top line growth that can translate to EBITDA and cash flow growth accordingly. [Foreign Language] Operator: Our next question is coming from Lillian Lou from Morgan Stanley. Lillian Lou: And thank you, YJ and Bernardo for the detailed answer previously. Congrats to Bernardo for your new role. I have two questions. The first one is on China pricing because YJ just mentioned that the raw materials are fully hedged and were relatively stable. But on the pricing side, any price action and mix shift that you observed that could improve the overall pricing in the market in general? [Foreign Language] Bernardo Novick Rettich: I can take this question YJ. Yanjun Cheng: Go ahead. Bernardo Novick Rettich: Lilian, nice to hear from you. Thank you for the question. I think all the answers should start with the same reminder that our main priority, right, is growth and particularly to stabilize the volumes in China. It's true that in the first quarter, our net revenue per hectoliter was below last year and this was impacted by investments, mainly in 3 objectives for the investments to support our wholesalers, to activate our brands and also to accelerate the growth in O2O. But on the other hand, we had positive mix effects coming from our brands, mainly driven by our Premium and Super Premium brands. I think it's important to mention to you and the press that we expect to continue to invest in 2026. Regarding price, we will continue to monitor always the prices in the market, and we are open to adjustments if something changes. But at this moment, we don't have any news regarding price increase for China. Lillian Lou: My second question is on Korea -- South Korea market. We all know that last year, April, you had a price increase, which still benefited the first Q this year on the pricing side. But what will drive the South Korea revenue and also pricing and the EBITDA growth for the rest of the year, in particular, the industry remain a little bit soft and the competition is still there. So this is the question on Korea. [Foreign Language] Bernardo Novick Rettich: I can take this one too. Very good question, Lillian, thanks. When we think about like a medium-term margin growth for APAC East and Korea, I think there are mainly 3 things that can drive this. One is, of course, pricing. The second one, operational efficiencies. And the third one, I think it's important to mention is mix and innovations. Maybe let me talk about each one of them. On prices, of course, we always consider our pricing decisions looking at what's happening in the beer market, but also the macroeconomic situation in the country. We'll continue to monitor similar to China. We don't have anything to announce at this point. On the second part, operational efficiencies. Here, we continue to implement cost management initiatives. This is one of our main strengths at Budweiser APAC, as YJ was talking about our efficiency and excellence programs that we have so this is something that we still see opportunities. And number three, I think mix and premiumization and innovations are very important for us in the future. Maybe I can share a couple of examples one of them is the growth of Stella Artois in the on-trade. I think that's a prudent healthy growth. The other one is the nonalcoholic beer, like example like Cass 0.0. I think both of them are good examples of innovations that can both drive volume growth, but also margin expansion. So overall, I think that we see opportunities to keep recovering margins in Korea in the future. Thank you for the question. Operator: In interest of time, our final question will come from Linda Huang from Macquarie. Linda Huang: My first one is regarding for the dividend. And given that Bernardo has really taken up the CFO role. So I just want to know that whether from the group perspective, whether you will change the capital allocation approach. Especially the last 2 years, right, we -- they paid out USD 0.0566 per share dividend to the shareholders. So whether this is the dividend per share policy under review. So this is my first question. [Foreign Language] Bernardo Novick Rettich: Thank you, Linda. Nice to hear from you. Thanks for the question. So I think it's important to remind everybody, right, we are working to deliver sustainable long-term results for our shareholders, right? And the other message is that our capital allocation strategy remains the same. Our first priority continues to be to invest in our business like we are doing this year to drive organic growth. followed by M&A when we see opportunities for acquisitions. That's the second one. And then the third one to return to our shareholders, for example, via dividend, but it's also what we have been doing, right? So I think we are very proud of our dividend track record since the beginning, recently with the announcement of the $750 million dividend that we announced for 2025, which by the way, was consistent to the dividend for the previous 2024. So I think if I have to summarize, we are working towards improving our business performance this year to be able to keep this consistency in the future. Thanks for the question. Linda Huang: My second question is regarding for our products, and I think this may be YJ can help. So when we compare China to the other Western countries. I think there's always plenty of alcohol product innovation. So I just want to know that, again, whether the management can elaborate more about our product innovation plans? And then what kind of the innovation strategy will fit well for our China market. [Foreign Language] Yanjun Cheng: [Foreign Language] Operator: Thank you. That concludes our Q&A session today. I would like to turn the conference back over to YJ for the closing remarks. Yanjun Cheng: Thank you. As I mentioned on our 2025 annual results call early this year, our priority is to stabilize volume and rebuild our market share momentum in China by investing in our in-home route to market and a leading permium portfolio. The progress we have been seeing in the first quarter and have been encouraging. On this positive note, thank you all for joining us today, and I'm looking forward to speaking to you soon. Operator: Thank you. And this concludes today's results call. Please disconnect your lines. Thank you.
Operator: Good day, everyone. Welcome to the NHI First Quarter 2026 Earnings Webcast and Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Dana Hambly. The floor is yours. Dana Hambly: Thank you, and welcome to the National Health Investors conference call to review results for the first quarter of 2026. On the call today are Eric Mendelsohn, President and CEO; Kevin Pascoe, Chief Investment Officer; John Spaid, Chief Financial Officer; and David Travis, Chief Accounting Officer. The results as well as notice of the accessibility of this conference call were released after the market closed yesterday in a press release that's been covered by the financial media. Any statements in this conference call which are not historical facts are forward-looking statements. NHI cautions investors that any forward-looking statement may involve risks or uncertainties and are not guarantees of future performance. All forward-looking statements represent NHI's judgment as of the date of this conference call. Investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-K for the year ended December 31, 2025, and Form 10-Q for the quarter ended March 31, 2026. Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireit.com. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release and related tables and schedules, which have been furnished on Form 8-K to the SEC. Listeners are encouraged to review those reconciliations provided in the earnings release together with all other information provided in that release. I'll now turn the call over to our CEO, Eric Mendelsohn. D. Mendelsohn: Good morning, and thank you for joining us today. NHI delivered a solid start to 2026 with first quarter results exceeding our internal expectations across NAREIT FFO, normalized FFO and FAD. These results reflect continued momentum across the portfolio and the benefits of the investments we've made over the past year, particularly within our SHOP portfolio, which continues to scale rapidly and contribute meaningful growth. At the same time, we're updating our full year guidance, which I want to address upfront. The primary driver of this change is the recently announced agreement to sell the NHC portfolio for $560 million. This transaction advances our capital recycling strategy, increases our concentration in private pay senior housing and enhances our balance sheet, providing significant liquidity to reinvest into higher growth opportunities. While we believe this is the right strategic decision for the long-term, the timing of the transaction and redeployment of capital creates near-term earnings pressure, as reflected in our updated guidance. From an operating standpoint, we continue to make progress expanding our SHOP platform. Invested capital through the first quarter increased more than 100% over the past year. Recent acquisitions and transition properties are performing well and in aggregate, are tracking ahead of our initial expectations. We also announced $107 million acquisition for 7 properties in Colorado last night. On a pro forma basis and including the pending NHC and other asset sales, our SHOP investment increases to approximately 24% of our total portfolio and over 15% of annualized NOI. We have now closed on investments of over $212 million in 2026. We expect to defer a significant portion of capital gains associated with the pending NHC asset sale, which has a basis of less than $15 million. Based on our active pipeline and other tax planning strategies, we expect to further mitigate these gains. While we have good overall SHOP momentum, the legacy Holiday same-store performance continues to be below our expectations. As a result, we've adjusted our full year same-store SHOP NOI growth to a range of 1% to 3%. This impacts our FFO per share guidance by less than 1%. The 11 non-same-store properties that we transitioned and acquired since the first quarter of last year contributed $4.3 million to NOI, representing 5.2% sequential growth from the fourth quarter of 2025. We believe these assets are more indicative of the underlying organic SHOP growth potential. The broader strategic outlook for NHI remains very compelling. We are confident that the steps we are taking today are the right ones to strengthen the company and enhance our long-term growth profile. We are actively reshaping the portfolio to increase our exposure to private pay senior housing, where we see the most attractive risk-adjusted returns. The pending NHC leased portfolio disposition accelerates that shift to approximately 80% of annualized NOI. Overall, the senior housing industry fundamentals present significant organic and external tailwinds. Demand is accelerating and new supply is stagnating. We are working on several initiatives to improve internal growth, and we continue to add depth to our asset management platform through experienced new hires and investments in technology to increase scale advantages. The pipeline is robust, and we remain disciplined in our underwriting and capital allocation. The capital recycling positions the pro forma balance sheet with leverage at less than 3x net debt to adjusted EBITDA, giving us substantial flexibility to pursue accretive acquisitions. Taken together, we believe these factors position NHI to deliver solid long-term FFO per share growth and create sustained value for stockholders. Before I turn the call over to Kevin, I want to say a few words about John Spaid, who recently announced that he will be starting his well-earned retirement on July 1. John joined NHI as employee #13 in 2016, answering my call to bring greater financial acumen in managing NHI's balance sheet and capital market relationships. His leadership has NHI well positioned with an excellent balance sheet and ample access to capital that should fuel our long-term growth strategy. On behalf of the entire NHI community and all of our stakeholders, I congratulate John on a great career and wish he and his wife many years of great golf, travel, fine dining and good living. Thank you, John. I'll now turn the call over to Kevin to discuss our business development and asset management activities. Kevin? Kevin Pascoe: Thank you, Eric. Beginning with business development. NHI is off to a strong start with announced year-to-date SHOP investments of $212.4 million. This includes a 7-property portfolio of assisted and independent living assets in Colorado, which we closed on May 1. The portfolio has 532 units, occupancy in the high 80% range and RevPOR of approximately $5,300. We expect an initial NOI yield for the first year of approximately 8.3% and 7.8% after routine CapEx. Properties are transitioning management to Generations, which is an existing lessee of ours in Colorado, and we have been looking for opportunities to grow with since our initial investment in 2025. We currently have $20.3 million under signed letters of intent and are evaluating an active pipeline valued at $560 million. We are also in discussions on multiple larger portfolio opportunities and have over $200 million in outstanding LOIs. This pipeline continues to give us confidence that we can meet or exceed last year's investment total. Our external growth strategy remains focused on private pay senior housing assets across both SHOP and triple net structures while maintaining flexibility for future SHOP transitions. Though pricing has tightened over the past year, deal volume has accelerated, and we believe we are well positioned given our excellent reputation in the industry, strong access to capital and ability to execute. As a part of our ongoing portfolio management efforts, we completed the disposition of 4 properties with 4 operators for net proceeds of approximately $53.4 million. In addition to the pending NHC transaction, we have 3 other properties under contract for disposition, representing approximately $58 million of expected net proceeds. Turning to our operating performance. Total SHOP NOI increased by 188.1% compared to the first quarter of 2025, driven by the transition and acquisition of 20 properties. Same-store NOI on the 15 legacy Holiday properties declined 2.4% year-over-year to $3 million and represents less than 4% of the company's annualized NOI. The first quarter NOI was in line with our expectations, but occupancy declined throughout the quarter, prompting the change to the full year growth outlook. While the financial impact is limited, we are not satisfied with the performance and are evaluating a range of strategic alternatives for these assets, and we'll provide further detail as decisions are finalized. The non-same-store portfolio, including the Colorado acquisition, now includes 27 properties. The estimated annualized NOI of approximately $33 million represents 73% of total SHOP NOI. As Eric noted, the non-same-store properties generated solid growth from the fourth quarter and our updated guidance reflects an increased contribution relative to our initial forecast. For these newer assets and future acquisitions, we continue to expect near-term NOI growth in the high single-digit to low double-digit range, supporting projected rates of return in the low to mid-teens. Across the triple net portfolio, we continue to see stable performance with no rent concessions and generally steady occupancy and EBITDARM coverage. Cash lease revenue increased approximately 7.7% year-over-year, driven primarily by acquisitions, NHC percentage rent and the annual percentage rent true-up as well as annual escalators. This was partially offset by the transition of 7 properties to SHOP on August 1. EBITDARM coverage improved across our major asset classes. For the 12 months ended December 31, 2025, senior housing and medical coverages, excluding NHC, were 1.61 and 2.53, respectively. Regarding Bickford, we reset the leases to fair market value on April 1. The new structure includes base rent of $38.4 million, which is approximately $3.2 million above the prior base rent and annual escalators of 2% to 3%. In addition, we will receive conditional rent based on a revenue-driven formula similar to the structure previously used for deferral collections. The pro forma EBITDARM coverage on the new base rent at December 31 was 1.55x. Given this elevated coverage, we expect total cash collections from Bickford, including base and conditional rent, to increase modestly under the new lease. The conditional rent component extends through the life of the lease and allows NHI to participate in the potential upside as performance continues to improve. That concludes my remarks, and I'll now turn the call over to John to discuss our financial results and guidance. John? John Spaid: Thank you, Kevin, and hello, everyone. This morning, I'll provide details on our first quarter results and update you on our financial outlook for 2026. I'll be using average diluted common shares for all per share results. For the quarter ended March 31, 2026, our net income per share was $0.82, an increase of 10.8% from the prior year's first quarter. Contributing to our strong Q1 performance was the accretive growth attributable to the $413 million in new investments the company placed in service since the beginning of the second quarter last year. Also contributing to the quarter was an above expectation prior year NHC percentage revenue rent true-up and a larger-than-expected improvement in first quarter NHC percentage revenue rent, which resulted in a $1.3 million higher cash rent for the quarter compared to our February guidance expectations. Also recall that in the prior year first quarter, we recognized $1.2 million in transaction expenses and $0.3 million for proxy contest expenses. Our NAREIT FFO and normalized FFO results per share for the first quarter compared to the prior year period increased 7.9% and 7%, respectively, to $1.23 per share. FAD for the first quarter compared to the prior year period increased 11.6% to $62.5 million. Interest expense for the first quarter was up 4.9% year-over-year due to higher average interest rates on the company's debt. Cash G&A for the first quarter was up 31% to $5.6 million compared to $4.3 million in the first quarter last year as the company continues to ramp its SHOP growth strategy. Weighted average common diluted shares were up 5.8% to 48.5 million shares as a result of the company's greater use of equity in lieu of debt to fund new investments over the last year. During the quarter, we closed on new investments totaling $105.5 million. And subsequent to the quarter's end, we announced an additional investment for $106.9 million in 7 senior housing SHOP properties with an existing operator. At March 31, 2026, we had remaining escrowed forward equity proceeds of approximately $44.2 million available to us in exchange for the future delivery of 643,000 common shares at an average price of $68.81 per share. We ended the quarter with $24.9 million in cash on our balance sheet and $391 million in revolver capacity. During the first quarter, we renewed our shelf registration statement on file with the SEC and concurrently entered into new equity ATM distribution agreements, bringing our ATM capacity back up to $500 million. Our balance sheet ended the first quarter in great shape. Our net debt to adjusted EBITDA was 4x for the quarter and at the midpoint of our 3.5x to 4.5x leverage policy. Our available liquidity, excluding the proceeds from future dispositions, was approximately $960 million attributable to the cash on the balance sheet, excess revolver, forward equity and additional ATM capacity. We have 2 debt maturities in 2026 and 2027 totaling $225 million and no other maturities until our revolver facility matures in 2028. Let me now turn to our dividend and guidance. As we announced last night, our Board of Directors declared a $0.92 per share dividend for stockholders of record June 30, 2026, and payable August 7, 2026. The company expects to offset the expected gains due to our announced dispositions, utilizing IRC Section 1031 like-kind exchanges, including reverse 1031 exchanges to the greatest extent possible. At this time, the company's final year-end 2026 taxable income and capital gains are not yet determinable and may not be fully determinable until the fourth quarter. Last night, we updated our 2026 full year guidance. We expect GAAP net income at the midpoint to be $14.37 per share, reflecting the significant gain associated with the pending NHC lease portfolio disposition. We expect NAREIT FFO and NFFO per share at the midpoint to be $4.77 per share or up 2.6% and down 2.9% compared to 2025, respectively. We expect total FAD at the midpoint to grow 4.1% to $242.2 million. Our full year 2026 guidance includes $180 million in additional future investments and an average NOI yield of 7.8%, comprised approximately 60% in SHOP investments, which we believe is a conservative assumption for the remainder of the year. The guidance includes $392 million in new announced and unidentified 2026 investments at an average NOI yield of 8%. The guidance includes the impacts associated with our recently completed and expected dispositions for 6 properties as well as the 35-property NHC portfolio. Our 2026 guidance reflects the settlement of our remaining forward equity and the retirement of our upcoming debt maturities using proceeds from our revolver. However, we expect our capital market activity to adjust as required to meet the company's liquidity needs due to the changes in the timing and the amount of our investments and dispositions. I'd like to conclude by thanking everyone I've worked with during my 10 years at NHI. I especially want to thank Eric and our Board of Directors for the opportunity to serve as CFO and for their trust. I'm very proud to be leaving the company with a balance sheet in solid shape and well positioned to support the company's future. Once again, thank you for joining the call today. That concludes our prepared remarks. So with that, operator, please open the lines for questions. Operator: [Operator Instructions] Your first question is coming from Farrell Granath with Bank of America. Farrell Granath: This is Farrell Granath. I first wanted to ask about the $560 million incremental pipeline that you're expecting going forward. I know when this initially was announced, we had received color that it was to be paying down debt. And then based on some of your comments, it seems that you're receiving or are able to be underwriting or looking over more deals. Can you give us a little bit more color on the percentage or breakdown of SHOP versus leased or leased with the revenue participation within that $560 million? And if that has actually started to increase after the announcement of -- or likelihood of being able to close deals after the announcement of the NHC lease? Kevin Pascoe: Sure. This is Kevin. I would say our pipeline has been pretty consistent. It is fairly robust right now, predominantly senior housing, which isn't a big change. That's what we've been looking at this whole time. And I think we just have to be open with the structure that we use and mindful of the property or the underlying asset, their ability to have growth and then making sure that we make an assessment, is that appropriate for a lease or a SHOP transaction. I think we want to do more SHOP, and that's going to be an emphasis for us. So there might be a way for us to do -- if it is a lease, maybe there's a way to do a transition into the future, but we're remaining flexible on structure at the moment and just making sure that we understand the underlying fundamentals of the property and what kind of growth profile we can get. Farrell Granath: And I also wanted to ask about the legacy Holiday assets. I know you had commented that they haven't been performing within expectation. What is driving that underperformance? Is it simply from fl,u seasonality? Or is it from other comments that we have heard in prior quarters, due to transition in staff or other items? Kevin Pascoe: There is some modest seasonality. That said, they did hit our projections for the first quarter. The issue that we run into really is relegated to just a handful of properties and some census loss at those, which made us kind of reset expectations for growth. We have a couple of others that we're doing some extensive CapEx projects that ran into some delays, that are going to delay kind of the lease-up there. So we wanted to make sure we were resetting expectations for something that we felt very confident in versus trying to adjust later in the year. I still think our forecast is very manageable, but frankly, disappointing. But like I said, the problem is fairly isolated. And again, as we've talked about in prior calls, we're just talking about a very small portfolio, which is what's moving the percentage here probably more than it should. It affected our -- it's less than 4% for us. Operator: Your next question is coming from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Maybe a question for John, and congratulations on your upcoming retirement. But just wanted to, on the guidance, delve a little deeper into the driver. So how much of the decrease in FAD per share was as a result of the NHC sale? And just to confirm, you're only assuming you reinvest an incremental $180 million and nothing over and above that. Is that correct? John Spaid: Well, it depends on your definition of reinvestment, Juan -- this is John. So there's a lot of moving parts. First, the proceeds. The proceeds are going to -- initially, there's going to be well over $200 million that will reduce debt. Those $200 million are tied to reverse 1031 exchanges that we've already set up. There'll be a portion of those proceeds that we will have to set aside, we can't touch for a period of time with intermediaries and 1031s. Those proceeds will be reinvested at the rate that the intermediaries can provide us. So there's some drag there. We've already been making investments ahead of our original guidance. This investment we announced today was ahead of the original guidance. The $180 million in additional guidance increases our guidance that we gave to you for the total amount that we thought we'd be able to invest this year. We still think that's a very conservative number. So it's a little bit of -- yes, NHC transaction in a variety of different ways did pull down our guidance. However, we've had some outperformance on investments that have offset some of that. But the net effect has -- of the NHC transaction was to pull down our guidance. I hope that helps. Juan Sanabria: It does. And then can I just -- on the NHC transaction, have you had any third-parties reach out looking at potentially topping the bid by NHC to repurchase the assets? D. Mendelsohn: Juan, this is Eric. I'll take that question. If a third-party reaches out in writing, then we will issue a press release about that. Until then, we're not ready to disclose anything. Operator: Your next question is coming from Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Eric or Kevin, in the prepared remarks, I think you indicated you have over $200 million in outstanding LOIs for multiple larger portfolios. I guess given the reluctance to give too much detail on larger portfolio opportunities, just given the difficulty predicting whether you'll transact, I guess, how far along are you in negotiating these deals? How competitive is the process? And should we view your willingness to openly discuss these deals as maybe having a higher probability of closing? Kevin Pascoe: Sure. This is Kevin. I would tell you that we're willing to talk about them because we feel like there is ample opportunity out there, whether we end up landing these deals or some other ones that are in the pipeline. I also don't feel like our pipeline number we gave is indicative. I also don't want to give a bit of a head fake by quoting ridiculously large number. We're reviewing a large amount of opportunities, which generally, when we describe it, did not include $100-plus million portfolio deals that we're looking at. So we wanted to try and give a little bit of flavor for what the pipeline does look like. That said, I feel like we have a solid chance at landing these, which is why we're willing to talk about them, but nothing is for certain until it's closed. Austin Wurschmidt: And just to be clear, these portfolio deals are outside of the $560 million that you put in the release last night, correct? Kevin Pascoe: That's right. Austin Wurschmidt: And then just one more. Recognizing that the same-store shop pool is small, and this was sort of structured with a group of underperforming assets several years ago coming out of the COVID period. But how does this group of assets compare to the assets you've recently acquired and are underwriting today, just to give confidence in maybe the future performance versus what you've seen happen within the same-store pool in the last couple of years? Kevin Pascoe: Sure. This is Kevin again. What we're looking at now is generally newer assets, generally has some element of health care associated with it versus the independent. That said, I don't want to make it such that independent is a negative. I think having some sort of continuum or a combination is helpful, though, and that's generally what we're looking at more now is where you have an ILAL or ILAL memory or some combination thereof. We feel like there's better pricing power on that side and be able to add the element of care and create a bit of a continuum. So generally, it's going to be newer and have the continuum, I'd say that. And then really, what we're looking at is more of a -- when we look at the growth profile, we're not looking at deep value adds. I would characterize the Holiday transition as more of a turnaround. That's not really where we've been playing in the sandbox right now. So it's just a little bit different profile. Austin Wurschmidt: And then just last follow-up there is just have you changed your underwriting at all to drive some additional success in landing these recent deals within SHOP? And that's all for me. Kevin Pascoe: Sure. I would suggest to you that the market is very competitive. So we're trying to meet the market and make sure that we're making good decisions based on data and that we understand the markets that we're going into and what our operators' competencies are as they manage these assets and finding the right fit between the 2. So I think our underwriting has evolved over time, and I feel confident in our ability to execute here. Operator: Your next question is coming from Rich Anderson with Cantor Fitzgerald. Richard Anderson: So I think I heard a number, 24% SHOP. Is that pro forma for the NHC sale? And I'm curious what that number would be after deployment of the proceeds, where we're looking at when all the dust settles from the transaction? Kevin Pascoe: Sure. Rich, this is Kevin. That is a pro forma after NHC. And then what the mix looks like is still to be determined. It just depends on what level of SHOP versus triple net we redeploy the capital into. But I think it's safe to say that looking into the future, that SHOP percentage is going to continue to increase. Richard Anderson: Curious as to why it's only 15% of NOI, like you would think that those numbers would be flipped given the growth profile. This is just the Holiday impact that's causing that lower percentage of NOI? Kevin Pascoe: Yes. I mean I think that those properties in aggregate have been a drag. We're working to make sure we manage that as good stewards of the company, but really focusing on the new SHOP, which we talked about has good -- a much better growth profile to it. Richard Anderson: Okay. When you think about the duration of this is like a, call it a one step back, 2 steps forward type of strategy around the sale rather than the release of the NHC portfolio. So I can appreciate that, but I think it all comes down to how long before you sort of get back to square one. So given all of these comments around pipeline and so on, I mean, what would be a success in your mind to sort of getting back and then surpassing the previous range of guidance and truly presenting this as the right strategy to take? Is this 1 year worth of time, 2 years, 5 years? I think what would be measurable as success in your mind? D. Mendelsohn: Rich, this is Eric. I agree it's -- it is kind of a 2 steps forward, one step back event. But we're excited about the opportunity of focusing on senior housing, having less legacy issues with NHC. What I would consider a success is if we can meet or exceed our original guidance. Keep in mind that we've already 1031ed over $200 million worth of transactions this year. So in my mind, we're almost halfway through that $560 million gain. And if we can redeploy the rest of that, call it, 200 -- $360 million in the next 6 months, then I would consider that a win, especially if it's senior housing and even more especially if it's SHOP. Richard Anderson: John, congrats to you. Good luck. Operator: [Operator Instructions] Your next question is coming from Omatayu Okusana with Deutsche Bank. Omotayo Okusanya: John, a big congratulations. It has been a pleasure working with you, and thanks for always shooting straight and telling it like it is. I always kind of appreciated that about you [Technical Difficulty]. First question from my end, the proceeds from NHC, I mean, is there any chance at all whether with the 1031 rules or anything of that nature where you may have to ultimately deploy that as a special dividend? Or can that scenario kind of [indiscernible] or like is that kind of a [Technical Difficulty]? John Spaid: Yes, this is John. We're looking at that. We are obviously planning in case we do need to declare a special dividend towards the end of the year. As you know, REITs have 2 options here. We can actually pay the tax on the capital gain if we so chose. Typically, REITs don't do that. They would prefer to return the capital back to shareholders unless they can find a better use for the capital and can defer it. And so there are short time frames under these 1031 arrangements. Our average cost of capital, let's say, is 4.6%, 4.7% in that range. So initially, the lost NOI doesn't completely result in a one-for-one reduction in FAD. So we're looking at reducing debt, saving interest expense and then making smart redeployment of that capital. And insofar as we do have to declare a special dividend, the components of that dividend may include a portion of stock. So stay tuned. As I said in my prepared remarks, it's not determinable at this point, and it's going to depend on a lot of factors that we really -- won't really know until we get to the fourth quarter. Omotayo Okusanya: Got you. That's helpful. And then if I could just ask a quick question about Bickford. With the new lease structure now, I would kind of expect you don't collect any "rent deferrals" anymore with the way the new structure is set up. I also wanted to understand a little bit about the slight occupancy dip in the reported metrics, what was kind of going on there? Kevin Pascoe: Tayo, this is Kevin. As for the occupancy dip, it's -- when we look at seasonality and their trends over the last few years, this is within the normal range. So nothing that we're concerned about here. And sorry, could you restate your first question for me, please? Omotayo Okusanya: And then the first question was around the rent deferrals, again, that you've kind of been collecting. But the way the new lease has been structured April 1, does that kind of disappear and it's all kind of being built into the new lease rate? Kevin Pascoe: Yes, I would characterize it as being built into the new rent. We just have a new rent structure where we will get the contingent rent through the rest of the lease versus when the way it currently was structured is there would have been a balloon payment. So now we would extend the period in which we have the contingent rent eligible for probably another 5-plus years. And then we can participate in the revenue growth at the operator level. Operator: You do have a follow-up question coming from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just a quick question on the SHOP pipeline. What kind of yields can we expect on incremental investments? You talked about increased competition. So just curious on the pricing you're seeing in today's market? Kevin Pascoe: Juan, this is Kevin. I would say that we've done very well on the last few deals that we've closed in terms of our initial yields. The market has definitely tightened, and I would not tell you to forecast, that's where the market is today. And what we see is the same as what you see is year 1 yields tend to be in kind of that 7% type range, plus or minus. Some of that's going to be based on vintage of asset market. If you -- if it's a bigger portfolio, it might be a bit lower where you think you might get some better rents or some better growth. But I think that's kind of what we're seeing right now. Our expectation is to try and do something better than that, but we're -- we have to be able to meet the market. Juan Sanabria: And then just kind of going back to one of the earlier questions. I guess the question in the forefront of people's minds is, is the Holiday situation in the kind of the back and forth on expectations there unique to those assets? And what lessons have you learned that you don't think that would be replicated in what you're purchasing or have purchased more recently? Just what are you looking for today that's different? I recognize Holiday was IL only and now it's more of an acuity mix, AL, IL, memory care mix. But if you could just expand on those points, I think that would be helpful. D. Mendelsohn: Juan, this is Eric. You've heard me say this before, the Holiday buildings were a science experiment. When Holiday was sold to Atria, we decided to kick off our SHOP portfolio with that as our first basis. And I would tell you that the new product that we're looking at is not 40 years old, not in need of constant CapEx and not in very tertiary markets. We're looking at mostly senior housing that has assisted living or memory care or some health care component. We're looking at newer buildings. We're looking at operators that have good local infrastructure and good practices in marketing and SEO and SEM marketing that keep the buildings full and keep the margins high. So more to come on what we're doing with the Holiday portfolio, but I'm going to be pointing to the not same-store portfolio going forward because we're getting the kind of performance that we're looking for out of those newer buildings. Juan Sanabria: And just one final one for me. It looks like some of the Florida assets tied to NHC are closing later or are being kind of carved off in some fashion. Could you just talk a little bit about that change, I believe, and why that's taking place? D. Mendelsohn: Sure. That is a sublease. NHC is not running those buildings. They're run by [ Solaris ]. And we are -- for legal reasons, we're just assigning that lease back to NHC. So we keep the sublease intact. It's a technicality of Florida licensing that requires us to do that. But the timing and the closing won't be affected. Operator: There are no further questions in queue at this time. I would now like to turn the floor back over to Eric Mendelsohn for any closing remarks. D. Mendelsohn: Thank you, everyone, for your time and attention today, and we look forward to catching up with you in person at one of the conferences soon. Operator: Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
Operator: Greetings. Welcome to Apple Hospitality REIT First Quarter 2026 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Kelly Clarke, Vice President, Investor Relations. Thank you. You may begin. Kelly Clarke: Good morning, and welcome to Apple Hospitality REIT's First Quarter 2026 Earnings Call. Today's call will be based on the earnings release and Form 10-Q, which we distributed and filed yesterday afternoon. Before we begin, please note that today's call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions, and as a result, are subject to numerous risks, uncertainties and the outcome of future events that could cause actual results, performance or achievements to materially differ from those expressed, projected or implied. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including in our 2025 annual report on Form 10-K and speak only as of today. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com. This morning, Justin Knight, our Chief Executive Officer; and Liz Perkins, our Chief Financial Officer, will provide an overview of our results for the first quarter 2026 and an operational outlook for the remainder of the year. Unless otherwise stated, all changes in performance metrics refer to year-over-year changes for the comparable period. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to Justin. Justin Knight: Good morning, and thank you for joining us today for our first quarter 2026 earnings call. We are pleased to report a strong start to the year with comparable hotels RevPAR growth of more than 2% despite challenging year-over-year comparisons to the first quarter of 2025. Underscoring the strength of the quarter, approximately 2/3 of our hotels delivered RevPAR growth. And on a same-store basis, RevPAR grew nearly 3% with margin expansion. The efficient operating model of our hotels, combined with our prudent management of expenses, enabled us to deliver meaningful flow-through of top line improvements to bottom line performance, resulting in growth across comparable hotels adjusted hotel EBITDA, adjusted EBITDAre and modified funds from operations. Demand momentum has continued into the second quarter. Preliminary reports for the month of April indicate comparable hotels RevPAR growth of over 4%, supported by continued strength in demand and the benefit of favorable year-over-year comparisons related to the negative effects of DOGE, Liberation Day and the resulting general macroeconomic uncertainty. While the ongoing conflict in the Middle East and its effects on global energy markets adds to an uncertain geopolitical and economic backdrop, our broadly diversified rooms-focused portfolio continues to demonstrate demand resilience. Improving occupancy and forward booking trends give us confidence heading into the summer months. Reflecting our year-to-date outperformance, we are raising our full year RevPAR guidance 100 basis points to 1% at the midpoint. The revised range maintains a measured view of the year ahead, and we believe it could ultimately prove conservative. Transient demand has been stronger than anticipated. Early summer performance may benefit from incremental leisure travel tied to the FIFA World Cup, and we are beginning to lap periods negatively affected by reduced government spending, tariff-related disruption and last year's government shutdown. Taken together, these factors represent potential upside not fully reflected in our updated outlook. Disciplined capital allocation has been central to our success over decades in the lodging industry. We prudently balance near- and long-term investment decisions to capitalize on current opportunities while positioning for the future. Over time, this approach is designed to deliver compelling total returns to our shareholders through durable earnings growth and long-term capital appreciation. In April of this year, we completed the sale of our Hampton Inn & Suites in Rochester, Minnesota for approximately $9 million. The sales price represents a 5% cap rate or 14.5x EBITDA multiple before CapEx and a 4% cap rate or 19.6x EBITDA multiple after taking into consideration an estimated $3 million in anticipated capital improvements. We continue to see opportunity to selectively prune our portfolio through transactions that enable us to reinvest proceeds in ways that enhance returns for our shareholders. Recent acquisitions have performed well despite headwinds in several markets. The Embassy Suites in Madison, Wisconsin saw meaningful improvement as the hotel completed its first full year of operations. The AC Hotel in Washington, D.C., also acquired in 2024, produced full year 2025 RevPAR of $205 and a 43% house profit margin, solid results given the meaningful pullback in government travel and weaker convention calendar last year. The Nashville Motto, which recently received Hilton's New Build of the Year Award for the Motto brand, continues to ramp well with average RevPAR approaching $200 over recent weeks. And the Homewood Suites Tampa-Brandon acquired last year continues to produce strong yields in advance of a full renovation and repositioning planned this summer. Turning to out-year commitments. We continue to have forward contracts for 2 projects in early stages of development, an AC in Anchorage, Alaska and a dual brand AC and Residence Inn located adjacent to our SpringHill Suites in Las Vegas. The AC in Anchorage has broken ground and is expected to be delivered in late 2027. Construction has not yet begun on the Las Vegas project. The dual brand AC and Residence Inn are currently expected to be completed in the second quarter of 2028. The current transaction environment does not yet support accretive opportunities relative to our cost of capital, and we do not currently have any agreements for acquisitions in 2026. Consistent with our disciplined approach, we remain actively engaged in the transaction market, evaluating potential hotel acquisitions relative to other uses of capital with a focus on maximizing long-term value for our shareholders. As we have continuously demonstrated over the years, the flexibility of our balance sheet and our reputation for strong execution puts us in a position to act quickly when market conditions shift to be more favorable. We also continue to strategically reinvest in our portfolio, ensuring that our hotels remain competitive within their respective markets and maintain a strong value proposition for our guests. For the full year, we expect to reinvest between $80 million and $90 million, including major renovations planned at 21 hotels. The scale of our portfolio, efficient design of our rooms-focused hotels and our experienced in-house project management team enable us to maintain our assets with average annual CapEx spend of approximately 6% of revenues, significantly lower than full-service portfolios. Combined with stronger operating margins, this efficiency translates into substantial free cash flow from operations, which we use to fund shareholder distributions and strategic investments. For the quarter, capital expenditures totaled approximately $27.5 million. Supported by strong cash flow from our diverse portfolio of hotels, we continue to return capital to shareholders through attractive monthly distributions, which contribute to total returns. During the first quarter, we paid distributions totaling approximately $57 million or $0.24 per common share. Based on Friday's closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 7.2%. Together with our Board of Directors, we will continue to evaluate these distributions in the context of portfolio performance, capital needs and other accretive opportunities to create long-term shareholder value. Throughout our 26-year history in the lodging industry, we have refined our strategy with intention. We invest in high-quality of hotels that appeal to a broad set of business and leisure customers. We diversify our portfolio across markets and demand generators. We maintain a strong and flexible balance sheet with low leverage. We reinvest strategically in our portfolio, and we work closely with the experienced management teams who operate our hotels. We own one of the largest, most diverse portfolios of upscale rooms-focused hotels in the United States, 216 hotels with almost 30,000 guest rooms diversified across 83 markets in 37 states and the District of Columbia. Travel demand for our portfolio has remained resilient with meaningful growth in recent months, reinforcing the merits of our strategy. We continue to believe that historically low supply growth from new hotel construction in our markets materially reduces the overall risk profile of our portfolio, limits potential downside and enhances potential upside. At quarter end, 57% of our hotels did not have any new upper upscale or upper mid-scale product under construction within a 5-mile radius. We have confidence in the outlook for the hospitality industry and in the strength and positioning of our portfolio. As we look ahead, we will continue to focus on the things within our control, operational execution, disciplined capital allocation and an uncompromising commitment to integrity. Above all, we are committed to creating lasting value for our shareholders. It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter and outlook for the remainder of the year. Liz Perkins: Thank you, Justin, and good morning. The first quarter was a strong start to the year with our portfolio demonstrating the durability of our operating model. We are especially pleased with our performance relative to initial expectations that Q1 would be our weakest quarter in the year. With a strong finish to February and acceleration into March, we ended the quarter with RevPAR growth exceeding the high end of our initial full year guidance range. For the quarter, comparable hotels RevPAR was $115, up 2.2%. ADR was $157, up 0.1% and occupancy was 73%, an increase of 2.1%. Performance improved as we moved through the quarter. In January, comparable hotels RevPAR was down 1.6%, reflecting a challenging comparison to the same period last year, nearly half of which was attributable to wildfire-related recovery business in early 2025. Excluding our California hotels that saw benefit, first quarter RevPAR grew 3%. In February, comparable hotels RevPAR increased by 1.5%, supported by strengthening business and leisure demand despite some weather disruption. March performance was particularly noteworthy with comparable hotels RevPAR growth of 5.8%, well ahead of expectations and indicative of broad-based demand strength across the portfolio, extending beyond the early effects of policy-driven demand headwinds experienced last year. For the quarter, comparable hotels total revenue was up 4.3% to $337 million, supported by continued strength in other revenues, which were up 10%. The efficient operating models in our hotels, combined with disciplined expense management, drove strong flow-through from top line growth to bottom line results. For the quarter, we delivered comparable hotels adjusted hotel EBITDA of $108 million, up 3.6%, and an adjusted hotel EBITDA margin of 32.2%, a reduction of just 20 basis points. Results reflect the ongoing ramp of our recently opened Motto Nashville Downtown and the seasonal impact of Hotel 57, both of which weighed on overall comparable hotels results. On a same-store basis, which excludes the impact of the Motto Nashville Downtown, the transition of Hotel 57 and our recently acquired Homewood Suites Tampa-Brandon, RevPAR grew by 2.8% for the quarter. Same-store total revenue grew 3.1%, supported by continued strength in non-room revenues, which grew 6% in the quarter. Strong top line growth, combined with disciplined cost management, drove same-store adjusted hotel EBITDA growth of 4.2% and 30 basis points of adjusted hotel EBITDA margin expansion. These bottom line results are especially encouraging given the ADR headwinds we faced during the quarter and the disruption and transition expenses associated with converting our Marriott-managed hotels to franchise. As we move into seasonally higher occupancy months, stabilize recently transitioned hotels and see greater contribution from rate growth, we would expect even stronger flow-through to the bottom line. As highlighted in January, we completed the transition of our 13 Marriott-managed hotels to franchise, consolidating management with third-party management companies who, in most instances, were already operating hotels for us in market, enabling us to realize incremental operational synergies. While still early, we are encouraged by the initial results and remain confident these transitions, together with a select number of additional market-level management consolidations, will further drive operating performance for our portfolio. The transition also provides us with additional flexibility and enhances the marketability of these hotels as we evaluate select dispositions in the future. The broad-based strength across our portfolio was noteworthy during the quarter. As Justin highlighted, approximately 2/3 of our hotels delivered RevPAR growth year-over-year despite several markets having challenging comparisons, including wildfire-related recovery business benefiting our California hotels in early 2025 and the inauguration in D.C. This reflects both the diversification of our portfolio and our team's continued focus on hotel and market level execution. Several of our markets stood out as top RevPAR performers in the quarter. Pittsburgh grew 23%, benefiting from multiple sporting events and a strong convention calendar. Alaska grew 21%, driven by strong leisure demand in market, further aided by incremental crew business. Seattle grew 18% with the return of Boeing production business and additional project-related business at a nearby shipyard. Palm Beach grew 16%, continuing to flourish with both strong leisure and business transient demand. And Memphis grew 14%, capturing incremental medical personnel and airline crew business amid increased government demand in market. Based on preliminary results for the month of April, comparable hotels RevPAR increased by over 4%. Despite the ongoing benefit in 2025 from the wildfire recovery business in Southern California, we continue to see broad demand strength across our portfolio and additionally benefited from favorable comparisons over a challenging April 2025, which experienced disruption from government policy-related announcements. Turning back to the first quarter, weekday occupancy was up 170 basis points and weekend occupancy was up 270 basis points. Weekday occupancy followed the same monthly pattern as overall results, down 200 basis points in January, up 200 basis points in February and up over 400 basis points in March. Weekend occupancy was positive throughout the quarter, up 100 basis points in January, 200 basis points in February and nearly 500 basis points in March. ADR trends also strengthened as we moved through the quarter. After negative ADR growth in January and February, weekday ADR turned positive in March, up 1.4%, finishing the quarter up 30 basis points. Weekend ADR was up 3.5% in March and up 70 basis points for the quarter, a meaningful positive inflection that contributed to the broader RevPAR gains. Excluding our L.A. and D.C. markets, which faced challenging comparisons year-over-year related to wildfire recovery and inauguration business, both weekday and weekend ADR grew over 1% for the quarter, indicative of our ability to drive rate growth alongside occupancy in our portfolio. Looking at same-store room night channel mix, the quarter illustrated improvement in transient trends. Brand.com remained our largest channel at 39% of room nights, up 40 basis points year-over-year, while OTA bookings were up 170 basis points to 13% of mix. Property direct declined 90 basis points to 26% and GDS bookings declined 90 basis points to 18%. Turning to segmentation. Transient trends improved each month, while group business remained strong and provided a strong base that helped us grow overall occupancy. Bar led the way with impressive room night growth, particularly in February and March, growing 120 basis points to 34% of our occupancy mix in the first quarter. Other discounts were more steady, declining 50 basis points to 27% of mix. Corporate and local negotiated declined 130 basis points to 17% of mix, but showed steady improvement throughout the quarter and contributed to overall March results. Government grew 20 basis points to 6% of mix, largely driven by comparisons to disruptions in March 2025. Group business mix improved 30 basis points to 17%. Turning to expenses. Same-store hotels total hotel expenses grew 2.6% in the quarter, down slightly to last year on a CPOR basis. Expense discipline was a meaningful contributor to our margin performance in the quarter. Same-store variable hotel expense per occupied room grew just 0.3% year-over-year. Total payroll per occupied room was $43, up just 1%. We also continue to see reduced reliance on contract labor, which fell to under 7% of total same-store wages, a decline of 80 basis points or 7% year-over-year. Non-payroll variable expenses declined 10 basis points on a per occupied room basis and fixed same-store hotel expenses declined 1.5%, driven by a favorable property insurance comparison and property tax appeals. For the quarter, we achieved adjusted EBITDAre of approximately $101 million, up 2.2%, and MFFO of approximately $80 million or $0.34 per share, up 1.9% and 3%, respectively. Turning to our balance sheet. As of March 31, 2026, we had approximately $1.6 billion of total debt outstanding, approximately 3.4x our trailing 12-month EBITDA with a weighted average interest rate of 4.6% and a weighted average maturity of approximately 3 years. At quarter end, approximately 63% of our total debt was fixed or hedged. We had approximately $8 million of cash on hand and $559 million of availability under our revolving credit facility, providing meaningful liquidity. At the end of the first quarter, we had 207 unencumbered hotels in our portfolio. Conversations are ongoing with our unsecured lenders regarding the scheduled debt maturities for this year, and we are confident we are well positioned to address those maturities on attractive terms. Building on our strong first quarter, we are raising our full year outlook. Consistent with the measured approach we took when we initiated guidance, we have continued to be thoughtful in our expectations for the balance of the year, recognizing the economic and geopolitical uncertainty in the broader environment while remaining confident in the underlying strength of our portfolio. For the full year, we expect net income to be between $143 million and $169 million, comparable hotels RevPAR change to be between 0% and 2%, comparable hotels adjusted hotel EBITDA margin to be between 32.9% and 33.9% and adjusted EBITDAre to be between $436 million and $458 million. We have assumed for purposes of guidance that total hotel expenses will increase by approximately 3% at the midpoint, which is 2% on a CPOR basis. We remain confident in our operating model and the ability to manage expenses and are pleased to share we achieved a favorable property insurance renewal last month, which will generate incremental monthly savings compared to our initial expectations. As a reminder, effective January 1, 2026, the company began excluding from the calculation of adjusted EBITDA and MFFO the expense recorded for share-based compensation as it represents a noncash transaction and the add back to net income is consistent with the calculation of adjusted EBITDA for the company's financial covenant ratios under its credit facilities and consistent with the presentation of other public lodging REITs. Demand for our broadly diversified rooms-focused hotels have proven resilient. With recent stronger-than-anticipated transient demand, early summer potentially benefiting from incremental leisure travel related to the FIFA World Cup and easier comparisons to periods adversely impacted by cuts in government spending, tariff announcements and the government shutdown in 2025, we acknowledge that our revised guidance could continue to prove conservative. Our outlook is based on our current view, which is limited and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions. Recent improvements in occupancy and booking trends highlight the resiliency of travel demand overall and the strength of demand for our hotels specifically. Our recent capital allocation decisions and portfolio adjustments have enhanced our portfolio positioning and performance, and our solid balance sheet continues to provide us with stability and meaningful flexibility to pursue accretive opportunities in the future. We are confident with the experience, discipline and agility of our teams, the broad consumer appeal of our portfolio and the strength and flexibility of our balance sheet. We are well positioned to successfully navigate changing market conditions and capitalize on emerging opportunities to deliver growth and maximize total returns for shareholders over time. That concludes our prepared remarks, and we'll now open the call for questions. Operator: [Operator Instructions] Our first question is from Austin Wurschmidt with KeyBanc Capital Markets. Joshua Friedland: It's Josh on for Austin. So to the extent that you do see more ADR growth moving forward, does the margin guidance assume RevPAR growth is driven entirely by occupancy? Or is it a composition of the 2? And if it was entirely driven by ADR, what would that imply for flow-through? Liz Perkins: That's a good question. And I think generally as we think about guidance, we are looking at the most recent trends and speaking to the impact of ADR headwinds from last year impacting our margin performance in the quarter. And as we lap those comps from last year, specifically related to the L.A. wildfires, we anticipate we'll be able to drive more rate. That is not entirely built into the guide. When we look to revise guidance for Q1, we, given how close in proximity it was to when we reported at year-end and the fact that we're still early in the year, took a more measured approach and really, for the most part, exclusively incorporated the outperformance of Q1 and some improvement in April as well. And so the balance between occupancy and ADR for the remainder of the year as far as guidance goes at the midpoint is still a split, very similar to what we had anticipated at the beginning of the year. But should trends continue and should we continue to see more broad-based demand improvement, we do anticipate, as we lap those comps, an ability to drive rate as we've demonstrated if you exclude those comparisons from even actual results through Q1 and into April. Joshua Friedland: Okay. That's really helpful. And then my second question is around the price sensitivity around the consumer. So I guess what are you seeing from that perspective? And then with the macro risks that are currently out there, what could a potential impact on the consumer look like from a demand perspective within your portfolio? Or I guess more broadly, like what are the possible scenarios that you consider at the low end of guidance? And I'd also be curious to know the flip side of that around what you assumed at the high end. And that's all for me. Justin Knight: Sure. We are not currently seeing significant price sensitivity with our customers. As Liz highlighted in her prepared remarks, as we move through the quarter, we were able to grow both occupancy and rate. And the primary weight on overall ADR growth for the portfolio was the year-over-year comps with both the inauguration, which is a high rate event in D.C., and wildfires, which drove rates in the L.A. area. I think as we look forward to the remainder of the year, as Liz highlighted, we've taken a very conservative approach to guidance for the remainder of the year. And really, what's implied there is very limited growth either in occupancy or in rate. And we recognize that, that is counter to our most recent experience and likely conservative. As we think about how things play out for the remainder of the year, we will be moving shortly into higher occupancy months and anticipate that growth during those months will come increasingly from rate, which will drive incremental margins. And really given the price point for our hotels and perceived value associated with them, we don't anticipate absent a meaningful pullback in demand, broadly speaking, any challenges related to our ability to drive rate on the margin. Operator: Our next question is from Jay Kornreich with Cantor Fitzgerald. Jay Kornreich: You're referencing a lot about how guidance could be conservative, and you mentioned some of the additional components of lapping the easier government demand comps from last year as well as tariffs in addition to some of the potential upside from the World Cup leisure demand. So I guess in those specific areas, I wonder if you could just unpack those a bit more in terms of, I guess, what your potential upside could be from those? And within the government demand, I think that was really your main headwind last year. So as that came back strongly in 1Q, do you see that continuing to be strong throughout the year? Liz Perkins: We're certainly encouraged by the improvement in government demand that we've seen as we lapped the most or the earliest comps from last year from the impact of DOGE and Liberation Day. So we are hopeful that we'll see that continue. Remembering too that as we move into higher occupancy months, should there be broader-based demand or special event compression, we could choose to yield that out, which could make some of our year-over-year comparisons hard to draw meaningful conclusions from if we choose to yield it out. But at this point, given where occupancy levels were for the first quarter, particularly once we entered March and then April, we were able to take incremental government demand and saw improvement around 13% and from a mix perspective approached around 6%. So encouraged from a government perspective. As we move through the year, we did see government steadily improve. And when I say that, the decline year-over-year decreased as we moved into the summer months and then, of course, increased when we had the government shutdown in the fourth quarter. And so I think that the comps as we move throughout the year will be a little bit fluid. But again, encouraged initially by seeing that improvement in group. Justin Knight: And remembering, again, when we issued guidance in the beginning, we anticipated that first quarter would be our most difficult quarter and that we would see improved performance after that. I'm certainly incredibly pleased with how we performed in the first quarter. And our current guidance does not include potential upside from World Cup, though we have seen strong bookings, especially in some of our smaller markets, which we do anticipate would be incremental to the strong demand trends that we're already seeing. Jay Kornreich: Okay. I appreciate that. And maybe just following up on your last comment, Justin, just about some of the World Cup bookings you've already seen. Is that largely coming from where you have exposure to markets where games are being played? Or I think as we've talked about before, the potential for international travelers extending stays, traveling in the U.S. for a week or 2 and maybe some additional markets where you have exposure to. Just any lens of insight into where you expect that and where you've already seen some demand? Justin Knight: It's difficult to determine specifically what's driving demand in markets outside of markets that will benefit from FIFA games. That said, when we look at current bookings, a very small percentage of our current bookings are international. That's consistent with past experience. The bulk of what we have on the books now is domestic, and we continue to anticipate that will be a primary driver. Should we see, as we get near to the games, an uptick in international bookings, that would be incremental. Operator: Our next question is from Aryeh Klein with BMO Capital Markets. Aryeh Klein: Justin, you talked a little bit about, obviously, the conservative nature of the guide, but also that you're seeing positive forward booking trends. Curious if you can just unpack a little bit more about what you're seeing from a forward booking standpoint. It doesn't seem to be reflected in the guide, but it would be helpful just to get a sense of what you're seeing. Liz Perkins: I mean, very consistent with what Justin said. As we look forward, we are beginning to see -- we typically look 90 days out or sort of rely more on what's closer in than further out. And within the 90-day window, you're starting to see certainly some impact from the advanced bookings around World Cup, which is positive. And as we -- even as we enter June, thinking about May outside of the calendar shift, that looks positive as well. So from a forward bookings perspective, we are continuing to see improvements around occupancy and rate as we look forward. Aryeh Klein: And then maybe just on the transaction market, can you just talk a little bit about what you're seeing there and maybe what you need to see to get more active on the trans acquisition front? Justin Knight: Absolutely. I think debt markets have been supportive of transactions for some time. With improving fundamentals, we are beginning to see more interest in the space. And I think for some time there has been a lot of product on the market that would be attractive to us. The challenge has been a meaningful gap between seller expectations and what we would be willing to pay. We've spoken about this in the past, but our acquisitions model runs a comparative analysis to alternative uses of capital, including share repurchases. And as we look at the environment today and pricing for individual assets relative to the implied value or implied multiple in our stock, our stock still screens better. I think as we think about an environment where we would get more aggressive from an acquisition standpoint, it would be an environment where that reverses. And that could happen either as a result of continued improvement in our share price or a reduction in expectations from sellers. And the most likely scenario is a combination of both. And as I highlighted in my prepared remarks, given our history in the space and the flexibility that we have with our balance sheet, as the environment shifts, we're poised to move very quickly. Operator: [Operator Instructions] Our next question is from Michael Bellisario with Baird. Michael Bellisario: My question is for you on the cost side. So 2 parts here. One, could you quantify the insurance savings and/or how much that's boosting your outlook? And then also just with expenses still at plus 2% per occupied room, is the right way to think about it now we're sort of in a steady state? Or are there other puts and takes looking at that, that might cause that 2% number to either inch higher or inch lower? Liz Perkins: Okay. I'll answer the first part. Related to the property insurance renewal, what we assumed beginning in the second quarter through the end of the year was about a $900,000 improvement to the forward guidance for the last 3 quarters. So that's a little less than half of the incremental bottom line impact outside of truing up year-to-date. The other portion comes through April improvement on the top line and flow through there. And then from an expense perspective, we've guided to how the properties have been operating from a cost control perspective. We've gotten very granular from an individual line item perspective and believe that what we've provided is a good run rate. Now certainly if the environment was to shift and a cost line item or something was to materialize differently than what we've anticipated, that could potentially impact how we thought about expenses. But we've had a good trend of very good cost controls and see some improvement on the property insurance line for several years now. And outside of the fixed cost real estate tax comps from last year have seen some good appeals and some steady run rates there too. So we're encouraged about what we've seen from an expense management perspective, and that's certainly factored in here. Operator: Our next question is from Ken Billingsley with Compass Point. Kenneth Billingsley: I have a question. I'm going to follow up on the M&A side, maybe from the opposite side. I know you talked about targets necessarily not fitting what you're looking for. But can you talk about maybe inbounds and what you're seeing in requests for properties you would be interested in selling? Justin Knight: Certainly. And I think for clarification, we've spoken to this at some length in the past. But we're continually in market, both underwriting potential acquisitions and testing potential dispositions. And since -- well, over the past several years, we've tested the market with both individual assets and portfolios looking to gauge pricing and have executed where we've been able to achieve pricing that's most attractive to us relative to alternative uses for proceeds from those sales. I think in any environment we also -- from time to time we see inbounds. I can tell you as we test the market today, we're generally seeing an increased number of potential buyers. So increased interest with a large number of people signing confidentiality agreements, seeking data for the individual assets. And really, I think absent the war or the conflict in the Middle East and fears related to potential impact on energy prices, we would be seeing an even more active market with buyers interested in assets. Should we continue to see growth industry-wide and specific to our portfolio, like we have year-to-date, my expectation is that the market would get meaningfully more active with buyers beginning to stretch for individual assets. And in that environment, we have in our portfolio prioritized assets for potential sale and could act quickly on that side as well as get more aggressive from an acquisition side. Kenneth Billingsley: Is that mix of buyer evolving? Justin Knight: I would say yes. Where we have been executing or successful in executing over the past several months, maybe even a couple of years, has been primarily with local owner operators who have the capacity to drive incremental margins because of their presence in market and lower operating -- cost operating model. Those buyers have tended not to be cap rate bidders. Instead, they're looking more closely at value relative to replacement costs and bidding based on a revenue multiple, which is a very different type of buyer and pricing process and has enabled us to sell at relatively low cap rates and redeploy at a meaningful spread either into our stock or into additional assets. As the market becomes more active, we would anticipate and are beginning to see signs of increased interest from smaller private equity shops with dedicated hotel practice. And then certainly to the extent we're able to sustain the momentum industry-wide that we've seen recently, our expectation is that, that would broaden to some of the larger players as well. Kenneth Billingsley: And lastly, I just want to ask about Pittsburgh and get an idea of on what your expectations were versus -- I believe you said it was 23% RevPAR growth in first quarter '26. But with the NFL draft exceeding expectations, can you talk about how your expectations were met or exceeded? Liz Perkins: Generally -- and it's not unique to Pittsburgh. I think we were encouraged about how many markets performed relative to our initial expectations. So I think general demand was stronger in many markets, and certainly Pittsburgh performed well relative to expectations as well. Justin Knight: Yes. But when you look across our portfolio -- and Liz highlighted a number of markets where we saw strong double-digit growth. For Anchorage, which had an amazing year last year, to again move up double digits in the first quarter was equally -- equally surprised us to the positive. So I think the demand strength across our portfolio was much stronger than we anticipated through the first quarter, and as Liz highlighted, has carried forward into April. Kenneth Billingsley: What I was trying to get at -- and that's good to hear. What I was trying to get at is trying to understand if the consumer is going to travel to these events. And even though we have high expectations that they are resilient and maybe more people are likely to get out to go to these unique events that we're going to see through the remainder of the year. Justin Knight: I think early indications are positive on that front. Operator: Our next question is from Chris Darling with Green Street. Chris Darling: Just following up on the capital allocation discussion, where is your head at in terms of incremental development takeout transactions? And how is the opportunity set for those types of deals evolving? Justin Knight: It's interesting, and we've been fortunate in our ability to find deals that meet our underwriting criteria. But I'll tell you, as we look across the country and as we evaluate development takeouts, the same factors that are limiting new supply in our markets make underwriting development difficult. Meaning I think in most markets cost of construction have increased faster than fundamentals for hotels have improved. And as a result, there are a very few markets where development pencils broadly speaking. That said, I think our appetite for new development has always been limited, meaning we've generally targeted within $100 million a year of new development acquisitions. And so should we consider additional development projects, we would be looking beyond 2028 to future years. And we don't currently have any deals pending in that area or that regard. I think as we think about capital allocation opportunities in the near term, we continue to be focused on the existing assets and our shares. And in an answer to an earlier question, I highlighted how we evaluate those. Given that the forward commitments really are a long ways out, we have a tremendous amount of flexibility in the near term to allocate capital to accretive opportunities and then I think to fund those acquisitions as they are completed. Remembering again the structure of our development deals is such that the developer carries the project on their balance sheet and then our only cash outlay is at the time of completion. Chris Darling: Okay. That's helpful context all around. And then one more for me. Hoping you could elaborate on the early operating trends for your formerly Marriott-managed hotels. And if you could -- I think it's 13 total properties. Can you quantify what percent of overall EBITDA those hotels represent? Justin Knight: I will let Liz work on the second piece. We are very pleased with our progress in the transition. As Liz highlighted in her prepared remarks, there were transition-related expenses. And I think we were somewhat disappointed with sales efforts by the prior Marriott -- by prior Marriott management immediately prior to our takeover of the properties. That said, the new managers have come in and moved quickly and really established themselves in the properties in a way that we think will drive positive results this year. The 13 assets, because of their location, a portion of them are meaningful. A number of them are in California markets that are higher rated markets. And we may have to get back to you with the exact percentage. Liz Perkins: Percentage, yes. I'll have to pull it for you. Chris Darling: No, no worries. I didn't mean to put you on the spot with that one, but I appreciate the thoughts. Justin Knight: Absolutely. Operator: There are no further questions at this time. I would like to turn the conference back over to Justin Knight for closing remarks. Justin Knight: We appreciate you joining us for our first quarter earnings call. We're incredibly pleased with the way our portfolio performed during the first quarter and excited about carrying that momentum through the remainder of the year. As always, as you travel, we hope you'll take an opportunity to stay with us in one of our hotels. And we look forward to meeting with many of you as we begin interacting at some of the upcoming conferences. Operator: Thank you. This will conclude today's conference. You may disconnect at this time and thank you for your participation.
