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Operator: Ladies and gentlemen, thank you for standing by. My name is Shamali, and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group Incorporated's first quarter 2026 earnings conference call and webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session for the members of the financial community. At that time, if you have a question, you will need to press star and the number one on your telephone keypad. To withdraw your question, please press star and the number two. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded today, 05/05/2026, and will be available for replay as an audio webcast on Public Service Enterprise Group Incorporated's Investor Relations website at investors.pseg.com. Please go ahead. Carlotta Chan: Good morning, and welcome to Public Service Enterprise Group Incorporated's first quarter 2026 earnings presentation. On today's call are Ralph A. LaRossa, Chair, President and CEO, and Daniel J. Cregg, Executive Vice President and CFO. The press release, attachments, and slides for today's discussion are posted on our IR website at investors.pseg.com, and our 10-Q will be filed later today. Public Service Enterprise Group Incorporated's earnings release and other matters discussed during today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties. We will also discuss non-GAAP operating earnings, which differs from net income as reported in accordance with Generally Accepted Accounting Principles, or GAAP, in the United States. We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward-looking statements on our IR website and in today's materials. Following our prepared remarks, we will conduct a 30-minute question-and-answer session. I will now turn the call over to Ralph A. LaRossa. Ralph A. LaRossa: Thank you, Carlotta, and thank you for joining us to review Public Service Enterprise Group Incorporated's first quarter 2026 results. Starting with our financial results, Public Service Enterprise Group Incorporated reported net income of $1.48 per share and non-GAAP operating earnings of $1.55 per share. Our first quarter results reflect continued investment in utility infrastructure, focused on reliability and cost-saving energy efficiency programs at PSE and G. At PSEG Power, higher gas volume and capacity revenues have more than offset the absence of the zero emission certificate program that concluded last May. With this solid start to 2026, we are maintaining our full-year non-GAAP operating earnings guidance in the range of $4.28 to $4.40 per share. On the operations front, I am very pleased to report that our utility and nuclear operations delivered excellent reliability during one of the harshest winters in decades. In preparation for these extreme weather events that included high snow accumulation, ice, and arctic air temperatures, PSE and G initiated its winter weather readiness procedures and ensured adequate staffing for timely storm response. Starting in January with Winter Storm Fern through Winter Storm Hernando in late February that dropped 30 inches of snow on parts of Northern New Jersey, PSE and G systems held up well during intense conditions. For the relatively small group of customers that were affected by the weather, PSE and G was able to restore service to virtually all customers within 24 hours. I cannot say enough about our employees who carry out PSE and G's storm response work, who brave the elements to keep the lights on and homes warm for our customers. The utility experienced peak winter gas send-out on February 7 following over a week of subfreezing temperatures. These conditions underscore the need for continued investment in gas infrastructure modernization to address the impact that extreme temperatures have on our aging cast iron gas system. Despite this year's winter weather, PSE and G is on track with its 2026 capital spending plan of approximately $4.2 billion, investing in critical energy infrastructure, cost-saving energy efficiency, and system modernization for reliability and to meet new demands. During the same time, we have worked with the Governor's office and the New Jersey Board of Public Utilities to keep electric rates flat in 2026, in keeping with Executive Orders 1 and 2 that are addressing utility costs and generation supply. PSE and G's electric customers will also benefit from the update reflecting the latest Basic Generation Service auction results, which will go into effect on June 1. On February 1, we also kept residential natural gas rates flat for the remainder of the 2025–2026 winter heating season, delivering to our customers the lowest gas bills in New Jersey and in the region. And there is more good news for PSE and G electric customers. In early March, FERC issued an order supporting PSE and G and the State of New Jersey's objection to PJM transmission cost allocations. FERC's ruling reallocating these costs is expected to result in significant refunds of over $100 million, based on our estimates, to PSE and G customers after PJM's implementation. While this matter is still being litigated at FERC, it is another example of how Public Service Enterprise Group Incorporated works in partnership with the state at the regional and federal levels to keep our customer bills as low as possible. I would also like to mention that we are ramping up PSE and G's technology-driven conservation efforts. PSE and G recently launched two new ways to reduce energy use during peak times to save customers money and help reduce strain on the grid. The first is our demand response program with over 32 thousand residential and small business customers already enrolled to receive an upfront payment for reducing air conditioner use and other activities like EV charging during selected peak hours throughout the year. The second program is our new residential time-of-use rate that can save customers money by shifting some of their usage to off-peak time. This new rate option leverages the more detailed electric usage made available by our AMI investment in smart meters. Combined with our energy efficiency programs, PSE and G offers customers a variety of ways to reduce energy usage, manage their bills, and starting this summer, participate in creating a more flexible energy grid through our virtual power plant pilot. The BPU has started the process of implementing this directive in the first executive order. We expect that the BPU consultant will release the study this summer and that a stakeholder process on the topic will continue throughout the remainder of the year. We intend to fully engage with the BPU throughout this process. Now turning to PSEG Power. First, I would like to congratulate the PSEG Nuclear team for completing a second consecutive breaker-to-breaker operating run at Salem Unit 2 to begin their refueling outage this April. That notable accomplishment contributed to a 95.5% capacity factor and supplied 8 terawatt hours of reliable, carbon-free baseload energy to New Jersey and the grid during the first quarter. Last week, FERC approved the extension of the PJM price collar through the 2029–2030 base residual auction. This extension is expected to stabilize the effect of upcoming auctions on New Jersey's BGS default prices, even as regional demand growth advances with a limited supply response. As part of an all-of-the-above long-term approach to increase New Jersey-based generation supply, Governor Cheryl recently signed legislation lifting a decades-long moratorium on new nuclear construction. The announcement made at our three-unit site in Salem County highlighted broad support from policymakers, legislators, and labor leaders. Public Service Enterprise Group Incorporated is engaging in efforts to advance new nuclear development at the PSEG site. We believe the site's unique strengths, including an early site permit, prime logistics, access to a skilled workforce, and opportunities to leverage our operating expertise through contractual arrangements, make it a leading candidate for new nuclear deployment. We have also been watching developments related to PJM's proposed reliability backstop procurement auction. It is intended to be a one-time procurement, or emergency auction, to accelerate new dispatchable generation that can be brought online by 2031 to serve data center–driven load growth. More details from PJM are expected over the next month, and we will continue our vigilance during the stakeholder process to advocate on behalf of PSE and G's customers. Wrapping up, Public Service Enterprise Group Incorporated had a strong operating and financial quarter to start the year by doing the right thing for our customers, our communities, and our shareholders, with an eye towards a sustainable future. Our corporate reputation for excellence beyond our well-known reliability and customer satisfaction awards was recognized again last week when Public Service Enterprise Group Incorporated was named to the Dow Jones Best-in-Class North America Index for the 18th year in a row. We are maintaining the broad set of financial projections that we shared late in February, starting with our five-year regulated capital investment plan of $22.5 billion to $25.5 billion at PSE and G, and $24 billion to $28 billion for PSEG both through 2030. This investment program supports the utility's 6% to 7.5% compound annual growth in rate base, also through 2030, and helps drive a 6% to 8% non-GAAP operating earnings CAGR at Public Service Enterprise Group Incorporated over that same period. I would highlight again that items including nuclear revenue opportunities above current market prices, winning additional competitive transmission solicitations, or making incremental system investments to connect several thousand megawatts of solar and battery storage resources to the grid to meet new demand would be incremental to our 6% to 8% non-GAAP operating earnings CAGR. I will now turn the call over to Dan, who will review this quarter's results, then rejoin the call for our Q&A session. Daniel J. Cregg: Great. Thank you, Ralph, and good morning, everyone. Public Service Enterprise Group Incorporated reported net income of $1.48 per share for the first quarter of 2026, compared to $1.18 per share in 2025, and non-GAAP operating earnings were $1.55 per share for the first quarter of 2026, compared to $1.43 per share in 2025. We provided you with information on slide 8 regarding the contribution to net income and non-GAAP operating earnings by business for the first quarter, and slide 9 contains a waterfall chart that takes you through the net changes quarter-over-quarter in non-GAAP operating earnings per share, also by major business. Starting with PSE and G, which reported first quarter net income and non-GAAP operating earnings of $577 million for 2026, which compares to $546 million in 2025, utility results reflect ongoing investment in energy efficiency, gas system modernization, and transmission, the seasonality of gas demand, and the continued gradual increase in the number of electric and gas customers. Starting with the waterfall on slide 9, compared to 2025, transmission margin increased $0.01 per share due to higher investment. The first quarter distribution margin increased by $0.07 per share compared to the year-ago period and largely reflects incremental gas margin from the third quarter 2025 GSMP II extension roll-in, an increase in the number of customers in the quarter, and higher gas demand outside of the decoupling mechanism. Higher investment in energy efficiency also contributed to distribution margin in the quarter. Distribution O&M expense was $0.01 per share higher compared to 2025, reflecting an increase in operating costs due to inflation and extreme weather in January and February. Depreciation and interest each rose by $0.00 per share compared to 2025 due to capital investments and higher long-term debt interest rates, and for utility taxes and other, lower flow-through taxes had a net favorable impact of $0.0 per share in the first quarter compared to the prior-year period. First quarter weather, as measured by heating degree days, was 5% colder than normal and 8% colder than 2025, but had a limited impact on utility margin. As you know, the Conservation Incentive Program, or CIP, mechanism decouples weather and other economic sales variances for a significant portion of our distribution margin, while helping PSE and G promote the widespread adoption of energy conservation, including energy efficiency and solar programs. Under the CIP, the number of electric and gas customers drives margin, and residential customer growth for both segments was about 1% over the past year. On our regulated capital spending program, PSE and G invested approximately $800 million during the first quarter, and we remain on track to execute our full-year 2026 plan of approximately $4.2 billion focused on continued investments in infrastructure modernization, energy efficiency, electrification initiatives, and load growth. We have also maintained our five-year regulated capital investment plan of $22.5 billion to $25.5 billion through 2030. PSE and G began the next phase of the GSMP III program in the first quarter, and we anticipate investing a total of $1.4 billion over the three-year period. The GSMP III program's total includes approximately $1 billion in accelerated recovery and $360 million in stipulated base. Also in the first quarter, the BPU certified the results of the annual New Jersey Basic Generation Service, or BGS, auction that was held to secure electricity for customers that have not selected a third-party supplier. These auction results will have the effect of lowering the cost of electricity supply by 1.8% on PSE and G residential electric bills for energy and capacity starting June 1. Moving to PSEG Power and Other, for 2026 we reported net income of $164 million compared to $43 million in 2025, while non-GAAP operating earnings were $201 million for the first quarter compared to $172 million for 2025. Referring again to the waterfall on slide 9, the first quarter 2026 net energy margin was flat compared to the year-earlier quarter, as higher gas operations and capacity prices were offset by the absence of zero emission certificates, lower generation volume, and the absence of fuel and energy management fees under the renewed LIPA contract, which commenced in January 2026. O&M costs declined in the quarter, providing a $0.06 per share benefit compared to the same period in 2025, primarily reflecting a net reduction in operational expenses and an adjustment to tax reserves. The impact of higher interest costs and lower depreciation expense netted to a drag of $0.01 per share in the first quarter, reflecting incremental debt at higher interest rates partly offset by lower depreciation expense, reflecting our expectation that the NRC will approve a 20-year license extension for the New Jersey nuclear units. Lastly, taxes and other items had a net favorable impact of $0.01 per share in the quarter compared to 2025. Touching on some recent financing activity, Public Service Enterprise Group Incorporated had ample liquidity totaling $3.9 billion at March. This includes approximately $400 million of cash on hand, primarily related to net PSE and G financing activity during the quarter. Public Service Enterprise Group Incorporated entered into a $500 million 364-day variable-rate term loan in February, further supporting our liquidity position. Also during the quarter, all of our revolving credit facilities totaling $3.75 billion were extended by two years through March 2031. On the financing front this past January, PSE and G issued $1 billion of secured medium-term notes, consisting of $500 million of 4.20% MTNs due 2031 and $500 million of 5.63% MTNs due 2056. A portion of these proceeds were used to repay $450 million of MTNs at just under a percent that matured in March 2026. Public Service Enterprise Group Incorporated also has limited exposure to variable-rate debt, which totaled approximately $915 million and consists of two 364-day term loans and commercial paper, and represented a low 4% of our total debt at March. Looking ahead, our solid balance sheet continues to support the execution of Public Service Enterprise Group Incorporated's five-year capital spending plan, directed mostly to regulated CapEx, without the need to issue new equity or sell assets, and provides for the opportunity for consistent and sustainable dividend growth, as demonstrated by the 2026 indicative annual rate of $2.68 per share established by our Board in February. This new dividend rate represents an annualized increase of approximately 6% for 2026 and marks our 15th consecutive annual increase. In closing, we delivered solid operating and financial performance to begin the year, and are maintaining Public Service Enterprise Group Incorporated's full-year 2026 non-GAAP operating earnings guidance of $4.28 to $4.40 per share. We are also reaffirming our 6% to 8% compounded annual growth rate for non-GAAP operating earnings through 2030 based on the continued execution of our strategic plan. That concludes our formal remarks, and we are ready to begin the question-and-answer session. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session for members of the financial community. If you have a question, please press star and the number one on your telephone keypad. If your question has been answered and you wish to withdraw your polling request, you may do so by pressing star and the number two. If you are on a speakerphone, please pick up your handset before entering your request. One moment, please, for the first question. The first question comes from the line of Shahriar Pourreza with Wells Fargo. Please proceed with your question. Analyst: Hi. Good morning, team. It is Constantine here for Shar. Thanks for taking the questions. That is why I paused a little bit there, Constantine. I was not sure if it was you or him. So I did not want to say hello to Shar first. How are you, Constantine? Oh, doing quite well. Thank you so much. Just maybe a quick one starting on the BPU and the legislative process on utility constructs. The different branches finding their footing in terms of priorities? Is there anything in the cost-of-service model getting attention? Or, I guess, do the changes in ROE move the needle on affordability, or is there just a general recognition that the pressure is coming from the supply-demand that is really outside the state? Ralph A. LaRossa: Look, I totally agree with what you just said. I think a lot of people are finding their footing, and there have been a lot of constructive conversations between the companies, the administration, legislators, and the BPU. I think everybody is trying to do exactly what you said: find their footing. Everybody does recognize the challenge has been generated from outside the state, but we also know that we have some responsibility to do what we can from an affordability standpoint for our customers. So everybody is trying to row in the same direction. I hope you hear my tone. I feel positive about the way that we are trying to approach it as a team approach rather than a finger-pointing approach at this point. Analyst: Great. Appreciate that. Maybe shifting to the PJM capacity and reserve auction process. Some of the neighbors have been vocal around it. What could we see in terms of your participation in the RBA from both the power side and as the EDC? Any concerns around capacity cost allocation for your zone? Ralph A. LaRossa: Yeah, Constantine, as you said, there are a lot of people being pretty vocal about it. I would say we should all be a little bit calm and watch what happens here. There are a lot of steps to go through, and I do not want to overreact to anything. Obviously, we need to protect the customers and the utilities, and make sure they are not being burdened with planning assumptions that are being driven outside of anybody's responsibility. We have some states that have IRPs with their own planning assumptions, PJM with its own planning assumptions, and then you have customers putting in requests. All of that needs to be balanced, and putting that on the back of the utilities just does not seem to make a ton of sense for anybody. We will see how that plays out over time. I feel like it is a chance for us to bring more generation in. We all know there is a resource adequacy problem. I do not know how much we are going to get done—“we” being the region—by 2031, but I think it is a good step that we are trying, and I hope it produces some results. I think the limiting factor of 2031 is going to make it really tough for this to be a game changer. Daniel J. Cregg: And, Constantine, inherent within your question, you did talk about cost allocation. Very consistent with our actions related to the FERC decision around cost allocation, we are going to continue to look out for our customers and, in this instance, like the one we referenced in the prepared remarks, we will continue to make sure that those allocations, to the best of our ability, are going to be fair for our customers. Analyst: Maybe just to clarify, do things like the capacity price cap extension provide any additional upsides on the power side versus the 6% to 8% plan? Ralph A. LaRossa: I think we had envisioned and spoken in the past about the fact that we thought things were going to stay about where they were, so I would leave the comment there. Analyst: Appreciate it. Thanks so much for the time today. Operator: Our next question comes from the line of Carly S. Davenport with Goldman Sachs. Please proceed with your question. Ralph A. LaRossa: Hey, Carly. Carly S. Davenport: Good morning. Thanks so much for taking the questions. Maybe just starting on New Jersey, we do have a stakeholder meeting being held by the BPU this week on Executive Order 1, focused on the utility business model. Anything that you are expecting out of that meeting in terms of focus areas or what you think is on the table to address as we think about the utility business model in New Jersey? Ralph A. LaRossa: Consistent with what we have said in the past, we expect performance to be one of the biggest issues that will be on the table, and we welcome that. In the areas that we have seen focus in other states, our performance has been exemplary, and I would expect that to continue. I would, in some ways, welcome the recognition of our utility for the work that has been accomplished from a reliability standpoint, from the ability to hook up customers, and from customer satisfaction. Those three areas are areas where we think we have a lot of strength, and where the performance conversation goes, we would be supportive of that. We will be participating and constructive in the conversations. Carly S. Davenport: Got it. Okay. Great. That is helpful. Sticking in New Jersey but on the nuclear side, you mentioned the lifting of the moratorium in your prepared remarks. Can you talk a bit about how you envision Public Service Enterprise Group Incorporated participating on the nuclear front in the state, and what some tangible updates could look like as we think about the opportunities around new nuclear? Ralph A. LaRossa: We have been leaning in. It is clear that the federal administration is supportive of additional generation, and it looks like nuclear is one of those areas where there is momentum. The signing of that legislation was a great event and a great signal from the administration of their support. We are going to continue to do what we have been doing, which is try to enable it and advocate really hard for the state. We think we have a great site down at Salem. The port construction was completed; it will make some construction activities easier. We have great labor in that area, and we have the technical capabilities and operational performance to deliver additional megawatt-hours out of that area. So we are going to be advocating hard and try to stay lockstep with the administration on that. Carly S. Davenport: Great. Thank you so much for the time. Ralph A. LaRossa: Thanks, Carly. Operator: Thank you. Our next question comes from the line of Jeremy Tonet with J.P. Morgan. Please proceed with your question. Ralph A. LaRossa: Hey, Jeremy. Jeremy Tonet: Hi. Good morning. Jeremy Tonet: I was just wondering if I could start with a large load increase here. Could you provide a bit more color on the current state of conversations and interest there? Where does the total count stand versus last quarter? I think it was 11.8 as of December. Daniel J. Cregg: Yeah, Jeremy, that is about right. It is interesting—last year, if you go through the year, we saw quite a significant increase as you stepped through time. You were seeing the knee of the curve as the interest more broadly was coming about in data centers. I would say directionally you have seen that level off within the state. That 11 thousand we always talked about as being somewhere—maybe 10%, 15%, 20% of that—may come to fruition if we look, based upon history, at what we have seen within different new business coming forward. It is hard to predict, which is a broad topic across the sector. We are still in that ballpark. The change that we saw across last year had us put that forward so people could get an understanding, and with the leveling off, there is a little bit less to talk about on that front. We still pursue the ability to try to serve some of that load, either here or in Pennsylvania, where we have the Peach Bottom units, and that activity continues. Jeremy Tonet: Got it. That is helpful. That leads to my next question. Could you provide some color bifurcating between the states as far as interest or type of activity and conversations? At the same time, how does demand response currently factor into any of these discussions, and has that changed over time? Daniel J. Cregg: I do not think the demand-response factor has changed the discussions over time, but the first part of your question provides more differentiation, literally by virtue of what type of data centers are interested in going where. Absent significant tax incentives in New Jersey, you have not seen sizable interest in New Jersey. That has been a consistent concept that we have talked about for a while. In other states—there are plenty—some of the larger hyperscalers have the ability to derive financial incentives, and they are following those incentives from everything we have seen. The opportunity set to serve them follows suit with that. Jeremy Tonet: Got it. Makes sense. I will leave it there. Thank you. Ralph A. LaRossa: Thanks, Jeremy. Operator: Our next question comes from the line of Nicholas Amicucci with Evercore ISI. Please proceed with your question. Ralph A. LaRossa: Hey, Nick. Nicholas Amicucci: Hey, guys. How are we? Just a couple quick ones from me, if I could. When we think about the cadence at Salem and the potential for the capacity upgrade, would we pretty much assume that you would be seeking the extension first and then any firm announcement on a potential upgrade? Ralph A. LaRossa: You are talking about the license extension first? Nicholas Amicucci: Yeah. Daniel J. Cregg: The Salem units have current licenses that run through 2036 and 2040. Anything we would do to extend that another 20 years would happen in advance of that. What we have talked about with respect to the uprate, by comparison, is either the outage in 2027 or the outage in 2029 is when we would anticipate those coming on. There will be activity on the license extension, but you will see the upgrade come through within those time frames I mentioned. Ralph A. LaRossa: Very specifically, we are not counting on that extension to be in before we do the upgrade. That is not a gating factor. Nicholas Amicucci: Got it. Perfect. And then, given the strong performance—obviously somewhat weather-driven—in the first quarter, the adjusted EPS is roughly 36% of the midpoint and pretty above seasonal. Understanding it is early, what would you need to see going forward to move to the upper half of the range or increase guidance altogether? Daniel J. Cregg: On a normal year, even when you are decoupled, just volumetrically you are going to see a lot more coming through in the winters and the summers. There is a piece of that you see coming through from this winter. If I were to give you a one-word answer, it would be “summer”—what the summer ends up looking like. We are decoupled, so we do not have as much of an impact from that perspective, but there are elements—whether it is weather driving demands a little bit higher on gas or snow removal and things of that nature—that have an impact on results. We have more of those types of events in the winter and in the summer. I would say get through the summer and see what we look like. Ralph A. LaRossa: The other piece to this—just to remind you—we mentioned gas ops and that there was some value generated from our gas operations group. That also goes to offset customer rates pretty dramatically. So another good news message for the customers in New Jersey that we were able to transact in that area. Nicholas Amicucci: Perfect. Thanks, Dan. Thanks, Ralph. We will see you guys in a couple of weeks. Operator: Thank you. Our next question comes from the line of Julien Patrick Dumoulin-Smith with Jefferies. Please proceed with your question. Julien Patrick Dumoulin-Smith: Hey. Good morning, Ralph and team. How are you guys doing? Ralph A. LaRossa: Good, Julien. How are you? Julien Patrick Dumoulin-Smith: Quite well. Thank you very much. Appreciate it. Ralph A. LaRossa: Looking forward to another video. Daniel J. Cregg: Really. Come on. Bring it on. Let us do it. Gotta keep it lively. Julien Patrick Dumoulin-Smith: Let me ask you about PJM here. How do you think about your participation—whether in a bilateral context or outright in some other permutation? We have heard comments this morning and elsewhere. How do you think about that coming together, and how would you set expectations around this process? You are keeping close tabs on this at the state level and at the PJM level. How would you set expectations about what ultimately happens in terms of backstop versus bilateral versus capacity not getting procured on a timely basis? Ralph A. LaRossa: Your question—participation—you mean in new generation? Julien Patrick Dumoulin-Smith: In any flavor. I am curious about the process and then separately your participation in any flavor. Ralph A. LaRossa: The number one thing that we have been on—this goes back a long time, before the words “resource adequacy” were popular—is reliability: the reliability of the grid. We have been on that since 2003, since the lights went out. We start from there—looking out for reliability—and then looking out from a customer cost standpoint. We need to make sure that we are protecting the customer, number one, and making sure that there is enough product to deliver to those customers, number two. I am not sure that the way it is currently drafted really does both of those things. There is a concern about putting that burden on the LDCs versus the LSEs and whatever other acronyms we want to throw in there. We will participate in the process and we are going to advocate strongly. We have a new CEO at PJM who has just stepped into the role. Before we pass any judgment on what is going on at PJM, let us give them a chance to get their feet under them, get the organization structured the way they want, and the rules and proposals the way they would like to see them. We will continue to look at this from the customer's perspective and advocate on that behalf. Part two is when you think about generation—where is this supply going to come from? We get the question all the time: will you participate? We have always said we will do utility-like generation. We think we have some sites that make sense. The question is the fuel supply, and whether that is a fuel supply that makes sense for the state that those sites sit in. We are open to it, but it has to be utility-like investments when we have those conversations. Julien Patrick Dumoulin-Smith: Got it. Okay. Fair enough. And when you talk about new nuclear—understood why—how do you think about next steps in the state? You have got to get the right risk construct. Tangibly, what would the next step look like to show progress if there is to be something to happen? Ralph A. LaRossa: It is going to be a combination of government supporting the effort. You will need to see strong support from the federal government. There are rumors around that in different ways, shapes, and forms from different departments in Washington. Number one, we would need federal support. Number two, you would have to have state support. I think you need states looking for offtake agreements, you need hyperscalers looking for offtake agreements, and you need companies supporting it. A combination of things would have to come together. It all, to me, starts with the government being aligned—and aligned for the long term. You need to ensure that not only do you have some financial support, but that you have permitting support and siting support. We have heard a lot of that from our Governor—that streamlining permitting is one of the things they want to do here in New Jersey. Again, aligned with building new generation. I do not see any state taking on new nuclear without the support of the federal government. Julien Patrick Dumoulin-Smith: To elaborate on the last one, is there timing on when you could follow through on contracted new generation, whether gas or more specific storage or solar? Ralph A. LaRossa: You have to see what all the rules are—that was my point. When you look at this reliability backstop, we will see what those rules are when they come out. If that is a pure market solution, that is not something we are interested in. We are not interested in participating in that; that is not our core business. But if we are looking for rate base—utility-like—we have done that in the past: 30-year PPAs, those types of things. I do not know what will come out of this RBA. Also, remember, it is only on the capacity side. You still have the whole energy side that you have to figure out how you get a contract for. Julien Patrick Dumoulin-Smith: I hear you. Alright, I will leave it there. More to go. Ralph A. LaRossa: Thanks, Julien. See you in a little bit in May. Operator: Thank you. Our next question comes from the line of Michael P. Sullivan with Wolfe Research. Please proceed with your question. Michael P. Sullivan: Hey, guys. Good morning. Ralph A. LaRossa: Hey, Michael. Michael P. Sullivan: Picking up on your last comment—the energy side of the equation—any color you can give on the sharp move in PJM pricing and how you are thinking about that on both sides of the house? Any color on longer-term hedges, and then how you are thinking about the bill impact from that on the utility side? Daniel J. Cregg: Michael, this is Dan. The most immediate impact on the bill is going to be the BGS that we procured in February. From a bill perspective, we know what things are going to look like, and for PSE and G customers, they are going to see their bill go down 1.8% by June 1 because of what happened on BGS. From a customer perspective, that will change again next June 1. There is a lot of stability inherent within the BGS construct that the state put together many years ago that still exists. More broadly, if you think about markets, one of the things markets are trying to figure out is where this RBA goes and what it brings in from a supply perspective. People are weighing their views as to how much load is going to come on the system and what generation is going to be there and needed. Ultimately, through the market construct, that is how prices are going to be set. Those are the bigger questions that people will continue to digest. Like in any other market, they will use the available data, but in this instance it is how much load is going to actually come online and when, and the same two questions around supply. In general, I think you are going to have a tighter market because the path to incremental demand is a little bit clearer from a volumetric perspective than the path to incremental supply. Michael P. Sullivan: Okay, that is helpful. Any color on how much you are hedging into this in the out years? Daniel J. Cregg: The thing that we have said is that for the prompt year we are pretty close to fully hedged, and then as you look through the couple of years, we cascade off a little bit. Analyst: Next, just the next couple months here into the summer resets at the legislature—anything you expect or are focused on getting done between now and then? Ralph A. LaRossa: I think affordability remains a hot topic here in the state. We are prepared for those conversations as they continue to take place, and we continue to be supportive. I think there is a possibility for people to be talking about resource adequacy solutions and something else that might be out there. We are monitoring, and once those issues—if there is any legislation introduced—come up, we will assess them and comment on them. Analyst: Okay. Great. Thank you very much. Operator: Thank you. Our next question comes from the line of Analyst with KeyBanc Capital Markets. Ralph A. LaRossa: Good morning, Sophie. Analyst: Good morning. Thank you for taking my questions. I am curious if you see any opportunities for yourselves in the upcoming PJM transmission open window. Daniel J. Cregg: We even hit a little bit of that in the prepared remarks. On an ongoing basis, we look at what comes through those open windows. We will do exactly the same thing this summer when the next window opens. I would call it a careful look at what makes the most sense for us. We have a pretty deep well of experience in building transmission, but that does not mean everything