Operator: Thank you for standing by, and welcome to Enlight Renewable Energy's First Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the call over to Limor Zohar Megen, Director of Investor Relations. Please go ahead. Limor Zohar Megen: Thank you, operator. Good morning, everyone, and thank you for joining Enlight Renewable Energy's First Quarter 2026 Earnings Conference Call. Before beginning this call, I would like to draw participants' attention to the following. Certain statements made on the call today, including, but not limited to, statements regarding business strategy and plans, our project portfolio, market opportunity, utility demand and potential growth, discussions with commercial counterparties and financing sources, pricing trends for materials, progress of company projects, including anticipated timing of related approvals and project completion and anticipated production delays, expected impact from various regulatory developments, completion of development, the potential impact of the current conflict in Israel on our operations and financial condition and company actions designed to mitigate such impact and the company's future financial and operational results, and guidance, including revenue and adjusted EBITDA are forward-looking statements within the meaning of U.S. federal securities laws, which reflect management's best judgment based on currently available information. We reference certain project metrics in this earnings call and additional information about such metrics can be found in our earnings release. These statements involve risks and uncertainties that may cause actual results to differ from our expectations. Please refer to our 2025 annual report filed with the SEC on March 30, 2026, and other filings for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Additionally, non-IFRS financial measures may be discussed on the call. These non-IFRS measures should be considered in addition to and not as a substitute for or in isolation from our results prepared in accordance with IFRS. Reconciliations to the most directly comparable IFRS financial measures are available in the earnings release and the earnings presentation for today's call, which are posted on our Investor Relations web page. With me this morning are Gilad Yavetz, Executive Chairman and the Co-Founder of Enlight; Adi Leviatan, CEO of Enlight; Nir Yehuda, CFO of Enlight; and Jared Mckee, CEO of Clēnera. Adi will provide a summary of the business results and turn the call over to Jared for a review of our U.S. activity, and then Nir will review the first quarter results. Our executive team will then be available to answer your questions. I will now turn the call over to Adi Leviatan, CEO of Enlight. Adi, please begin. Adi Leviatan: Good morning and good afternoon, everyone, and thank you for joining us to review Enlight's first quarter 2026 results. We are off to a very strong start to the year, delivering excellent financial performance and continued execution momentum across our global platform. Our results this quarter clearly reflect the strength of our operating assets, the scale and quality of our development portfolio and our ability to consistently convert projects into cash-generating capacity. Before diving into the numbers, I want to briefly address the broader environment. The first quarter once again demonstrated the resilience of Enlight's diversified platform. Despite ongoing geopolitical and macroeconomic uncertainty, our assets continue to operate reliably. Our projects advanced according to plan, and our financial performance remains strong. This resilience is the result of geographic and technological diversification and the fact that renewable energy and storage assets provide stability even in volatile conditions. Turning now to the quarter. In Q1, revenues and income increased 54% year-over-year to $200 million, while adjusted EBITDA reached $154 million, representing 58% growth year-over-year, excluding the impact of the sell-down of the Sunlight cluster. This growth was driven primarily by new projects entering operation in the U.S. alongside strong wind conditions in Israel and Europe, increased electricity trading activity in Israel and supportive foreign exchange effects. Importantly, this was organic operating growth and reflects the continued expansion of our income-generating portfolio and the future potential of advancing projects in our development portfolio over time. The U.S. became our largest geographic segment this quarter, contributing 37% of total revenues following the ramp-up of Roadrunner and Quail Ranch. This marks a meaningful milestone in the scaling of our U.S. platform. Beyond the financials, Q1 was another strong execution quarter. During the quarter, we grew our U.S. portfolio that successfully passed system impact studies by approximately 2 factored gigawatt, reaching a total of 20 factored gigawatt, significantly increasing interconnection certainty. More than 60% of our advanced development and development portfolio completed the system impact study. We expect additional projects to be safe harbored in 2026, bringing the total to 15 to 17 factored gigawatt or about 80% of our U.S. advanced development and development portfolio. Our U.S. portfolio expanded by 2.6 factored gigawatt, more than 10% sequentially and expanded in additional demand areas outside of WECC, supporting our medium- to long-term growth in the market. Last, we started construction at CO Bar 3, the 475 megawatt PV phase of the CO Bar complex, fully in line with our execution plan. These developments further reinforce our ability to deliver large-scale solar plus storage projects with speed, discipline and attractive economics and supports our growth potential beyond 2028. In Europe, the opportunity is equally compelling. While renewable generation continues to expand rapidly, energy storage deployment has not kept pace, creating a systemic need for flexibility and balancing capacity. According to Wood Mackenzie, this need amounts to 1.4 terawatts of storage capacity by 2034 globally. This gap is structural, not cyclical and supports attractive long-term economics for well-positioned storage projects. During the quarter, we continued to advance our European expansion and are now in advanced negotiations to expand our business in additional markets, including Finland and Romania as part of our strategy to deepen our presence in high potential storage markets. Energy storage remains a core growth pillar for Enlight in Europe with a vast portfolio of 14 gigawatt hour, of which 4.9 gigawatt hour in the mature portfolio fully aligned with our focus on disciplined capital allocation and attractive returns. In Middle East, North Africa, we are deploying the full scope of Enlight's capabilities, leveraging our position as a leading and trusted energy player. Israel remains a core market where we are active across utility scale wind and solar, energy storage, agrivoltaics and high-voltage infrastructure. Enlight's position in Israel, combined with our unique expertise in different energy generation applications enable us to significantly grow in Israel and develop new and innovative growth engines. In agrivoltaics, specifically, we continue to scale rapidly with dozens of land agreements signed over the past year, representing approximately 3 factor gigawatt of future solar capacity while strengthening synergies between energy generation and agriculture, enhancing food security and energy security at once. The agrivoltaics opportunity in Israel is huge. We estimate more than 120,000 acres will be needed to meet renewable energy targets by 2050 with a market size estimated at several billion dollars. At the same time, we're advancing high-voltage storage projects in Israel totaling more than 2 factor gigawatts, which enhance grid flexibility and resilience while enabling us to optimize revenue generation. Looking ahead, we believe Israel is on track to become one of the countries with the highest energy storage capacity per capita globally, and we are well positioned to take advantage of this opportunity. Across the portfolio, execution continued at a strong pace. We advanced 0.5 a factored gigawatt into construction during the quarter, mostly attributed to Phase 3 in the CO Bar complex advancing to construction and expanded our total portfolio to over 41 factored gigawatts, a sequential increase of 8%. Looking ahead, we expect approximately 7 factory gigawatts to be under construction during 2026, with over 90% of our mature portfolio either operating or under construction by year-end. This level of visibility is the outcome of years of disciplined development, extensive grid interconnection work and proactive risk management. Stepping back to the broader demand environment, we continue to see structural growth in electricity demand, driven in part by the rapid adoption of AI and data-intensive applications and the resulting expansion of data centers. Industry forecasts indicate that U.S. data center electricity consumption could triple by the end of the decade, requiring more than 300 terawatt hour of new capacity that is fast to deploy, scalable and cost effective. In this environment, solar combined with storage stands out. Compared to other generation technologies, it offers shorter time to market, meaningfully lower LCOE and the flexibility required to support modern grids. Enlight is well positioned to capture this demand, leveraging our large grid-ready sites, proven execution capabilities and deep experience delivering solar plus storage at scale. The business environment in which we operate remains extremely favorable with rising demand, constrained supply and attractive equipment costs. Recent geopolitical disruptions, together with the sharp increase in oil and gas prices have underscored the strategic importance of renewable energy as a reliable and competitive source. Turning to outlook. We are reaffirming our full year 2026 guidance. Revenues and income of $755 million to $785 million and adjusted EBITDA of $545 million to $565 million. More importantly, we continue to stand firmly behind our long-term growth trajectory. With approximately 7 factored gigawatts expected to be under construction in 2026 and the vast majority of our mature portfolio either operating or under construction, we see a clear and credible path to more than $2.1 billion of annual revenue run rate by the end of 2028. This growth is anchored in projects already in hand, supported by strong and increasing returns and executed with discipline. Before I wrap up, let me summarize the key takeaways. We delivered a strong start to 2026 with excellent financial performance and execution momentum. We continue to expand and derisk our U.S. portfolio, advancing key milestones, including system impact study completion, safe harbor progression and the start of construction at CO Bar 3. We see utility scale growth opportunities in Middle East, North Africa, a market in which we have a significant competitive advantage. We are well positioned to capture structural demand growth and systemic grid needs, leveraging the speed, cost and flexibility of solar and storage. And we remain focused on disciplined growth and long-term value creation while not compromising on returns, profitability and the strength of our balance sheet. With that, I will hand the call over to Jared. Jared McKee: Thank you, Adi. In the U.S., Clēnera continues to execute on its long-term growth strategy and remains firmly focused on disciplined construction execution, while at the same time, expanding our portfolio and customer base. This quarter, we have continued to grow and advance our development portfolio across U.S. markets, led by significant progress in PJM. We submitted interconnection applications within PJM for an additional 2,500 factored megawatts across 5 projects. PJM is a market with exceptional opportunities for new solar and storage, characterized by sustained utility demand, tight capacity dynamics and attractive power pricing that supports long-term profitability. Our operating assets continue to demonstrate the quality and durability of our portfolio. Energy generation across operating projects has been stable and predictable. We continue to monitor uptime closely. Clēnera is currently constructing 6 projects totaling 3.4 factored gigawatts. Our construction portfolio reflects deliberate investments in our internal processes, targeted hiring and retention and long-standing relationships with Tier 1 suppliers and contractors. It also demonstrates our ability to consistently deliver approximately 2 factored gigawatts annually. As a result, the construction progress we are reporting today reflects our expected baseline delivery level and our confidence in achieving commercial operations year-after-year. At the CO Bar complex in Northwest Arizona, ground clearing and other site construction activities are underway on the third phase of the project. Phases 1 and 2 are in full construction and making steady progress. Combined, these 3 phases include nearly 1.5 factored gigawatts. Initial CODs are on track for the second half of 2027 with CODs for the following phases in first half of 2028. For the final 2 phases of the CO Bar complex, CO Bar 4 and 5, we have secured a domestic source for the batteries totaling 3,176 megawatt hours. Our sourcing strategy mitigates tariff and supply chain risks for these critical phases. In Northeast Arizona, progress is steady at the construction of the Snowflake complex. The first phase, Snowflake A includes 594 megawatts of PV generation and 1,900 megawatt hours of energy storage. We are near the halfway mark of installing both the PV and battery components and remain on target for COD in the second half of 2027. The Country Acres project outside of Sacramento, California remains on schedule for COD at the end of this year. This project includes 403 megawatts PV and 688 megawatt hours of energy storage. When operational, it will generate enough energy to power over 85,000 California homes. Finally, work is underway at Crimson Orchard project located in Elmore County, Idaho. This project includes 120 megawatts of PV generation and 400 megawatt hours of energy storage. Spring weather has allowed us to make significant progress on the project's civil work and prepare the site for major equipment deliveries. Foundation work has begun for the batteries and switchyard. Our market strength has once again been confirmed with the closing of the construction financing package in March, totaling $304 million for the Crimson Orchard project. This clears the path for the project's successful commercial operation in 2027. Taking a step back from specific projects, I want to offer an update on our supply chain. Despite global disruptions in shipping due to geopolitical conflicts in the Middle East, we have seen limited exposure to availability or pricing of our materials. Looking ahead, we may see ripple effects on the supply chain and logistic inputs. Nevertheless, we continue to enhance our diverse pool of supplier resources, including U.S. domestic manufacturing to give us flexibility and resilience in the face of uncertainty. With one of the largest U.S. solar and storage construction pipelines, we are well positioned to be a preferred counterparty for our suppliers and vendors. To close, Clēnera remains firmly focused on what matters most to our investors. executing large-scale construction projects on schedule, maintaining reliable operating performance, advancing a deep and diversified development pipeline and expanding our customer base thoughtfully and strategically. I will now turn the phone over to Nir. Nir Yehuda: Thank you, Jared. Q1 '26 delivered a strong start to the year, setting the foundation for the quarters ahead. The company's total revenues and income increased to $200 million, up from $130 million last year, a growth rate of 54% year-over-year. This was composed of revenues from the sale of electricity, which amounted to $157 million, an increase of $47 million from the first quarter of '25 as well as recognition of $43 million in income from tax benefit, an increase of $23 million from Q1 '25 attributed to the new operational project Roadrunner and Quail Ranch. The increase in revenues from the sale of electricity was driven mainly by new projects, which contributed $16 million to revenues growth. It was also a strong quarter for our wind project with increased generation contributing $14 million. Electricity trade activity in Israel roughly doubled from last year, contributing $6 million to revenues growth. And finally, the appreciation of the Israeli shekel and euro versus the U.S. dollar contributed $12 million. The company adjusted EBITDA grew by 70% to $154 million compared to $132 million for the same period in '25, excluding the contribution of $42 million from the sale of 44% of the Sunlight cluster in Q1 '25 and follow-on sale of 11% of the cluster in Q1 '26, which contributed $12 million. EBITDA in Q1 '26 grew by 58% or $52 million. The increase of $70 million in revenue was offset by an additional $70 million in cost of sales linked to new projects and to the increase in electricity trade activity in Israel, while G&A and project development expenses increased by $6 million. In contrast, other income increased by $5 million. First quarter net income amounted to $38 million compared to $102 million in Q1 '25 and $21 million excluding the Sunlight cluster sale contribution. An increase of $52 million in EBITDA was partially offset by an increase of $70 million in depreciation and amortization attributable to the start of operation of new projects as well as an increase of $4 million in expense related to share-based compensation. Additionally, net financial expenses increased by $12 million, mainly as a result of the commercial operation of new projects and tax expenses increased by $4 million, net of the Sunlight sale impact. During the first quarter, Enlight continued to solidify its financial position, raising approximately $740 million, mainly from a private placement of 6 million shares to Israeli institutional investors for $422 million and $304 million from project finance. In total, our cash and cash equivalents at the topco level increased to $709 million. Additionally, we have $270 million held by subsidiaries. In addition, we have $525 million of credit facility with $360 million available and approximately $1.6 billion in LC and surety bond facility, including $1 billion available, further enhancing our financial flexibility. Our solid financial position and internal resources will continue to support our growth towards the $2 billion revenue mark and beyond. I will now turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Justin Clare of ROTH Capital Partners. Justin Clare: Congrats on the strong results. I wanted to started off... Adi Leviatan: Thanks, Justin. Nice to hear from you. Justin Clare: Yes, likewise. So I wanted to start out just asking about the unlevered returns here. It looks like the expectation for under construction and preconstruction projects increased to 13%. I think that's up from 12% to 13% last quarter and then 11% to 12% a couple of quarters ago. So just wondering if you could speak to what's driving the improvement? Is this better PPA pricing, lower equipment costs or other factors here? And then are you seeing further opportunity for improvements in the return profile, let's say, for future projects that are moving through the pipeline today? Adi Leviatan: Yes. Thanks again for the question. I will give a little bit of an answer, and I will also pass it over to my colleague, Itay Banayan, the Chief Corporate Development Officer. So we are constantly working on improving the rates of return in our projects. The projects that are currently under construction and preconstruction, we continue to do optimization work on the capital expenditure and on other aspects. Specifically, in this case, we did significant work to further improve the profitability or the -- to further reduce the CapEx on CO Bar's storage components of these projects, changing the sources of supply for the batteries to different suppliers, also making us eligible in this case for domestic content. So a double win in that sense. And we did additional moves, which we constantly again do to try to improve the economics of our projects, thereby reaching this 13% solidly. I'll pass it over to Itay Banayan, our Chief Corporate Development Officer. Itay Banayan: Justin, good to hear from you. Yes, everything that Adi said, and in general, it's something that we're very proud of. On the same slide, you see that the first 3.9 factored gigawatts that we connected to the grid over 17 years or so. And now we are in the process of the construction and preconstruction of 7.7. So almost doubling in 1 year or in 2 years, everything that we did in 17 years. And at the same time, we're improving and enjoying the economies of scale and the reduction in CapEx and the increase in the PPAs, and it's a global phenomenon. So we're not only growing, but we're constantly improving and taking a lot of -- putting a lot of attention on profitability, on cash flows, on the balance sheet and so on. Justin Clare: Okay. Great. Yes, it's good to see the improvements in the return profile here. Maybe just shifting over to the operational capacity here. It looks like the outlook for 2027 was reduced a little bit to 7.3 factored gigawatts, down from 8 last quarter, and then the ARR was stepped down to $1.4 billion from $1.6 billion. Wondering if you could just walk through that change, what potentially shifted out of the 2027 time frame? And then it does look like 2028 is -- remains intact in terms of your outlook there. So just wondering, is this a matter of just a project timing or any other factors? Adi Leviatan: Yes. And it actually relates to the previous point as well for specifically the purpose of improving further the rate of return on the CO Bar 4 and 5, the parts of the -- that are standalone storage in CO Bar, we actually did change the suppliers of the BESS, the battery energy storage system, and therefore, had to do some reengineering on site, which pushed the project's COD, like commercial operation date just from the end of '27 into the beginning of '28. And similarly, one additional project in Europe project, Bertikow which was also pushed forward just by a very short amount of time. Generally speaking, we like that these projects -- we have one chance to get them right and then they're going to be producing electricity and revenues for us for 20, 25, 30 years. So to push them out by a month or by a couple of months is something that we sometimes do in order to improve them. And they are all connecting just a very short delay, which is a natural normal course of the developer's life. Operator: Our next question comes from the line of Jon Windham of UBS. Jonathan Windham: I guess sort of a bigger picture question. Through your Clēnera subsidiary, you're going to be one of the largest customers for stationary storage in the United States over the next 5-plus years. I'm wondering, there's been a number of announcements of new entrants into the stationary storage market, namely LG Energy Solutions, General Motors and Ford. Have you had dialogues with any of these potential new suppliers? And how do you think that plays out in the supply-demand balance and pricing for batteries in the future? Adi Leviatan: Thank you for the question. I would like to ask Jared if you are comfortable taking this question forward. Jared McKee: Absolutely, Adi. Thank you for the question, and thank you for your insight into the market. We are constantly talking with potential suppliers on the battery and on the PV side. Specifically on the battery side, we welcome new domestic suppliers opening operations and manufacturing facilities in the U.S. It both adds rigidity and robustness to the supply chain and allows us to secure both domestic sources and reduce our risk overall from any sort of geopolitical occurrences throughout the world. We are engaged with multiple suppliers on the battery side. And as these battery manufacturing facilities get built out, the supply continues to grow. And so this supply is being distributed to the same amount of projects. And so we do like the supply and demand curves that this provides for us, and we expect that we will have very effective negotiations over the next period of time with our potential suppliers. It gives us the ability to leverage our portfolio, as you mentioned, we will be one of the larger customers in the United States for stationary BESS. And we intend to continue to deliver results like we shared today, where we are constantly increasing the profile of our projects and making them better. Operator: Our next question comes from the line of Corinne Blanchard of Deutsche Bank. Corinne Blanchard: The first question, can you talk about the cadence that you're expecting for the rest of the year? I think 1Q is showing a little bit of better seasonality maybe than we had anticipated. So just wondering how the rest of the year is going to shape up? And then maybe second question, can you talk about the safe harbor in your portfolio and how that has evolved during 1Q? Itay Banayan: Corinne, good to hear from you. This is Itay. What was the second part of the question? Adi Leviatan: Safe harbor. Itay Banayan: Safe harbor, okay. So with the first half of the question, in terms of the seasonality, the quarter and the year indeed started very strong and exceeded our expectations. Nevertheless, we do anticipated seasonality over the year. The first quarter is usually a very strong quarter in terms of wind, and it was even better than we anticipated. And in general, as Adi mentioned during the call, we are keeping our guidance for the year intact. It is only the first quarter. And as I mentioned, there was some -- I think there was some gap with the consensus, but our internal expectations were not that far away. And in terms of safe harboring... Adi Leviatan: We do have the opportunity to safe harbor an additional 2 to 4 factored gigawatt in the next couple of months until basically the end of June. And it is completely at our discretion. Obviously, as you know, projects that are being safe harbored, we need to then maintain like full activity, construction activity at the site from when we safe harbor them until their completion, and we need to make sure that they are connected that they arrive at commercial operations before the end of 2030. So we are taking our decisions to -- from the 2 to 4 factored gigawatt additional that we have options to safe harbor to bring the total amount to 15 to 17 factored gigawatts of safe harbor. We're taking those decisions in the next couple of months. Jared, anything to add on the safe harbor point? Jared McKee: Yes. Just that we are actively [indiscernible] the projects are being safe harbored through physical work of a significant nature, both on-site and off-site. Adi, I think you shared the numbers most accurately. And yes, we are excited to have this large portfolio of projects to be able to pull from over the next really several years of commissioning and CODs. Adi Leviatan: And I will come back just to say, Corinne, that when the One Big Beautiful Bill Act came out in May last year, exactly a year ago, there was obviously concern. And at the time, we promised or we anticipated that we would be able to safe harbor 6 to 8 factored gigawatt of projects by the end of 2028. We're now standing here towards the 16 -- sorry, 15 to 17 factored gigawatts that we would be able to safe harbor by the end of 2030. So significantly more than we predicted at the time, and we're really making the most of the safe harbor regime as long as it's in place. And we also are very confident about our ability to successfully develop and execute projects in the United States after the end of that regime, but we have enough time for that in solar projects after the end of 2030 and for storage projects even after the end of 2032. Corinne Blanchard: Right. Can I ask one more follow-up question? Can you talk about the 2028 target? It seems like you might be able to raise it or we kind of felt from the presentation like you are like $100 million ahead of the target. Can you just like give a little bit more thought on that one? Adi Leviatan: So we give the 2028 annual run rate as we forecasted today. The component that is today -- the $2.1 billion of this is already today in the mature portion of our portfolio. And then there's additional projects that are currently not yet in the mature, they're in advanced development. But nevertheless, they will make it to be connected by the end of 2028, which is why there's that $2.1 billion to $2.3 billion range. At this point, we cannot give a more accurate number, but that is the composition of the number. Itay Banayan: But Corinne, you can see that over the last couple of quarters, the percentage of the mature portfolio outside of the 2028 road map has increased over time. And with the start of construction of additional 3 factored gigawatts this year, the vast majority of the 2028 plan is going to be either operating or under construction this year, and thus reducing significantly any development risk and increasing the certainty that stand behind this road map. And again, you can see with all of the safe harboring that we're doing and the increase of the portfolio in the development and the advanced development that we are looking ahead at the growth beyond '28. And there is a lot of materials in the presentation and the earnings release when you analyze the portfolio to see that there is significant potential beyond 2028. Operator: [Operator Instructions] Our next question comes from the line of Maheep Mandloi of Mizuho. Maheep Mandloi: Maybe just like a follow-up on this safe harbor and on Slide 16. I presume like the main bottleneck for new projects is the interconnection of the completed system impact study, right? So I'm just trying to -- curious like if you could see more of the safe harbor come through before June and kind of hit this 19.9%, which you already have completed the system impact study for. Just curious like what would it take for safe harbor to ramp up to match that number? Adi Leviatan: Maheep, it's nice to hear from you. Jared, I'm going to please redirect the question to you. Jared McKee: Yes, no problem. Maheep, my apologies. I had a hard time hearing. Do you mind actually rephrasing the question? I just want to make sure I can answer it accurately. Maheep Mandloi: Yes, sure. I mean like talking to some of the developers or the industry, it looks like the interconnection is probably like a bigger bottleneck to get projects online by 2030 rather than just safe harbor. So was curious like if you have -- given you have 19.9 factored gigawatts of completed system impact study, can safe harbor ramp up to match that 19.9 by July 4 of this year? Or just curious like what would it take for safe harbor to grow from this 15, 16 -- 15, 17 gigawatts to the almost 20 factored gigawatts you have completed system impact study. Jared McKee: Got it. Okay. So just to confirm, it's really asking, is there the ability to match the safe harbor numbers with the completed system impact study that's sitting right around 20 factored gigawatts. Is that accurate? Maheep Mandloi: That's right. Jared McKee: Okay. So as you can see, one, we are very proud of the fact that we have 20 gigawatts of projects that have completed system impact study. This actually shows the success of what we are doing here in the U.S. at the Clēnera side, along with everyone at the Enlight team is to really go through and successfully go through that part of the process. On the safe harbor side, as Adi mentioned, we have optionality. What we are looking at is we are making a very strategic decision project by project to make sure that invested dollars into safe harbor and the work of significant nature is for projects that have ability to advance and COD by 2030. There are going to be some projects out of that 20 factored gigawatts that have time lines due to interconnection or other criteria that is going to be beyond the 2030 time frame. And so we probably won't see the safe harbor number go up to 20 gigawatts because there is going to be some projects. But as Adi mentioned, we are already significantly farther along on the safe harbor process for the majority of our portfolio than we had previously announced. There is some opportunity to hit that top end and maybe even a little bit more of the safe harbor on that 15 to 17 that Adi mentioned. The likelihood that it gets up to the 20 from a strategic standpoint is not completely likely just due to the fact that some of those 20 factored gigawatts are going to come online after 2030. Maheep Mandloi: Got it. Helpful. And are you seeing any interest from customers to have behind-the-meter solar, presumably that might not require interconnection study, right, I think. The limit over there would be how much would be able to safe harbor, right? So curious if you're seeing any customers ask about Island [indiscernible] behind-the-meter solar for you? Jared McKee: Yes. We've definitely seen this in the marketplace. I think our focus has been we have enough projects that are already through the system impact study that the projects that we are looking at by 2030 are those that are going to be connected to the grid, but we have seen interest in the marketplace, both from large load customers to really look at behind-the-meter solutions. We are always actively looking at ways to expand and to grow. And so we are looking at those types of opportunities. But our focus is really on our core business, which is very, very robust projects through the interconnection balanced by utilities that we can deliver on, and we have 20 factored gigawatts of projects that we can choose from. And out of that 20 factored gigawatts, we have another 15 to 17 that were going to have safe harbor. And so that is a very robust pipeline through the next 4 years. Maheep Mandloi: I appreciate that. And just one last one, just on cash sources, if you can kind of comment on how much of the current cash or what you might have in years can support growth beyond this 12 to 13 factor gigawatt post 2028. Itay Banayan: Maheep, so to remind, we have very strong access to capital globally, both at the assets level with project finance from Tier 1 lenders and at the corporate level with the access both to the Tel Aviv Stock Exchange and the NASDAQ, which we're seeing an improved liquidity -- significantly improved liquidity in the past year. At the moment, and there is -- there are details in the earnings release on the sources that we have on hand. At the moment, we have significant amounts to support the 2028 plan and beyond. So we don't need any outside resources of capital in order to support the 2028 plan and a significant factored gigawatts beyond it. Operator: Thank you. I would now like to turn the conference back over to the CEO for closing remarks. Madam? Adi Leviatan: Thank you. We highly appreciate your questions and also participating in our 2026 Q1 earnings report. We hope that you can also join us on May 19 for the investor conference where we plan to share more exciting content about our strategy going forward, and we highly appreciate you joining us here today. Thank you so much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the AMD First Quarter 2026 Conference Call. [Operator Instructions] And please note that this conference is being recorded. I will now turn the conference over to Matt Ramsay, Vice President of Financial Strategy and IR. Thank you, Matt. You may begin. Matthew Ramsay: Thank you, and welcome to AMD's First Quarter 2026 Financial Results Conference Call. By now, you should have had the opportunity to review a copy of our earnings press release and the accompanying slides. If you have not had a chance to review these materials, they can be found on the Investor Relations page of amd.com. We will refer primarily to non-GAAP financial measures during today's call. The full non-GAAP to GAAP reconciliations are available in today's press release and slides posted on our website. Participants on today's conference call are Dr. Lisa Su, our Chair and CEO; and Jean Hu, Executive Vice President, CFO and Treasurer. This is a live call and will be replayed via webcast on our website. Before we begin the call, I would like to note that Jean Hu will present at the Bank of America Global TMT Conference on Tuesday, June 2 in San Francisco. Today's discussion contains forward-looking statements based on current beliefs, assumptions and expectations, speak only as of today and as such, involve risks and uncertainties that could cause actual results to differ materially from our current expectations. Please refer to our cautionary statement in our press release for more information on factors that could cause actual results to differ materially. With that, I will hand the call over to Lisa. Lisa Su: Thank you, Matt, and good afternoon to all those listening in today. We delivered an outstanding start to the year driven by accelerating demand for AI infrastructure across our portfolio. Growth was broad-based with every segment increasing year-over-year, led by 57% data center revenue growth. First quarter revenue increased 38% year-over-year to $10.3 billion, earnings grew more than 40%, and free cash flow more than tripled to a record $2.6 billion, driven by significantly higher sales of EPYC CPUs, Instinct GPUs and Ryzen processors. These results mark a clear inflection in our growth trajectory and a structural shift in our business. Data center is now the primary driver of our revenue and earnings growth. And as AI adoption scales, demand is increasing, not only for accelerators, but also for the high-performance CPUs that power and orchestrate those workloads. Turning to our segments. Data Center revenue increased 57% year-over-year to a record $5.8 billion, led by strong demand for our EPYC CPUs and Instinct GPUs. In Server, we delivered our fourth consecutive quarter of record server CPU revenue. Revenue increased more than 50% year-over-year with sales to both Cloud and Enterprise customers each growing more than 50%. Share gains accelerated year-over-year, reflecting the ramp of fifth-gen EPYC Turin CPUs and continued strength of fourth-gen EPYC processors across a wide range of workloads. In Cloud, AI was the primary driver of growth in the quarter as every major cloud provider expanded their EPYC footprint to support a broad range of AI workloads from general purpose compute and data processing to head nodes for accelerators and emerging Agentic applications. EPYC-powered cloud instances increased nearly 50% year-over-year to more than 1,600 with instances optimized for virtually every enterprise workload and expanded availability across the largest global cloud providers. In Enterprise, demand accelerated with record revenue and record sell-through in the quarter. We expanded our customer base with new wins across financial services, health care, industrial and digital infrastructure companies, while also building momentum with mid-market and SMB customers. We are well positioned to continue gaining share as more enterprises standardize on EPYC across on-prem and hybrid environments based on our leadership performance and TCO. Looking ahead, our sixth-gen EPYC Venice processor built on our Zen 6 architecture and 2-nanometer process technology is designed to extend our leadership across cloud, enterprise and AI workloads. The Venice family spans a broad set of CPUs optimized for throughput, performance per watt and performance per dollar, including Verano, our first EPYC CPU purpose built for AI infrastructure. Across the portfolio, Venice widens our competitive advantage, delivering substantially higher performance per socket and per watt versus competitive x86 offerings and more than 2x throughput per socket versus leading ARM-based AI solutions. Customer demand is very strong with more customers validating and ramping platforms at this stage than with any prior EPYC generation, and we remain on track to launch Venice later this year. Looking more broadly, we are seeing a meaningful acceleration in customer demand driven by the rapid scaling of AI workloads across both Cloud and Enterprise. Inferencing and Agentic AI are increasing the need for server CPU compute as these workloads require additional CPU processing for orchestration, data movement and parallel execution in addition to serving as the head nodes for GPUs and accelerators. As a result, we are seeing both stronger near-term demand and deeper engagement with customers on long-term capacity planning. At our Financial Analyst Day in November, we outlined the server CPU market growing at approximately 18% annually over the next 3 to 5 years. Based on the demand signals we are seeing today and the structural increase in CPU compute requirements driven by Agentic AI, we now expect the server CPU TAM to grow at greater than 35% annually, reaching over $120 billion by 2030. In response to this demand, we are working closely with our supply chain partners to meaningfully increase our wafer and back-end capacities to support this growth. As a result, we now expect server CPU revenue to grow by more than 70% year-over-year in the second quarter, with robust growth continuing through the second half of 2026 and into 2027 as we ramp our next-generation EPYC processors. Now turning to our Data Center AI business. Revenue grew by a significant double-digit percentage year-over-year as adoption of Instinct accelerates across cloud, enterprise, sovereign and supercomputing customers. We're seeing strong momentum as customers move from pilots to large-scale production deployments, particularly in inference where our leadership memory capacity and bandwidth are key advantages. This momentum is driving deeper, long-term customer engagements, including large-scale multi-generation deployments. A key example is our expanded strategic partnership with Meta to deploy up to 6 gigawatts of AMD Instinct GPUs spanning several product generations. Our agreement includes a custom GPU accelerator based on our MI450 architecture, co-designed to support Meta's next-generation AI workloads. Shipments are on track to begin in the second half of the year, leveraging our Helios rack-scale architecture, which integrates Instinct GPUs with EPYC Venice CPUs to deliver fully optimized high-performance AI infrastructure. Together with our previously announced OpenAI partnership, these engagements position AMD as a core partner to the world's largest AI infrastructure builders with deep co-engineering relationships and multiyear visibility into large-scale deployments. More broadly, Instinct adoption continues to expand across AI native and enterprise customers for both training and inference workloads. Existing partners are expanding Instinct across a broader set of workloads, while a growing number of new partners are deploying production AI workloads on Instinct, highlighting the maturity of our hardware and software stack. On the software front, we continue to make strong progress with ROCm, improving performance, scalability and enabling customers to reach production faster. In our latest MLPerf results, MI355X delivered strong competitive performance across the full suite with leadership results in multiple categories. We also expanded day 0 support for the leading open models, including the latest Google Gemma 4 family, Qwen, Kimi and others, enabling customers to deploy new models quickly with optimized performance. To build on this momentum, we have significantly accelerated our ROCm development cadence through increased software investments and agent-based coding workflows, enabling faster performance improvements and more rapid deployment of new capabilities. Looking ahead, customer pull for Helios is very strong, driven by our leadership performance, memory bandwidth and scale out capacity. Helios development is progressing well with strong execution across silicon software and systems as we advance through key milestones. We have begun sampling MI450 series GPUs to lead customers and remain on track to ramp Helios production shipments in the second half of the year. As we approach production, demand for MI450 series GPUs continues to strengthen, with lead customer forecasts now exceeding our initial plans and a growing number of new customers engaging on large-scale deployments, including additional multi-gigawatt opportunities. With this expanded visibility, we have strong and increasing confidence in our ability to deliver tens of billions of dollars in annual Data Center AI revenue in 2027 and to exceed our long-term growth target of greater than 80% in the coming years. I look forward to sharing more on our next-generation Instinct GPUs, EPYC processors, Helios rack-scale platform and our growing customer engagements at our Advancing AI event in July. Turning to Client and Gaming. Segment revenue increased 23% year-over-year to $3.6 billion. In client, revenue grew 26% year-over-year to $2.9 billion, led by strong sales of our latest Ryzen processors and continued share gains across consumer and commercial markets. In desktop, we strengthened our Ryzen lineup, including our latest X3D processors that deliver leadership performance across gaming, content creation and professional workloads. We also introduced the Ryzen AI 400 series and Ryzen AI Pro 400 series desktop CPUs, expanding our AI PC offerings across both consumer and commercial systems. In Mobile, we delivered strong growth driven by a richer product mix as Ryzen 400 mobile PC shipments ramped and commercial adoption increased. Commercial was a key highlight in the quarter with sell-through of Ryzen Pro PCs increasing more than 50% year-over-year as Dell, HP and Lenovo broadened their AMD offerings. We also closed new enterprise wins across large technology, financial services, health care and aerospace customers. Looking ahead, we expect demand for our Ryzen CPUs to remain solid in the second quarter. However, we are planning for second half PC shipments to be lower due to higher memory and component costs. Against this backdrop, we still expect our client revenue to grow year-over-year and outperform the market, driven by the strength of our Ryzen portfolio and expanding commercial adoption. In Gaming, revenue increased 11% year-over-year to $720 million. Semi-custom revenue declined year-over-year as expected at this stage of the console cycle, while engagements with customers on next-generation platforms remain strong. In graphics, revenue increased year-over-year led by demand for our latest generation Radeon 9000 series GPUs. We also strengthened our Radeon portfolio with updates to our FSR software that improved performance and digital quality across a broad set of gaming workloads. Similar to the PC market, we believe that second half demand in gaming will be impacted by higher memory and component costs, and we are planning the business accordingly. Turning to our Embedded segment. Revenue increased 6% year-over-year to $873 million, driven by strength in test, measurement and emulation, aerospace and defense and communications as well as increased adoption of our embedded x86 products. Design win momentum grew by a double-digit percentage year-over-year with billions of dollars in new wins across markets, reflecting the continued expansion of our Embedded business from a primarily FPGA-focused portfolio to a broader set of adaptive embedded x86 and semi-custom solutions significantly expanding our TAM. Our semi-custom engagements also expanded in the quarter as data center, communications and other embedded customers leverage our broad IP portfolio and high-performance expertise to build differentiated solutions. In summary, our first quarter results mark a clear step-up in our growth trajectory with accelerating momentum across the business. Our client business continues to outperform the market, driven by Ryzen adoption and share gains, while in Embedded design win momentum and demand are strengthening across our expanded adaptive and x86 portfolio. At the same time, our Data Center business is inflecting with strong demand for both EPYC and Instinct products significant growth. While we are still in the early stages of the AI infrastructure cycle, the pace and scale of deployments we are seeing today reinforce both the magnitude and durability of the opportunity ahead. As inferencing and Agentic AI deployment scale, they are fundamentally increasing compute requirements, driving both larger scale accelerator deployments and significantly more CPU compute. AMD is uniquely positioned to lead in this next phase of AI with leadership products across high-performance service CPUs and AI accelerators and the ability to optimize them together as fully-integrated rack-scale solution. We have a world-class supply chain and are making significant investments to expand capacity and execute at scale. With the momentum we are seeing across the business and the expanding market opportunity, we see a clear path to exceed our long-term financial targets, including delivering more than $20 in EPS over the strategic time frame. Now I will turn the call over to Jean to provide additional color on our first quarter results. Jean? Jean Hu: Thank you, Lisa, and good afternoon, everyone. I'll start with a review of our first quarter financial results and then provide our current outlook for the second quarter of fiscal 2026. We are pleased with our outstanding first quarter results delivering accelerated revenue growth and earnings expansion driven by strong execution and operating leverage. First quarter revenue was $10.3 billion, exceeding the high end of our guidance, growing 38% year-over-year, driven by strong growth in the Data Center and Client and Gaming segments and the return to growth in the Embedded segment. Revenue was flat sequentially with continued growth in the Data Center segment, offset by seasonality in the Client and the Gaming segment and the Embedded segment. Gross margin was 55%, up 170 basis points versus a year ago, driven by a favorable product mix, including a higher data center revenue contribution. Operating expenses were $3.1 billion, an increase of 42% year-over-year as we continue to invest in R&D to support our AI roadmap and the long-term growth opportunities and go-to-market activities. As the business scales, operating income grew faster than topline revenue. Operating income was $2.5 billion, representing a 25% operating margin. Taxes, interest and other result in a net expense of approximately $275 million. For the quarter, diluted earnings per share was $1.37, up 43% year-over-year, underscoring the significant operating leverage in our model as we scale. Now turning to our reportable segment starting with the data center segment. Revenue was a record $5.8 billion, up 57% year-over-year and 7% sequentially, driven by strong demand for EPYC processors and the continued ramp of Instinct GPUs. Data Center segment operating income was $1.6 billion or 28% of revenue compared to $932 million or 25% a year ago. Client and Gaming segment revenue was $3.6 billion, up 23% year-over-year. On a sequential basis, revenue was down 9%, consistent with seasonality. The client business revenue was $2.9 billion, up 26% year-over-year, driven by strong demand for our latest Ryzen processors, favorable product mix and continued share gains across consumer and commercial markets. Sequentially, client revenue was down 7% due to seasonality. The Gaming business revenue was $720 million, up 11% year-over-year, primarily driven by higher demand for Radeon GPUs, partially offset by lower semi customer (sic) [ custom ] revenue. Sequentially, gaming revenue was down 15%, consistent with our expectations. In addition, as Lisa mentioned earlier, we expect second half demand in gaming to be impacted by higher memory and component costs. We now expect second half gaming revenue to decline more than 20% compared to the first half. Client and Gaming segment operating income was $575 million or 16% of revenue compared to $496 million or 17% a year ago. Embedded segment revenue was $873 million, up 6% year-over-year as demand strengthened across several end markets. Sequentially, Embedded revenue was seasonally down 8%. Embedded segment operating income was $338 million or 39% of revenue compared to $328 million or 40% a year ago. Turning to the balance sheet and the cash flow. During the quarter, we generated $3 billion in cash from continuing operations and a record $2.6 billion in free cash flow or 25% of revenue, demonstrating the cash-generating power of our business model. Inventory was roughly flat at $8 billion. At the end of the quarter, cash, cash equivalents and short-term investment was $12.3 billion. In the quarter, we repurchased 1.1 million shares and returned $221 million to shareholders. We ended the quarter with $9.2 billion authorization remaining under our share repurchase program. Now turning to our second quarter 2026 outlook. We expect revenue to be approximately $11.2 billion, plus or minus $300 million. At the middle of our guidance, revenue is expected to be up 46% year-over-year driven by a very strong growth in our Data Center segment, growth in our Client and Gaming segment and a double-digit growth in our Embedded segment. Sequentially, we expect revenue to be up approximately 9% driven by double-digit growth in both our Data Center and the Embedded segments and modest growth in our Client and Gaming segment. In addition, we expect second quarter non-GAAP gross margin to be approximately 56%, non-GAAP operating expenses to be approximately $3.3 billion, non-GAAP other income and expense to be a gain of approximately $60 million. Non-GAAP effective tax rate to be 13%, and the diluted share count is expected to be approximately 1.66 billion shares. In closing, the first quarter of 2026 was an outstanding quarter for AMD, reflecting strong momentum across the business with accelerated revenue and earnings expansion. We are very well positioned to build on the momentum as we scale our Data Center business, expand margins, drive continued earnings growth and the long-term shareholder value creation. With that, I'll turn it back to Matt for the Q&A session. Matthew Ramsay: Thank you, Jean. Operator, we're ready to start the Q&A session now. [Operator Instructions] Operator: [Operator Instructions] The first question comes from the line of Joshua Buchalter with TD Cowen. Joshua Buchalter: Congrats on the results. Actually, I'm going to start with CPUs, which hasn't happened in a bit. It hasn't been that long since you announced the $60 billion server CPU TAM for 2030 at the Analyst Day, and it's very quickly doubled. Agentic AI has obviously gotten a lot of attention in recent months, but it would be helpful to hear your thoughts on how this TAM is inflecting and changing so meaningfully in such a short amount of time. And maybe you could also speak to your confidence in hitting that greater than 50% share target from the Analyst Day as your x86 competitor seems to be improving its supply and also there seems to be more momentum on the merchant and custom ARM CPU side. Lisa Su: Yes. Sure, Josh. Thanks for the question. So first of all, back to the -- when we think about CPU TAM, I mean we've always said that CPUs are very critical part of data center infrastructure, and that's been where we've invested. And we saw the first signs of, let's call it, AI demand really pulling CPU demand last year, and that was the reason we updated the TAM to, let's call it, the 18% CAGR or approximately $60 billion. And what we've seen is all of the things that we believed in terms of Agentic AI and inferencing and all the CPU compute that is required, is just happening, and it's happening at a much faster pace. So over the last, let's call it, the last few months, as we've talked to our customers and we've seen how AI adoption is really unfolding, we're seeing significant more CPU demand from really every major cloud provider as well as enterprise customers. And the way that comes across is as AI adoption scales, you need more inferencing. As inferencing scales and you do more -- you have more agents and Agentic AI, they all require CPUs for all of the orchestration and the data processing and these other tasks. So with that, we've looked at it both bottoms up in terms of talking to customers and having them give us longer-term forecasts as well as just doing some clear workload analysis. And yes, I mean, it's a very exciting TAM. I think it's exciting to see CPUs growing greater than 35% to over $120 billion. And then when you think about AMD in the context of that, I mean, CPUs are critical for so many tasks that you are seeing a lot more discussion about CPUs in the market. But we actually view it in 3 categories, right? There's general purpose compute. There's the head nodes that really support the AI accelerators. And then there are CPUs just for all of the Agentic AI work. And to do all of this, our belief is you need a broad portfolio of CPUs, and that's really what we have been focused on is building not just one type, but really broader in terms of throughput optimized, power optimized, cost optimized, AI infrastructure optimized as we've done in the Venice family. So when you put all that together, we're very excited about the larger TAM, and we're also very happy with the traction that we're getting. We're clearly feeling like we're seeing significant share gain as we're going into our Turin portfolio that has ramped very nicely. Venice is extremely well positioned, and we're working with customers right now on -- beyond Venice and what we're doing in those architectures. So we feel really good about the market as well as our opportunity to grow to greater than 50% share of that market. Joshua Buchalter: I wanted to ask about the Instinct side. So in the press release, you mentioned that MI450 and Helios engagements are strengthening with customer forecast exceeding the expectations and the pipeline growing. You certainly have the big public OpenAI and Meta deals. Was this comment referring to those engagements upsizing versus the announced initial deployments? Or was it other customers and maybe the increase on the MI450 timeline? Or is it MI500 and beyond? Lisa Su: Sure, Josh. So we are very excited about MI450 and Helios. We're seeing significant customer interest in those products as well. So we have certainly talked about our large partnerships with OpenAI and Meta, and those are going really well. We appreciate the deep co-engineering that is going on there. When we look at the totality of, let's call it, based on our current visibility, how those forecasts are coming in with all of our customers, we're actually seeing it above our initial plans that we had planned for 2027. And I think the encouraging thing is we're seeing a breadth of customers who are now very interested in deploying at significant scale MI450 series. And those are for both training and inference workloads, although the largest deployments are for inference. And based on all of that and the scale of new customer interest, we see a path to really get to exceed our original targets of greater than 80% CAGR. And these are really 2027 time frame. Obviously, when we talk to customers, we're talking to them about MI355. There's a lot of good traction we're seeing there. MI450 and Helios, I think for significant large-scale deployments, and then many customers are also very engaged with us on the MI500 series and all of the opportunities there. So we feel like very, very good progress. And the key is that we're continuing to broaden and widen the scope of both customers as well as workloads. Operator: And the next question comes from the line of Thomas O'Malley with Barclays. Thomas O'Malley: Lisa, if I get your numbers correct here in the March quarter, it sounds like the server processor side of the CPU side grew over 50%. If you take it just at the word, it looks like maybe the data center GPU side actually grew in Q1. So I was curious around the cadence of this year kind of previously, you had talked about really a back half weighted and then kind of more so Q4 weighted year. Could you talk about if that's changed at all? And then the second part of the question is, as you go into 2027, clearly, you're pointing out a lot of upside from the larger customers and then kind of the ecosystem around them with new customers as well. But when you look at supply, that's a major issue in the ecosystem today, could you talk about where you're concerned on supply, if you are? And then any gating factors as you look into next year, whether that be power, data center build-outs, et cetera? Or do you feel really good about the ability to grow? Lisa Su: Yes. Okay. A lot of pieces of that question, Tom. So let me try to get through it. So first of all, on the Data Center segment in Q1, the Server business was greater than 50% year-over-year as we said in the prepared remarks. The Data Center AI was actually down modestly because of the China transition. We had more China revenue -- I'm sorry, sequentially more China revenue in Q4, and it was less in Q1. But as we go forward, I think we see strong growth in both segments. So we guided data center Q2, up sequentially double digits, and that's double digits in both Server as well as Data Center AI. And progression as we go forward. So first, on the server CPU side, we talked about growing to over 70% year-over-year in Q2, and that continuing into the second half of the year. And on the Data Center AI side, we will be ramping Helios in the second half of the year, so let's call it, starting with initial volume in Q3 with a significant ramp in Q4 and then continuing to ramp in Q1. So that's kind of a little bit of progression. And then to your questions about customers and supply, I think I answered, Josh, the customer question. I think we have very good visibility now into the deployments that are on track for 2027. And when I say good visibility, it's visibility down to which data centers are the GPU is going to be installed in. And so that's necessary just given all of the constraints out there. We feel that there is tightness in the supply chain, there's certainly tightness in sort of data center build-outs, but we are confident in our ability to supply to the levels of growth that we're talking about and to exceed the levels of growth that we're talking about. And we're also working very closely with our customers and our partners to ensure that we have good visibility to Data Center power. And there is much more power that's coming online in 2027. And so with all those things in mind, I think, again, lots of things to manage. It's a complex ramp, but we're very pleased with the progress on the ramp. Matthew Ramsay: All right, Tom, I think you shotgun approached the multiple questions there. So operator, maybe we can go on to the next caller, please. Thank you. Operator: The next question comes from the line of Ross Seymore with Deutsche Bank. Ross Seymore: The first one is just on the EPYC competition. Lisa, you went through some of the statistics of you versus x86 and you versus ARM, but I wanted to dive a little bit deeper into that. How do you see AMD truly differentiating, especially when you're signing -- well, you see some of your competition signing up the same customers from the ARM side and the x86 competition having more supply. So I just wanted to see if you could dig a little bit deeper into how you think the market share is going to trend over time? Lisa Su: Ross, look, we're very engaged with every major hyperscaler and in terms of understanding their needs on the CPU side. I think we have very much wanted to, let's call it, optimize our CPU roadmap for the various workloads. I think we were early to call this AI component of CPUs. And so we've been actually optimizing very closely with those customers. The way to think about this, Ross, is that you're going to need a broad portfolio of CPUs, like not all CPUs are the same. Frankly, you're going to need different CPUs for whether you're talking about general purpose operations or you're talking about head nodes or you're talking about Agentic AI tasks, they're going to be optimized differently. And we thought through that, and we are absolutely optimizing across the various workloads. So from a competitive standpoint, we feel very good about where things are. And from a deep relationship with the customer set, I think we feel very good about that. So from our current standpoint, I think the depth of our roadmap just expands as we go forward. And you shouldn't think about it as people are going to do one or the other. I think you're going to see people actually use x86 and ARM for many of the large hyperscalers. And even for those who are developing their own, they're still buying lots of CPUs in the merchant market for the reason that I just stated, which is unique different CPUs for the different types of workloads, and there's very high demand at the moment. Ross Seymore: I guess for my follow-up, maybe more for Jean on the gross margin side of things. It's nice to see the gross margin popping up in the second quarter guide. But I just wanted to get some trends longer term, maybe not specific numbers, but how should we think about when Helios and the Instinct side really ramps in the fourth quarter and more so next year. I could see some offsets with that carrying a below corporate average gross margin, but then everything that Lisa talked about with the EPYC side of things being significantly stronger might be more of an offset than it was in the past. So just walk us through the puts and takes of that and maybe directionally where you think gross margin goes over the next year or 2? Jean Hu: Yes, Ross, thanks for the question. We are very pleased with how our gross margin is trending. It came in really strong in Q1. And also, as you mentioned, we guided Q2 higher at 56%. I think as we think about the second half quarter-over-quarter, as you know, there are some puts and takes, right? I would just say, from a tailwind perspective, we actually have multiple tailwinds really are going to help our gross margin. First is the server CPU. Lisa talked about the server CPU expected to grow more than 70% in Q2 and continue to be really strong in second half. That really helps our gross margin. Secondly, in the second half for Gaming actually is going to come down, and our Client business actually continued to go up the stack. So from a Client and Gaming segment, the gross margin actually is going to be also very helpful. Embedded actually is very accretive to our gross margin. Its momentum actually is continuing in the second half. So we are really pleased with all the tailwinds we have. On the other side, MI450 will start to ramp in Q3 and then ramp significantly in Q4. That is below corporate average. So that will have different puts and takes in Q4 in the gross margin side. But when we sit here, when we look at all the positive trends we have to really offset some of the gross margin dilution from MI450 side, we actually feel really good about the setup of the gross margin for 2026. And into next year, I think some of the tailwinds I talked about that will actually continue. That's why we feel confident about continue to drive the gross margin. We actually, during our financial Analyst Day, we outlined the long-term gross margin in the range of 55% to 58%. We think for the first year, we are making good progress there. Operator: And the next question comes from the line of Timothy Arcuri with UBS. Timothy Arcuri: I wanted to ask about units versus ASP for server CPU. If I look at the June guidance, it sort of implies up 25% to 30% for server CPU. And Lisa, you had mentioned second half of the year. It sort of implies that server CPU could grow like 70%, maybe a little more this year. And so I guess my question is, how much of that growth either in June or for the year, is like units versus pricing? Is the -- are these price increases sort of mostly captured in June? Or is that also helping in the back half of the year? Lisa Su: Yes. Tim, the way I would say it is, maybe let me bring you back to Q1 for a moment. So if you look at our significant growth in the server business, it was actually -- although we were up on a year-over-year basis for both ASPs and units, it was actually much more unit driven. So we are shipping more CPUs across not just the high-end Turin family, but we're actually shipping a lot of Genoa sort of the Zen 4 family as well. As we go forward for Q2 and into the second half, we are guiding for a significant amount of growth. I think there's a little bit of ASP in there, but the way we're thinking about pricing, to be fair, is we are in a range where the supply chain is tight. And so there are some inflationary pressures. Costs have gone up a bit, and we are sharing some of that with our customers. But we are also being very thoughtful in -- look, this is -- we're playing out for the long term, and that means that we are -- our goal is to ship more units and a lot more units. And so from that standpoint, you should imagine that the majority of the growth is unit driven, and the ASPs are just really to help cover some of the inflationary pressures. Jean Hu: And just to add to what Lisa said, our ASP is increasing because of the mix where actually each new generation, the core counts, those are increasing, that actually drives the ASP up. Timothy Arcuri: And then I guess, Lisa also, so there's a lot of new architectures that are being used from multi-tenancy all the way to low latency. And your competitor has talked about the low latency part of the market being 20% plus and they, of course, added to their portfolio there. Can you talk about how you see that part of the market? I mean, obviously, you have enough business now you don't need to worry about that probably for now. But can you talk about that? Lisa Su: Yes, sure. So look, I think what we're seeing is what we expected in the sense that as you go -- as the AI adoption continues and the volumes continue to go up and the overall market goes up, you are going to see, let's call it, different compute architecture is being used because you want to get more cost optimization from that. So we expect that even in that situation, obviously, the vast majority of the TAM is still going to be, let's call it, data center GPUs as the primary accelerator. But you may choose to do optimization around inference, around low latency, around certain parts of the stack, whether it's decode versus prefill, I think that's very natural. The way we look at it is we're developing a full compute portfolio. So that's CPUs, that's GPUs, that's the ability to connect to all accelerators as well as the ability to do customization for certain customers, and we've also talked about our semi-custom capabilities. And with all of those sort of compute capabilities in our tool chest, I think we will be able to address, very effectively, a large portion of this market, including the low latency portion of the market. So from our standpoint, this is kind of a natural evolution. Now how fast it goes depends a bit on the technology in terms of what share of the TAM these things become, but we should expect that there will be different variants, and we're well prepared to address those different variants. Operator: And the next question comes from the line of Vivek Arya with Bank of America. Vivek Arya: Lisa, do you think Agentic CPU growth is incremental? Or is it coming at the expense of GPUs conceptually? So if you're raising server CPU TAM, are you also implicitly kind of raising AI TAM? So just I'm interested in your perspective on what did you think server CPU was as a percentage of AI TAM before? And what is it now with this $120 billion number? Lisa Su: Sure, Vivek. So the way we're thinking about is it's largely additive to the TAM. So you should think about we need all of the accelerators to run these foundational models, and then as these agents do work, they spawn more CPU tasks. So I would say largely incremental. The key is to make sure -- what we're seeing is in these deployments, the key is to make sure the ratio of CPUs to GPUs are the right ratio. So if you're installing a gigawatt of compute, the ratio -- there's a percentage of CPU as part of that gigawatt will increase. Some of the conversation in the industry has been about CPU to GPU ratios. And it's very hard to call exactly, but we certainly see the movement towards where in the past, the CPU to GPU ratio was primarily just as a host node in like a 1:4 or 1:8 configuration node, now changing and getting closer to a 1:1 configuration or even -- you can even imagine if you get lots and lots of agents that you could have more CPUs and GPUs. So -- but all in all, to answer your question, I think it's largely additive to the TAM. And the key is that everyone is now planning and thinking about CPUs at the same time that they're thinking about their accelerator deployments, which is a good thing. Vivek Arya: All right. And from my follow-up, Lisa, we continue to see memory prices go up. I imagine that is both kind of a cost inflation for you but perhaps an opportunity to take price as well. I'm curious, how is that dynamic playing out for AMD? And especially for your customers because a greater part of their CapEx increase is really kind of this memory inflation tax, right, that they have to pay. So how is this dynamic playing out for you and for your customers? And the part that I'm really interested in is that have you secured enough supply versus your other larger competitor who has disclosed a lot of prepayments and other things? So just how is this memory inflation dynamic playing out? And are you kind of adequately supplied from that perspective? Lisa Su: Sure. So Vivek, let me answer the second one first. I think from a supply standpoint, we are very happy with our partnerships with the memory vendors, and we have secured enough supply to certainly meet and exceed our targets. So it is a tight memory environment. Let me be clear. But I think we are very deep partnerships with the memory providers. And then back to your comments on the inflationary pressures. I mean, look, this is something that everyone in the industry is working with in the time of tight supply, we are seeing some cost increases on the memory side. I think we are all working through that. The way we're seeing it unfold in the market is actually on the Data Center side, because of the, let's call it, the demand for AI compute, I mean people are largely focused on supply and ensuring that the supply assurance is there. The corollary of that, the larger impact that we're watching is the impact on the consumer markets. And as we said in the prepared remarks, we are expecting that there could be some demand -- sort of the demand impact as a result of the memory price increases on things like the PC business in the second half of the year as well as the Gaming business. So we're taking that into account in our overall model. And we continue to work closely with the memory providers as well as our customers to ensure that every time we ship a CPU or GPU, then it's paired with the memory on the other side so that we don't have compute that is not being deployed. Operator: And the next question comes from the line of Aaron Rakers with Wells Fargo. Aaron Rakers: Congrats on the results. I want to stick on the topic of CPU to GPU. And as we think about the chart that you had outlined at the Analyst Day, there was obviously broken out between traditional CPUs and then the AI bucket on top of that. Obviously, I think the new forecast has a lot to do with the AI CPU expansion. I'm just curious, when you're doing a CPU in an AI workload, is there structurally a different level of ASP tied to that kind of CPU optimized for AI relative to a general purpose server CPU? Any kind of color or help on that would be useful. Lisa Su: Sure, Aaron. So let me start with the broader question. The broader question regarding -- the way we think about the CPU TAM is, again, think about it as 3 categories. So there is a traditional CPUs, let's call it, general purpose CPU TAM that is increasing, but let's call it, increasing at low rate, maybe, let's call it, low double digits, then you have your AI head node, which is connecting to accelerators, which is also growing, but it's smaller. And then the largest piece of the growth is this Agentic AI piece, which we think is really stemming from all of the Agentic processes. I don't have a number that I can tell you in terms of relative ASPs because it really depends on the workload that is being run. And what we see going forward is as core counts increase, obviously, we will see ASP increase. And that's the direction that we're going in as we go forward. But the main point is -- the largest portion of this is the Agentic AI, the CPUs that are serving these Agentic AI workloads in terms of the TAM increase. Aaron Rakers: And as a quick follow up, I'm curious, how do you characterize the competitive landscape as we see some of the ARM introductions in the market. Just curious of your views on the competitive landscape and server CPU. Lisa Su: Yes. Aaron, the best way to think about the server CPU landscape is, again, number one, everyone is talking about CPUs. So that tells you how critical they are for the AI infrastructure. And I think that's a good thing. We feel like we're very well positioned. No question, ARM is good architecture. It has a place in the Data Center market. We view it as more point products relative to a portfolio, where, from an AMD standpoint, we've built this broad portfolio of CPUs, going forward, what you're going to need for all of these different workloads. And we have, in the Venice time frame, added an AI-optimized CPU with the Verano in addition to our throughput optimized and sort of cost optimized point. So from that standpoint, I think we're very competitive. We're continuing to innovate on architecture. We're continuing to innovate on both advanced packaging as well as all of the architectural pieces. So we feel very well positioned going forward. And the key is the TAM is much, much larger than anybody thought. And so there's a lot of opportunity for different products to be successful in this area. Operator: And the next question comes from the line of C.J. Muse with Cantor Fitzgerald. Christopher Muse: I guess first question, I was hoping to speak a bit more about client for all of calendar '26. You talked about growth -- expected growth, but would love to hear your thoughts around seasonality in the second half. And I'm assuming that you are repurposing certain logic tiles from clients over to the Data Center and would love to kind of better understand what the implications are for ASPs on the client side looking into the second half. Lisa Su: Sure. So C.J. I think the client business has performed really well for us. I think if we look at Q1, it actually was a little bit stronger than what we expected. We are seeing some mix shift in the client business. The mix that we're seeing is the M&C or the Notebook business is actually growing, especially the premium portion. We're making very good progress in the commercial PC arena with our AI PCs. We did see desktops a little bit softer just given desktop is a more consumer-focused market. And so in that market, it's more impacted by some of the memory pricing and the component price increases. When we look at the full year, our commentary is we are planning for some demand impact in the second half due to the memory pricing. But even in that environment, what we're focused on is ensuring that we continue to make good progress on the Commercial business and continuing to focus on the premium segments of the market. So we believe that we will continue to grow on a year-over-year basis for the Client business compared to last year. And as it relates to ASPs, again, it's a little bit of puts and takes between Notebook and Desktop. But overall, I think we're feeling good about our opportunity to outperform the market and clients going forward. Does that answer? Christopher Muse: That was perfect. And then I guess a question on Instinct gross margins. With compute essentially sold out and obviously, you're building a business, so one has to be, I guess, conservative on that front. But I would think outside of kind of passing through HBM that given the very tight wafer environment that this would be a place where you could look to drive your Instinct margins closer to your corporate average? How are you thinking about that either today or in the coming 1, 2, 3 years? Jean Hu: C.J. at this stage, we really focus on driving the topline revenue growth on our Instinct family of product. I think on the gross margin side, you're absolutely right, it's really -- the demand for compute is tremendous. We actually are very strategic in how we think about the -- how we work with the customers. And of course, the different customers also have a different gross margin. I think, over time, once we start to ramp our revenue, we'll have a lot of opportunities to improve gross margin, both on the ASP side, but also, more importantly, on the cost side when we scale our business. Operator: And the next question comes from the line of Stacy Rasgon with Bernstein Research. Stacy Rasgon: For the first one, I just wanted to make sure I have the near-term AI GPU trajectory correct. So I know you said it was down sequentially in Q1 because of China. You had like $390 million of China revenue in Q4. So the AI business in Q1 actually grow sequentially ex China because it doesn't feel like it, given the server outlook? And then I look at what's maybe suggested for Q2, are you thinking GPUs and servers kind of grow similar rate sequentially because it would probably put GPUs in Q2 below the overall revenue in Q4, which seems low to me. I'm just trying to tie all that out. Could you help me with that, please? Jean Hu: Yes. So I think, Stacy, I appreciate the question. I think if you look at Q1, we did mention Data Center AI was down modest pace sequentially, primarily due to lower China revenue in the quarter. I think on your second question regarding Q2, you're right, both Data Center AI and the server will grow double digit in Q2. Stacy Rasgon: Yes. But you didn't answer my question. In Q1, did it grow sequentially ex the China step down, I guess, is what I'm asking. Jean Hu: The China, for our business, in Q1, it's not material. So I think I will repeat what I just said. Yes, the revenue -- the China revenue in Q1 is not material. Stacy Rasgon: Okay. Okay. So you don't want to -- okay. Second question, OpEx [indiscernible] for spending -- but it sort of continues to blow past the targets. You kind of give an OpEx guide and then it blows through it and then you guide higher. So again, I'm not bothered by this. I'm just wondering why is the OpEx been so hard to forecast? And how should we be thinking about OpEx through the rest of the year given the revenue growth? Jean Hu: Yes. Thanks, Stacy, for that question. I think the most important thing is given the tremendous market opportunities we have, we actually are investing aggressively. If you look at the past several quarters, we're really leaning in, in investing, but all the AI investments are driving the revenue momentum. So if you look at the Q1, revenue was 38% up, then Q2, we guided 46% up. The investments are driving the revenue momentum. Some of the OpEx increase, of course, is tied to the revenue. When you look at our beat on the revenue side versus our guidance, we did beat on the revenue side, right? So that impacted a little bit. But also, at the same time, we have a lot of customer engagement with our Data Center AI business, we do continue to make sure we have the resource to support our different customers. Matthew Ramsay: Thank you very much. Operator, I think we have time for one more caller on the call. Thank you. Operator: Our final question comes from the line of Blayne Curtis with Jefferies. Blayne Curtis: Lisa, I just want to go back to the supply side. There was a lot of story about your competitor restarting 7-nanometer. I'm just kind of curious as you look at that landscape which is quite robust through the end of the decade, do you think that the older products will stay around longer? And is there a way to think about the implications for gross margin in such a strong market. Is that actually a negative? Lisa Su: Actually, Blayne, I don't think we see the older products hanging around longer. In our case, I think it might be company-specific stuff. In our case, we actually see -- first of all, Turin is very strong. We actually crossed over 50% of our revenue being Turin this quarter. Genoa is very strong. We're still shipping some Milan, but I would say that's come down over time. So in general, people want to use the newer products because they're just more efficient in every aspect from performance, from cost structure, from a power standpoint. So that's what we're seeing. By the way, I should also mention, in addition to what we're seeing in the cloud segment of server, we're seeing really nice strong pickup in enterprise. And there as well, we're seeing our newer products do very well. So from our standpoint, it is all about ensuring that we ship what the customer needs. And in this case, it typically is our newer products, and we expect that to continue. As we transition into Venice later this year, we will expect Turin and Genoa to continue shipping, but there's a lot of goodness in going to the new products. And on the supply chain side, I know there's been a lot of discussion about how tight the supply chain is. The supply chain is tight. I would definitely say that. But I also think this is an area where we excel. We have very deep relationships across the supply chain on the wafer side, on the back end capacity side. And we are seeing meaningful improvements in that. And as our customers come to us with more demand, we are getting more supply. And the good thing about this is we're now talking about '27 CPU demand, we're talking about '28 CPU demand. And so that allows us to just plan much better as we go forward. Blayne Curtis: And then just a quick one for Jean. I'm just curious to follow up on Stacy's question on OpEx. I guess I was a little surprised that SG&A is kind of outpacing R&D. I was just kind of curious, is that start-up costs, because in a strong market, you wouldn't think you would have to discount or have a big sales effort. So I'm just kind of curious for the year, how you think about R&D growth versus SG&A? Jean Hu: I think for the year, you should expect us to grow R&D much faster than SG&A. I think in the past few quarters, we have been really building our go-to-market machine, and we have been investing more in sales and marketing side. But going forward, you should expect the year-over-year growth R&D will grow faster than SG&A growth. Lisa Su: Yes. And if I just add to that, Blayne, the places that we invest -- Jean is absolutely right. We're investing in R&D ahead of sales and marketing. But the places that we're investing in sales and marketing are paying off. So the investments are going into enterprise servers. They're going into commercial PCs. They're going into mid-market, small and medium business. These are places where AMD traditionally didn't invest, but now that we have a much broader portfolio, both on the server CPU and on the commercial PC side, it makes sense for us to invest because that's sort of the very best part of those markets. Matthew Ramsay: All right. Thank you very much, everybody, for joining and your interest in AMD. John, you can go ahead and close the call now. Thanks. Operator: Thank you. And ladies and gentlemen, that does conclude the question-and-answer session, and that also concludes today's teleconference. We thank you for your participation. Please disconnect your lines, and have a wonderful day.