makes sense for us. We go through carefully, and to the extent that we think something does, we will put in a competitive bid. To remind you, the capital plan that is in place does not have anything that we have not already won through a competitive process. But I absolutely think we have the skill set to expand in that area, and we will increment the capital plan to the extent that we do win as we go forward. Analyst: Thank you. Then on data centers, I appreciate your comment that absent incentives they are not necessarily looking to locate in New Jersey. Is there an option for your New Jersey assets to have virtual PPAs, virtual offtake with a facility elsewhere, or is that not a major focus right now? Daniel J. Cregg: We are deliverable beyond New Jersey, and even today power flows on the grid in the region. There is absolutely the potential for us to do something with the New Jersey units or the Pennsylvania units beyond the node they are at and beyond the zone they are in. So yes, that is possible. Analyst: Okay. Thank you. Daniel J. Cregg: Thanks. Operator: Thank you. Our next question comes from the line of Analyst with Bank of America. Please proceed with your question. Analyst: Hi, guys. Thanks for taking the question. First on the BGS auction—you got the 1.8% reduction that is going into effect in June. How are you thinking about the repeatability of that, with capacity prices either staying at the same level or going lower and potentially power prices going up? Do you think you can keep up the same decreases year over year? Daniel J. Cregg: You understand the pieces as well as we do. The way that auction works is that it is for a three-year period for a third of the load. You are taking a look—at least by design, unless there are delays at PJM—at capacity auctions that have already transpired. So that is a known item. We do not know what they all are now, but we will know by the time the auction comes around. Then a forecast of what energy prices look like—that is probably your biggest variable as you go forward. The other thing I would say is that being an auction for a third of the total demand, any impact—if you were to see a $3 impact to the price of energy—you would see a $1 impact come through to the bill because of the gradual effect. You would see that $1 increase across three years. The gradualism of that mechanism provides gradualism in the impact on rates to customers. Beyond that, trying to estimate exactly where things are going to go is tough to do. Ralph A. LaRossa: To reinforce something Dan said, the last time we had sticker shock was due to a capacity market delay. Even if prices are incrementally up a little bit, you are not going to have that same sticker-shock situation that we experienced a year ago when the BGS price came in so high because the capacity prices had piled up for three years. Those increases sitting there caused the challenge that we had. It was not necessarily incremental, especially in what we believe is a very good mechanism in the BGS, where you have this third/third/third. Daniel J. Cregg: But for the delay in the capacity auction, you would not have seen the magnitude of the year-over-year increase that you saw. Analyst: That is very clear. It makes sense. And then on the RBA—we have talked a lot about it on this call—but I saw the proposal that you filed jointly with some other EDCs. How are you thinking about the ideal things that need to be solved and would be in your favor for that? I saw that the load-serving entity should be the cost responsibility, but anything else you would point out? Ralph A. LaRossa: The key is the planning process. You really have to make sure that the planning process is a solid one and there is consensus around it. Whoever is the planner winds up with the accountability—that is the key. To have the planning done by a town and the accountability sit at the county level does not make a ton of sense—I am just using a parallel there. We have to get all of that aligned. States have IRP requirements. In addition, PJM has been granted by the EDCs responsibility for transmission planning. You put those pieces together, and it is kind of odd for that to wind up back with the EDCs. Therefore, the LSEs—the entities that have been identified with the responsibility—are where we believe the burden should sit. Analyst: That all makes sense. Very clear. Thanks so much, guys. Operator: Thank you. And our last question comes from the line of Anthony Crowdell with Mizuho Securities. Please proceed with your question. Anthony Crowdell: Hey, Ralph, Dan. Thanks for squeezing me in on a busy morning. Just a follow-up to, I think, Nick's question earlier on the nuclear upgrades and maybe the timing of them. When do you file for approval for the uprates? Is that an additional CapEx opportunity, or is it further out in the five-year plan, or do you already have any included in your current plan? Daniel J. Cregg: We have the capital for the uprate included, and the timing is going to depend upon which outage it goes into, Anthony. As I said—2027 or 2029. We will have an outage for those units in 2027 and an outage in 2029. Depending upon how it moves forward, that is when we will end up seeing that uprate go through. You are asking about the uprate, not the license extension, right? Anthony Crowdell: No—more the license extension. I am sorry if I was not clear. Ralph A. LaRossa: For the license extension, we will get information back over the next X amount of years. I know NRC is trying to move that a little bit quicker than they have in the past. At that point, they will let us know whether or not we have to change the oil, change the tires—what needs to be done. We will be able to forecast the CapEx at that point. Anthony Crowdell: Is it within the five-year period, or could it also be outside the five-year period? Ralph A. LaRossa: We would certainly gain consensus with NRC on the work that needs to be done in the five-year timeline, and I think the work will be completed outside the five-year timeline. Anthony Crowdell: Great. That is all I had. Thanks so much. Ralph A. LaRossa: Thanks, Anthony. Operator: Thank you. There are no further questions at this time. I would like to turn the floor back to Mr. LaRossa for closing comments. Ralph A. LaRossa: Thank you all for your interest and dialing in today. I know it is a busy day for many of you on the call, so I appreciate you taking the time. I look forward to speaking to everybody at AGA. I will end with another thank you to our team here for the work completed through this past winter. The weather was not easy for us, and people continued to work above and beyond our expectations. Thank you to the team, and thank you all for calling in. Looking forward to seeing you all at AGA later this month. Take care. Operator: Ladies and gentlemen, this concludes today's teleconference. You may disconnect your line at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors, Inc. First Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session; instructions will be given at that time. I would like to remind everyone that this conference is being recorded today, 05/05/2026, 11:00 AM Eastern Time. I will now turn the presentation over to Mr. Aaron R. Reyes, Chief Financial Officer. Please go ahead, sir. Aaron R. Reyes: Thank you, Operator. Before we begin, I would like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those described in our filings with the SEC, which could cause actual results to differ materially from those projected. We caution you to consider these factors in evaluating our forward-looking statements. We also note that the commentary on this call will contain non-GAAP financial information including adjusted EBITDAre, adjusted FFO, and hotel adjusted EBITDAre. We are providing this information as a supplement to information prepared in accordance with generally accepted accounting principles. Additional details on our quarterly results have been provided in our earnings release and supplemental which are available in the Investor Relations section of our website. With us on the call today are Bryan Albert Giglia, Chief Executive Officer, and Robert C. Springer, President and Chief Investment Officer. After our remarks, the team will be available to answer your questions. With that, I would like to turn the call over to Bryan. Please go ahead. Bryan Albert Giglia: Thank you, Aaron, and good morning, everyone. We were pleased with our performance in the first quarter which came in ahead of our expectations even with some weather-related headwinds across a handful of our markets. The strength was broad-based, with continued solid group results and transient performance that was better than anticipated. Overall, RevPAR in the quarter grew an impressive 14.6%. Excluding Andaz Miami Beach, which continues to ramp nicely, RevPAR grew 5.7%. This strong revenue performance, combined with continued focus on cost controls at the hotels and at the corporate level, allowed us to generate meaningful growth in earnings. The added benefit of our accretive repurchase activity drove even greater growth in earnings per share with first quarter adjusted FFO nearly 29% higher than last year. Our resorts once again led the portfolio with combined comparable RevPAR growth of over 18%. While the rebound at Wailea Beach Resort was expected, it has been impressive, where revenue grew 14% in the quarter even with significant cancellations from the two weather events that impacted the Hawaiian Islands in March. While we will need to navigate some repair work and disruption following the storms, the outperformance in January and February, and the trends that we are seeing for the remainder of the year, continue to point to a sustained recovery in Maui. We were also quite pleased with performance at our wine country resorts, which turned in a combined 34% growth in RevPAR driven by better contributions from both group and transient business. As we shared with you on our last call, we were encouraged with how Andaz Miami Beach performed over the festive period and into the early weeks of this year. That trend has continued, with results exceeding expectations in the first quarter. We are seeing further strength into April, with second quarter benefiting from strong transient and group business with major events like the F1 race last weekend and the World Cup coming this summer. During the first quarter, the Andaz ran 86% occupancy at a $564 rate and produced $6.5 million of EBITDA. The concept ran a similar occupancy but at a rate over $900 per night. Q1 was an absolute success for the Andaz, and we are encouraged with how much opportunity we have to continue to grow rate closer to its peers and build on our multiyear growth story. We have had a solid start to the year, and we are well positioned to deliver on our earnings expectations in 2026, and we look forward to the resort’s next phase of growth into 2027 and beyond. Our urban hotels had a noisier quarter as we navigated a challenging Super Bowl comp in New Orleans and weather-related headwinds across the East Coast. RevPAR declined 9.3% in the first quarter across our urban portfolio, but out-of-room spend performed better and limited the decline in total RevPAR to only 2.9%. At JW New Orleans, revenue was lower given the benefit of the Super Bowl in the prior year, but despite the challenging comp, our hotel continued to gain share. After picking up nearly 15 points of RevPAR index in 2025, the JW again outperformed the comp set in the first quarter and now sits at over 150% relative to the group, demonstrating the strength of the hotel’s location, superior room product, and recently upgraded meeting space. In addition, our New Orleans hotel had one of its best first quarter production results in years, with group bookings growing over 50% relative to the prior year. In Boston, the quarterly performance was hampered by the severe winter weather that disrupted travel earlier in the year. Overall, we expect the first quarter to be the toughest quarter for our urban portfolio with sequential growth in RevPAR through the balance of the year. Our convention hotels turned in better-than-expected performance with RevPAR growth of 5.2%. Performance varied widely, however, as we experienced the push and pull of a few large events. In Washington, D.C., we had a very challenging comp given the inauguration last year. After increasing over 24% in 2025, RevPAR at our Westin D.C. Downtown was 9.8% lower this year due to the tough comp and higher group attrition from the severe winter storms that occurred in the quarter. Despite this decline, our performance was better than expected as stronger transient demand helped to partially offset the sluggish group backdrop in the market. Additionally, the Westin had a solid booking quarter with transient pace for the next six months up 11% relative to last year, pointing to a continuation of the current transient trend. On the flip side, RevPAR increased over 27% in San Francisco where the Super Bowl added compression to a market that was already on a positive trajectory. In fact, if you look only at January and March, RevPAR was still higher by 14% as the city benefited from an active event calendar and an increased level of commercial activity in the downtown area. Performance at the Renaissance Orlando SeaWorld was impacted by isolated group cancellations earlier in the quarter and a shift in the mix of business, which led to a decline in rooms RevPAR but generally flat total RevPAR given the benefit of strong contribution from out-of-room spend. We expect the balance of the year to be more conducive to growth in Orlando with particular strength in Q3 and Q4, where second half group pace is up over 40% relative to last year. Lastly, in San Diego, we were pleased to see better transient performance in the market, which has given us a more optimistic outlook for the year. We are in the final stages of our meeting space renovation at the [inaudible] and we expect that our second quarter will be the toughest comp of the year with sequential improvement through the third and fourth quarters as we benefit from better group patterns and our new meeting space. On the expense side, we were particularly pleased to see better productivity in the rooms department, which allowed us to keep comparable departmental expense growth on a per occupied room basis to only 1%. This better cost performance was partially offset by higher utility expenses, property G&A, and sales costs. Overall, our comparable portfolio, excluding Andaz, saw expense growth for all costs increase 3.4% on an absolute basis during the quarter, or 2.4% per occupied room. This was generally consistent with our expectations and allowed us to grow margins by 140 basis points. Given the cadence of our quarterly revenue growth, we expect that the first quarter will be our strongest margin growth performance of the year, but we are continuing to work with our operators to focus on cost controls and drive efficiencies wherever possible. As part of our last earnings call in February, we noted that we were encouraged by the trends we were seeing in recent operations, but that broader uncertainty gave us reasons to be cautious. This remains the case today with recent events only reinforcing this view. We continue to monitor events that could impact costs and the demand for travel. While we did not see any measurable impact on our first quarter operations, an elongated period of heightened volatility or sustained increases in fuel prices could present headwinds. That said, performance in the first quarter was meaningfully ahead of our expectations, and based on what we see today, we are comfortable revising our full-year outlook higher to reflect these results. Given the elevated uncertainty, we will continue to be measured in our expectations for the rest of the year. If more of the momentum from the first quarter carries into the balance of the year, or if some of the special events slated for later this year outperform our modest expectations, then we could be positioned to deliver stronger performance. We are encouraged by the increase in hotel transaction activity and believe the environment may be becoming more conducive to executing our capital recycling strategy and demonstrating the value of our portfolio. In the interim, we continue to deliver value to shareholders through an additional $50 million of accretive common and preferred stock repurchase activity so far this year. We expect to continue opportunistic repurchase activity as pricing allows while we focus on generating profitability growth from our operations and realizing the benefits of our investment projects. And with that, I will turn the call over to Robert to give some additional details on our capital investment activity. Robert C. Springer: Thanks, Bryan. We have gotten off to a busy start on the operations and investment front. As we shared with you last quarter, our planned capital projects for 2026 were concentrated in the first half of the year, and I am pleased to report that we have made solid progress executing them on schedule and on budget. In San Diego, we are wrapping up the renovation of the meeting space. The finished product looks great and should help the hotel to maintain its leadership position in the market. Recent trends in the city have been more encouraging, and based on what we see today, we expect better performance in the latter part of this year; the hotel is pacing ahead for 2027. In Miami, we are also finishing construction on Bazaar and we are very pleased with how the space is coming together. We expect to begin training activities in late summer with the restaurant opening in early fall to take advantage of the full high season in the market. As we shared earlier, our renovated resort is already attracting some great group business, but the addition of Bazaar will round out the property, further increasing its appeal with luxury travelers and higher-end groups. We anticipate that Bazaar will not only help drive incremental room-night demand at the hotel, but will be a dining destination for guests from nearby properties and local residents as well. Elsewhere across the portfolio, we will be starting some facade work and a rooms refresh at Ocean’s Edge Resort and Marina in the middle part of the year as part of a broader effort we are working on to drive incremental revenue and earnings to this resort. We will also be completing some smaller routine projects across the rest of the portfolio. As Bryan noted earlier, our Wailea Beach Resort was impacted by a series of severe storms that came through the Hawaiian Islands in March and brought heavy winds and substantial rainfall. While our resort remained operational during the storms, we did sustain wind and water damage in some of the guest rooms, public spaces, and portions of the roofs. We are currently working to restore impacted areas and should have most of the public space and guest room-related work completed in the coming weeks. We will, however, have some additional repair work to do on a few roofs, which will not be done until later this year. We are working closely with our insurers to pursue cost recovery for the repair work and lost business from the storms. It is too early to share any of those details. Based on what we see today, we expect that incremental capital expenditures needed at Wailea will likely mean we will be in the upper half of our existing CapEx guidance range for 2026. We are still working through the details of the approach and timing of the required spend, and cost recovery from our insurance policies, and will share additional information as part of our next call. With that, I will turn it over to Aaron. Please go ahead. Aaron R. Reyes: Thanks, Robert. As we noted at the top of the call, our earnings results for the first quarter came in ahead of expectations driven by broad-based strength across the portfolio. RevPAR increased 14.6% in the quarter, including an 890 basis point benefit from Andaz Miami Beach. Total RevPAR for all hotels increased 13.4%, including an 810 basis point benefit from Andaz. Given our mix of business, we anticipated that rooms revenue would grow faster than total revenue in the first quarter, which was the case, but ancillary spend performed better than we thought and the guidance ranges that I will discuss shortly reflect a more optimistic outlook for out-of-room revenue growth than our prior expectation. The stronger top line performance in the quarter contributed to earnings that were ahead of our expectations, including adjusted EBITDAre of $68 million, an increase of 18% relative to last year. When combined with the added benefit of our accretive repurchase activity, adjusted FFO per diluted share was $0.27, an increase of nearly 29% from last year. Our balance sheet remains strong. We have no debt maturities prior to 2028 and net leverage stands at only 3.5 times trailing earnings, or 4.6 times including our preferred equity. Since December, we have repurchased over $19 million in liquidation value of our traded preferred stock at a 21% discount, a positive impact on both FFO and NAV. Included in our press release this morning are the details of our updated outlook for 2026. Our revised guidance ranges reflect the outperformance we saw in the first quarter but retain a degree of caution for the balance of the year given the uncertain backdrop. We now expect that rooms RevPAR for all hotels in the portfolio will increase between 57.5% to a range of $236 to $242. This reflects the full year benefit of Andaz Miami Beach, which is expected to contribute approximately 400 basis points of growth at the midpoint. Based on what we see today, we now expect total RevPAR to increase between 5% to 7.5%, an increase of 125 basis points at the midpoint, which captures our higher expectations for growth in ancillary spend. This would now imply a range of $390 to $400 with a similar 400 basis point benefit from Andaz. As we noted on our last call, the first quarter will be our strongest revenue growth quarter of the year with the remaining growth quarters being between the lower end and the midpoint of our RevPAR and total RevPAR guidance ranges. While Andaz will certainly provide a lift to our results all year, the impact will become less pronounced as we get further into the year and begin to lap more of last year’s operations, with the revenue growth benefit estimated at approximately 500 basis points in the second quarter and 150 to 200 basis points in each of the third and fourth quarters. This revised revenue growth is now expected to translate into adjusted EBITDAre in the range of $238 million to $252 million. Based on where we sit today, we expect our FFO per diluted share to now range from $0.88 to $0.96. This updated earnings per share range reflects the benefit of better operations and our recent share repurchase activity. In terms of the distribution of our earnings by quarter, based on the midpoint of our updated range, the first quarter accounted for roughly 28% of our full-year earnings, with the second quarter expected to comprise approximately 28% to 29% and the balance split more or less evenly across the third and fourth quarters. Moving to our return of capital, since the start of the year up to April, we have repurchased $35 million of common stock at a blended price of $9.11 per share. In addition, we have also purchased over $14 million of our preferred stock at a blended price of $19.84 per share, or a 21% discount to its liquidation value. This common and preferred stock repurchase activity has been accretive to both NAV and earnings per share, and while we retain capacity and appetite for additional share repurchases, our revised 2026 outlook does not assume the benefit of additional buy activity. In addition to our share repurchases, our Board of Directors has authorized a $0.09 per share common dividend for the second quarter and has also declared the routine distributions for our Series G, H, and I preferred securities. Before we conclude our prepared remarks, I will turn it back over to Bryan for some additional thoughts. Bryan Albert Giglia: Before we open the call to questions, I want to provide an update on our 2026 objectives. The Company remains focused on realizing the value of our portfolio. Over the past few years, we have sold hotels at what have proven to be attractive valuations and redeployed proceeds into the most accretive option available at the time. While most of the proceeds went to repurchase common or preferred stock at a discount, we also acquired assets when our cost of capital became more competitive. Given the improving transaction market, we expect to recycle capital in 2026 and take advantage of strong private market values for certain assets. This would then allow us to redeploy proceeds into additional share repurchases at a discount to NAV or liquidation preference, or potential hotel acquisitions under the right circumstances. We remain focused on executing transactions that will result in the best risk-adjusted returns to our shareholders. The Board and management remain committed to maximizing the value for shareholders and are open to pursuing any alternative that would reasonably be expected to result in value creation. We will now open the call for questions. Operator, please go ahead. Operator: To ask a question, please press star followed by the number one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Thank you. Our first question comes from Duane Pfennigwerth from Evercore ISI. Peter Laskey: Yeah, hi. This is Peter on for Duane. Thanks for taking the question. So, if we zoom out and think about the 14-hotel portfolio and that portfolio reaching some level of stabilization, what are some of the building blocks left to get there? And, said differently, what are some of the growth drivers beyond what you have provided for 2026? And then you mentioned the transaction markets are getting more active. Could you just quickly expand on that, and what sort of assets are you seeing being marketed? What are brokers saying? Bryan Albert Giglia: Sure. Good morning. Let me start, and then Aaron can provide some additional detail. When you look at the building blocks, there are several pieces. First, Andaz is a multiyear story. We had an excellent Q1. The resort is ramping up. We started to see this at the end of Q4 last year and into Q1 this year, and it is ramping. The group business has been very strong. The transient business continues to grow, and we are very happy with the performance so far. That said, when we look at Q1 and we look at our rate, which was in the mid-$500s, and we look at the comp set, we still have a lot of room to grow. The comp set was running over $1,000, so that is a lot of room for us to expand into next year. Also, fourth quarter last year was the same delta, and so fourth quarter this year we have room to grow. Opening the Bazaar at the end of this year into the high season, the beach club just opened, which also serves as additional meeting space for the resort. So Andaz has a very good two-year-plus trajectory. Maui is also another asset where we have room to grow. We talked about this last year of having to have the island stabilize, and we saw that with Ka’anapali reaching a stable 70% occupancy in the fourth quarter. Our transient volume started to recapture our index and our share in the fourth quarter of last year and has continued into this year, and given where we are relative to prior EBITDA, there are still several millions of dollars of EBITDA growth that we will get into next year. San Francisco is another market for us that has grown and rebounded very well, but still has quite a ways to go, and everything we are seeing in that market from group demand, transient demand, and citywide demand has been very positive and will go into 2027 and beyond. As far as San Francisco’s strength, we have also seen that help wine country and the two resorts there, where as the citywides and the city of San Francisco do better, it then leads into additional leisure demand up in wine country. So I think those are the big pieces that we will continue to see grow throughout the next few years. On your question about the transaction market, we see additional equity capital coming into the markets and increasing the number of deals and potential transactions, which is good and healthy. Right now, you are seeing more luxury assets out there, given where the recovery has been and the demand and productivity of those assets. There is a lot more on the luxury side. As the year goes on and some of those transactions are announced and closed, we will start to see more of the higher-quality, upper-upscale assets come to market too. Aaron R. Reyes: I might add to that. I think Bryan hit the broader points of what we have going on across the portfolio. On top of that, we have the added benefit of the activity that we have been doing. We have been thoughtful in how we have allocated capital both to our common stock and most recently to our preferred stock as well. When we think about not just EBITDA growth, but growth on an earnings per share basis, we have capacity for significant accretion in FFO per share. Operator: Our next question comes from Michael Bellisario from Baird. Please go ahead. Your line is open. Michael Bellisario: Good morning. Bryan, just want to follow up on your acquisition commentary. Maybe high level, can you talk about the criteria that you are looking at for potential acquisitions in terms of markets, brands, initial yields, and then also the appetite for buying a cash-flowing asset versus doing another deeper-turn renovation project? Bryan Albert Giglia: Sure. With what we have done in the past and the way we have approached things, I think it is important, especially for a portfolio our size, to make sure that we have some degree of balance. We have a lot of deeper turns that are coming back online and/or ramping up assets. We have capacity for that. That said, like everything we do, we have to look at the options available to us and what is the best allocation of capital, whether it be using our balance sheet or recycling an asset, on a risk-adjusted basis, what makes the most sense for our shareholders. Up until this point, that has absolutely been share repurchase and repurchasing our preferred at a meaningful discount to liquidation preference. Going forward, that is a balance. As our cost of capital improves and our stock price improves, then we look to balance that with potential acquisitions, mainly coming from recycling capital where we can take advantage of private market values in specific markets or asset types where there is a lot of demand right now, and we can potentially realize a portion of the future upside today, and then redeploy that into something that has good growth, maybe not quite as much growth, but at a much more compelling initial yield that provides future opportunities. Every day we make the decision of how we will allocate additional capital. Where we stand right now, our common and preferred are still very compelling. As that changes, the preference would probably be more stabilized. If you look at the types of hotels and resorts that we have, we like assets usually slightly larger, that have a good group component with some secondary, whether it be leisure or business transient. There are varying degrees of rebranding activity, whether it be like the Westin D.C. or the Marriott Long Beach, with different degrees of renovation but the same game plan where we are able to capture more index through finding a brand that could do better. That is our focus. Today, our equity and preferred are very attractive, but as the space improves, that gives us more opportunity to deploy into assets. Operator: Our next question comes from Smedes Rose from Citi. Please go ahead. Your line is open. Smedes Rose: Hi, thanks. Maybe just switching to a couple of market questions. On the Andaz, I think in the past you had talked about maybe mid- to low-teens EBITDA contribution this year. Are you still comfortable with that? And are you seeing any lift from the World Cup helping that property? And then I was hoping you could comment on a couple of the larger group markets where you operate. You mentioned a lot of strength at the JW in New Orleans. Are you seeing strength overall in that market? It seems like it has been kind of weak on the group side. And could you also touch on Orlando and San Diego? Bryan Albert Giglia: Morning, Smedes. We feel, based on where the asset has performed, that we are comfortable with the range we have given, inching toward the higher side of that with some opportunity to achieve it this year. Remember the seasonality of the market. The asset will be a little bit skewed more toward the first quarter this year as it is ramping up, and Q1 through April is a big piece of the annual EBITDA. Based on what we have seen so far, transient bookings forward, and group bookings forward, we feel very comfortable with that range. As far as the World Cup goes, we have had really good events in the market this year. The national championship and F1 last weekend were fantastic. For the World Cup, we continue to be measured in our various markets where we have matches. It is a good time in the year for Miami because the summertime tends to be the lower season, so having additional international travel coming into the market will be good. As we get closer, we will have a better understanding of the ultimate impact, but right now we continue to be somewhat measured across our markets for the World Cup. On the broader group markets, when we look at first quarter and second quarter, transient has been the strongest segment across the board, and transient at some of our large group hotels has been better than anticipated. The way our group calendars and bookings laid out this year, the first half was always the weaker of the two, and our pace picked up in Q2, Q3, and Q4 depending on the asset. For the second half, New Orleans pace is up significantly. Orlando also had a tougher comp in the first half but has a really good second half. D.C. has stronger citywides and does pick up, and there are some events in D.C. that should be helpful. Looking forward, we have a great transient base of business for the next six months that is booking very strong. We did not have the greatest group bookings in the first half, but in the second half that is where it picks up and gives us a solid setup. There are also variables out there that could impact travel or fuel costs. We like what we see and the setup, but we will remain measured until we get a little more time to see what other external impacts there could be. Operator: Next question comes from JPMorgan. Please go ahead. Your line is open. Analyst: Hi. This is Michael Hirsch on for Dan today. Thanks for taking my question. In the prepared remarks you mentioned seeing some group cancellations during the first quarter across the portfolio. Could you provide any additional color on attrition or overall group trends and pacing for this year or next? And for my follow-up, you touched on the World Cup in Miami. For your broader portfolio, could you remind us what your outlook is for the RevPAR uplift, and what about recent World Cup demand trends are leading to your more measured approach? Bryan Albert Giglia: Overall attrition is probably down slightly from where we were last year. There were a lot of government cancels last year. We are always going to have cancellations and some attrition throughout the year. Some of the storms on the East Coast did impact various groups, with a couple of weeks where groups either could not get to the destination or had to cancel last minute due to storms. Those were more specific to weather or specific events and not overall group patterns. What we are seeing on the group side is ancillary spend continues to be very strong. We continue to see corporate groups and associations both perform well. Our group pace picks up into the second half of this year, and while it is a little early to start talking about future years, 2027 pace looks good at this point. On the World Cup, our measured approach is how we started the year. It was too early to have bookings. There was the expectation that things would be very strong, but without a recent history and not having business on the books, it did not make sense to anticipate rate increases and major demand. As we get closer, we have seen data points from brands and others indicating a shorter-term booking window. We do have some group business on the books—there is a group in San Francisco, a group in Miami—but it is limited. If we see international travel very strong during that time and last-minute bookings pick up, that will be additive to our second and third quarter, but it is not in any of our guidance at this point. Operator: Thank you. Our next question comes from Compass Point. Please go ahead. Your line is open. Kenneth Billingsley: Hi, this is Ken. Thank you for taking my question. I wanted to ask about out-of-room spending. Your total RevPAR guidance grew faster than RevPAR. Could you talk about what is driving some of that? How much of it is fixed spending associated with the room and how much is discretionary? And away from just the group-specific piece, on out-of-room spending not related to group, are you seeing that being stronger as well? So a lot of that flip there is on the occupancy side, not so much that they are necessarily spending more per room? Bryan Albert Giglia: Good morning, Ken. Even with groups, there is a portion that is discretionary. You have your minimums and contracted amounts, but as you get closer to the event, you see groups buying up different things—adding items—and at certain times they subtract things. What we saw