Operator: Hello, and thank you for standing by. My name is Mel, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Tidewater Inc. First Quarter 2026 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 during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to West Gotcher. Go ahead. West Gotcher: Thank you, Mel. Good morning, everyone, and welcome to Tidewater Inc.’s First Quarter 2026 Earnings Conference Call. I am joined on the call this morning by our President and CEO, Quintin V. Kneen; our Chief Financial Officer, Samuel R. Rubio; and our Chief Operating Officer, Piers Middleton. During today’s call, we will make certain statements that are forward-looking and refer to our plans and expectations. There are risks, uncertainties, and other factors that may cause the company’s actual performance to be materially different from that stated or implied by any comments that we are making during today’s conference call. Please refer to our most recent Form 10-Ks and Form 10-Q for additional details on these factors. These documents are available on our website at tdw.com or through the SEC at sec.gov. Information presented on this call speaks only as of today, 05/05/2026. Therefore, you are advised that any time-sensitive information may no longer be accurate at the time of any replay. Also during the call, we will present both GAAP and non-GAAP financial measures. Reconciliations of GAAP to non-GAAP financial measures can be found in our earnings release, located on our website at tdw.com. I will now turn the call over to Quintin. Quintin V. Kneen: Thank you, West. Good morning, and welcome to Tidewater Inc.’s First Quarter 2026 Earnings Conference Call. I will start the call today with the quarter’s highlights and then talk about capital allocation and what we are seeing on vessel supply and demand. West will walk through our financial outlook and what we are thinking about for 2026 guidance. Piers will cover the global market and operations, and Sam will close with the consolidated financial results. Each of us will touch on the impact from Operation Epic Fury. Starting with the first quarter, revenue and gross margin were both ahead of what we expected. Revenue was $326.2 million, driven mainly by higher utilization and stronger day rates. Gross margin was just under 49%, up slightly quarter over quarter and over three percentage points above our internal plan. Utilization benefited from strong uptime with less downtime for repairs and fewer dry-dock days than we expected. Overall, I am really pleased with the operational execution and with the returns we are seeing from the fleet investments we have made over the past few years. Before I get into more detail on the financials, I want to touch on Operation Epic Fury, what it meant for the quarter, and what we are watching going forward. As I said on last quarter’s call, we had not seen any disruption to our business at the outset, and we expected that any cost impact—especially insurance and fuel—would be immaterial. Quintin V. Kneen: And so far that has held to be true. Our vessels in the Middle East continue to operate normally, and utilization and revenue in the first quarter—specifically March, the first full month after the operation began—came in above our forecast. We did see some higher costs, mainly in crew along with insurance and fuel. The biggest item has been the incremental hazard pay for our crews. Insurance and fuel have been a smaller piece. Sam will share more detail in his remarks. Looking ahead, we are seeing pent-up demand in the region, and we believe activity could rebound above what we expected just a quarter ago once the conflict is resolved. In the first quarter, we generated $34 million of free cash flow. The step down sequentially was related to less cash flow from working capital and relatively higher dry-dock spend. Just as a reminder, in the fourth quarter we collected a sizable past-due receivable from PEMEX, which drove the working capital change, and Q4 is typically our lightest dry-dock quarter, whereas Q1 is usually our heaviest as we get vessels ready for a busier working season as the weather improves. That drove the dry-dock change. Importantly, nothing has changed in how we are thinking about free cash flow for the year, and the first quarter is tracking with our expectations for 2026. As we discussed previously, during the first quarter we announced our agreement to acquire Wilson Sons Ultratug Offshore—22 PSVs focused exclusively on the offshore market in Brazil—for $500 million. We have already started the pre-integration work using the playbook we built through prior acquisitions. The Wilson team has been well organized and is highly capable, and we are making good progress getting ready to bring the business onto the Tidewater Inc. platform. On approvals, things are moving as expected and we still anticipate closing by the end of the second quarter. We did not repurchase any shares in the first quarter because we plan to fund the equity portion of the Wilson transaction with cash on hand, and we are still waiting for consents to transfer the existing Wilson debt. We still have $500 million authorized under the program, which represents about 12% of the shares outstanding as of yesterday’s close. Even as we work towards closing and integrating Wilson, we are still in a good position to look at additional M&A opportunities. Our balance sheet remains strong and we continue to expect net leverage to be less than one times at closing. Liquidity is solid, and after issuing our unsecured notes last summer we have good visibility into the cost of debt capital should we decide to use it for an acquisition. Our preference is still to use cash, but we will consider using stock if the right fleet is available at the right value. With the GulfMark, Swire SOF segment, and now Wilson acquisitions, we have built a meaningful presence in essentially every major offshore basin. These have largely been newer, higher-specification fleets, and they have helped reestablish Tidewater Inc. as the leading OSV provider globally. We have also successfully reentered Brazil, which we have talked about as a priority market. From here, we will stay focused on fleets and geographies where our platform gives us an edge and where bringing additional vessels onboard can create outsized value. We continue to benefit from our scale and high-specification PSVs and anchor handlers, two of the most in-demand vessel classes in the global OSV fleet. When we look out over the next couple of years, we see the market tightening in late 2026 and into 2027 and 2028. That should set up for meaningful day-rate improvements over that time. If day rates move up the way we expect over the coming years, that will flow through to higher earnings and cash flow generation. If we do not see value-accretive acquisitions, we will look for other ways to put that excess cash to work. Our share repurchase philosophy has not changed. We will be opportunistic and disciplined, and more broadly, we do not think it makes sense to build and sit on a large cash balance for an extended period. As we move through to the Wilson closing and into a period of higher free cash flow, we will stick with the same capital allocation framework that is core to how we run the business. In practice, this means we will continue to weigh the relative merits of M&A versus share repurchase. We continue to view buybacks as an attractive way to return capital to shareholders. Turning to the outlook, while the Middle East conflict is still ongoing, what we have seen so far could be a positive for the offshore vessel market over time. Energy security became a key theme since the conflict in Ukraine, and the Middle East conflict has added another layer—an increased focus on sovereign energy independence, particularly in the Eastern Hemisphere. So far, at least 500 million barrels of oil have been lost, and there is still no clear sign when recent production losses will be reversed. The longer that goes on, the bigger the need becomes to replace those inventories, and historically, crude prices have had a strong relationship with inventory levels. Continued depletion should provide longer-term price support. Put together, the inventory drawdown and the heightened awareness of geopolitical risks suggest oil prices may have a higher floor than before the Middle East conflict began, which supports additional offshore projects. Stepping back, we think the trend towards offshore development supports a structural improvement in demand for offshore activity and for offshore vessels. We see this as a long-term dynamic, and it is additive to the demand we have been seeing already. Recent comments from offshore drillers point to a meaningful increase in fixtures and a high level of drilling unit utilization. We view the expected pickup in offshore drilling as a strong positive for our business. We support a range of offshore applications, but drilling activity typically has the biggest impact on vessel demand. Offshore vessel activity has been building year to date, and as it continues to pick up, the pressure on available supply creates an opportunity for higher utilization and higher day rates. On the supply side, the global fleet has stayed essentially flat over the past few years. A handful of vessels are expected to deliver late in this year and into early 2027, but we view those additions as relatively small in the context of the overall market. As supply tightens further, we can see a path to day-rate increases of roughly $3,000 to $4,000 per day per year for the entire fleet, moving the fleet back towards earning its cost of capital. We are excited about the drilling outlook, but we also expect other drivers of vessel demand—especially production and EPCI-related support—to remain strong. Production work has stayed robust and helped offset some of the relative drilling softness early in 2026. Looking ahead, we continue to like the outlook for both, given the strength we are seeing in both subsea and EPCI backlog, as well as continued momentum in FPSO orders. Over the longer term, more drilling in less developed regions should drive additional infrastructure work, which supports sustained demand across these categories. We are pleased with how the first quarter came together. While we still have some uncertainty in the Middle East until the conflict is resolved, we are increasingly optimistic about the outlook for the business. We will stay disciplined on capital and continue to look for value-accretive ways to deploy it, and we expect the opportunity set and our ability to capitalize on it to improve over the next 18 months. With that, let me turn it back over to West. West Gotcher: As Quintin mentioned, we did not repurchase any shares during the first quarter due to the pending Wilson acquisition. At the end of the first quarter, we retained our $500 million share repurchase authorization. As a reminder, under our outstanding bonds, we are unlimited in our ability to return capital to shareholders provided our net debt to EBITDA is less than 1.25x, pro forma for any share repurchase. Under our revolving credit facility, we are also unlimited in our ability to repurchase shares provided the net debt to EBITDA does not exceed one times. However, to the extent that we exceed one times net leverage, we still retain the flexibility to continue returns to shareholders, provided that free cash flow generation is in excess of cumulative returns to shareholders. We still anticipate being below one times net leverage, assuming a June 30 close of the Wilson acquisition. From a capital allocation perspective, we look to execute share repurchase transactions when suitable M&A targets are not available. We retain the option of evaluating M&A and share repurchases concurrently, but our financial policies and philosophies dictate our relative appetite to pursue both concurrently. Given that the offshore vessel market has stabilized at a healthy level, along with the constructive outlook for offshore vessel activity more broadly, the M&A landscape remains favorable and we will continue to evaluate additional inorganic opportunities to add to our platform. Turning to our leading-edge day rates, I will reference the data that was posted in our investor materials yesterday. Across the fleet, our weighted-average leading-edge day rate increased modestly in the first quarter compared to 2025. This is the first time since 2025 that our weighted-average term contract measure for new contracts has increased. Our largest class of PSVs saw average day rates increase sequentially, which we find encouraging given the relatively large number of contracts for these vessels and the geographic dispersion of the contracts. During the quarter, we entered into 18 term contracts with an average duration of 13 months, with two specific long-term contracts skewing the average. Excluding these contracts, the average duration of our new contracts during the quarter was seven months. Turning to our financial outlook, we are maintaining our full-year 2026 revenue guidance of $1.43 billion to $1.48 billion and a full-year gross margin range of 49% to 51%. Our guidance assumes that we close the Wilson acquisition at the end of the second quarter. Our view of the legacy Tidewater Inc. annual revenue and gross margin guidance has not changed from our initiation of guidance in November 2025. Our second-half expectation for the Wilson business remains unchanged. We expect our second-quarter revenue to be roughly flat with the first quarter, consistent with prior expectations, but expect our gross margin to decline by about 5 percentage points sequentially due to cost increases associated with Operation Epic Fury. However, we are in a position to seek rebills for about half of the conflict-related cost increases from our customers related to direct cost increases associated with crew wages, insurance costs, and G&A support, but we have not contemplated the recoupment of these costs in our guidance. Our forecast assumes a normalization of costs associated with the conflict in the Middle East by the end of 2026. To the extent the conflict-related cost pressure continues beyond the second quarter, we are similarly privileged to seek rebills from our customers on realized direct cost increases. Second-quarter guidance does not assume any impact from the Wilson acquisition. In summary, we are pleased to be able to maintain our full-year guidance given the impact from the conflict in the Middle East, with the possibility of recouping a good portion of the cost increase that we are absorbing in our current Q2 guidance. Our expectation remains that there is the potential for uplift to our full-year guidance depending on the strength of drilling activity picking up towards the end of the year. Looking to the remainder of 2026, first-quarter 2026 revenue plus firm backlog and options for the legacy Tidewater Inc. fleet represents $1.1 billion of revenue for the full year, representing approximately 84% of the midpoint of our legacy Tidewater Inc. 2026 revenue guidance. Approximately 69% of remaining available days for 2026 are captured in firm backlog and options. Our full-year revenue guidance assumes utilization of approximately 80% for the legacy Tidewater Inc. fleet, leaving us with 11% of capacity to be chartered if the market tightens quicker than we are anticipating. Our midsized anchor handlers and largest class of PSVs retain the most opportunity for incremental work, followed by our smaller and largest class of anchor handlers and midsized PSVs. Contract cover is higher in the earlier part of the year, with more opportunity available later in the year. The bigger risk to our backlog revenue is unanticipated downtime due to unplanned maintenance and incremental time spent on dry docks. With that, I will turn the call over to Piers for an overview of the commercial landscape. Piers Middleton: Thank you, West, and good morning, everyone. This quarter, I will talk a little about what we are seeing in each of our regions as we look out through the rest of the year and into 2026. Overall, the OSV market showed continued signs of improvement throughout the quarter, with sentiment starting to pick up in all regions where we operate, even those which could face some short-term challenges through 2025. Amid rising rig demand and offshore E&P activity, the long-term outlook for the OSV market remains strong, with the ongoing upturn in project investment expected to continue to drive additional incremental demand out to 2030, while the continued limitations in the supply of any significant growth in the global OSV fleet will further exacerbate the expected tightness in our market. Working through our various regions and starting with Europe, the North Sea OSV spot market strengthened throughout the quarter. In the PSV sector, spot rates strengthened significantly as the quarter progressed, with fixing activity remaining strong, helped by several PSVs leaving the region for warmer climates, a trend we do not see stopping in the short term. In the AHTS sector, supply constraints continued to drive rates higher, with spot rates in the largest classes of AHTS reaching record highs above $350,000 per day in Norway. In the Mediterranean, we continue to see strong activity, and with our global operating platform we were able to move two further vessels into the region to meet the increased demand that we mentioned on our last earnings call. Overall, we expect the Mediterranean region to be a strong market longer term, with several drilling campaigns and EPCI projects commencing in 2026. In Africa, even with the busier dry-dock schedule in the region, we had a good Q1 with a large increase in utilization across our West African and Angolan fleets, predominantly due to some overruns in drilling campaigns in both Namibia and Congo, as well as an uptick in EPCI work in Angola and Mozambique. Looking ahead, we do expect some slowdown in activity across the region in Q2, but are on track for a big pickup in activity from Q3 onwards, led by renewed drilling and EPCI activity in Nigeria, Namibia, Angola, Congo, and Mozambique. In the Middle East, as Quintin mentioned, we saw little disruption to our vessel activity in the region, with all our vessels remaining on hire throughout the quarter. However, we have seen a slowdown in new tendering activity as our customers assess the short-term impact of Operation Epic Fury on their plans. Looking ahead, low tendering activity is expected to persist in the near term due to the elevated risk, and while it is probably too early to predict with any accuracy long-term rate movements in the region, we do expect day rates in the shorter term to be impacted positively on the upside due to the lack of any new supply being able to enter the region. While the duration and trajectory of the conflict are still unclear, as Quintin mentioned, the ramifications of the conflict will likely have longer-term positive benefits to the OSV industry both in the Middle East and globally. In the Americas, as mentioned on our last call, we remain excited with the long-term outlook in Brazil, with the recent announcement that SBM agreed contracting terms with Petrobras for construction of two more FPSOs to be deployed offshore Brazil, with first production targeted for 2030. While there has been some short-term slowdown in OSV tendering activity in 2026, this is expected to pick back up again after elections are completed in Q4 of this year. In Mexico, PEMEX’s underlying financial pressures continue to weigh down sentiment; however, we are seeing some uptick in tendering activity from other oil companies in the country, which bodes well for 2027 and 2028. Lastly, in Asia Pacific, Taiwan, Indonesia, and Australia were the key drivers of demand in the current quarter, with several new contracts signed to support both drilling and EPCI activity that will kick off in Q2 and should go all the way through into 2027. Looking further out into 2027, we are also starting to see several of the other NOCs and IOCs in the broader region getting organized to increase drilling activities starting in 2026 all the way out to 2028, which bodes well for the region going forward. Overall, we are very pleased with how the market has continued to move in the right direction in Q1, and we fully expect that positive momentum to continue into the second half of the year. With that, I will hand it over to Sam. Samuel R. Rubio: Thank you, Piers, and good morning, everyone. I would now like to take you through our financial results, where my discussion will focus on the sequential quarterly comparisons of 2026 compared to 2025. In the first quarter, we reported net income of $6.1 million, or $0.02 per share. We generated $326.2 million in revenue compared to $336.8 million in the fourth quarter. We saw average day rates increase about 1% versus the fourth quarter but saw a slight decline in active utilization to 80.6% from 81.7% in Q4. The revenue decline was primarily due to a decrease in operating days, as there were two fewer days in the quarter, coupled with the lower utilization due to higher dry-dock days. Gross margin in the first quarter was $159.3 million compared to $164 million in the fourth quarter. Gross margin percentage in the first quarter was 48.8%, nicely above our Q1 expectation and slightly ahead of our Q4 margin of 48.7%. The increase in margin versus Q4 was primarily due to the decrease in operating costs. Operating costs for the first quarter were $166.9 million compared to $1.727 billion in Q4. The decrease in operating costs was due mainly to lower R&M costs and lower other operating expenses in addition to two fewer days in the quarter. While overall cost was lower, we did incur about $2.3 million of cost due to the Iran conflict, the majority of which was incurred in the Middle East. Costs directly impacted were higher insurance costs and higher crew wages in the form of hazard pay. Indirectly, we also saw fuel and travel costs increase due to the increase in the commodity price. Our EBITDA was $129.3 million in the first quarter compared to $143.1 million in the fourth quarter. For the first quarter, total G&A cost was $33.6 million, which is $5.4 million lower than Q4. The decrease was mostly due to lower professional fees due to a decrease in M&A transaction costs as well as costs associated with our Q4 internal vessel realignment. In addition, we saw a decrease in salaries and benefits due to adjustments made to our compensation expense. For 2026, exclusive of additional M&A costs, we expect Tidewater Inc. standalone G&A costs to be about $125 million. This includes an estimated $14 million of noncash stock compensation. Moreover, we expect to incur approximately $7 million in additional G&A costs in the second half of this year related to the Wilson acquisition. In the first quarter, we incurred $36.4 million in deferred dry-dock costs compared to $13.9 million in the fourth quarter. Q1 is typically a heavy dry-dock quarter, and this quarter was no exception, as we had 949 dry-dock days that affected utilization by about five percentage points. Dry-dock costs for 2026 are expected to be approximately $122 million. Additionally, we expect to incur approximately $16 million in dry-dock costs in the second half of the year related to the Wilson acquisition. In Q1, we incurred $14.9 million in capital expenditures related to vessel modifications and upgrades. For the full year 2026, we expect to incur approximately $51 million in capital expenditures. This amount includes a planned major upgrade to one of our Norwegian vessels. Absent this upgrade, our maintenance CapEx is expected to be approximately $36 million for 2026. In Q1, we spent $24.4 million related to two purchase options we have exercised for vessels we have been leasing. This amount is not reflected as CapEx spend, but is instead reflected in the financing section of our cash flow statement in Q1 as payments on finance leases. In addition, we expect to incur about $1 million in CapEx spend in the second half of the year related to the Wilson acquisition. We generated $34.4 million of free cash flow in Q1 compared to $151.2 million in Q4. The free cash flow decrease quarter over quarter was mainly attributable to higher deferred dry-dock and CapEx spend in Q1 and a large working capital benefit achieved in Q4 due to a significant increase in cash collections that did not repeat in Q1. In Q1, we sold two vessels for proceeds of $3.3 million, which is also lower than the Q4 sale proceeds of $5.3 million. Though the Q1 free cash flow amount was lower than Q4, it was higher than our internal estimate. As a reminder, following our debt refinancing, which was completed in Q3 2025, we only have small debt repayments that are related to the financing of recently constructed smaller crew transport vessels. We have no payments until 2030 on our new unsecured notes. Following the anticipated close of the Wilson acquisition, our debt maturity and repayment profile will change to accommodate the newly assumed Wilson debt. We conduct our business through five operating segments. In the first quarter, consolidated average day rates were 1% higher versus Q4, led by our Europe and Mediterranean day rates improving by 9% and our APAC segment increasing by 7%, partially offset by relatively small declines in each of our other regions. Total revenues were 3% lower compared to the fourth quarter, with decreases in the Americas, Africa, and Middle East, partially offset by increases in our APAC and Europe and Mediterranean regions. Regionally, gross margin increased by four percentage points in Africa, three percentage points in our APAC region, and one percentage point in the Middle East despite the conflict in Iran. Our Europe and Mediterranean region saw a decrease of two percentage points, and the Americas declined by four percentage points. The gross margin increase in our African region was primarily due to a five percentage point increase in utilization due to fewer idle days, offset by slightly higher repair and dry-dock days. This was offset somewhat by a decline in average day rates of 4%. Operating costs decreased by 15% due mainly to a decrease of four vessels operating in the area and two fewer operating days in the quarter. The gross margin increase in the APAC region was due to an increase in utilization due to fewer repair days and a 7% day-rate increase, partially offset by a small increase in operating costs as we had two vessels transferred into the area. The increase in Middle East gross margin was primarily due to a 5% decrease in operating costs. The decrease was primarily due to fewer operating days and lower R&M expense due to fewer DFR days, partially offset by higher costs related to the conflict. In the quarter, we did see a small drop in day rates and utilization. Utilization was down slightly quarter over quarter primarily due to higher idle days, partially offset by fewer dry-dock and repair days. Our Europe and Mediterranean region gross margin was two percentage points lower versus the prior quarter, but three percentage points higher than our expectation. Revenue was up 5.5% due to a 9% increase in day rates, partially offset by a seven percentage point decrease in utilization. We had a heavy dry-dock schedule in the quarter, and we mobilized vessels into the region, which contributed to the decrease in utilization. Dry docks represented a five percentage point decrease in utilization in Q1 compared to less than one percentage point in Q4. The increased revenue was partially offset by higher operating expenses related to higher salaries and travel and supplies and R&M due primarily to an average of four additional vessels operating in the region. Gross margin in our Americas segment decreased by four percentage points due mainly to a $12 million decrease in revenue caused by a four percentage point decline in utilization as well as a 3% decrease in average day rates. Utilization was affected by higher dry-dock and repair days. The revenue decrease was partially offset by a 10% decrease in operating cost versus Q4. The decrease was primarily due to transferring two vessels out of the region during Q1. As noted in our press release and as Quintin mentioned earlier on the call, we experienced additional operating costs in Q1 related to the impacts from Operation Epic Fury. We estimate ongoing additional crew wages in the form of hazard pay and insurance costs of about $1.6 million per month. In addition, we expect approximately $1.8 million of additional monthly costs related to fuel and travel expenses due to the higher global commodity prices. The fuel and travel expenses are estimates based on our forecasted activity and current commodity prices. These elevated costs related to the conflict will likely continue into the near future, though it is uncertain how long this geopolitical disruption may last. It is also widely expected that commodities markets will remain elevated beyond the immediate resolution of the conflict. In a scenario where the conflict extends and remains similar in nature to its current state, we estimate total operating cost increases of between $10 million and $11 million per quarter. We are currently working with our customers for reimbursement of wages and insurance costs that are provided for under our contracts, but as of now we have not included this in our guidance. When we look at our Q1 revenue, I am glad to announce that we did not experience any material reduction due to contract cancellations because of this conflict. As it relates to the Wilson acquisition, integration meetings are progressing as expected, and we expect the transaction to close by the end of the second quarter. We strongly believe that our increased presence in the Brazilian market is an important piece to our global strategy and are excited about our growth there. In summary, Q1 was another strong quarter from an operations and execution standpoint. We exceeded internal expectations for free cash flow, day rate, and utilization in what is typically a seasonally slow quarter, and industry fundamentals remain strong. Our balance sheet is in excellent condition, and we continue to be optimistic about the opportunities that lie ahead for Tidewater Inc. With that, I will turn it back over to Quintin. Quintin V. Kneen: Sam, thank you. We will now open the call for questions. Operator: If you have dialed in and would like to ask a question, please press star then 1 on your telephone keypad to raise your hand and join the queue. Your first question comes from the line of Ben Summers of BTIG. Your line is open. Analyst: Hey, good morning, and thank you for taking my questions. You called out the anchor handler market being particularly tight in Q1, especially in the North Sea. Is this more of a regional development, or is this something you are seeing across the global fleet? Piers Middleton: Yes. Hi, Ben. Thanks for the question. It is basically something that is happening in the North Sea where there tends to be a bit more of a spot market, but we are certainly seeing on the larger anchor-handling sizes that there has been some consolidation in that market, and that has driven some of that tightness. That has allowed some of our competitors to push day rates, which helps us as well. So long as we are all moving in the right direction, that is a positive thing. Generally, what we see is that the spot market in the North Sea tends to drive a lot of the noise elsewhere as well, so we expect that to have a trickle-down effect through the rest of the globe over the next few quarters. It is a positive sign on the largest classes of anchor handlers. If you see that in Norway, it tends to push through to other regions as well, and that is driven by increased towing of rigs but also on the subsea construction side—the big anchors needed for trenching and subsea support work as well. It plays into what we have been saying about the increase in EPCI work and also exploration starting to pick up again. Analyst: Awesome, thank you. Super helpful. On the broader picture, you talked about the long-term increased focus on energy security. Are there any specific basins you would call out as being specifically emphasized? Anything across the global fleet that could be specifically impacted by this longer-term trend? Quintin V. Kneen: Principally the smaller markets in Asia, I believe. I think you are going to see real strength growing over the next few years in Indonesia and Malaysia. Piers may have some other anecdotal information as well. I mean, I think it is across all, but it is primarily going to be in Asia. Piers Middleton: We see a huge amount of demand coming out of that region, and we are already seeing it a little bit in Indonesia as well. It is going to have a kick into Africa as well in terms of more drilling and pulling more supply. I would not be surprised if we see it on the East Coast of Africa, and of course we have already seen some of the Western Mediterranean pick up in Libya and so forth. Quintin V. Kneen: So, yes, you are starting to see players that have not been in the market over the past five or six years really reaching out and trying to develop their resources. Analyst: Thank you for taking my questions, and congrats on all the progress. Operator: Thank you. Your next question comes from the line of Josh Jain of Daniel Energy Partners. Your line is open. Analyst: Thanks for taking my questions. Offshore rig companies have outlined pretty constructive outlooks for activity over the next 12 months. I know you are not going to guide 2027 dry docks, but is there any thought in bringing forward any of those when you can? Or is it reasonable to think the dry-dock schedule is going to be more friendly as we exit this year into 2027, and how are you positioning the company given the expected growth in the deepwater side? Piers Middleton: We are not trying to bring any dry docks forward. We tend to plan out over a five-year period to help supply chain and procurement as well. We have a pretty well-set operation on that side and how we look at things. We might move one or two depending on how projects pan out, but at the moment we have a pretty good sightline in terms of where projects are rolling out over the next few years, both for our own technical team and for our commercial team in terms of what projects we are seeing and in which areas, and we try to line up our vessels and dry docks accordingly to that. Analyst: And then on the other one, with the Helix–Hornbeck merger, does this frame at all how you think about growing your business moving forward with respect to different service offerings? Or does additional M&A look more like Wilson and some of the other things that you have done over the last couple of years? Quintin V. Kneen: It does not change our view, because we have always had that expansive view of other service lines. It is certainly a lot easier for us to do that in our existing market. To the extent that we do reach out, it would be with a franchise that we feel is already well performing in that particular vertical. But no, it does not change anything. Glad to see it. More consolidation is better. I certainly cannot consolidate this industry by myself, so the more the merrier. Analyst: If I could sneak in one more. Given the number of rigs that were given multiyear extensions with Petrobras in the last 90 days, how does that frame your discussion for the Wilson acquisition? At the time of the deal, you talked about a number of assets that were in the process of being extended. Can you update us on those and how much more confident you are today than when you did the deal about that market? Piers Middleton: Josh, overall positive. We went into this year with an election going on in Brazil, so we have seen a couple of tenders being pushed to the right. The understanding from the market is that Petrobras wants to make some decisions on longer-term commitments. Overall, Petrobras is positive. There are also the IOCs coming out as well in that region, even moving up the tender margin as well. We do not see any concerns in terms of future tendering—maybe there is a bit of movement to the right on some of them—but overall, nothing that concerns us at the moment. It is very positive in terms of what we are seeing on the rig side, and then the additional FPSOs are coming as well. There is a really good long-term story in Brazil that we think we are well placed to take advantage of once we get the Wilson acquisition into the business. Operator: Thank you. Your next question comes from the line of Jim Rollison of Raymond James. Your line is open. Analyst: Hey, good morning, and thanks for all the detail again this quarter. Quintin, last quarter you were pretty optimistic about how things were shaping up as we head into late this year, really into next year and beyond, and that has only gotten better with the oil macro situation that has come out of this Middle East conflict. It sounds like you are having some customer conversations that have picked up. Are they already trying to mobilize incremental activity at this stage, and how do you think that translates into the timing of your ability to start pushing day rates up? Quintin V. Kneen: It is always a bit of a guess, but the building activity that we are seeing from the rig companies, EPCI, and subsea contractors gives us a lot of confidence in our ability to push day rates up once the market tightens. We are a little bit later in the chartering process for those customers, so I think we are not going to be able to demonstrate that until later into 2026 and into 2027. Analyst: Got it. And then back to M&A. You have the Wilson deal closing, and there have been a couple of other chess pieces moved off the board since you announced that deal. Has the shift in the oil macro and the better environment outlook changed any of the dynamics of opportunities in terms of target acquisition pricing expectations at this point? Quintin V. Kneen: I think people are definitely getting more confident in the longer-term view of the industry, and that is helping. People are also beginning to appreciate the importance of consolidation—they see the benefits from the drillers and other subsectors. I have not seen any real price movements at this point, but if the industry continues to improve at a steady rate, we will certainly see that too. Operator: Your next question comes from the line of Don Crist of Johnson Rice. Your line is open. Analyst: Sorry if this has already been addressed—I got on the call a little late. It is a busy morning. I just wanted to ask about the Far East. We are hearing some news reports of energy shortages and things like that. I know you had a bunch of boats working in Malaysia and Indonesia in the past that got sidelined for other reasons. What is the state of the Indonesian and Malaysia markets right now and your ability to put those big boats back to work? Is that coming sooner rather than later? Any thoughts around that? Piers Middleton: Hi, Don. The market is pretty positive. We do not have a huge number of our biggest market-age-specific vessels there, but we do have a lot of big boats in the region, which will be working in Malaysia, Indonesia, and Australia, and then up in Taiwan. We are very positive. As we said earlier, with the energy security story, we are going to continue to see more investment in those countries. I think the governments have been shocked a little bit by what has happened with Operation Epic Fury. Longer term, we were already seeing it, but we expect to see the governments really doubling down in terms of pushing their NOCs and also the IOCs that operate in those countries to do more investment—more drilling, exploration, and getting production. We are busy down there at the moment, and we expect to continue to be busy as well. We have moved one or two ships already into the region this year. With our operating platform, we are able to do that. It is a positive story in Asia Pacific for us. Analyst: And M&A has been a big topic in Q4 and Q1, so you have not really done any stock buybacks. Quintin, are you leaning more towards stock buybacks as the M&A story goes to the background and you are able to buy some stock back here, or are you going to keep that optionality for the future? Quintin V. Kneen: I do not believe that the M&A opportunities are winding down. We have no issue returning money to shareholders, and share repurchases are our way to do it. But to the extent that we see more value in acquisitions by getting the right boats at the right price, then I would lean toward that. Operator: That concludes our Q&A session. I will now turn the call back over to Quintin V. Kneen for closing remarks. Quintin V. Kneen: Thank you again for joining us today. We look forward to updating you again in August. Goodbye. Operator: This concludes today’s conference call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. 2026 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 during this time, simply press star followed by the number one on your telephone keypad. As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Kerri Joseph, Senior Vice President, Investor Relations and Treasury. Ms. Joseph, please begin your conference. Kerri Joseph: Thank you, operator. Good morning, everyone. Thank you for joining our first quarter 2026 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; Michael Fedock, Executive Vice President and Chief Financial Officer; and members of our leadership and Investor Relations teams. Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call in the Events and Presentations section of our IQVIA Holdings Inc. Investor Relations website at ir.iqvia.com. Before we begin, I would like to caution listeners that certain information discussed by management during this call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company’s business, which are discussed in the company’s filings with the Securities and Exchange Commission, including our Annual Report on Form 10-Ks and subsequent SEC filings. In addition, we will discuss certain non-GAAP financial measures on this call which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation. As previously disclosed, we implemented a new segment reporting structure effective 01/01/2026. In conjunction with this change, prior period segment amounts have been recast to conform to this new reporting structure. I would now like to turn the call over to our Chairman and CEO, Ari Bousbib. Ari Bousbib: Thank you, and good morning, everyone. Thank you for joining us today to discuss our first quarter results. IQVIA Holdings Inc. delivered outstanding financial results, achieving record first quarter revenue and adjusted diluted earnings per share that exceeded the high end of our guidance, reflecting solid top and bottom line performance. We are seeing continued positive year-over-year momentum across the portfolio with strong acceleration of organic revenue growth. In fact, year over year, our organic revenue growth rate in Commercial Solutions doubled, and our organic revenue growth rate in R&D Solutions tripled. On the commercial side, revenue growth accelerated as clients continue to launch new products and increase the breadth of services they utilize from IQVIA Holdings Inc. We saw particular strength in Patient Solutions, which is the part of Real World that remained in the Commercial segment, and particular strength in Analytics and Consulting, which had the highest growth we have seen in three years, as well as strength in our Commercial Engagement Services, which includes the former CSMS segment. We feel good about demand on the commercial side with pipelines growing to record levels, and we think AI has something to do with it. AI is causing our clients to have more questions. It is causing them to increase their demand for IQVIA Holdings Inc.’s differentiated AI capabilities and for the innovation we are embedding across our commercial offerings. On the clinical side, we also delivered very strong performance in the first quarter with better than expected reported and organic revenue growth. We had solid bookings with double-digit growth year over year, both as reported and as recast. In particular, we had solid growth in net service fee bookings, that is, excluding pass-throughs. Net service fee bookings growth in the quarter was solid year over year as well as sequentially, both as reported and as recast. Cancellations in the quarter were within the normal range. So why was our book-to-bill ratio 1.04 in the quarter despite solid service fee bookings growth and normal cancellations, and no, AI has nothing to do with it? What happened was that pass-through bookings were unusually low in the quarter, simply due to the particular mix of indications of the clinical trials we booked in the quarter, which included more full-service trials with lower pass-throughs than usual. I want to note that the proportion of FSP in our bookings this quarter was consistent with historic levels. Regarding the overall demand environment, forward-looking demand metrics continue to point in the right direction. Our backlog reached a new record of $34.2 billion at the end of the quarter. Noteworthy is the amount of dollars from our backlog that will convert to revenue in the next twelve months. We have $8.9 billion out of our backlog, representing nearly 8% growth year over year versus the recast numbers last year. Our qualified pipeline grew mid single digits year over year, with notable strength in EVP. RFP flow grew high single digits year over year, driven by growth both in large pharma and in EVP. All of these comparisons are, of course, apples to apples, that is, versus prior year numbers that have been recast to reflect the new segment reporting. Finally, you may have noticed EBP funding was very strong in the first quarter, reaching $25 billion according to BioWorld, which is almost double the funding in Q1 2025. Now let us turn to the results in the quarter. We delivered outstanding revenue and profit results. Total revenue for the first quarter exceeded the high end of our guidance range, representing year-over-year growth of 8.4% on a reported basis and 6% at constant currency. First quarter adjusted EBITDA was up 5.5%. First quarter adjusted diluted EPS of $2.90 also exceeded the high end of our guidance range; it increased 7.4% year over year. Let us review a few highlights of business activity. A brief update on AI: IQVIA Holdings Inc.’s AI solutions are built on our unparalleled proprietary data foundation, best-in-class compliance with the privacy, regulatory, and integrity standards healthcare-grade AI demands, and are connected to our deep life sciences and healthcare expertise. We have been integrating AI into our operations and solutions at scale for nearly a decade. It is part of who we are and what we do. We already function as an AI-native company in life sciences. A few weeks ago, we unveiled iqvia.ai at NVIDIA’s GTC conference. This is our agentic AI portal and marketplace purpose-built for life sciences. It provides clients a single access point to their purchased IQVIA Holdings Inc. AI solutions, enabling centralized control with their internal user base, while also enabling visibility to a broader AI portfolio to support future solution adoption. Our deployment of highly specialized life sciences industry AI agents is progressing as planned. To date, we have 192 agents deployed in the field covering 64 use cases across both our Commercial Solutions and R&D Solutions businesses. Nineteen of the top twenty pharma companies are already using IQVIA Holdings Inc. agents in some of their workflows, underscoring broad industry trust in our AI capabilities. Switching to client activity in Commercial Solutions, this quarter we saw clients increasingly selecting IQVIA Holdings Inc. to build AI-ready data foundations, which facilitate the incorporation of AI agents, including our agents, into their workflows. These new services expand the scope of our partnerships with clients. A few examples of wins in the quarter: a top-10 pharma client awarded IQVIA Holdings Inc. a contract to modernize performance reporting on markets and therapeutic areas using an AI-driven analytics platform. The engagement replaces hundreds of disconnected reports and dashboards from multiple vendors with a centralized, managed, AI-powered IQVIA Holdings Inc. insights solution. IQVIA Holdings Inc. secured a multiyear partnership with a midsized client to build a scalable, AI-ready data foundation. The win demonstrates IQVIA Holdings Inc.’s plug-and-play capabilities within a client’s multi-provider technology ecosystem. Pfizer and IQVIA Holdings Inc. entered into a strategic regional promotion agreement covering selected Pfizer products across 23 countries in Europe. This collaboration brings together Pfizer’s scientific leadership with IQVIA Holdings Inc.’s promotional expertise, market intelligence, and AI-supported technology to support long-term impact. We entered into a strategic, long-term collaboration with Boehringer Ingelheim to transform the global commercial intelligence foundation. Boehringer selected IQVIA Holdings Inc.’s Data-as-a-Service plus platform as the core accelerator to harmonize and upgrade global commercial operations, enabling more scalable analytics and a single version of the truth across therapeutic areas and geographies. This collaboration will support upcoming product launches and market reporting across 59 countries. IQVIA Holdings Inc. was awarded a multiyear agreement to serve as the primary patient information and analytics partner across an EVP’s full portfolio, including our Data-as-a-Service platform. This partnership is designed to drive strong visibility into existing brands, accelerate improvements in analytics, insights, and pipeline assets, and enable more intelligent commercial and portfolio decisions. Turning to R&D Solutions, our strategy has been to leverage our AI solutions to optimize trial design and execution to reduce timelines for our clients. We have been doing this for years through protocol optimization, site identification, and operational risk mitigation, and we are taking this to the next level with AI agents, which lead to much faster study execution and increased quality by reducing errors and rework. For example, the agentification of the complex database setup process in study start-up or the AI identification of tasks involved in filing multiple documents in the Trial Master File. We are increasingly embedding these AI agents in our delivery model. Recent wins on the back of these capabilities include: a top-five pharma company selected IQVIA Holdings Inc. to provide AI-enabled global medical safety and pharmacovigilance services, building on a decade-long relationship and strong performance across both FSP and clinical delivery models. The deal consolidates safety operations under a single scalable model to improve efficiency and reliability while enabling ongoing innovation. A top-10 pharma client awarded IQVIA Holdings Inc. a multiyear agreement to serve as the primary partner for delivering full-service global clinical trials. We differentiated ourselves through AI-enabled innovation that accelerates development and improves execution quality. IQVIA Holdings Inc. won a contract with a global midsized pharma to deliver a Phase 3 clinical study supporting a high-profile oncology asset, based on our experience running similar studies and our ability to deliver AI-enabled trial design, protocol optimization, and site identification. A top-20 pharma company selected IQVIA Holdings Inc. to support a late-stage clinical program in asthma in overweight patients, highlighting AI-enabled clinical solutions, including protocol and design strategy optimization, regulatory compliance, and study document filings. For an EDP, we are delivering a global late-stage clinical program that integrates clinical and laboratory services within a single operating model, with agentified analytics embedded across site feasibility and selection, enrollment, and performance forecasting. Lastly, in the quarter, we announced a strategic collaboration with the Duke Clinical Research Institute to advance clinical research in obesity and related cardiometabolic conditions. The collaboration brings together IQVIA Holdings Inc.’s global operational scale and execution capabilities with Duke’s academic rigor and scientific leadership, creating an integrated end-to-end model for large, complex clinical trials. The partnership is designed to accelerate trial start-up, improve execution efficiency, and support regulatory submissions and commercialization. IQVIA Holdings Inc. contributes deep expertise in obesity and metabolic disease, having supported more than 120 obesity trials and enrolled more than 90,000 patients, including work across all FDA-approved GLP-1 therapies to date, providing sponsors with a proven operational foundation. This partnership with Duke has already resulted in a significant pipeline of opportunities and a few wins in the second quarter. I will now turn the call over to Michael Fedock for more details on our financial performance. Michael Fedock: Thank you, Ari, and good morning, everyone. As Kerri noted earlier, we implemented a new segment reporting structure effective 01/01/2026. In conjunction with this change, prior period segment amounts have been recast to conform to this new reporting structure. Let us start by reviewing the results. First quarter revenue was $4.151 billion, up 8.4% on a reported basis and 6% at constant currency. Revenue growth includes about two points of contribution from acquisitions. Commercial Solutions revenue for the first quarter was $1.754 billion, up 11.6% on a reported basis and 8.5% at constant currency. R&D Solutions first quarter revenue was $2.397 billion, up 6.2% on a reported basis and 4.2% at constant currency. Now moving down the P&L. Adjusted EBITDA was $932 million for the first quarter, representing growth of 5.5% year over year. First quarter GAAP net income was $274 million and GAAP diluted earnings per share was $1.61. Adjusted net income was $492 million for the first quarter and adjusted diluted earnings per share was $2.90, representing growth of 7.4% year over year. Now turning to RDS bookings. To provide an apples-to-apples comparison, last year’s Q1 2025 net new bookings and backlog have been recast to reflect the Real World Late Phase and certain other Real World offerings that are closely related to the clinical trial business, which we moved from TAS to RDS. On this new basis, R&D Solutions net new bookings in Q1 2026 were $2.5 billion, a double-digit increase year over year. RDS backlog at March 31 was $34.2 billion, an increase of mid single digits year over year. Additionally, the next twelve-month revenue from this backlog was $8.9 billion at March 31, which is up high single digits versus the prior year on a recast basis. Now reviewing the balance sheet. As of March 31, cash and cash equivalents totaled $1.947 billion and gross debt was $15.833 billion, resulting in net debt of $13.886 billion. Our net leverage ratio ended the quarter at 3.62 times trailing twelve-month adjusted EBITDA. First quarter cash flow from operations was $618 million; capital expenditures were $127 million, resulting in strong free cash flow of $491 million, which represents 100% of adjusted net income, a 15% increase year over year. In the quarter, we repurchased $552 million of our shares, which leaves us approximately $1.2 billion of repurchase authorization remaining under the current program. Now turning to guidance. We are reaffirming our full year 2026 guidance for revenue and adjusted EBITDA, and we are raising the guidance for adjusted diluted earnings per share. We continue to expect revenue to be between $17.15 billion and $17.35 billion, representing growth of 5.2% to 6.4%, or 5.8% at the midpoint. This revenue guidance continues to assume approximately 150 basis points of contribution from acquisitions and approximately 100 basis points of tailwind from foreign exchange. These assumptions are unchanged from the prior guide. We continue to expect adjusted EBITDA to be between $4.05 billion and $4.25 billion, growing 4.9% to 6.3% year over year, or 5.6% at the midpoint. We are raising our adjusted diluted EPS to be between $12.65 and $12.95, up 6.1% to 8.6% versus prior year, or 7.4% at the midpoint. Turning to the second quarter. For Q2, we expect revenue to be between $4.28 billion and $4.34 billion, which represents year-over-year growth of 6.5% to 8%. Adjusted EBITDA is expected to be between $955 million and $975 million, representing growth of 4.9% to 7.1% versus prior year. Adjusted diluted EPS is expected to be between $2.98 and $3.08, which represents year-over-year growth of 6% to 9.6%. Both this guidance and our full year guidance assume that foreign currency rates as of May 4 continue for the balance of the year. To summarize, IQVIA Holdings Inc. delivered outstanding financial results with first quarter revenue and adjusted diluted EPS exceeding the high end of our guidance. We delivered strong acceleration of organic revenue growth in both Commercial Solutions and R&D Solutions. RDS net new bookings grew double digits year over year with solid year-over-year and sequential growth in net service fee bookings. We continue to make very strong progress in the deployment of highly specialized life sciences industry AI agents, with more than 190 agents deployed covering over 50 use cases across Commercial Solutions and RDS businesses, with 19 out of the top 20 pharma companies already using our agents in some of their workflows. Forward-looking indicators continue to point in the right direction for both Commercial Solutions and RDS. We repurchased $552 million of our shares in the first quarter, and we reaffirmed our full year 2026 guidance for revenue and adjusted EBITDA and raised the guidance for adjusted diluted earnings per share. We will now open the call for questions. Operator, please go ahead. Operator: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We request that you please limit yourself to one question so that others in the queue may participate as well. We will pause for a moment to compile the Q&A roster. Your first question comes from the line of an Analyst with Leerink Partners. Your line is now open. Please go ahead. Analyst: Good morning, everyone. Thanks for taking the questions. Maybe if I can dive in a little bit more on the services versus pass-through bookings that you saw in the quarter. As you think about the demand dynamic, how should we think about that conversion of what you are winning across the margin progression, Ari? I just want to make sure we all understand the push and pull on what is coming through into the backlog versus how profitable it is relative to the core business, especially if these are a lot more full-service-oriented wins within the RDS segment? Thank you. Ari Bousbib: I hope I understood your question well, but just to be clear, you understand that pass-throughs have zero profitability drop-through. That is clear. So pass-throughs are irrelevant to profitability. We have to report them because that is an accounting requirement. We had solid execution in the quarter. We booked $2.5 billion of trials in the quarter. It just happens to be that the mix of indications was such that we had full-service trials that had fewer pass-throughs than usual. In fact, if you look at pass-throughs, the first quarter was about one third lower than the historic average. It is always within a range, but it was significantly lower. Had we had a regular mix of projects consistent with long-term history and a consistent level of pass-throughs, then we would not be having this conversation. The infamous quarterly book-to-bill ratio would have been quite significantly higher. There is no impact on margins—no unexpected impact whatsoever. I want to point out that on pure service fee bookings, year over year and sequentially, we were up very significantly. Now, ignoring the pass-through issue, generally Q1 is always lower than Q4, usually by 16% to 17%. This quarter it was lower by less than that—about 13% down—so lower as always, but a little bit less than usual. Frankly, we also have the most conservative bookings policy in the industry. You only book business when it is contracted. So if we are awarded a couple of trials at the end of the quarter and the client board is only meeting on April 2 and that is when the contract is signed, then that is when we book it. It is not a first quarter win. The influence this can have on a reported book-to-bill is very significant. Again, and I said this when we reported book-to-bill ratios of 1.3, I said it when we reported 0.9, and I will say it again today: the quarterly book-to-bill metric is a bad metric to predict future growth. I can easily point to many competitors who reported great book-to-bill ratios and are now having very negative growth. Point to us: last year at this time, we reported a book-to-bill of 1.02, and if this were predictive of growth, this quarter we would be showing really poor, anemic growth in RDS, and yet we are reporting very strong 3% organic growth—over 6% reported. We have about two points from FX and about a point from acquisitions; our organic growth in R&D was 3%. Could you have predicted that from the 1.02 reported book-to-bill last year? The answer is no. Again, there is zero impact from AI in our bookings. The number of trials that we lost to anyone using any AI tool is exactly zero. And, again, no impact on margins whatsoever from the unusually low pass-throughs in the bookings this quarter. I hope that gives you enough color. Operator: Your next question comes from the line of Justin Bowers with Deutsche Bank. Your line is now open. Please go ahead. Justin Bowers: Good morning. A two-parter, maybe one for Ari and one for Mike. In terms of the wins you saw here, it is interesting to hear the full-service dynamics and that having fewer pass-throughs. Is that more of a function of how customers are deploying their clinical strategy, and are you seeing any shift there from large pharma, either in the quarter or what is in the funnel? That is number one. And then part two would be on the margins. Is that something that we would see this year, or is that more of a 2027 and beyond dynamic? Ari Bousbib: Thank you. Again, one quarter does not make a trend, and $2.5 billion of bookings that are going to convert to revenue over the next four to seven years is not going to affect our margins one bit. It is not indicative of any change whatsoever. It just happens to be that the trials that we won this quarter had lower pass-throughs. It has nothing to do with a change in customer dynamics. Some trials, like certain large vaccine trials, have an enormous amount of pass-throughs. There are certain types of large cardiovascular studies that require a lot of patients and a lot of procedures; the protocol may require more reimbursed expenses. That just was not the case this quarter. It is unusual to have lower pass-throughs, but that is what happened. I would not read anything about changing client dynamics into this. On demand, we see no change at all in the fundamental drivers of outsourced clinical development. Trial complexity is rising, the need to execute globally is rising, and the growing use of data and analytics—all of these point to the need to outsource more, not less. In the near term, we see that the environment has stabilized. Large sponsors are still taking a more deliberate approach to capital deployment, coming out of three to four years of policy-driven macro headwinds and disruptions. We have not yet returned to the decision-making speed we saw before this period started, but it is getting there and moving in the right direction. On the EDP side, funding is growing at a very nice pace, which points to renewed confidence in the pipeline. It takes a year to a year and a half before funding drives awards and into the backlog, but the demand indicators are quite strong. Michael Fedock: Just to reemphasize Ari’s point: do not draw any sort of margin conclusions from one quarter of bookings. Every dollar we book now burns over roughly five years. Some color on Q1 margins: we recorded about 60 basis points of EBITDA margin contraction, and all of that was due to non-operational headwinds—FX and pass-throughs. We have a very strong productivity program. Operationally, despite adverse mix, our productivity programs more than offset that mix, so we expanded margin operationally quite significantly in the quarter. This further highlights that you cannot correlate a quarter of bookings, or even several quarters, to future margins. Ari Bousbib: We report the book-to-bill because you want it, but it is not comparable to anyone else in the industry. Our number two competitor is part of a larger conglomerate; we know nothing about their numbers. Our number three competitor, we have no clue what their numbers are now or in the past three years. Numbers four and five are private. There is very little rationale to give so much color on bookings; conclusions people draw can be false and it is competitive information. Operator: Your next question comes from the line of an Analyst with Barclays. Your line is now open. Please go ahead. Analyst: Wanted to talk more about the upside in Commercial Solutions. You called out a few businesses that were really strong during the quarter, but it would be great to hear more about which areas were most surprising versus your internal expectations. And can you remind us on the mix of the more recurring revenue offerings within this business versus what is more discretionary? Thanks. Ari Bousbib: Thank you for the question. Our Commercial Solutions business is underappreciated. We performed very well in the first quarter. When the industry went through difficulties over the past three years, headwinds caused our large pharma clients to pause discretionary spending. Our growth rates never went negative, but they slowed to low single-digit organic growth. We then started to rebound, and a year ago in the first quarter our organic growth rate was about 2% to 2.5%. Our organic growth rate in Commercial Solutions this quarter was 5%. We reported 11.6% growth; at constant currency that is 8.5%, and when you strip out acquisitions, it is 5% organic growth—double the underlying organic growth year over year. What is driving this? On the clinical side, our AI work focuses on creating efficiency and improved execution to reduce timelines. On the commercial side, we are focused on innovation—creating new offerings—and those are gaining traction. Customers are dealing with massive amounts of data from us, from third parties, and generated by their own operations, and with disparate legacy systems. AI agentification enables clients to bypass and leapfrog systems and multiple vendors and data sources, analyze information much faster, derive insights, and make decisions at much higher speed. Our agents are healthcare-grade AI, tailor-made for regulatory requirements. Clients are very interested in these solutions. Our pipelines have reached record levels, in part influenced by these offerings. Concerns that AI would replace services are unfounded; quite the opposite, it creates new demand. The part of our commercial business theoretically most vulnerable to AI disruption—Analytics and Consulting—actually has a record pipeline and very strong growth, the best in three years, and we see this continuing. Underlying demand in Commercial Solutions is fueled by the number of new drug launches. In Q1 there were 10 new drug launches; launch activity is the bread and butter of our commercial business, and it is increasing. To summarize mix: our Info business is about 30% of the total and continues to grow low single digits, a little stronger given more demand for data that our AI agents create. The fastest growth within Commercial Solutions is Patient Solutions—the pieces of Real World that we kept in Commercial—with very strong double-digit growth. Everything else—Analytics and Consulting, Commercial Tech, and Commercial Engagement Services (including the former CSMS business), now also supplemented with AI agents—will grow mid to high single digits going forward. Operator: Your next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is now open. Please go ahead. Shlomo Rosenbaum: Hi. Thank you very much. Ari, I wanted to get a view on the market in general. Your commentary has been that it is stabilizing, but we are seeing things like Analytics and Consulting being the highest growth in three years, and that very often is a leading indicator that things are improving. Where are you seeing growth actually accelerating versus just stabilizing? And do you think your performance is indicative of market growth, or are you noticing an improvement in win rates? Ari Bousbib: I understand the question. We are coming out of a period of three to four years of significant turmoil in the industry, driven by the post-COVID deflationary environment, the biotech funding decline which constrained budgets, the IRA under the Biden administration, and announced or enacted policies under the Trump administration, plus M&A, tariffs, FDA changes, etc. All of that constrained the demand environment both on the clinical and commercial side. It is always difficult to evaluate whether we are truly out of it. Frankly, we ourselves are surprised by how well we performed in the quarter. We beat on every one of our financial metrics, and we surpassed our own expectations in both businesses. The AI disruption concerns are actually a tailwind for our business, and we are seeing it already. We feel confident that the tailwind will continue. In conversations with clients, large pharma is much more constructive on both RDS and Commercial—perhaps a little more on Commercial because large clinical trials and capital programs take more time to get started. We have not returned to “business-as-usual” speed, but we are much improved versus where we were. On the EVP front, funding reached record levels—$20 billion in the first quarter, almost double last year—which indicates renewed confidence. It takes time, but significant capital committed to specific programs is a strong indicator. Looking forward, large pharma clients tell us they plan to increase the number of molecules in their pipeline because they are using AI to identify more targets, most of which is at the discovery stage. That will increase the number of trials and the number of assets pursued, which in turn increases demand for CRO services, not the opposite. Some clients are even asking us what it would take to ramp up capacity to handle a larger number of targets, given the number of LOEs coming up in the four- to five-year timeframe and the need to replenish pipelines. On Commercial, I already commented on the strength and pipeline. Operator: Your next question comes from the line of Elizabeth Hammell Anderson with Evercore ISI. Your line is now open. Please go ahead. Elizabeth Hammell Anderson: Hi, good morning, and thanks so much for the question. Could you comment on the drivers of EBITDA margin as we move through the year? The second quarter guide implies a little bit lower EBITDA margin versus consensus. Is that a rightsizing of some of the mix impact? And how should we think about the back half of the year? Michael Fedock: Sure, Elizabeth. If you look at our EBITDA progression implied in our guide, it is pretty consistent with history—nothing noteworthy to call out there. On margins, as we mentioned when we gave our Q1 guidance, Q1 has the largest FX tailwind, and you will see that start to moderate as we go through the back end of the year. Given the strength in our productivity programs, we are very confident that reported margins will flip to positive as we progress through the year. Operator: Your next question comes from the line of Eric Coldwell with Baird. Your line is now open. Please go ahead. Eric Coldwell: Good morning. Going back to the bookings, maybe looking at it a little differently. You exited 2025 with about $10 billion of total net awards. If we use a rough 30% pass-through mix, that is about $3 billion a year of pass-through bookings, about $750 million a quarter. A third below would be about $250 million. If we add $250 million back to reported awards, as if pass-throughs were normal, that would get us to about a 1.15 book-to-bill. Is that logic consistent with what you are trying to express today? And then, can we get the constant-dollar organic growth in both segments on a recast basis? Ari Bousbib: Eric, the answer to your first question is yes. If, in addition, our RDS revenue had been what we planned as opposed to the strong burn because we converted faster in the quarter, it would have been north of that. I will let you do the math. On organic growth, from memory: RDS reported growth is 6.2%. About two points of that is FX and one point is acquisitions, so organic growth for RDS in the quarter was 3%—a year ago it was 1%. On the Commercial side, reported is 11.6%, with about three points of FX and a little more than three points of acquisitions, so organic is 5%, which is double where it was last year. So again, 3% organic for RDS, 5% organic for Commercial, and about 4% for the enterprise. Operator: At this time, I turn the call back over to Kerri Joseph. Kerri Joseph: Thank you, operator. Thank you, everyone, for taking the time to join us today. We look forward to speaking with you again on our second quarter 2026 earnings call. The team will be available the rest of the day to take any follow-up questions you might have. Thank you. Have a good day. Operator: This concludes today’s conference call. You may now disconnect.
Operator: Good day, everyone, and welcome to Fresh Del Monte Produce First Quarter 2026 Conference Call. Today's call is being broadcast live over the Internet and is also being recorded for playback purposes. [Operator Instructions] Thank you. For opening remarks and introductions, I would like to turn today's call over to the Vice President, Investor Relations with Fresh Del Monte Produce, Ms. Christine Cannella. Please go ahead, Ms. Cannella. Christine Cannella: Thank you, Krista. Good day, everyone, and thank you for joining our first quarter 2026 conference call. Joining me in today's discussion are Mr. Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer; and Ms. Monica Vicente, Senior Vice President and Chief Financial Officer. I hope that you have had a chance to review the press release that was issued earlier via Business Wire. You may also visit the company's IR website at investorrelations.freshdelmonte.com to access today's earnings materials and to register for future distribution. This conference call is being webcast live on our website and will be available for replay after this call. Please note that, our press release and our call today include non-GAAP measures. Reconciliations of these non-GAAP financial measures are set forth in the press release and earnings presentation, which is available on our website. I would like to remind you that much of the information we will be speaking to today, including the answers we give in response to your questions, may include forward-looking statements within the safe harbor provisions of the federal securities laws. In today's press release and our SEC filings, we detail risks that may cause our future results to differ materially from these forward-looking statements. Our statements are as of today, May 5, 2026, and we have no obligation to update any forward-looking statements we may make. During the call, we will provide a business update, along with an overview of our financial results, followed by a question-and-answer session With that, I will turn today's call over to Mr. Mohammad Abu-Ghazaleh. Please go ahead. Mohammad Abu-Ghazaleh: Thank you, Christine. Good morning, everyone, and thank you for joining us. Following up on our last quarter, we reached an important milestone this quarter with the closing of the Del Monte Foods transaction, bringing the brand back under a single owner for the first time in nearly 4 decades. The quarter included approximately 1 week of contribution from the acquired business. So the financial impact in the quarter is limited due to timing. We are encouraged by the initial performance of the Del Monte Food business, and we see clear opportunity as we begin to thoughtfully scale the business and believe there is a meaningful opportunity to realize the full potential of these assets. As I mentioned during our last call, this acquisition is not expansion for expansion's sake. It's alignment, bringing the brand, the portfolio and the platform back under a single focused owner. This acquisition not only reunites one of the oldest and most recognized brands in the world, but it also positions us to operate from a more complete platform, expanding our presence across both the perimeter and center of the store and allowing us to offer customers a broader, more integrated portfolio. Our priority during this early phase remains continuity, ensuring stability for customers, partners and employees, while taking a disciplined approach to evaluating the business and identifying where we see the strongest opportunities. We are focused on strengthening the platform, prioritizing key customer relationships and building a more focused, high-quality portfolio over time. It is important to dedicate a portion of today's call to discuss the broader environment shaping our business, the industry and the global food system. The conflict in the Middle East has introduced a meaningful shock across key input fundamentals to food production, energy, fertilizers, packaging and transportation. There is no part of agriculture that is not energy dependent from inputs to packaging to transportation. As a result, movements in energy costs do not remain isolated. They cascade through the entire system. Agriculture does not operate in real time. The timing of impact varies meaningfully by category. In crops like pineapples, for instance, where production cycles extend to approximately 18 months, the inputs being deployed today will be reflected in cost and pricing later this year. Bananas by contrast, move more quickly through the system and therefore, respond more immediately to changes in input costs. As a result, the pressures that emerged during the quarter are now embedded in the system and will continue to move through the value chain in the periods ahead, regardless of how conditions in the Middle East evolve from here. We are already seeing this dynamic take hold from higher fertilizers and packaging costs to increase ocean freight and inland transportation driven by fuel and labor. The impact is more pronounced in our fresh business given its production cycles and input intensity, while other parts of the portfolio are affected differently based on their supply chain structures. This is not a short-term volatility. It's a natural transmission of input costs through a global time lag system. The situation remains dynamic, and we are managing the business with discipline and flexibility. This is an environment we are well positioned to navigate, but it will not be without challenges. We expect pressure to build in the coming quarters, particularly in the second and third quarter, as these costs continue to flow through the system and the full impact move through the value chain. Our global footprint, diversified sourcing and integrated supply chain enable us to adjust and respond across markets. While our scale and disciplined execution position us to manage through this period effectively, these are the conditions where those advantages become more evident. We have navigated complex operating environments before, and we will continue to do so with clear focus on execution, cost management and operational efficiency. With that, I will turn it over to Monica Vicente, our CFO, to discuss our financial results. Monica Vicente: Thank you, Mr. Abu-Ghazaleh, and thank you, everyone, for joining us this morning. I will begin with our first quarter results and then share our expectations for the year ahead. I will cover key items affecting comparability, most notably the Del Monte Foods acquisition and updates to our segment reporting structure. We closed the Del Monte Foods acquisition late in the quarter. Results include 1 week of contribution and have no meaningful impact on the first quarter results. We are assessing the cost structure and spending profile to establish a near-term cost baseline while identifying efficiency opportunities we expect to execute over time. We are also evaluating the operating footprint, including a recent purchase of a warehouse previously leased by Del Monte Foods in Wisconsin with a focus on optimizing asset utilization and portfolio alignment across our facilities. We paid a total cash consideration of $308 million, which included $285 million base purchase price plus $23 million in cash, representing wind-down and closing costs, along with adjustments for working capital associated with the transaction. The acquisition was funded through a combination of cash on hand and borrowings under our revolving credit facility. The consideration closely approximated the fair value of the identifiable net assets acquired. The acquisition is expected to be accretive to net sales by $600 million and adjusted EBITDA by approximately $23 million in 2026 as operations normalize. As a result of the acquisition, beginning this quarter, we updated our business segment reporting to better align with internal management reporting. A new reportable segment, Prepared Foods, combines the Del Monte Foods business acquired with our existing Prepared Foods operations. Prior period segment information has been recast for comparability. We also completed the previously announced divestiture of Mann Packing in December 2025. Our first quarter results reflect continuing operations. Prior period comparisons are presented as reported and where applicable on an adjusted basis with reconciliations in today's earnings press release. With that context, I will turn now to our first quarter financial performance. Year-over-year results reflect portfolio changes following the divestiture of Mann Packing, alongside pricing, volume, cost and foreign exchange dynamics, as well as the recent geopolitical developments. Net sales were $1 billion, primarily driven by lower net sales in our fresh and value-added products segment. This reflected the divestiture of Mann Packing and lower net sales in our avocado product line due to industry-wide oversupply, which resulted in lower per unit selling prices. The decrease was partially offset by the initial contribution of Del Monte Foods and the favorable impact of fluctuations in exchange rates, primarily the euro. Gross profit was $89 million, reflecting lower gross profit in our other products and services and Prepared Foods segment, where results were impacted by lower selling prices in our poultry and meats business due to softer demand and the conflict in the Middle East. In our Prepared Foods segment, higher per unit production costs weighed on results. Gross profit was generally affected by supply chain disruptions in the Strait of Hormuz and the unfavorable impact of a stronger Costa Rica colon. These impacts were partially offset by higher per unit selling prices in our banana and pineapple product lines, as well as the contribution of Del Monte Foods. Gross margin increased to 8.5%. Adjusted gross profit was $91 million and adjusted gross margin was 8.7%. Operating income was $20 million, primarily driven by higher asset impairment and other charges net. Adjusted operating income was $40 million. Asset impairment and other charges were related to the Foods acquisition. Income from equity method investments was $7 million. The increase reflected higher equity earnings from unconsolidated investments, primarily from distributions received in excess of our carrying value upon the liquidation of a fund in which we previously held an interest. Fresh Del Monte net income was $10 million. And on an adjusted basis, Fresh Del Monte net income was $30 million. We delivered earnings per share of $0.21 and adjusted earnings per diluted share of $0.63. Adjusted EBITDA was $58 million, with a margin of 6% as a percentage of net sales, reflecting disciplined cost management amid a dynamic cost environment. I will now go into more detail on the quarter performance for each of our business segments, starting with our fresh and value-added products segment. Net sales were $549 million, primarily driven by strategic reductions in our fresh and fresh-cut vegetable product lines, reflecting the divestiture of Mann Packing, as well as lower per unit selling prices in our avocado product line driven by industry-wide oversupply. These declines were partially offset by higher net sales in our pineapple product line, reflecting higher per unit selling prices and the favorable impact of exchange rate movements, primarily the euro. Gross profit was $60 million, driven by the divestiture of Mann Packing, which generated negative gross profit in the prior year, as well as higher per unit selling prices in our pineapple product line. The increase was partially offset by higher per unit production costs as well as weather-related events in North America that negatively impacted sales volume in our fresh-cut fruit product line and contributed to lower per unit selling prices in our melon product line. Gross margin increased to 10.9%. Adjusted gross profit was $61 million. Turning to our banana segment. Net sales were $357 million, primarily driven by lower volume and market disruptions across regions, including adverse weather and supplier changes. The decrease was partially offset by higher per unit selling prices across all regions and the favorable impact of fluctuations in exchange rates. Gross profit was $16 million, driven by higher per unit production and procurement costs, partially offset by higher per unit selling prices. Gross margin was in line at 4.6%. Adjusted gross profit was $18 million and adjusted gross margin increased to 5%. Moving to our Prepared Foods segment. Results reflected 1 week of contribution from the Fresh Del Monte Foods acquisition, along with contributions from our existing Prepared Foods operations. Net sales were $83 million, including $22 million of net sales from the acquisition, partially offset by lower net sales in Europe due to supply availability constraints of pineapple used in our canned pineapple product line. Gross profit was $9 million, primarily driven by lower net sales in Europe and higher per unit production and distribution costs. Gross margin decreased to 10.8%. Lastly, our results for other products and services segment. Net sales were $56 million, driven by higher net sales of our third-party freight services business, partially offset by lower net sales in our poultry and meats business due to lower per unit selling prices. Gross profit was $4 million and gross margin decreased to 6.8%. Now moving to selected financial results for the first quarter of 2026. Our income tax provision was $8 million, reflecting changes in the global tax and regulatory environment and higher earnings in certain jurisdictions. Net cash provided by operating activities was $44 million. Cash flow was primarily driven by net earnings and partially offset by higher noncash items, including asset impairments as well as working capital movements, mainly lower inventory levels and higher trade receivables due to the timing of period-end collections. Turning to capital allocation. At the end of the first quarter, long-term debt stood at $438 million, and our average adjusted leverage ratio is at 1.4x EBITDA. This compares to $173 million in long-term debt at year-end, with the increase reflecting the closing of the Del Monte Foods acquisition. Capital expenditures totaled $14 million during the quarter, reflecting pineapple expansion and packing facility construction in Costa Rica, equipment investments in Kenya and the replacement and maintenance capital. As previously announced, our Board of Directors declared a quarterly cash dividend of $0.30 per share payable on June 11, 2026, to shareholders of record as of May 19, 2026. On an annualized basis, this equates to $1.20 per share, representing a dividend yield of approximately 3% based on our current share price. During the quarter, we repurchased 100,000 shares of our common stock for $4 million at an average price of $40.24 per share. As of March 27, we had $116 million available under our $150 million share repurchase program. Together, our capital allocation actions during the quarter, including dividends, share repurchases and the completion of the Del Monte Foods acquisition reflect our balanced approach to capital deployment. We continue to prioritize reinvestment in the business and a competitive, reliable return to shareholders. Turning to our outlook for the full year of 2026. We are providing our expectations for our business segments and key financial priorities, including SG&A, capital expenditures and cash flows. This outlook is based on the information available to us today and our experience managing through comparable industry and macroeconomic cycles. Given the current environment, our priorities for 2026 are clear: first, protecting the long-term earnings power of the portfolio; second, maintaining balance sheet and liquidity flexibility; and third, managing through near-term volatility with discipline. Our 2026 outlook reflects Fresh Del Monte's continuing operations. It excludes the Mann Packing business exited in December 2025 and includes 9 months of contribution from Del Monte Foods transaction. We expect net sales on a continuing operation basis to increase between 13% and 15% year-over-year, reflecting execution across our base business and the contribution from the Del Monte Foods transaction, which we expect will contribute $600 million of net sales in 2026. As discussed, developments in the Middle East have driven higher energy, shipping and commodity input costs. Based on current assumptions and observable market conditions, we estimate the impact of these cost pressures to be approximately $40 million to $45 million, which will impact us starting in the second quarter. These impacts are primarily related to ocean freight costs, including bunker fuel and war-related surcharges, inland transportation, fertilizer and packaging costs, consistent with recent elevated oil and fuel price trends. Our outlook also reflects approximately $20 million to $25 million of headwinds over the balance of the year, roughly 50% from foreign exchange impacts, primarily related to the Costa Rica colon and the remainder driven by higher domestic transportation and logistic costs resulting from shortage of -- of driver availability in the U.S. Separately, tariffs implemented beginning in March 2025 continue to function largely as a pass-through. Tariffs had a modest impact in the first quarter. And given the uncertainty around recoverability and timing, we have not assumed any tariff refunds. In banana, near-term industry supply and cost dynamics, combined with trade dislocations following Middle East-related disruptions are creating incremental volume pressure in North America and Europe markets, which is reflected in our guidance. At the same time, per unit costs are higher, driven by lower production from Costa Rica and the disease management efforts on our own farms. Fertilizer inflation has added further pressure. These headwinds are reflected in the segment gross margin ranges we are providing today. Consistent with our established cost management approach, our outlook reflects a disciplined and active response to the current environment. This includes targeted pricing actions where market and customer dynamics support them, contractual fuel recovery mechanisms and continued focus on cost containment and operational efficiency. Just as important, it reflects ongoing deliberate trade-offs around timing, mix and service to protect customer relationships, sustain throughput and preserve long-term earning capacity during a period of elevated volatility. Turning to gross margin expectations by segment. In our fresh and value-added products segment, we expect gross margin to be in the range of 11% to 12% compared with 14% last year. This reflects higher per unit production and distribution costs across the segment as well as industry-wide supply constraints in pineapple volumes that limit our ability to fully benefit from increased market demand from our premium pineapple varieties. In our banana segment, we expect gross margin to be in the range of 3% to 4%, consistent with the cost supply and market dynamics discussed before. In our Prepared Foods segment, we expect gross margin to be in the range of 13% to 14%. This reflects the combination of Del Monte Foods transaction, which brings an inherently higher-margin branded CPG profile with our existing Prepared Foods operations as well as integration, timing, input cost volatility, and mix across geographies. Importantly, the reported range does not yet reflect the full margin potential of the Del Monte Foods platform as integration progresses. In our other products and services segment, we expect gross margin to be in the range of 12% to 13%, consistent with prior years. Selling, general and administrative expense is expected to be in the range of $270 million to $280 million, reflecting the inclusion of Del Monte Foods and our intentional shift to a branded CPG operating model, which carries a higher SG&A profile than our historical fresh produce operations. This range also includes wage inflation and targeted investments in technology and organizational support to operate and scale a global branded foods platform. Capital expenditures for the full year are expected to be in the range of $85 million to $95 million, focused on production expansion in Central America, growth in our fresh cut and Prepared Foods operations in Europe, a recent warehouse investment and other investments related to the Del Monte Foods acquisition as well as investments in core technology systems. For the full year, we expect net cash provided by operating activities to be in the range of $40 million to $50 million, which reflects lower cash generation than we historically produced as a pure fresh produce company. With the addition of Del Monte Foods, our cash profile now reflects the seasonal working capital dynamics of a branded CPG business. This includes higher working capital requirements in the second and third quarters as inventories are built to support seasonal packing and processing activities that ramp through the harvest season and peak from summer through fall. As those inventories convert to sales, we expect stronger cash generation in the fourth quarter and into the first quarter, driven by peak demand during November and December holiday season and again around the Easter holiday period. Due to the timing of the acquisition, working capital needs will be higher in 2026 than in future periods. In summary, while the operating environment remains challenging, we believe the underlying fundamentals of our portfolio are sound, and our focus remains on disciplined execution, prudent capital allocation, protecting long-term value, consistent cash generation across the full operating cycle and maintaining flexibility and financial resilience as conditions evolve. This concludes our financial review. We can now turn the call over to Q&A. Krista? Operator: [Operator Instructions] And we have no questions at this time. I would like to turn the conference back over to Mr. Mohammad Abu-Ghazaleh for closing comments. Mohammad Abu-Ghazaleh: Thank you, Krista, and thank you everyone for joining us today, and hope to speak with you on our next call of the second quarter. Thank you, everyone, and have a good day. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome to HealthStream, Inc.'s first quarter 2026 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and all participants are in a listen-only mode. At the request of the company, we will open the conference up for question and answers after the presentation. I will now turn the conference over to Mollie Condra, Head of Investor Relations and Corporate Communications. Please go ahead, Ms. Condra. Mollie Condra: Thank you, and good morning. Thank you for joining us today to discuss our first quarter 2026 results. Also on the conference call with me is Robert A. Frist, CEO and Chairman of HealthStream, Inc., and Scott Alexander Roberts, CFO and Senior Vice President of Finance and Accounting. I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream, Inc. that could involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-Ks, 10-Q, and our earnings release. Additionally, we may reference certain non-GAAP financial measures relating to the company's past and future expected performance on this call. The most directly comparable GAAP financial metrics and reconciliations are included in the earnings release that we issued yesterday. I will now turn the call over to CEO, Robert A. Frist. Robert A. Frist: Good morning, everyone. We do have a lot to cover this morning, and I will ask Scotty and Mollie to be on guard in case I have a cough. I am still working off a bit of a cold. That is my issue. I am going to get through it, though. Just in case, Mollie, be ready. Alright. Well, good morning, everyone. It is our first quarter 2026 earnings call. We have a lot to go over, starting with the strong financial growth we delivered in the quarter, which included record-setting revenues of $81.2 million, up 10.5% year-over-year, and record-setting adjusted EBITDA, which just pushed through $20 million to $20.1 million, up 24.1% year-over-year. Operating income grew 71% year-over-year. The strong performance in Q1 is allowing us to increase investment beyond our original plan, including in growth initiatives related to our current products, new products on the horizon, and accelerated use of AI. I am going to talk about some of those investments towards the end of my section. We are reaffirming our 2026 full-year guidance and continue to anticipate revenue between $323 million and $330 million, net income between $20.4 million and $22.8 million, and adjusted EBITDA between $73 million and $77 million. Our strong cash balance of $66.5 million and untapped line of credit and no long-term debt continue to position us well to take advantage of M&A opportunities as they arise, as well as other capital deployment strategies that we believe will benefit our shareholders. As a reminder, last quarter I described four reasons why HealthStream, Inc. sees real opportunity in today’s rapidly expanding AI environment. As AI continues to develop, I am pleased to reaffirm our increasing belief in each of those four reasons today. First, our healthcare user base continues to expand. Unlike companies facing seat compression from AI agents, healthcare keeps hiring and keeps growing. Roughly one quarter of all new U.S. jobs over the next decade is projected to come from the healthcare industry, and nurses, our largest user base, are leading that growth. AI is not expected to reduce demand for nurses. If anything, it should free them to spend more time with patients and less time documenting. Second, our data profile remains a meaningful differentiator. Our customers utilize our enterprise applications as a system of record for managing their learning, credentialing, and scheduling programs. The data in these applications serves as a source of truth for our customers as they carry out their operations. I believe they will use that source of truth in training their own AI. Third, in addition to the data profile, our career networks, which is going to be an area of investment, generate proprietary individual-level data that we believe is valuable for finding, developing, retaining, and engaging the healthcare workforce. NurseGrid alone, for example, now reaches roughly one in five U.S. nurses, telling us where, when, and for whom they want to work. Fourth, our hStream platform is built to incorporate AI as a core element rather than bolting it on. Platform elements like the hStream ID, which we have talked about extensively in the past, and our growing API footprint serve as essential infrastructure to help enable AI-driven innovation in healthcare workforce technology. Our ecosystem ties it all together. Millions of caregivers, thousands of healthcare organizations, and dozens of industry partners combined with more than 30 years of domain experience, and the hStream technology platform creates something difficult to replicate. AI cannot manufacture an ecosystem like HealthStream, Inc.’s, but it can enhance it, and our ecosystem can enhance AI in what we believe will be a virtuous loop of value creation for our customers and investors alike. Building on that foundation, I am pleased to share that we have meaningfully expanded our internal role of AI across the company and are making great progress. Adoption is broadening across teams. Our employees are putting these tools to work in their day-to-day, and we are encouraged by the early productivity and quality benefits we are already seeing. It is still early days in terms of realizing the benefits of AI, and with driving innovation as one of our company’s six constitutional values, I believe our employees are on the front foot of ensuring that HealthStream, Inc. is an innovator in this promising area. Before we go further in our call, I want to briefly summarize our business for the benefit of anyone who is new to the HealthStream, Inc. story, and I hope there are lots of you on the call today. First and foremost, HealthStream, Inc. is a healthcare technology company dedicated to developing, credentialing, and scheduling the healthcare workforce through technology solutions, each of which is becoming more valuable because of the interoperability they are achieving through our hStream technology platform. We have also started to open our sales channels directly to healthcare professionals and nursing students through our three career networks. These help nurses, CNAs, and students throughout their career journey. The company holds 20 patents for its innovative products, which have been awarded over 40 Brandon Hall awards. Historically, we sell our solutions on a subscription basis under contracts that average three to five years in length, which makes our revenues recurring and predictable. In fact, 97% of our revenues are subscription-based. We are profitable, have no interest-bearing debt, and reported a strong cash balance of $66.5 million at the end of the first quarter of 2026. This strong cash balance allows us to allocate capital to product development, M&A, share repurchases, and dividends. We are solely focused on healthcare and, more specifically, the healthcare workforce and those preparing to enter it. The 12 million to 12.5 million healthcare professionals and nursing students in the United States comprise the core total addressable market for our solutions. At this time, I will turn it over to Scott Alexander Roberts. We will turn our attention to our financials and hear a report from Scott. Scott, take a look at the first quarter of 2026 and give us your financial outlook. Scott Alexander Roberts: Alright. Thanks, Bobby, and good morning, everyone. I will be happy to cover our financial results for the first quarter with you this morning. For the first quarter, our revenues were a record $81.2 million, which was up 10.5%. Operating income was $7.5 million and was up 71.6%. Net income was $5.9 million, up 36.4%. Earnings per share came in at $0.20 per share, which is up from $0.14 per share, and adjusted EBITDA was also a new record of $20.1 million, which was up 24.1%. Our revenues increased by $7.7 million, or 10.5%, to $81.2 million compared to $73.5 million in the prior year. Revenues from subscription products were up $7.6 million, or 10.7%, while professional services revenues were up $0.1 million, or 4.3%. Our organic revenue growth rate was 5.8%, and the inorganic growth rate was 4.7% in the first quarter. Inorganic revenues are associated with the Verisys (Versus)12 and MissionCare Collective acquisitions that we completed in 2025. The first quarter of 2026 is the first full quarter with both operating as part of HealthStream, Inc. I am pleased to report that both post-acquisition integrations are progressing well. Verisys (Versus)12 is extending our reach into payer credentialing, a meaningful expansion of our addressable market, and MyCNAjobs is building momentum connecting CNAs and home care providers with the organizations that need them. Together, these two acquisitions contributed $3.4 million in revenue in the first quarter, and we continue to see compelling opportunities to cross-sell and integrate capabilities into the broader HealthStream, Inc. platform. In addition to the revenue contributions from these two recent acquisitions, our core business was supported by strong subscription growth performance from CredentialStream, which grew by 19%, and ShiftWizard, which grew by 29%. Revenues from our legacy credentialing and legacy scheduling products approximated $7.6 million of our first quarter revenues and declined by 16% compared to the first quarter of last year, as we continue our efforts to migrate customers from those solutions. Our remaining performance obligations were $687 million as of the end of the first quarter compared to $613 million for the same period of last year. We expect approximately 39% of the remaining performance obligations will be converted to revenue over the next 12 months and that 67% will be converted over the next 24 months. Gross margin was 65.8% compared to 65.3% in the prior-year quarter, and this improvement was primarily related to the growth in revenues, including contributions from the recent acquisitions. Operating expenses, excluding cost of revenues, increased by 5.3%, or $2.3 million. Product development increased by $1.6 million, or 12.9%. Sales and marketing increased by $0.8 million, or 6.7%. Depreciation and amortization increased by $0.6 million, or 5.7%, while G&A expenses declined by $0.7 million, or 7.7%. These operating expense increases were partially impacted by the recent acquisitions, while the G&A expense decline resulted from our office sublease. To wrap up, our net income was $5.9 million and was up 36.4% over the prior year, and adjusted EBITDA improved to a record high of $20.1 million and was up 24.1%, and the adjusted EBITDA margin was 24.8% compared to 22% last year. We ended the quarter with cash and investment balances of $66.5 million compared to $57 million last quarter. During the first quarter, we paid $7.5 million for capital expenditures, returned $1 million to shareholders through our dividend program, and repurchased $7.5 million of our common stock under the share repurchase programs that we announced in November 2025 and March 2026. In addition, we made $1.8 million of minority investments in companies that we expect to leverage our ecosystem and our platform. Our days sales outstanding were 39 days for the first quarter compared to 37 days in the prior-year first quarter. Our objective is to maintain our DSO in the 40–45 day range or better, and I am pleased with our continued progress in this area. Cash flows from operations came in at $27.1 million for both the current year and the prior-year first quarter. Cash flows were partially impacted by the minor increase in DSO that I just mentioned, as well as higher payments for sales commissions following the strong bookings that we achieved in the fourth quarter of last year. Our free cash flow was $19.7 million, which is up from $18.2 million from last year, an increase of 7.9%. Our capital expenditures came in at $7.5 million compared to $8.8 million last year. Ending the quarter with $66.5 million of cash and investments, strong free cash flows, and no debt, we are well positioned to deploy capital to improve our shareholder value. As a reminder, we maintain a disciplined approach to capital allocation and how we prioritize our use of capital. Our utmost priority is making organic investments back into the business, which is evident by our annual capital expenditure and R&D plans. The second is pursuing acquisition opportunities, which we have a long track record of executing. The third is returning a portion of profits back to shareholders in the form of cash dividends, and our fourth priority is that our Board may authorize share repurchase programs. Yesterday, as announced in our earnings release, our Board of Directors declared a quarterly cash dividend of $0.035 per share to be paid on May 29, 2026, to holders of record on May 18, 2026. During the first quarter, we made share repurchases of $7.5 million under two Board-authorized share repurchase programs. We repurchased the remaining $5 million under a $10 million share repurchase program that was authorized by the Board of Directors in November 2025, and in March 2026, the Board authorized a new $10 million repurchase program. We made $2.5 million of repurchases under this plan during the first quarter, and we have continued to make repurchases during the second quarter. This program will terminate on the earlier of September 12, 2026, or when the maximum dollar amount under the program has been expended. We may suspend or discontinue making purchases under the program at any time. I will finish up this morning by just recapping our financial outlook for 2026, which we are reiterating as previously announced in February. We continue to expect our consolidated revenues to range between $323 million and $330 million, net income to range between $20.4 million and $22.8 million, adjusted EBITDA to range between $73 million and $77 million, and capital expenditures to range between $31 million and $34 million. For the second quarter, we expect our revenue growth rate will approximate 9.5% and adjusted EBITDA margin will approximate 23%. Consistent with our operating budget for the year, we have several planned operating expenses that will begin in the second quarter, including higher labor costs, higher marketing costs from trade shows, sponsorship, and attendance, and new technology investments to support our infrastructure, among others. In addition, our strong performance in the first quarter provides us with additional capacity to accelerate investments towards several initiatives such as our career networks. These guidance expectations do not include the impact of any acquisitions or dispositions that we may complete during the year, gains or losses from changes in the fair value of non-marketable equity investments or contingent consideration, or impairment of long-lived assets that we may complete during the year. That is all I have for today. Thanks for your time this morning. Bobby, I will go ahead and turn the call back over to you for some more updates. Robert A. Frist: Thank you, Scotty. I am going to start this section of the call as I usually do with some business updates that highlight successes we have achieved in the learning, credentialing, and scheduling areas, along with updates on our career networks. Starting with the learning product family, which includes the Competency Suite, many customers are increasingly taking advantage of the opportunity to purchase a bundle of several of our most popular workforce applications and content libraries, which we call the Competency Suite. Customers purchase a subscription to the Competency Suite for all of their applicable employees, particularly the clinical staff, which comes with unlimited use. We saw strong momentum of this product in the first quarter with a 17.3% increase in revenues achieved. Our American Red Cross Resuscitation Suite continues to be in demand by customers. In the first quarter, we provided the marketplace with 18 updated courses, which included education content in our BLS, ALS, and PALS programs. The updated content was deployed simultaneously across the entire customer network in a single day, all aligned to the new ILCOR science guidelines. Among the sales successes we had in Q1 with the Resuscitation Suite was a decision by Cedars-Sinai Medical Center to renew and expand their number of users by 50%. They also informed us that the expansion will be beneficial as they have been named the official medical provider to the 2028 LA Olympic and Paralympic Games. That is super exciting for our teams as well. Now let us move to credentialing, where our flagship product CredentialStream continued its strong momentum in the first quarter. Revenues from sales of CredentialStream in the first quarter were up approximately 19% over the same quarter last year. One thing we love to see is our customers growing along with us, and some of our customers meaningfully expanded through M&A last year. In fact, two of our largest CredentialStream sales in the quarter were significant expansions due to M&A and enterprise-wide standardization on CredentialStream. We take it as a strong vote of confidence when our customers trust and rely on CredentialStream so much as the system of record that they choose to stop using solutions from our competitors and standardize on CredentialStream when they expand their operations. We are dedicated to repaying that vote of confidence by helping these customers improve their operating results by reducing the time it takes to onboard, enroll, credential, and privilege their physicians. There is a significant economic benefit when a health system can show demonstrable improvement in the time to revenue on these physicians. We believe our software plays an essential role in getting that outcome. Verisys (Versus)12, which we recently acquired in order to expand our market share and product offering and expertise in the payer credentialing space, also delivered one of our top three credentialing wins in the quarter. We are still in the earlier phases of our expansion to the payer market, and we are pleased to see Verisys (Versus)12 already contributing to that effort. Let us move to scheduling, where our core product ShiftWizard continues to deliver strong revenue growth, with first-quarter revenues up approximately 29% versus the first quarter of the previous year. It continues to be our top-performing product in our scheduling application suite. Our top two ShiftWizard deals in the quarter were once again takeouts of a competitor that is horizontally focused instead of solely focused on healthcare. Our sales leaders attribute these wins to the fact that our growing ShiftWizard customer base is increasingly touting the value of the healthcare-specific solution that ShiftWizard provides. When the rubber hits the road, scheduling and staffing clinicians is simply different than scheduling a labor pool for retail or factory shifts, and the market is taking note of that. Now let us turn to our career networks. They include My Clinical Exchange, NurseGrid, and MyCNAjobs. Importantly, career networks directly benefit both individual healthcare professionals as well as the health organizations seeking to employ and engage them. For individuals, HealthStream, Inc. Career Networks serve as a career catalyst through every stage of their pre-professional and professional journey. Last year alone, My Clinical Exchange connected over 364 thousand nursing and allied health students to clinical placements. NurseGrid, the number one app for nurses in the Apple App Store, engaged over 683 thousand monthly active users. MyCNAjobs connected approximately 70% of America’s direct care workforce in the home caregiver space. In doing so, these solutions guided caregivers through every stage of their career journey, helping them discover their path, build meaningful professional relationships, access focused learning, and advance to what is next in their career. For healthcare organizations, our career networks provide employers with direct access to the largest, most engaged audience of nurses and caregivers through targeted recruitment, development pathways, and in-app promotion. My Clinical Exchange served as the first touch point for helping over 715 health organizations and over 1.9 thousand schools seeking to place nurses and allied health students into clinical rotations. NurseGrid was utilized by nurses in approximately 37 thousand unique clinical sites as NurseGrid users manage their professional calendars and engagement across those sites. Finally, MyCNAjobs helped over 8 thousand healthcare organizations access our home caregiver and CNA community to promote work and learning opportunities. Today, the usage of our Career Networks has created over 450 thousand hStream IDs, and counting, among students, nurses, and allied health workers. In aggregate, Career Networks contributed approximately $3.78 million in the quarter. While this is modest compared to the company’s total revenue, we believe that the growth potential, differentiation, and diversification of Career Networks make them an important area for incremental investment. We are already rolling some of the profits from the quarter’s outperformance into new sales hires for this area, the Career Networks, to scale the three solutions. I am pleased to announce the promotion of Michael Collier to Chief Operating Officer and Executive Vice President. In this expanded role, Michael will lead enterprise operations across HealthStream, Inc., including customer experience, corporate development and M&A, implementations, legal, human resources, and other critical areas. He also serves as executive sponsor of the company’s AI transformation, driving AI readiness across operational teams. Since joining HealthStream, Inc. in 2011, Michael has been instrumental in our growth, including leading more than two dozen successful acquisitions. We look forward to his continued leadership in this expanded capacity. Before we move on, I want to remind our shareholders and investors that our annual shareholders meeting is scheduled to take place virtually on Thursday, May 28, 2026, at 2:00 PM Central. Notifications of the meeting and access to the proxy statement, 10-K, and shareholder letter were sent out on April 13, 2026. We encourage you to vote your shares and participate in the future of our company. I will close with the same reminder I share with you every quarter. If you are interested in a recurring-revenue, profitable, healthcare technology company that expects to deliver growth, then HealthStream, Inc. may be the right investment for you. If you are interested in a company whose core user base, the clinical health workforce, is expanding faster than any other sector in the job market, then maybe HealthStream, Inc. is the right investment for you. If you like a company whose software serves as a system of record on behalf of healthcare customers, then HealthStream, Inc. may be a company for you. If you favor ecosystems over point solutions, then maybe HealthStream, Inc. is the right investment for you. For all these reasons, HealthStream, Inc. is positioned for another exciting year helping the nation’s top health systems find, develop, credential, schedule, onboard, and retain the growing healthcare workforce. Maybe HealthStream, Inc. is the right investment for you. I will turn it over to the operator to begin the Q&A session. Thank you. Operator: We will now open the call for questions. To ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by. Our first question today is from Matthew Gregory Hewitt with Craig-Hallum Capital Group. Your line is open. Matthew Gregory Hewitt: Good morning, team, and congratulations on the strong start to the year. Maybe first up, obviously a nice pop in gross margin. It sounds like the acquisitions were aiding in that. Should we anticipate a little bit more lift here in Q2? And longer term, how could that play out? Are you anticipating annual improvement in gross margins or is it more about driving operating leverage as you go forward? Robert A. Frist: Scotty, I will let you take that one to start us. Scott Alexander Roberts: Yes. Really, Matt, no significant expectation of improvement in gross margin. I think the 65.8% we delivered in Q1 was a little bit ahead of where we expected to be in the quarter, and it is just revenue mix. We got a little bit of improvement in revenue in the first quarter from a variety of things. Some of it is timing that we anticipated to come in, in, say, Q2 or Q3, that kind of moved forward in the year. Some of that is early activations from customers that we had sold in, say, Q4, and some consumption-based revenue, things like that that we pulled forward. So we got a little bit of improvement in margin because of that. Some of our ambitions for moving to the cloud could compress margins a little bit over time as we make some of those transitions, but that is still a good ways in front of us to see how that plays out. That is just something that is on our to-do list for this year, to begin this year anyway. Matthew Gregory Hewitt: Got it. And then maybe a question for you, Bobby, since you addressed it in your prepared remarks. You spoke to how AI is expected to drive increasing efficiencies with nurses. What do you think will be the downstream effect of that? Will that allow them more time to care for patients? Will that allow more time for them to work on their training and education? From a hospital’s perspective, if nurses are becoming more efficient, maybe they do not need to hire as many. I am just trying to think what the downstream effects of AI adoption by the nursing group would be. Thank you. Robert A. Frist: Overall, we see a shortage of nurses, and we see the early successes of the deployment of AI in our customer base around ambient listening, and ambient listening definitely frees up more time for the nurses and caregivers to spend with patients, which I think is greatly appreciated by all patients, and helps the health systems put a more friendly face on their adoption of technology. I think the early use and adoption is in areas that will directly impact the patient experience in a positive way. As far as demand for nurses goes, every report that I read seems to indicate that there is far more demand than there will be supply for the next five years plus. I do not see fewer caregivers. I see more, and a better opportunity to be more in the care delivery. We view that as an opportunity to be a close ally to all those health systems. We continue to expand the value that we provide with these career networks, helping health systems not just develop and retain the ones they have through our learning capabilities, but now helping find, identify, and match new talent for them to employ. We are servicing more of the continuum of the workforce need at a time of great need for more workforce. We think we are well positioned with the mixture of our product sets to be a great ally to these health systems. Matthew Gregory Hewitt: That is great. Thank you. Operator: Thanks for your questions. Our next question is from Richard Collamer Close with Canaccord Genuity. Your line is open. Richard Collamer Close: Hi. Just, Scotty, maybe a question on the revenue dollars, $3.4 million acquired revenue. Is it okay to annualize that to get the $13.6 million expected contribution from the acquisitions this year? I am just trying to get a sense of the organic growth that is embedded in the annual guidance. Scott Alexander Roberts: I believe our expectation, we mentioned this on last quarter’s call, was for the two acquisitions. We were targeting around $13 million for the full year. So maybe the annualization of Q1 might be slightly ahead of that $13 million, but I think $13 million is where we would still forecast it to. Richard Collamer Close: Okay. Great. That is helpful. Thanks for the reminder there. And you have been providing some commentary on the legacy license drag in the past. I am just curious if there is any update in terms of what the impact there was in the first quarter? Scott Alexander Roberts: One thing we did disclose this quarter was the amount of revenue from those legacy applications in the quarter. It was around $7.6 million. The decrease was around 16%–17% versus the first quarter of last year. We tried to give a little more color on the magnitude of that bucket of revenue relative to our consolidated revenue and also this continued rate of decline. We continue to look for opportunities to migrate those customers to the new applications. We do see some trade-offs there in that decline. Some of that is moving into CredentialStream and ShiftWizard, but there is still some attrition going on as well. Richard Collamer Close: Okay. And then I guess my final question: clearly, if you annualize the first quarter EBITDA, it gets you above the high end of the annual range. I appreciate you calling out investments. Maybe a little bit more detail on those investments and the timing of them. Is it spread out throughout the year? I am trying to better understand what the cadence of EBITDA will be from Q2 through Q4. Robert A. Frist: Let me start, and then Scotty can add some color. First, the first area of investment we looked at was the sales organization. We had a budgeted plan as we ended the year to hire the sales organization, and specifically, we have decided after this Q1 performance that we are going to add to that original plan. Even more specifically, in the Career Networks area, we think the products warrant a stronger and bigger sales organization, so we are going to go ahead and start building that in the first half of the year, particularly in Q2. From a timing standpoint, we are going to post some new positions in the sales area around our Career Networks and try to hire them. Second, the area is a high-growth area for us, and to keep it current, we are going to increase our planned investments in the technology infrastructure specifically around My Clinical Exchange. We have some work to do there. That was an acquired product originally. We have continued to enhance it. This will give us a chance to enhance it even faster and expand it. The constituent base for that is growing rapidly, and we want to make sure that it meets the needs of that expanding market. We have had some unique opportunities present in the market where we think we are well positioned against some competitors there, and now is the time to invest in both the sales organization and the technical infrastructure for that category of product. More specifically within Career Networks, for My Clinical Exchange we are putting more into the tech stack as well. Remember, that software has three constituent audiences: the students are a user, the nursing schools are a user, and the healthcare organizations are a user. It is a network-effect piece of software that has a market effect as the school adopts it, the hospitals in the region adopt it, and that gets the students to use it as well. There is a lot to do technologically, and we are going to increase our rate of investment in that tech stack. Richard Collamer Close: Is that front-loaded into the second quarter, or is all that spread out? Robert A. Frist: Part will be spread out and will include a mixture of CapEx and OpEx to enhance the platform and the application suite. The sales team will be as fast as we can hire and onboard them. We already have several open positions in the sales team we are trying to fill, so we are using some outside recruitment to go faster there, as well as our incredible internal teams to find the talent we need to staff it up. I would like to see that be front-half loaded on the sales organization so that we might get some back-half benefits. Certainly, we will get benefit early next year, but salespeople take a little bit of time to ramp up and get productive in closing deals. Richard Collamer Close: Alright. Thank you. Operator: Thank you. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our next question comes from Vincent Alexander Colicchio from Barrington Research. Your line is open. Vincent Alexander Colicchio: Hey, Bobby. What differentiated ShiftWizard in the competitive takeout wins? Were any of the wins involving large enterprises with ShiftWizard in the quarter? Robert A. Frist: We did have some larger wins on a relative basis. They are not massive systems, but a 10 thousand-employee system went with ShiftWizard in the quarter. That was a huge win. We are seeing more of the larger to medium-sized—call them medium-large, not the supersized—health systems make that decision. That was nice to see a couple of wins there. In general, as I mentioned on the call, the vertical-specific nature of the software is more appropriate for this environment. We have a great long-term vision for the software as well. We are starting to outline a little bit more of that in some of the work we are doing to integrate our Career Networks with our scheduling systems, which is not done yet, but I think we are getting some excitement around the future direction of where we are going with this platform—integrating both our applications and, hopefully, also our Career Networks. Vincent Alexander Colicchio: Can you give us an update on your bundling effort in the small hospital market, and somewhat related, how is the Competency Suite doing in that part of the market? Robert A. Frist: In the smallest market, we are seeing a little bit of uptake. We created several market bundles specific to the skilled nursing space, the long-term care space, and the small hospital spaces, often called critical access hospitals. We are seeing some uptake. We are investing in the sales team there and getting some good bundle selling. We are pleased. The bigger bundles, as you pointed out, the Competency Suite, are really helping drive growth. I like adding the users of those smaller clinics because we are an ecosystem. We want all these healthcare professionals, because they may change jobs over time. We want them in our network, even at the small hospitals. But the revenue growth is coming from the bundling of the Competency Suite to the mid-market and bigger health systems. We are seeing uptake in the Resuscitation Suite when we see a medium to large health system switch to the Red Cross solution. The revenue growth contributions are coming from the mid-market and above. The small markets are very important to us. We are getting much better at both having the appropriate mix of products for them, and we view the market holistically. A clinician in an urban or rural market is important to have in our network, as well as the nurses in these rural centers, because they are mobile over their careers. We think of it as servicing the totality of the healthcare workforce, not just the urban centers. Vincent Alexander Colicchio: Thanks for all the color. Nice quarter. Robert A. Frist: Thank you. Operator: I am showing no further questions at this time. I would now like to turn it back to CEO, Robert A. Frist, for closing remarks. Robert A. Frist: Thank you, everyone, and especially to our little over 1.1 thousand employees who are delivering these great results. We have an exciting year in front of us and look forward to reporting the next earnings report here in another 90 days or so. We will see you throughout the quarter. Operator: Thank you for your participation in today’s conference. This does conclude the program, and you may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. For optimal sound quality, we ask that you silence your electronic device. Star zero, and a member of our team will be happy to help. Good morning. My name is Stephanie, and I will be your conference operator today. Welcome to the Ecovyst Inc. First Quarter 2026 Earnings Call and Webcast. Please note, today’s call is being recorded and should run approximately one hour. Currently, participants have been placed in a listen-only mode to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I would now like to hand the call over to Gene Shiels, Director of Investor Relations. Please go ahead. Gene Shiels: Good morning, and welcome to Ecovyst Inc.’s first quarter 2026 earnings call. With me on the call this morning are Kurt J. Bitting, Ecovyst Inc.’s Chief Executive Officer, and Michael P. Feehan, Ecovyst Inc.’s Chief Financial Officer. Following our prepared remarks, we will take your questions. Please note that some of the information shared today is forward-looking information, including information about the company’s financial and operating performance, strategies, our anticipated end-use demand trends, and our 2026 financial outlook. This information is subject to risks and uncertainties that could cause actual results and the implementation of the company’s plans to vary materially. Any forward-looking information shared today speaks only as of this date. These risks are discussed in the company’s filings with the SEC. Reconciliations of non-GAAP financial measures mentioned in today’s call with their corresponding GAAP measures can be found in our earnings release and in the presentation materials posted in the Investors section of our website. I will now hand the call over to Kurt. Kurt J. Bitting: Thank you, Gene, and good morning. Consistent with the positive outlook for 2026 that we shared in our fourth quarter earnings call in late February, our first quarter results provide an excellent start to the year, with strong growth in both our regeneration services business and for virgin sulfuric acid. Sales for Regeneration Services were up on a double-digit percentage basis compared to 2025, reflecting high refinery utilization, favorable alkylation economics, and lower planned customer downtime compared to the year-ago quarter. First quarter sales for virgin sulfuric acid were also up significantly, benefiting from increased mining demand and the contribution from the Wagaman sulfuric acid assets that we acquired last May. As a result of the strong volume growth and positive pricing in the quarter, we reported adjusted EBITDA of $40 million, which is up 87% compared to 2025. During the quarter, we also maintained our focus on the implementation of our long-term strategic plan to accelerate growth and enhance value for our stockholders. During the first quarter, we repurchased approximately $36 million worth of our outstanding shares. And with regard to the pursuit of inorganic growth opportunities, our efforts over the course of the first quarter led us to last Friday’s announcement that we had reached an agreement to acquire the Calabrian sulfur dioxide and sulfur derivatives business from INEOS Enterprises in a transaction that will broaden our portfolio and further position Ecovyst Inc. for attractive growth in end uses we currently serve, such as mining and water treatment, and new end uses, including pharma and food processing. Kurt J. Bitting: As we move to the next two slides, I want to provide a brief overview of the Calabrian business and highlight the details and strategic merits of this transaction. What makes the Calabrian acquisition so compelling is how closely the business aligns with Ecovyst Inc. strategically, operationally, and commercially. The combination directly leverages our core competencies in sulfur chemistry and extends our platform into highly complementary adjacent chemistries. Just as Ecovyst Inc. is a leading provider of virgin sulfuric acid and sulfuric acid regeneration services, Calabrian is a leading provider of sulfur dioxide and sulfur-based derivatives. It is the sole on-purpose producer of sulfur dioxide in North America with a significant supply share, a leading producer of sodium bisulfite alongside Ecovyst Inc., a leading producer of sodium thiosulfate, and the sole North American producer of sodium metabisulfite. These products are critical inputs into a range of attractive end uses that overlap meaningfully with the markets we serve today, reinforcing the natural fit between the two businesses. Looking at a rough breakdown of Calabrian’s 2025 sales, nearly one-third of sales were to the mining sector, where we have well-established and long-standing relationships. Roughly a quarter of Calabrian’s 2025 sales were in water treatment, a market that we currently participate in with our virgin sulfuric acid, sodium bisulfite, and aluminum sulfate sales. Approximately 15% of sales were into specialty chemical applications and the balance of 2025 sales included sales into food preservatives and other applications. Similar to Ecovyst Inc., Calabrian has longstanding customer relationships with blue-chip customers, significant long-term contracts, and sales visibility. In terms of the strategic fit with Ecovyst Inc., I will first say that Calabrian has a seasoned and engaged management team, and we look forward to leveraging their expertise and enthusiasm as we move forward on a combined basis. Equally as important, Calabrian provides us with a very attractive opportunity to expand our reach and product offering in sulfur-related chemistries while leveraging our existing supply chain and manufacturing infrastructure. In doing so, it provides an opportunity to diversify our sales mix and increase our penetration into high-growth industries such as mining, water treatment, pharma, and food processing. Calabrian has two manufacturing locations: Port Neches in Texas, situated in the middle of our existing Gulf Coast infrastructure, and the Timmins site in Ontario, Canada, which we expect to broaden our exposure to Canada’s growing mining sector. Given our existing footprint in the Gulf Coast region, the acquisition provides opportunities to leverage our existing supply chain and manufacturing infrastructure. Finally, the financial profile is equally compelling. Calabrian brings attractive growth prospects, strong margins, and a track record of high cash conversion. On a trailing twelve-month adjusted EBITDA of approximately $24 million, the $190 million purchase price represents a multiple of approximately 8x, stepping down to roughly 7x as we capture synergies over the next three years. The transaction is expected to close by the end of the second quarter. We plan to fund the acquisition through cash on hand and a new debt offering, with specific allocation to be determined as we move towards closing. At this time, we expect that our pro forma net debt leverage ratio at close of the transaction will be approximately 2x. Before I hand the call over to Mike to review the details of our first quarter, I want to comment on our expectations for near-term demand trends and our confidence in the longer-term outlook for Ecovyst Inc. While the geopolitical and global macroeconomic environment remains dynamic, our outlook remains very positive. As a leading provider of products and services that are essential to our North American-based customers, we expect demand trends to remain favorable, underpinning our growth expectations for 2026. We see U.S. refinery utilization remaining high in 2026, with far less planned and unplanned customer downtime than we experienced in 2025. As such, we continue to expect higher volume for our Regeneration Services in 2026 with favorable contract pricing. We also expect volumetric growth for virgin sulfuric acid in 2026 with increased sales into mining, and a full year of contribution from the Wagaman sulfuric acid assets we acquired last year. Sales into the nylon end use are expected to be generally in line with 2025, and we anticipate relative stability across the broader range of industrial applications. Looking beyond 2026, we believe the long-term outlook remains extremely favorable. We expect that high refinery utilization will continue to support demand for our Regeneration Services business. And for virgin sulfuric acid, we believe we are positioned for growth, with sales into mining applications benefiting from multiyear expansion projects, growth in industrial applications associated with onshoring, and the prospect for continued sales recovery in the nylon end use. I will now turn the call over to Mike, who will review our financial results. Michael P. Feehan: Thank you, Kurt, and good morning. We are very pleased with our results for the first quarter and believe that we are off to a great start to the year, as stable demand and favorable pricing helped deliver solid results. Our sales were up 50% compared to the first quarter of last year. Higher sales volume for both virgin sulfuric acid and Regeneration Services, as well as positive pricing, translated into adjusted EBITDA of $40 million, up $19 million compared to the prior-year first quarter and ahead of our previously provided guidance range. Our favorable earnings compared to our guidance range were driven by higher-than-expected volume and pricing. We realized stronger-than-expected volume in Regeneration Services and, to a lesser extent, Treatment Services compared to our original expectations. With a significant spike in the cost of sulfur, we also realized a temporary benefit associated with the timing between when we incur the cost of our sulfur purchases and when we pass through those costs to our customers. Adjusted free cash flow for the first quarter was $4 million. Our net debt leverage ratio at quarter end was 1.2x, unchanged from year end, and our available liquidity remained strong at $237 million as of March 31. As we look at the first quarter financial results, sales were $215 million, up $72 million. Excluding the $33 million impact of higher sulfur costs passed through in price, sales were up nearly 27%. Regeneration Services volume was driven by less customer downtime compared to 2025. Sales volume for virgin sulfuric acid was also higher year over year, reflecting the contribution of 2025 and higher overall demand, including into nylon and mining applications. Average selling prices were higher, driven by virgin sulfuric acid pricing and favorable contract pricing for regenerated sulfuric acid. Adjusted EBITDA of $40 million was up $19 million, or 87%, driven by higher sales volume and favorable pricing, partially offset by higher manufacturing costs driven by higher turnaround costs, the impact of general inflation, and increased transportation costs. Favorable price-to-cost ratio at the contribution margin level remains evident in our first quarter. As previously mentioned, the pass-through effect of higher sulfur costs on sales was approximately $33 million, with the pass-through having no material impact on adjusted EBITDA. Excluding the sulfur pass-through, the price-to-cost uplift in the first quarter was approximately $11 million, largely driven by the net price impact, including favorable variable costs. Higher sales volume, including the contribution from the Wagaman assets, accounted for nearly $15 million of the period-over-period increase in adjusted EBITDA, and this was partially offset by higher manufacturing costs, including the incremental cost of the acquired Wagaman assets, as well as higher SG&A and other costs. Turning to cash and debt, adjusted free cash flow for the first quarter was $4 million, up compared to a use of cash of $13 million in 2025. The lower-than-average free cash flow for the first quarter reflects the normal cadence of cash generation, with the first quarter typically low primarily due to timing of working capital. During the quarter, we repurchased $36 million of our common stock at an average price of approximately $11 per share, and we have $146 million remaining under our existing authorization. We ended the first quarter with a strong liquidity position of $237 million, comprised of cash of $163 million and availability under our ABL facility of $74 million. With net debt of $234 million at quarter end, our net debt leverage ratio was 1.2x, unchanged from December 31. Turning to our 2026 outlook, note that the guidance included in our materials and discussed on this call does not include any contributions from the recently announced Calabrian acquisition. Our previous guidance provided in late February anticipated higher sulfur costs in 2026. However, disruption associated with the Iran conflict has resulted in further increases in sulfur costs. We now expect the impact of higher sulfur cost pass-through in price to be $30 million higher than previously guided, resulting in full-year 2026 sales to be in the range of $890 million to $970 million, up from our previously guided range of $860 million to $940 million. With a strong start to the year and having one quarter under our belt, we are revising our adjusted EBITDA guidance by tightening the range, now expecting full-year 2026 adjusted EBITDA to fall in the range of $180 million to $195 million. Similarly, we are tightening the range for adjusted free cash flow to be $40 million to $55 million. While we are not changing our guidance due to the announced Calabrian acquisition, we do intend to finance a portion of the acquisition through a debt offering along with cash on hand. As a result, we would expect cash interest to increase an additional $4 million to $5 million on a full-year annual basis. As we provide directional guidance by quarter for the balance of the year, for the second quarter, we continue to expect higher year-over-year sales of Regeneration Services, with favorable contractual pricing. We also continue to expect higher volume of virgin sulfuric acid driven by mining demand and the contribution of the acquired Wagaman assets, along with stable pricing for virgin sulfuric acid. Turnaround costs are expected to be lower than in the year-ago quarter. As a result, we project second quarter 2026 adjusted EBITDA to be in the range of $50 million to $55 million. For the third quarter, we continue to expect higher sales of Regeneration Services compared to 2025, and we currently project that virgin sulfuric acid volume will be slightly lower than the year-ago quarter, driven by the timing of our sales into nylon applications. With higher projected turnaround costs than in 2025, we expect third quarter 2026 adjusted EBITDA to be in the range of $50 million to $55 million. Finally, for the fourth quarter, we continue to expect higher sales of Regeneration Services compared to 2025, with favorable contractual pricing. We are currently expecting lower virgin sulfuric acid volume than in 2025. We also are anticipating that sulfur costs will ease from the current historic highs. As a result, we expect that sulfuric acid pricing, excluding the pass-through effect, will be lower due to the overall customer mix and timing between when we incur the cost of our sulfur purchases and when we pass through these costs to our customers. Lastly, we expect higher turnaround costs compared to 2025. As such, we currently anticipate that the fourth quarter adjusted EBITDA will fall in the range of $40 million to $45 million. I will now turn the call back to Kurt for some closing remarks. Kurt J. Bitting: Thank you, Mike. We had a great start to the year, and we are energized by the positive momentum we see as we move into the second quarter. While the global macroeconomic landscape continues to evolve, we believe Ecovyst Inc. remains well positioned to deliver on our objectives. Moreover, we are extremely pleased with our progress on strategic implementation as we maintain our focus on growth and on value creation for our stockholders. The disposition of our Advanced Materials and Catalyst segment at year end was a transformational event that resulted in a strengthened balance sheet and a robust liquidity position that provides us with the resources and flexibility to execute on multiple capital allocation alternatives, including the funding of organic growth projects, the pursuit of attractive inorganic growth opportunities, and the return of capital to our stockholders. During the first quarter, we returned $36 million in capital to our stockholders through share repurchases. As previously indicated, to support organic growth this year, we are investing in the expansion of our Gulf Coast storage and logistics capabilities that will further enhance our ability to serve our customers’ growing needs. Building upon last year’s successes, we also expect further contributions and network optimization benefits from the acquisition of our Wagaman site, as we continue to leverage the site’s capacity to meet the growing needs of our customers. With regard to our stated objective to pursue attractive inorganic growth opportunities, we are excited about the agreement that we have reached to acquire Calabrian, which will broaden our portfolio of sulfur products that we can offer to growing end uses. We look forward to the completion of the Calabrian acquisition and to providing you with updates on our ongoing progress as we move throughout the year. At this time, I will ask the operator to open the line for questions. Operator: Thank you. At this time, we will open the floor for questions. We will take our first question from John Patrick McNulty with BMO Capital Markets. Please go ahead. Your line is open. John Patrick McNulty: Yes, good morning. Thanks for taking my question, and congrats on a really solid start to the year. I wanted to dig into the changes since your last guide, both in the virgin acid markets and the scarcity around sulfuric acid on a global basis, maybe a little less so in the U.S., and also the strength of U.S. refining, which seems to be even better now given what has gone on in the Middle East. How have your expectations changed and how is that woven into the guide? I am a little surprised, with a couple of things being reasonably better, that you were not ready to raise at least the upper end of the guide. Can you help us think about that? Michael P. Feehan: Yes, John, thanks for the question. I think the first way we would look at that is there were some things that did change positively for us during the quarter. Certainly compared to the guidance that we had provided, we saw some strength in Regeneration Services and some positivity on the virgin pricing, but that is a little bit more based on timing. As we talked about, we expect to give some of that timing back in the fourth quarter. That Regeneration strength is clearly a tailwind for us, but we also are tempered with some of the other potential macroeconomic items that are going on. So we want to continue to keep our guide relatively where we were. We did raise the bottom end of it, so our midpoint is up to $187.5 million. We believe that there is strength in the numbers of what we have seen but want to be tempered with what we are expecting for the rest of the year. John Patrick McNulty: Okay, fair enough, and I understand it is a fluid situation. Maybe just speaking to Calabrian, can you give us some color as to how that business has grown over the past few years and what the longer-term growth outlook is? Kurt J. Bitting: Yes, sure. Thanks for the question, John. Calabrian has been in its current form since the 1980s with the site in Port Neches. They built a site in 2017 up in Timmins, Ontario, which is primarily used to service the mining sector in Canada. A lot of the growth in the Calabrian business has been from mining, and that backstops gold, which at current gold prices has been very healthy. So their business has grown from that. There has also been some growth in pharma, food, and other industrial applications. We look at that business as probably GDP to GDP-plus type growth, with some end uses moving faster than others, like mining and industrials. They are the only on-purpose North American producer of sulfur dioxide and the only producer of sodium metabisulfite in North America. They have a strong position and proprietary technology that is completely different from how competitors produce it. We are very happy with the acquisition and confident in its future potential. Operator: Thank you. We will take the next question from Patrick David Cunningham with Citigroup. Please go ahead. Your line is open. Analyst: Hi, everyone. This is Rachel Li on for Patrick. Adjusted EBITDA margins were meaningfully stronger than you expected this quarter, driven by higher volumes and incremental pricing above the sulfur pass-through, despite some other headwinds from transportation and manufacturing costs. As we look through the balance of the year, how should we think about the net price-cost dynamics? Michael P. Feehan: Thank you for the question. Yes, the margins were favorable. As we have discussed in the past, the pass-through of the sulfur cost is relatively neutral to EBITDA, so it does lower the margin percentage, but we did see positivity around overall pricing and volume that dropped straight through to the bottom line. That provided us with the higher margin. The price-to-cost ratio was positive in the quarter, and we expect that to continue throughout the year. We have been consistent over several quarters where we are making more EBITDA on a per-ton basis comparatively. So while the margin percent will look lower because of the sulfur pass-through, the earnings benefit is intact, and we expect that to continue through the rest of the year. Analyst: Great, thank you. And on the Calabrian acquisition, could you provide more detail on the contract structure and the level of visibility you have into forward sales and earnings? Michael P. Feehan: Yes. The business is similar to the general construct of the Eco Services asset business, where there are long-term agreements or certainly long-term customers with blue-chip users, whether in mining, industrials, pharma, food, and so forth. The contracts also have a high pass-through component, given it is a sulfur-based chemistry, so passing through sulfur is very important, and they have a similar dynamic to the Eco Services business. In terms of visibility, the customers tend to have very steady offtake. The products they purchase from Calabrian are critical to their processes, and there is generally very good visibility in terms of forecasting and readability of volume. Operator: Thank you. We will take our next question from Laurence Alexander with Jefferies. Please go ahead. Your line is open. Daniel Rizzo: Good morning. This is Dan Rizzo on for Laurence. Thanks for taking my questions. Looking at prices and structural change, oil analysts now expect about a 5% structural risk premium for oil due to what is going on in the Middle East. Do you expect a similar structural reset in sulfur prices over the long term that will flow through to your business, or should we view the sulfur spike as a net negative because it hurts industrial volumes? Michael P. Feehan: For our business, sulfur is at all-time highs right now, and the run-up in sulfur actually started well before the conflict in Iran. A lot of that is due to the need for the sulfur molecule and sulfuric acid to produce copper and other metals. We do feel there is definite demand for sulfur that will support higher prices. I do think right now we are in an extremely high situation given the geopolitical conflict. Long term, we continue to have the ability to pass through sulfur to our customers. Unlike fertilizer, which is very heavily dependent on commoditized markets where sulfur impacts demand a lot, our customers’ use of sulfuric acid tends to be a small component of their overall cost. While it is not ideal that sulfur prices increase, it remains a small component, so we are able to pass it through. Daniel Rizzo: Thanks, that is very helpful. On the most recent acquisition and synergies, should we think mostly about supply chain and procurement synergies as opposed to production and revenue, and will you quantify later? Michael P. Feehan: When we look at synergies, there are certainly some cost-based synergies, including procurement across sulfur chemistry, and we have a large supply and manufacturing infrastructure that should provide synergies, especially with the Port Neches site sitting in the middle of our Gulf Coast footprint. We also see revenue synergy upside, given the ability to leverage our sales force across sulfur products, one of which we already sell, sodium bisulfite. So we see a nice mixture of both cost and revenue synergies, stemming from the fact that we are both in sulfur chemistry and the products are closely related. Operator: Thank you. We will take our next question from Hamed Khorsand with BWS. Please go ahead. Your line is open. Hamed Khorsand: First, on the acquisition, you were talking about potentially selling into Canadian mining. Would these be relationships that Calabrian brings to the table? Kurt J. Bitting: Yes. We will be selling sulfur dioxide to Canadian mines, and these would be new mining relationships. Ecovyst Inc.’s mining relationships are primarily focused in the southwestern part of the U.S. Hamed Khorsand: And on the refinery side, is the increase in activity and utilization more about the current environment, or is it more of a normalization given where Q4 was? Kurt J. Bitting: The answer is both. Coming into this year, and as we guided on the previous call, we expected healthy refinery utilization due to significantly less planned and, hopefully, unplanned maintenance outages in the U.S. refining complex. Utilization was expected to be high. The current conflict has certainly added a tailwind—margins are high right now, not only for oil but for refined products, and U.S. refineries can take advantage of that. For us, the alkylation units that we service with regeneration are expected to run at very high rates this year, and really in all years, outside of maintenance. They do not have the ability to flex up a tremendous amount given the margin climate, but the current environment provides a tailwind for everything to run as hard as it can. Hamed Khorsand: Thank you. Operator: At this time, I would like to thank everybody for joining today’s event. You may now disconnect.
Operator: Greetings. Welcome to Ball Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Brandon Potthoff, Head of Investor Relations. Thank you. You may begin. Brandon Potthoff: Good morning, everyone. This is Ball Corporation's conference call regarding the company's first quarter 2026 results. During this call, we will reference our first quarter 2026 earnings presentation available through this webcast and on our website at investors.ball.com. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. We assume no obligation to update any forward-looking statements made today. Some factors that could cause the results or outcomes to differ are described in the company's latest Form 10-K, other SEC filings and in today's earnings release and earnings presentation. If you do not already have our earnings release, it is available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of today's earnings release. In addition, the release includes a summary of noncomparable items as well as a reconciliation of comparable net earnings and diluted earnings per share calculations. I would now like to turn the call over to our CEO, Ron Lewis. Ron Lewis: Thank you, Brandon. Today, I'm joined on our call by Dan Rabbitt, Senior Vice President and Chief Financial Officer. I will provide some brief introductory remarks and discuss first quarter 2026 financial performance and our outlook for the remainder of 2026. Dan will touch on key metrics, and then we will finish up with closing comments and Q&A. As we begin, I want to start with the big picture because it continues to matter how we think about Ball and our long-term value creation. We believe Ball is positioned to win and the fundamental supporting that belief remained firmly in place. Packaged liquid volume is continuing to grow globally, and aluminum cans are taking share as consumers, customers and retailers increasingly prioritize convenience, performance and sustainability. That dynamic creates a durable long runway of demand for our products. Within that growing market, Ball is executing at a high level. Across our regions, we continue to leverage long-term customer partnerships, a well contracted portfolio and an unmatched global footprint. Our utilization levels are strong, reflecting both disciplined capacity management and consistent commercial execution. We are pairing that execution with financial strength. We delivered solid results to start 2026, supported by a healthy balance sheet and a capital allocation framework grounded in EVA. Our focus remains on deploying capital where it earns returns above our hurdle rate and on continuing momentum as we move through the year. Operationally, our teams are performing well. Standardization, cost discipline and the Ball business system are driving improved profit per can and reinforcing our ability to generate operating leverage as volumes grow. While we are proud of the progress we continue to see opportunity ahead. When you bring together attractive industry fundamentals, disciplined execution, financial strength and an operating system built for continuous improvement, Ball remains exceptionally well positioned, not just for this year, but for the long term. Our strong start to the year underscores the resilience of our business, particularly in a complex geopolitical and macroeconomic environment. Our strategy is clear, consistent and grounded in our 4 strategic pillars, and that strategy is working. First is executing exceptionally in our core business. That discipline shows up in how we operate every day across our plants and regions, and it underpins our ability to deliver solid Q1 results in an uncertain world. Second, we stay close to our customers and maximize our global network, long-term partnerships strong service levels and a well-balanced footprint allow us to respond quickly and reliably. Third, we continue to accelerate the substrate shift to aluminum and expand categories. Aluminum, sustainability and performance advantages matter, reinforcing demand and long-term growth opportunities. And fourth, we manage complexity to our advantage. Our scale, standardization and systems enable us to remain focused on execution rather than distraction. The Ball business system brings these pillars together, connecting commercial excellence, operational excellence and continuous improvement. At the center are our people and our culture. Low ego, high collaboration and a shared commitment to doing the right things the right way. This is what makes our business resilient, supports strong Q1 performance and positions Ball to continue delivering disciplined execution and long-term value creation regardless of the external environment. The Ball business system is how we operate, and EVA remains our North Star. Together, they drive disciplined execution and capital allocation, enabling us to deliver results. That discipline showed up in our first quarter performance. We executed well and stayed focused on the levers we control, earning returns above our cost of capital while maintaining flexibility. This approach underpins a growth algorithm of 10-plus percent comparable diluted EPS growth, strong free cash flow and consistent returns to shareholders. The results we delivered this quarter are a direct outcome of this operating and financial discipline, and they set up the discussion on our performance in the quarter. Turning to our first quarter performance. We had a good start to 2026. Global volumes were up nearly 1% year-over-year, reflecting slightly stronger-than-expected volumes in North America and in-line performance in South America, partially offset by volumes in EMEA. What stands out is our execution. Comparable operating earnings grew 10% year-over-year, exceeding our 2x operating leverage objective for the quarter. That performance flowed through to the bottom line. with comparable diluted EPS up 22% year-over-year, driven by strong operational execution, cost discipline and capital allocation. The first quarter performance reinforces our confidence in delivering 10-plus percent EPS growth for the full year. We also remain focused on shareholder returns and are on track to deliver in the range of $800 million to shareholders in 2026. Operationally, we continue to advance our priorities, including completing the Benepack acquisition to expand EMEA capacity and making good progress at our Millersburg, Oregon facility, which remains on track towards full ramp up in 2027. Overall, this was a solid first quarter that reflects the resilience of our business, disciplined execution and the strength of our operating model. With that outlook in mind, I'll let Dan walk you through the details of our first quarter financial performance and provide more color on our current expectations for 2026. Over to you, Dan. Daniel Rabbitt: Thank you, Ron. Before walking through our first quarter 2026 performance, I want to spend a moment on the changes we made to our financial reporting this quarter. As you saw in the earnings release this morning, we updated how we report our segment financials. As Ron and I stepped into our roles, we took a fresh look at how we measure performance and align accountability across the organization. It became clear that we needed to more clearly distinguish between operating decisions made within the businesses and financing decisions made at corporate level. As a result, we amended our definition of comparable operating earnings to exclude such items as factoring fees interest income and other impacts driven by corporate financing activity rather than the underlying operations. Importantly, these financing-related items remain included in comparable net earnings in comparable diluted EPS. So there is not a material change to how we measure or report overall company earnings. In addition, we moved our beverage can plants in India and Myanmar into the EMEA segment, which has had management and P&L responsibility for those operations for several years. We believe these changes provide a clearer view of underlying operating performance by segment, while continuing to give investors full transparency into our consolidated financial results. And to be clear, these changes do not materially impact comparable net earnings or comparable diluted EPS. Additional information can be found in notes of the earnings press release as well as on investors.ball.com under financial results. With that context, I'll now walk you through our first quarter 2026 financial performance. Overall, the business delivered a good start to the year. Global ship beverage volumes increased approximately 1% year-over-year, low single-digit volume growth in North America and EMEA, partially offset by lower volumes in South America. Despite ongoing geopolitical and macroeconomic events, our teams executed well across the business. Comparable operating earnings increased 10% year-over-year. That performance translated into comparable diluted earnings per share of $0.94, up 22% year-over-year. This first quarter performance reflects the strength and resilience of our operating model and is consistent with the financial framework we've laid out for 2026. In North and Central America, segment comparable operating earnings increased 2.5% in the first quarter. Volumes increased low single-digit percent year-over-year, reflecting slightly stronger demand, particularly in energy drinks and nonalcoholic beverages. The team continues to execute at a high level, supporting customers, managing costs and navigating a dynamic operating environment. As we look to the remainder of 2026, we continue to expect volume growth at the low end of our long-term range of 1% to 3%. As previously discussed, we anticipate $35 million of start-up costs related to the Millersburg facility and U.S. domestication of ins to begin later this year. While these costs represent a near-term headwind, they support long-term volume growth and operating leverage. In EMEA, segment comparable operating earnings increased 20% in the first quarter. Volumes were up low single-digit percent year-over-year. The team continues to perform well operationally and during the quarter, we completed the Benepack acquisition, further strengthening our European footprint and expanding capacity in Hungary and Belgium. As we integrate these assets, we see meaningful opportunity to drive both volume growth and operating leverage as capacity is filled. For 2026, with the inclusion of Benepack, we continue to expect volume growth above the top end of our long-term 3% to 5% range, along with operating leverage of 2x. In South America, segment comparable operating earnings were flat in the first quarter. Volumes declined mid-single-digit percent year-over-year, reflecting customer timing and inventory position coming into the quarter. Despite lower volumes, the team remained disciplined on cost and execution supporting earnings and positioning the business well as growth normalizes in the next 3 quarters. Looking ahead, we continue to expect volume growth at the low end of our long-term range of 4% to 6% in 2026 with operating leverage of 2x. Focusing on modeling details for 2026. As Ron noted, with the resilience of our business and our pass-through models, we continue to expect to be on track with our algorithm of 10% plus comparable diluted EPS growth. We anticipate free cash flow of greater than $900 million in 2026. Our 2026 full year effective tax rate on comparable earnings is expected to be slightly above 23%. Full year 2026 interest expense is expected to be in the range of $320 million. CapEx is expected to be in line with GAAP D&A in 2026. Full year 2026 reported adjusted corporate undistributed costs recorded in other nonreportable are expected to be in the range of $175 million. We anticipate year-end 2026 net debt to comparable EBITDA and to be around 2.7x, and we will repurchase at least $600 million of shares, which will bring our total capital return to shareholders to $800 million in 2026. And last week, Ball's board declared its quarterly cash dividend. With that, I'll turn it back to Ron. Ron Lewis: Thanks, Dan. Overall, our strong first quarter results reflect exactly how we intend to run Ball. Amid ongoing geopolitical and macroeconomic factors, our teams stayed focused on what we control, serving our customers, running our operations with discipline and allocating capital through an EVA lens. The Ball business system and our strategic pillars are not theoretical. They are driving resilience in our business and translating into earnings, cash generation and returns for shareholders. We had a good start to 2026 and just as importantly, we are executing in a way that reinforces our confidence in the year ahead. Thank you. And with that, we are ready for your questions. Operator: [Operator Instructions] Our first question is from George Staphos with Bank of America. George Staphos: Question for you first. With the performance, are you seeing any effects that you could call out from the Middle East tensions in terms of increased costs that won't necessarily be passed through real time this year, any effects on volume, particularly as regards to Europe, was there any effect on the segment's volumes related to the conflict that you could call out? And then a couple of follow-ons. Ron Lewis: George, thanks for the question. Nice to talk to you. From the impact on the Middle East, First, it's important to note that we do not have any direct business in the Middle East. And as a rule of thumb, we maintain supply chains that are as short as possible. So there's no supply assurance impacts either for our business or for our customers. It is a fact, however, the cost of all things, commodities that are affected by the conflict in the Middle East to have affected our business like others, especially aluminum. And that's where our resilient business model comes to the 4. The way that our contracts work generally is we pass on the cost of aluminum to our customers on an immediate basis, and then they choose how they will manage that cost impact. So thus far, the can is winning. The can is winning in every region we operate. And EMEA is no different than that of North America or South America. Our volumes are actually accelerating as we begin the second quarter of the year across all of our businesses. and EMEA is no different from that. George Staphos: Okay. I appreciate that, Ron. Maybe the related question did European volume perform as you expected? Were there any one-off factors that might have led to better or worse performance related? Are there any important contracts qualitatively that we should at least have in the back of our mind that you'll be managing against and to renegotiate for 2027. And then lastly, with Europe with the contracts. The last point being, we appreciate all the detail you're giving us and the granularity and getting back to basically operating performance within the segment. Are there any other metrics that you would call out that you're using as a guide point or a North Star user term for the segment in terms of profitability over time beyond the 2x leverage? Ron Lewis: Thanks, George. So any one-offs related to our EMEA volume would be specifically, we purchased the business known as Benepack, the 2 plants, 1 in Belgium and 1 in Hungary. And we purchased that from basically the beginning of February, we assumed that we would have it from the beginning of the year. So that probably affected what we had versus what we had planned. The second thing is, we sold a business in Saudi Arabia called UAC. And that business was reported previously in our other segments and with the change in our segment reporting, that's now from a comparable perspective, Q1 of last year is reported in our business. So that shows up as a headwind in our business. Those 2 things probably would have been some one-offs for us. But the core of our Europe business, we believe we're in line with market. We're within our algorithm that we talk about in the 3% to 5% growth, and we feel pretty good about how we started the year there. basically as expected. You asked about contracts. It gives me a moment to just say that for this year, we are fully contracted. And we actually are volume constrained in North America, as you know, and we have been volume-constrained in Europe because it grew so fast last year as did North America. And those 2 things why we are building a plant in North America and why we acquired the Benepack plants. So we're sold for 2026. For 2027, we're more than 90% sold and out through the end of the decade, we are basically 50% sold. So no, we don't have any specific contracts that we are concerned about. We've got long-term contracts in place. And that's just the nature of this business, which makes it a wonderful business to be in because we're able to establish some great long-term relationships that help our customers win and win with they can. As it relates to what metrics we would like point you to, it would probably be operating earnings per can. And that's why we've had the segment changes that we did. And I'm sure we'll get questions about that as well. But it's basically we want to have the most transparent cleaner for you all that analyze and comment on us and advise on us. We want you to have the cleanest looking Canada. So the operating earnings per can would be the metric that we would point you to. Operator: Our next question is from Ghansham Panjabi with Baird. Ghansham Panjabi: I guess just picking up on the last question from George. So if I have this right, it looks like 1Q was pretty much in line with your expectations on a volumetric basis, but was really the operating leverage that was quite strong. And if that's accurate. Can you just give us the specifics, Ron, on what drove that improvement in operating earnings specific to the first quarter? Ron Lewis: Yes. Ghansham, nice to hear your voice. Thanks for the question. I would say, yes, we were largely in line with what we expected from a volume perspective, even with our South America business down year-on-year. We were probably a little bit ahead of what we expected in North America. And we were a little bit behind in EMEA. And let me just take a moment to talk about volume. While we were down in South America -- well, how did we compare versus the market? We think we were in line with market in North America. We think we were in line with the market in EMEA, and we were obviously below the market in South America given what our competitors have already already publicly stated. As we begin Q2 at an enterprise level, our volumes as we finished April were up mid-single digits. Again, that's as we expected them to be. And importantly, our South America business is up 20% April on April, and that erases all of the declines we saw in Q1, and we're back to flat volume for the year. So we are very confident in our predictions for how our business will finish on a volume basis for 2026. We expect to finish in our 2% to 3% towards the top end of our range of the 2% to 3% volume at enterprise level, and we expect North America to be towards the bottom end of our range because we are capacity constrained. We expect EMEA to be above the 3% to 5% commitment that we've made because of the inorganic acquisition that we made as well as a business that's performing in line or better with market. And in South America, we expect to still achieve the 4% to 6% volume growth as it relates to our long-term commitment. Now as for the operating leverage, maybe I'll give Dan Rabbitt a moment to reflect on that for us because I think I want to hear his voice in this meeting, and I think you do, too. Daniel Rabbitt: Yes. Thank you, Ron, and Ghansham, thanks for the question. We are -- as we've been speaking to a lot of you all very focused on trying to improve the profitability. And that is why Ron really highlighted the the growing importance of our metric of profit per can. We measured in profit per 1,000 being manufacturers, but regardless, it's profit for can focus. And I think the business is responding very well to how to this focus. And you've seen -- we saw good performance, good cost management, good pass-through of our cost really on top of our game that came through to deliver that 10% growth on operating earnings quarter-over-quarter. Ghansham Panjabi: Okay. Fantastic. Very comprehensive. And then just on the resegmentation, if you will, and just moving the plants in India and Myanmar to the EMEA segment, should we take away from this that you're just going to focus on North America, Europe and Latin America and not so much on the emerging markets, including those regions? Or is it just an interim move, if you will, before before you start looking at capital deployment in the other regions, the emerging markets outside of South America. Ron Lewis: Let me start with that question, Ghansham. Thank you for it. And I know we probably have some follow-up work to do with you and others after this call. But number one, the reason we made this segment operating change is this is the way we manage our business. It really is. We -- the management team that manages our EMEA business is also the management team that manages those plants that we've now included in our EMEA business. So we're doing it for the way that we operate our business. We want you to look at us and advise on us the way we operate our business. Number two, we want it to be as clean as possible for you and others to analyze us from an operating earnings perspective. So it's about transparency for us, both the way we operate internally and the way that we want you to look at us. the 3 regions in which we operate, including those regions that we've now added to our EMEA business are our core business, and we are the market leader in North America, South America and what is our EMEA business, the footprint that we have there. And we're very excited about our EMEA business. It's a growing business, especially those parts of the world that we just added. India is growing high teens and has been for years, and you saw us add capacity and announce additional capacity adds to India and you see our competitors looking to add capacity there. So it's a great market, and there are other great markets out there. I wouldn't take from this that we are focusing only and solely on the markets we operate in. And maybe, Dan, if you wouldn't mind commenting a bit on the other segment changes. Daniel Rabbitt: Yes. As far as the segments goes, the other thing that we did noteworthy really and was taking out the financing, the treasury-related items of the businesses to allow for better transparency on how the businesses are performing. And we really like our prospects in all 3 regions. And as you know, we measure everything from how we want to grow this company through the lens of EVA, and we see great opportunities in all 3 of our regions. And -- so I think now you have a better picture on how they're performing. And really, if the changes may be contrary to what people might think is actually were slightly negative, but the operating earnings would have been higher had we not made them on the quarter. I think over the long haul, we see this as a de minimis change. And again, reinforcing that the net earnings really have not changed. We're really materially the same place where we are when you look at the bottom line. Operator: Our next question is from Anthony Pettinari with Citi. Bryan Burgmeier: This is Bryan Burgmeier on for Anthony. Just wanted to ask about tariffs. Curious if there's any impact to Ball from sort of the latest changes announced early last month, specifically just thinking about covering some of the derivative products or applying the tar value to the whole value of the product and conversely, maybe some changes to Mexican beer. Just not sure if that alters the Dew for Ball at all. Ron Lewis: Bryan, thanks for the question. again, the tariffs that manage and govern the aluminum ecosystem and industry are Section 232. That's what's most impactful on aluminum cost and pricing. And the recent changes I think they're de minimis for our business. There's a slight positive for products that can come to the U.S. filled products, be they impact extruded aerosol packages or, as you said, beverage packages that are filled. So net-net, it could be slightly positive. But we're focused on serving our customers. And when they look for supply from us, that's what we're intending to do. And yes, so far, so good. Bryan Burgmeier: Got it. Got it. And then you touched on India already, but just wanted to follow up there. You've seen maybe some reports like energy shortages or material shortages. Just curious if that region has been impacted at all by what's going on in the Middle East? And it seems like a pretty good growth outlook over there. But Yes, if you could just maybe share some details on the near term and long term for India. Daniel Rabbitt: Thanks, Bryan. India, for sure, is an exciting place. That's the real story is that we've seen multiple years of high teens plus 20% growth. So the can industry is really moving quickly to establish supply locally as we are. As I noted, we've recently added capacity to 1 of our 2 plants there, and we've announced the adding of capacity to the second of our plants. So that's the real story of just managing growth in a high-growth market with with capacity constraints. There are continuing to be imports into that country because we cannot, as an industry manage to fulfill all the demand locally and there are some minor supply chain disruptions in that market that are, I think, come and gone. So we're running our plants and our plants at capacity. So if there there's any -- there was no material impact and nothing to note really to talk about on this call, and we're excited about the long-term prospects of India. Operator: Our next question is from Phil Ng with Jefferies. John Dunigan: This is John on for Phil. I just wanted to start on EMEA. The comparable EMEA earnings came in quite a bit better than we expected. It sounded like Benepack wasn't much of a contributor, at least compared to where you were thinking it was going to close. But you did note that the FX actually supported the earnings in the segment. Could you just maybe give us a little bit more detail on what drove some of the higher year-over-year comparable EBIT in the quarter? Daniel Rabbitt: Sure. This is Dan. I mean, I think we have to start with is that the business performed really well. We're again, focusing very much on improving profit. This region really has probably the most runway to improve profit and indeed, they're doing that. So I think it's a credit to that. But when you look at the overall puts and takes that Ron previously had talked about. The driver of this region is the EMEA segment, as you've always heard about at the last few years. It is performing very well. We're getting good now with the India plants and the Myanmarr plant coming in. Those 2 are showing growth and good operating leverage as well. So I think the 2 inorganic opportunities that we took on buying Benepack and selling the UAC really kind of neutralize each other. So I think really mostly what's happening is good performance in this segment. John Dunigan: Great. And maybe you could just quantify how much the FX supported earnings in 1Q? And then my second question is just on the corporate undistributed cost. It sounds like they stepped up. Maybe that was just a factor of some of the recasting that you did, but going up to $175 million, I think you said. Could you just tell us what's going on there? Daniel Rabbitt: Yes. Well, a lot of the positive FX now is moving out of the segment reporting for what we did. So -- but for the company as a whole, I think we probably had about $15 million of positive earnings from the translation and a lot of that is the euro when you compare it year-over-year from the first quarter because it was at a low point a year ago and now it's kind of, I don't know, about 0.15 higher on the foreign exchange. Ron Lewis: As it relates to EMEA specifically, John, I think it was less than half of the gain in operating earnings in our EMEA business was related to FX. John Dunigan: Great. And then the corporate undistributed? Ron Lewis: That's what I think Dan referred to earlier, which was the $15 million. John Dunigan: I apologize. Ron Lewis: So there's a corporate undistributed. That's where we put the FX gains and losses as the translational impact on EMEA was less than half of the operating earnings gain, and that's what you heard from from others in the industry as well. Operator: Our next question is from Edlain Rodriguez with Mizuho Securities. Edlain Rodriguez: I mean clearly, I mean, one, we are clearly in an inflationary environment globally. Like how do you expect this to impact consumer mood and ability to spend. And if there is any impact, like in which region would you expect to kind of start seeing that first? Ron Lewis: Thanks for the question. Well, first of all, the can is winning in every single region in which we operate, and it continues to take share from other substrates. That was true last year and the year before, and it's true this quarter, and we believe it will be true for the foreseeable future. So the can is winning. And we can -- you see the same data we see, and we're really pleased for that. And why is that? It's because of the unique nature of the can. It provides a robust transportation. It provides a robust shelf life. The can has a shelf life of the year. It provides a great billboard effect. You could sell it a singles multiples. I mean, I can talk for for hours about the benefits and the filling your product in an aluminum beverage package and especially one made by Ball. So that's what makes it unique and helpful. As it relates to inflation on the consumer, I mean, all inflation -- all costs are going up. And all I can say is our customers are excited about winning with the can as well. Every time I go to one of our plants, I see new promotional activity coming