in the first quarter, not just for corporate group but also association, was better spend. The contractual amount is there, but the additional add-ons or upgrades—whether AV, food options, beverage options—were strong in the quarter, and we do not see that slowing down at this time. Outside of group, yes, it is also up. It is a function of occupancy, too. In Wailea, a market with significant out-of-room spend for transient customers, as we regain our occupancy share, those customers spend more at the bars, restaurants, and other amenities. We are seeing that on the transient side too—more at resorts than at a business transient hotel where there are fewer options to spend. On the group side, we are seeing more spend per occupied room. On the transient side, it depends hotel by hotel. Maui is probably a mix of both occupancy and spend. At some of the more luxury resorts in wine country, there is generally more spend—spa, food. Occupancy was up a little in the quarter, but we are seeing strong spend across. Operator: Our next question comes from Chris Darling from Green Street. Please go ahead. Your line is open. Chris Darling: Thanks, good morning. Bryan, I understand guidance may prove conservative, but if I look at what is implied for the rest of the year, it seems to suggest flattish to slightly declining margins for the rest of the year. Can you put that outlook into context and talk about how you see expenses trending for the rest of the year? And I may have missed this earlier, but could you elaborate on the recent operating performance at the wine country hotels and your outlook for the rest of the year there? Bryan Albert Giglia: In general, we see expenses increasing 3.25% to 3.5%. If you look at the RevPAR gain distribution quarter to quarter, the first quarter was and will be our biggest growth quarter. We had margin expansion in the first quarter. As we go through the rest of the year, we saw good productivity in Q1 and we are planning on maintaining or increasing productivity, especially in the rooms department. Depending on where RevPAR shakes out, margins could be positive to slightly up or maybe neutral for the rest of the year. If we are conservative on RevPAR, we will have better flow-through and margins will tick up. Given where the implied RevPAR guidance is and that expenses are growing in the low-to-mid 3%, we will revise after another quarter under our belt, but for now that is the most prudent outlook. On wine country, first quarter is the low season and the most challenged on occupancy. The key to profitability or getting to breakeven in Q1 is the right amount of group business. We have focused the resorts on building that base. It comes at a lower rate but with higher ancillary spend. Both resorts worked very hard to get as much group on the books as they could and had great group on the books this year. Transient demand was better than expected, and while we had bad weather on the East Coast and in Hawaii, in California and wine country they had great weather in Q1, which helped. Going forward, both hotels continue to have very good transient demand. Four Seasons has very good group pace for the second half. Montage has decent group pace and is a little farther ahead in establishing its group business. We are doing more group room nights this year than ever before—about 55% of total occupancy—and we would like to see that in check at about 60% to 65% for that asset. Luxury is outperforming, and combined with improved demand from the Bay Area that feeds up there, our outlook for both is very strong for the rest of the year. Operator: Our next question comes from Ladenburg. Please go ahead. Your line is open. Analyst: Just following up on the wine country hotels. Even though it is still a loss, performance was a $4 million improvement in EBITDA relative to the first quarter of last year, which is pretty meaningful. As you think about disposition plans, are those potential candidates, particularly now that the JW Marriott in Marco Island is sold and the luxury market seems to be unthawing in terms of financing availability? And a follow-up: operations are trending the right way, but your guidance, like your peers, stays cautious. Are there outliers in terms of the World Cup impact that it could have based on your outlook today? What is the upside if the World Cup does better than you are expecting? Bryan Albert Giglia: I do not know if Marco Island is a direct comp for these two, but we have been very clear: when we look at our portfolio and potential dispositions, we want to capitalize on private market values. There are certain types of assets right now—luxury being one of them—and markets where there is a lot of interest. We do not comment on transactions before we have something to publicly say, but based on our actions and the criteria I just highlighted, we are clearly out there exploring various opportunities at all times to identify assets we can recycle and redeploy proceeds into our common, our preferred, or, as I said earlier, different acquisition targets as things improve. Monetizing low-yielding assets is something that could be achievable right now in the current market, and we will look at doing what we can. There are a lot of luxury assets out in the market now, including older portfolios returning, so there is a lot of supply. Recycling assets is a core tenet of our strategy, and we are focused on doing it. On World Cup upside, it will add significant compression. Looking at our portfolio, Q1 had great transient demand. The next six months of transient bookings are up significantly across our convention, urban, and resort hotels. Transient is very strong. Our second half group pace is very strong. Hotels are booking significant current-year and future-year business. If World Cup comes in stronger, that is additional compression and benefit that will accrete to our performance. The caution is that there are events out there that could impact the cost and demand of travel, and like others we will remain cautious until we see those potential impacts alleviated. Operator: Our next question comes from Logan Shane Epstein from Wolfe Research. Please go ahead. Your line is open. Logan Shane Epstein: Yes, thanks for taking the question. Last quarter you talked about government-related transient coming back to San Diego in the first two months of the year. Did that trend continue into March and April, and how do you expect that to impact both San Diego and D.C. for the rest of the year? Bryan Albert Giglia: We saw the largest increase in transient demand in Long Beach in the first quarter, with defense and other government-related business. San Diego had transient pickup; it was more negotiated and some discount as well, and the negotiated piece could be government-related, including consultants and contractors. In D.C., we saw a little less government-related, but we saw strong transient driven by the rebranding to a Westin—we are picking up more corporate accounts and more retail accounts. Looking at our rate and occupancy index compared to pre-Westin, we are gaining share in the market. Some of that will be government-related as everything in D.C. is to some extent, but the real driver is the benefit of the rebranding we did. Operator: Our last question comes from Chris Jon Woronka from Deutsche Bank. Please go ahead. Your line is open. Chris Jon Woronka: Hey, good morning, thanks for taking the question. Bryan, you covered a lot on Miami and Andaz and what still needs to happen to get fully ramped up. It seems like you had a good start in Q1. Can you flush out a few more details on whether there is also a group story and ancillary beyond the rate story? How much will things like the beach club factor in? Bryan Albert Giglia: Our target for group is probably about 25% for the hotel. This year we will run around 20% of the business as group, which is better than we anticipated going into the year. We have seen not only group volume but the quality of group continue to improve as we move throughout the year. Miami is a repeat market for both transient and group customers. That quality of group—whether for Art Basel or other major events—we did not really participate in last year. We will have groups in this year, and next year we will likely have even better groups. While there is still occupancy to build on the group side, the group side will also be a rate story. At the end of Q3 and into Q4, when Bazaar opens, that will bring a level of energy and notoriety into the hotel that will be a big catalyst for overall rate as well. Everything has accelerated in the first quarter. We have seen group pickup and quality increase. There is still occupancy and ancillary spend to capture, and as we move into next year it becomes more of a rate story, with a lot of space between our current rate and the market rate that will be very meaningful to the hotel’s cash flow. Operator: We have no further questions. I would like to turn the call back over to Bryan Albert Giglia for closing remarks. Bryan Albert Giglia: Thank you, everyone, for your interest, and we look forward to seeing many of you at upcoming conferences. We also look forward to anyone we have a chance to get through the new Andaz. We have had many tours, but are always available to show off this really remarkable resort. Thank you. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Jacob Johnson: And we'll provide financial guidance for the full year 2026. Join us on the call today are Repligen's President and Chief Executive Officer, Olivier Leo; and our Chief Financial Officer, Jason Garland. As a reminder, the forward-looking statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning risks related to our business is included in our quarterly reports on Form 10-Q, our annual report on Form 10-K, our current reports, including the Form 8-K that we are filing today and other filings that we make with the Securities and Exchange Commission. Today's comments reflect management's current views, which could change as a result of new information, future events or otherwise. The company does not oblig or commit itself to update forward-looking statements, except as required by law. During this call, we are providing non-GAAP financial results and guidance, unless otherwise noted. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to Repligen's website and on sec.gov. Adjusted non-GAAP figures in today's report include the following: organic revenue and/or revenue growth, cost of goods sold, gross profit and gross margin; operating expenses, including R&D and SG&A, income from operations and operating margin, other income or expense, tax rate on pretax income, net income, diluted earnings per share, EBITDA, adjusted EBITDA and adjusted EBITDA margin. These adjusted financial measures should not be viewed as an alternative to GAAP measures, but are intended to best reflect the performance of our ongoing operations. With that, I'll turn the call over to Olivier. Olivier Loeillot: Thank you, Jacob. Good morning, everyone, and welcome to our 2026 first quarter call. We are delighted to share our first quarter 2026 results. Great execution once again by our team enabled us to deliver 15% reported revenue growth or 11% organic and 160 basis points of adjusted operating margin expansion. Mid-teens top line growth, coupled with disciplined cost management resulted in margins outperforming expectations. In addition to our strong financial performance in the quarter, we advanced several key strategic priorities. This includes the launch of our transformation office, the associated sale of the polymer business and a new partnership in China. This OEM relationship advances our strategy in the country where we are seeing significant growth again. I'll touch on each of these initiatives in more detail shortly. As I reflect on our end markets and company today, it's encouraging to see the strength we are seeing across all of our customer segments. The talented and experienced team we have assembled is executing fiercely on our differentiated strategy. This has resulted in a very rich high probability opportunity funnel that just needs to be coupled with faster customer decision-making. We did see encouraging signs in the first quarter, and remain convinced that capital equipment tap will open. We delivered $194 million of first quarter revenue, driven by healthy demand across our broad portfolio and all geographies. Analytics led the way with 50% plus growth, but all of our franchises grew nicely again in the first quarter. Consumables, including protein, grew double digit which was coupled with solid capital equipment growth and services remained a standout with 30% plus growth. Capital equipment demand benefited from strength in Analytics, mixers and easier comps. We also saw growth across our diversified customer base in all geographies. Order trends were solid in the first quarter with a significant pickup in March and included some conversion of our robust capital equipment funnel. Our first quarter results and these recent order trends reinforce our confidence in our full year revenue outlook. Jason will provide more details. We are reiterating our expectation for 9% to 13% organic growth, while updating our reported revenue guidance to reflect the sale of our noncore and low-margin Polymem business. This reduces our full year revenue outlook by $7 million, but improved our margin outlook. In addition, given our strong first quarter performance, while increasing our adjusted earnings per share guidance for the full year. We remain excited about our differentiated product portfolio, the global team we paired and the strategy we're executing. As we look ahead to the next several years, we see a number of opportunities across our portfolio that position us for robust growth and allow us to continue to outpace the market. Looking at our performance by end market, we saw widespread strength across our customer base. CDMO revenues grew mid-teens with similar growth across both Tier 1 and Tier 2. Biopharma revenues also grew despite a very difficult comparison. We saw notable growth outside of large pharma, including 20%-plus growth from emerging biotechs. We continue to be encouraged by growth from this customer base, though demand remains below historical levels. OEM and integrated demand was very robust given growth in fleet management. From a geographic point of view, we saw strength across all regions led by Asia Pacific. This included a near doubling of revenues in China with our best revenue quarter in the country in over 2 years. This is a testament to the team we've put in place. Asia Pacific remains a key strategic region and I will discuss the progress on our strategy in China shortly. As expected, new modalities were dilutive to growth given the gene therapy headwind we previously discussed. We continue to see healthy growth in cell therapy and also in gene therapy when excluding that specific headwind. I wanted to update you on the following 3 strategic initiatives: First, as we have emphasized recently, we are committed to expanding margins, while banking the efforts needed to support future growth. In an effort to accelerate both of our Fit for Growth journey and our path to 30% adjusted EBITDA margin by 2030, we've formed a transformation office that will ensure with the right prioritization and resources focused on these critical initiatives. Key focus areas under this program include a force to optimize our manufacturing footprint for increased cost efficiency, improving the profitability of certain product lines through targeted productivity and rationalization, continuously improving service to our customers and efforts to capture the value of our differentiated products; and finally, acceleration of our IT modernization and AI implementation across all functions. Jason will walk you through more details. But in terms of financial impact, we estimate this effort should result in at least one point of annualized margin benefit by the end of 2027. We remain committed to our goal of doubling the business and expanding margins while further progressing our Fit for Growth capabilities. The transformation office will enable us to achieve and accelerate all of these. So most of these initiatives have just picked off, we're happy to share that as part of this effort on March 30, we divested the Polymem operation in France for nominal proceeds. While this facility was a key contributor to Repligen's ability to supply product during the pandemic, the business has since reverted to noncore sales outside bioprocessing and has operated at a net loss. In 2025, Polymem generated $7 million of revenue and an adjusted operating loss. The new owner will offer synergies in the common market in which they operate. Second, we remain more excited than ever by our growth opportunity in Asia. In fact, Jason and I recently returned from a week-long visit to the region where we met with both key customers and our Asia leadership team. We are building a great team and continuing to gain traction with key customers in the region. We are also thrilled to announce that while in the region, we signed a critical partnership to expand our capabilities and local presence in China. The partnership outlines an OEM relationship that will increase our competitiveness and access to local manufacturing beginning in 2027. It will be a multiphase and multiproduct arrangements that we expect to expand over the coming years. After our trip, we have more conviction than ever that China will be a meaningful player in biopharma for years to come. Finally, I want to comment on our IT investments and digitization journey. On our last call, we mentioned investment in our IT organization in 2026 as part of our Fit for Growth journey. We have made key additions to our team this year, including new data management and AI experts. We have implemented AI across a variety of functions including, but not limited to legal, commercial and supply chain. And as part of our transformation office, we are also working to further optimize our data infrastructure which will allow us to better implement AI in the coming years. To support our customers, our analytics franchise is well positioned for an increasingly digital environment. Our PAT product portfolio allows for the collection of both upstream and downstream data in real time. We have integrated our FlowVPX into our downstream filtration system and are working to replicate this on the upstream side. We announced a partnership with Novasign last year and are working to integrate their digital twin capabilities into our next-generation small-scale filtration systems. We see digitization as a multiyear journey, and it [indiscernible] a key strategic focus area for our company. Before I turn the call over to Jason, I'll provide some more detail on our franchise level performance. Starting with situation. Revenue grew mid-single digits