into summer, especially in the Northern Hemisphere. So every one of our plants is running and most of those labels are promotional labels. And I think our customers will continue to lean into the can as a means of helping them to support the consumer as they seek value. Daniel Rabbitt: And Ron, the only other thing to add is that as consumer really is in place -- has headwinds, it tends to kind of retreat to doing more home consumption. Ron Lewis: And that's been the reason why it's remained so strong. Edlain Rodriguez: Now clearly, that's the case. And 1 quick one. In terms of like the past to make and assume you have for aluminum and other costs, can you remind us how -- like is there a lag? And how much is that lag in terms of like how quickly you pass to those costs? Ron Lewis: Okay. Well, let me do very quickly on aluminum, it's I say immediate, and our other cost pass-throughs are formulaic in nature, and usually, they pass through on an annualized basis. Is there more detail you'd like to add to that, Dan? Daniel Rabbitt: Yes. I think the 2 areas I would add on to that is that really we're talking about higher energy costs and how does that impact us. Ron covered the aluminum, so I won't go back to that. It's really about the customer often pays for the freight, more often at pace for the freight, too. So that's a pass-through to and that's a fairly immediate pass-through in many circumstances. And then when we look at the year, we always look at trying to hedge and lock in our energy cost. And so we're in a pretty good position from what it takes to run our plants right now, too. Ron Lewis: And we do those hedging to align with our customer contracts so that we want to be valued for the additional values that we add to the aluminum that we buy and make into aluminum beverage cans and ends and bottles for our customers. Operator: Our next question is from Mike Roxland with Truist Securities. Michael Roxland: Congrats on all the progress. First question I had is, Dan, you just mentioned in response to John's question that the EMEA business has the most runway to improve profit and they're doing that. That segment was already achieving operating leverage target, whereas North America is. And so I'm just wondering what you see in terms of potential for EMEA and why it has the most runway relative to other businesses. . Daniel Rabbitt: Yes. Thanks, Michael. I think the main thing to do is when you take a look at the profit per can, MEA is our lowest, okay? So for the regions. And they actually have been focused for several years and making the biggest strides on it. And as far as the profit per can. So that's why I highlight that there's the most opportunity and the most progress has been made, too, as we think about that from them. Your question about North America, really, right now for the last quarter or 2, we see North America on target for trying to -- for the 2x operating leverage. It's been pretty close to that number. As we measure it this quarter and last. So I think good things are happening in North America as well. And it is also increasing its profit for [ CAM2 ] as we look at it. Ron Lewis: And if you don't mind, Dan, I'd like to add a few things, Mike, thanks for the question. How are we going to improve our -- why do we believe we can improve our operating earnings in Europe? It comes back to our operational excellence platform. Number one, we need to implement manufacturing standards in our business, and we're doing that. Number two, we need to manage our network well and adding 2 new plants in countries where we didn't operate in Belgium and in Hungary are certainly going to help us. And we're investing in our people and our systems. So those are the things that I think will -- that give us confidence that we can continue to compete and operate our plants and our network well. I would say the other thing is Europe, we always talk about it as a land of opportunity. There is still significant opportunities for can penetration. So we know there's a lot of runway to go. We're really proud of our ability to deliver our operating leverage this quarter. We delivered and then some across the enterprise, we certainly delivered it and then some in our EMEA business. We delivered flat op earnings in South America despite the volume declines in North America. We achieved our operating leverage there as well in the quarter, although for the enterprise for the full year, we expect to do more or less operating leverage as compared to our volumes at 2x. That's what we're planning to do. Daniel Rabbitt: And Ron, I think I'll use this as an opportunity to reiterate the outlook for North America. We've been talking about the $35 million of ramp-up costs for Millersburg and the domestication of some in production as well. And that was not in the first quarter. So as we start to think about the rest of the year, you're going to see those costs come in later in this order and heavily in the third quarter, possibly a little in the fourth quarter as well. So that's going to distort some of that operating leverage. And that's why we've been saying all year long, you're going to have to make some adjustments for those, and you will see the operating leverage on the base business. Michael Roxland: That's perfect. And if I had just one quick follow-up. In terms of some of the incremental costs you're experiencing, obviously, they're believed to be transitory of freight, chemicals, energy, and I think I know the answer is going to be but going to ask the question anyway. What levers do you have available to you internally to offset those higher costs? I'm assuming operational efficiencies, deploying best practices, the bold business systems, some of the things you mentioned on your commentary. But are those are the levers that you have in your wheelhouse to basically offset incremental costs and to even potentially drive margins higher when those costs recede. Ron Lewis: Mike, I think you're thinking about it the right way. We have to be operationally excellent every day, and that's the first pillar with our strategy. So that -- those are the primary means by which we offset those costs. And they're real. So -- and then the second thing is we are a resilient business model. We are rewarded for and paid for making cans, bottles and ins as efficiently as possible. . And the cost that we manage on behalf of our customers are generally passed on to them in a formulaic way, be it freight, be it other direct materials, be it aluminum through various means. So that's what makes us a very resilient business in a very resilient industry. Operator: Our next question is from Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: I guess I just wanted to get your thoughts on maybe the contracting environment. You guys are adding capacity in North America and Europe and and elsewhere. So presumably, supply and demand is relatively tight in all regions. But are you expecting to -- given that tight capacity, would there be any pricing opportunities over the next few years? I mean how should we still expect about 1/3 of your contracts roll over every year? Or maybe you can just kind of help us frame those kinds of opportunities as well. Ron Lewis: Arun, thanks for the question. I would say you saw the industry grow significantly the last few years. Certainly, last year, Ball, we grew more than 4%, so above our long-term algorithm. And we used up a lot of the latent capacity that we had. So strong growth in the last several years has led to a relatively tight supply demand scenario. We, as a business, are operating certainly at asset utilization levels in the mid- to high 90s depending on the region on a percentage basis. So the supply and demand is relatively balanced to tight. The next thing I would say is the long-term nature of our business is also reflected in the long-term nature of our contracts with our customers. So I mentioned earlier on the call, we are sold out for this year. We are more than 90% sold for next year, and we're more than 50% sold for the balance of the decade. We have a heavy capital deployment in our industry. So it requires that level of commitment from a customer for multiyear contracts. So we're well contracted. You said there's roughly 1/3 of our volume turnover every year just based on those numbers, it's significantly less than that. Is there an opportunity for us for pricing, I would say, we want to be fairly rewarded for what we do. including down to all of the value-added things that we do, whether it be a different type of specialty can or a special special promotion or a different type of ink. Those are the things that we deserve to and get rewarded for when we're able to bring that sort of innovation to the market. the market will be what it will be, and we just know that we need to be operationally excellent to compete in it. Thank you, Arun. Arun Viswanathan: Okay. And then if I could ask a follow-up. Just curious on if you will be putting in more capacity here in North America. Obviously, you have the Millersburg plant, but Presumably, that will only bring you down to the low 90s and maybe even in the mid-90s. So is that -- would you be adding more capacity? And what are your customers, I guess, when you do go through this process, you kind of presell the plant out? Or is it kind of more done in the future? Ron Lewis: Yes. Thanks for the question, Arun. It gives us a chance to talk about Millersburg, which will be commissioning late this year, and it will bring material volume to our network next year. It will allow us to remove some supply chain inefficiencies because we do not have capacity in the Pacific Northwest and the U.S. So that will help us and our customers. The most important thing about that plant that you should know is it comes on the back of a long-term offtake agreement with one of our most strategic customers. So that plant is -- capacity is spoken for, for many, many years to come when we build it. And that is the second thing that you said, the case for any plant that we would build, we will not build a plant unless we have a long-term offtake agreement filling essentially all of the capacity for that plant. So we're excited to bring new capacity to North America, but we only bring it on the back of a customer's commitment to us because they see the growth of the beverage can. Maybe a specific comment, for example, the energy drink category, as you know, and we all know, is growing and continues to grow unabated. And as it grows, we're excited to help our customers in that regard. And we have potential to build another plant on the East Coast at some point before the end of the decade, but I wouldn't get too excited about it because it won't be in the next several years. But we have intentions to build a plant in the East Coast in North Carolina because of the growth of one of our more -- most strategic customers as well. And we'll do that when it's appropriate. And hopefully, that gives you a sense of how we deploy our capital related to our customers. Thank you. Operator: Our next question is from Hilary Cateno with Deutsche Bank. Unknown Analyst: Could you talk about what you're seeing from the CPGs and in terms of promotional activity? Are you seeing them be more promotional than they have been in the past? Any color on that would be helpful. Ron Lewis: Hilary, thanks for your coverage of us. We appreciate it. Yes, it's great. Our customers, we've really them and look to them for guidance on how they view the consumer. They're much better at this than us, and we really appreciate the insights they provide us. Based on what we know and we hear from them, I'm going to talk specifically about the summer coming up. When I go into our plants and our factories around the world, be it in Europe, in South America or in the U.S., at least one of the lines is running a World Cup label. So that's exciting. Everyone is excited about the summer's World Cup coming up. And if you're walking through one of our plants in North America, I can almost guarantee you, you will also see another rhine -- line running America 250-year celebration labels as well. So clearly, our customers are looking forward to taking advantage of some exciting consumer-driven marketing activity this summer. And it should be at least -- it will be no worse than neutral, and we think it will be a net positive for us. We couldn't put a number on it right now. We're just pleased that our customers continue to see the value that I spoke about earlier of the beverage can. It provides an amazing billboard for them to talk about that promotion. They can use it as a multipack or a single different sizes and the robustness of the package means that they can lean into the can as opposed to other packaging substrates because of the shelf life and the quality that, that can provides for their product. Unknown Analyst: Got it. That's helpful. And then just a follow-up question. The EVA framework really seems to be working well in setting a clear guideline and goals on the corporate level. So could you just talk a little bit about how the EVA framework is being used to like incentivize employees at the plant level and to make operational decisions and is that what's driving operational efficiency on the corporate level as well. Ron Lewis: Thanks for the question, Hilary. I'll let Dan say a few words in a moment about EVA, but it just gives me a chance to say, EVA is our North Star. It hasn't for a long, long time, and it will continue to be for the foreseeable future. So how we deploy capital, running a cost-efficient business, that's what acting like an owner means. So as it relates to our plants, all of us are rewarded for delivering EVA dollars, every single person in this company. And maybe, Dan, could you give some nuance around how we're thinking about EVA operationally? Daniel Rabbitt: Yes. Yes, the nice thing about having EVA is it's been here longer than Ron and I have. And so it's really ingrained in the culture. We do like to have everybody included in these plans. And what we're really focused on now is breaking EVA down from this financial concept into what they can actually do to improve EVA. So we're making it much more personal. And that's one of the key items we're doing to improve the profitability of the company right now is really getting much more granular and breaking down EVA. Operator: Our final question will be from Matt Roberts with Raymond James. Matthew Roberts: I got a couple of messages clarifications on first April. I know you said that was up mid-single digits. What region was that? Or was that enterprise wide? I believe South America, you said April up 20%. How much of that 20% was the catch-up from 1Q? Ron Lewis: Thanks for the question, Matt. So enterprise-wide, we started the quarter, the month of April, up mid-single digits as an enterprise. Within that enterprise, South America, April volumes were up 20%. How much of it was catch-up from Q1? Well, what I can say is that April volume made up for all of the declines we saw in the first quarter. And it gives me a moment to just say what happened in the first quarter. What happened in the first quarter for us was you saw a really strong volume for us, high single digits in Q4 2025. So we came into the to Q1 with a pretty healthy sales of cans to our customers who had built a strong inventory. The peak season in South America, weather wasn't probably as good as on average that it would normally be. So it was a little weaker than average, but the -- coming out of peak, the weather has been quite good. And we're seeing a strong pull through as we come out of that peak selling season in South America. And we think that's some of what's happening. And it wasn't asked, but we delivered flat operating earnings in the region, which we're really proud of. And how we did that was we actually got to a position where our inventory levels were a bit lower than we expected. So we were able to build back our inventory, which helped us to deliver the P&L in South America. And also, we had some good size mix and country mix there as well that helped us deliver flat operating earnings while we had volumes down a bit. So hope that answers your question about the volume and a little bonus on color on South America. Okay. Thank you very much, Matt. And Sherry, I think that's our last question. So I just wanted to thank everybody again for your interest in our company. our analysis of our company, your partnership in helping us tell our story. We really appreciate that very much. We look forward to talking with all of you more and sharing our story. So we're excited about how we delivered the first quarter of 2026. We're confident in how we're going to complete 2026. And importantly, we're confident in the long-term nature and the resilient business that we have the privilege to run. So thanks again, everyone, and we look forward to talking to you very soon. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Good morning, and welcome to the IDEXX Laboratories First Quarter 2026 Earnings Conference Call. As a reminder, today's conference is being recorded. Participating in the call this morning are Jay Mazelsky, President and Chief Executive Officer; Mike Erickson, Executive Vice President and incoming Chief Executive Officer; Andrew Emerson, Chief Financial Officer; and John Ravis, Vice President, Investor Relations. IDEXX would like to preface the discussion today with a caution regarding forward-looking statements. Listeners are reminded that our discussion during the call will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Additional information regarding these risks and uncertainties is available under the forward-looking statements notice in our press release issued this morning as well as in our periodic filings with the Securities and Exchange Commission which can be obtained from the SEC or by visiting the Investor Relations section of our website, idexx.com. During this call, we will be discussing certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is provided in our earnings release, which may also be found by visiting the Investor Relations section of our website. In reviewing our first quarter 2026 results and 2026 financial outlook, please note all references to growth, organic growth and comparable growth refer to growth compared to the equivalent prior year period, unless otherwise noted. [Operator Instructions] Today's prepared remarks will be posted to the Investor Relations section of our website after the earnings conference call concludes. I would now like to turn the call over to Andrew Emerson. Andrew Emerson: Good morning. I'm pleased to take you through our first quarter results and provide an updated outlook for our full year 2026 financial expectations. During the first quarter, IDEXX delivered exceptional financial results through continued execution in our companion animal business with benefits from IDEXX innovations. Revenue increased 14% as reported and 11% organically supported by over 11% organic growth in CAG Diagnostics recurring revenues, reflecting nearly 11% gains in the U.S. and approximately 12% growth in international regions. CAG Diagnostic recurring revenue growth in Q1 was negatively impacted by declines in U.S. same-store clinical visits of approximately 1%, with slightly positive growth in non-well visits more than offset by pressure on wellness visits. Strong premium instrument placements in the quarter resulted in 28% organic growth of CAG instrument revenues and included 1,100 IDEXX inVue Dx analyzers. IDEXX's operating performance was also excellent with comparable operating margin gains of 100 basis points, supported by gross margin expansion, which benefited from strong reoccurring revenue growth. Strong operating profit gains enabled earnings per share of $3.47 in the quarter, resulting in EPS growth of 15% on a comparable basis. Performance during the first quarter built confidence to increase our full year revenue range to between $4.675 billion to $4.76 billion, an increase of $42 million at midpoint or an outlook for overall reported revenue growth of 8.6% to 10.6%. Our updated full year overall organic revenue growth outlook is for 7.7% to 9.7% with an organic CAG Diagnostic recurring revenue growth of 8.7% to 10.7%. These organic growth ranges represent approximately 70 basis point increase at midpoint to our previous guidance, supported by strong global execution and modest improvement in our sector outlook for the CAG business. We're also updating our full year EPS outlook to $14.45 to $14.90 per share, an increase of $0.13 per share at midpoint net of a $0.05 negative impact from a loss on an equity investment in Q1, reflecting 11% to 15% comparable EPS growth. We'll provide further details on our updated 2026 financial expectations later in my comments. Let's begin with a review of the first quarter results. First quarter organic revenue growth of 11% was driven by 12% CAG revenue gains and 7% growth in both our Water and LPD businesses. Strong CAG results were supported by CAG Diagnostics recurring revenue growth of 11% organically, including approximately 50 basis point benefit related to equivalent days, an average global net price improvement of approximately 4%. CAG diagnostics instrument revenue increased 28% organically, with another strong quarter of inVue Dx analyzer placements aligned with our expectations. U.S. organic CAG Diagnostics recurring revenues grew nearly 11% in Q1 including strong volume gains and net price realization aligned with full year expectations. U.S. same-store clinical visits declined minus 1% in the quarter, reflecting an IDEXX U.S. CAG Diagnostics recurring revenue growth premium to U.S. clinical visits of approximately 1,100 basis points, highlighting outstanding performance by the IDEXX commercial teams. During the quarter, the industry continued to see green shoots from aging pets, with growth in clinical visits for pets 5-plus years old. Non-well visits also continued to show signs of improvement, increasing 20 basis points year-over-year, while wellness visits declined minus 3%. IDEXX benefited from overall quality of clinical visits with increased diagnostic frequency and utilization per visit, demonstrating expansion of diagnostics and care protocols. International CAG Diagnostics recurring revenues grew 12% organically in Q1, with revenue performance driven by volume gains, including benefits of net new customers and same-store utilization. International regions performed incredibly well with steady growth of CAG Diagnostics recurring revenues through ongoing engagement with customers and expansion of IDEXX innovations while we see similar macro pressures affecting visits in most geographies. IDEXX also delivered strong organic revenue gains in major global testing modalities in the first quarter. IDEXX VetLab consumable revenues increased 15% on an organic basis reflecting double-digit growth in both U.S. and international regions. Consumable revenue growth included double-digit volume expansion driven by net new customer gains in our premium instrument installed base and expanded testing utilization, including benefits from innovations. InVue Dx utilization continues to track well to our reoccurring revenue estimates previously provided and progression of our controlled rollout of F&A is in line with our expectations. CAG premium instrument placements reached 4,650 units during the first quarter, an increase of 12% year-over-year and the quality of placements remains superb reflected in over 1,000 global new and competitive catalyst placements, including nearly 320 in North America. Globally, we placed 1,100 IDEXX inVue Dx instruments as we track to our full year expectations for 5,500 placements. Our success in placing instruments while maintaining high customer retention levels supported the 12% year-over-year growth in our premium instrument installed base in the quarter. IDEXX Global Reference Lab revenues increased 10% organically in Q1, driven by solid volume growth across regions with benefits from both net customer gains and same-store utilization each doubling from prior year levels. IDEXX Cancer DX has continued to support these categories, attracting new customers and broadening the use of diagnostics in both sick and wellness panels. As an example, approximately 20% of Cancer Dx customers are non-primary IDEXX reference lab accounts. Global Rapid assay revenues were flat organically. Rapid Assay results continue to be impacted by customers shifting pancreatic lipase testing to our Catalyst instrument platform, which we estimate to be an approximately 2% headwind to Q1 revenue growth. Veterinary software and diagnostic imaging organic revenues increased 11% driven by recurring revenue growth of 11% during the quarter and strong nonrecurring growth from placements of diagnostic imaging systems, setting a record with approximately 330 installations benefiting from the launch of DR50 PLUS platform. Veterinary software expanded double digits supported by cloud-based PIMS installations and adoption of related reoccurring services. Water revenues increased 7% organically in Q1, with strong growth in the U.S. and low single-digit growth in international regions. International growth in the business was impacted by supply chain dynamics in the Middle East. Livestock, poultry and dairy revenues increased 7% organically in the quarter, with solid gains across regions. Turning to the P&L. Strong recurring revenue growth enabled 15% comparable operating profit gains in the quarter. Gross profit increased 16% in the quarter as reported and 13% on a comparable basis. Gross margins were 63.4% up approximately 90 basis points on a comparable basis. These gains reflect benefits from strong recurring revenue growth in IDEXX VetLab consumables and Reference Lab volumes along with operational productivity. Pricing benefits offset inflationary cost pressures and foreign exchange, net of our hedge positions had a negligible impact on reported gross margins in the period. On a reported basis, operating expenses increased 17% year-over-year including both lapping a discrete Q1 2025 expense for concluded litigation matter as well as a $5 million loss on an equity investment in the current period. Comparable operating expenses increased 11% year-over-year as we advance investments in our global commercial and innovation capabilities. Q1 EPS was $3.47 per share, reflecting a comparable EPS increase of 15%. EPS in the quarter included $7 million or $0.09 per share benefit related to share-based compensation activity, and a $0.05 negative impact related to a loss on an equity investment. Foreign exchange added $14 million to operating profit and $0.14 to EPS in Q1, net of hedge effects. Free cash flow was $234 million in Q1, reflecting normal seasonality. On a trailing 12-month basis, the net income to free cash flow conversion rate achieved 99%. For a full year, we're maintaining our outlook for free cash flow conversion of 85% to 95% of net income, including full year capital spending of approximately $180 million. We finished the period with leverage ratios of 0.6x gross and 0.5x net of cash and continue to deploy capital towards share repurchases allocating $361 million during the first quarter, supporting a 2.1% year-over-year reduction in diluted shares outstanding through Q1. Turning to our full year 2026. As noted, we're increasing our outlook for overall revenue to $4.675 billion to $4.76 billion. At midpoint, this reflects approximately $32 million in constant currency improvement from our initial guidance, building on strong first quarter performance, including CAG Diagnostic recurring revenue expansion and a modestly improved industry outlook. Our updated reported revenue outlook includes $10 million or approximately 20 basis points growth benefit related to foreign currency changes compared to our prior estimates. This reflects our revenue growth outlook for 8.6% to 10.6% as reported, including approximately 90 basis points for full year growth benefit from foreign exchange at the rates outlined in our press release. As a sensitivity, a 1% strengthening of the U.S. dollar would reduce revenue by approximately $12 million and EPS by $0.04 for the remainder of the year. Our updated overall organic revenue growth outlook of 7.7% to 9.7% includes an organic growth range of 8.7% to 10.7% for CAG Diagnostics recurring revenue, including approximately a 4% benefit of global net price realization. At midpoint, we're updating our estimate for U.S. clinical visits to a decline of minus 1.5% after a third sequential quarter of clinical visits trending between minus 1% to minus 2% and aligned with the trailing 12-month average. In terms of key financial metrics, we're updating our reported operating margin outlook to 32.1% to 32.5% for 2026, reflecting increased expectations of 50 to 90 basis points of full year comparable operating margin improvement. Operating margin was impacted by a 30 basis point headwind related to a discrete litigation expense from 2025 and the current year loss on an equity investment. These were offset by a 30 basis point benefit from foreign exchange effects. Our updated full year EPS outlook is $14.45 to $14.90 per share, an increase of $0.13 per share at midpoint. Our EPS outlook incorporates increased projections for operational performance of $0.13 per share at [ midpoint ] compared to our prior guide as well as a $0.05 negative impact from a loss on an equity investment and a $0.05 benefit from updated foreign exchange rates outlined in our press release. For the second quarter, we're planning for reported revenue growth of 7.3% to 9.3%, including approximately 60 basis point growth benefit from foreign exchange impacts. This operational outlook aligns with an overall organic revenue growth range of 6.7% to 8.7% and CAG Diagnostics recurring revenue growth of 8.5% to 10.5%. Organic revenue includes a negative 50 basis point impact from equivalent days in the second quarter, and at midpoint, we're planning for the U.S. clinical visit growth in line with the full year estimate. Overall organic revenue growth is impacted by expectations for declines in CAG instrument revenues as we begin lapping significant placements of InVue Dx during 2025 and modest revenue pressure from regional and placement mix. Second quarter reported operating margins are expected to be 33.9% to 34.3%, reflecting expansion of 10 to 50 basis points on a comparable basis as we expect increased spending during Q2 related to timing of projects. That concludes our financial review. I'll now turn the call over to Jay for his comments. Jay Mazelsky: Thank you, Andrew, and good morning. IDEXX delivered an exceptional start to 2026 with first quarter results reflecting disciplined commercial execution, continued benefits from innovation and expanded diagnostics utilization across a global customer base. These results were achieved despite headwinds from clinical wellness visits, underscoring the durability of our growth model and the importance of diagnostics to excellent veterinary care. The quarter also highlights the strong foundation we have built with strong customer relationships, where a commercial partnership is central to advancing our mission and supporting practice success. The economic value of instruments placed in the quarter, for example, grew double digits year-over-year, reinforcing the long-term value we are creating through our installed base growth. More broadly, companion animals are seen as members of the family and a large majority of pet owners prioritize their pet's health and happiness, creating pull for higher quality health care. This commitment is reflected in the continued expansion of diagnostics frequency during both well and non-well visits. Customer retention remains in the high 90s reflecting the trust veterinarians place in IDEXX as both a diagnostics provider and long-term partner. This loyalty underscores the strength of our integrated model, combining diagnostic software and medical support. We work alongside veterinarians and practice teams to better integrate diagnostics into everyday care protocols, supporting workflow optimization, increasing clinical confidence and demonstrating the economic value of diagnostics. When practices engage at this level, diagnostics utilization increases. Testing becomes more seamlessly embedded in care protocols, technicians gain confidence running diagnostics during the visit and clinicians make faster, more informed decisions, driving greater productivity across the practice. All 4 country expansions announced last year were in place at the start of Q1. And as a result of a well-established approach to training and new hire support, we saw initial contributions in line with expected productivity. Momentum with IDEXX inVue Dx continues with another solid placement quarter well on our way to our target of 5,500 placements for the year. Internationally, we are seeing a solid ramp in the installed base and adoption as awareness builds and commercial team support integration into practice workflow. Customer feedback remains highly consistent across regions, with veterinarians highlighting consistent performance, easy use and workflow productivity gains as key benefits. Utilization across ear cytology and blood morphology remains aligned with expectations, reinforcing the everyday clinical value of the platform. We continue to engage with customers to drive further adoption of these important testing categories through our professional service veterinarians and clinical staff trainings. At the same time, we are advancing the inVue Dx algorithm with monthly software updates to our installed base, enhancing performance and improved time to results, just another part of our Technology for Life promise. For example, the menu advanced in Q1 for blood morphology, the ability to detect and report [indiscernible]. These are red blood cells associated with severe underlying diseases such as with liver, clinic or kidney disease. We're also pleased with the solid progress of our controlled rollout of F&A. Early customer response to F&A remains very encouraging. Practices are seeing the value of evaluating lumps and bumps during the patient visit with rapid cytology insights supported by AI analysis and optional expert pathologists review available with a single click. This workflow enables clinicians to evaluate more lumps and bumps by reducing clinical effort and cost of the consumer. We continue to gain insights on customer behavior and experience during the controlled launch. Early adopters are very pleased with the high-quality training experience and follow-up support. These learnings and positive experience and support further broadening of the launch in Q2 as we ran volume and anticipate full volume ramp in the second half. Overall, F&A utilization is tracking to our planning assumptions, and we remain excited about the potential of F&A as a platform capability that can expand over time beyond mass cell tumor detection. Turning to IDEXX Cancer DX. Momentum continues to build behind this important innovation as veterinarians increasingly incorporated into both diagnostics and screening workflows. During Q1 in North America, nearly 70% of cancer DX tests were run as part of a panel, reflecting the growing clinical relevance of this test. Now with over 7,500 practices ordering since launch, Cancer Dx is a major differentiator for our [ reference ] business, and we believe it is one of the many elements driving competitive lab transitions at IDEXX. A major milestone this quarter was the international launch of Cancer DX for [indiscernible] and lymphoma in Europe and Australia. This represents an important next step in expanding access to early cancer detection globally and builds on the strong adoption we have seen in North America. Early international interest has been strong and reinforces the global need for accessible oncology diagnostics. Our global field teams are partnering with customers, both independent and corporate to develop wellness protocols. As an example, a large corporate group in Australia recently announced the inclusion of Cancer DX within their senior wellness plan. no additional charge for their members. We're also seeing continued use in monitoring applications, particularly in cases where serial testing can support treatment decisions. With the addition of mast cell tumor detection for later this year and a third test by the end of '26. Cancer diagnostics will continue to expand its clinical relevance and reinforce IDEXX's leadership in veterinary oncology diagnostics. We continue to expand our Catalyst customer base, adding over 1,000 new and competitive customers in the quarter. In each one of the now nearly 79,000 Catalyst customers have access to our new and expanded menu such as Catalyst pancreatic lipase and Catalyst cortisol. We continue to see strong adoption and utilization of both these tests as practices incorporate the test into routine real-time workflows to support pancreatitis and endocrine disorder diagnoses. Our software and diagnostic imaging businesses also delivered solid performance in Q1. Our cloud-native PIMS platform installed base grew double digits in the quarter, as we continue to see strong interest with virtually all placements now cloud-based. Practices are looking to software solutions to realize workflow optimization, staff productivity and digital client communications. Vello, IDEXX's pet owner engagement application continues to gain traction, growing double digits from last quarter as practices recognizing the importance of driving client deployments. Clinics using Vello report improved compliance with recommended diagnostics and treatments reinforcing the connection between engagement and medical outcomes. In our Diagnostic Imaging business, we launched our newest digital radiography system in January, the ImageVue DR50 PLUS combining high definition AI-powered imaging with up to 60% lower dose than premium competitors. Strong customer reception to the DR50 PLUS, coupled with excellent commercial execution, led to an all-time record imaging systems placements for the quarter, the fifth consecutive quarterly placement record. IDEXX Telemedicine also delivered very strong volume growth, supported by modernized integration with IDEXX Web PACS that reduces submission clicks by almost 50% saving time for clinical teams and delivering board-certified expert interpretation directly inside Web PACS. Software is a powerful enabler of diagnostics growth helping practices translate clinical insight into action and customers who use all of our diagnostic software and imaging solutions experienced faster clinical revenue growth and diagnostics usage. This will be my final earnings call as CEO before I transition to the Executive Chair role following our annual meeting next week. As I reflect on my experience as CEO and the state of the company today, I remain incredibly optimistic about the future of IDEXX and the multi-decade opportunity ahead for the company. The fundamental drivers of this industry have never been stronger. The human animal bond continues to deepen. That bond drives sustained commitment from pet owners to seek high-quality care, earlier diagnosis and better outcomes for the pets they love. Diagnostics is the foundation of this evolution. As medicine continues to advance the need for clinical insights to guide care decisions will only grow reinforcing the long runway ahead for diagnostics innovation and utilization. IDEXX is in a position of strength with a clear strategy, a powerful innovation pipeline and exceptional people. I believe the company's best days lay ahead. And I'm excited for the next chapter of IDEXX's growth to unfold. I would be remiss if I didn't highlight the role that our people play in the company's success. Our approximately 11,000 IDEXX employees around the world are purpose-driven and our talent fuels the company's growth. IDEXX is deeply committed to innovation, our customers and their success and operating the company as if it was their own. It has been an honor to lead IDEXX, and I want to thank all employees past and present for their commitment to improving the lives of pets across the world. Now before I turn it over for Q&A, I'd like to give Mike Erickson the chance to say a few words. I've worked with Mike for a long time, and I have tremendous confidence in him as he steps into the CEO role. He brings deep experience, strong leadership and a clear commitment to our purpose and strategy. With that, I'll turn it over to Mike. Michael Erickson: Thank you, Jay, and good morning, everyone. I'm humbled by the opportunity to lead IDEXX at such an exciting time in our company's history. As Jay mentioned, the sector remains highly attractive and I see a meaningful opportunity ahead to further accelerate our innovation-driven platform growth strategy. We will continue to focus on diagnostics and software where our platforms empower customers to see more and do more in their practices, uncovering deeper patient insights and driving next level productivity. We will also continue to advance commercial reach through investments to expand our field-based presence in key geographies around the world. This enables our talented commercial team to work even more closely with customers side-by-side, supporting accelerated adoption of innovations that expand care while driving a reliable return on investment. Another priority for us is AI. We have a well-established AI capability at IDEXX with AI embedded in platforms such as inVue Dx and our ezyVet software. Looking forward, I see advancements in AI as incredibly promising to further accelerate our innovation, expand testing access and utilization and drive deeper patient level insights. I plan to share more on this at our upcoming August Investor Day. Across these priorities, we're fortunate to have a talented team of IDEXXers globally that wake up every day focused on our customers and shaping the future of diagnostics software and AI in animal health. I want to close by thanking Jay for his leadership and service to IDEXX over the past 14 years. Under Jay's leadership, the organization has accelerated the innovation agenda, launching valuable new platforms like Cancer DX and inVue Dx, growing our cloud-native software platform offerings, significantly expanded customer reach internationally and delivered strong results and shareholder value, all while positioning IDEXX for sustainable long-term growth supported by a robust future innovation pipeline. I am grateful to have worked with Jay and I look forward to his continued support as he transitions to Executive Chair of IDEXX's Board. I'll now turn it over to the operator for Q&A. Operator: [Operator Instructions] We'll go first to Michael Ryskin of Bank of America. Michael Ryskin: Congrats on the quarter, and I [indiscernible] the comments. Jay, congrats. Been a pleasure. I want to kick things off on inVue. You had a lot of comments in the prepared remarks on strong performance. But just that placement number, 1,099. You reiterated the 5,500 for the year, but we would have expected you to do a little bit more in the first quarter. Is there just some pacing dynamics there to think of that maybe the first quarter tends to be a little bit slower. Is there anything in the funnel you can talk about just to give us confidence that these placements will be there for the full year? Jay Mazelsky: Yes. Michael. The -- we -- Keep in mind, we came off a very strong year in 2025 and Q4. We have a high degree of confidence in the 5,500 number. It tends to be -- you get some choppiness quarter-to-quarter, just based on customer mix of independents versus corporates. But the receptivity we see in the market amongst customers is very strong. So we have a lot of confidence in the overall 5,500 projection for the year. Michael Ryskin: Okay. Great. And for my follow-up on just sort of underlying market assumptions and what you've seen you had about 2% visit decline in the first quarter was to be expected in a lot of expectations. You talked about, I think, in your prepared remarks, modestly [indiscernible] the industry outlook -- just would be great to drive into that a little bit more. Is that U.S. or OUS? Is that something you're seeing now? Just expectations as you go through the year? Just parse that part a little bit more. Andrew Emerson: This is Andrew. Yes, so from a clinical visit perspective, we highlighted a minus 1% in the first quarter. So that's about a point better than what our initial guide had laid out from that standpoint. We continue to see positive momentum from the aging pet population, pets that are 5-plus years and older continue to add some positive momentum just to the overall industry. And I think what we're trying to do is capture the multi quarter perspective that we've started to see the green shoots in that area into our outlook. I hear more directly. I think if you look at the past trailing 12 months, the average is now very similar to what we're anticipating for the full year, which is about minus 1.5% decline in clinical visits. A lot of that is really from the wellness visit area and areas like the discretionary types of categories. We continue to see pressure related to the macro dynamics and consumers making trade-offs, whether they come into the clinic. But the positive side of that is when they are coming into the clinic, we're seeing really strong quality of care within those visits. So diagnostic frequency and utilization continue to expand at really healthy rates. And so you're seeing the diagnostic care protocols really continue to play out positively from that perspective. So we feel like we've kind of captured the range of outcomes here on the industry, but it is a little bit better than we had anticipated for the full year. Jay Mazelsky: Yes. Maybe just one comment on those pets 5 years and older. It is modestly positive. This is now the third quarter that we've seen that. So that's very encouraging. The other thing is it's been positive across both non-well and wellness visits. And so that cohort of pets said we know it's a very large cohort are coming into the practice, not just for sick visits, but also for well visits. Operator: We'll take our next question from Chris Schott of JPMorgan. Christopher Schott: Jay, Mike, congrats on the new roles. Just -- maybe just two for me. First on ex U.S. dynamics, another very strong quarter there. I'm just curious how much of this is commercial execution on IDEXX's part versus just maybe healthier broader market trends and just how you're thinking about kind of the directional growth for the ex U.S. business? And then maybe the second one for me is just coming back to inVue and the F&A rollout. I know you made some comments in the prepared remarks, but just elaborate a little bit more on how that initial utilization and uptake has ramped relative to your expectations? And just how we should be thinking about the broader rollout of that offering as we move through this year. Jay Mazelsky: Sure. Chris, I'll take the international market comment, then I'll ask Mike to handle the F&A rollout and how we think about that. The international markets just from a overall macro impact and performance side, we don't see broad differences between international and our domestic market. There's a macro impact, obviously, on wellness as a whole. Wellness is less a dominant [indiscernible] -- it's at a much lower rate than typically what we see in the U.S. just from a development standpoint. The really solid growth we're seeing in CAG recurring revenue, instrument placements internationally is a function of long-term investments that, as a company, we've made. So it's not just in terms of commercial expansion. So that's an important part of that, and we've done double-digit expansions over the last 5 years or so, it's building out. Our Reference Lab business, it's localizing software solutions like VetConnect PLUS. It's really building out the entire IDEXX ecosystem so that we can serve our customers at the level of experience, customer experience that they desire, but also making sure that they have full solutions. And if you look at our product road map and what we've rolled out over the last couple of years, a lot of our solutions have been from a design and development standpoint, targeted at these international customers. ProCyte One, for example, though it's been extremely successful in the U.S. Initially, we saw the opportunity footprint cost and performance to go more from a value standpoint. I think on the Rapid Assay business [indiscernible] is another example, really tailoring solutions for some of our international markets. And we're realizing I think that the success of all those efforts combined, and we've seen sustainable double-digit growth. We're very optimistic about the long-term opportunity in these international geographies. diagnostics utilization is just at an earlier state and that our experience has been with the right approach, creating awareness and education and working with customers in a [ tight ] partnership model that there's a lot of runway in front of us, and we feel like from a playbook standpoint, we really have a very successful and effective playbook we're executing. I'll hand it over to Mike to talk about F&A's [ controlled launch ]. Michael Erickson: Chris, thanks for the question. We're very happy with the controlled launch process for F&A. It's on track. And in fact, we're broadening it as we head into the second quarter here, we also would move to a more of an unconstrained launch posture later this year. Keep in mind, I mean, we've successfully been launching instrument platforms for many years here at IDEXX. We've done 4 of these just in my time. And this staged control launch process is what enables us to ensure we deliver the kind of outstanding experience that our customers expect from us, not just from the instrument, but from all aspects, end-to-end implementation, training and all of those things. And F&A, as Jay mentioned, it's really a very exciting platform within a platform, not just what it can do on the instrument with AI and detection of mast cell tumor cells, but also the one-click workflow if a customer wants added interpretation from an IDEXX board-certified pathologists. And we're seeing our controlled launch customers give us great feedback and really make use of all of that functionality. And then the final thing I'll just say here is that, as you know, these products have very long tails. We want to get it right up front because we know that the value creation really comes over time as we continue to expand what the platforms can do, and that's what customers really love about the solutions that we provide them. Operator: We'll go next to Erin Wright with Morgan Stanley. Erin Wilson Wright: So the consumables momentum was strong. It accelerated from the fourth quarter. I guess can you remind us kind of unpack that a little bit for us. I guess remind us what actually would be in view related or directly associated with inVue consumables? Is that really moving the needle yet? Or is this really about you locking in those customers into those IDEXX 360 contracts and having that sort of indirect impact from the inVue launch? And just when should we think about kind of inVue, I guess, moving the needle from a consumables perspective? Like what are you seeing in terms of the consumables flow-through so far relative to your expectations? Jay Mazelsky: Yes. The inVue consumables is definitely contributing to the strong growth and momentum we see in the VetLab consumables portfolio with ear cytology, blood morphology, we've communicated this before. It's well within expectations. Customers are enjoying it. It represents 100% new growth in the consumables area that we didn't have before. So we think that with F&A, we'll continue to build off that and can help sustain good momentum in that part of the portfolio. The other thing to keep in mind is because we've had very successful high single-digit, double-digit installed base growth across all the premium instruments. Every time we come out with a new slide. In the case of Catalyst, for example, with pancreatic lipase or cortisol, where we're able to market that into a very large installed base. And customers have grown to trust our solutions and the performance of the solutions and workflow of it is really load and go. So what we're seeing is a rapid uptake of these innovations across a large installed base globally. And these are -- in the case of my pancreatic lipase and cortisol, these are measurements or parameters that customers have been asking for. They see every day, dogs, cats coming into their practices that require these types of measurements. And the same really is true across the portfolio. We've seen a nice, I think, build in SediVue, for example, internationally, which started a little bit later than when we introduced it in the U.S., hepatology is typically sold as part of a chemistry and hematology suite. So we're benefiting from that focus on placing instruments, creating a seamless experience and continuing to evolve the menu through a Technology for Life approach. Erin Wilson Wright: Okay. Great. And then just on F&A again. And just on kind of the building a broader launch there. I guess, do you have a backlog or preorders to speak of on that front that customers are waiting for F&A, like what do you hear from the field as kind of you more broadly launched that throughout the year? And then what is your expectation? Or when should we hear more on the next menu expansion for inVue and how meaningful full that could be to the platform? And also just to know kind of thanks, Jay. It's been also great working with you, and thanks for the support over the past few years. Jay Mazelsky: Yes. Thanks, Erin. Why don't I -- I'll take the commercial aspect of it and then maybe have Mike talk a little bit about the F&A and why we think virtually all customers would be interested in it. From a commercial standpoint, what we launched at what customers, I think, focused on was, obviously, the ear cytology and blood morphology, it felt like from a menu standpoint that, that offered a degree of completeness that supported the placement of the instrument and overall utilization, and that's certainly played out. And they -- of course, we communicated the fact that we weren't going to stop at that from a menu standpoint that it was kind of -- we were going to broaden it to F&A, first on [indiscernible] and then over time, continue to expand the menu because the architecture and the technology enables us to do that. And I think we've communicated at one of the -- our last Investor Day that there's over 100 million, 150 million cytology done on a global basis, manually. So there's a very, very sizable opportunity still in front of us. Mike, why don't you talk a little bit about the F&A and how customers think about that? Michael Erickson: Yes. Thanks, Jay. I mean F&A, just like blood morphology and ear cytology, I mean these are all complementary care episodes, applications, if you will, on the inVue Dx platform. And really, every practice that you see is doing all of these things. And so we know there's a lot of excitement out there with fine needle aspirate. It's very common for practices to have pets coming in on a weekly or daily basis, dogs with lumps and bumps that are suspicious. We know today there are around 12 million of these of F&As being done, but we know that 90% or more of the masses that come in actually don't get investigated because it just takes a lot of work to do it manually with cytology. And frankly, it's pretty expensive. And so we're really excited about F&A on inVue Dx as an opportunity to not only elevate the standard of care, but also expand access to muted care and we see a long runway for doing that. As Jay shared and as I shared previously at our Investor Days, we see 100 million cytologies, beyond what we're talking about already around the world. And so we see a long road map, a very exciting road map ahead on inVue Dx and we'll continue to share more about that as we move forward. Operator: We'll go next to Jon Block with Stifel. Jonathan Block: So -- when I factor in the 2Q '26 guide, the first half CAG Dx recurring looks like it's expected to be about 10.25%. That's the [indiscernible] at. And the midpoint for CAG Dx recurring for the year is now after the raise 9.7%. So slightly below the [indiscernible] in a quarter but the comps get much more difficult in [ 2 age ] and it doesn't look like you're assuming the visits improve off the 1Q number. So Jay or Andrew, can you just lay out the drivers that allow the CAG Dx recurring call it, 2-year stacks to accelerate into the back part of the year, again, because it doesn't seem like there's a big uplift at least embedded in the visits from the 1Q number. Andrew Emerson: Yes. So I think from an overall perspective, if you look at the full year guide. We're really planning for solid growth. And we've actually increased the outlook both at midpoint and the overall range on an organic basis by about 70 basis points. That confidence really stems from continued execution that we see on a global basis. Our commercial teams continue to support our customers exceptionally well. We've also seen really strong and solid benefits from the new innovations that we've launched in recent years. Jay highlighted some of those earlier on the call, the contribution between inVue Dx as well as some of the new menu that we've added to our Catalyst platform. We've certainly seen expanded utilization as well, both in terms of the industry metrics as you highlighted, we are thinking that clinical visits are slightly improved from our initial guide, which is partly playing a role in there. But we continue to see really strong quality of visits. And I think that diagnostic frequency and utilization certainly benefits the overall growth rate that we have outlined as part of our long-term guide. Keep in mind, guidance continues to be a range. I think if you look at the upper bound of the guidance range, certainly more consistent trends with what we have now. And again, I think that comes back to confidence in our business execution and continuing to maintain strong relationships with our customers. Placement trends on instruments are really positive. We've seen growing benefits from utilization across our key modalities from a business standpoint. So I think we have really captured kind of a range that we feel confident with going forward here. But maybe I'll let Jay talk to a couple of the specifics just from a broader business perspective. Jay Mazelsky: Yes. One thing we haven't spent a lot of time talking about is the momentum also in the Reference Lab business. It's been very strong. We've seen that globally. Part of it comes down to a lot of differentiation. Cancer DX has given us, obviously, something to go in and talk to customers about, but leveraging that to talk about the broader differentiated portfolio in Reference Labs, not just from a menu standpoint, but from a service standpoint and being able to serve all of our customer needs. And what we've seen is we've been able to grow successfully the entire IDEXX portfolio. So point of care, Reference Lab, software, the integration that provides. And the business just has a lot of momentum because of that. And we've been, I think, transparent with customers in terms of the innovation agenda around what's coming, the expansion of IDEXX cancer diagnostics as an example, continued to build into more of a full volume posture with inVue Dx F&A in the second half of the year. I think that gives us a lot of confidence in terms of being able to sustain good momentum in the business. Jonathan Block: Okay. That's helpful. And maybe just a quick follow-up. For inVue, the way you guys frame it makes it seem like you're not yet in that [ 3,500 to 5,500 ] revenue per box band yet. And I guess maybe a couple of parts to the question. One, is that an accurate statement? You're not there yet, you're, I guess, trending to it or however, some of the verbiage is laid out? And then when do you expect to be in that band? And do you need sort of that full launch unrestricted launch of F&A to get there. Andrew Emerson: Yes. Thanks, Jon. Maybe I'll start and then Mike can add in here. But just from a recurring revenue perspective and utilization of the instrument, I think what we are seeing is very much in line with what we had anticipated as part of our build. Certainly, the range that we've given, again, is a range. I think it wasn't a precise number and it did include the launch of F&A, which we've started while that's in a controlled basis, we continue to ramp. We're within the band that we've highlighted here on a per instrument placement perspective. And I think, again, we'll continue to provide more insights and updates. We would like to see us more broaden out the F&A launch and then we can continue to identify exactly how that's playing out over time. But I think we're within that band, and we feel confident about the range that we provided. Michael Erickson: Yes, Jon, Mike here. I'll just underscore. We're well within the range that we've communicated. We're happy with that. And that's really before moving to an unconstrained launch position with F&A. So we see more opportunity ahead. And as I mentioned earlier, only 10% of the masses that come in today get looked at. And so we see -- if you look at it kind of the TAM for F&A, if you will, is very, very large. So we see lots of opportunity ahead of us there. Operator: We'll go next to Daniel Clark with Leerink Partners. Daniel Christopher Clark: Just wanted to ask on the updated visit guide. What are you thinking in terms of the macro and in terms of fuel prices? Do you assume sort of no change in that dynamic going forward through the rest of the year? And then I'll ask my follow-up upfront as well. When we think about performance in the first quarter, were there any changes in either visits or diagnostic frequency between January and February and March when we saw fuel prices pick up? Andrew Emerson: Thanks, Dan, for the questions. Maybe I'll start on this one. So from a visit guide perspective, certainly, fuel could have kind of an impact on consumers. I think obviously, the range that we provide, again, is a bit of a range, the lower end. You may assume that, again, you see continued constraints on the consumer demand side. But I think overall, what we know now is it's a pretty volatile and evolving dynamic in the Middle East and how fuel prices are going to play out and energy costs are going to impact the consumer, a little bit hard to predict that piece of it. But I think from a longer-term trend perspective, we're calibrated more on where we're -- what we've seen here over the last recent quarters on visits. Certainly, the wellness category and discretionary categories are the predominant driver of declines that we're seeing at this point. In the last 3 quarters, we've been relatively flat on non-well visits, meaning that as pets experience issues that they need to be dealing with. Consumers are willing to prioritize that spending. What we have seen though is that trade-off of consumers maybe not coming in for wellness or discretionary visits that have been more impacting just their overall decision-making here. But again, I think it's a bit dynamic on the fuel side. We'll see how that plays out. But I think we've captured what we believe is a good range at this point. Jay Mazelsky: Yes. Just the one thing I would add to Andrew's comments is we've seen very consistent international growth for a long time now. And that's been through Obviously, there's been a war in Europe, and there's been inflation and macro pressures. And we've been able to -- it's not that it's not real. We've been able to out-execute that through innovation and commercial partnership with customers and commercial expansion. So we've got a lot of confidence in the health of the business and our ability to continue to bring innovations to our customers. Andrew Emerson: And then maybe the second part of your question, just in terms of Q1 performance. We don't typically break out the monthly dynamics just relative to visits. It can be really noisy. There's a lot of factors including things like day accounts, et cetera, that can play out in a month. We just see a lot more variability on a week-to-week or month-to-month basis. So not something that we give too much stock in from that perspective. But certainly the quarter had a minus 1% decline, majority of that being the wellness side, I think, is pretty consistent with what we would have expected on the wellness side and a little bit better on the non-well side, just in terms of the quarterly results. And again, we're guiding to a minus 1.5% for overall clinical visits for the year. So I think we've captured expectations for continued pressure in those areas. Operator: We'll go next to Ryan Daniels with William Blair. Ryan Daniels: Congrats on the leadership changes. Maybe another one just on what we're seeing in the end market. It's interesting, as you said, we've seen somewhat of an inflection towards positive non-wellness visits. I'm curious if you've dug into that any deeper? Does it really relate to this aging pet population, is it anything with maybe some pent-up care demand because of the lack of wellness volume? Just anything you see there and how sustainable that might be would be helpful. Jay Mazelsky: Sure. Yes. We have seen -- we break it out through different age cohorts. And initially, if you go back some quarters, we have seen it in that 5- to 7-year cohort. So these are pet adoptions that largely occurred during the pandemic, where we had that huge step up. And what we've seen in terms of the type of breeds that were adopted during the pandemic is they're more heavily medicalized. The doodles, for example, frenchies. Dogs just require more care. And that's been -- in talking to customers, especially the corporate customers who track that sort of thing. They've also validated that, that's a real thing but we're beginning to see the front end of that very big pandemic adoption that we've seen. So we think that that's sustainable. Ryan Daniels: Okay. That's helpful. And then one just clarification. You mentioned some supply chain disruption impacting, I think, international growth. So maybe a multifold question there. Can you go into that? And was it for CAG or for Water and LPD? And then has that abated or how is that incorporated in your guidance looking forward? Andrew Emerson: Yes. Thanks for the question. So really, that was related to the Water business, specifically, and that was related to the Middle East. The Middle East region certainly have seen some dynamics going on where supply chain has gotten disrupted. We continue to work through that, but there was modest pressure in the water business that we factored into our outlook here. Operator: Our last question will come from Daniel Grosslight of Citi. Daniel Grosslight: I wanted to go back to the improved CAG Diagnostics revenue outlook for this year. Something you can maybe bifurcate a little bit more or force rank the contribution from volume, price and innovation on the improved outlook. And as we look to the [indiscernible] top end of the range now, what's the biggest swing factor between those 3 contributors, volume, pricing, innovation? Andrew Emerson: Yes. So we haven't actually updated anything from a pricing perspective at this point. What we highlighted on our initial guide and certainly in this outlook is approximately 4% net price realization for our CAG Diagnostic recurring revenues. In the U.S., that's modestly lower than we've highlighted before as well. But there's nothing new there in terms of change. This is all volume driven. I think the positive news here is we continue to see an outlook for expanded volumes, and that's largely the 70 basis points. That is a combination just of our overall business performance, the execution against some of the new innovations and our ability to continue to partner with customers to grow the use of diagnostics. We see, again, the diagnostic frequency or blood work conclusion continue to expand, which benefits the business as well as a modest improvement in the declines that we expected associated with the clinical visit flow through. So those are the components that we've highlighted specifically here but a lot of this comes back to the volume that we're able to drive as an organization for CAG Diagnostic recurring revenues. Jay Mazelsky: Yes. Just to build off that. It really is a volume-driven growth trend on the point-of-care side, we note that we've been able to grow double digits our installed base over a period of time, that's the flywheel in which customers drive utilization. I referenced that business is very healthy. All the investments that we've made, cancer, IDEXX cancer diagnostics, I think, has put some additional visibility to that business. The ability to really, I think, continue to support double-digit international growth as a result of the investments made in that area as well as commercial expansions, I think, give us confidence that it's a -- we're in an attractive part of the market with good momentum. And so with that, thank you for your questions. We'll now conclude the Q&A portion of the call. It's been a pleasure to share how IDEXX executed against our organic growth strategy, while delivering strong financial results in the first quarter. Thank you for your participation and engagement this morning, and we'll now conclude the call.
Operator: Greetings, and welcome to the Enpro First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to James Gentile, Vice President, Investor Relations. Thank you. You may begin. James Gentile: Thanks, Jessie, and good morning, everyone. Thank you for joining us today as we review Enpro's first quarter 2026 earnings results and discuss our improved outlook for 2026. I'll remind you that this call is being webcast at enpro.com, where you can find the presentation that accompanies the call. With me today is Eric Vaillancourt, our President and Chief Executive Officer; and Joe Bruderek, Executive Vice President and Chief Financial Officer. During this morning's call, we will reference a number of non-GAAP financial measures. Tables reconciling the historical non-GAAP measures to the comparable GAAP measures are included in the appendix to the presentation materials. Also, a friendly reminder that we will be making statements on this call, including our current perspectives for full year 2026 guidance that are not historical facts and that are considered forward-looking in nature. These statements involve a number of risks and uncertainties, including those described in our filings with the SEC. We do not undertake any obligation to update these forward-looking statements. It is now my pleasure to turn the call over to Eric Vaillancourt, our President and Chief Executive Officer. Eric? Eric Vaillancourt: Thanks, James, and good morning, everyone. Thank you for your interest in Enpro, as we discuss our first quarter results, provide an update on strategic initiatives and share our current views for the balance of 2026. Before we discuss our results for the first quarter, I would like to recognize our 4,000 colleagues across the company who are accelerating their personal and professional growth, while contributing to Enpro's strategic and financial successes. Momentum and excitement is showing up throughout the organization. And we are off to a strong start in the second year of Enpro 3.0. We are energized to continue providing critical products and solutions to our customers, while driving significant enterprise value creation, by unlocking compounding strength of our portfolio. Our leading market positions, committed colleagues and strong balance sheet support the continued execution of our multiyear value creation strategy. After my update, I will turn the call over to Joe for a more detailed discussion of our results and drivers of our increased guidance for 2026. Now on to the highlights for the first quarter. We started 2026 off on the front foot with reported sales up nearly 11% year-over-year. Improving demand in semiconductor markets drove sales in the Advanced Surface Technologies segment up over 11%. Additionally, the contributions from the 2 businesses that we acquired in the fourth quarter, AlpHa Measurement Solutions and drove Sealing Technologies sales up 10.8%. Total company adjusted EBITDA increased nearly 13% to over $76 million at a margin over 25% for the first quarter. We are pleased with these results, especially as we continue to invest in growth opportunities across the company at high-margin return thresholds, while accelerating investments in the development and growth of our colleagues. Throughout our organization, teams are excited to drive our 3.0 strategy forward. Our early progress shows the benefits we expect to unlock as we move into this phase of our strategy. We are confident that our proven excellent execution will allow us to continue to succeed in a variety of macroeconomic backdrops. In AST, positive trends across the segment's portfolio of products and solutions are translating into strong performance. The slope of the demand curve has steepened with order patterns accelerating during the first quarter ahead of our expectations at the start of the year. For us, execution is top of mind. And we began building inventory during the first quarter to ensure that we can effectively deliver for our customers and proactively manage potential capacity, supply chain and labor constraints as demand increases. We are already seeing the investments we made in AST during the downturn begin to bear fruit in the early stages of the recovery cycle. We expect these investments will position us well to capture opportunities from the acceleration of semiconductor capital equipment spending for the balance of the year and beyond. We also believe that, our vertical integration model is a key differentiator for Enpro in the next phase of the semiconductor industry growth, as many of our new business wins are using more of our solutions to drive value for our customers, enhancing our specified position in critical in-chamber tools, including gas dispersion and wafer handling applications. In addition, hard work to qualify and earn processor record designations solidifies our position in leading-edge precision cleaning solutions, a business that is currently strong and accelerating. Our capacity expansion in Taiwan, California and Arizona, both executed and ongoing, position us to participate in the rapid expansion of leading-edge chip production, capacity supporting advanced computing and artificial intelligence. In Sealing Technologies, segment revenue of 10.8% was primarily driven by the first full quarter contribution from the acquisitions of AlpHa and Overlook completed in the fourth quarter of 2025, recovering nuclear solutions sales and currency tailwinds. Commercial vehicle sales were down year-over-year, below our expectations as demand remains slow, although we're cautiously optimistic that we are nearing the bottom in commercial vehicle markets. Aerospace sales in Sealing were flat year-over-year, reflecting a difficult year-over-year comparison in commercial aerospace, which was partially offset by continued acceleration in demand for products supporting space applications. Total Sealing segment orders were up double digits during the first quarter. Sealing Technologies segment profitability remained strong at 32.5% with disciplined execution helping to offset continued growth investments, softness in commercial vehicle sales and tepid general industrial demand internationally. Aftermarket sales represented 60% of Sealing segment revenue in the quarter. Integration is going well at AlpHa and Overlook. And we are making the appropriate investments to fully integrate these businesses into Enpro and unlock additional growth opportunities. Our new colleagues are already finding ways to leverage Enpro network, including our sourcing, supply chain capabilities and operational expertise while delivering strong top line growth during the first quarter. Additionally, AMI, which we acquired in January 2024, continues to perform above plan. We expect the Sealing Technologies segment to continue to deliver continued best-in-class performance. Our growth priorities underpinning the Enpro 3.0 strategy remain unchanged and will guide our performance through 2030. Over the long term, we are positioned to generate mid to high single-digit organic top-line growth with strong profitability and returns complemented by capability expanding acquisitions that meet our rigorous strategic and financial criteria. We are targeting mid-single-digit organic growth in Sealing Technologies. While at AST, we are targeting at least high single-digit organic growth, with both segments capable of generating 30% adjusted segment EBITDA margins plus or minus 250 basis points through 2030. Our cash flows allow us to maintain our strong balance sheet with a net leverage ratio currently at 1.9x after taking into account the fourth quarter acquisitions of AlpHa and Overlook. Our first capital allocation priority is to reinvest in the business and our people, while pursuing select strategic acquisitions that expand our leading-edge capabilities and meet our stringent criteria, without the use of excess leverage to drive growth in line or above Enpro 3.0 goals. We are excited to deliver on our promises and continue to execute our strategic plan. Life is good at Enpro and the future is bright. Joe? Joe Bruderek: Thank you, Eric, and good morning, everyone. Enpro started 2026 with strong results and consistent execution despite a dynamic macroeconomic environment. For the first quarter, sales of $303 million increased nearly 11%, supported by strong year-on-year revenue growth at AST of over 11%. The contributions from the recent acquisitions and steady overall performance in the Sealing Technologies segment. First quarter adjusted EBITDA of $76.4 million increased nearly 13% compared to the prior year period. Total company adjusted EBITDA margin of 25.2% expanded by 40 basis points year-over-year, driven by consistent performance in the Sealing Technologies segment and a nearly 20% increase in AST segment EBITDA, which includes expenses tied to growth investments, both executed and ongoing. Corporate expenses of $13.7 million in the first quarter of 2026 increased from $11.3 million a year ago, primarily driven by higher incentive compensation accruals and $1.2 million in restructuring costs. Adjusted diluted earnings per share of $2.14 increased 13%, largely driven by the factors behind adjusted EBITDA growth year-over-year. Moving to a discussion of segment performance. Sealing Technologies sales increased 10.8% to $199 million. Growth was driven by the contributions from the AlpHa and Overlook acquisitions, a recovery in Nuclear solutions sales from the choppiness experienced last year, strength in compositional analysis applications, as well as strategic pricing actions. These gains more than offset soft commercial vehicle demand and slower general industrial sales internationally. Foreign currency translation was also a tailwind. North American general industrial, aerospace and food and biopharma sales were firm throughout the quarter. For the first quarter, adjusted segment EBITDA increased over 10%, driven by favorable mix, strategic pricing initiatives, contributions from AlpHa and Overlook and foreign exchange tailwinds, partially offset by lower commercial vehicle volumes and investment in growth initiatives. Adjusted segment EBITDA margin was 32.5% and remained above 30% for the ninth consecutive quarter. Turning now to Advanced Surface Technologies. Sales for the first quarter were up over 11% and orders during the quarter hit a clear inflection point. Demand for precision cleaning solutions tied to advanced node chip production is accelerating. In addition, our outlook for semiconductor capital equipment spending has improved. And we built inventory of key products during the first quarter to prepare for the expected increase in demand. For the first quarter, adjusted segment EBITDA increased 18.5% versus the prior year period. Adjusted segment EBITDA margin expanded 140 basis points to 23.3%. Operating leverage on higher sales growth and higher production volumes, as well as favorable mix were offset in part by $2 million of increased expenses tied to growth initiatives. Our #1 priority is to serve our customers and remain agile as we enter this period of unprecedented demand for our semiconductor products and solutions. Moving to the balance sheet and cash flow. Our balance sheet remains strong. And we have ample financial flexibility to execute on our long-term organic growth initiatives and consider select acquisitions that align with our strategic priorities and deliver attractive returns. We generated strong free cash flow in the first quarter, more than doubling from last year to $26.5 million, while capital expenditures increased nearly 40% to $13.1 million, largely supporting growth and efficiency projects. During the first quarter, we repaid $50 million in revolving debt, bringing our leverage ratio to 1.9x trailing 12-month adjusted EBITDA. We expect to continue generating strong free cash flow in 2026 with an unchanged capital expenditure budget of around $50 million this year as we continue to invest in the company at solid margin and return thresholds. Finally, our strong balance sheet and cash generation provide us with ample liquidity to make these investments, while continuing to return capital to shareholders. In the first quarter, we paid a $0.32 per share quarterly dividend totaling $6.9 million. We also have an outstanding $50 million share repurchase authorization. Moving now to our increased guidance. We are raising our total year 2026 guidance issued in mid-February and now expect total Enpro sales to increase in the 10% to 14% range, up from 8% to 12%. Adjusted EBITDA in the range of $315 million to $330 million, up from $305 million to $320 million previously and adjusted diluted earnings per share to range from $8.85 to $9.50, up from $8.50 to $9.20. The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25% and fully diluted shares outstanding are 21.3 million. In Sealing Technologies, shorter cycle order patterns remain solid as we enter our seasonally strong second quarter. As Eric mentioned, we are seeing double-digit order growth year-on-year despite a slightly softer commercial vehicle outlook than previously expected. And we expect mid-single-digit revenue growth, excluding the contributions from AlpHa and Overlook in the Sealing Technologies segment for the year. We are encouraged by positive order momentum in domestic general industrial, aerospace, food and biopharma and compositional analysis, as well as smaller but improving pockets of earned growth in areas such as communications and data center infrastructure. We expect these elements to support improved sequential sales performance in Sealing Technologies into the second quarter while not factoring in any recovery in commercial vehicle markets in our improved guidance ranges. Finally, we expect Sealing segment profitability to remain towards the high end of our long-term target range of 30%, plus or minus 250 basis points for the year. In the Advanced Surface Technologies segment, we are seeing significant order momentum with strong acceleration in Precision cleaning solutions and critical in-chamber tools. New platforms and capacity expansions that we have invested in will begin to generate revenue in the second half of 2026, with ramp schedules dependent on underlying volume into 2027 and beyond. At this time, we expect AST revenue growth in the mid-teens range year-over-year, with segment profitability improving to a run rate close to 25% by the end of 2026 as capacity and supply chains aligned to meet elevated demand levels. Thank you for your time today. I will now turn the call back to Eric for closing comments. Eric Vaillancourt: Thank you, Joe. We are excited to demonstrate our strength and agility as we continue to accelerate our personal and profitable growth in the second year of Enpro 3.0. Thank you all for your interest in Enpro. We'll now welcome your questions. Operator: [Operator Instructions] Our first question is coming from the line of Jeff Hammond with KeyBanc Capital Markets. Mitchell Moore: This is Mitch Moore on for Jeff. Obviously, just really nice margin progression sequentially for AST. Could you help us just unpack a little bit how that inventory investment helped margins in AST? And then separately, just could you help us understand the margin trajectory kind of through the balance of the year? Is it kind of a linear progression to that 25% you talked about? Joe Bruderek: Yes. Thanks, Mitch. As you noted, we did see progression from the low 20%s to 23% and change for the first quarter. The inventory build, which is really important as we head into significant demand in the second quarter and more specifically for the back half of the year, contributed about 150 basis points to the margin increase in the first quarter. We also saw Precision cleaning continue to be very strong, tied to advanced node precision cleaning work, both in Taiwan and the U.S., which helped margins. And we're also seeing a little bit of leverage on the revenue growth. We expect to continue to build inventory a little bit in the second quarter. It might be a little bit less than we had in the first quarter. And then revenue increasing to offset any lower inventory build potentially in the second quarter. So margins relatively similar in the second quarter and then seeing incrementally throughout the second half, pointing towards that roughly 25% run rate that we expect to exit the year at. Mitchell Moore: Great. That's helpful. And then maybe just the Sealing. I think orders were up double digits in the quarter. Could you just expand on the order activity you saw there, where you're seeing it, if it's concentrated or more broad-based? And then if you could just talk a little bit about your confidence in Sealing kind of picking up through the remainder of the year with a little bit slower start here. Eric Vaillancourt: Very confident in Sealing picking up throughout the year. Our order rate is very strong, exiting the first quarter and building throughout the quarter. So very positive on the year. I don't have any concerns there. Very strong in North America, space, aerospace in general. General industrial in the U.S. is still pretty strong. Only area of weakness really is general industrial and a little bit in Europe, a little bit in Asia. But it still doesn't have any meaningful impact to our overall results. Operator: Our next question is coming from the line of Steve Ferazani with Sidoti & Company. Steve Ferazani: Appreciate the detail on the presentation. Eric, I understand commercial vehicles still being weak. Obviously, we've seen 3 or 4 quarters -- 3 or 4 months of much stronger Class 8 truck orders, obviously, coming off of a significant trough. When would you start seeing that? And do you -- is that built in at all that CV comes back at all in the second half? Eric Vaillancourt: It's not built into our projections at all, as we said in the script. Although, I am cautiously optimistic that it does start to pick up in the second half of the year. Keep in mind, the reason for the acceleration in truck orders is really to avoid the extra cost dilution enhancements in the trucks. And so right now, people are prioritizing trucks versus trailers. But that demand will normalize over time to roughly -- if you look over a 20-year cycle, it's about 250,000 units a year, we're somewhere 170,000 to 180,000 now. So I expect next -- at the end of this year, beginning of next year, somewhere in that time frame, you'll start to see some momentum build. I mean, the ratio between trucks and trailers really doesn't change much. We expect to have about 1.1 trailers per truck. So you would expect that to come back. And our aftermarket business remains very strong. Steve Ferazani: Got it. How are you feeling about the 2 acquisitions now with the quarter under your belt? I know that with Overlook, they had made some pretty significant capacity additions prior to the acquisition. In terms of those 2 businesses, do they require significant investments to grow moving forward? How do you feel about them? Eric Vaillancourt: Very, very strong. Very excited about them going forward. They don't require significant investments. Overlook, they made a pretty significant investment and moved into a new building or did move into a new building in the first quarter. But that was already ongoing before we closed on the business. So it really, it was just a move at this point. And so most of the upfitting that already done and their backlog and their performance is really impressive. AlpHa continues to go well. And so we're still excited about those businesses going forward. Joe Bruderek: And I'll just add, Eric, the integrations are going well. I think the teams are joining our functional support, we're helping where we can there. We're already seeing some supply chain opportunities. In addition, we're making some smaller investments. But investments in their commercial organizations to help expand growth opportunities and enter a few new markets and new customers. So we expect that's an area that we can add value and help them grow over time. Steve Ferazani: And I think you mentioned in the script that AMI since the acquisition was 2024, I believe, continues to outperform in general. How are you thinking about that compositional analysis market? Eric Vaillancourt: Love the space. We just would like to do more. And we continue to have a very active pipeline and we continue to look for the right opportunities to meet all of our criteria that are exciting. And there's several opportunities in our pipeline exciting and the more and more opportunities seem like to come to the market. So there's more momentum in that space. Joe Bruderek: Overall, if you take into consideration the compositional analysis growth perspective. We're looking for a kind of minimum high single-digit organic top-line growth moving forward with incremental investments to expand end market positions and commercial expertise. Steve Ferazani: Got it. That's helpful. Just if I get one more in, in terms of where you are with the various qualifying processes to meet advanced node production. Is there a lot more to go there? Eric Vaillancourt: I don't think it ever stops. So I start by saying that. So no, Arizona is getting fully qualified now. I don't know how much longer -- it shouldn't be long at all. But at the same time, there's new investments in Taiwan that are just starting. There's new customers that are starting as well. So I don't think it ever ends, 2-nanometer is going to start to ramp at some point in the next little bit and then you're already trying to qualify 1.4. So it's -- I don't it stops. I think of that as continued investment. Operator: [Operator Instructions] Our next question is coming from the line of Ian Zaffino with Oppenheimer & Company. Isaac Sellhausen: This is Isaac Sellhausen on for Ian. Just on the updated guidance, if you could unpack a little bit more on what has changed with regards to the outlook for the AST business. Maybe if you could parse out the demand drivers between cleaning and coating and the semi cap side. It sounds like visibility is a bit better in capital equipment. Joe Bruderek: Yes, we're clearly seeing increased order momentum and longer lead times. And demand is inflecting significantly sooner and higher than we expected coming into the year from an AST's perspective. And it's coming from both. It's coming from precision cleaning and semiconductor capital equipment in really all geographies. So our increased guidance is pretty much all driven by AST. Our teams are rallying around meeting the higher demand, working with our customers and the entire supply chain and all of our partners to kind of meet the overall industry demand. The outlook is really bright for the rest of the year. The second half is firming up where when we had the call in February, we talked about we saw orders for the second half and really starting in the end of the second quarter. Well, the second quarter is filling in nicely. We're seeing some of that demand come a little sooner into the second quarter. And the second half is clearly going to be significantly increased over the first half in the magnitude of double-digit increase second half versus the first half. And the industry is all talking about rallying to meet this higher demand and out through the end of '26 and really into '27. So there's tremendous optimism. And we expect to participate and even outperform what the market expects. Isaac Sellhausen: Okay. Great. And then just as a follow-up on the margin outlook for both businesses, obviously, it sounds like you guys are managing any kind of inflationary pressures just fine. But is there anything to call out maybe on the cost side with regards to whether it's fuel or equipment. But yes, that would be helpful. Joe Bruderek: No, there really isn't anything that's going to be meaningful from the supply side or cost side. Like I said, we do a very good job in general. Operator: We have no further questions at this time. So I would like to turn the floor back over to James Gentile for closing comments. James Gentile: Thank you, everyone. We're seeing strong momentum across Enpro and look forward to updating all of you when we report second quarter results in early August. Have a great rest of your day. Operator: Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. And you may disconnect your lines at this time.