on a reported basis in the quarter, driven by Fluid Management, ATF and other consumables. Excluding the gene therapy headwind, this franchise would have delivered double-digit growth. With the sale of Polymem, we now expect filtration growth to be roughly mid-single digits in 2026 on a reported basis. This also contemplates a moderated ATF outlook in 2026 due to customer-specific timing dynamics that are expected to be a tailwind in 2027. As a result, we see ATF returning to strong growth in 2027 and beyond, and we continue to see overall healthy consumable demand across our portfolio. We remain extremely confident in our process identification leadership position. After over a decade of seeding our ATF technology, we have built a high amount of trust from the biopharma industry. We will continue to prioritize further innovation and advancements that will allow us to remain the industry's partner in process in densification. Chromatography revenue increased over 25%, driven by growth in OPUS columns. We continue to win new customers globally as they appreciate the plug-and-play convenience of prepacked columns. Given the traction we are seeing in OPUS we now expect 20% plus growth in chromatography in 2026. With this outlook, we do expect a slightly higher mix of chromatography revenue versus our initial expectations. It was a great quarter in proteins with mid-teens growth on top of a very strong prior year comparison. We saw healthy demand across our offerings, led by our ligands, reflecting the benefits of the strategy we put in place to control our own destiny in proteins. We expect protein growth of at least low double digits for the year. Our Analytics franchise had another phenomenal quarter with 50% plus growth. This was led by notable strength in our downstream analytics offering, which had a record quarter. This benefited from strong demand for our SoloVPE PLUS, including new placements and upgrades. We continue to assume Analytics growth of 20% plus given momentum in downstream demand and a growing contribution throughout the year from our upstream Analytics offering. To wrap up, we are very pleased with our start to 2026. We delivered 11% organic growth in the first quarter, which is right in line with the midpoint of our full year guidance. This coupled with operating expense discipline has reinforced our confidence in our full year revenue outlook and enabled us to increase our adjusted earnings per share guidance. In addition, we made tangible progress on our strategic priorities, which positions us well to drive robust growth and margin expansion in coming years. Now I'll turn the call over to Jason for the financial highlights. Jason Garland: Thank you, Olivier, and good morning, everyone. Today, we are reporting our financial results for the first quarter of 2026 and providing updated guidance for the full year 2026. Unless otherwise noted, all financial measures discussed reflect adjusted non-GAAP measures. As shared in our press release this morning, we delivered first quarter revenue of $194 million, reported year-over-year increased 15%. This is an 11% organic growth, excluding the impact of acquisitions and foreign exchange. Foreign currency contributed 3 points of growth and we had 2 months of inorganic contribution from our upstream Analytics acquisition. As Olivier offered details on our product franchise performance, I'll provide more color on our regional performance. Starting with quarterly revenue mix. North America represented approximately 46% of our total. EMEA represented 37% and Asia Pacific and the rest of the world represented approximately 17%. North America grew mid-single digits, driven by OPUS and Analytics. EMEA grew more than 20%, driven by proteins in OPUS. In Asia Pacific grew more than 25% driven by ATFs, mixers and Analytics. And as previously mentioned, we had very strong growth in China. Transitioning to profit and margins. First quarter adjusted gross profit was $108 million and adjusted gross margin was 55.5%. This was 180 basis points of margin expansion versus last year. The year-over-year increase was driven primarily by volume leverage, pricing execution and favorable product mix, all of which more than offset inflation and tariffs. The favorable mix was driven by growth in our Analytics business and certain accretive filtration products. In addition, first quarter gross margin also benefited from cost absorption timing associated with production levels required to support the sales ramp through the year. We expect this benefit to normalize over the remainder of 2026. Continuing through the P&L, our adjusted income from operations was $30 million in the first quarter, up 28% year-over-year on a reported and organic basis. OpEx grew 11% on an organic basis. We remain thoughtful about balancing investments in the business while expanding margin. We expect some additional investment in the second quarter. This translated to an adjusted operating margin of 15.4% in the first quarter, which was an increase of 160 basis points year-over-year on a reported basis and 200 basis points of margin expansion, excluding M&A and the impact of foreign currency. Adjusted EBITDA was $40 million in the quarter or just under 21% adjusted EBITDA margin. Moving to the bottom line. Adjusted net income was $27 million, a 22% year-over-year increase. Higher adjusted operating income was offset by slightly lower interest income on declining interest rates. Our first quarter adjusted effective tax rate was 22%, which starts the year on the low end of our full year guidance, which remains unchanged. Adjusted fully diluted earnings per share for the first quarter was $0.48, compared to $0.39 in the same period in 2025 or an increase of 23%. Finally, our cash and marketable securities position at the end of the first quarter was $785 million, up $17 million sequentially from the fourth quarter. This was driven by $20 million of strong cash flow from operations, offset by $5 million of CapEx in the quarter. We remain focused on optimizing our working capital to drive improved cash flow conversion. I will now speak to adjusted financial guidance. As Olivier mentioned, we are reiterating our organic growth guidance for full year 2026, while updating guidance for the sale of Polymem and our first quarter results. Our guidance also assumes a couple of million dollars tariff surcharges in 2026. We are now guiding $803 million to $833 million of revenue or 9% to 13% growth on both a reported and organic basis. Our updated guidance now reflects only one quarter of revenue from Polymem which removes approximately $7 million of revenue from the full year, previously included in guidance. This continues to assume just under one point of benefit from foreign currency, which we realized in the first quarter. Our reported growth of 9% to 13% assumes the following: mid-single-digit growth in Filtration, greater than 20% growth in Chromatography, Proteins growth greater than low double digits and 20% plus growth in Analytics. We now expect 110 to 160 basis points of gross margin expansion for the year. This assumes a slight benefit from the divestiture, partially offset by higher Chromatography mix and limited impact from the conflict in the Middle East. With the strong Q1 performance, the sale of Polymem and judicious management of OpEx, we are raising our adjusted income guidance. We now expect $124 million to $132 million of adjusted operating income. This implies 160 to 200 basis points of operating margin expansion which represents a 30 basis point increase at the midpoint versus our prior guidance. Continuing through the P&L, we now assume $90 million of adjusted other income and continue to assume a 22% to 23% adjusted effective tax rate. Putting this together, we expect adjusted fully diluted earnings per share to be between $1.97 and $2.05, this is up $0.26 to $0.34 versus 2025 or up 18% at the [indiscernible] and $0.04 higher than our prior guidance at both the low and high end of the range. To assist with the quarterly cadence, we expect Q2 organic revenue growth to be similar to the first quarter. As a result, our guidance does not require a second half acceleration to achieve the midpoint of our full year outlook. We expect second quarter gross margin to be slightly below our full year guidance range and OpEx to pick up slightly sequentially following our disciplined OpEx control in the first quarter. We expect second half OpEx to be similar to 2Q. As a result, we expect solid operating margin expansion in the second quarter, while the third quarter will likely represent the lowest margin quarter of the year. Our balance sheet remains strong as we ended the first quarter with $785 million of cash and marketable securities. We will remain prudent in our spending while maintaining substantial dry powder for potential acquisitions. We expect CapEx spend to be approximately 3% to 4% of 2026 revenue. Before we wrap, I wanted to briefly follow up on the transformation office that Olivier shared earlier. We are thrilled to establish a team of both internal and external experts to drive focus improvements in areas that will drive our fit for growth capabilities and margin expansion. This is a change in mindset that reinforces the structured framework is required to drive margin expansion beyond volume leverage. As Olivier shared, we expect to see meaningful benefits from the initiatives. We are still finalizing the detailed scopes and benefits, but expect to generate at least one point of annualized margin benefit by the end of next year and continue into 2028 and beyond. We will see benefits in both gross margin and at the EBIT and EBITDA level. We see this effort accelerating our path to our 2030 EBITDA target. In other words, our path to reaching 30% adjusted EBITDA margins will be less weighted to the out years than previously communicated. We expect nonrecurring charges of approximately $5 million to $6 million through 2027 associated with this effort. These will be excluded from our adjusted non-GAAP results. Finally, Olivier and I would like to thank our Repligen teammates for delivering a strong start to 2026. We continue to be energized by the opportunities ahead, and we are focused on advancing our strategic efforts in 2026. With that, I'll turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Dan Arias with Stifel. Daniel Arias: Jason, nice start to the year on the op margins there. Obviously, you went through some of the moving parts, but can you just maybe summarize what within the quarter was sort of incidental, I guess, you could call it mix elements, timing of cost items versus more of a reprioritization that sounds like maybe it's starting to be in play here? And then like along those lines, the transformation office impact, I know you said you're still working through the moving parts there, but is the right way to think about that, the normal 1 to 200 bps of annual op margin expansion that you've been talking about, plus the impact of transformation, is that like [ 100bps ] to fiscal '27? Or are you kind of run rating by the time you get to the year at the end of the year at 100 bps. I just want to make sure that we get the modeling element of that whole exercise right. Olivier Loeillot: Olivier here. I'm just going to kick it off and then let Jason give you more details. I mean we're obviously extremely happy about how we delivered on margin expansion in quarter 1, but beyond quarter 1, obviously, being able also to have line of sight of further improvement towards the rest of the year as well. And yes, you're right, the transformation office is an initiative like we've been thinking about for a long period of time. Now that we have the right people on board, we said that's the right time to kick it off. And as you'll hear from Jason in a few seconds, it's really a mix of getting acceleration on the fit for growth side, but also accelerating margin improvement. But Jason, yes? Jason Garland: Yes. So Dan, great 3 questions, a lot of pieces, and there we'll go through it. So yes, I'm really happy with the first quarter gross margin and overall margin performance. I think to your question, the driver really was volume, volume leverage price. So continuing to execute that. And to your point, strong mix really from Analytics growth as well as a few of the, I'll say, product lines within our overall filtration franchise. There was a timing element to your point on a little bit from timing of cost absorption that will unwind through the year. But overall, it sets us up for well and high confidence in our guide for expanding gross margin by about 110 to 160 bps for the year. From a profile perspective, Yes, we do expect 2Q to be lower than 1Q. 3Q may step down slightly from that as well. And then fourth quarter back higher as we grow on volumes through the end of the year. Most of that change will be driven by the mix phasing. So here's what I'd say, though, on a total year versus -- a total year, a full year versus full year basis year-over-year, mix is still a neutral dynamic for us. But for the first quarter being positive, we'll see some mix headwinds in the second and third and then again, fourth quarter steps back up mostly on higher Chromatography sales. And to your point, again, that cost absorption unwind. So again, a real great start and puts us right on track to our guide, lifted it up a little bit with Polymem. On the transformation office, yes, again, great questions as well. Look, I'll start by, it's really about creating the structure program where we allocate the right resources to our priorities. So there's a a real heavy fit-for-growth execution and developing the capabilities we need and then the margin expansion side. That one point of annualized margin expansion by end of '27, think of that as more in the run rate, we'll have various settlements and projects that will, I'll say, come into initiation over several months, right? We haven't assumed anything in 2026 yet but there may be some benefits that we'll share later in the year if they come in early, but we're really expecting a run rate to start by the end of '27 and then kind of seeing full benefits in '28. To your point, that's going to be on top of our normal run rate. And that was the message that we tried to share and here as well. Again, we've talked a lot about this path to 30% EBITDA target by 2030, but that we would be more weighted towards the back end. We think this initiative helps us to be less weighted in those out years, which brings some incremental in the earlier. So I'm really excited about all this. Great start to the year. Operator: Your next question comes from the line of Doug Schenkel with Wolf Research. Unknown Analyst: This is Madeline Mollman on for Doug. Just a question on equipment. You mentioned that there was a pickup in equipment in March. Where was the strength most notable? Was it by category and customer type? And did that help you in the quarter? Or was it more the order book? And then I think last quarter, you mentioned that there were some RFPs you were waiting on. Have you started to hear back on those? Or do you feel that pharma companies are still digesting some of the MFN deals? Olivier Loeillot: Yes, good questions. I mean capital equipment increased year-on-year in quarter 1 on what was pretty easy comp to be very open. And that was mostly driven by strength in both Analytics and mixers as well. We've partly seen a nice pickup of mix of demand in China, which is one of the reasons why China did so well for us in quarter 1. And similar to peers as well, we've seen orders increasing in the quarter. I mean, after what was maybe a bit of a slower start in January up to mid of February, we've seen a real acceleration of order intake towards the second half of the quarter and partly on the capital equipment side. And we realize pharmacy taking their time, but it was good to see indeed finally some answers coming and positive answers. And to your last point on RFP wins, yes, we start to win some of the RFP. We answered two towards the end of last year, which is for us very encouraging. As I mentioned previously, we didn't really have seat at the table before. So overall, very encouraging and we would like to see further acceleration of decision-making, but definitely going in the right direction right now. Operator: Your next question comes from the line of Matt Larew with William Blair. Matthew Larew: You called out 20% growth from emerging biotech, and that comes off a very -- 3 very strong quarters to end 2025. You did reference it's still below historical levels. We're now working off the back of two straight quarters of strong funding data. There's been some positive clinical updates. You're going to be escaping the one large customer headwind. So Olivier, just curious for your take on sort of what's remaining to get emerging biotech back to strength and how you feel about the momentum over the last couple of quarters? Olivier Loeillot: Yes. obviously, very happy to see the fourth quarter in a row of very significant growth for that customer segments. I mean, I've said like we've seen in each of the segments coming back one after the other, and that was the last one. to be still fair. I mean, quarter 1 comps were pretty easy still. So I want to see quarter 2 still showing exactly the same growth. But overall, it sounds like this market segment is back to a much more normal type of behavior. And you're right, the customer -- the biotech funding numbers also look very good. I mean, quarter 1 was almost double what it was last year. And April was very strong. I mean I think I've seen numbers around USD 10 billion funding in April. So the good news is we've seen really a nice rebound, we're still of the opinion that the money that has been injected has not reached yet all of these guys fully to the extent that they are spending much more money. So to your point, yes, what we've seen should hopefully be very sustainable, and we're hoping to see a similar type of growth over the next few quarters for emerging biotech. But definitely something that we are very excited about fourth quarter in a row, very nice growth here. Operator: Your next question comes from the line of Philip Song with Leerink Partners. Unknown Analyst: Two question. This is Philip on for Puneet. You mentioned China nearly doubled in Q1 [indiscernible] low base after just 2 quarters of growth in the second half. And I think, 2% to 3% revenue contribution. I was wondering if you could just unpack this some more just how much impact was from the OEM partnership kind of what's the composition between large pharma and CDMOs? And I guess, how would you characterize how much was order timing versus sort of genuine demand acceleration? Olivier Loeillot: Yes. Philip. Absolutely delighted about the way quarter 1 played out for us in China. I mean you've heard me talking about it quite a lot over the last