Operator: Hello, everyone. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coupang 2026 First Quarter Earnings Conference Call. [Operator Instructions] Now I'd like to turn the call over to Mike Parker, Vice President of Investor Relations. You may begin your conference. Michael Parker: Thanks, operator. Welcome, everyone, to Coupang's First Quarter 2026 Earnings Conference Call. I'm pleased to be joined on the call today by our Founder and CEO, Bom Kim; and our CFO, Gaurav Anand. The following discussion, including responses to your questions, reflects management's views as of today's date only. We do not undertake any obligation to update or revise this information except as required by law. Certain statements made on today's call may include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and in our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings. As we share our first quarter 2026 results on today's call, the comparisons we make to prior periods will be on a year-over-year basis, unless otherwise noted. We may also present both GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures are included in our earnings release, our slides accompanying this webcast and our SEC filings, which are posted on the company's Investor Relations website. And now I'll turn the call over to Bom. Bom Suk Kim: Thanks, everyone, for joining us today. I'd like to cover a few things where we stand in the recovery from last quarter's data incident, how we see the path forward on growth and the nature of the temporary dislocation in margins and how we think about it over the longer term. Starting with where we are. Customer obsession, operational excellence and disciplined capital allocation have guided us since our inception, and they're the same principles guiding us through this period. As we shared previously, January marked the low point in our Product Commerce revenue growth rate. Each month since has improved on a year-over-year basis and the pace of improvement strengthened through February and March. Our recovery is powered by the same drivers that have shaped our business since we launched Rocket Delivery over 10 years ago, a relentless focus on [ WOW-ing ] customers across selection, price and service. That experience was built or many years and billions of dollars of investment and one which we believe continues to widen its lead in the market. The customer behavior we've seen since the data incident reinforces this. For example, the vast majority of WOW members never left, and they have continued to compound their spend at double-digit rates throughout this period. Of those who did leave, the majority have come back and picked up where they left off, resuming the levels of spend they were at before the incident, and they're now compounding alongside the members who stayed. Through the end of April, we've closed nearly 80% of the decline in WOW memberships that followed the incident through a combination of those returning members and strong new sign-ups. New WOW sign-ups and churn have returned to historical stable levels. Across the board, customers are reengaging in ways that reflect the conviction they've long placed in the Coupang experience. It's worth to spend a moment on how this recovery shows up in the reported numbers in Product Commerce. Year-over-year growth will take time to fully reflect the underlying recovery. The months of pause compounding from the effective period continue to weigh on the comps even as customer behavior normalizes. Our revenue growth rate trajectory from January to March is running ahead of historical patterns, and we expect the year-over-year comps to continue improving throughout the year. Turning to margins. Two distinct factors are pressuring profitability this quarter, and I want to describe them separately because they behave very differently going forward. The first is the customer vouchers we issued in response to the incident. These are onetime in nature. The bulk of the impact is contained to Q1, with a modest tail into the first part of Q2. The second is a set of temporary inefficiencies in our network. Our capacity build-out and supply chain commitments are all made well in advance, calibrated to a demand trajectory we project based on a stable, predictable customer pattern. That's how we manage cost to serve efficiently, and that's the path we were on before the incident. When an external event of this kind disrupts that pattern, actual demand falls short of what those commitments were sized for, and we carry the cost of underutilized capacity and inventory secured through the period. As demand returns to a predictable curve, we expect our capacity and supply chain to come back into balance and the inefficiencies to work their way out. We're adapting our network and supply chain through this period as we did when we came out of COVID, and we expect those adjustments will show up progressively in the P&L. Stepping back from the near term. We believe the long-term drivers of margin expansion at Coupang remain intact and continue to improve. We expect operational efficiencies across our network, supply chain optimization, ongoing investment in automation and technology and the scaling of our margin-accretive categories and offerings to drive further margin expansion over the long term. We expect annual margin expansion to resume next year, and we have strong conviction in the underlying margin potential of the business over the long term. Beyond the recovery, the work of building the business continues. Selection remains the primary lever for unlocking the underlying growth potential in our Product Commerce segment. A meaningful portion of what customers want to buy is still not available on Rocket. And we believe the combination of our first-party catalog and Fulfillment and Logistics by Coupang is the path to closing that gap at scale. Automation and AI across our services, including our Fulfillment and Logistics network, continue to improve service levels and lower cost to serve in parallel, and we expect them to be meaningful contributors to both the customer experience and margin expansion in the years ahead. Turn to Developing Offerings. In Taiwan, we're building the foundation for a truly differentiated customer experience. Our own last-mile delivery network, which guarantees next-day delivery now covers the vast majority of our volume and that coverage continues to expand. We're still in the early stages of bringing the full Rocket Delivery experience to Taiwan customers. But even at this stage, the response from customers has been remarkable. Cohort retention behavior is reminiscent of what we saw in the early years of Product Commerce in Korea. Our conviction in the long-term opportunity, both to WOW customers and to generate attractive returns on the capital we're deploying grow stronger each quarter. Given that conviction this year, our focus in Taiwan is on building the foundation for an unparalleled customer experience and durable growth over the long term. That means deliberate long-term investments in network design, last-mile logistics build-out and supply chain improvements, the kind of foundation that takes time to lay, but that will define the customer experience and competitive position of the service for years to come. In Eats, as I mentioned, the recovery is following a similar path to Product Commerce, which speaks to the strength of the customer value proposition we are building across both services. In Developing Offerings, our approach is unchanged. We start with small investments, test rigorously and deploy more capital only into opportunities we believe can generate lasting customer WOW and durable cash flows. We remain disciplined capital allocators taking the long view. Our recovery is ongoing, and we have more work ahead. We're focused on continuing to build and improve on the experience that brought customers to Coupang in the first place across Product Commerce and Developing Offerings. I'll now turn the call over to Gaurav to walk through the financials in more detail. Gaurav Anand: Thanks, Bom. As we guided coming into the year, Q1 reflected the impacts from last quarter's data incident, and our results are consistent with the trajectory we outlined in February. The underlying business has continued to strengthen as we have progressed through this period, and we expect the impacts on Product Commerce to diminish as we now move further from the affected quarter. I will first walk through the segment operating results and then speak to our consolidated performance. In Product Commerce, we reported segment net revenues of $7.2 billion, growing 4% on a reported basis and 5% in constant currency. As we look at each month within the quarter, the constant currency growth rate adjusted for timing of holidays reached its low point in January and accelerated sequentially in February and March, consistent with the recovery that we had described earlier. Product Commerce active customers for the quarter were 23.9 million, growing 2% year-over-year but down 3% over last quarter. The sequential decline reflects the lagging effect of the data incident on the metric because active customers are measured on a trailing 3-month basis and the incident occurred late in Q4. The affected period is more fully reflected in this quarter's count than in the last quarter. The most recent trend is the more meaningful signal. We have seen stabilization and improvement in the underlying metrics this quarter with encouraging momentum in account reactivations and new customer growth. The recent positive momentum in WOW membership, we spoke to last quarter has also accelerated over the past few months. As we noted, the vast majority of our members never left, and through the end of April, we have closed 80% of the decline in WOW membership that followed the incident. And the majority of WOW members who left have returned and they have resumed the levels of spend they were at before the incident. Product Commerce gross profit for the quarter was $2.2 billion, with a gross profit margin of 30.3%. This represents a contraction of approximately 100 basis points year-over-year and 160 basis points quarter-over-quarter. The decline in gross profit margin is the result of near-term factors tied to the data incident, including the impact of vouchers we issued in response to the incident and the temporary inefficiencies in our network such as excess capacity and supply chain commitments positioned against our pre-incident demand curve. We believe the long-term drivers of margin expansion at Coupang remain intact and will continue to compound, including operational efficiencies, supply chain optimization, ongoing investment in automation and technology and the scaling of our margin-accretive categories and offerings. We expect them to resume driving margin expansion and their underlying impact to become more evident as we move past these temporary inefficiencies. Segment adjusted EBITDA for Product Commerce was $358 million for the quarter, resulting in an adjusted EBITDA margin of 5%. This represents a contraction of roughly 300 basis points year-over-year and 270 basis points quarter-over-quarter, driven primarily by the gross profit dynamics I just described, along with the near-term pressure from operating costs that were sized for a pre-incident demand curve. We expect this to normalize as we work through those commitments, and we make adjustments. Turning to Developing Offerings. We reported segment net revenue of $1.3 billion, growing 28% on a reported basis and 25% in constant currency. The growth is primarily driven by the hyper growth rate in Taiwan, along with a continued high growth rate in Eats and Rocket Now in Japan. We generated $123 million in gross profit for the quarter in Developing Offerings, down 25% over last year as we continue to make investments in response to the encouraging customer engagement we are seeing across these early-stage offerings. Segment adjusted EBITDA losses were $329 million, consistent with our expected cadence of investment, underlying our full year guidance of between $950 million and $1 billion in segment adjusted EBITDA losses that we communicated last quarter. On a consolidated basis, we reported total net revenues of $8.5 billion for the quarter, representing growth of 8% on both a reported and constant currency basis. This is consistent with the 5% to 10% constant currency growth rate range we guided to last quarter. Consolidated gross profit was $2.3 billion with a gross profit margin of 27%, a contraction of approximately 230 basis points year-over-year and 180 basis points quarter-over-quarter. This margin compression reflects the temporary impact that I outlined in Product Commerce from the data incident along with the increased level of investment in Developing Offerings. OG&A expense was $2.5 billion or 29.9% of total net revenues, roughly 250 basis points higher than Q1 of last year. The year-over-year increase largely reflects 2 dynamics. Much of our cost base was sized for the demand trajectory we were on before the incident, which creates a near-term gap between cost base and current revenue. And the increase in operating costs within Developing Offerings consistent with the levels of investment we are making to support those growth initiatives. Our losses before income taxes was $255 million and we incurred income tax expense of $11 million. Our effective tax rate this quarter was elevated because the losses in our early-stage operations in Taiwan and Japan don't generate offsetting tax benefits at the consolidated level. We anticipate an effective tax rate of between 75% to 80% for the full year. We continue to expect this to normalize closer to 25% over the long term. We are reporting an operating loss for the quarter of $242 million and net loss attributable to Coupang stockholders of $266 million, resulting in a diluted loss per share of $0.15. Consolidated adjusted EBITDA was $29 million, resulting in an adjusted EBITDA margin of 0.3%. This represents a contraction of approximately 450 basis points year-over-year and 270 basis points quarter-over-quarter, driven primarily by the Product Commerce gross profit dynamics from the data incident and the increased level of investment in Developing Offerings. On cash flow, for the trailing 12-month period, we generated operating cash flow of $1.6 billion and free cash flow of $301 million. The year-over-year decrease in trailing 12-month free cash flow is primarily driven by the increased losses in Developing Offerings as well as higher levels of CapEx. This quarter, we also repurchased 20.4 million shares of our Class A common stock for $391 million. Our Board of Directors has recently approved an additional $1 billion to be added to a stock repurchase program as part of our broader capital allocation strategy to generate meaningful returns for our shareholders. Now a few final comments on our outlook. For Q2, we anticipate consolidated constant currency revenue growth of 9% to 10%. We also expect our top line growth rates to continue improving over the course of the year as the impacts from the data incident diminish. We also expect consolidated adjusted EBITDA margin year-over-year contraction of approximately 300 to 400 basis points for Q2, primarily reflecting the near-term factors from the recent data incident. As we have noted, the long-term drivers of margin expansion remain intact. As we work our way through the temporary inefficiencies in our network, we expect margins to improve throughout the year with annual margin expansion resuming next year. The levels of service and value we are able to consistently provide to customers and the response we increasingly see from those customers give us confidence that the recovery will continue to build through the year, and we remain intensely focused on delivering moments of WOW for our customers every day. Operator, we are now ready to begin the Q&A. Operator: [Operator Instructions] The first question is from Eric Cha with Goldman Sachs. Minuh Cha: I have 2 questions. First one is, would you say, given the returning WOW members and probably higher demand visibility into the second half, the timing difference of demand and investment could be somewhat resolved in second half. And if so, would the 2027 margin would have profitability expansion over 2025 level? So that's the first question. And the second question is, did the Developing Offerings guidance you gave previously, did that include the voucher impact? And I don't think it is, but any likelihood the annual guidance may be revised higher, given the annualized loss in first quarter was a bit higher than expected. Bom Suk Kim: Eric, thanks for your question. I think it's worth going a little bit deeper into the margin point that you raised. I mentioned earlier that some short-term factors are in play, like customer vouchers as well as temporary inefficiencies. On the latter point, let me take a moment to explain how our cost structure works because I think it's important context for understanding both this quarter and the path forward. A meaningful portion of our cost base is fixed and built in advance. That includes our fulfillment centers, logistics network, supply chain commitments we make to partners as well as headcount we secure to operate all of it. And none of these decisions are made on a quarter's notice. A new fulfillment center takes substantial time to plan, build and bring online. Supply chain commitments are negotiated with significant lead times. And as you can imagine, hiring and training our people is something we do well in advance of when we need them. And we size all of these against the projected demand curve. That's what we expect customer demand to look like quarters and in some cases, even years from now based on the trajectory we're on. When demand follows that curve, our fixed cost base operates at the utilization we plan for and our cost to serve looks the way it should. And that's how we've consistently expanded margins over time. When an external event temporarily disrupts that curve, demand falls short of what those costs were sized for. The fulfillment centers are still there. Supply chain commitments are still in place. The teams are still on payroll, but the volume flowing through is lower. So our utilization of those costs is temporarily below target. And that underutilization shows up directly in our gross margins and our adjusted EBITDA. It's the same dynamic that played out when we came out of COVID, when capacity built for one demand curve, we're suddenly serving a different one. And when this happens, we have typically 2 choices. The first is to make dramatic changes in the short term to try to hit some short-term number, close facilities, reduce head count and so forth. That option is available, but we believe it's the wrong one for our business and our customers in the long run. We'd be unwinding capacity that we know we'll need again as the recovery continues and unwinding now to rebuild it later, especially with the lead times so that some of these things have is not only disruptive but highly inefficient. And the second choice that we have is to absorb that temporary underutilization knowing that as growth recovers demand catches up back up to the cost base and the utilization returns to target. And that's the choice we're making. And we're making this -- we're managing this period actively. We're adapting our network where appropriate, much like we did coming out of COVID. But our overarching posture is that the cost base we've built is the right one for the path we're on, and we're not going to dismantle it for a temporary dislocation. And as the recovery progresses, utilization rebalances and the margin pressures work their way out. And that's the mechanism that gives us confidence in resuming annual margin expansion next year. Gaurav Anand: Eric, on your question regarding the DO losses, the $329 million loss in Q1 is in line with what we had expected. And our full year Developing Offerings investments remain tracking to the $950 million to the $1 billion range we had given. It includes a voucher program that we have provided. So Developing Offerings, again, is in early foundational building stages with lots of moving pieces across initiatives and a lot of decisions being made at regular intervals. We are watching -- continue to watch it closely, and we'll continue to update you as the year unfolds, if anything changes. Operator: Our next question will come from Jiong Shao with Barclays. Jiong Shao: I have 2. I'd like to perhaps ask one at a time if that's okay. I was just wondering, firstly, would you able to sort of sort of help us quantify a bit about the voucher impact in Q1 on revenue or EBITDA for Product Commerce and to deal given some vouchers for [indiscernible] some vouchers for Product Commerce or to whatever degree you are willing to share? That's my first question. Gaurav Anand: Sure. Let me take that. So regarding the $1.2 billion voucher program, our primary objective has been to ensure that our customers felt valued and supported during this challenging period. The redemption levels were consistent with our internal expectations. And from an accounting perspective, the vouchers are netted against the revenue. So they did have an impact this quarter on both revenue growth and margins. So as we noted earlier, with the voucher utilization period extending into the first few weeks of April, we do expect there to be a modest impact in Q2 also. Jiong Shao: Gaurav, if I may, just follow up on that. I believe your vouchers are expiring in about 10 days, so the impact for Q2 should be much smaller. But at the same time, you are guiding your Q2 EBITDA to be down 3 to 4 points year-over-year. Was that just because of the sort of the scale of the operation Bom talked about earlier, like you sized that up for certain scale. Now there's a lot of fixed cost? Are there other reasons that's driving the 300 to 400 basis points decline year-over-year on the group EBITDA for your Q2 guide. Gaurav Anand: Yes. Jiong. As Bom mentioned earlier, we had planned fixed capacity, both that shows in gross margin and our OG&A to be at the levels which were higher than the current trends that were created by this event. So because of that, the continued margin Q2 guidance is what we said it is. Jiong Shao: Okay. Okay. My second question is that we have seen some media reports -- my apologies if they're not final or official, that Bom has been designated as a head of the [ Jabil ]. For those of us who are not super familiar with this sort of thing in Korea. I don't know. Could you talk about like what does that mean? Does that mean anything different for shareholders for corporate governance if that matters at all? Gaurav Anand: Sure. We are aware of the recent designation in Korea and are carefully reviewing it. As always, we continue to be committed to complying with all regulatory requirements in all the jurisdictions where we operate. We'll continue engaging consecutively with all our regulators and work through all our obligations as needed. That's as much we can share at this time. Operator: [Operator Instructions] Our next question comes from Stanley Yang with JPMorgan. Stanley Yang: I have 2 questions. First question is, you mentioned already about the WOW members trend. So when do you expect your WOW users to be recovered to your pre-data bridge level? And what would be the normalized annual addition of WOW users after your full recovery? My second question is, is there any change in your Developing Offerings loss mix between Taiwan and Japan. When or at which scale do you expect Taiwan loss to pick up and start declining? I also would appreciate your comment on the operating trend of the Rocket Now in Japan? Bom Suk Kim: Stanley, thanks for your question. In terms of specific dates, I think we're focused more on the trajectory and the underlying customer behavior more than on any date for recovery. I think there are some very helpful and informative signals that we're seeing in the customer behavior that's worth noting around our WOW membership. And as we mentioned, not only is WOW membership numbers being driven by new sign-ups, but it's also driven by members who are returning. The vast majority of our WOW members never paused in the aftermath of the incident. They continue to compound at double-digit rates, the same way they have for years. And the minority who did pause are returning rapidly. And the majority of them have returned in a very short period of time. And just as importantly, they're resuming their prior levels of spend, not splitting that share of wallet with the alternatives. And we've now closed nearly 80% of the decline in WOW memberships that occurred after the event with a combination of those returning members and strong new sign-ups, which are along with churn back to historical levels. And I think what's helpful to know is that all of those patterns are consistent with an event-driven disruption working its way out, not with a structural shift in our position. And the fact that our -- the vast majority of the customers never paused, they continue to compound at double-digit rates, and the members who paused are returning rapidly and picking up their spend right where they left off and continuing to compound is confirmation of our view that we're returning to the same drivers that have been powering our growth for years in the past. Those customers continue to value the Coupang experience and are not finding that value proposition somewhere else. And that's what we believe will continue to power our growth in the years ahead. Gaurav Anand: And regarding your question on Taiwan and investment. Taiwan continues to grow at hyper growth rates. We are very excited about it and the future that it holds for us. The investments, we were not splitting out investments between different initiatives. Right now, we allocate capital, just based on where we see the opportunities are the strongest. And each initiative is at a different point in the life cycle. But... Bom Suk Kim: In Taiwan, as I mentioned earlier, we're prioritizing, building the foundation for an unparalleled customer experience. We're excited to be entering a lot of these very exciting foundational building -- foundation-building stage of the journey, such as network design, supply chain improvements. We now have provided access to our next-day delivery experience to a majority, a vast majority of consumers in Taiwan, and it already represents the vast majority of our volume, and we're continuing to strengthen that last-mile delivery network, not only to increase access, but to improve the levels of service that we provide. And we're also investing to expand aggressively the selection that customers can purchase on that network across more categories. Operator: Our next question will come from Seyon Park with Morgan Stanley. Seyon Park: I also have 2 questions. First is just on the macro picture overall. I think industry-wise, we've started to see a bit of the acceleration in e-commerce growth. And just given the K-shaped economy that we're kind of seeing, I kind of wanted to get your views as to whether we are seeing any signs of slowing for the e-commerce industry overall or whether it's some seasonal factors that are also impacting it, given Coupang is now a big chunk of that e-commerce. Clearly, the impact that we've seen from the data breach may also have impacted the growth of the overall industry as well. So I just kind of wanted to get management's view on how they see just the overall industry growth. There seems to be a lot of conflicting data. Obviously, GDP was also stronger. So any views there would be much appreciated. The second question is really on the buyback. You announced that another $1 billion has been approved. It does seem like the cadence of the buyback is starting to accelerate. And hence, just wanted to get some guidance or any comments as to whether we should see a higher cadence of buybacks in the coming quarters? Bom Suk Kim: Seyon. I think from our perspective, we're always much more focused and obsessed with our customers, how our customers are behaving. And we ultimately believe the biggest drivers of customer behavior are -- is the experience that we're providing. We've seen that consistently through ups and downs in the macro over the many years that we've served our customers and the markets that we operate in. I think there's some important, again, things to maybe point out again that we've always seen for years our customers compounding their spend, and the vast majority of customers who remain with us and did not pause continue to compound at double digits, very healthy rates. The customers who have returned, the majority of customers who -- of the minority that paused, who've returned have picked up exactly where they've left off and are now also compounding alongside them. So I think a lot of the behavior that we're seeing is still very strong on that front. I do think it's also important, maybe you are seeing some discrepancy also in the underlying behavior that I'm talking about and the numbers you may be seeing this quarter and -- because the year-over-year growth rate this quarter doesn't move in lockstep with that underlying customer behavior that I'm pointing out. And maybe I'll take this opportunity to explain also how growth at Coupang normally compounds. Each month, our existing customers grow their spend with us and new customers join and start building their spend over time. Both of those streams add to our base and keeps getting larger. That's the engine that has produced our historical growth rates. That's been remarkably consistent for us. And I think we've shared [ core ] data in the past. We shared it regularly. That's really an important health metric for us. And through again, ups and downs on the macro, that engine of existing customers continue to compound, new customers joining and building their spend over time, those 2 streams are really the engine that produces our growth rate. Now when an external event interrupts that cycle for a period, 2 things happen. First, the customers who pause stop adding to that base for the months that they've paused. And the new customers who would have joined during that period don't join at the usual pace. And second, this is the subtle part, we lose the months of compounding of that customer spend that we typically observe with both streams. And once a month is gone, you can't get it back. And now even if everything underneath fully recovers, past customers come back at prior spending levels, new acquisitions return to historical pace. The year-over-year comparison still carries the weight of those lost months. And this year's revenue is now missing the months of compounding that didn't happen during that affected period, while last year's revenue also included -- sorry, the last year's revenue included all 12 months of uninterrupted compounding. So the 2 sides of the comparison are no longer symmetric. And this effect works its way out as we've lapped the affected period. And after we've lapped the affected period, that's the point at which the comp returns to being apples-to-apples. And this also probably gets to a little bit to Eric's earlier question as well about our growth rate this year. While we see very encouraging and positive signs in our customers returning, picking up their spends where they left off, growing and compounding. We see very healthy compounding behavior underneath because of the lost months of compounding. You'll see our Y-o-Y growth lag and will be behind the demand curve that we projected for our fixed cost. And a lot of the -- that's the earlier point that I made about cost dynamics. So some of the things that Eric was asking about, I think, are -- can be gleaned from -- or some of the things that we want to point out can be gleaned from what I'm sharing here. But hopefully, this gives you a fuller picture of how we think about growth and the drivers of growth. Operator: We will now take our last question from the line of Wei Fang. Wei Fang: I have 2. First one is a follow-up on an answer to the prior question on your 2Q EBITDA guidance. I don't think you mentioned any impact from the fuel inflation. Just want to understand if that's included there and also if you can help quantify for us? And the second question is on competition. I understand that some Chinese e-commerce players are now growing their MAUs nicely in Korea as well. I think they combined maybe more than 10 million of already in terms of users. I know maybe the spending levels is not there yet, but can management give us some overview on the landscape, maybe today versus a year ago, anything has changed. And maybe anything -- any comment you can give in terms of like a 3P take rate in the business? Bom Suk Kim: Wei, thanks for your question. We've always operated in a in highly competitive markets. And we've had many new entrants, many players. It's one of the most dynamic spaces and industries that you can operate in. And over many years, what we've learned over and over again that kind of what matters most is the customer experience and staying relentlessly focused on customers and not what any set of competitors or individual competitor does. The markets that we're operating in are large. We represent just a small share in each of them, and there's room for many winners. I think what we believe ultimately drives growth is the differentiated value we provide to customers, the combination of selection, price and delivery that no one else offers. I think we're very encouraged, as I mentioned, that the customers who -- the vast majority of customers who stayed with us through the affected period over the last couple of quarters have continued to compound at double-digit rates as they have for years. The customers who've come back have not split -- have returned to their old levels of spend and have not split that spend with other alternatives. That's also, we think, a good sign that they really value what we're providing, the Coupang experience and not finding that value proposition elsewhere. And that value proposition is really the engine of our growth. It's really what we're focused on making even more valuable for our customers every day. And that's what we believe will really determine our success in the years ahead. Gaurav Anand: Yes, I'll take the -- I'll respond to your question on the impact of oil prices. So with the increase in fuel prices, not going really into effect until late Q1, we saw a very small impact on our operations this quarter in Q1. We benefit from the efficiencies created by our end-to-end owned supply chain and logistics infrastructure and processes. And looking into the near future, we keep our focus on continuing to create the best experience for consumers, while we also are driving operational excellence. We don't see this -- the oil prices having a significant or material impact in Q2 so far, and we'll continue to monitor it. On Q2, again, even though we guided our margins to where we did, there is no structural change in our entitlement and over time, what we see. Operator: This concludes today's conference call. Thank you, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Lucid Group First Quarter 2026 Earnings Conference Call. Please be advised that today's conference call is being recorded. [Operator Instructions] I would now like to turn the conference over to your speaker for today, Nick Twork, Vice President of Communications. Please go ahead. Nick Twork: Thank you, and welcome to Lucid Group's First Quarter 2026 Earnings Call. Joining me today are Silvio Napoli, incoming CEO; Marc Winterhoff, our Interim CEO; and Taoufiq Boussaid, our CFO. Before handing the call over to Silvio, let me remind you that some of the statements on this call include forward-looking statements under the federal securities laws. These include, without limitation, statements regarding the future financial performance of the company, production and delivery volumes, vehicles and products, studios and service networks, financial and operating outlook and guidance, macroeconomic, geopolitical, policy and industry trends, tariffs and trade policy, company initiatives, leadership changes and other future events. These statements are based on various assumptions, whether or not identified in this communication and on the predictions and expectations of our management as of today. Actual events or results are difficult or impossible to predict and may differ due to a number of risks and uncertainties. We refer you to the cautionary language and the risk factors in our annual report on Form 10-K for the year ended December 31, 2025, subsequent quarterly reports on Form 10-Q, current reports on our Form 8-K and other SEC filings and the forward-looking statements on Page 2 of our quarterly earnings presentation available on the Investor Relations section of our website at ir.lucidmotors.com. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as required by law. In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results is available in our earnings press release issued earlier this afternoon as well as in the earnings presentation. With that, I'd like to turn the call over to Lucid's incoming CEO, Silvio Napoli. Silvio, please go ahead. Silvio Napoli: Thank you, Nick. Good morning, everyone, and thank you for joining. This is my first earnings call with Lucid and as already had the opportunity to share with many of you, I'm extremely pleased to be here and part of the Lucid team. With not even a month with the company, I'm still at a very early stage, so I'll keep my remarks brief. Let me start by reiterating why I'm here. Lucid brings together state-of-the-art technology, a premium product platform and a unique opportunity to build a strong, enduring position in a transforming industry. And that combination is compelling. That is the reason that brought me here. Today, 3 weeks into the journey, I'm even more convinced that this is the case. In my first days, I've had the opportunity to meet with our teams in Newark, our headquarters and in some of our key markets. In fact, on the very first day, I traveled to visit a factory in Arizona, the heart of Lucid. Last week, I traveled to Saudi Arabia to witness a strong brand recognition in this fast-growing market and to see firsthand the progress of our new factory under construction. As you know, this manufacturing center is an essential part of our commitment to drive scale, profitability and to position Lucid on the world stage. While there, I've also been meeting with employees, shareholders and with local stakeholders. And everywhere I go, I'm focused on listening and beginning to understand where we are strongest and where we need to improve. And what stands out immediately is the incredible domain competence and outstanding motivation of the Lucid team and the strength of our product. At the same time, it's clear that realizing Lucid's full potential will require sharper focus and consistent execution, particularly around simplification, prioritization and speed. My near-term priorities are straightforward: recenter all our activities around our customers, ensure the organization operates with clarity and accountability, focus resources on the highest impact areas and embed a stronger culture of cost and capital discipline across the business. A central objective over time is to build a more self-sufficient company, one that progresses towards funding its own growth. And that means being rigorous in delivering on our commitments and how we allocate capital to few vital priorities. In simple words, this means making clear choices on where to invest and just as important, where not to. At the risk of stating the obvious, I'm not in the position to comment on results reached prior to my joining. Accordingly, I trust you will understand that today I will not comment on any specifics, including the outlook. My goal over the coming weeks is to deepen my understanding of the business so I can engage more fully with you in the future discussions. With that, I'll turn the call over to the team to walk you through the Q1 results. Thank you. Marc Winterhoff: Thank you, Silvio, and good afternoon, everyone. Let me start with the key takeaways. We expanded our Uber partnership to at least 35,000 vehicles, raised over $1 billion in new capital and ended the quarter with a clear cost reduction program underway. The foundation is solid, and we are building on it. We have made meaningful progress on each of these fronts. Among the highlights. First, we expanded our partnership with Uber to provide a minimum of 35,000 robotaxis, up from 20,000 previously announced and increased their investment to $500 million, up from $300 million, improving our visibility into long-term demand and revenue in a new and growing market. Further reflecting the strengthening relationship between our companies, Sachin Kansal, Chief Product Officer at Uber, has been nominated for election to Lucid's Board of Directors. Second, we significantly strengthened our financial position, raising approximately $1.05 billion, including $550 million investment from the Public Investment Fund through a private placement, reaffirming their continued support and long-term commitment to Lucid. We maintained approximately $2 billion of undrawn commitment under the DDTL after drawing $500 million of cash in April, further enhancing our financial flexibility. Pro forma for the capital raise and the DDTL increase, liquidity at quarter end would have been $4.7 billion, providing ample flexibility to continue to support development of our Midsize platform and the continued build-out of M2. Third, we continue to execute to deliver scale and profitability, delivering $282 million in revenue. Despite the unforeseen geopolitical tensions and logistical obstacles in the region during Q1, our M2 construction never stopped, and we continue to install capital equipment and work towards start of production. The plan remains to ramp up Midsize vehicle production in 2027, and we launched an aggressive cost reduction program targeting cost savings across all areas of the organization in all geographies. Let me walk you through the key updates of the execution of our strategy in detail. Following the framework we laid out at our recent Investor Day, the Lucid Air and Gravity continue to anchor our near-term growth. And our focus here remains execution, quality, delivery and customer experience. Operationally, we produced 5,500 vehicles in Q1, up 149% year-over-year. Despite a temporary disruption, which elevated costs, we exited the quarter trending back toward our cost targets. We delivered 3,093 vehicles, which was flat compared to Q1 2025. When Gravity deliveries were temporarily impacted by a supplier issue, we acted quickly, resolved it and resumed deliveries with additional quality controls. As deliveries resumed, we saw improving momentum through the quarter, including the highest March deliveries in Lucid history, up 14% year-over-year. We also experienced a strong rebound in order intake, up 144% in North America in March from February, with Gravity driving the majority of demand. In March, we regained our position among the best-selling EVs in our segments. We also continue to make progress on our partnerships for our international distribution, including the official launch of our first retail partnership in Europe, which allows us to scale more quickly in a capital-efficient way. We expect the delivery trajectory to improve through the year. Near-term demand signals are mixed, but we see tailwinds building into the second half. Apart from seasonality, which historically drives greater deliveries in second half, there are numerous other factors which may deliver a lift, including high gas prices, which tilt demand towards vehicles with more attractive operating costs, competitive dynamics, including exits from the Air and Gravity segments, lease cycles, Lucid software updates, potential tariffs on European imports and potential improvements in macroeconomic and geopolitical conditions. As a result, we continue to expect a back-end weighted delivery profile for 2026, but are confident in the long-term trajectory of demand. Our priority now is consistent and predictable conversion of production into deliveries. Central to our framework to scale and drive profitable growth is the Midsize platform. The Midsize platform brings Lucid's signature range, efficiency and driving experience to a much larger TAM and broader set of customers and is key to unlocking scale, affordability and improved unit economics. At our recent Investor Day, we provided a clearer view of the future product portfolio with the expected pricing starting below $50,000, reinforcing Lucid's entry into a more accessible segment of the market. I'm pleased to be able to share that our BOM cost position remains favorable, still tracking below our initial cost estimates. During the quarter, construction on M2 and installation of capital equipment continued, and we remain on track for production ramp-up of the Midsize in 2027. Turning to our third priority, autonomy. In mid-April, we announced the expansion of our partnerships with Uber, increasing their total investment to $500 million and expanding the planned deployment to at least 35,000 robotaxi vehicles. This represents a meaningful increase in both scale and long-term visibility for the program, which generates a new revenue stream through a partnership approach that enables rapid speed to market in a new and rapidly growing market with minimal CapEx. I'm excited to share that we have met all milestones so far in our joint project with Nuro to provide autonomous Lucid Gravities to Uber for commercial launch by the end of the year, and remaining milestones are on track. We delivered 75 engineering vehicles and testing and mileage accumulation is ongoing in several cities throughout the U.S. Starting in mid-April, Uber and Nuro employees are now able to test the end-to-end customer experience, including ordering a robotaxi within the Uber app and choosing from select destinations for drop-off. Our partners at Nuro have also received approval from the California DMV for driverless testing of the Lucid Gravity in the state, making it one of the only a handful of vehicles that have received such approval. This is a key step in paving the way for launching commercial autonomous operations later this year. Looking forward, we are targeting the following milestones as we track toward commercial robotaxi operations in late 2026. This quarter, Lucid will start our production validation builds, which are intended to reflect our production intent design and some of the key robotaxi features like exterior beaconing for customers, interior cameras and consumer interfaces. This build is expected to be completed in Q3 and allows us to begin more comprehensive end-to-end testing with our partners as well as homologation testing and validation. And following the completion of testing in Q3, we anticipate starting regular production of robotaxi vehicles for commercial sale in early Q4 at M1. As you can see, we are well on our way to achieving our goals with our robotaxi program and commercial launch is on track for late 2026. In parallel, we continue to expand advanced driver assistance features across our consumer vehicles. Over time, we expect these features to become an increasingly important source of recurring revenue with subscription-based offerings being launched starting in 2027. In closing, Q1 highlighted areas where we still need to improve execution, and we are taking clear actions to address them. I'd like to close with a few personal words. It has been a privilege to serve as Interim CEO. We delivered 2 years of consecutive record quarters when it comes to deliveries until the end of 2025. We ramped the Gravity throughout 2025, resulting in a production increase of about 100% last year. We've navigated real headwinds and the team's ability to keep moving through them is something I'm proud of. We sharpened and expanded our strategy with a clear and capital-efficient approach to provide leading autonomy solutions, both for robotaxis and personally owned vehicles. We made meaningful progress across our partnerships, including expanded commitments from both PIF and Uber. I'm confident in this team and Silvio's leadership and in where Lucid is headed. And I'm looking forward to continue to contribute as Chief Operating Officer. With that, let me hand over to Taoufiq. Taoufiq Boussaid: Thank you, Marc. I will walk you through the financial results for the quarter, the structural drivers behind them and how recent actions position us to execute against the framework we laid out at the Investor Day. Q1 was disrupted by a temporary stop sale, but the underlying business held and in March, orders and deliveries rebounded. With roughly similar units delivered and lower regulatory credit sales, revenue grew by approximately 20% year-over-year to $282 million in Q1, driven primarily by mix and pricing effects from Gravity. Let me give you the context that makes this number more useful for thinking about Q2 and the rest of the year. We produced 5,500 vehicles in the quarter but delivered 3,093. This gap reflects a combination of the impact of the temporary Gravity stop sale during which finished vehicles sat in inventory pending validation rather than converting to revenue and segment contraction. A key highlight of the quarter was Uber's expanded vehicle commitment and increased investment in Lucid. It matters for 3 reasons. It improves long-term revenue visibility. It derisks the volume ramp into the Midsize era, and it validates our vehicle platform as the reference point for commercial autonomy deployment. This is a durable addition to the capital structure and to the revenue outlook, not a onetime transaction. Gross margin for the quarter was negative 110.4% versus negative 80.7% in Q4 and negative 97.2% in Q1 a year ago. I want to be precise about the walk because the composition matters more than the headline. Three factors drove the sequential decline, lower delivery volume against a largely fixed manufacturing cost base, underabsorption of fixed cost and large regulatory credit revenue in Q4 that didn't repeat in Q1. Partially offsetting these were IEEPA tariff refunds and the lower inventory write-down versus the prior quarter. These costs were tied directly to the stop sale. With that resolved, they don't carry forward. What remains and what we are focused on is the structural trajectory, which includes, as shared at Investor Day, an average of 50% to 60% reduction in unit cost over the coming years. While we saw unit cost spike during the quarter driven by temporary disruption, it trended back towards the targeted trajectory in March. As volume scale into the second half and with the launch of the Midsize vehicle platform, we expect continued structural improvement in unit economics. I want to be clear, the underlying midterm trajectory of unit cost improvement that we described at Investor Day remains intact, and Q1 does not alter it. Turning to operating expenses. This totaled approximately $678 million for the quarter. R&D was $336 million, down sequentially from $361 million, reflecting program level sequencing even as we continue to fund the Midsize platform and our autonomy stack. SG&A increased $22 million sequentially to $304 million, primarily driven by discrete items, including a prior quarter provision reversal. Excluding these items, underlying SG&A was broadly stable. Year-over-year, SG&A increased $92 million with the comparison impacted by a $35 million noncash benefit in the prior year related to the reversal of stock-based compensation. These numbers also don't yet capture the $500 million in savings expected from our recently announced headcount actions over the next 3 years with the near-term impact most significant. Taken together, our posture on operating expenses is straightforward: protect the investments that build long-term competitive advantage, Midsize, autonomy, software and drive discipline everywhere else. Net loss for the quarter was approximately $1 billion compared to $366 million in the first quarter of 2025. The increase reflects the gross margin dynamics we discussed, continued investment in the business, particularly the Midsize platform and higher SG&A with the year-over-year comparison impacted by a discrete benefit in the prior year. Importantly, a significant portion of the year-over-year change is driven by noncash and nonoperating items, including a $274 million unfavorable change in the fair value of derivative liabilities related to movements in our stock price as well as lower interest income and higher interest expense. And as mentioned, it does not reflect the benefits of our recent headcount actions no more recently launched cost takeout initiatives. Net loss in any quarter reflects noncash and nonoperating items that move significantly with our stock price. The operating loss and cash consumption metrics give a cleaner read on trajectory. Our focus remains on improving operating leverage as we scale volumes and continue to drive cost discipline across the business. Turning to liquidity and capital structure. We ended the quarter with approximately $700 million in cash and cash equivalents and total liquidity of approximately $3.2 billion. Subsequent to quarter end, we executed a series of transactions that strengthened our balance sheet, $200 million of equity investment of common stock from Uber, $300 million from a registered common stock offering and $550 million in convertible preferred stock from PIF. In addition, PIF and Lucid announced an amendment to our delayed draw term loan, providing greater flexibility and approximately $2 billion of available liquidity following a $500 million draw on April 1. Giving effect to the capital raise and DDTL increase, total liquidity would have been approximately $4.7 billion at quarter end. This extends our operating runway into the second half of 2027 and gives us the flexibility to fund Gravity ramp, M2 construction and launch preparation and continued investment in the Midsize program and autonomy stack. On the question of dilution, which I know is on investor minds, the recent financing was structured deliberately to balance liquidity needs against dilution considerations. The convertible preferred structure with PIF reflects that balance as does the sizing of the common equity component. We will continue to evaluate all financing options, including the public markets when the appropriate conditions materialize. And our bias is toward disciplined capital deployment and with opportunistic raises. The strategic stockholder base around this company, anchored by PIF and now meaningfully reinforced by Uber gives us a structural advantage in how we think about capital over the medium term. Now on working capital and inventory. We also expect to see benefits to cash flow driven by improvements to working capital. Inventory stood at approximately $1.47 billion at quarter end, up from approximately $1.1 billion at the prior quarter and elevated by the stop sale buildup. As deliveries normalize through the year and we draw down that inventory, you should expect a higher conversion into cash. Beyond the stop sell normalization, we are tightening production to delivery alignment as an ongoing operating discipline. The new production reporting methodology, which I will cover in a moment, supports that by improving transparency on the conversion step. We took over $200 million in inventory impairments in Q1. Going forward, we expect those to decline. And as inventory reduces through the year, we expect to benefit from impairment releases. Now I mentioned our new production reporting methodology. I want to take a moment on this change to how we report production. Starting this quarter, we are moving our production metric to a process complete definition, meaning we count a vehicle once it has completed the factory gating process, regardless of whether it ships as a complete unit or in a semi-knockdown form. This change better reflects true quarterly production and reduces the volatility that the prior methodology introduced due to shipment logistics. It has no impact on inventory or days on hand reporting, both of which remain based on finished deliverable vehicles. The effect for investors is greater comparability with peers and a cleaner signal on underlying operational cadence. Under the new methodology, the normal auto industry seasonality, Q2 strongest based on working days, Q1 and Q4 softer due to holidays and planned shutdowns will appear more visibly in our reported numbers. Now let me address our outlook and guidance. With Silvio now on board and conducting his review of the business, we are suspending our prior guidance and we provide a full updated outlook at our Q2 earnings call. I want to be clear, this is a governance decision. Near-term demand conditions remain uneven, and we are managing our production cadence accordingly. Our 2026 objective is unchanged. We continue to work to closely align production with demand to avoid excess inventory. We are not constrained on capacity. We are constrained by our own discipline not to build inventory ahead of demand. As market conditions develop, we will scale production accordingly. We have launched a company-wide program to sharpen operational efficiency, reduce costs and concentrate capital on the highest-return opportunities. Q1 cash performance was affected by the stop sell action and the associated inventory reset, which we expect to normalize as we move forward. We are focused on restoring consistent cash generation and building a more durable operating foundation. Production of our first Midsize vehicle is expected to ramp throughout 2027. And our Lucid Gravity robotaxi program in partnership with Uber and Nuro remains on schedule for launch in late 2026. In closing, to put the quarter in perspective, we strengthened our balance sheet, expanded the strategic partnership that improves long-term visibility and are implementing reporting changes that improve transparency. A temporary stop sale in February was resolved, and we have taken action to address the root cause. The Investor Day framework holds. The path to profitability runs through scale from Midsize cost reduction through M2 and improved mix and operating leverage. Q1 does not change that trajectory. It reinforces the importance of disciplined execution, and that is where our focus is. The fundamentals of this business, the technology, the product and the strategic position we have built are intact. We are managing this period with discipline, and we intend to emerge from it in a stronger competitive position. With that, let me turn it over to the operator for your questions. Operator: We will now begin the question-and-answer session by taking questions submitted through the Say Technologies platform. Nick Twork: Our first question comes from [indiscernible]. How does management plan to restore shareholder confidence and address concerns about bankruptcy or potential take-private scenario? Marc Winterhoff: First, I want you to know that we hear your frustration and restoring your confidence is of our utmost importance to us. We are focused on rebuilding your confidence through disciplined execution, transparency and measurable progress against key operational and financial milestones. The business is moving from a period of heavy investment toward a phase where we can begin to leverage those assets at greater scale. We ended 2025 having scaled production, improved unit economics and maintained liquidity. And yes, we've been hit with an unforeseen operational disruption in Q1, which we solved and deliveries and orders have rebounded towards the end of the quarter. We are focused on translating operational progress into more predictable financial profile. To your specific concerns, we do not speculate on market rumors or hypothetical strategic alternatives. Our focus is on executing the plan we laid out, strengthening the company and creating long-term value for our shareholders. Nick Twork: All right. Our next question comes from Robbie S. When is Lucid going to turn a profit? What is the plan? Taoufiq Boussaid: At our Investor Day, we laid out a clear path to profitability. The target is gross margin breakeven in the midterm, building towards the mid-teens by late decade. And on cash flow, we expect to reach positive free cash flow on a similar horizon. The levers to get there are straightforward. It starts with improving fixed cost absorption as volume grow, continuing to bring down bill of material and manufacturing costs, scaling Gravity, launching the Midsize platform and developing higher-margin recurring revenue from software, ADAS and autonomy. On the Midsize platform specifically, this is a meaningful expansion of our addressable market. And importantly, it has been designed from day 1 with cost, scale and manufacturability at its core. Nick Twork: All right. The next question comes from Crystal M. Based on your current cash burn rate, how many quarters of runway does Lucid have without raising additional capital? And what specific milestones must be met before then to avoid dilution? Taoufiq Boussaid: Based on our current cash burn and the recent financing activities we have taken, including the capital raise and the extension of the DDTL, we have funding runway into the second half of 2027. That gives us adequate flexibility to support the Gravity ramp, progress M2 construction and continued targeted investments in both the Midsize platform and our autonomy software. During this period, our focus is on executing the operational milestones that moves us towards breakeven and reduce our reliance on dilutive capital. That means disciplined execution of the Gravity launch, continued manufacturing efficiency gains, measured advancement of M2 aligned with demand and sustained momentum on the Midsize program. At the same time, we are actively pursuing top line diversification through higher-margin software and services particularly around ADAS. On dilution, we are deliberate in how we approach capital raising. We have consistently favored structures that limit near-term dilution and preserve optionality. The use of preferred convertibles being a good example of managing both timing and impact. But ultimately, the strongest answer to dilution is accelerating our path to breakeven because this is what opens up a much broader range of financing alternatives. Nick Twork: That concludes the questions from the Say Technologies platform. Now I'll turn it over to the operator for live questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Ward with Citigroup. Michael Ward: Can you share any volume targets for M2 for 2027? It sounds like it's going to be a gradual type launch throughout the year. And I'm just wondering if the launch is better than expected, does that liquidity take you into 2028? Marc Winterhoff: The targets on the volume, we actually revealed at the Investor Day, and they have not changed. They have not changed. No, no. We are really laser-focused on that ramp. Michael Ward: Okay. And then the second thing I would ask is, as it relates to the robotaxis, are the volume deliveries to Uber depending on them getting certified? Or is there some sort of a schedule for those volume numbers to start to accelerate? Marc Winterhoff: Well, it's basically actually Nuro getting the certification. As we just mentioned, we make very good... Michael Ward: Nuro? Marc Winterhoff: Yes, very good progress on that. So we are on track with this. I mean still we have to have final certification to be able to do this, for instance, when we start in the Bay Area here in California. But so far, even all the development and the certifications are moving as we expected. Operator: Our next question comes from the line of Andrew Percoco with Morgan Stanley. Andrew Percoco: Maybe if I can start out on the free cash flow expectations and just your general commentary around having sufficient liquidity through or at least until the second half of 2027. Can you just maybe help provide a little bit more context around what some of the underlying assumptions are within that? I understand that you guys are pulling the delivery guidance for the year for some governance reasons, but there's anything you can kind of provide in terms of what your underlying assumptions are around demand, that would be super helpful. Taoufiq Boussaid: Andrew, I think that the first answer to your question is that you need to recall that there is a typical seasonality in the company and that we see a significantly improved cash flows during or on the back end of the year. So we shouldn't do any read-through of the cash performance as of Q1 because of 2 specific events. The first one is the stop sales, so which has led to higher cash burn, and we are saying that we will be recovering that. And the second element that you need to take into account is the typical seasonality with a step-up in the sales towards Q3 and Q4, which is helping us to manage the cash burn. So we haven't guided specifically for the cash burn. We have guided for the runway. The statement still remains unchanged. So we will be providing more visibility on that when we reaffirm the guidance in Q2. Andrew Percoco: Okay. Understood. And maybe just my follow-up is just around the commodity cost environment. A lot of your OEM peers are continuing to highlight some pressures there this year and into next year. Can you just maybe provide an update in terms of what you're seeing? I think you guys in the past have said that you've at least hedged or contracted out some of that commodity exposure. But to what extent are you seeing any kind of incremental pressure there? And might that impact that path to profitability? Marc Winterhoff: Actually, right now, that is very limited. I mean yes, there have been increases over the last couple of months on certain raw materials like aluminum. But very recently, for instance, we haven't actually seen an increase. And the other topic is the DRAM, which hits the whole industry. But even that, I mean, is compared to the rest of the BOM cost of the vehicle, a small amount. So we don't see a major impact compared to where we ended end of last year right now. Operator: Our next question comes from the line of Ben Kallo with Baird. Ben Kallo: Just maybe the first one, could you maybe talk more about the sales partnerships, which I guess will be very important, especially as you introduce the Midsize vehicle. You mentioned one in Europe. Marc Winterhoff: Yes. I mean what we're doing there is we're basically extending our approach there from a pure direct-to-consumer model into also partnering either with dealerships in an agency model, for instance, within Germany, so in areas where we already have a D2C network or with importers in new markets that we are entering right now. And we are in the midst of all this process and recently launched the first agent in addition to our D2C outlets in Germany, which gives one day to the other 2 additional cities to cover. And we have numerous LOIs. I think the recent number is like 12 LOIs that are -- we're pushing forward and hopefully get to a contract situation and launch very soon. But it allows us to much faster grow within the areas and the countries we are already in, for instance, in Germany or in the Netherlands or expand into new countries through an importership where you then use existing infrastructure and existing business relationships of those importers to scale much faster. Ben Kallo: Great. And then just on the review, Silvio's review, could you maybe talk, if possible, just about the timing or when we should expect another update? Or is there not a lot of certainty in that for now? Silvio Napoli: Thank you, Ben. I think at the moment, I'm getting to the position. I would say, as of Q2, we should start somehow getting a sense of where we are. Now in terms of by when I'll be ready to give a plan, et cetera, this, I think, is something I'll discuss with the Board at the earliest opportunity. Operator: Our next question comes from the line of Andres Sheppard with Cantor Fitzgerald. Andres Sheppard-Slinger: Congratulations on the quarter and just wanted to maybe take a brief moment to thank Marc and congratulate him on all his great efforts over the past 2 years. First question, I just wanted to clarify on the guidance. So just to be clear, you'll give us an update in Q2 regarding the production guidance as well as the CapEx guidance. But just to be clear as well, the Midsize timing, robotaxi timing and also the medium-term goals, those are all on track and unchanged. Just wanted to clarify. Marc Winterhoff: On the Midsize, this is also what we guided before. So that is also subject to the suspension right now. But I think what is important to understand is that what really counts is the ramp-up in 2027, and that's what remains unchanged. As I said in the beginning, the volumes that we're looking at is unchanged. On the start of production, that's something that we will guide after review with Silvio and the team then by the end of Q2. I also want to point out that when we talk about the start of production, that is less impactful actually than the ramp. I mean we've seen this, you probably remember with the Gravity where we had an SOP, but then we weren't able to ramp as we intended to. And that is something that we definitely absolutely want to avoid, and that's why we want to review everything and make the right decision for the business. Andres Sheppard-Slinger: Wonderful. Okay. That's super helpful. And maybe just as a quick follow-up. I wanted to touch again on the second production facility, the one in Saudi. Just given the geopolitical conflict still going on, do you foresee any bottlenecks or any issues to the time line for the construction there? Or is that on track? Just any update there would be helpful. Marc Winterhoff: Well, so far, I mean, it is going and we have never stopped doing it. I mean we had a few delays when it comes to arrival of equipment to be installed, but our team was able to mitigate that. And so yes, on that as well, we will update at the end of Q2. But so far, we haven't seen any impact. Operator: [Operator Instructions] Our next question comes from the line of James Picariello with BNP Paribas. Thomas Scholl: This is Jake on for James. First, could you give us some idea of the split between the Gravity and Air deliveries in the first quarter? And approximately how many units were pushed from the first quarter into the second by the stop sale? Marc Winterhoff: I mean as we said in the past, so the majority of our deliveries are now the Gravity. We don't give a direct projection on that. I mean on the average selling price, you maybe can reverse engineer the math somehow. When it comes to how many sales are being pushed into the second quarter, that's actually a number that I don't have handy right now. I mean the numbers of deliveries and orders rebounded in March significantly. But that exact number, I don't have handy. Thomas Scholl: All right. And then thinking a little bit longer term, you guys are targeting breakeven free cash by the end of the decade. Right now, your $4.7 billion in liquidity gets you into the second half of 2027. Is there any way to think about your total liquidity need to get from the second half of 2027 until 2029 or 2030? Taoufiq Boussaid: James, you asked us the same question during the Investor Day. I understand that it's a very important point for you. So again, the key data points that we have. So we have a trajectory of how we will be rebuilding the gross margin and how we'll be progressing over the years. So it's a very important data point for you to assess. We have also communicated the details around the different levers for us to reach the breakeven and the rough timing to get there. I think that our historical and future delivery of the key milestones will allow you to do a calibration of what it would mean, and it will help you estimate the additional capital requirement, which is required. Having said that, I would like to reemphasize 2 very important points. So what we have said is that the important component of the cash burn is related to the CapEx in M2. So we have also shared our trajectory in terms of CapEx reduction. We will have a steep decline after 2027. And as a consequence of that, we will see a significant reduction of the cash requirements that will be needed for the plan. So over time, the cash burn profile in itself will have to change and evolve. So again, I'm sharing some of the important data points. We have not historically been in a position to provide the exact quantification. We obviously have a plan. What is really important is the milestones and how we're executing against some of these important targets, milestones, be it in gross margin, be it in terms of reducing the CapEx and accelerating the trajectory to the breakeven. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. That concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, everyone. CJ Jain: Good evening. I am CJ, head of investor relations at Strategy Inc. It is an honor to kick off Strategy Inc's first quarter 2026 earnings webinar. I will be your moderator today. We will start the call with a 60-minute presentation, starting with Andrew Kang, followed by Phong Le, and then Michael Saylor. This will be followed by a 30-minute interactive Q&A session with four Wall Street equity analysts and four Bitcoin analysts. Before we proceed, I will read the safe harbor statement. Some of the information we provide in the presentation regarding our future expectations, plans, and prospects may constitute forward-looking statements. Actual results may differ materially from these forward-looking statements due to various important factors, including fluctuations in the price of Bitcoin and the risk factors discussed under the caption “Risk Factors” in Strategy Inc's annual report on Form 10-Ks filed with the SEC on 02/19/2026, and the risks described in other filings that Strategy Inc may make with the SEC. We assume no obligation to update these forward-looking statements, which speak only as of today. With that, I will turn the call over to Andrew Kang, the CFO of Strategy Inc. Andrew Kang: Thank you, CJ. First off, I would like to officially welcome CJ Jain to his new role as Strategy Inc's head of investor relations. I also want to take a moment to thank Shirish Jajodia, our corporate treasurer, for helping establish and lead our IR function for the last 20 quarters. As our team grows, I know we will strive to continue to provide transparent and relevant information to all of our shareholders and stakeholders. So welcome, CJ. Now turning to the quarter's results. We are off to a very strong start in 2026. We now hold 818,334 Bitcoin, which is about 3.9% of all Bitcoin that will ever exist. That keeps Strategy Inc in a clear leadership position as the largest corporate Bitcoin holder in the world. Our market cap is now $62 billion, and STRC has grown to $8.5 billion outstanding, showing strong market fit and investor demand and filling a gap that has existed for investors seeking stable price and attractive yields backed by Bitcoin. So far in 2026, we raised about $11.7 billion of capital, giving us more flexibility to keep our Bitcoin position and creating long-term value for our shareholders. Andrew Kang: Turning to Q1 financial results. We reported an operating loss of $14.5 billion and a net loss of $12.8 billion. As you would expect, these results were primarily driven by the decline in Bitcoin's fair value during the quarter, and as these are largely noncash market-driven impacts tied to Bitcoin's quarter-end price, our underlying strategy remains unchanged: raise capital responsibly, buy and hold Bitcoin over the long term, and grow Bitcoin per share for our shareholders. On slide eight here, Bitcoin per share increased from 181,030 sats per share in May 2025 to 213,371 sats per share in May 2026, roughly an 18% year-over-year increase. Year to date, we have delivered 9.4% BTC yield compared to 22.8% for the full year 2025, showing acceleration year to date compared to the same point last year. We have also generated 63,110 BTC gains so far in 2026 compared with 101,873 BTC for all of 2025, having already achieved about 62% of last year's full BTC gain in just the first four months of the year. In dollar terms, that represents approximately $5 billion of dollar gain year to date versus $8.9 billion for the full year 2025. Since 2020, Bitcoin per share has grown to 213,371 sats per share as of May 2026, which is nearly a 4x increase since the beginning, delivering positive BTC yield every year across multiple market environments. In 2025, we delivered 22.8% BTC yield, and so far in 2026, we have already added another 9.4%. We remain focused on consistently increasing Bitcoin per share over time through our disciplined treasury operations and long-term conviction in Bitcoin. Here on slide 11, our track record remains constant, having acquired additional Bitcoin in every quarter since 2020 across 108 separate acquisitions. As of May 4, we held over 818,000 Bitcoin for a total value of approximately $64 billion and a total acquisition cost of about $62 billion. Our average purchase price is approximately $70,000 per Bitcoin, and our holdings now represent, as I mentioned, 3.9% of all the Bitcoin that will ever exist. Turning here to the balance sheet. Digital assets ended the quarter at $51.6 billion compared to $58.9 billion at year-end. Having acquired 89,599 Bitcoin in Q1, the change reflects the lower price of Bitcoin at the end of the quarter versus at the end of last year. Cash and cash equivalents were $2.2 billion, which largely reflects our USD cash reserve. Regarding taxes, the change this quarter was driven by the quarter-end mark-to-market movement in Bitcoin, and as Bitcoin moved from an unrealized gain at year-end—our deferred tax liability of $1.9 billion—shifted at the end of Q1 to an unrealized loss, to a deferred tax asset. A full valuation allowance against that tax asset brought the net balance sheet tax position to zero, which also resulted in a noncash tax benefit on the income statement which partially offset the pretax loss for Q1. Long-term debt remained unchanged at $8.2 billion, while equity increased to $9 billion driven by strong STRC issuance in the quarter. Overall, the balance sheet remains highly liquid and extremely well capitalized. At the end of Q4, the market value of our Bitcoin was approximately $59 billion, which is based on a Bitcoin price of about $87,500. During Q1, we recognized that unrealized fair value loss of $14.5 billion, and despite Bitcoin price volatility, we continued to purchase an additional 89,599 Bitcoin in the quarter, approximately $7.3 billion at an average price of about $80,900. We ended the quarter with a digital asset value of $51.6 billion based on a Q1 ending Bitcoin price of about $67,800. In Q2 so far, we are illustrating an unrealized fair value gain of approximately $8.3 billion as of May 1. We purchased an additional 56,235 Bitcoin quarter to date for approximately $4.1 billion at an average price of roughly $73,400 for that period. Those purchases, benefiting from the increase in Bitcoin price, add approximately $300 million of positive fair value, and as of May 1, our Bitcoin held a market value of approximately $64 billion based on a Bitcoin price of $78,035. In dollar Bitcoin reserve, implying an MNAV of 1.27, which has expanded since the beginning of the year. We have $13.5 billion preferred equity, representing 34% amplification, and net leverage of 9%, made up of the $8.2 billion of convertible debt. Strategy Inc is building around Bitcoin as digital capital. We have approximately $58 billion of equity. You can see here large traditional banks operate with liabilities-to-asset ratios above 90%. Our ratio is a mere 9%. That gives us a very different foundation made up of a very large equity base, substantial Bitcoin reserves, and structurally lower balance sheet risk. We can issue Bitcoin-backed credit products to support investors with strong collateral and continue accumulating Bitcoin over the long term from a position of strength and durability. We have approximately $6 billion of net debt, which represents just 9.3% net leverage against our Bitcoin reserve, which is effectively a 10.8x BTC rating. Our strategy is based on a disciplined balance sheet construction, modest leverage, strong collateral, and permanent capital to grow our Bitcoin over time. Our net leverage is lower than the average of the investment-grade S&P universe, and lower than every major industry sector across most S&P 500 companies. At the current Bitcoin price, our reserve is valued at approximately $64 billion compared to $6 billion of net debt, which translates to the 10.8x BTC rating. The stress case on the right shows that even after a 91% Bitcoin price decline to roughly about $7,300 per Bitcoin, our Bitcoin reserve would still be sufficient to cover our net debt at a 1x BTC rating. Our USD cash reserve has remained at $2.25 billion, and while the years of coverage has shifted down with the growth of STRC this year, we believe the stable cash along with our Bitcoin reserves and ability to raise additional capital continues to provide us with flexibility to continue supporting our dividends for the foreseeable future. On the next slide, the $64 billion of BTC reserves adds an additional 43 years of coverage. Another way to look at this: at today's reserve size, Bitcoin would need to grow by only 2.3% annually for the reserve growth to cover our current obligations. If Bitcoin grows at or faster than the breakeven ARR here, the BTC reserve alone can support our dividends without requiring any additional capital. Before I turn it over to Phong for his remarks, I would like to highlight the amendment to STRC that we have asked for your vote on. We are proposing to move STRC dividends from monthly to semimonthly, with payments twice per month on the 15th and the last day of the month, while keeping the economics unchanged. Our goal is to make STRC work better for investors by reducing reinvestment lag, improving liquidity, dampening the impact of a single monthly record date, and helping STRC trade more efficiently around the target price. Today, STRC pays out 12 times per year with one payment at month-end. Under the proposed amendment, STRC would pay 24 times a year with payments around the 15th and the last day of the month. Again, total dividend economics are unchanged and payments would simply be about half the size and paid twice as often. Under the proposed change, there would be two record dates, one on the 15th and one at the end of the month, with the related payment dates made on the next scheduled record date. If the vote is approved, the first record date would be June 30, and the first payment date would be July 15. The mechanics are pretty straightforward: same dividend economics, more frequent payments, and a clear transition timeline. We believe this change creates the highest-frequency credit instrument in the world and makes a great product twice as better, and we look forward to your support. With that, I will turn it over to Phong. Thank you, Andrew. Thank you, everyone, for joining us on this evening's earnings call. I have a few updates to make on our capital markets, on our equity, on our digital credit, and then I will conclude with updates on our capital market strategy overall. Phong Le: If you had asked us at the beginning of the year what was our target for the year in terms of capital markets raises, we would have said it was uncertain, and it really depended on the success of the STRC product. Four months in, we can say that STRC has been more successful than we had expected at the beginning of the year. One representation of that is the amount of capital that we have been able to raise for the company and ultimately for Bitcoin. Year to date 2026, we have raised $11.7 billion as Andrew mentioned—about half from issuances of our common equity, half from issuances of our preferred, primarily STRC—and no longer are we issuing convertible debt to raise capital. How does that compare to the rest of the U.S. equity capital markets? Last year, we represented about 8% of the equity capital markets in the full year 2025. We were the largest issuer, and we are again this year the largest issuer in the equity capital markets—about 10% total: 6% of common equity, 60% notably of preferred equity. We are doing what we said we would do and what we were trying to do, which was to shift our ATM more towards credit. You see this even more pronounced as we look at each month of 2026. We started in January with 20% of our equity issuances using digital credit and 80% using MSTR, and we have largely flipped that number in April, with 17% using MSTR and 83% using digital credit, which is also less dilutive to our overall shareholders. Research analysts have been consistently supportive. As we look to exit the Bitcoin bear cycle that we are in, the average price target of all of the analysts covering Strategy Inc for Bitcoin is $138,000, which is about a 70% increase. The average MSTR price target is about $323, which is an 80% increase from current levels. So let us talk about digital equity and MSTR overall. We show this chart every quarter—you can find it on our website, strategy.com. This is our annualized asset performance since we adopted the Bitcoin standard. 08/10/2020 is when we look back to. We have outperformed Bitcoin by about 50%. Bitcoin has outperformed the Mag Seven by about 50%. And the Mag Seven has outperformed the S&P 500. Our ultimate objective is for our common to outperform Bitcoin by accreting Bitcoin per share, and based on this chart, we continue to deliver on that performance. As Andrew mentioned, our Bitcoin per share is also accreting—that is our business objective ultimately. We are at 9.4% Bitcoin per share increase so far this year. You will see that has also accelerated in the last month. We started off a little bit slow in January and February—0.4%, 0.1%. The increase in March was 3%, and it really doubled in April with 6%. Last quarter on this call, we said our objective is to double Bitcoin per share in seven years. Doubling Bitcoin per share in seven years implies about a 10% annualized BTC yield, and so far this year, we have increased 9% in our BTC yield. We are well onto our annual target, and we have been happy with the success of STRC so far this year. Ultimately, MSTR continues to be one of the most widely held equities around the world and the most widely held Bitcoin proxy in the world. We are able to reach 1,400 institutions, 927,000 retail accounts, 1,300 ETFs and funds—over 100 million beneficiaries that share nearly 4% of the Bitcoin in the world. I do not think about this as concentrated amongst one company or a set of leaders, but really amongst 100 million people that we are sharing Bitcoin with per share around the world. So let us talk about digital credit, our favorite topic so far this year. The idea of preferred capital and preferred credit is not a new idea. In fact, the industrial revolution was built on the railroads, which was built on analog credit through preferred capital. During the late 1800s and early 1900s, 20% to 40% of the capital structure around the world was preferred capital. What happened in the mid-1900s and the early 2000s is the rise of liquid debt markets and increased regulation, pushing preferred capital into what I would call niche use. Now, as people are waking up to preferred capital and digital credit especially, we are seeing a reemergence. My analogy here is where preferred capital helped build the railroads—which helped drive the industrial revolution—now digital credit will help drive the digital railroads or the digital rails. It will drive the digital revolution, including the AI revolution. We are excited about bringing this back to the forefront of the world. If you look at an overview here, we have five preferreds. We have mostly been focused on STRC so far this year. I think there is an opportunity for the remaining preferreds to start to perform as Bitcoin starts to perform, but STRC is clearly the tip of the arrow as far as digital credit, and that is what I will talk about primarily. We are up to an 11.5% dividend yield. Notably, we have kept this flat for the last two months. We increased the dividend yield from 9% to 11.5%, and now we are flat for the last two months because what we have seen is the volatility has started to decrease, the price has started to remain stable, and we have seen an increase in Sharpe ratio to 2.53. The notional value is up to $8.5 billion, and we are trading $375 million a day. I will share how that compares to other preferred equities and also common equities in general. The first thing I will note is the rapid growth of STRC. In just nine months, we have raised $8.5 billion of capital. It had a running start with $2.8 billion, it slowed down, and it has really accelerated over the last couple of months. Comparatively, this is one of the most successful financial instruments ever created. In terms of capital inflows, it is second only to IBIT. Compared to other products, it has seen faster growth in terms of capital inflows than famous products like the iPhone or Google AdWords. We are very proud of the acceleration of the product, and it means that we built something that is resonating with people in the U.S. and people around the world. STRC is by far the largest tradable preferred in the world. We are nearly two times the size of Wells Fargo's preferred. Almost all of these other preferreds, save us and another one, are bank preferreds. This has gone from being an industrialized product that helped build the industrial revolution to a niche financial product, and we are excited to bring it back to being a major product in the world. The liquidity of STRC—the 30-day average trading volume—is 25x the second largest preferred. Where Wells Fargo is about half our size, it is trading one twenty-fifth of what we are trading at—$15 million versus our $375 million. With that liquidity, the turnover compared to the next best preferred, we are at 4.4%, 10x of what Wells Fargo is and some of these other products like Bank of America products. We think we have really found a new product category—digital credit—based on an old product category—preferred capital—and we are excited about where this is going. Interestingly, STRC is performing not just as one would expect in a bull market, but performing in a Bitcoin bear market. While Bitcoin has gone down 37% since October, now it is starting to rise again, and we are seeing STRC trade essentially near par and paying dividends that are increasing monthly. We have increased the dividend from 9% to 11.5% and kept it steady at 11.5% for two months, now going on three months, while Bitcoin has been decreasing. With that, we have also seen the ATM velocity of STRC accelerate, and the ATM velocity is really the net inflows into the product. Notably, in April, we had a week where we raised $1 billion, and then the subsequent week we raised $2.2 billion. We have seen tremendous demand coming into STRC. At the same time, we are seeing the volatility decrease. Our target price range for STRC is $99 to $101. We have actually seen it trading in a much tighter range, and for the last three months—March, April, May—it sat in that price range for 100% of the time. The daily liquidity is significant and growing, from $54 million to $120 million in January to $250 million in March to $300 million in April. For those who are interested in getting into the product in size—if you are a corporate or if you are a large institution and you need to have confidence that when you need to trade in and out, you need liquidity—our product is showing that level of liquidity. I will go through a series of analyses of Sharpe ratio because Sharpe ratio ultimately is a measure of the returns above the risk-free rate given the volatility of the instrument, and ultimately, if you are an investor, people are looking for high Sharpe ratios. Compared to traditional credit—junk bonds and investment-grade bonds, bank preferreds—we outperform notably. Compared to traditional asset classes—the S&P 500, even NASDAQ, etc.