several quarters and it was actually also to almost see a doubling of our sales in China in quarter 1. You're right, it was on very low comp. What I'm even more excited about, to be honest, is our funnel looks really very strong. I mean Jason and I were in the region recently, we spent almost a week with the team down there, and we're seeing a funnel that looks really very strong across all of China right now, and that's very exciting. By the way, talking about China, all of Asia did very well. I mean that was our fastest-growing market geographically in quarter 1. But obviously, to your question about the OEM partner, I mean this has no impact yet. I mean, we literally just signed the agreement a couple of weeks ago. So we're going to take transfer different part of our portfolio, particularly on the filtration consumable side, and we expect those guys, those partners to be up and running probably towards the beginning of next year. But it's never really black and white. And where you're somewhat probably clear asking the question is, it's a good strong signal we're giving to customers in China that we are back and that we're going to really reclaim our market in China with that partner, but also we really want to be part of that huge upcoming market growth we're seeing in China over the next several years. So there might be already a little impact that people feel like, wow, Repligen is going to become really indeed a very strong actor in China for China. And that's why we're delighted about that agreement. It is just a first step, Philippe. I mean we are looking at expanding that collaboration and potentially with other partners as well in China over the next several years, but very excited to be back in China. Operator: Your next question comes from the line of Casey Woodring with JPMorgan ahead. Casey Woodring: So you had a one point organic beat in 1Q and expect similar growth in 2Q, but you kept the low end of the full year guide unchanged. Maybe just talk about how much of that is driven by the moderated view for ATF in the second half versus the rest of the business? And then on ATF, could you provide more color on the customer timing dynamics that are driving that more moderated view in the second half. I think in the past, you had talked about a second half ramp in ATF consumables tied to one of the blockbusters you expect in 2. So is that really just a function of a customer commercial launch? And then what gives you confidence that things will pick up in '27? Olivier Loeillot: Yes. So, first of all, I mean, we're obviously very happy we started quarter 1 at the midpoint of our full year guidance. As you heard us saying we estimate quarter 2 will probably be about the same. So obviously, it will set us up very well for the guidance we've given at the beginning of the year. And the midpoint would assume at this stage like there is no need for any acceleration towards the second half of this year, which is probably a little bit of a Repligen, specific situation that we are very happy to be in right now, it's a really high comfort zone for us from that point of view. So we would be disappointed if we would land at the low end because that would somehow imply a softening of the market that we're actually not seeing today. So we are more hopefully looking at [indiscernible] the high end. And in order to reach the high hand, we would need some type of acceleration both of our Consumable business, and you mentioned ATF, I'll come back to that in 10 seconds. But also said that some of these equipment orders we've been receiving now in the last couple of months, would also be potentially delivered this year, which is not a given yet because we need to hear about our customer site preparedness to be able to accommodate that or not. So that cannot really the way to look at the guidance for this year. We're quarter into the year with a very strong start with a couple of more calls, we'll know much more about how the year is going to play out by the end of July when we report out on quarter 2. In terms of ATF, yes. I mean, we have always been very transparent. I mean, we were transparent last year about what happened with that specific gene therapy program, we said we're going to be transparent has got a huge runway for the next several years. I mean I can tell you, we are more bullish than ever. A couple of our customers came to us beginning of this year, explaining as they were managing inventory this year on a couple of commercial drugs that have been using ATF now for a few years. This is not something unusual for what is still a pretty new technology where at the beginning, people built a little bit more stock maybe than they will need finally. We know it's going to be a real tailwind for us from '27 onwards because these are 2 commercial drugs, that will require more because the drugs themselves are growing very nicely. So it's really just a temporary inventory management that we are facing. What we think about those two customers is, in fact, they are implementing ATF across many more products than this specific commercial drug I was talking about, which is why we know next year, it's going to be a real tailwind for these customers for the commercial drugs themselves, but also across the new one, they are implementing ATF right now. Operator: Your next question comes from the line of Daniel Markowitz with Evercore. Daniel Markowitz: I wanted to follow up on emerging biotech. It's good to see 4 quarters in a row, if I heard correctly, of growth from this customer segment. And I wanted to talk about the benefit from biotech funding recovery, which seems like it could flow through to back half this year and help in back half in 2027. Can you help frame the potential timing of when this benefit might occur? Remind us your exposure to this customer set and help us understand what the contribution could look like once we start to see that benefit? Olivier Loeillot: Yes. I think you nailed it already pretty well. I mean fourth quarter in a row of very significant growth. I mean, I would say, very significant growth in quarter 1 was above 20% of growth. This being said, the activity level still remains slightly below historical level. So that's why we're saying it's probably a little bit too soon to call it a trend. But maybe to be a bit more specific, we mentioned in previous call, like we some of the growth coming from some of the small biotech getting acquired. That was particularly the case in quarter 2, quarter 3 of last year. It's fair to assume that some of the funding that we started to improve towards quarter 3 of last year, has maybe started to reach some of these company toward the end of last year and probably a little bit more in quarter 1. I do expect it to become real stronger tailwind from quarter 2, quarter 3 onwards to be confirmed, but that's what we could expect, we would expect looking at this much better biotech funding environment we've been experiencing. And to answer your specific question, I mean, it's still lower than 10% of our total sales. I won't say more into the 8% to 9% vicinity in quarter 1, but probably trending back to the 10% that we experienced in the past -- in the next few quarters, I would [indiscernible]. Daniel Markowitz: That's helpful. And then just a follow-up. Can you talk about the ATF opportunity more broadly? Like how penetrated is this market? And how would you frame the potential impact from competitive product introductions? Olivier Loeillot: Yes. No. I mean, again, let me start by saying ATF grew in quarter 1, both, by the way, in capital and consumable as well. And we've just decided to moderate our expectation for 2026 because of this transitory headwind that we've been hearing from the 2 specific customers. But apart from that, I mean, we are still extremely bullish. I mean we were getting our products designing in multiple new products, multiple new modality as well. I mean we've talked about successes we've had on the cell therapy side, and that has become a very significant tailwind for us over the last several quarters. We are also very heavy on innovation. And I tell you, I'm very, very confident about the fact that were going to be leading the process intensification for the next several years. I mean I have 0 doubt about that. And we've got a lot of innovation being worked out right now with several launches that we expect to happen probably towards one toward the beginning of next year and then 1 or 2 others towards mid or end of next year. So we are absolutely very bullish. And as the runway on ATF is still absolutely very strong. Operator: Your next question comes from the line of Mac Etoch with Stephens. Steven Etoch: Maybe just following up on some of the previous order related questions. Just looking at what you called out during March, can you just unpack what specifically changed in the order environment at that point? Was it tied to improving customer decision-making, budget releases, increased activity within certain [indiscernible] like maybe Analytics or upstream systems? And how is that exit rate carried in April at this point? Olivier Loeillot: Well, it's a little bit of all of that, to be honest with you, but maybe let me take one step back. So you're right. I mean we had a little bit of -- well, taking two steps back a fantastic quarter 4 in terms of order intake. And then really when I say fantastic, I mean, it was like in [indiscernible], we have not seen like for probably the previous several years and so on. So it was somehow pretty expectable that the beginning of quarter 1 would be a little bit softer. But then towards mid of February, we started to see a really significant acceleration that has enabled us to deliver a very strong order intake for the full quarter 1 really in the right zip code in terms of book-to-bill like what we expect for the previous several quarters. So really across the board, very healthy quarter 1, thanks to what happened in March. What's more important, honestly, than order because we said it can be somewhat a little bit lumpy. As you know, what's tracking our funnel. And I won't say we are really extraordinary discipline on the way we are tracking our funnel. And one part of the funnel, I'm looking at myself on a weekly basis what we call the high probability funnel, which is a probability that is above 50% closing orders within the next 2 to 3 quarters. And I mean, probably at the highest level ever. In fact, I just made the exercise a week or 2 ago, looking at how it looked versus what it looked like a year ago, and it's significantly higher than what we've seen a year ago. So from that point of view, we are very confident about the way things are going to play out for the next several quarters. what we're not still controlling fully is decision-making. And that's maybe where indeed, I would still see a bit of a difference between consumables and equipment, both look really good for this year. I mean, in terms of guidance for the full year, we see like both grew double digits in sales. But obviously, most of the headwinds we've talked about are going into consumable, as you know, meaning the gene therapy program on one side and then these two ATF customers on the other side. So it means like consumables are still doing extremely well. On capital equipment, it's fair to say like Analytics and mixers have been leading the pack. We would like to see a real acceleration of what we call the bigger type of CapEx equipment. We started to win some of these RFPs. As I mentioned earlier, if the tap of capital equipment really opens, this is going to be a massive opportunity for all of us. And I'd say Mac because the water is just waiting for the tap to open, and then it's going to become like a totally different story for tool provider. So that's kind of really a long answer to a short question, but across the board how we're seeing order intake and how we're seeing a different part of the business between consumable and hardware. Operator: Your next question comes from the line of Paul Knight with KeyBanc. Paul Knight: When you look at the China market right now, is this domestic demand or is it multinationals expanding their bioprocess capabilities in that market? Olivier Loeillot: Paul, yes, I have to say at this stage, the vast majority, and I say last majority, at least what I have a good line of sight of is really China, local demand market that's coming back. And we've had a lot of successes. I mentioned mixers already a couple of times. But beyond mixers even on our filters, consumable and so on, we're seeing a lot of these customers coming back now. As you know very well, we are facing much more competition than we were before, which is why we've been pushing and now implementing that strategy that I think it's very different, very differentiating as well versus what others might have been doing, where we are really going to capitalize on local company to help us gaining our market back. I've said several times, the China market today is totally different than it was 5, 5 years ago, even maybe 3 years ago, even to a certain extent, you want to subsidy in China, you have to appear to be much more really Chinese than you were before, and that the only way you're going to be able to defeat competition locally. We found a part that we like a lot because we know the management team pretty well, but also they are still in the early phase of growth. And I've seen so many of these companies being successful over the last several years that collaborating together, we feel we have got an incredible runway over the next several years. But the demand is really from Chinese company Chinese local demand, which we know is going to grow very significantly over the next several years now with all of the money that has been injected into the China ecosystem. Operator: Your next question comes from the line of Brendan Smith with TD Cowen. Brendan Smith: I wanted to actually ask just another one on the transformation office a bit. Any more granularity on what kinds of margin optimization efforts you really have going on there? I guess are you focused on certain segments more than others? I know you mentioned some AI process involvement. So I guess just wondering if there's any potential for some of the relative margins across your different segments and maybe close ranks a bit from some of the historical spread we've seen? Olivier Loeillot: Yes, Brendan, good question. So we highlighted kind of 4 buckets. One is manufacturing footprint in terms of how to optimize that. So that, of course, will hit either different product lines or help us drive efficiencies across the overall network. The other piece, to your point is really this improving profitability on certain product lines. So that's examples of where do we look at our portfolio? What's dilutive to the overall average? And how can we look at design changes? How can we look at manufacturing efficiencies, to your point, how do we look at the the product SKUs that we have to try to raise that overall. And then it's things like Polymem, again, where we saw that a noncore product, not even within bioprocessing and not only dilutive at the margin, but a loss at the bottom line. And so that's fairly unique, though. So just to caution you in terms of opportunities at that level, but it's absolutely about finding the below-margin products and then increasing those. The other pieces is also around how do we serve our customers better, how do we get more value. So again, you might see that within the product lines. And then the other big bucket is this topic of IT modernization as well as AI. And we kind of keep them connected but also have a very different path on each of those. We've talked a lot about the need to to upgrade our IT infrastructure. It's data, I'll say, optimization -- it's looking at the -- when you look at the number of applications and vendors we have for our size company, we can rationalize that. That's the type of thing that actually drives synergies and cost savings. But always bring, how do we leverage SAP, our ERP as well to to get more out of that. And then from an AI perspective, it's a balance of looking at the tools that are available, but then also going back into each process and function understanding the problems that we're solving and the use cases for those AI, I'll say, solutions. And so incredibly exciting for us. Again, this is about allocating the right resources focusing internal experts as well as bringing external experts to help us accelerate that. And again, it's just another example of kind of the long game that we're playing on both margin expansion as well as being able to grow in scale. Operator: Your next question comes from the line of Matt Stanton with Jefferies. Matthew Stanton: Maybe just one in the context of the order commentary and then the kind of high probability funnel that you laid out, Olivier. Can you just remind us in terms of your equipment portfolio and the order book there, how quickly you turn that? I think historically, you had kind of talked about earning 2/3 of the order book in 6 months or less. I think it would be helpful to kind of get an updated number on that given the evolution of the portfolio as it relates to about what could maybe show up in orders today and income and revenues in the back half of the year versus 27. It sounds like mixers, analytics, some of those are maybe shorter cycle type equipment than the larger projects you talked about late but would just be helpful to kind of level set the order book, how quickly you think you can turn that today and how that maybe has evolved from a couple of years ago. Olivier Loeillot: Matt, I think you answered your question very well. So I'll try to add some more details here. But you're absolutely right, like we've got very different type of hardware in our portfolio. So the 2 you mentioned, you're right, both mixers on the one side and analytics on the other side, turnaround time is very short. I mean, in fact, for analytics, typically you can even turn around an order within a couple of weeks. So for mixers and here, I would differentiate what we call the stainless steel mixers, which is what we acquired when we 5 years ago from the single-use mixes, this time are slightly different. For the stainless steel side, we are like below 3 months. for the single-use mix, we would probably be a little bit more than 3 months. And so there is a slight difference here. and then comes what we call well, even within the larger scale type of hardware, there is still a difference. For ATF, system very often we are capable to turn around delivery in 3 months or even less some time if we've got no customization to achieve for downstream system, whether TSF or Chrome system, it really depends again whether it's catalog type of product or whether it requires some customization. If it's catalog, turnaround time can also be in the range of 3 months. also if it's custom