—we also outperform notably. And then, obviously, if you are looking for Sharpe ratio, a lot of folks go to the Mag Seven equities. NVIDIA is on a hot tear because of the AI trade. Google runs essentially a digital monopoly and has been a very solid equity over the course of the last 20 years. STRC has outperformed all of those, in all of the Mag Seven. Another place people typically go to find a high Sharpe ratio are hedge funds. Hedge funds are built with different strategies, different analyses, different quant strategies, and typically they are built to outperform the S&P 500 with lower volatility. Looking at different hedge fund strategies, STRC to date—understandably early in its maturity—is already outperforming these different hedge fund strategies, whether you are multi-strat, macro, equity arbitrage, etc. We see a lot of benefits to this emerging category of digital credit compared to hedge funds, private credit, private equity. One, it is extremely liquid. To get these levels of returns and these levels of Sharpe ratios, sometimes people subject themselves to 90-day lockups for hedge funds, 3 to 7 years for private credit, 7 to 10 years for private equity. We charge no fee. These other strategies often charge a management fee of 1% to 2% and a 10% to 20% carry—a two-and-twenty, if you will. Digital credit is homogeneous—you know exactly what is behind it: Bitcoin. These other strategies are sometimes heterogeneous with many different assets grouped together, making it very hard to ultimately assess the risk. Ours is scalable through an ATM mechanism that allows people to buy the product, and hedge funds and other strategies are discrete. We are accessible, traded via a four-letter ticker on the Nasdaq, and now, interestingly, trading on many tokenized exchanges and tokenized products. Other ones are typically restricted to those who are accredited, institutional investors, or high-net-worth individuals. We are transparent: we disclose our performance and our holdings through weekly 8-Ks and websites that update every 15 seconds. One of the big questions as we have seen STRC perform over the last four months—essentially the year 2026—is what does this mean for our capital market strategy? I will introduce this topic, and Mike will talk about it a lot more. Our objective is to double Bitcoin per share in seven years through the success of digital credit. What does that mean? We sell digital credit, and we have said that we target about 10% to 20% of Bitcoin reserves annually in digital credit volume. Of course, we will analyze that and assess that to see if that target makes sense. That will generate amplification to our common stock, which should increase the Bitcoin per share in our common stock, which is ultimately our goal. As we increase Bitcoin per share, that allows MSTR to outperform Bitcoin, which is what you have seen happen over the last six years. What allows us to flex these levers even better? If our cost of credit goes down—if we are able to decrease the yield from 11.5% to lower for a variety of factors. If we are able to sell more STRC, that increases amplification. If our MNAV goes higher—and I will talk a little bit about our MNAV—that also creates benefits, for example, our cost of paying our dividend. What has happened in the last four months is we have increased optionality for Strategy Inc. We have more sources of capital, and we have more uses of capital than we ever had before. The success of STRC gives us options to do different things from a capital markets and a treasury operations perspective to benefit our common shareholders. Our traditional sources of capital: sell MSTR, sell STRC. We could sell our USD reserve to pay dividends, which we added in November. We also have Bitcoin that we have the option of selling. We can see our other prefs start to perform and sell those into the market, and we have talked in the past about also being able to potentially sell BTC or Bitcoin derivatives. Our uses of capital: primarily today, we buy Bitcoin, we use capital to pay our USD dividends, and we use capital to build up a USD reserve. We have used capital in the past to pay down our convertible debt, our secured loans, our Bitcoin-backed loans; we may continue to do that in the future. We could also use capital, if we want to and at the right time, to retire any of our other preferreds. So what does this really mean? This means we had three trades that we have executed—and really before 2025, two trades: we sold MSTR and bought Bitcoin; we sold MSTR and bought U.S. dollars. Last year, we added STRC and prefs, and we sold STRC and bought Bitcoin. Now we are really seriously thinking about and contemplating introducing a few more trades: selling MSTR at the right MNAV, where it is Bitcoin per share accretive, to buy back debt. That could mean considering retiring, potentially early, some of our convertible notes using our common stock. Selling STRC to buy U.S. dollars—we have not done that much to date—but perhaps reserving part of our STRC proceeds to build up our U.S. dollar reserve. Selling STRC to buy back debt—you can see how that would be an accretive trade to Bitcoin per share because STRC inherently on sale is not dilutive, and buying back future dilutive convertible shares. And then the third set of interesting trades that I previewed: selling Bitcoin. This is a big statement, but our ability to sell Bitcoin either to buy U.S. dollars or sell Bitcoin to buy debt, if it is accretive to Bitcoin per share, is something that we would consider doing going forward. How do we make these decisions? Ultimately, there are two sides of the same coin. One side is our equity performance, and to our common shareholders the most important thing is to accrete Bitcoin per share, which results in higher BTC yield, which ultimately together result in a higher BTC gain. Adding more Bitcoin and BTC gain on a dollar basis is the closest proxy to earnings per share. Those are the three KPIs we look to assess equity performance. On the risk side, we have a BTC rating, which is the amount that our debt and our leverage is overcollateralized by Bitcoin. We have an MSTR duration, which is the average duration of all of our instruments. If you look at our perpetual preferreds, they have the longest duration based on a Macaulay duration basis—10 to 15 years. Our convertible debt has a shorter duration, so swapping longer duration for shorter duration is a good trade for us. Then we have MSTR risk. The BTC rating and the MSTR rating together influence the total risk profile to the company. A couple of notes before I hand it off to Mike. One, Bitcoin per share accretion is our primary goal; MNAV is an input. The threshold for Bitcoin per share accretion when selling our equity and buying Bitcoin is increasing over time. Where it used to be a 1.0x MNAV, as we add debt and as we add preferred—primarily to our structure—the breakeven increases. Right now, it is about 1.22x. That means at 1.22x MNAV or higher, it is accretive for us to sell MSTR and buy Bitcoin. Below 1.22x MNAV, it is actually more accretive for us to sell Bitcoin and pay off our dividends than it is above 1.22x MNAV. There are benefits to the way we bought Bitcoin and the holdings of Bitcoin that we have by cost-basis tier. Taking $20,000 tranches—$0 to $20k, $20k to $40k, $40k to $60k, $60k to $80k, and beyond—we bought Bitcoin at every price level. Below current prices, about $80k, we have an unrealized gain from a tax basis on that Bitcoin. Above $80k, we have unrealized losses. If we were to sell Bitcoin, our objective would be to sell high cost-basis Bitcoin to capture some of those unrealized losses and to take some of those unrealized tax benefits, of which on our balance sheet there is about $2.2 billion in estimated tax benefits. So there is a tax benefit if we were to sell high cost-basis Bitcoin, as an example, to pay down some of our dividends over time. Amplification: we are currently at about 34% amplification. A portion of that, about 10% of that, is driven by our convertible debt. The ability for us to increase amplification to the company is higher when we have long-duration digital credit than it is when we have short-duration convertible debt. As the company starts to cycle over time from convertible debt to digital credit, we can take on more amplification with lower risk levels, so we could see ourselves getting to 50% to 60% amplification levels over time and still feel like we have a high credit quality and a high risk quality to the company. The U.S. dollar reserve: we have built up a $2.25 billion U.S. dollar reserve, which at that point represented over two years of dividends and interest payments, and now with the same exact U.S. dollar reserve we are at about one and a half years. Adding to the U.S. dollar reserve reduces Bitcoin per share but improves the credit quality of the company, and so it is something that we will continue to evaluate over time—what the right level of U.S. dollar reserve is. We feel like at a minimum it should be $2.25 billion, but likely as we grow our digital credit and STRC, we will want to add to this at a certain level. To summarize how we think about managing capital markets and our balance sheet: one, our objective is to create long-term value for MSTR. We want to increase Bitcoin per share, which will increase the price of the common equity and ultimately be better for our common shareholders. Two, we are going to continue to grow demand for STRC. We have seen it to be a very popular product in the market and very beneficial to our balance sheet. We will continue to improve the features as we can, for example, moving to semimonthly dividends. Three, we are going to proactively reduce convertible debt based on market conditions, and that could mean actively purchasing back, through whatever means we think appropriate, some of the convertible debt before it comes due. Four, we are going to look at the STRC demand and credit risk to determine the size of the U.S. dollar reserve. There is a natural market mechanism that as the U.S. dollar reserve in months to cover—years to cover—decreases, the credit risk of STRC goes up nominally and could decrease the demand, and so we will monitor that to decide what is the right U.S. dollar reserve size. Five, similarly, the appropriate amplification for the company will also be based on market conditions. Mike and I and Andrew and the entire team are looking literally every day at what are the trades that are accretive to Bitcoin per share, what are the trades that create the right equity accretion, and what are the trades that manage the credit risk at the right levels. Six, maybe most notable: we will sell Bitcoin when it is advantageous to the company. We want to be net aggregators of Bitcoin— increasing our total Bitcoin—but more importantly, increasing our Bitcoin per share because we think that is what is going to be most accretive long term for MSTR and for the common. With that, I will hand it over to Michael Saylor to complete the presentation. Michael Saylor: Thank you, Phong. I will elaborate on some of the things set up till now and give you an overview of the BTC market and then our capital market strategy. Everything is based on digital capital, and Bitcoin is digital capital. That means global legitimate collateral, global property. We keep track of Bitcoin as digital capital and the consensus in the market, and what you can see here is the U.S. government has embraced it. All of our key financial regulators—the head of Treasury, the head of the SEC, the head of the CFTC, and now the incoming head of the Fed—are all digital assets enthusiasts, innovators, and Bitcoin believers, as is the President of the United States, Donald Trump, and the Vice President, J.D. Vance, along with many other cabinet members. That is a very important fact. There are a lot of bills still working their way through Congress. The most notable one right now is Clarity. The real key here is that Bitcoin is a priority in the House and the Senate, on the Hill, at the White House, and there is bipartisan support and bipartisan agreement for Bitcoin as digital capital, and for legislation that supports Bitcoin as digital capital in the world. A few months ago at our Bitcoin for Corporations conference, we saw major announcements by systemically important banks—Morgan Stanley, Citi, TD—all with intent to integrate into their operations. This is something we only hoped for three or four years ago, and now it is reality. At the point that Bitcoin is integrated into the banking system, then it is digital capital here to stay. You can just see the announcements across your ticker everywhere in the world. This is a global phenomenon. Whatever happens in the U.S. and with U.S. banks is spreading to Europe, to the UAE, to Hong Kong, to South America, etc. You are going to see these announcements accelerate, but we have crossed the event horizon. You cannot put the genie back in the bottle. Bitcoin has arrived. We try to be systematic, so we track it. We track the 15 largest or most systemically visible banks in the world, and we look at their embrace of Bitcoin: as a creditworthy instrument, will they trade it, will they offer credit against it, will they custody it, will they handle the derivatives, etc. Adoption has advanced since even last quarter, and everywhere in the world across all of these banks, there are active efforts to improve Bitcoin support. If you track the number of accounts that support Bitcoin access, you can see we are marching up into the high hundreds of millions: 840 million crypto exchange accounts, nearly a billion neobank accounts, nearly a billion brokerage accounts that all have access to some sort of Bitcoin derivative. ETFs, of course, continue to embrace. There have now been 125 ETFs with about $126 billion of capital. The capital flowing into these ETFs continues to accelerate. We were the first company to embrace, and now we are up to 194 public companies. We anticipate this will continue to grow. Lots and lots of IPOs—the public markets have embraced Bitcoin, and this is just an example of some of the notable companies that have come public just recently that have substantial Bitcoin exposure. The digital credit ecosystem has been a very pleasant surprise. It has grown very rapidly, and it has become very diverse. The way that we know digital credit is working is that companies and economic actors everywhere in the world that we have never met face to face are discovering this and building products and businesses around it. Right now, what we see is very enthusiastic support with retail investors, with corporate treasurers, with institutional investors, with crypto-native innovators, and with TradFi innovators. Five different groups of capitalists, but they are all getting very heavily involved enthusiastically and rapidly. If we drill into retail, 80% of all STRC shares are held by retail as of our last check. This is an extraordinary fact. Normally, it is very difficult to get broad, deep retail support for a public stock, and yet we have been very pleasantly surprised. We are able to trace about 120,000 individual retail accounts. Word-of-mouth is spreading this. It is spreading virally. Based upon our studies, we see that anybody that buys STRC is generally telling their friends, their family, their parents, their working associates about it, and it continues to spread by word-of-mouth. You can also see Schwab is a big distribution channel—23% of STRC is held in Schwab accounts. Fidelity is a channel. Robinhood is a channel. Morgan Stanley and E*TRADE are channels. BlackRock is a channel. Interestingly enough, Vanguard, which will not let their investors buy Bitcoin natively, actually is a channel for STRC. It is pretty exciting that we have wrapped Bitcoin into a credit instrument that is being distributed through all sorts of traditional finance channels to types of investors that otherwise would never be able to buy Bitcoin itself or would never want to. We estimate there are about 3 million households that are benefiting from STRC right now—think of it as powering a savings account for 3 million households. Phong mentioned about 100 million beneficiaries of MSTR. Well, 3 million beneficiaries of STRC in eight months is a pretty good start to the race. Our ambition is to spread this to tens of millions and then hundreds of millions of people. We are also very enthusiastic about corporate support. Corporations, unprompted by us, figured out that it was a good idea for them. Corporate treasurers and CFOs with working capital have been allocating some of their treasury capital to STRC. This is a really pleasant development, and we are starting to think that there might be thousands of companies that might allocate some amount of their treasury capital to STRC. I have had a lot of experience selling BTC to corporations. What I found is that tends to be a board-level decision—it goes all the way to the board of directors. The CEO has to be way behind it, and if one director on the board has concerns, the cycle slows down. But with STRC, it is not a board-level decision. It is more like a CFO-level decision. If the treasurer is enthusiastic, the CFO can greenlight it. They might or might not give the CEO a heads up. This is a very different value proposition. It is maybe a five-minute conversation with the CEO instead of a two-hour conversation with the entire board. For that reason, we think that STRC really is Bitcoin for corporations. It is going to spread very rapidly now. Another very exciting thing is that STRC has spread into credit indexes. BlackRock’s is a $14 billion credit ETF, and STRC is the number two holding. VanEck’s is another credit ETF, and STRC is also the number two holding. Imagine an instrument coming out of the blue—nonexistent 12 months ago—and in less than 12 months, we have gone from nonexistent to number two. Next stop, number one. We are enthusiastic about seeing STRC embedded in lots and lots of institutional credit indexes and funds. Third-party ETFs have been finding STRC and building innovative ETFs. Strive is building a digital credit ETF. 21Shares created an ETF with STRC and took it public in Europe. There are a number of ETF providers that are working with us and in the pipeline right now. We are in active discussions with four. Over time, there will be more ETFs to build STRC into their fund offering. Digital money and digital yield: we start with digital capital at 34 vol on a rolling 30-day average and 39% ARR. The one-year trailing vol of Bitcoin is almost 40. Think of it as a 40 vol, 40 ARR asset—raw economic energy. We split that asset into STRC, which is 3 vol, 11.5% yield, and then MSTR, which is 71 vol, 59% ARR. One is amplified Bitcoin—we call it digital equity—and the other is damped digital credit. Digital credit, we believe, is like the kerosene of finance. It is the monetary fuel and is a universal monetary fuel. It is high-grade, highly distilled. From here, you can build all manner of products. Layer three is digital money and digital yield. Neither would really be possible without digital credit. It is too difficult to distill pure zero-vol 8% money from a 40 vol, 40 ARR asset. You have to crack it. You have to have a crypto reactor, and you have to have $50 billion of equity capital to do it, and that is what we did to create STRC. Simple definition in our lexicon: digital money is 0% volatility, daily liquid instruments built on digital credit—like zero vol, 8% yield coin. Digital yield is nonzero volatility or it might be illiquid—it might be a three-month lockup, 5x levered, 35% yielding fund that loops digital money four, five, six times to get there. Digital yield is a levered construct, and digital money is the stripped-down construct. We think digital credit is programmable across lots of dimensions, so there are a lot of ways to add value to it. You can tokenize it, put it in a private fund, put it in a public fund, put it in a bank account. You can deploy it on a crypto exchange, on a neobank, on a real bank, or on a crypto network. You can program it to a volatility of zero or let it float up to a volatility of 10. You could program the liquidity to be continuous or daily or monthly, but you could also put in a quarterly lockup or an annual lockup in order to put more leverage on or create a different characteristic. You can program the yield from 5% up to 25% reasonably—some people might go beyond that, but we think 5% to 25% is reasonable. Then you can convert the currency—you can create Great British pounds or euros or yen or Swiss francs with digital credit starting from STRC. When you think about all these different forms, the question is, do you want to create a yield coin like a digital money coin? Do you want to create a yield fund? Do you want to create an account? Depending on what your assets are—if you are the biggest bank in Australia or if you are Deutsche Bank—you probably would do it one way. If you are a crypto exchange, you might do it a different way. The math is pretty straightforward. You start with 11.5% performance and ~3 vol right now. If we are lucky, maybe we will be able to get our vol to two or to a one handle. That is the goal of our proposal to the shareholders. I doubt seriously we get below a 1.5 or a 1 vol. One vol is sort of what publicly traded money market funds look like right now. Getting to zero vol takes a bit of work. One approach to add value is to down-strip the vol to zero, and maybe instead of 3 vol, 11%, you offer zero vol, 8%. That is digital money. The other approach is step it up: lever it three to one, pay 5% for the capital, and maybe you end up with something that is paying you like $35. Pay $10 on the capital, and you get a 25% yielding levered yield fund. These are all opportunities. We are not going to do it ourselves. Our laser-like focus is to make STRC the deepest, most liquid, most stable, least volatile, highest Sharpe ratio credit instrument in the world. That is a mission. There are a lot of crypto innovators—and you see right here on this screen a lot of very impressive companies—that are moving fast right now. Apex has had enormous success early on. Saturn is doing the same thing. Hermetica, Kraken, Ondo, Pendle, Spread, Strata—they are all doing very interesting things right now. They are very innovative and moving about 10x faster than the TradFi complex normally moves on these initiatives. There are also interesting TradFi initiatives—things you can do in a traditional finance environment with a private fund or a public fund. We see those things happening as well. Eight weeks ago, there was no STRC in the DeFi industry. In those eight weeks, we have rapidly grown to something like $270 million of exposure. This is just extraordinary—the rate at which money is flowing. Sometimes money is flowing into this complex a million dollars an hour. It is starting to feel like we may very well see more than a billion dollars of STRC enter the DeFi industry in the near future. It is moving very fast, and it is very dynamic. Outlook and our vision: we are a structured finance company. We are taking raw capital—digital capital—40 vol, 40 ARR, $1.6 trillion market cap of Bitcoin. We are stripping the currency risk, reducing the credit risk, compressing the duration risk. We are distilling a yield and damping volatility to create various instruments. Our greatest product and biggest success right now is STRC. It is taking a 71 vol down to a 3 vol, and we are targeting a 1 vol. Some important items to be aware of: the Bitcoin breakeven ARR—we calculate it all the time. It is very significant. If Bitcoin grows more than 2.3% a year— that breakeven ARR—we can fund our dividends forever without selling a single share of stock. If Bitcoin does not grow at all forever, we can fund the dividends for 43 years. We publish this on our website and update it every 15 seconds. If you go to the credit tab, you will see the Bitcoin reserve, the years of dividends (years of coverage if Bitcoin appreciates 0% a year), and the Bitcoin breakeven ARR—2.27%—updated every 15 seconds. There is a misnomer: most people think Bitcoin has to appreciate 11% or 11.5% for us to be successful or cover the dividend. Not true—2.3%. Or they think 30%—that is what we think it will do. The number that really matters is 2.27%, the BTC breakeven ARR. It is also the inflection point where STRC issuance results in more Bitcoin being stacked by our company than the Bitcoin we use to pay dividends if we choose to pay dividends with Bitcoin. We do not have to sell a single share of stock. We could stop selling MSTR common stock right now. We can fund the dividends with Bitcoin sales, and if STRC issuance is greater than that BTC breakeven number, not only will we fund the dividends forever, we will increase the amount of Bitcoin that we hold forever at the same time. If we were to sell $1.5 billion of STRC per year, we can sell Bitcoin to pay the dividends, buy more Bitcoin than we sell, grow our Bitcoin stack, and generate Bitcoin yield. We sold $1.5 billion of STRC in two days a few weeks ago. If STRC issuance equals 20%, that would equate to $12.8 billion of STRC sales this year. We might exceed it, who knows, we might be less. At 20% issuance rate, the first-order model indicates we generate a BTC yield of 17.7%, we accumulate an additional 144,000 Bitcoin, and that is after we pay all the dividends by selling Bitcoin. Occasionally, some short narratives suggest that selling Bitcoin is bad for the business. We look at it like a real estate development company: you buy land cheap, sell some land dear to fund obligations, and buy more land. Capital gains fund credit dividends. That is the essence of the business. We invest in digital capital—Bitcoin. The capital gains from the investment fund the credit dividends in perpetuity if the capital appreciates at that breakeven rate. Sometimes we will sell a Bitcoin derivative because it is in the best interest of the company, but it is not necessary. For every single capital markets transaction, we are making these decisions not just every day, oftentimes every minute of every day, based upon all the fluctuating prices of the trading pairs. Right now, our BTC rating corporately is about 3.3. The duration of our liabilities is 10.9—that is the stochastic duration. The risk centered on 818 basis points works out to a fair credit spread of 61 basis points. 818 basis points of risk means that there is an 8% chance at the end of the duration of the liabilities that you are trading in a BTC rating of 1. 61 basis points is the credit spread a rational investor needs to be paid to offset the risk. The assumptions we plug into the model: 10% BTC ARR—we assume that Bitcoin will perform about at the level of the S&P 500 over the last 100 years. We plug in 40 vol. Even with those estimates, what pops out is a credit spread of 61 basis points. The investment-grade credit spread is like 88. This is investment-grade credit even with very realistic pragmatic inputs. If you are a Bitcoin max and you think Bitcoin is going up 30% a year, there is no risk. If you are a tech investor and think 20% a year, the risk is de minimis. If you are a trader and think 10% ARR, you get the 818 basis points. If you think 0% forever, the risk increases; if you think it is going down, the risk explodes. You can calculate the risk with various Bitcoin prices and see the expected answers: Bitcoin price going up is good, Bitcoin vol going down is good. Some trades: if we sell $1 billion of MSTR stock and buy $1 billion of Bitcoin at 1.0x MNAV, it is dilutive—minus 48 basis points of yield, costing shareholders $310 million. As MNAV goes to 2.0 or 2.25, it becomes extremely accretive; at 2.0, you make $457 million in gains on the trade. It also improves our BTC rating and decreases risk—credit positive. Funding dividends: if we fund $1 billion of dividends with Bitcoin, it costs $1 billion—12,763 Bitcoin loss, 156 basis points. That is pretty similar to funding the dividends with common equity at 1.22x MNAV. Below that breakeven, it is more expensive to fund with equity; you are better off to sell Bitcoin than to sell equity if the equity is trading weak. At 2.0x MNAV, it only costs 83 basis points. Funding the USD reserve: it is more efficient at a high MNAV than at a lower MNAV; funding with BTC is constant from an equity point of view but extends duration and improves credit. Buying back converts: if we sell $100 million of STRC to buy $500 million of convertible bonds, we generate substantial BTC gains—22 to 63 basis points of yield depending on the specific convert—reduce leverage, stretch duration, slightly increase risk, and generate BTC gains. Selling Bitcoin to buy back common stock: below 1.22x MNAV, it is extremely accretive to swap BTC for MSTR. If the stock trades to 0.5x MNAV, swapping BTC for common yields 636 basis points—massive BTC gain. The opposite is intuitive. We can also sell STRC—sell credit to buy MSTR—and over time do our own levered buyback; amplification on the equity. Even at 2.0x MNAV, you can generate 85 basis points of yield; at 0.5x MNAV, 800 basis points of yield. We can sell dollars to buy common equity—carrying the USD reserve is dilutive to equity but credit positive; we could swap dollars back for common at a discount profitably. Scenarios: we can continue with our conventional strategy at 1.0x MNAV—selling credit and equity, using equity to fund dividends, holding USD reserve at 1.5 years—run a 10.6% BTC yield and accrete 263,000 sats per share over the next three years. At 1.22x MNAV, the yield expands to 12.2%. At 1.5x MNAV, 13.4%. At 2.0x MNAV, 14.6%. Alternatively, we can fund dividends by selling Bitcoin and still grow Bitcoin holdings continuously—driving a 12.2% BTC yield and passing 1 million Bitcoin on the balance sheet in the next 36 months— with a slight increase in credit spreads and risk. If we fix the USD dividend and fund dividends with Bitcoin, we can get to a 14.7% BTC yield—again, a slight increase in credit spreads and risk—without accessing the equity capital markets at all. We can also retire all the converts: if we divert 20% of STRC issuance to retire debt, we retire all the debt in the next three years, net leverage goes to zero, duration goes to 15 years, and we run with a 12.4% yield while maintaining a 1.5-year USD reserve. Key assumptions: on the equity side, 30% BTC ARR, 20% STRC issuance, 11% dividend rate; on the credit side, 10% BTC ARR, high vol. Over time, as confidence grows, credit spreads should compress, and the company has the option to lower the dividend to a floor of SOFR. SOFR has fluctuated between 500 basis points and 25 to 50 basis points historically. Considering those options, the stochastic cost of capital for STRC has to be modeled as something less than 11.5% and maybe more than the long-term rate—somewhere between 6% and 11.5%, a blended rate of about 8.75%. Our capital markets principles: we are here to drive Bitcoin per share up, and we are doing everything we can to drive per share up. The best tool to do it is STRC. We see a world where we are debt-free—sooner rather than later. We will adjust amplification, credit metrics, USD reserves, and use of proceeds based on constant market feedback. With Bitcoin—more than $60 billion—and $20 billion or more of daily liquidity in the Bitcoin market, we will not impair our asset by refusing to tap liquidity when it is in the best interest of stakeholders. We run the company in the best interest of all stakeholders—MSTR common equity, STRC creditors, and BTC investors—balancing interests to keep the concentric flywheels in harmony. When MNAV is expanding and the equity is healthy and outperforming Bitcoin, when the volatility of STRC is falling and liquidity is increasing, and when Bitcoin price is appreciating, that is indicia of success. That is what we have been doing and will continue to do, and we thank you for your support. We will now open the call for questions. CJ Jain: Before we jump into the Q&A, I would like to share with all our investors that we are organizing a special Q&A for retail investors next week on May 13. You can scan this QR code if you would like to submit questions. We will share the link on X and share more details as well. With that said, let us jump into the Q&A. I would like to invite all our guests to turn on their cameras and get ready to ask some tough questions. Let us get started with Peter Christiansen from Citi. Pete, please go ahead. Peter Christiansen: Thank you, CJ. Michael, I just want to take this call and how you have laid out all these scenarios and think about historically—pointing to last year at the end of the year—there was a false signal that Strategy Inc was selling Bitcoin, and it was taken negatively in the marketplace. Today, you outlined a lot of different optionality scenarios that Strategy Inc now has to optimize its capital stack. Should we take today's call as a signal to the market that, yes, Strategy Inc is willing to be more proactive with its capital stack, which may include the sale of Bitcoin—maybe for tax purposes or maybe for other optimization purposes—credit, what have you? Should we take today's call as a signal that, yes, Strategy Inc is going to be more tactical with its capital stack going forward? Michael Saylor: Yes, you should. I think the company got much healthier when we proactively began to utilize the equity ATM and we said it—we are going to do it; we are not ashamed of it; we will probably do it again. Then, when the company started proactively executing on the STRC credit ATM, we said we are going to do it; we are not ashamed of it; we are going to keep doing it; we think it is good; and we have a plan for it. At this point, to say we are turning on the BTC drive—we are not ashamed of it. We have $65 billion. We have a $2.2 billion tax credit that is lying on the floor. We ought to go find a way to pick up the $2.2 billion. Just like with everything else, the more optionality we create and the more tools we have at our disposal, the better it is for the equity investors. Yes, we will probably sell some Bitcoin to fund a dividend just to inoculate the market, just to send the message that we did it. Look: the company is fine, Bitcoin is fine, the industry is fine, the world did not come to an end. If you are a short seller and your thesis is the company's got to sell equity in order to fund the dividends, I would like nothing better than to rip your wings off. Peter Christiansen: I like that term, inoculate. Very well. CJ Jain: Thank you, Pete. I would like to invite Jeff Bock next. Jeff Bock: Hello. First off, congrats to the team, particularly on STRC’s accelerating region. Thanks for having me here. My question is focused on understanding how macro factors may influence the firm's acquisition strategy, particularly in regards to interest rates. As we all know, we are just a few weeks away now from Kevin Warsh’s official inauguration, and even though rate-cut odds are a little lower this year, Strategy Inc now does have an explicit growing interest rate sensitivity, as we just saw from the stochastic model. Hypothetically, if we see interest rates being lowered, STRC has this momentum that it will likely trade above par more aggressively given the nature of the floating-rate dynamic. The company then has a really interesting fork: you can either, one, issue more STRC and push the price back down to par, or you can use that moment to reduce the interest burden itself on what is outstanding. There is a healthy tension between these two things. Can you help us understand that risk framework a little better to calibrate that particular trade-off—lowering the coupon versus selling STRC? It changes the Bitcoin acquisition velocity, but it also cuts interest expenses, especially in that lower-rate environment. Any specific input parameters that you might say take priority here in your calculation? Michael Saylor: I will start, and then Phong or Andrew may have some comments. First of all, when macro indicators are moving against us, we have a headwind. Everything slows down. When we go to a restrictive monetary policy, that is bad for Bitcoin—really bad for Bitcoin. It is bad for risk assets. Bitcoin is risk assets squared; MSTR is risk assets cubed. We are like big tech cubed, and Bitcoin is big tech squared. In a risk-off environment, you can see that. In a risk-on environment or a more accommodative monetary economy, I expect you will see the opposite. Bitcoin will rally hard as squared; our equity should rally as tech cubed. The credit—presumably, we have more optionality if SOFR falls. Our bias is to grow the business responsibly but as rapidly as we can, and our bias is to grow Bitcoin. If we have the ability to accelerate our capital raising and we can raise twice as much capital in a risk-on or more accommodative monetary policy, we will run the vehicle as hard as we can, but we will not run it so hard that the capital structure does not keep up with it. The circumstances under which we would slow down or throttle the credit would be if we go to risk-on and Bitcoin does not rally and our equity does not rally, but the credit rallies. If the demand for the credit triples and somehow Bitcoin does not react to the interest-rate macro environment and/or MSTR does not, then we might very well adjust the dividend rate down because we are getting too much demand for the credit. By the way, I do not think that will happen. The likelihood that we go to a risk-on environment and Bitcoin does not rally is small. If Bitcoin rallies, our capital stack and collateral base expand, and then we can accommodate more credit. The rate of STRC issuance or credit sales is a function of the BTC growth rate or ARR. If Bitcoin grows 30%, we can expand credit aggressively. If it grows 50%, we could go faster. The second order is the equity capital markets’ enthusiasm for our business model. If the equity capital markets looked at our business and said, you are going to run a BTC yield of 20% a year and I am going to give you a P/E of 10, I am going to give you a 200% premium, and now you are trading at 3x MNAV—that would be better than we are right now. If the equity capital markets did that, our optionality increases as we grow faster. The countervailing view is, you have only been doing this for a year or two years, and the Lindy effect says I am only going to put a P/E of two on that. If we get a P/E of two, we could have a Bitcoin rally that gets us a collateral stack, but the equity does not go as fast, and that might govern the rate at which we run the credit engine. Bottom line: if the macro environment turns risk-on and Bitcoin rallies or equity rallies, it is go time. We are going to go, and we are going to go with the credit. We want to see the MNAV expand to two, three, four, five, or six. Nothing would make me happier than to rip the faces off of all the skeptics and the shorts and drive the equity to the moon. The question you have to ask yourself is: is this company going to sell $10 billion of STRC this year, or 20, or 40, or 80? The answer to how much we can sell responsibly is a function of where the Bitcoin price is, and to a lesser extent, how the equity capital markets react. If the equity capital markets are accommodating and supportive and Bitcoin rallies, the company has a lot of tools to manage the BTC rating and the collateral coverage. We can add more equity capital. We can put equity capital in the market fast—we were the biggest equity issuer last year and this year. We could also take common equity out of the market if we decided to. We will look at the interest-rate forward yield curve, how Bitcoin performs—Bitcoin performing as big tech squared—the forward expectation curve of BTC, the forward vol curve. Bitcoin vol at 40 or 35 is different than vol at 50 or at 20. When Bitcoin vol falls to 20 or 25, you can lever these things and still have investment grade—lever two, three, four, five times more and still have investment grade. Bitcoin vol being 30 right now is not the same as institutional credit investors expecting Bitcoin vol to be 30 for a decade. The forward yield curve, the forward vol curve, the forward price curve, the forward equity curve—all that gets discounted back, and we ask ourselves: what is the rational thing to do? At the end of the day, we want to drive the MNAV to the sky and drive the Bitcoin price to the sky and build STRC into the biggest credit instrument in the world. The higher STRC AUM we have, the more liquidity, and if we can get to $1 billion of liquidity for STRC, the vol will keep coming off, adoption will expand, and we get a network effect. If you gave me a choice—sell $500 billion of STRC and pay 11%, or sell $50 billion and pay 9%—knowing us, we want to gather the extra $100 billion of capital in a responsible way. Our long-term view is Bitcoin is going to go up more than 11%—30%—and if we are wrong, it is 20%. Two hundred basis points will not make the difference. But if we gather an extra $100 billion of capital, the war to determine the future of credit and the war to determine the future of money is going to be fought and won with money, and we are going to get the money if we can do it in a responsible way. If you construct a tortured scenario where Bitcoin price is not reacting and MSTR is not reacting, but everybody wants the credit, maybe we would slow down the credit machine. If equity investors are more bullish than credit investors, and BTC investors are more bullish than credit investors, the system solves its own problems—we are probably not going to be able to keep up with the expansion of our BTC collateral stack. Phong Le: I will add one short thing to this, Jeff. The scenario you lay out is in a maturation of the digital credit market—five to ten years out—when digital credit is $3 trillion on a $300 trillion market. We would run into this issue of how to manage the demand for STRC. Ten months into it, our issue is not so much what interest rate we are paying or what the Fed does to interest rates. The demand is going to be driven by awareness and marketing of the product right now. I do not think that scenario is going to be much of an issue for the short term. Jeff Bock: Got it. Thank you for those thoughtful responses. CJ Jain: Thank you, Jeff. Next, I would like to invite Andrew Harte from VDIG. Andrew Harte: Thanks for the question. I think the optionality in the business really came through clearly today. Shifting gears a bit: earlier in the slides, Michael, you talked about Bitcoin being digital capital and MicroStrategy being digital equity and STRC being digital credit. Then you also talked about innovators building digital money down the road—you called it like a layer three. Considering STRC is going to be the foundation or the building blocks for digital money at some point as the market continues to mature, what do you think that solution looks like? Are you having conversations with innovators who are out there looking to build on top of STRC and create these digital money solutions? Michael Saylor: Can you hear me? Andrew Harte: Yes, I can hear you. Michael Saylor: Okay. I think you see it with Apex and Saturn and Hermetica and a lot of the token issuers that are creating these yield coins that are powered by STRC. They are rapidly innovating. If you look at some of the DeFi protocols that are offering 2x, 3x, 5x, 10x leverage and looping—the Pendles of the world and the like—they are innovating rapidly. We do not know the final shape. I think there are a thousand different combinations of digital money and digital yield. There is a different currency in every country—I think you can create various yield coins in different currencies. In Australia, you can deploy via a regulated bank or via a token that can sell in Australia or via an ETF taken public in Australia or via a private fund in Australia. When you take the combination of currencies and platforms and containers, the sky is the limit. The people moving the fastest and most enthusiastically right now are the DeFi players, and people launching stablecoins that have to compete with Tether and Circle. The issue is: how do I convince people to put AUM or capital into my stablecoin? I need to create either a digital money—zero vol, 8% yielding—which is compelling, or a 25% ARR stake with a one-month lockup, looping three or four turns on the capital. The market will decide who it trusts and what form it wants to buy, and it votes with its money. You can literally watch the money flowing every hour. I think you will see some ETF players come, but they will come slower because there is more regulatory friction. We hold out hope that we will see a neobank offer a digital yield account. There is no reason why a bank or any neobank that is a mobile app could not say, “We will give you 8% on your money in this yield account if you want it.” Each one of these things is a different counterparty, a different platform, a different regulatory container. Eight to twelve weeks ago, we had none of these conversations going on, and now I see like three dozen initiatives. There is a Cambrian explosion. Check back in twelve more weeks—I think we will have some exciting news and partners. Or just watch my X feed because I retweet some of the more interesting digital yield and digital money offerings—they are literally happening. A lot of times, people are inventing stuff and I am finding out at the same time you are, but the market is evolving in real time right now. CJ Jain: Thank you, Andrew. Next, I would like to invite Eric Balchunas. Eric, please go ahead. Eric Balchunas: Hi. Thank you for having me today. Great presentation. My question is maybe a little more philosophical. It is about the changing ownership and identity of Bitcoin. According to River, in the past 16 months, businesses bought 560,000 Bitcoin. ETFs bought another 208,000. Governments bought 160,000. That is 1 million total Bitcoin by those entities. Meanwhile, individuals sold 730,000 Bitcoin. Some have called this the silent IPO, and it is arguably the reason for that 45% drawdown. This changing ownership is being reflected at recent Bitcoin conferences where you see an increasing number of “suitcoiners,” which you highlighted in the slide on the government and the banks. I have noticed it has made some of the native Bitcoiners a little uncomfortable and conflicted regarding the original mission, given it was made to bypass governments and banks. To me, it feels like Facebook ten years ago when everyone’s parents joined. Some people left the platform, although the user base did grow from 1 billion to 3 billion since then. I want your read on this transition—the mainstreamification of Bitcoin—and how important it is to keep the original base of investors along for the ride and keep the cypherpunk edge of Bitcoin as it goes more mainstream and gets adopted by companies, asset managers, governments, and boomers in general. Maybe it does not matter given the size of the institutional advisory market for the price to hit $1 million, but maybe it does. Just curious your thoughts. Michael Saylor: Since we got in this space, there has been something like $1.4 trillion of wealth created for people other than the suitcoiners. I do not know who got the money, but we can trace 4% to BlackRock investors—they must have 50 to 100 million beneficiaries. You can trace almost 4% to our investors—we have 100 million beneficiaries. If you look at the corporates, they are representing thousands of institutions and tens of millions of investment accounts and hundreds of millions of beneficiaries, and the network is decentralizing. It is distributing through them and maturing through them and finding its way into retiree accounts, insurance beneficiaries, trust funds, and three-year-old trust fund babies. Everybody in the world is getting exposure now. When everybody criticizes the centralization of the network, note that 85% of the network is held by others. It is held by the crypto OGs. We do not know how many people that is, but it almost certainly represents fewer beneficiaries than the beneficiaries that rely upon BlackRock’s ETF or a common public stock. The corporations have been spreading exposure to Bitcoin by an order of magnitude or orders of magnitude. If you ask who owns the trillion dollars of Bitcoin that is not public—there are Chinese, Russians, Americans, Europeans, South Americans, Ukrainians, Iranians. When you wonder who is selling it, well, it is a trillion dollars of capital held by crypto OGs that are unbanked. Maybe they are selling because the currency in Iran crashed; maybe they are selling because of some fear of a Chinese government memo. If the Chinese mined half the Bitcoin in the first 15 years, it is kind of impossible that there are not a lot of people with Bitcoin in China. Generally, the industry is maturing. It is rotating from the crypto OGs, but they are not going away. We spent $6.062 billion to get to less than 4%. It is pretty expensive to not get to the other 96%. If you look at all the money that BlackRock and us put into this— the $150 to $200 billion of capital that flowed from the institutions—it did not get 90% of the network. Ninety percent of the network is still in global crypto OG hands. I meet people everywhere in the world—someone slapping me on the back, thanking me for making them a lot of money—because literally people that you will never know who they are and will never announce it are sitting on $1.2 trillion of capital gains right now in the crypto ecosystem. I am not worried that the crypto ethos is being squashed. People with a trillion dollars probably have a lot of power to do what they will, and they are continuing to do it. The Bitcoin network is still highly decentralized. The miners are decentralized. This is a global phenomenon. If anything, what is happening is the corporates are just powering up the network. We are the people that invest the $100 or $200 billion to drive the price from $10,000 to $80,000—or from $10,000 to $100,000. When we do it, 90% of the gain goes to other crypto actors, and they power the entire decentralized digital economy. Good for them. That is good. The network is evolving in every direction simultaneously. I would take issue with anybody that says it is centralizing. It is decentralizing. Today, a lot of people with money and power are going to support and defend this network because of the success of the corporations—whether it is Coinbase, BlackRock, or Strategy Inc. If you are going to lobby for things that are good for digital assets in Washington, D.C., it is not going to be a Chinese crypto pseudonymous billionaire hiding off the grid doing that lobbying. The trillion dollars of crypto OG money is not going to fix the accounting, fix the tax code, fix the banking system, and build the technologies that actually commercialize these apps to a billion people. They are not going to give a bank account to a billion people that pays them 10%, and they are not going to put Bitcoin on every iPhone and every Android phone in the world. That is going to be corporate actors. The corporations are doing their part; the crypto OGs did their part. Everybody is in the system. There is tension—healthy tension. We welcome it. The fact that someone will sell Bitcoin because they are in Iran and some missiles got launched— that is a feature, not a bug. People are trading based upon things that have nothing to do with the way Wall Street trades the S&P index. That is what makes Bitcoin special, and that is why we welcome it as global digital capital. CJ Jain: Thank you, Eric. Next, we will invite Ramsey El Assal from Cantor. Hi. Thanks for taking my question tonight. Ramsey El Assal: Michael, you mentioned that if Bitcoin volatility were to fall as the asset pricing accelerates, you would have some options and cards to play to preserve the attractiveness of the model. Can you elaborate further on what you meant there? And then separately, can you give us a quick update on the BTC security initiative? How has that been received, and have there been any developments on the quantum risk topic worth calling out? Thank you. Michael Saylor: I will answer the first and let Phong answer the second. If you go to our credit tab on our website and type in a vol of 40, you have a BTC rating at 3—things look investment grade. When the vol falls to 30, you can have a BTC rating of 1.5 and it still looks investment grade. When the vol falls below 30, your amplification can triple or quadruple. As vol falls, credit risk falls. The forward volatility curve changes the view of credit investors and creates more demand among more traditional credit investors. It also changes the view of banking regulators and credit rating agencies. There is nuance: if vol is high, it is equity positive—options trading, liquidity, etc. When vol falls, it is very credit positive. You are going to get performance through volatility on the equity side and performance through more amplification and more intelligent leverage as vol falls. Over time, it is reasonable that Bitcoin matures from 40 ARR/40 vol to 20 ARR/20 vol. It will always be more volatile than the S&P and more useful, but if you are a credit investor, you want to be sensitive to it. The single number one issue in the market is: what is your forward volatility curve for Bitcoin? If you think Bitcoin is a 30 vol asset, everything we sell is investment grade and should be priced double or triple what it is. If vol starts to fall, there is no reason why there should not be a 10x bid on this stuff. You might lever 8 to 1 instead of 3 to 1. It will change the behavior of downstream players. Phong Le: On security, Ramsey: we have started to bring together a group of folks—calling it the Bitcoin security program or council. The objective is to bring together institutions that represent custodians, exchanges, and large Bitcoin treasury companies who have a vested interest in the success of Bitcoin, and share a combined point of view on the potential risk and time horizon of quantum, what activities are underway in the development community, and how we get to consensus. Likely in the next month or so, we will share who is in that group and our combined point of view. Right now, there are a lot of divergent points of view, and we thought it would be useful to bring together those who are interested in the success of Bitcoin. You will hear from the Bitcoin security program likely in the next month or so. Ramsey El Assal: Excellent. Thank you. Appreciate it. CJ Jain: Thank you, Ramsey. Next, Jeff Walton. Please go ahead. Jeff Walton: Thank you for including me, and I am very appreciative of your leadership. I have a two-parter. You spent a lot of the presentation talking about risk of the credit instruments. You have created a unique arbitrage surface between all of the different instruments and a unique incentive structure. It has resulted in people buying and selling the instruments right below par on STRC and some of the other instruments. First, do you find that the market agrees with you on the forward-looking volatility curve? Are the instruments trading in tandem with each other? What is the biggest hurdle in communicating that relative risk profile? Second, what is the biggest hurdle in accelerating the adoption of the digital credit instruments into the future? Michael Saylor: I think all of the credit instruments are undervalued. So no, the market does not agree with us. If the market agreed with us, then STRF would be trading at $200 a share right now, not where it is. I think the equity is undervalued. I think all the credit instruments are undervalued. I think all the bond instruments are way undervalued. We are embryonic. How do we fix it? The Lindy effect and education. Partly, we tell the story. Partly, people will have to wait. After we have been in the market for three years, they will say, “It has worked for three years,” and it will be rated up. We will be continually rerated as time goes by. We will not sit on our hands—we will communicate, publish, do investor outreach, and work with partners. As partners create compelling digital money products, that is helpful. How long will it take? How long did it take before the market thought Amazon had a good business? It took ten years. Netflix was mispriced for many years; Apple was mispriced for many years. With a revolutionary business, the market will be skeptical. It was skeptical of Google, Amazon, Nvidia, Apple—it will be skeptical of digital credit and digital treasuries for a while. Then there will be some point when it is not. We have to do the hard work of performing, laying down the track record, educating the market, and managing risk. The optimistic observation: the fact that the market is willing to buy more of STRC—that STRC is the most successful preferred stock in the world in this century—is an indication that maybe some people get it. There are a lot of indicators that it is working and spreading fast and virally, but we still have a lot of work to do. CJ Jain: Thank you, Jeff. Next, I would like to invite Randy Binner from Texas Capital. Randy, go ahead. Randy Binner: Thanks. Michael, I think this one is for you. We have talked a lot about the Clarity Act. It is important for the broader crypto ecosystem—this bipartisan compromise is good news. But for MSTR, for Strategy Inc, for your world, what would be the most important regulatory or policy change or impact? We have talked about banks and insurance companies being lobbied to recognize crypto as a statutory asset. Is it something like that? Follow-up: with so many arrows pointing in the right direction for crypto regulation and guardrails, do the midterms matter that much, and does the presidential election matter much from a policy and regulation perspective? Michael Saylor: Bitcoin is in a safe harbor. There is global consensus as digital capital. MSTR is sitting in a safe harbor—it is a publicly traded, well-known seasoned issuer that came public in 1998, governed by securities laws that date back 100 years. STRC is in a safe harbor—it is a publicly traded preferred stock based on 100-year-old tax law and securities law, trading on the Nasdaq. Everything that we are doing is sitting in a zone of regulatory clarity. I do not think we need any change in a law or rule to 10x or 100x. We can probably be 100x bigger from here without any change. We are not asking or looking for anything. Clarity is important to the balance of power regarding token issuers, DeFi exchanges, stablecoin issuers, crypto exchanges, and between the crypto industry, neobanks, regional banks, and big banks. The significance to us is sentiment. Skeptics will gloat if it slows down and will flip to cheerleaders if it passes. There is not anything that we need. It will change sentiment positively as it goes through. Long term, if I had a wish list: the Basel rules—if they are upgraded to recognize Bitcoin as legitimate collateral and not haircut it, it would be positive for banking adoption, especially credit adoption. Right now, there is still a bit of hair-cutting of it by credit rating agencies and very conservative regulated entities that want a gatekeeper or regulator to tell them it is okay. If you want an insurance company portfolio manager to buy the product without knowing what it is, it would be beneficial for the Basel rules to evolve and embrace Bitcoin as a legitimate asset. Right now, we are selling to informed investors that want to buy the best thing. If we just slurped up 10% of private credit, that is $370 billion right there. We have plenty of runway for the next decade. My wish would be for the Basel rules to be fixed and for the world to recognize Bitcoin as legitimate collateral, pari passu to gold or other capital assets on banking balance sheets and regulated entities—then it should spread faster through banks as a reserve asset and through insurance. But it is not necessary to us. We could be a multitrillion-dollar company and sell $400 billion of STRC and not have that fixed. Phong Le: One thing I will add, Randy, is STRC is already a rapidly accelerating product in the category of digital credit, and that is without clarity as it relates to tokenization of securities, which I think will either be created through the passage of Clarity or rulemaking by the SEC. That will only accelerate things. We showed $270 million of layer-two tokenized STRC from companies like Apex and offerings by Kraken. Those are sold outside the U.S., not in the U.S. When we get clarity, that will only accelerate things and accelerate layer development on top of STRC and digital credit overall. It is exciting to see what may come for something that is already an exploding asset class. Randy Binner: That is great. Thanks. CJ Jain: Thank you, Randy. Saving the best for last, James Lavish. James Lavish: Thank you, CJ. Congratulations on your new role. Phong, Michael, Andrew, thank you for having me and allowing us to ask questions. First, congratulations on your success with STRC. I am a believer in the digital credit world, and I appreciate you sharing the many levers you can now use to create value for the common shareholders while protecting creditors. With Strategy Inc’s energy and focus on STRC—which you have said before is a security you landed on through iteration—what do you see as the optimal future balance sheet structure maximizing the accretion of value for common shareholders? Would that include retiring most or all of the other debt and preferreds currently outstanding? Do you believe that is ultimately necessary to attract more of the largest institutions to invest in STRC in lieu of traditional yield-generating securities? Michael Saylor: We think we want to be debt-free completely. All six of the converts may go away by either swapping them for STRC, swapping them for equity, or paying them off with cash. There is consensus on that. There is consensus that STRC is the killer strong credit instrument. The jury is still out on the other four credit instruments. They are all long-duration credit instruments and represent important optionality for the company. Our policy will be to retire the six convertible bonds, promote and polish the jewel in the crown—which is STRC—and then watch and nurture the other four, improve them as we can, and observe whether or not they are material in generating demand. If I was designing a Bitcoin treasury company from a clean sheet of paper, the company would consist of one common equity, one monthly (or semimonthly) variable preferred equity, and a big stack of Bitcoin—and nothing else. That is my advice to anybody that asks. The other things are interesting—maybe—but not necessary. We will watch them. It is very difficult to create a publicly traded instrument like STRF, STRD, STRK, or STRE, so we will not retire them because it represents giving up billions of dollars of optionality. But what is critical for us is to manage the common stock carefully to get the MNAV up and the premium up, manage the Bitcoin stack, and manage the monthly variable-rate preferred—the digital credit instrument. Those are the things that really matter. CJ Jain: Thank you, everyone. That brings us to the end of the Q&A session. I would like to thank everyone for their questions and all the attendees for joining and listening to the earnings call. I will hand it back to Phong for any closing remarks. Phong Le: I want to first thank everybody for attending our earnings call. I know there are tens of thousands of you out there, spending two hours and fifteen minutes of your evening with us. We find that to be very gracious and flattering. Many of you are shareholders of our common MSTR and our perpetual preferred STRC. As many of you know, we have a shareholder vote coming up that is due early June to primarily modify STRC to go from, as Andrew mentioned, a monthly dividend to a semimonthly—twice a month—dividend. We believe this is beneficial to our shareholders. As we mentioned, one of our principles is to make STRC better and more attractive. We would appreciate you all voting early so that we can start to tabulate the votes, and this is how you can do it. If you have questions on how to vote for STRC and for the common, you can also go to our website. I really appreciate your time. Thank you for all the interest and the attention, and we will talk to you again—if not before then—at our next earnings call three months away. Thank you all.
Operator: Good day, and welcome to the Aptiv Q1 2026 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Betsy Frank, Vice President, Investor Relations. Please go ahead. Betsy Frank: Thank you, Cynthia. Good morning, and thanks for joining Aptiv's First Quarter 2026 Earnings Conference Call. The press release, slide presentation and updated New Aptiv pro forma financials can be found on the Investor Relations portion of our website at aptiv.com. Today's review of our financials exclude amortization, restructuring and other special items, and will address the continuing operations of Aptiv as of March 31. The reconciliations between GAAP and non-GAAP measures are included at the back of the slide presentation and the earnings press release. Unless stated otherwise, all references to growth rates are on an adjusted year-over-year basis. During today's call, we will be providing certain forward-looking information that reflects Aptiv's current view of future financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings. Joining us today will be Kevin Clark, Aptiv's Chair and Chief Executive Officer; and Varun Laroyia, Executive Vice President and Chief Financial Officer. With that, I'd like to turn the call over to Kevin. Kevin P. Clark: Thank you, Betsy, and thanks, everyone, for joining us this morning. Starting on Slide 3. The first quarter concluded with the successful completion of the separation of our Electrical Distribution Systems business into a new independent public company, Versigent, which you'll hear more about following their earnings release and conference call after the market closes later today. The step in our portfolio evolution better positions Aptiv to enhance our advanced software and hardware tech stack, further diversify our end market mix and accelerate our revenue and earnings growth. I'll start by covering our first quarter total Aptiv results. We continue to flawlessly execute for our customers in an increasingly dynamic environment, further amplified by the conflict in the Middle East, enabled by our operating rigor and the resilience of our business model. We secured $7 billion of new business awards while also delivering solid financial results, including revenue of over $5 billion, an increase of 1% versus the prior year despite a deterioration in underlying vehicle production. Adjusted EBITDA of over $750 million, driven by flow-through on volume growth and strong operating performance, which helped to offset significant year-over-year headwinds from FX and commodities. When combined with lower net interest expense and a lower share count resulted in record earnings per share of $1.71. Varun will review our financial results in more detail later. Turning to Slide 4. My remaining prepared remarks will be focused exclusively on New Aptiv, a leading provider of advanced software and optimized hardware solutions across multiple end markets that are being shaped by the acceleration of automation, electrification and digitalization. Our deep domain expertise and experience providing OEMs with our technology stack to enable their vehicles to sense, think, act and continually optimize increasingly can be utilized for applications in other end markets, which I'll talk more about in a moment. Competitively, we're well positioned with content on all market-leading platforms across automotive, commercial aerospace and telecom. And roughly 1/4 of our business is in markets outside of automotive, and we have several strategic priorities underway to further increase our penetration of those markets, and we maintain a diversified regional revenue mix and have significant momentum gaining share with the leading local China OEMs on vehicle platforms sold in China, as well as exported to or manufactured in overseas markets. In addition, we've made significant progress further penetrating the leading OEMs serving the markets in Japan, Korea and India. Turning to Slide 5 to spend a moment discussing New Aptiv's investment thesis. First, we've built a comprehensive portfolio that collectively powers intelligence at the Edge by enabling devices and systems to sense, think, act and continually optimize. Second, we deliver our unique product portfolio through a robust operating model that leverages our global engineering, supply chain, manufacturing and commercial capabilities, enabling us to provide high-performance, cost-optimized solutions backed by a resilient supply chain on a global scale, ensuring flawless execution in a dynamic environment. Third, our unique product portfolio and robust operating model are leveraged to create an attractive financial profile that includes more diversified, higher-margin revenues. And lastly, generates a significant amount of free cash flow that can be allocated both organically and inorganically to enhance the earnings power of our business while also returning capital to shareholders. We made solid progress across each of these pillars in the first quarter. Continued product innovation supporting new and emerging use cases across diverse end markets, including two that were showcased at last week's Beijing Auto Show, the advancement of our next-generation end-to-end AI-powered ADAS platform designed to deliver safer and more enhanced hands-free L2++ autonomy in both highway and urban environments. And in robotics, we partnered to enhance the functionality and performance of both an AI-powered collaborative robot and an autonomous mobile robot for material handling, each of which integrates our award-winning pulse sensor and advanced compute solutions. We successfully navigated ongoing geopolitical dynamics and the evolving macro environment by leveraging our resilient operating model to manage through changing vehicle production schedules and increasing headwinds associated with rising input costs, including resins and metals, enabling us to deliver strong operating performance in the quarter, more than offsetting ongoing headwinds while continuing to invest in key strategic initiatives. Our financial results reflected continued momentum advancing our strategic priorities, including high single-digit revenue growth in nonautomotive markets and double-digit revenue growth across our software and services product portfolio as well as margin expansion of 30 basis points, excluding FX and commodities, a measure more reflective of the results of our business given we passed the majority of input cost inflation on to our customers. And lastly, we worked diligently through the Versigent separation to position both companies for success with strong operating models, resilient supply chains and solid balance sheets. However, there's still more for us to do, and I'm confident that we'll continue to make progress further strengthening our value proposition and creating shareholder value. Moving to Slide 6. Customer awards were strong in the first quarter, totaling $4.6 billion, an increase of approximately 15% from the 2025 quarterly average, and included roughly $900 million of bookings with nonautomotive customers. Both business segments posted solid results with approximately $2.4 billion in awards for Intelligent Systems, and $2.2 billion for Engineered Components. I'll talk more about some of the key customer awards across each segment in a moment, but would also note that we have a large and growing pipeline of commercial opportunities and expect 2026 bookings of more than $20 billion. Let's now review each segment in more detail, starting with Intelligent Systems on Slide 7. Our tech stack, which first enabled intelligence at the edge for automotive applications is now gaining momentum for applications in other markets such as drones within aerospace and defense, and robotics within diversified industrials. During the quarter, there were a number of new program and product launches of [indiscernible] include the launch of an intelligent interior camera that incorporates our entire software and hardware stack, enabling enhanced interior sensing functionality, including driver monitoring and driver view features for the flagship sedan vehicle platform of a luxury German OEM. And the launch of an integrated high-performance cockpit controller for the high-volume, mid-level variant of an Indian OEM's electric SUV lineup, which follows a successful launch last year of an entry-level model. We also secured several important new business bookings in the quarter, including active safety award from a large North American OEM that integrates our full tech stack from sensors to compute to software, for incremental large truck and SUV platforms, underscoring the flexibility of our solutions and deep technology partnerships with several customers. And sensors and advanced compute awards for a leading China local OEM for their next-generation EV platform, which support production for both the China [ market ] and export volumes. We also secured several notable software and service awards, including VxWorks RTOS and a Helix virtualization software award for a leading defense [ prime ], building upon an established long-term partnership with this customer. And the software tool chain award for a large North American OEM that will be used to optimize -- which will be used to build optimized deterministic software for mission-critical and safety-critical embedded systems. This award supports this OEM's software factory initiative to move towards cloud-based development and software-defined solutions. Lastly, our commercial momentum has also accelerated in the robotics and drone markets. In addition to our partnership with robust AI and [indiscernible] robotics, this quarter, we secured another partnership agreement with [ Comau ], a top 10 industrial robotics company. In addition, we've been executing sub proofs of concept and pilots in both the robotics and drone markets, that we're confident will translate to commercial agreements, and we plan to share further progress on these efforts in the near future. Moving on to Slide 8 to cover [indiscernible] components. Notable new program launches during the quarter included a broad array of high-speed interconnect launches, including [indiscernible], Ethernet in other flexible and modular assemblies across more than two dozen nameplates and OEMs, ranging from North America to Europe to China, powering next-generation software-defined vehicle architectures. High-voltage electrical centers for two major local China OEMs, which will support production for both the China market and export volumes. Continued proof points of the progress we're making growing in the China market, specifically with the top 10 local OEMs that are growing both domestically and overseas. And terminals across numerous models within the portfolio and across regions for a North American-based global EV automaker. Moving on to new business awards. We secured a high-voltage [indiscernible] award from a major Korean OEM that combines high performance at a competitive cost, supporting its next-generation multi-power train software-defined vehicle platform. High-speed interconnects and components from multiple aerospace and defense primes, including for lower orbit satellite and subsea applications, and a low-voltage connection system award for an integrated high-power energy storage solution from a North American-based global EV OEM that scales to support grid level performance and resilience. Collectively, these awards reflect the breadth of our solutions, meeting demanding performance and reliability requirements in automotive, which also translate across a range of other end markets. I'll now turn the call over to Varun to go through our financial results, and our full year and second quarter guidance in more detail. Varun Laroyia: Thanks, Kevin, and good morning, everyone. Starting with first quarter on Slide 9. Total Aptiv, including our EDS segment delivered solid financial results in the quarter, reflecting robust execution amidst a dynamic market backdrop, where we once again navigated industry-wide and OEM-specific production disruptions and macro-driven input cost inflation. Revenues of $5.1 billion grew at an adjusted rate of 1%, driven by strength at EDS, while [ new ] Aptiv absorbed certain customer mix headwinds, but importantly, progressed in diversifying revenues with 9% growth in nonautomotive, and 10% growth in software and services. Adjusted EBITDA was $752 million. EBITDA margin declined 90 basis points year-over-year, driven by FX and commodity headwinds of 180 basis points, well above the 120 basis points we had forecasted for the quarter. It should be noted that the year-over-year impact for [ new ] Aptiv was lower. Earnings per share was $1.71, an increase of $0.02 from the prior year, reflecting the benefit of lower interest expense and low share count, partially offset by a higher tax rate. Free cash flow for the quarter was negative $362 million, and this included approximately $260 million in transaction payments across [ new Aptiv ] and Versigent consistent with our guidance for the year. It should be noted that we anticipate approximately $100 million in separation costs for new Aptiv in Q2. However, we will recoup approximately $80 million of transaction payments which were tax-related later in the year. Turning to the next slide and looking at first quarter adjusted revenue growth on a regional basis for both Total Aptiv and New Aptiv. For Total Aptiv, revenue growth of 1% on an adjusted basis was driven by growth in North America and Asia Pacific, which was partially offset by a decline in Europe. New Aptiv, as I mentioned earlier, faced some customer mix headwinds in the quarter, most of which are [indiscernible], while generating strong results in strategically important areas. Looking at revenue growth by region for New Aptiv. In North America, revenue grew 7%, driven by double-digit growth in Intelligent Systems and strength in nonautomotive markets. In Europe, revenue was down 5%, largely reflecting unfavorable customer mix, specifically with one of our largest customers in Intelligent Systems due in part to a slower-than-expected ramp-up of next-gen programs. In Asia Pacific, revenue was down 5%, essentially in line with vehicle production, reflecting continued improvement in our business mix in China with local OEMs and growth with ex-China Asian OEMs. Moving on to our results on a segment level on Slide 11 and starting with Intelligent Systems. Revenue of $1.4 billion decreased 1% versus the prior year, which reflects two discrete factors. As we have discussed previously, the cancellation of certain programs from local China OEMs in 2025, which will anniversary midyear, and a greater-than-anticipated headwind from lower production at 1 of our largest North American customers owing to supply chain constraints following its supplier fire. Although this should be partially recovered in the second half of the year. Cumulatively, these two factors amounted to approximately 250 basis points of headwinds to Intelligent Systems revenue growth in the quarter. And these were largely offset by strength in other areas, including double-digit growth in software and services. Intelligent Systems adjusted EBITDA margin declined 90 basis points primarily owing to a 60 basis point headwind related to FX and commodities, as well as incremental investments across product engineering and go-to-market to continue diversifying towards nonautomotive markets. These were partially offset by performance improvements. Moving to Engineered Components. Revenue of $1.7 billion was flat on an adjusted basis. This reflects 6% growth in nonautomotive, including double-digit growth in diversified industrials markets, offset by a 2% decline in automotive, which reflects some customer mix headwinds in China attributable to broad-based production volume declines there, including with the largest local OEM. Engineered Components adjusted EBITDA margin declined 90 basis points which was entirely the function of a 140 basis point headwind related to commodities and FX. Excluding this impact, margin expansion was driven by performance initiatives. And lastly, I'll briefly comment on our EDS business, which will move to discontinued operations starting in Q2. Revenue of $2.2 billion increased 3% on an adjusted basis driven by strength in Asia Pacific, both in China via export volumes and in APAC ex China countries. And favorable customer mix in North America, which offset broader production clients globally. EDS adjusted EBITDA margin declined 70 basis points versus the prior year, and this reflects a 260 basis point headwind related to FX and commodities which was largely offset by the timing of certain recoveries and flow-through on volume growth. Moving to Slide 12 to discuss our balance sheet before I discuss guidance. We ended the quarter with $3.2 billion of cash. This was temporarily inflated as it included $2.1 billion of gross debt raised by our EDS subsidiaries, which was assumed by Versigent on April 1st. In conjunction with the spin-off, year-to-date Aptiv has paid down $2.1 billion of debt, including $300 million in the first quarter, and $1.8 billion in early April. This was funded by a [ $1.65 billion ] dividend on a net basis from Versigent upon the spin-off, and $400 million from cash on hand. Pro forma for the spin-off mechanics, New Aptiv gross leverage. For the first quarter was 2.3x, and net leverage 1.9x, both of which are consistent with our leverage levels [indiscernible] to the ASR program that was launched in Q3 of 2024. We also deployed $75 million towards share repurchases in the quarter and plan to remain [ Aptiv ] on this front through the remainder of the year. Looking forward, we remain committed to a balanced approach to capital allocation, focusing on bolt-on acquisitions and investments, as well as continued return of excess cash to shareholders. Moving on to our 2026 financial guidance on the following slide. We are maintaining our full year 2026 financial guidance which is presented on a pro forma basis to exclude our EDS segment in the first quarter. We continue to expect adjusted revenue growth of 4% at the midpoint. And this implies an acceleration through the course of the year which is driven by the following factors, first half to second half. First, approximately 100 basis points from an improvement in vehicle production. Second, approximately 150 basis points from the abatement of certain headwinds mentioned earlier, which are specific to our business, and include the production impact at one of our customers related to a supplier fire in North America, and select program cancellations in China in 2025. And third, approximately 300 basis points from the anticipated timing of program launches and ramps. We continue to expect adjusted EBITDA and EBITDA margin of $2.4 billion and 18.6% at the midpoint. I would call out that we are starting to see incremental inflationary pressures on materials as a result of the conflict in the Middle East. And relative to our prior guidance, we now anticipate higher input costs, primarily in commodities, some of which had occurred in the first quarter. However, as in the first quarter and through last year, we expect to continue offsetting these macro headwinds through performance initiatives and where appropriate, customer pass-throughs. We continue to expect adjusted earnings per share in a range of $5.70 to $6.10, which assumes an effective tax rate of 18.5%, and does not incorporate any meaningful incremental benefit from share repurchases. Free cash flow is expected to be $750 million at the midpoint which is inclusive of transaction costs associated with the EDS separation, the majority of which are being incurred in the first half, as well as continued investments in supply chain resiliency for semiconductors. For the second quarter specifically, we expect adjusted revenue growth of 2% at the midpoint. Adjusted EBITDA and EBITDA margin of $580 million and 17.6% at the midpoint. And lastly, we expect earnings per share of $1.40 at the midpoint. Just as a reminder for everyone, on day 1 of the EDS separation, New Aptiv is burdened by $70 million in annualized stranded costs, which we are working to completely eliminate from our cost structure by the end of 2027. And finally, outflows by reiterating that our robust business model and relentless focus on optimizing performance, we remain confident in our ability to drive strong execution and financial results, as well as enhanced shareholder value. With that, I will turn the call back to Kevin for his closing remarks. Kevin P. Clark: Thanks, Varun. Before I wrap up on Slide 14, let me provide some additional context on our outlook. We continue to see significant long-term opportunity for our portfolio of products and solutions, while in the shorter term, we do see challenges that our industry will have to contend with. As Varun alluded to, the macroeconomic environment remains very dynamic, at present and is reflected in our first quarter results and full year guide, we're experiencing a meaningful increase in input costs, broadly related to the ongoing conflict in the Middle East. However, as evidenced by 2025, we have a resilient business model with an ability to mitigate and offset these pressures through performance initiatives and through commercial recoveries. That being said, should the current situation persists, it could amplify these pressures from a macroeconomic perspective, which are difficult to precisely forecast at this point. And this uncertainty could present a challenge to the value chain across the markets we serve, which is a risk, but it's also an opportunity for Aptiv to demonstrate our value proposition to our customers, providing high-performance, cost-optimized market-relevant system solutions at global scale and with industry-leading service levels. Now to wrap up, after reporting our final quarter as Total Aptiv, we're positioned to benefit from the sharper focus resulting from the completion of our strategic portfolio evolution. For the New Aptiv, we're now better positioned to accelerate our product development and enhance go-to-market activities to further penetrate multiple high-growth end markets. The high-quality opportunities we're actively engaged in is growing, and our momentum is accelerating. I'm confident these opportunities will result in incremental customer awards and strong financial results, and we'll continue to remain relentlessly focused on delivering value for our shareholders. Operator, let's now open the line for questions. Operator: [Operator Instructions] We will take our first question from Colin Langan with Wells Fargo. Colin Langan: Any color -- you kind of talked about some of the puts and takes. But the sales and margin guidance are at the midpoint [indiscernible], but we know FX is different. Commodities are different. Any puts and takes in terms of FX now a little bit more of a tailwind? Is commodity now part of your -- a bigger part of your sales and is production now down? Any color on the -- sort of the -- sort of recomposition of guidance given a lot of the changes in the quarter? Kevin P. Clark: Yes. It's Kevin, Colin. So that's a great question. So thanks for asking it. I think I'll start at a high level, and then Varun will walk you through the pieces. We're in a dynamic environment. I wouldn't say -- you made a comment or ask the question, is FX -- or FX -- is FX and commodities a bigger item for Aptiv -- the New Aptiv? From a commodity standpoint, it certainly isn't. What's going on as you follow the markets is we've had tremendous spikes in commodity prices over the last few months. And we do have products like copper, like silver, even to some extent, gold that impacts -- that is included in our product, and we get impacted by those changes in commodity prices. Clearly what's going on in the Middle East from a price of oil standpoint, impacts [ resins ]. So those input costs, the spikes in those input costs have significantly impacted us in the first quarter, and we believe for the foreseeable future. Relative to our traditional business, pre spin, I would say those are actually less from an overall buy and exposure standpoint. Varun, I don't know if you want to walk through? Varun Laroyia: Yes. I'm just going to paraphrase some of the stuff that Kevin just mentioned. But Colin, first of all, from a commodities perspective, copper, gold, silver, oil-based products such as resin, as Kevin mentioned, yes, we are seeing inflationary pressures. Those are up versus our guidance from 3 months ago. So that is one aspect, which is kind of weighing on overall updated guidance. Overall, FX remained positive for us on a year-over-year basis. So I just want to share that with you. And then I think your final point was underlying vehicle production assumptions. Yes. So from our perspective, first half to second half, we see activated vehicle production down [indiscernible] in the first half and down [ 1 ] in the second half of the year. So we do expect to see an improvement in underlying vehicle production first half to second half. Colin Langan: Now [indiscernible] imply went for the year-end production. Is that in line with S&P of [ down 2 ]? Kevin P. Clark: Yes. It's roughly in line with [ S&P ]. Colin Langan: Got it. And then just secondly, on -- if we look first half to sign up, I look at the midpoint of Q2 and the midpoint of full year guidance, you did explain pretty well the expected improvement in sales growth. There's pretty high conversion as well on margins. I think it's something like a 60% conversion on higher sales half over half. What's driving that? I know there's normally -- is that just normal seasonal recoveries? Or is that kind of skewed a little bit extra because of the commodity recoveries as well? Kevin P. Clark: Yes, I'd say a couple of items. As you know, the mix of our business first half to second half. Traditionally, we experienced higher margin, or higher flow-throughs giving engineering -- timing of engineering recoveries and items like that. There may be a small amount of commercial recovery that's back half loaded, but I think that's fairly balanced, Colin, for the full calendar year. I think the margin profile of the business ex our traditional EDS business is higher, so flow through on volume growth, just given where our gross margins are now, you should expect that to be actually higher. So I don't have the numbers right in front of me, but I don't think there's anything unique relative to first half -- second half profitability versus first half other than things like engineering recoveries. Operator: We will take our next question from James Picariello with BNB Paribas. James Picariello: Can you to the Aptiv safety growth in the quarter, and what your expectations are there? And then as well as separately for user experience. And then, yes, I know Colin just hit on this, but just on margin front. What differs this year in that first half, second half split on the year's margin cadence where we saw a more balanced split last year? Kevin P. Clark: I'm sorry, Can you repeat the second half of your question? [indiscernible] understood. James Picariello: Yes. Just on the margins, as we look at New Aptiv, so last year, the first half, second half split in profitability like just the margin was pretty balanced. First half, second half, and then this year's guidance has a more significant second half step-up on the margin front? Kevin P. Clark: Okay. I'll let Varun walk through that. As it relates to ADAS [indiscernible] growth, listen, as we is reflected in our disclosures in our presentation, we're starting to see conversions between different domains [indiscernible] so when you think about things like in-cabin sensing, is that an ADAS product, or user experience product, when you see domain consolidation and some element of use of fusion chips were the ADAS controller, or the [indiscernible] controller consolidating. It's going to continue to get fuzzier and fuzzier. So that's why we're trying to give a more clear of visibility and transparency to investors as you think about sensors and compute software and services breakdown. ADAS in Q1 was basically flat, though. Having said that, that's principally driven because of that large North American OEM that had significant supply disruption given the fire at their aluminum supplier. As we look at the back half of the year, we see a significant ramp-up related to that particular customer and ADAS growth. So we'd expect ADAS to be in line with kind of the mid-single-digit, sort of, growth rate. With respect to user experience, it's consistent with what we've talked about in the past as we introduce new -- as new programs get launched principally in China today. That's an area where we'll see second half more significant growth. It was impacted to some extent in the first quarter just given small delays in [indiscernible] in China well as some soft production with a European OEM in the [indiscernible] sector. Varun, do you want to talk about... Varun Laroyia: I will. Yes, yes. James, a good question, and thanks for raising it. So the question was specifically in terms of first half versus second half profitability. Listen, the 3 items I would highlight. The first, as Kevin mentioned, is just a second half, third quarter, fourth quarter, true-up associated with engineering credits, and that's something that we've seen in the years gone by also. That's kind of point number one. No change from that perspective. The second one I'd call out is just kind of recovery on commodities, and there's something that we've always talked about, there is a timing lag. The recoveries that we have -- the higher commodity prices currently, there is a timing like 3, 4 months is what we've typically talked about. We expect those to kind of come through in the second half as the second one. And the final point I can raise is we are happy with the way our software and services business has grown double digits in Q1. And that's an industry which continues to kind of have seasonality weighted more towards the second half of the year. So the margin profile associated with that product line also, kind of, adds to the overall profitability first half relative to the second half. James Picariello: Right. No, that's very helpful. I appreciate all that color. And then I [indiscernible] will host this conference call [indiscernible] today. But just on EDS, if you're willing to discuss this business at a high level, a competitor recently announced a major [ Conquest ] wiring award. I would just be interested in, again, any color on that competitor program announcement and any perspective on the broader bookings backdrop as it pertains to [ wiring systems ]? Kevin P. Clark: Sure. Thanks for asking this question. I typically wouldn't comment on an individual OEM program award. And I certainly wouldn't speculate on the relationship between another supplier and an OEM customer. I find it inappropriate and be very transparent [indiscernible]. However, given the nature of the comments made and the inaccurate message that's in the marketplace, I think I have to comment on this particular matter, and in line with kind of standards for the -- that should be upheld by our industry up. My comments, I want to make sure everyone [indiscernible] have been approved by General Motors leadership. I think that's important for you to know. I'll confirm GM did award a very small portion of the wire harness content on the T1 program to another supplier. This portion represents a simpler portion of the harness. It's a build-to-print portion of the harness. GM actually refers to it as the simple harnesses. We remain the supplier for the most complex portion of the programs where harness content firmly aligned with where our core strengths are. This is where most of the actual water harness content is. The bulk of our EDS business is more complex full-service wire harnesses where we design, we develop, we assemble the harness to bring more value to the OEM. And this is a business we've been strategically focused on. I think, as all you know. And this is, quite frankly, the area where it's the highest margin, and it's growing the fastest. And it's least exposed to changes in vehicle architecture and the transition to things like zonal controllers. Build-to-print. It's a much smaller portion of the EDS segment. That's, I don't know, 20% of total revenues, maybe 25% of total revenues, much less complex. It's much lower margin. And for that reason, it's not as a strategic area of focus for us. Now having said that, we want all of an OEM's wire harness business. And General Motors is a very, very important customer to us, and this is an important program. Regarding comments related to our relationship with GM, which for me is the most disturbing, in fact, remains very healthy. And I -- given the comments made, I've personally reconfirmed with GM leadership and I can share with you some comments that were made by GM leadership. There have been zero service -- these are quotes. "There have been zero service level issues. That is never a problem with EDS. EDS is the gold standard for wire harnesses and EDS is our strategic wire harness supplier. And there'll be incremental full-service wear harness opportunities for the EDS business with GM in the future." So I hope these [indiscernible] put these rumors and factually incorrect comments to bed. The EDS business is the leader in the wire harness space. It's a great business. And I'm sure Joe and team will make some comments during the earnings call early evening. Operator: We will take our next question from Chris McNally with Evercore. Chris McNally: Thanks so much, team. Kevin, on the call, I thought you sounded the most positive about some of these, sort of, additional areas of growing the active TAM that you've been in a long time. And I think a lot of times, we always discuss, sort of, M&A bolt-on opportunities in industrial. But just looking at the ECG highlights on Slide 8. I mean, the awards now are in naval, space, energy storage. And so my question here is on some of the exciting opportunities that the world is all seeing in AI and data centers, and that some of your competitors have strong business opportunity in. Could you just talk about what would have to happen organically for you to start to invest? Automotive is one of the harshest environments. Could you get into those businesses over the next year or 2 from an organic greenfield, brownfield perspective because it seems like a pretty big TAM opportunity? Kevin P. Clark: No, Chris, it's a great question, and I should start with -- it's a great question. It's a great opportunity. The team is making significant progress, quite frankly, across each of our businesses. As it relates specific to the Engineered Components business, we've been very active over the last 1.5 years, 2 years leveraging what we have in our Winchester product portfolio, which is principally targeted on nonautomotive business with a very strong position in areas like A&D, like diversified industrials. Developing solutions from that product portfolio with our traditional interconnect solutions and bringing those to nonautomotive customers more as systems. So we've made a lot of progress. That's an area we have been investing in, both from a product standpoint as well as from a go-to-market standpoint. We've been leveraging our customer relationships in the U.S. as well as in China, where there are strong OEM relationships that span across industries. So leveraging our capabilities and our relationships in those automotive businesses to take solutions into things like aerospace into areas like data centers. We have a very focused initiative as it relates to building out our data center product portfolio, certainly our space product portfolio. So there's been a great deal of focus in that space, and we're gaining real traction. To meaningfully move it, as we've talked about in the past, that really requires M&A. We have a long funnel of bolt-on M&A opportunities that the team is executing on. That hopefully, during the calendar year 2026, we're looking to close on. And to wrap up, quite frankly, we're very excited and feel like we're very well positioned to pursue these opportunities. But we're very excited about our opportunities within automotive and the trends that are headed there. Near-term, we're wrestling with a few customer mix issues and industry mix use that we think as we move on through the year, you'll see improvements on. Chris McNally: That's great, Kevin. So, I mean, [indiscernible] to paraphrase some of the small bolt-on acquisitions could go a long way to some of the internal initiatives that you've been working for. But with some of these bolt-on acquisitions comes to [ sales force ] and these relationships that then you may have a lot, so 1 plus 1 equal 3. Kevin P. Clark: Exactly. It's not just the product portfolio piece. It's the industry positioning piece and building up sales organization and product organizations that have years of experience in a particular sector that we can leverage across our broader product portfolio. Absolutely. Chris McNally: And then just the last follow-on. I mean I kind of focus on AI and data centers. But like energy storage actually should be very easy given some of the customers now, obviously, with a lot of battery -- excess battery capacity in the U.S., the customer set is almost the same for a good portion of that business. Is that one that could be done a little bit more organically? Kevin P. Clark: Yes. That's one that is being done very organically now. So that's a focused effort with a focused product portfolio with a focused sales team. So there are a significant number of business awards we received. They tend to be smaller relative to large OEM program awards. But we're gaining a significant amount of traction across multiple OEMs. So that is certainly a tailwind. Listen, as it relates to -- you made a comment about AI, and this is true in the interconnect portfolio, as well as in our software and services portfolio. As AI accelerates, it provides a structural tailwind for both of our businesses, whether that be some of the products that we have in intelligence systems, or in engineered components, as more and more is driven to the edge, AI is driven to the Edge. They need high-speed interconnects, high-speed cable assemblies. We need RTOS solutions, or Linux solutions to enable performance at the Edge, and those are areas that in automotive, we've been enabling for a very long period of time. And that's an area that we're confident we'll continue to get more traction. Operator: We will take our next question from Joe Spak with UBS. Joseph Spak: First question is, Varun, you mentioned -- and I appreciate all that, some of the margin drivers half over half. I think I counted like 550 basis points. But your guidance is about 180 basis points half-over-half. So I just want to, maybe, understand if we could sort of talk through some of the offsets and, sort of, what exactly is baked in? Like, is some of that -- some of the commodities and higher input cost, is that sort of what's sort of weighting that back down? Or maybe we just sort of complete that bridge? Varun Laroyia: Yes. Joe, it's Varun. It's a great question. Yes, you're right. I think in terms of the half-over-half walk on revenue, the 100 bps, as I mentioned, is improvement in the underlying vehicle production half-versus-half. About 150 basis points specific to us with regards to the production impact at one of our customers related to supply fire in North America and then obviously select program cancellations in China in 2025, that will anniversary midyear. And the final one to mention was just the 300 basis points of anticipated timing of program launches and ramps. So that's the 550 basis points that you mentioned. With regards to the commodity side of things, yes, as I mentioned previously, we are seeing incremental inflationary pressures on input costs over the last 90 days since we initially gave guidance for pro forma New Aptiv to now, there is an uptick of about 60 basis points on the commodities and FX side of it. As I mentioned, basically, it's commodities. FX remains a net positive on a year-over-year basis. And it's -- again, it's the same things with regards to based on where copper is trading. And while overall exposure levels to copper, pre-spin to post-spin are markedly down. We still have some of those. Some of those are contractual pass-throughs. The remainder of it is commercial negotiations. But then also, we have exposure to gold and silver. And if you see as to where those have been trading, on a year-over-year basis, that's the other aspect of it. And then finally, our Connection Systems and [indiscernible] business as part of the Engineered Components portfolio, does have a significant level of resin purchases. Clearly, a key input cost into resin is oil. But that's the other aspect that we've seen through -- come through, that we expect to kind of ramp up. So yes. And again... Joseph Spak: I may have misunderstood. So that happened was the top line and then we should think about the flow-through on that top line, and then some of the commodity inputs is sort of the offset to when we think about the margins? Sorry. Varun Laroyia: Yes, yes. That's right. Joseph Spak: Okay. Okay. And then Kevin, just maybe to follow up of your last conversation with Chris. The nonauto awards in EC and space, energy storage naval $500 million. I think we're all familiar with auto lead times, but maybe you could give us a sense for these businesses, like how quick do some of these business comes on? What's the sales process like? And when you kind of convert to revenue? And maybe the same thing for IS, if you don't mind, and [indiscernible] Kevin P. Clark: Yes. It's a good question. So the sales cadence, it's in both segments, the sales organization is a separate distinct sales organization. So we have separate teams and separate product teams. So commercial teams, as well as product teams that support the go-to-market. The programs tend to, between award and actual revenue can range as short as a few months to -- as fast -- as short as a few months to -- I think at the far end, you're talking under a year. So call it, 9 months in those sort of typical areas, so much shorter from a long lead standpoint than what we have in our traditional business, automotive or in commercial vehicle. Operator: We will take our next question from Mark Delaney with Goldman Sachs. Mark Delaney: The [ company ] spoke already about the pickup in growth from the roughly flat year-over-year organic in 1Q to the 4% outlook for the full year for New Aptiv. A couple of those drivers you spoke about were timing. We [ get 2 new ] product launches and an assumption that auto production is more stable in 2H. I'm hoping you could share more on whether there's any conservatism in those assumptions relative to customer schedules given that new launches can sometimes be delayed, and the potential or macro headwinds to weigh on demand? Kevin P. Clark: Yes. There is an element of conservatism we always place in our outlook. So we will always incorporate some element of what we refer to is hedged. And we rely upon both third-party sources as well, as our customer EDIs or schedules. There are some areas like China where schedules are a bit more fluid and changes are more -- can happen more quickly. That's less the case in places like Europe in North America. I think as Varun talked about, our outlook right now based on what we're seeing from a schedule standpoint, and then triangulating with IHS with some amount of overlay is the 100 basis point improvement first half to second half from a vehicle production standpoint. There are some specific customer headwinds that we're aware of. I mentioned the North American OEM, who we were impacted more than we originally forecasted in Q1 given a further reduction in their schedules as it relates to addressing the issues with their supplier. We pick up a benefit in the back half of the year as things become -- that gets addressed and they come online. And then we talked about we've been talking about since last year, the 3 China program cancellations that impacted us in the ADAS area, in the user experience area, we can size those, those annualized at the end of the second quarter. Those two together are worth roughly 150 basis points. And then there's roughly 300 basis points of program launches first half to second half from a growth standpoint. That's the area where we tend to overlay the most conservatism because things can shift. Some of that is in China. We did see some small delays as it related to Q1, but we're starting to see those programs launch now. That's what gives us confidence in the in the back half of this year and the revenue ramp first half to second half. Mark Delaney: Very helpful details and color, Kevin. And my other question was another one around the commodity and inflationary environment. Could you be a little bit more specific around to what extent Aptiv has seen incremental headwinds tied to inflation in 2Q that you haven't been able to offset yet? And then for your full year outlook, you spoke about getting recoveries, but you also mentioned that can come through [ on a lag ]. So I was a little unclear. Do you assume that you're able to recapture all of the recent inflation in your full year outlook? Or does some spill out into next year? Kevin P. Clark: So I think -- and Varun will correct me. I think as it relates to prior guide versus this guide, there's effectively roughly 50 basis points of FX in commodities that is in our -- that's come into our system. It's principally resin and commodity prices. And commodities would be copper -- I mentioned the copper, aluminum, areas like that. We expect to fully offset that, most of that, a significant portion of which would be operational performance initiatives that we have underway that we're able to offset the overall cost of the increased cost of those commodity prices. And there will be some amount some amount that we will push through to our customers. So we're not relying on customer recoveries to achieve our full year outlook. Those are things that we have a high level of confidence that we can manage through internally and at the same time, go back to our customers in areas where it's more challenging and pursue recoveries. You look at past track record from a recovery standpoint. We've collected 95% to 100% of what we pursued with our OEM customers because we do that operationally, we've performed extremely well. And we do that while we're presenting them with additional cost reduction opportunities to help support the recovery that we're asking for [indiscernible] Operator: We will take our next question from Itay Michaeli with TD Cowen. Itay Michaeli: Just wanted to focus in on the strong -- strong new business bookings of $5 billion and the $20 billion outlook. Kind of curious happening on the auto side. Like are we finally seeing major sourcing decisions being made next-gen architectures, and perhaps also winning some market share? Just kind of curious sort of what is driving, sort of, the inflection? Kevin P. Clark: Yes, it's a great question. Yes, I would say first quarter relative to last year, we started to see programs that we've been working on for a period of time, free up in decisions made. We're starting to see OEMs look at next-generation ADAS solution, the user experience solutions, vehicle architecture solutions, including what we refer to as smart vehicle architecture. So -- so we're seeing more of those opportunities. Itay, we have a high level of confidence in the $20 billion of bookings for New Aptiv [indiscernible] 2026, just given our funnel. I think that's, to some extent, dependent upon things stabilizing a little bit as it relates to the situation in the Middle East. We're not deteriorating. Maybe that's a better way to describe it. But we're seeing a significant amount of opportunities in and around the areas that are sweet spot. Itay Michaeli: Terrific. And a quick follow-up. I think earlier you mentioned, of course, supply chain risks to do the Middle East but also potential opportunities that can come out of that. Hoping you can kind of comment a bit more on that. Like, could you actually end up seeing -- or leverage our supply chain capabilities with OEMs, maybe kind of win more business going forward? Just kind of curious a bit on that comment. Kevin P. Clark: Yes. Listen, we are today, Itay. I would say, over the last 2 years, the job the team has done from a supply chain management standpoint, both from a service level standpoint as well as from a visibility and transparency has created a lot of goodwill and there are a number of OEMs that we're partnering with now in terms of regular supply updates. I mean, we're now at a point where we're informing OEMs of where their particular pinch points are. As we look at areas like memory, and other areas where there's concern about inflation, availability or constraints, those are areas that we've been focused on for the -- been aware of. Anticipating, focused on for the last couple of years. So we've been bringing them alternatives as it relates to a park standpoint. It's also presented us with opportunities to bring to them solutions that include more [ Aptiv ] content, displacing some of their traditional suppliers. And they're all very focused on it and listening. When we're able to say we're confident in memory supply for '26 and also '27, given the relationships and agreements we have with our suppliers, and we have actually multiple alternatives that we validated, that's very differentiating with our customers. So it positions us extremely well. And when we take that supply chain capability outside of automotive, to some of the areas like robotics, like drones. That is one of the big selling points we have in terms of supply chain visibility, knowing source down to multiple levels being able to provide multiple solutions depending upon where the application takes place, or is actually used. That's been one of the big areas that's been differentiating, for example, for us in their own space. Operator: We will take our final question from Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: I was hoping to ask if you could just -- I would say this year's revenue growth in the context of the longer-term targets. And so you're expecting some level of acceleration over the next couple of years for the [indiscernible] targets. [indiscernible] this year will be around [ 4% ]. Can you just remind us holistically, what are some of the drivers of revenue acceleration as we move past this year and towards the next couple of years of the plan? Kevin P. Clark: Yes. Thanks, Emmanuel. That's a great question and I appreciate you asking it. It's a mix of two things. One, it's improved customer mix. So in our prepared comments Varun and I were talking about progress we're making with the China local OEMs focused on the top 10 OEMs for the China market. One of the fastest-growing areas for us is on export platforms, as well as with several [indiscernible] now. We're very much focused on supporting their initiatives to manufacture overseas. So we're supporting several of them in terms of evaluation and with some of them in terms of actual programs. We're working with European OEMs as well as Chinese OEMs as it relates to China [indiscernible] for European products. So we've been very engaged there. So that's an area where we expect to see a pickup. As it relates to APAC non-China, that's been a particular focus area. And as we've talked about in the past, that's one of the fastest areas of bookings growth for us, so that's Japan, Korea, and [indiscernible]. So we're seeing a benefit from that. And then lastly, when you look at the nonautomotive space, we're growing very strong nonautomotive growth, which based on bookings and potential bookings we have in front of us. We're very, very confident. And then when you look at the software space, both in automotive as well as outside of automotive, that's an area where bookings are strong, and we're seeing solid and strong revenue growth that will drive us to the midpoint or higher in that 4% to 7% growth range. Emmanuel Rosner: That's very helpful. And then I guess I was hoping to follow up on China. So in the quarter, the New Aptiv China [indiscernible] was down 14%. You've mentioned some of the factors, including still the ongoing impact from cancellation of programs. What is sort of like your estimate of when you believe China would, sort of, like become more neutral and then eventually positive to your growth? Kevin P. Clark: Yes, great growth. So actually positive growth you'll see in Q2, and that's a result of a couple of things, the launch of new programs, and we see the benefit from that. Two, in Q1, we were affected principally in our Engineered Components business by our exposure to the top the top OEM in China in their vehicle production -- reductions. So I would say disproportionately given their year-over-year comp, that normalizes in Q2, and it's not as big of a headwind. And then lastly, as you get in the back half of the year, we talked about those 3 programs that were canceled in the second quarter of last year from a comparison standpoint. We won't have to be dealing with that. So we're expecting very strong growth in China and for the calendar year 2026. Operator: That will conclude today's question-and-answer session. I will now turn the call back over to Mr. Kevin Clark for any additional or closing remarks. Kevin P. Clark: Great. Thank you, everybody, for your time. We really appreciate you participating in our earnings call. Have a great day. Operator: The call is now complete, and thank you for joining.
Operator: Good afternoon, and welcome to PennyMac Mortgage Investment Trust's First Quarter 2026 Earnings Call. Additional earnings materials, including the presentation slides that will be referred to in the call as well as an Excel file with supplemental information are available on PennyMac Mortgage Investment Trust's website at pmt.pennymac.com. Before we begin, let me remind you that this call may contain forward-looking statements that are subject to certain risks identified on Slide 2 of the earnings presentation that could cause the company's actual results to differ materially as well as non-GAAP measures that have been reconciled to their GAAP equivalent in the earnings materials. Now I'd like to introduce David Spector, PennyMac Mortgage Investment Trust Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Mortgage Investment Trust's Chief Financial Officer. David Spector: Thank you, operator. Good afternoon, and thank you to everyone for participating in our first quarter 2026 earnings call. Starting on Slide 3. PMT's first quarter net income was $14 million or $0.16 per diluted common share, representing a 4% annualized return on common equity. These results were impacted by a lower contribution from our interest rate sensitive strategies primarily due to a decrease in servicing fees as a result of seasonality and a larger-than-expected MSR runoff related to higher note rate loans. These impacts were partially offset by improved results in our aggregation and securitization segment. PMT paid a quarterly dividend of $0.40 per share and book value per share on March 31 was $14.98, down 2% from the end of the prior quarter. Turning to Slide 5. I would like to note we have renamed what was previously the Correspondent Production segment to the aggregation and securitization segment. We believe this name more accurately captures the breadth of PMT's participation in the mortgage ecosystem, specifically our focus on aggregating high-quality loans for execution in the secondary market to drive organic asset creation. In total, during the first quarter, PMT purchased $4.3 billion in UPB of loans from PFSI. $2.8 billion in UPB was through its correspondent purchase agreement with PFSI, for which PMT pays fulfillment fees. The remaining $1.5 billion represented loan sales from PFSI to PMT outside of their loan purchase agreement where PMT's private label securitization platform provided optimal secondary market execution for PFSI. Slide 6 highlights the continued success of our organic investment creation engine. Similar to last quarter, we completed 8 private label securitizations totaling $2.8 billion in UPB. This activity resulted in the retention of $190 million of new subordinate bond investments in the credit-sensitive strategies and $12 million of new senior bond investments in the interest rate-sensitive strategies. We also generated $40 million of new MSR investments. Our momentum has continued after quarter end, with 2 additional securitizations completed and another 1 priced totaling $1.1 billion in UPB, and we remain on pace to complete approximately 30 securitizations in 2026, which we expect will build a substantial foundation of investments with returns on equity in the low to mid-teens to support future earnings. On Slide 7, we provided a snapshot of the high-quality investments we are creating through our private label securitization program. At quarter end, the fair value of subordinate bonds within our credit-sensitive strategies totaled $744 million. 66% of this portfolio is comprised of bonds from nonowner-occupied loan securitizations. 20% is comprised of bonds from general loan securitization with the remainder primarily from agency eligible owner-occupied loan securitizations. As you can see, these investments feature exceptional credit characteristics. including a weighted average FICO origination of 774, a weighted average LTV and origination of 72 and negligible delinquencies. Within our interest rate-sensitive strategies, as of quarter end, we held $94 million in fair value of senior and mezzanine bonds. These investments are diversified across our jumbo non-owner occupied and agency eligible owner-occupied loan securitizations. And similar to our credit-sensitive bonds, these investments are backed by high-quality collateral with weighted average original FICO scores in the 770 range and original loan-to-value ratios in the low 70s. This consistent credit quality across these organically created assets underscores our ability to produce attractive, high-yielding investments on Slide 8, approximately 60% of PMT's shareholders' equity remains deployed to long-standing investments in MSRs and our unique GSE credit risk transfer investments. Mortgage servicing rights account for nearly half of shareholders' equity, providing stable cash flows from the portfolio with a low weighted average coupon of 3.9%. Our organically created GSE CRT investments represent 12% of shareholders' equity and consists of seasoned loans with a weighted average current LTV of 46%. Turning to Slide 9, while our diversified portfolio is constructed of investments with strong underlying fundamentals, we acknowledge our earnings, excluding market-driven value changes have been below our dividend level for the past several quarters. As you can see, we are showing an average run rate return of $0.31 per quarter for the next year. And focusing on the interest rate-sensitive strategies, increased amortization on higher coupon loans as well as reduced expectations for declines in short-term interest rates, which drive financing costs have lowered expected returns on MSRs in the near term. As is our long-standing practice, we continue to actively evaluate our overall equity allocation and investment opportunities to refine and optimize our returns on a go-forward basis. We are working diligently to reposition PMT to capture the opportunities more aligned to our long-term return hurdles. Our momentum in organic investment creation remains strong, and we have successfully positioned PMT as a leader in the private label securitization market. By leveraging our unique ability to create credit-sensitive, high-quality assets, and drive our overall returns higher through disciplined capital allocation, I remain confident in our strategy to support our dividend and create long-term value for our shareholders. Now I'll turn it over to Dan to review the first quarter financial performance. Daniel Perotti: Thank you, David. Net income to common shareholders was $14 million or $0.16 per diluted common share in the first quarter or a 4% annualized return on equity to common shareholders. Our credit-sensitive strategies contributed $16 million to pretax income, generating an annualized return on equity of 17%. Gains from organically created CRT investments were $10 million, which included $7 million of realized gains and carry and $3 million of market-driven value gains from credit spread tightening. Investments in subordinate MBS from our private label securitizations generated gains of $6 million, $2 million of which were market-driven value gains. Interest rate-sensitive strategies contributed pretax income of $8 million for an annualized ROE of 3%. Income excluding market-driven value changes for the segment was $11 million, down from $21 million in the prior quarter, impacted by increased prepayment speeds during the quarter, particularly on higher note rate MSRs, which drove higher runoff of our MSR assets, as well as lower servicing fees from seasonality and lower placement fees on custodial balances as a result of lower short-term interest rates. Regarding market-driven value changes, our hedging activities during the quarter yielded a small net decline as the $40 million MSR fair value increase was more than offset by $46 million of net declines in fair value of MBS and interest rate hedges, including the related tax expense. Additionally, during the quarter, we sold $477 million of agency fixed rate MBS to capitalize on intra-quarter spread tightening, resulting from the GSE MBS purchase announcement, and we redeployed the capital into retained investments from our private label securitizations. The aggregation and securitization segment reported pretax income of $16 million compared to a pretax loss of $1 million in the prior quarter. The prior quarter amount was primarily driven by spread widening on jumbo loans during the aggregation period and lower overall margins. In total, PMT reported $28 million of net income across strategies, excluding market-driven value changes, up from $21 million in the prior quarter, primarily due to an increased contribution from the aggregation and securitization segment. I want to address our dividend in the context of our current results and the updated run rate return potential. While projections for income, excluding market-driven value changes remain below the dividend level, it is important to note that we expect to maintain the common share dividend of $0.40 per share, which is supported by our taxable income and which we expect to be sufficient to fully cover the dividend at its current level. Turning to Slide 13. We highlight the flexible and sophisticated financing structures PMT has in place to support its diversified portfolio of investments. During the quarter, we redeemed $345 million of exchangeable senior notes originally due in March 2026 using capacity from existing financing lines. And finally, on Slide 14, we continue to believe that debt to equity, excluding nonrecourse debt is the best metric for measuring our core leverage and that ratio declined to 5.6x at quarter end from 6x at the prior quarter end within our expected range. PMT's total debt to equity increased to approximately 11:1 from 10:1 at December 31 as we continue to retain investments from securitizations. The increase in our total debt-to-equity ratio reflects growth in nonrecourse debt associated with these transactions, where all securitized loans are required to be consolidated on our balance sheet for accounting purposes. As a reminder, the source of repayment for this debt is limited to the cash flows from the associated loans in each private label securitization mitigating any additional exposure to PMT. We expect the divergence between these 2 metrics to continue increasing as our securitization program grows. We'll now open it up for questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Trevor Cranston with Citizens JMP. Trevor Cranston: Question related to your comments on Slide 9 about actively evaluating the asset allocation of the company and some new investment opportunities. Can you elaborate on what you guys are looking at in terms of kind of new investments if that includes things like non-QM or home equity. And also was curious if sales of maybe some lower returning assets are part of the valuation that's ongoing? David Spector: Well, I think it's all of the above would be my response. I think first of all, if you look at Slide 9, when you look at the annualized return on equity, you can see that the -- in terms of achieving that minimum required return of, call it, 13%, 14%. Means that the sector that's really under delivering and has been the net interest rate sensitive strategies and, in particular, MSRs. And so as we look across our MSR portfolio, I mean, clearly, there's parts of that, that have real value and there's demand in the marketplace for it. And there's others that have real value that perhaps there isn't as much demand in the marketplace. So we're strategically evaluating the MSR portfolio to help accelerate perhaps the weighted average equity allocation down in that operating strategy and moving more to the credit-sensitive strategies. The point you raised in the credit-sensitive strategies, of course, there's more opportunity to do additional securitizations in nonowner-occupied loans and agency-eligible loans even jumbo loans. But given what we're seeing in the non-QM originations, both in correspondent and over a PFSI in their broker division, the ability to aggregate for securitization is very apparent to me. So I wouldn't be surprised to see us do a non-QM securitization over the next year. And to your point, there's other assets that we see in the marketplace that you can create investments that achieve our return target. And so as we've done in the past, we're going in and we're evaluating how to -- where can we recycle out of lower returning assets in the higher returning assets. Operator: And your next question comes from Bose George with KBW. Bose George: So first, just the change in the ROE expectation that you gave for the $0.31 down from $0.40, it looks like it's mainly on the Agency MBS, but can you just walk through the drivers of that change. Daniel Perotti: So the -- so really, the bigger driver of those is on the MSRs, which -- where the return came down a few percentage points in the allocation, weighted average equity allocated there is a larger proportion. The Agency MBS also did decline. That was really related to -- if you look at the expectations for short-term rates going back from last quarter versus this quarter, there was obviously a sharper decline and thus a greater expected carry from the agency MBS in that -- in the prior run rate scenario. But the bigger impact is related to really the prepayment speeds and expectations that we see in the short to medium term on the MSRs. Bose George: Okay. That makes sense. And -- the -- and in terms of the bridge now from the $0.16 you guys did this quarter up to the normalized. Can you sort of walk through just the bridge there? Daniel Perotti: Well, certainly, obviously, rates have increased a bit, and so we are expecting slower prepayments on the MSRs. But still below -- still elevated from what we saw earlier in prior quarters or in earlier quarters in 2025. And then as David has mentioned, there we mentioned some allocation out of MSRs and into -- if you look at the allocation here, for example, some ability to ramp up other investments as we move through the next few quarters. Operator: And your next question comes from Jason Weaver with Jones Trading. Jason Weaver: In your prepared remarks, you mentioned the sale of roughly $0.5 billion of MBS on tightening to redeploy towards retained securitization, which looks like a material rotation in the interest rate-sensitive book. All else equal, is this a sort of glide path we should think about for the remainder of 2026? Or was this more of a tactical rotation? Daniel Perotti: I think that was really more opportunistic or tactical. We wouldn't necessarily expect to continue to wind down that portfolio, especially, although we will adjust as we're looking at rotating out of certain portions of the portfolio. But given the returns that we expect from the Agency MBS portfolio and what we have here overall, we wouldn't expect to drawdown necessarily further on the MBS portfolio, but it's something that we'll continuously evaluate based on where spreads are in the market. Jason Weaver: Got it. And I think you redeemed about $350 million of exchangeable senior notes from the existing financing book. What is the unsecured corporate debt stack look for the next 24 months, if you can just guess. And are you targeting any sort of opportunistic refinancing or extension given current spreads? Daniel Perotti: So we issued about $150 million of additional convertible debt towards the end of Q4 last year. We additionally in 2025 issued a few unsecured baby bonds. That was effectively a pre-refinancing of the convertible debt that was retired in Q1 of this year. So we don't have a need to necessarily raise additional unsecured debt. It is something that we will continue to look at and see if there are opportunities. but no immediate plans necessarily, but it's something that we will be opportunistic with to the extent that we see opportunities. Operator: [Operator Instructions] Your next question comes from the line of Doug Harter with BTIG. Douglas Harter: As you think about the opportunity in the non-agency securitization, do you view it as more opportunity limited today or more capital constrained and as you think about the ability to scale -- continue to scale that business? David Spector: I think it's really capital more than opportunity. I think the great story about PMT is obviously, the synergistic relationship it has with PFSI and the ability to source the underlying assets, the ability to underwrite and process the loans on the front end and where we have the ability to actively select the loans that we want in our investments is a really important feature that we have in PMT. And so the -- whether it's investor or non-owner securitizations where we create subordinate bonds or general loan securitizations and even the agency eligible loans where we're not securitizing just for best execution purposes, we're securitizing to create investments for PMT. And so I think that it's really more of a capital issue for us. And I think that's why we're focused on opportunistically getting out of lower returning assets and most likely reinvesting the capital into our credit-sensitive strategies sector, which, by the way, from the very beginning of PMT is what the -- is what the investment thesis was for PMT looks to be a credit-sensitive strategy vehicle. And so that's really the guiding -- the kind of the guiding force here. We're -- I think we've done a great job in being the preeminent securitizer of these non-agency loans and creating the investments behind them. And you look at the performance of these, and they're really remarkable. And I think that we've done a nice job when CRT was discontinued to be able to move to figure out, okay, how do we create a like investment without the CRT opportunity, and that's how we ended up where we are today. But I think you're going to continue to see us grow the equity allocation in the credit sensitive strategies over time. Douglas Harter: And David, as you mentioned, you're seeing increased non-QM volume, how much crossover is there in your traditional agency originator that's a correspondent partner versus non-QM or some of these other products that you haven't necessarily gotten as large in yet? David Spector: I'm really -- I've been really pleasantly surprised and I think it's a function of the size of the market that we're seeing a good amount of our correspondent getting into non-QM lending. And so I think that they are -- they're recognizing that they need to expand their product base. And so this is where being the leading correspondent aggregator with over 700 plus [ clients ] is really an advantage to us and being really good, meaningful deliveries of non-QM correspondent. And I expect that to meaningfully grow. I think the important part of non-QM, like all non-Agency products, you have to keep an eye on the fact that you don't want to get caught in a market disruption or with spreads widening. And so we're being really diligent at least initially in selling and forward selling the non-QM product to really lock in the margin until such time as we want and we decide to do a securitization. And that's where again, the synergistic relationship with PFSI to be really valuable because similar to the correspondent side on the PFSI side, we're seeing really good receptivity to non-QM with our broker partners. And so I think when we decide that we want to do a securitization and really deploy capital there, we'll be able to do so. But by and large, I think there's part of the non-QM market that we're participating in is getting more readily accepted in the broker and correspondent communities has more akin to their credit profile and their risk management framework than when it was originally -- when a vision was born some 10 years ago and people thought of it as maybe a little less than prime. But I've been pleasantly surprised by this. Operator: We have no further questions at this time. I'll now turn it back to David Spector for closing remarks. David Spector: Well, I'd like to thank everyone for joining us on our call today. If you have any questions, please don't hesitate to reach out to me or our IR team, Dan and I look forward to speaking to all of you in the near future. Thank you. Operator: The concluded today's call. You may now disconnect.
Mark Flynn: Good morning, everyone, and once again thanks for joining us. We'll cover a couple of things today with Nova Eye. Obviously the March quarter results. We'll cover the record April sales release that we've put out to the ASX and our guidance today as well. And also, we'll give you an update on how the U.S. business is scaling up at this present time. Quick reminder, this session may include some forward-looking statements. So please refer to the ASX release and the investor presentation for full details. As always, if you like to ask a question, please use the Q&A function in Zoom and we will try and get to as many as we can. I have received a number of questions ahead of the meeting. So thank you to those that have sent those through. But with no further ado, I hand you straight over to Tom. Thomas Spurling: Thanks, Mark. Thank you very much, everybody, for tuning in today. I'm always very pleased with the number of people that take the time to listen to our story. I think we've got a good story again for the quarter to 31 December -- 31 March 2026. As our disclaimer, just a reminder, it's about pressure. Glaucoma is about pressure and us intervening in the disease to open up blockages and reduce that pressure. Next slide. The messages from today, we address, Nova Eye products address a genuine and growing clinical need. So we're not trying to make people do something they haven't done before. The disease is real. The customer base is real. There is competition, but that just means that we have -- and we have an offering that participates very well. Our revenues are now up near $23 million annually and growing at 25% plus year-on-year. And they reflect that real market demand. This quarter showed that we can grow revenue while also improving profitability. I've been saying that too for a while. We were just $75,000 short, just 1% of revenue away from breakeven in Q3. We were EBITDA positive if you include our strong December in the 4 months to March, and we're forecasting EBITDA positive in Q4. So that's EBITDA positive in the second half in total. We are delivering the outcomes we committed to, and that's what I'm pleased about. We have a company with 20-plus percent growth and profit at the bottom or EBITDA. Record sales were achieved in April. We saw the need to upgrade our sales guidance as a result of that. And on the -- just a USA surgeon, I received this e-mail randomly, just general feedback about how good iTrack is, performs better with its canaloplasty than other devices. As such, it is not critical to perform a concomitant goniotomy, which is a tearing of the trabecular meshwork. There's less likelihood of postoperative blood. And for premium IOL patients, it's good. You don't want to have someone that's just had a cataract surgery, spend a lot of money on a premium IOL and come out of that surgery with blood in their eye. I hear that from a lot of surgeons, and this is just another example. Next one. A reminder about the interventional glaucoma market. It means the active surgical engagement to change the disease trajectory and remove the patient's reliance on drops. I encourage you to have a look at Glaukos. Glaukos made an investor presentation today or released it to the market. I looked at it, they give a very good definition of interventional glaucoma and how important it is. And we are part of that market. Nova Eye is part of that market. That cataract link, 1 in 5 patients also have glaucoma gives us a reason for patients going into the OR, let's fix your cataract and get you off those drops. Our stent-free tissue preserving repeatable product is what puts us in the game. We are a required part of the business, interventional glaucoma market globally and in particular in the United States. Next slide. Just a quick summary of our -- a number of you have seen this. We have an FDA-cleared product, of course. We have a good reimbursement, which is stable. That reimbursement gives economic value to all the participants in the surgery, the surgeon, the facility hosting the surgery and us. Why do doctors choose iTrack Advance, well, we're talking about restoring the natural systems of the eye. It's implant-free and tissue sparing with a single pass with now the beautiful Green Light passing around the Canal of Schlemm, gives us the advantage over other devices that call themselves MIGS devices or are MIGS devices giving that doctors can choose from. And there are many -- I have all sorts of -- we've had all sorts of slides in the past about that. But at the heart of the matter is the tissue sparing natural method of action. Next slide. Here's our sales quarter-on-quarter compared with the PCP, USD 5.8 million. There were 2 new additional sales reps in the U.S. to service the growing demand we have there. This is, that's okay. I prefer to look at the next slide, which is our trailing 12 months revenue. It's a better picture of trends. And you can see 26% globally, 27% sales excluding China. We only do that. We started doing that because of the difficulties with tariffs. Remembering we're selling from the U.S. to China. And we were -- at the commencement of this financial year, there was a lot of uncertainty associated with that. So we just measure ourselves on sales excluding China at the moment. That doesn't mean China isn't being worked on. It just means that for guidance, we go to sales excluding China. And the sales guidance was lifted $21.7 million. We had guided to $21 million minimum a week or 2 ago. We have now passed that. So we've upgraded our guidance as a result of the very strong sales in April in all markets. Very pleasing. The drivers of that sales growth, our brand and product awareness by doctors was on display at the recent Australian -- American ASCRSA (sic) [ ASCRS ], American Society of Cataract and Refractive Surgeons in Washington, D.C. We have great trade booth presence and great booth attendance by doctors. We have sales team productivity, which I challenge is up with any ophthalmology company in the U.S. The release during the quarter of our proprietary Green Light technology to provide a clearer view for better navigation of the catheter through the Canal of Schlemm. I guess it's kind of goes without saying that a Green Light with -- is better seen in the case of any blood in the operation. And the release also of our Shear Clear technology, iTrack advanced with Shear Clear technology. This is also our technology transforms the cohesive viscoelastic into a low viscosity fluid during canaloplasty. You'll recall that viscoelastic is really a biocompatible hydraulic fluid that we flush, that we push through the canal. By virtue of our delivery system, it is thin and that thin viscoelastic circulates more freely into the ocular structures, the Schlemm's canal and the outflow pathway. And after a period of latency, regains viscosity and therefore holds open those structures. We're very pleased with the Shear Clear, the outcome of -- the addition of Shear Clear to our technology. There are some surgeon videos on YouTube that are highlighting the impact of this technology on their surgical outcomes. That is why sales are going up. We have a great product. We've got a good team, and we've got a lot of awareness of our brand and, well, to be honest, a little company. Next slide. China remains -- we made our first sales in February to China of iTrack Advance. And in that regard, I draw your attention or we draw your attention to the opportunity in China compared to the U.S. The same dynamic, 1 in 5 cataract patients present with concurrent glaucoma, and the opportunity to grow our business in China is very strong. It is a big opportunity. It will take time. But we think it is very exciting. Next slide. This slide, we've had a question about dips in sales reps. Well, I also get questions about dips -- sorry, revenue per rep. So what we've got is sales growth in the United States by quarter. What I like about this slide is that I have not made any change to the scale on the left-hand side to exacerbate the growth rate. It is a commendable growth rate of 6% a quarter. What we take away from that is despite our sales, we were maintaining a very strong revenue per rep. I'm often asked, how long does it take for reps to get to $1.6 million a quarter, $1.8 million and $1.9 million. I consider our whole pool of reps as an asset. And on average, we have managed over time to keep that quite high. Sales growth, keep it quite high. And therefore, that -- the sales rep expense is quite high. So that is a driver of productivity. Sales in the quarter, on that graph, look flat quarter-on-quarter. That could be, say Nova Eye has flat sales in the United States. January and February were materially affected by winter storms and surgery. And quite possibly, those surgeries were caught up in April, quite possibly. So we have had a great April, as we said, which augers well for Q4. So we will continue to push when we find the right people because there are territories in the United States which are underserved. We will continue to look for reps that we believe can be added to our team and maintain at $1.6 million, $1.7 million, $1.8 million per rep and therefore drive the bottom line productivity as well as sales growth. Our operating result here, I call out our investment in clinical data because it doesn't actually impact the current operating leverage as they call it. You can see I'm not resiling from the fact that we're EBITDA negative. I am pointing out that we're EBITDA positive for 4 months, but not for 3 months because we had a good December. That's a small loss in a -- as a percentage of total revenue, and it's heading in the right direction. The leverage -- the gross margin is pleasing as we improve our production -- constantly improving production processes, but also pricing of our product increasing, particularly in outside the U.S. markets where we're still only transitioning in some cases, from iTrack 250A to the more expensive, for us being a more expensive -- higher price, sorry, iTrack Advance. So I think this highlights the trends in quarterly EBITDA. I draw your attention to the green arrows which show Q4 relative to Q3 for the last couple of years. So we think our outlook for Q4, if that trend continues, is very strong. A couple of periods of very close to breakeven performance, and we're forecasting an improvement that to continue during the month of -- during the April, May and June. Cash flow, we continue to invest in working capital. There was a lot of marketing expenditure upfront that we had to make. Our cash receipts will flow through. And as we said, our existing cash and debt facilities provide sufficient runway for the continued execution of our mission, which is a mission to cash to EBITDA positive, cash flow positive will follow. Next one. Recapping our guidance. There's an update from $21 million to $22 million to $22 million to $23 million. People may say that's not much, but I'm excited by it because we're proud of the work we're doing. We're only a little company, and we are delivering what we want, what we said we'd deliver. So there's some FX things there. I tend not to worry about Australian dollars, but I have to give the -- just a reminder, we have no Australian dollar revenue. We do not sell in Australia. So it's U.S. dollars for us. Next one. And that's the same, our guidance that continued targeting breakeven with a small positive in H2 FY '26 and positive EBITDA from operations that removing the effect of clinical data and ongoing improvements in cash flows. We are generating cash in the U.S. I don't want to say the U.S. is a business on its own, but because it's a very global integrated business. But all our cash is coming in euros in the U.S., which the appreciating Australian dollar doesn't help when you turn it into Australian dollars. Okay. So thank you for that. Mark Flynn: Thanks, Tom. A couple of questions coming through. One live is that the Green Light, which we've announced and is currently in use in the U.S., will that supersede the red light or will both lights remain available for surgeon choice? Thomas Spurling: It will stay the same. And that's actually our choice because doctors, we are not making it -- if someone has a red light and they ask for it and they're a good customer, well, we are not trying to build to, the better production planning thing is just to deliver green is the answer. Mark Flynn: A question from Nick Lau at Taylor Collison in regards to those U.S.A. sales. You did cover it there and also the revenue per rep, which sort of dipped a little bit. What are the factors the sales rep are seeing that may have contributed to this? And I know you mentioned the weather. Thomas Spurling: Yes. So I know the weather sounds a lot like the dog ate my homework. But in the end, the Northeast of the U.S. in January and February, which seems like an eternity ago, but to me it's not because we're still seeing the effects on our P&L account where there was -- our reps were shut down, surgeries were shut down and surgeries were canceled. That impacts. It impacts doctors bimonthly and so it impacts. The revenue per rep, it's a vexed issue. I get equally the number of times people say, put on more reps, why don't you put on more reps? Well, when we put on more reps, there must be a dip naturally because you can't get all those sales in the first month the person is there. We try and split the territories, give the person a lot of leads. But we put on reps because we know in that 2, 3, 4 months' time, we'll get back up to the [ $1.678910 ], $1.6789 million per rep, which we know drives our bottom line result. And as I said, 20% growth, 20% plus top line growth and EBITDA. That seems to me like an achievable target for our business. Mark Flynn: The sales adoption by new or established surgeons, are you able to comment on the sales pattern? Thomas Spurling: Well, you can -- that requires a lot of analysis. We are a small business, but it also -- we'd like to think that our competitors don't need to tell -- we don't need to tell our competitors about new accounts. We just deliver our sales information. I know so many people have how many facilities, what's new, what are new accounts, what are old accounts, why are the old -- why are facilities dropping off? Why are new facilities not buying if they just bought a -- in month 1, they're not buying in month 2. There are so many combinations of analysis that we could do. And they are compromised by doctors moving around between facilities, by -- in particular that and the idea that some accounts have more than one facility and more than doctor doing it versus some accounts just having one doctor. So we believe that our EBITDA, operating revenue per rep. Increasing top line sales is our goal, and we have our internal guidance as to how we're doing at each account. Mark Flynn: You mentioned Glaukos and a bit of a comparison. So I know Glaukos leads in stents and drug delivery, but where do they sit with in competition against us? Thomas Spurling: Well, it's interesting, I refer you to some of the videos that have been posted by surgeons where there is a combination going on now where there seems to be doctors are deciding to team iTrack with Glaukos products, which is interesting. And we think that we don't have any clinical evidence around why that would do it, but that's up to doctors to do what doctors do. Glaukos' investor webinar today gives a very rosy outlook for interventional glaucoma. And I know it's to service their own needs, but it does describe very well the trends. And we think that we are -- if you like, we could be on the coattails of some of those trends. I mean the trends are real. I think that's what -- a review of the Glaukos investor presentation will show you, that we have -- that Nova Eye Medical is in a real market with a real growth thing. Mark Flynn: China, I know we do exclude China, but when do you believe or when do you think that sales there will become material? Thomas Spurling: I'm just starting. We've decided corporately to just be cool on that decision and let them flow through. So we're not giving any more guidance than what we have. Operator: Thank you. We've got one here. In regards -- we haven't mentioned the manufacturing facility or clean room in Adelaide. Just a short update on that. Thomas Spurling: Yes. So we have quietly and with conviction to lower our production costs, insourced some parts into, establish Nova Eye cleanroom facility and insource some parts to lower production costs ultimately. And it also provides a test bed for new manufacturing techniques and new product testing. The Shear Clear and the Green Light are as a result of that. So it's a good capability we have here in Adelaide. And compared with other parts of the world, Adelaide is a low-cost domain. So it's good. Mark Flynn: Always a reminder that there's new people joining our webinars and asking why don't we sell this product in Australia. Thomas Spurling: So simply put, we have presented data to the U.S. Medicare and it has accepted that data as meaningful in saying that, yes, canaloplasty does work, and therefore we will reimburse patients who need it or reimburse, yes, patients effectively. In Australia, the data, they have a different level -- different standard. They don't -- they believe more data is required. The size of the Australian market does not warrant our investment in getting that clinical data, just a standalone. We do have some clinical data in the pipe, which may help, but we see the investment in an additional rep in the U.S. helps us get to our 20% plus growth, EBITDA positive down the bottom, far better than just selling in Australia, unfortunately. Mark Flynn: Thanks, Tom. I think that covers all the questions. Any final questions come through now or as always, Tom and my details are on the screen. Please send through any questions. Happy to have a phone call as well. Look forward to staying in touch. But great news from Nova Eye today, and welcome any further questions. So thanks very much for joining. Thank you, everyone.
Lluc Sas: Welcome to Sabadell's results presentation for the first quarter of 2026. Joining us today are our CEO, Cesar Gonzalez-Bueno; and our CFO, Sergio Palavecino. The presentation will follow the same structure as in previous quarters. Our CEO will begin by highlighting the key developments of the quarter and discussing the most relevant topics. Then our CFO will review financial results and the evolution of the balance sheet. The presentation will conclude with closing remarks from our CEO, after which we will open the floor for a live Q&A session. So Cesar, over to you. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Lluc. Good morning, everyone. I will begin by outlining the 4 highlights of the quarter, which we will discuss in more detail during today's presentation. First, the sale of TSB is now complete. Therefore, we will pay the extraordinary cash dividend of EUR 0.50 per share at the end of May. Second, as we already anticipated, Q1 will mark the bottom of our core revenues. We expect these items to increase in each quarter over the course of the year. Third, we have launched an early retirement plan, which would improve efficiency in '26, but mainly in 2027. Fourth, we commit our full year guidance. Indeed, beyond the ups and downs of any given quarter, we have a sound, secure and proven growth strategy to deliver a 16% return on tangible equity in 2027. Slide 5 shows the key financial messages for the quarter. Just to remind everyone, all figures and results presented now exclude TSB. Supported by strong commercial momentum, performing loans and customer funds recorded year-on-year growth in the mid-single digits. In this context, core revenues are expected to have reached in this quarter their lowest point of the year. We see core revenues improving going forward as repricing pressures on NII ease and fee performance normalizes. Recurrent costs performed well in the quarter and reached EUR 569 million. We recorded one-off costs in the quarter of EUR 55 million related to the early retirement program underway. Our fundamentals remain solid. Our recurring return on tangible equity stood at 14.1%, and our capital position remains strong with a core Tier 1 at 13.2%. This performance is underpinned by strong asset quality that keeps on improving. Cost of risk and total NPAs both showed a reduction year-on-year. We continue to build up our Stage 3 coverage, which now stands above 70%. Finally, as I said before, we will distribute EUR 0.50 per share as an extraordinary dividend by the end of May. In parallel to this cash dividend, we keep executing our share buyback programs. We have already completed EUR 267 million out of the approved EUR 800 million. On Slide 6, financial implications of the now completed TSB transaction. Let me start with the sale proceeds. The initial agreed price was GBP 2.65 billion. This figure was agreed to be increased by the tangible net asset value generated since April 25. Taken together, this results in a final sale price of GBP 2.9 billion. Now let me emphasize the strategic and financial merits of the transaction. Firstly, the sale has generated significant value for shareholders. Transaction multiples are above both peer transactions and Sabadell's own trading multiples. In addition, the transaction is expected to generate more than 400 basis points of capital. This is driven by capital gains of more than EUR 300 million and the deconsolidation of risk-weighted assets. As approved at the Extraordinary General Meeting held last August, we will return this capital to shareholders. Accordingly, we will pay an extraordinary dividend of EUR 0.50 per share on the 29th of May. To conclude, following the sale of TSB, Sabadell now represents a more focused and simplified equity story with a clear strategic profile centered in Spain. In Slide 7, we see the details of the early retirement plan. We executed our last efficiency program as you remember, back in 2022, which included an early retirement plan. Since then, circumstances such as the demographics of our workforce prevented us from executing additional early retirement plans. Circumstances have changed and a structured early retirement plan is already being implemented in 2026. Importantly, this approach supports workforce optimization in line with the evolving business models and digital transformation. In terms of financial impact, we will incur in one-off costs in 2026 of approximately EUR 90 million. Meanwhile, we will generate gross annual savings of approximately EUR 40 million. Approximately 1/3 of these savings are expected to materialize in 2026 as the program is rolled out with a full run rate savings achieved in 2027. On Slide 8, we talk about new lending. Starting with mortgages, new lending decreased by 24% year-on-year. We remain focused on managing new lending through risk-adjusted return on capital, ensuring that growth is delivered in a profitable manner. As a result, we have continued to reduce our market share in new mortgage lending over the past months as front book yields have compressed. Origination of consumer loans decreased both year-on-year and quarter-on-quarter. We introduced changes to the application process this quarter, which temporarily impacted on conversion rates. We have already improved the process again and conversion rates and origination volumes are picking up again. Quarterly new loans and credit facilities granted to SMEs and corporates increased by 1% year-on-year and by 5% quarter-on-quarter, while working capital performance was more subdued. Overall, as we share on the next slide, these volumes of new lending allow us to continue growing our loan book. On slide 9, we see the loan book and starting with Spain on the left-hand side of the slide. Performing loans increased by 0.8% on the quarter with positive growth across all segments. Performing loans in Spain increased by 4.3% year-on-year. Our international operations are experiencing good momentum as well with performing loans rising by more than 7% quarter-on-quarter and by double-digit figures year-on-year. Overall, our total loan book showed a positive trend during the quarter, growing by 1.6%. Annual growth rate reached 5.6%. Moving on to customer funds on Slide 10. First, on balance sheet, customer funds ex-TSB remained broadly stable quarter-on-quarter and increased by 4.3% year-on-year. The Spanish perimeter showed an increase of 4.7%. Second, our balance sheet funds also remained broadly stable in the quarter, as market volatility has had a dampening effect on net subscriptions. We posted an increase over 10% on a year-on-year basis. All in all, total customer funds grew by 5.9% year-on-year. Looking at on-balance sheet funds breakdown on the right-hand side of the slide, non-remunerated deposits reached EUR 83.9 billion. Those non-remunerated deposits are almost completely located in Spain. This highlights the high proportion of low-cost funding within our deposit base. The cost of customer funds stood at 78 basis points in the quarter in the ex-TSB perimeter. Let me note that this includes higher yields in U.S. dollars and Mexican pesos. Therefore, the cost of customer funds in Spain was significantly lower and stood at 59 basis points. On Slide 11, we make a summary of our quarterly results. We recorded a net profit of EUR 284 million or EUR 347 million, including the contribution from TSB. Let me emphasize two points. Firstly, as I had previously explained, revenues have bottomed out with improvements expected in the coming quarters. Secondly, Quarterly results include EUR 70 million pretax in one-off charges, nonrecurring costs related to efficiency initiatives and FX hedge on the proceeds from the sale of TSB. Underlying profitability remains solid and recurring return on tangible equity stood at 14.1%. This keeps us on track to reach our full year guidance of 14.5%. And with that, let me turn it over to Sergio. Sergio Palavecino: Thank you, Cesar. And good morning, everyone. Let's move on to the financial results on Slide 13. Before going through the different lines of the P&L, I would like to explain the extraordinary items that Cesar has just mentioned. First, within the trading income line, we recorded an expense of EUR 14 million related to the foreign exchange rate hedging of the full proceeds from the sale of TSB. Once the sale has been completed, next quarter, we will record only EUR 5 million corresponding to the month of April. Second, we recognized EUR 55 million of nonrecurring costs related to the early retirement program in Spain. Overall, recurring ROTE stands at 14.1%, which is in line with our expectations and our year-end target of 14.5%. We will now review the main P&L items in more detail, focusing on Sabadell's performance, excluding TSB. Starting with NII on Slide 14. NII bottom out this quarter as expected, decreasing by 2.5% quarter-on-quarter and by 3.5% year-on-year, which is mainly explained by the final headwind of lower interest rates repricing as well as the seasonality of Q1. On the top right-hand side of the page, you can see the drivers that explain the quarterly evolution. Moving from left to right, customer NII had a negative contribution of EUR 8 million due to lower customer margin. This was driven by loan book repricing at lower rates and a slightly higher cost of deposits following the success of the last digital current account campaign. Then the day count effect on customer NII resulted in a EUR 6 million negative impact. Regarding ALCO liquidity and wholesale funding, we have seen a net impact of also minus EUR 6 million, mainly attributed to liquidity, reflected increase in borrowing in dollars and Mexican pesos, which carry higher interest rates. Going forward, this will no longer be a headwind and we are expecting tailwinds from customer NII as explained in the next slide. Indeed, looking ahead on the left-hand side of the Page 15, the expected quality evolution throughout 2026 is shown. As anticipated, after reaching a low point this quarter, we now expect NII to grow at a low single-digit rate quarter-on-quarter. From there, NII should increase steadily over the year, ending the fourth quarter of 2026 with a mid-single-digit increase compared with the fourth quarter of last year. This outlook is based on the current macroeconomic environment where we are assuming interest rates will stay at higher levels than we had previously expected. The slightly higher rate environment, together with ongoing uncertainty and volatility may affect loan volumes. We now expect growth to be slightly below our initial plans, but still at mid-single digits. At the same time, on balance sheet customer funds are expected to grow between 3% to 4%. Higher interest rates should support loan yields with a steady quarter-on-quarter improvement starting from the beginning of the second quarter already. Regarding deposit costs, we now expect a lower pass-through compared with our existing book, which should support customer spread. Overall, customer spread is expected to improve quarter-by-quarter and reached levels above 290 basis points by year-end, slightly better than initially forecasted. Finally, noncustomer NII, which includes ALCO, wholesale funding costs and the liquidity contribution is expected to remain broadly stable around current levels. Taking all of this together, we are maintaining our NII guidance and continue to expect more than 1% year-on-year growth in 2026. Moving on to fees. posted a quarter-on-quarter decrease, mainly driven by the absence of success fees recorded in the previous quarter by seasonality and by a one-off cost in the payment service business. Looking ahead, we expect this line to improve, supported by increasing activity, particularly in the Payment Service business and in Corporate and Investment Banking, which has already been seen in March. In Asset Management, we also expect a continued positive trend in net inflows. To sum up, while we acknowledge a lower quarter than expected, we believe this marks a trough that will serve as an inflection point. Looking ahead, we expect fees to increase and land at the lower end of the mid-single-digit growth range. Moving on to cost. The key developments this quarter is the launch of the new efficiency initiatives in Spain. However, let me first focus on the underlying evolution of recurring costs. Total recurring costs decreased by 3% quarter-on-quarter when excluding EUR 55 million of nonrecurring costs and for comparability purposes, also excluding the reclassification related to the end of the agreement to sell the merchant acquiring business at the end of last year. On a year-on-year basis, total recurring cost increased by 3.4% mainly driven by inflationary pressures on personnel expenses as well as higher amortization and depreciation costs, which already reflect the current quarterly run rate. Looking ahead, as Cesar mentioned earlier, we expect that circa 1/3 of the total savings from the efficiency initiatives will fit through in 2026. Overall, this evolution is fully aligned with achieving our year-end targets. On the next slide, we covered the cost of risk, which remains at contained levels supported by solid underlying asset quality despite the increased uncertainty. Total cost of risk for the quarter was 38 basis points which includes all provisions and impairments across all categories. Looking specifically on loan provisions, the credit cost of risk was 27 basis points. Turning now to the bridge of the different components of total provisions for the quarter shown on the top right-hand side. We booked EUR 94 million of loan loss provisions after reviewing carefully the macroeconomic scenarios. Then we had EUR 4 million of provision reversals driven by the real estate asset disposals at a premium. In addition, we recorded EUR 23 million in NPA management costs and EUR 19 million in other provisions mainly related to litigation. Overall, the quarterly evolution of total cost of risk is fully aligned with our year-end target of around 40 basis points despite the increased uncertainty. Moving on in the next section, I will walk you through asset quality, liquidity and solvency. On Slide 20, we see a continued improvement in both the NPL ratio and coverage levels. The NPL ratio reached 2.55% representing a reduction of 10 basis points compared to the previous quarter. We can also see that Stage 2 exposure declined by more than EUR 1.2 billion year-on-year. Finally, the coverage ratio calculated as total provisions of Stage 3 exposures continued to improve and reached 71%, rising by more than 1 percentage point during the quarter. In terms of total NPAs in Slide 21, you can see the continued reduction of foreclosed assets. We have sold 24% of the stock of foreclosed assets in the last 12 months at an average premium of 8%. At the right-hand side of the slide, we can see that the ratio of NPAs as a percentage of total assets declined to just 0.7% which is a record low. Turning now to Slide 22. All liquidity ratios remain comfortably above requirements with a net stable funding ratio at 135% and the liquidity coverage ratio at a strong 186%. Credit ratings remained stable during the quarter. All rating agencies have assigned a stable outlook, except for S&P, which maintains a positive outlook, reflecting the possibility to achieve further uplift based on ALAC. I will also highlight that Moody's upgraded our deposit rating in April, and it has reconfirmed our Baa1 long-term rating following the application of the new EU depositor preference regulation. Finally, year-to-date, we have issued EUR 500 million in covered bonds. Given the sale of TSB, this 2026 will be a year with lower MREL funding needs. And therefore, less affected by potential market volatility. To conclude this part of the presentation, let me walk you through the evolution of our capital ratios during the quarter. This time around, this slide includes both the quarter-on-quarter variation and the expected impact of the TSB sale and the extraordinary dividend on the CET1 ratio. We will start by reviewing the quarterly evolution. This quarter, the CET1 ratio increased by 7 basis points, while generating 32 basis points before accounting for the dividend accrued. This includes 42 basis points from organic generation after deducting 81 coupons, minus 4 bps from fair value reserves adjustment in the fixed income portfolio due to higher interest rates at the end of the quarter and minus 6 basis points from higher risk-weighted assets, mainly driven by volume growth in our international businesses, where loans carry higher density. The accrual of a 60% dividend payout ratio had a negative impact of 26 basis points, bringing the CET1 ratio to 13.18%. Now looking at the capital effect of the sale of TSB. The transaction will unlock more than 400 basis points of capital for shareholders, as already anticipated when we announced the transaction. The sale generates a positive capital impact of 369 basis points this year driven by the release of risk-weighted assets, a net capital gain of more than EUR 300 million and the reduction of intangibles. This will be offset by the extraordinary cash dividend distributed to shareholders which represent a reduction of 378 basis points, bringing the pro forma CET1 ratio to 13.09%. Finally, the release of operational risk-weighted assets over the next 2 years will add a further 36 basis points, lifting the pro forma fully loaded CET1 ratio to 13.45%. With that, I will hand over to Cesar, who will conclude today's presentation and probably say goodbye after 5 very successful years leading Banco Sabadell. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Sergio. Continuing after that phenomenal waterfall is very interesting. So to conclude this presentation, I would like to briefly review the bank's transformation journey over the last few years. Our growth strategy has proven to be successful and has structurally transformed the bank. First, we are delivering lending growth while reducing the cost of risk. Performing loans have increased by more than EUR 11 billion since 2021, while the cost of risk has declined by more than half. This improvement reflects stronger underwriting standards and a higher quality loan portfolio. Second, the bank is showing a consistent increase in capital generation. Indeed, we are delivering high and sustainable profitability, along with strong capacity to remunerate shareholders. In this context, we have committed to distribute EUR 2.5 billion of ordinary remuneration over the next 2 years, representing an average yield of more than 9% when adjusted for the upcoming extraordinary dividend. In short, a solid performance supported by 2 key levers. We have gradually shifted the organization towards profitability-focused metrics, and we have significantly transformed our risk processes and models. The benefits of these 2 elements will continue to gradually improve the quality of our loan book over time. Finally, let me emphasize our full commitment to delivering the full value of this plan through 2027 as we enter a new phase under a new leadership. We are well positioned to create long-term shareholder value. To conclude my last quarterly results presentation at Sabadell, I would like to share some words on a more personal note. Looking back at the last 5 years, I am honestly proud of the results we have achieved. Sabadell was going through difficult times in late 2020. During this 5.5 years, we, as a team, have managed to deliver on our strategy. We have deployed the profound transformation of the bank, which has enabled our financial turnaround. And now I would like to thank you for the interactions we have had during this period. The team and I feel we have been treated with utmost fairness and respect and I honestly thank you for that. I will now hand it over to Lluc start the Q&A section. Lluc Sas: Thank you, Cesar, for your commitment and for everything you have accomplished this year. We will now open the Q&A session. I would kindly ask you to limit your participation to a maximum of two questions. So operator, could you open the line for the first question, please? Operator: First question is coming from Cecilia Romero from Barclays. Cecilia Romero Reyes: I have two, one on volume growth and the second one on cost. On the first one, on the asset side, loan growth in Spain has been modest quarter-on-quarter. While some peers point to raising competition in both corporate SME deposits. And how are you seeing competition evolve across SMEs and corporates? And how are you balancing pricing, funding costs and returns? And how do you think about your appetite to compete in mortgages where cross-selling helps the economics? And finally, how do you see growth evolving across segments to deliver mid-single-digit growth this year? And then on costs, following the restructuring announcement and the EUR 40 million expected annual savings, could you help us understand how this fits within your current cost targets? Are these savings incremental or already factored in your 2027 guide? Cesar Gonzalez-Bueno Wittgenstein: Thank you very much. So on -- let's go one by one. On Corporates and SMEs, I think if you look at it, we've increased by 5% quarter-on-quarter and 1% year-on-year. And looking ahead, loan demand from Corporates and SMEs remains solid. We keep a strong pipeline of medium- and long-term loans. Therefore, we are confident that growth will accelerate back to mid-single-digit levels and the front books and yields and spreads remain stable. You have to understand that the change in model is a long-term element. So the cost of risk going forward will be much lower. There has been a phenomenal transformation in the strategy of the bank. In terms of mortgages, to your question, the average front book yield on new Spanish mortgage lending is currently below swap rates, as you all know. And pricing conditions remain very competitive, even after taking potential cross-selling benefits into account. Therefore, we have intentionally reduced our market share of new mortgages lending from approximately 9% at the end of '24 when the yields were positive to below 6% this quarter when our natural market share is around 7%. And we will continue to adjust our appetite according to market pricing as we have done over the past year. On the consumer lending, I mentioned before that during the quarter, we introduced changes in the application process. And although the demand -- the upfront demand remained stable and strong, we had lower conversion rates. We have adjusted for these new changes and now conversion is back to where it was, and we expect healthy growth from now on. And in the cost of deposits and in the deposits, I think we've grown healthily in deposits, and that has been somewhat on the back of the growth of the digital account. We have been very successful in the growth of the digital account during the quarter. And as we have mentioned many times, this is not to increase the volume of deposits. This is to attract new customers that then become transactional and that allow for further growth. More than 60% of our acquisition is now through digital accounts when it was 0 a few years ago. And these clients behave well. They have strong transactionality, more than 50% have payrolls, 45% use payments every month and 40% use Bizum through Sabadell, which is a big sign of being engaged with us. And despite the fact that we have done this campaign at a high rate, it has been at the rate that we could obtain in the wholesale market. So it makes lots of sense. I will let Sergio to develop a little bit more on the cost side. But I think we are not -- just to make it very brief, I don't think we are adjusting our forecast now despite this one-off. Of course, that would imply that there is some room as the year progresses to review. But for the time being, we leave it untouched. Sergio Palavecino: Thank you, Cesar. A couple of comments to the first one, Cecilia. The first quarter is typically because of seasonality, probably one of the sort of slower in terms of volumes. In any case, we've been able to grow a little bit the loans and a little bit the deposits. And when you look at the year-on-year growth rate, it's at 5.6%. So it is actually absolutely in line with our expectations. And as Cesar mentioned, the pipeline is good. So regarding volumes. As of today, there isn't anything that makes us think that we're not going to grow in line with expectations. And then as per the cost to your question, this efficiency initiative, so the early retirement, the EUR 40 million in 2027 was not included in our guidance when we detailed the guidance of 2027 by the different lines. We think it's early to update guidance per lines in 2027 given the different changes that we're seeing in the market. Of course, this is a positive because then it allows us to have a buffer and then we see how inflation plays out in the different lines of the cost. But again, I think it's a buffer, and we feel optimistic about it. Lluc Sas: Okay. So operator, could you switch off the microphones when the analysts are asking the questions because we've been told that there's some feedback that analysts cannot hear the questions when they do the Q&A. So we can jump to the next question. Thank you. Operator: Next question is coming from Francisco Riquel from Alantra. Francisco Riquel: Yes. So I just wanted to say goodbye to Cesar and congratulations for the last 5 years' performance. So my first question is on NII. You maintain your guidance of plus 1% in '26 but Euribor rates are now higher than expected, and you used to have a positive sensitivity. So I wonder if you can elaborate on NII dynamics in coming quarters? And what is the offset to the higher Euribor rates? And in the case, the margin uplift is delayed, if you can update on the risk to your '27 NII guidance as well? And my second question is capital distributions, the EUR 90 million of restructuring charges that you will book in '26, I wonder if that is compatible with your distribution targets? You did not specify how much of the EUR 2.5 billion will be paid out in '26 and '27. So I wonder if top-up share buybacks will be postponed to '27 after the winding of operational risk-weighted assets or not? Sergio Palavecino: Thank you, Paco, for your questions. Regarding NII, NII sensitivity, you're absolutely right, it's a positive one. So when interest rates go up, we expect NII to be higher. Actually, for 100 basis points immediate uplift in all rates, then we expect a 6% increase in the second year. And the first year is less. So the first year is somewhat more stable. So the first year is more stable as said. Looking at the evolution of NII, we initially expected NII to grow by more than 1% and keep on growing into next year. And that was basically based on volume growth, while rates were expected to be stable. This time around, what we are seeing and when we look at the yield curve to update our expectation, the yield curve was reflecting two hikes from the ECB. So now we have updated our model with two hikes. So the ECB at 2.5%, which is definitely a higher rate. For the first quarter and the second quarter, volumes are not changing in our view. They are absolutely in line to our expectations. And then I think the question mark is whether at some point at the end of the year may be somewhat less volume. And as particularly, we are growing a little bit less than expected in mortgages because we want to be really prudent with prices, particularly in this environment. So the movements that we are seeing are not going to affect 2026, cost of deposits, the market looks good. In the past, this rate have had a very gradual pass-through into the deposit cost and from everything that we're looking at, this seems to be the case this time around. So the pass-through at the beginning is less than the pass-through that we have in the book, which is close to 30%. And then for 2027, we feel positive, but it's a bit early to say. Definitely, the higher yields is going to be a tailwind and then remains the question mark on volumes that we had expectation for a continuous mid-single digit at so far, we maintain, but I think we need a bit more time to have visibility in 2027 and also cost of deposits, although we feel very comfortable for cost of deposits. So I think those are the moving pieces that taking all that into account, we feel that the outlook is solid for this year. And then for next year, as said, we feel somewhat optimistic, but it's early to be precise. And regarding capital distributions, EUR 90 million is the one-off cost. But already in the period, we are expecting the benefits -- part of the benefits, EUR 40 million in 2027, EUR 15 million, almost EUR 15 million in 2026 million. So that combined is EUR 55 million. The net is only EUR 35 million, which net of taxes, is less than EUR 25 million. So yes, it's going to have a bit of an effect, but we are talking about less than 1% of the distribution. So we think that at this point moment in time, there might be some organic capital generation that can offset that small deviation. So we maintain the target of the EUR 2.5 billion distributions, which we have always seen them being higher in 2027 than 2026. In 2026, we have the extraordinary of the TSB distribution, EUR 0.5. We're actually distributing a little bit more than what is generated in 2026. So it's -- I think the balance between timing of the distributions are also quite sensible. Lluc Sas: Perfect. So let's take the next question, please. Operator: Next question is coming from Maks Mishyn from JB Capital. Maksym Mishyn: All the best to Cesar in the new chapter. Two questions from my side. The first one is, maybe I've missed it, but on the digital campaign for the deposits, could you give us a bit more color on pricing and volumes you were able to achieve with the campaign in the first quarter? And the second question is on cost of risk. Have you updated your macro models in the quarter? And can you provide us with some comfort that macroeconomic turbines may not push your cost of risk higher? Cesar Gonzalez-Bueno Wittgenstein: Thank you very much. So I think we have never been too transparent on the numbers of the digital account. It's quite successful. And we have now more than 600,000 digital customers. And what I could say is that it has increased overall by around 2 basis points to cost of deposits in the quarter. And let me leave it at that. It has been quite successful. We are very happy, and it is fulfilling all its purposes. Lluc Sas: And then we also had the questions on cost of risk and macro models. Cesar Gonzalez-Bueno Wittgenstein: Yes. Thank you, Maks, for your question. Regarding cost of risk and the macroeconomic models, we have, of course, reviewed carefully the scenarios and taking into account what is going on, the conflict and the uncertainty. For the basic scenario, we have kept it unchanged. We are -- we built this scenario during the second half of last year, and we built it on a quite a prudent basis. In our base scenario, we're assuming GDP to grow, in Spain, 1.7%, unemployment to be a little bit above 10% and what consensus is delivering today is an expectation of growth above 2% in Spain and unemployment below 10% while the price of real estate will not be declining. That is the consensus. And we feel that we have seen that the assumptions in our macroeconomic base scenario are actually more prudent than what we're seeing in the market. Of course, this only affects Spain, which is our home market. So we have not changed the base scenario. What we have done is we have changed the probabilities of the upside and the downside scenarios. You know that under IFRS 9, you have the base at the downside and the upside, and we have a shift 5% probability from the upside to the downside. And with this, this has triggered a EUR 20 million provision that has been already incorporated in the EUR 94 million of credit loan provisions. So this actually 10% in the change of probabilities. And for the time being, we will monitor the situation and the development. But for the time being and as long as the GDP expectation in Spain is maintained at a growth of around 2%, we feel that the scenario is going to be good. Lluc Sas: Okay. So let's jump to the next question, please. Operator: Next question is coming from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: All the best of luck for you, Cesar, in your new adventures. I just have one question on fees and one questions on the deposit and one on interaction with lending. So on fee income, I mean how should we expect the improvement in coming quarters? Is it mainly driven by an acceleration of the asset management net inflows because you are launching a new product campaign or how should we think about fee progression basically coming in the coming quarters? And the second one on the loan to deposit. I mean do you have any target for loan-to-deposit ratio in the long run or in the medium term? Cesar Gonzalez-Bueno Wittgenstein: Yes. On the fee side, I think we are expecting an improvement in the recovery of CIB activity. There were quite a few things in the pipeline that are probably delayed. I think the payment business is also going to do better and certainly, the net inflows in asset under management. And we have already seen a recovery in the first two months -- I mean, in the first two weeks of March. Sergio Palavecino: Yes. So if I follow up on those, natural actually, we expect the credit services and assets under management, we expect the 3 of them to grow from this level. Services, the different business lines are working well. We had this one-off in the first quarter and seasonality. Seasonality affects very much our payment service business. And then we mentioned also the Corporate & Investment Banking, which simply was slow in January and February, and then is not picking up in March and therefore, the second quarter is expected to be good in terms of activity. So we also expect growth coming from that business line that is going to affect or is going to affect positively the credit, the services and then finally, the asset under management because of the growth in balances. And per the loan-to-deposit is 92%, very stable. It's been very stable already for many quarters where we've been able to grow mid-single digit in loans and sort of 4% in deposits with a higher base of deposits. So at the end of the day, quite stable. If we were in a situation where we had the opportunity to grow the loan portfolio, I think growing up to a loan-to-deposit in the range of 90% to 100%, it could be no problem. So we would also feel that, that's not an issue. However, our -- in our plan, we will try to grow as balanced as possible. Lluc Sas: Thank you much for your questions. Let's jump to the next caller, please. Operator: Next question is coming from Borja Ramirez from Citi. Borja Ramirez Segura: Thank you very much for taking my questions. I have two, please. Firstly, on the net interest income, I saw that your ALCO portfolio grew by roughly EUR 2 billion quarter-over-quarter. If you could kindly provide details on the yields at which you bought new bonds? And then also on NII, I would like to ask, I think it was mentioned in the previous results call that you had you're going to decrease the cost of digital accounts from 2% to 1%, and there was a EUR 30 million positive NII benefit on a -- basis from this. If you could kindly confirm this number? And then my second question would be, it is noted regarding the change in the scenarios of the IFRS 9 models. I would like to ask if you could kindly remind me the macro relay provision. Sergio Palavecino: Sure. May I start with the ALCO question? Thank you, Borja. Yes, we have increased a little bit our ALCO portfolio, in line with our plan. The ALCO, the size of the ALCO book is related to mainly the ALM, the hedging that we do, the size of our current accounts and deposits, which have been growing. And then on top of this year with the sale of TSB at the TSB level, we are selling the TSB MREL bonds at the ex-TSB and replacing them with cash from the transaction. So we wanted to put that money to work partially. So that's why we wanted to increase the portfolio this year. And we have invested in the typical investments that we do that mean Spain and other core European sovereigns with durations up to 10 years, some of them hedged. So at the end of the day, the duration of the portfolio that we buy is between 5 to 6 years and with yields above 3% and in the current environment, actually very close to 3.5%. And then as per the online current account, you are absolutely right. We have the intention to cut the remuneration on the previous campaigns from 2% to 1%. We did, and that took place in the month of March. So it was only one month in the first quarter and the benefits will keep on coming. The very good news is that -- the very good news is that after this cut, we're seeing a lot of stability in the balances. So I think it's working the strategy of buying customers and then keeping the balances. And finally, regarding your question on the macro provision, I think I mentioned that it was EUR 20 million, the provision that we took after changing the probabilities. And Cesar, I don't know if you'd like to add something? Cesar Gonzalez-Bueno Wittgenstein: I think you were spot on. I think on the digital account, what we said is exactly that there will be a EUR 30 million saving from the portion of that portfolio that we brought from 2% to 1%. And of that, we have seen 1 month and that EUR 30 million is over the course of the year. And as you mentioned also the very good news, as expected, is that the loss of volumes is low. And this proves again that this is a transactional account. It's not deposits. It's not to maximize returns. It's to have a full current account that, at the same time, has low costs and full services and at the same time, yields something that is above 0. And that is exactly what has happened. And now there are different tiers, and that is the strategy around this account, there are different tiers. Some for acquisition because to create the excitement to move the account, you need a slightly higher rate, but then everybody understands that the current account with a decent remuneration of 1% is attractive enough and they are becoming transactional. So as I mentioned before, we are very satisfied with the progress of this strategy. Lluc Sas: Operator, could we have the next question, please? Operator: Next question is coming from Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: Two follow-ups on lending growth. The first one is on the SME and corporate book, the Spanish one. I mean you've got peers basically growing, I mean, significantly above that 2% so I just wanted to follow up a little bit actually on what do you think explains that gap right now? Is it risk profile, risk appetite by Sabadell? Is the fact that the incumbents in Spain have stepped up the pace. Is it related to the fact that your customers are requiring less credit than other type of corporates. So just a little bit of color basically on that. And then the second one is whether you're seeing actually the international book ex-TSB as a bit of an offsetting factor against and that we're seeing some degree of acceleration, especially in Miami and the foreign branches actually. So do you think there is a little bit of an offsetting actually coming from international book and the Spanish book or you treat those books completely separately? Cesar Gonzalez-Bueno Wittgenstein: I think reducing the probability of default by 50%, as we have done in new lending, of course, strengthens our asset quality. But for a period of time, makes the volumes slightly more subdued. And it makes a lot of sense to do that, but it's a transition in which we are still somewhat immersed. You have to take into account that, that probability of default improvement has a long tail it will take more than 4 years to see the full benefit in the SME portfolio, 7 years in mortgages and more than 2 years for consumer loans. And for sure, it's very difficult to separate off all the different factors that make that demand a little bit more subdued, but it is our impression that this is the main factor that reducing the probability of default of being more demanding on the quality, on the risk quality of the new loans is having certainly somewhat of a slowdown, which will fade over time. And regarding the growth abroad, not really. We have good business units abroad, Miami, Mexico in particular and we do what's right. And whenever we find the right project, so the right returns on capital with the right risk, then we're able to do it, and we are seeing an environment with a lot of activity and project finance, in structured finance and the corporate, our corporate customers that are doing business abroad. So we are taking advantage of that activity, but it's not really like that we see sort of offsetting. We don't look things that way, no. Lluc Sas: Let's go to the next question then. Operator: Next question is coming from Pablo de la Torre from RBC Capital Markets. Pablo de la Torre Cuevas: I have a couple of follow-ups on cost and distribution. So the first one was on cost. I just wanted to understand the phasing of any remaining one-off costs in 2026 and whether the plan as it stands now considers any further actions in 2027? And the second one was on distributions. I know you reiterated the EUR 2.5 billion in distributions for this year and next. But I just wanted to check that you also reconfirmed the previous dividend guidance of 2026 being above EUR 0.204. And then the last one on fees also, if you just can comment on the previous guidance of double-digit growth in asset management and insurance fee income growth from this year. I think that's growing only at 4% in Q1. Cesar Gonzalez-Bueno Wittgenstein: So you will complement to that. But on cost, we don't see further actions at this point in time in '27 and there will be a progressive deployment during '26, and we will accelerate it as much as possible. So we have incurred already in EUR 55 million of the EUR 90 million, and you should expect the greater start to happen relatively soon. And for '27 at this point in time, there's no expectation. That doesn't mean that there couldn't be later on. But at this point in time, there are no further expectations. And for the distribution, I think we have -- we are confirming everything, everything that we said in terms of distribution almost 6.5% of the total of the 3 years, the EUR 2.5 billion ordinary, the EUR 0.50, everything, I think, is being confirmed. Sergio Palavecino: Indeed. Yes. And finally, Pablo, I think you were asking for fees, which I think we've been discussing and the fee development -- I mean the expected performance of fee remains unchanged to what we said in the first -- at the beginning of the year, and for the year. So we expect fees connected with assets under management to grow linked to volume, but then we also expect a higher contribution from the different businesses that we run and in the presentation, we are acknowledging a slower start than expected. We were sort of expecting maybe a figure similar to the one that we have in the first quarter of last year. And the difference, which is some EUR 7 million is half that one-off and half a slow January and February in the import and export business and corporate and investment banking which has already get back on track from March. And with all this, what we are seeing is that we keep on targeting growth that might be close to the mid-single-digit range, probably the lower range -- the lower part of that range. So we are targeting close to 4% overall growth in the fee line for 2026. Lluc Sas: Let's go to the next question please. Operator: Next question is coming from Carlos Peixoto from Caixa Bank. Carlos Peixoto: Just a couple of questions from my side as well, basically focus on NII. I'd like to have a follow-up there. The first one is that your NII guidance is based -- or the above 1% growth is based on NII that was provided last year, excluding TSB or on the statutory NII that we now have? Just to understand the basis for the growth. And then delving into NII, just if you could remind us what type of savings you might be getting going forward from MREL instruments that you had to issue at the group level to finance the size of the group or when it includes the TSB and now with the sale you could have some savings on those instruments from maturing the instruments, basically, what -- how much could it be? And what will be the time line for those to kick in? Cesar Gonzalez-Bueno Wittgenstein: Thank you, Carlos, for your questions. Regarding the second one, MREL. We were done streaming an equivalent to EUR 1.4 billion of MREL to TSB, which is the MREL related to its risk-weighted assets. And that is the MREL that, therefore, we will be saving at the group level in the wholesale capital market, so EUR 1.4 billion. And that's why we're saying that we will not be active in the debt capital markets in 2026 as we don't need to get that. So if you apply the spread on the senior nonpreferred and senior preferred to that figure, it's something close to EUR 20 million per year that may take place already -- I mean, gradually from the second quarter of 2026, as we will not be issuing and we will have maturities. And then I think the first question, not sure if I got it fully right. I think you are asking about the perimeter for the NII, and we are trying to be comparable. So it's going to be the ex-TSB perimeter is the one that is going to remain. So that's the one we're being guiding on to try to make it -- [ PLs with PLs ]. Hopefully, that was your question, and I hope I answered otherwise, we can follow up on it. Lluc Sas: Thank you, Carlos. And then we have got one final question. So operator, please. Operator: Last question is coming from Britta Schmidt from Autonomous Research. Lluc Sas: Britta we cannot hear you. No? Well, so probably he's jumped to another call because we know that it's a busy day for you, so thank you for your understanding. And that concludes our presentation for today. Thank you, Cesar and Sergio, and thank you all for participating. If you have any further questions, the Investor Relations team remains available for any follow-up or additional information. Have a great day. Thank you. Cesar Gonzalez-Bueno Wittgenstein: Thank you.