probably more into the 5 to 6 months range. But what's becoming probably more important than our own lead time is really customer preparedness. And especially now that we start to enter into these onshoring projects more and more we will see probably very different cases where people already have brownfield or people need to build everything from scratch. And then this is what we don't control fully where our lead time might be absolutely enabling us to recognize those revenues this year it might well be that those sides are only ready by mid of 27% or even maybe second half also. And as you know, when I mentioned about the blockbuster, we had -- we won a couple of years ago now on ATF, I mean it's a specific example where the customer size is still just being finalized right now. So what we don't control fully is customer preparedness and especially with ensuring that, that's something we're all going to have to figuring out better in the upcoming few quarters here. Operator: Your next question comes from the line of Matt Hewitt with Craig-Hallum Capital Group. Matthew Hewitt: A great start to the year. Analytics is becoming a much bigger demand area for your customers, whether it's the CDMOs or the pharma companies. You're seeing increased demand. You're speaking to some of the growth that you're seeing there. From an investment standpoint, -- where do you see opportunities to invest in that area, whether it's real-time monitoring or taking some of the data that you're capturing and kind of helping your customers identify areas for improvement. Is this an area that you're investing internally is an area that you see from an M&A perspective, maybe augmenting some of your existing capabilities? Any discussion there? Olivier Loeillot: Yes, Matthew, great question. I mean, obviously, as you mentioned, we're really excited about the traction we're seeing on process analytics. I mean, 50% growth in quarter 1, 40% organic credit, downstream analytics. I mean we've never seen that before. In fact, historically, quarter 1 was always a weaker from a seasonality point of view. So that was really obviously an incredible performance. And you're asking absolutely the right question, what are we doing to make sure we capitalize on that and we even can double down on that over the next several years. So first of all, you know, we said that upgrade cycle is just still at the beginning. So going to be a tailwind for us for the next several quarters, if not probably several years. But beyond that, and I didn't talk so much about the PAT side, the PAT has got huge traction as well. I mean -- as you know, we launched our FlowVDX in-line protein concentration technology 1.5 years, 2 years ago, so which has got incredible traction while working on multiple other PA technologies product grade or product launches that will happen over the next 1 to 2 years. So talking about investment and talking about organic investment, we're investing a huge amount of money on the R&D side to make sure we've got many more products on our shelves over the next several years. but both from an app line but also from an in-line point of view, and you will hear us tell talking about that massively over the next several quarters and years. And then, yes, in terms of M&A, absolutely. I mean, as you know, capital spending top priority #1 for us is on the M&A side. I mean we ended quarter 1 with $785 million of dry powder. So we are looking at several opportunities, and it's the right Polymem on the Analytics side to complement our offering further so on, we would be very interested. So the last piece I would mention and services are benefiting from that grandly as well. I mean our service business grew more than 3% in in quarter 1. And the good news is we've got a very nice attachment rate of service to our analytical equipment. So that's another area we're investing into quite a bit and then partially for that piece that is linked to the analytical business here. Operator: Your next question comes from the line of Justin Bowers from NJ. Unknown Analyst: It's Deutsche Bank, but I'll squeeze a multiparter into one. So on the proteins, pretty strong quarter, especially against a tough comp. Can you talk about some of the drivers there? And then -- is that more of a shorter cycle business, i.e., how much visibility do you have into that? And then over the next 2 to 3 years, is that a franchise that you believe can continue to grow above Fluid average. Olivier Loeillot: Justin, Happy to have a question on protein because that's another business. I'm so happy about the progress we're seeing here. So yes, you're right, I mean, meeting growth lapping on what was a very strong quarter 12025 was a really great positive surprise for us. And honestly, we got demand across all our offerings, but partially on the legal side. I mean I mentioned in the past we've really become closer and closer with Purolite. We work really very much hand-in-hand together they have fantastic traction, and we are very happy about the way we collaborate together. That has been one of the reasons why protein did so well. So we are in the long-term type of business here because beyond that specific collaboration the fact also we have our date in our hands for all of the non monocular antibody side of the business is also very encouraging because we are winning multiple and we say multiple is really multiple designing. And it's a business that takes a little bit of time because where you first need to get designed in and then you start to deliver some first pilot quantities. And then hopefully, some of these products are either making it to the market or if they are already on the market, people are -- our customers are going to put the trigger to switch from one supplier to us. But with all of the designing we've been working on, and we've got a dedicated team that is going on the market, getting fantastic response from the market because they've never seen a company capable to develop a new lean in 3 months and month. I'm absolutely very bullish about that market for the next several years. I think the best is still to come here for sure. Operator: We have reached the end of the Q&A session. I will now turn the call back to Olivier Loeillot for closing remarks. Olivier Loeillot: Thank you all for joining our call today. We had a very great first quarter, and we're executing against the plan we've outlined which is outpacing market growth, delivering margin expansion, and Jason gave you a good number of details about what we're achieving on that side; and finally, making tangible progress on our strategy. I really want to thank all of our Repligen teammates. We have an incredible team, and we are delivering a fantastic start of the year and looking forward to talking to you again in a quarter from now. Thank you all.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Good morning, everyone. Welcome to today's Transocean Ltd. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. During the question and answer session, to register to ask a question at any time, please press 1 on your telephone. Additionally, you may remove yourself from the queue by pressing 2. Please note today's call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the meeting over to David Kiddington, Vice President and Treasurer. David, please go ahead. David Kiddington: Thank you, and good morning, everyone. Welcome to Transocean Ltd.'s first quarter earnings call. Leading today's call will be Transocean Ltd.'s President and Chief Executive Officer, Keelan I. Adamson. Keelan I. Adamson will be joined by other members of Transocean Ltd.'s executive management team, Chief Financial Officer, Thaddeus Vayda, and Chief Commercial Officer, Roderick J. Mackenzie. In addition to the comments that will be shared on today's call, we would like to direct you to our earnings release, fleet status report, and 8-Ks filed yesterday that contain additional information, all of which is available on Transocean Ltd.'s website at www.deepwater.com. Following our prepared comments, we will open the conference line for questions. Please limit your inquiries to one question and one follow-up, as this will allow us to hear from more participants. Before we begin, I would like to remind everyone that today's call will include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially. With that, I will hand it over to Transocean Ltd.'s CEO, Keelan I. Adamson. Keelan I. Adamson: Good morning, and welcome to our first quarter conference call. Today, we will address several topics. First, an overview of our accomplishments in the first quarter. Next, I will provide some market updates, including a few thoughts on the impact of events in the Middle East on our business. Then I will update you on the pending acquisition of Valaris. And finally, Thaddeus will make a few comments on our financial results and guidance. First, the quarter. Operational performance was very strong, with uptime of 98%. Adjusted EBITDA was $440 million, implying a solid margin of over 40%. Our average daily revenue in the period was $476,000, the highest in over a decade. These results were accomplished while working safely and efficiently with zero life-changing injuries or operational integrity events. This exceptional performance is due to our team's dedication to providing best-in-class service to our customers. We are committed to eliminating costs from our business and are on track to deliver, versus a 2024 baseline, savings of $250 million in aggregate through 2026. As we have discussed, these savings are associated with continuous improvements in how we run our rig operations, removing idle and stacked assets from the fleet, more efficient maintenance spending, and a reduction in shore-based support infrastructure. Since our February call, we have announced approximately $1.6 billion of backlog, including new contracts and contract extensions on five rigs in Norway, Brazil, and the Eastern Mediterranean, increasing our backlog to over $7 billion as reflected in our fleet status report published yesterday. Nearly one third of this backlog increase is related to a three-year contract on the Transocean Barron with Vår Energi in Norway at a rate of $450,000 per day. The program is expected to start in mid-2027 and includes options that, if fully exercised, could keep the Barron working in Norway into 2034. We are very excited to be commencing a new long-term strategic relationship with Vår Energi. In Brazil, three of our ultra-deepwater ships—two sixth gen and one seventh gen—were awarded contract extensions by Petrobras. The sixth generation drillships, the Deepwater Orion and Deepwater Corcovado, were each awarded three-year contract extensions, collectively contributing about $845 million in incremental backlog, committing the rigs into 2030. The seventh generation drillship Deepwater Aquila was awarded a one-year extension, contributing about $160 million in incremental backlog, committing the rig through mid-2028. Lastly, in the Eastern Med, the Deepwater Asgard was awarded a five-well contract, contributing about $158 million in backlog and committing the rig through 2027. Including these announcements, our firm full-year 2026 and 2027 contract coverage is currently 86% and 73%, respectively, providing a strong base for future cash flow and a line of sight to continued debt and interest expense reduction. On a related note, and as previously disclosed, we retired the balance of the Deepwater Titan notes, reducing debt by $358 million in excess of our scheduled maturities. This is consistent with our commitment to delever, simplify the balance sheet, and reduce interest expense as quickly as possible. Moving to our outlook for the business, we continue to see improving demand for our rigs and services. While not directly affecting Transocean Ltd.'s operations, recent events in the Middle East have further exposed the vulnerability of the global energy supply chain and, at an absolute minimum, have amplified the energy security imperative around the globe. This reinforces our thesis that offshore exploration and development will comprise an essential component of oil and natural gas supply for the foreseeable future. I will now provide a summary of developing opportunities around the world. The number of contract awards and tendering opportunities during the quarter remains high, with visibility into multiyear programs improving meaningfully. So far in 2026, S&P Petrodata has cited 80 rig years added across 61 newly signed floater fixtures. Assuming opportunities materialize as expected, we now see deepwater utilization approaching nearly 100% by 2027, setting the stage for a significantly improved business environment. Looking first at the U.S. Gulf, long-term demand remains stable, supported by recent lease awards. In the near term, any softness may result in some high-specification assets incurring idle time before securing new work. However, with elevated crude pricing, we would not be surprised if certain customers operating in this market chose to take advantage of this short-term opportunity. In Brazil, following the recent blend-and-extend negotiations, Petrobras awarded approximately 38 rig years, securing its strategic capacity for the coming years. We expect Petrobras to return to the market later this year to secure additional capacity for 2027 onward to satisfy additional exploration and production activity. Supported by incremental IOC demand, the overall rig count in Brazil is expected to remain stable between 30 to 33 rigs over the next five years, at least. As we highlighted last quarter, Africa is finally showing measurable and more consistent growth. We expect the regional count to increase from roughly 15 units today to at least 20 over the next one to two years. In Mozambique, one multiyear program has already been awarded by Eni, with two additional awards expected this year from Exxon and Total. In Nigeria, Shell, Chevron, and Exxon have recently awarded their development programs, while Total has just issued a new tender for a multi-well program starting in 2026. In Namibia, we continue to expect more activity as several majors, including most recently BP, evaluate opportunities in the country. And in the Ivory Coast, Eni has issued a one-rig tender for a three-year program beginning in early 2027. In the Med, our recent fixture for the Deepwater Asgard satisfies a portion of increasing demand in the region, with several other awards expected soon for drilling programs starting in 2027. Rig count in the region is expected to stabilize at around seven units going forward. Turning now to Southeast Asia and India, we expect domestic production and exploration initiatives to drive a material increase in activity beginning in 2027. In Indonesia, programs are currently being tendered, adding potentially 10 rig years across five rig lines to a market that currently only has one rig operating. As previously discussed on our last call, in India, ONGC and Oil India are expected to substantially expand the regional fleet by up to four drillships and two semisubmersibles in 2027, potentially adding 20 incremental rig years. In Norway, utilization of high-specification harsh-environment semisubmersibles remains robust through 2028, supported by recent awards from Vår Energi, Equinor, and Aker BP. Most operators are already in the market to secure capacity from 2028 onward, suggesting that utilization for these units should remain near 100% in the coming years. In summary, both the development of known reserves and the call for new exploration continue to build strong momentum. As evidenced by the recent increase in award announcements and numerous ongoing tenders for multiyear opportunities, our fleet is ideally positioned to capture value in this improving business environment. Finally, regarding the acquisition of Valaris, we are required to seek antitrust approval in seven countries, and we have received that approval in Saudi Arabia and Trinidad and Tobago. As of yesterday, we received a second request for additional information from the U.S. Department of Justice as a continuation of their antitrust review. Further, we continue to work with antitrust agencies for approval in Angola, Australia, Brazil, and Egypt. We remain confident that the outcome of the global regulatory review will be favorable and that we are on track to close the transaction in 2026. We remain excited about the capabilities and potential of the combined company. Until the transaction closes, we will continue to conduct business as separate companies. However, we have materially progressed our integration and business continuity planning. We remain confident in our ability to achieve over $200 million in cost synergies incremental to our standalone cost reduction initiatives of approximately $250 million that I mentioned earlier. On a pro forma basis, Transocean Ltd. is expected to have about $12 billion in backlog. The combined company's robust cash flow will continue to accelerate the reduction of gross debt, resulting in leverage of approximately 1.5x EBITDA within about 24 months of closing. The acquisition of Valaris is fundamentally aligned with Transocean Ltd.'s strategic priorities. We will be an industry leader with the scale, scope, and geographic reach that allows us to effectively support our customers in the cost-effective delivery of hydrocarbons from the world's offshore reserves. I will now hand the call over to Thaddeus to provide some brief comments on our financial performance and guidance. Thaddeus? Thaddeus Vayda: Thank you, Keelan, and good day to everyone. Most of the information you should need to update your models is provided in the materials we published last night; I will only make a few remarks this morning. Our performance during the first three months of the year exceeded our forecast and the guidance range we provided to you in February. As Keelan pointed out, contract drilling revenues of $1.08 billion reflected outstanding operations in the quarter, including revenue efficiency in excess of 97% versus our guidance of 90.5%. This is worth about $9 million in the quarter. Also included in the top line is $18 million of revenue recognized due to the early contract conclusion of the Deepwater Proteus. Additionally, higher recharge revenue and favorable foreign exchange effects, which are largely offset in our O&M cost, totaled about $18 million in the period. Operating and maintenance and G&A expense were $606 million and $49 million, respectively. Adjusted EBITDA of $440 million translated into a margin of over 40%, and cash flow from operations was $164 million. Free cash flow of $136 million reflects operating cash flow net of $28 million of capital expenditures in the period. Lower sequential free cash flow in the first quarter of the year is not unusual for us and is typically related to, among other items, the timing of collections and higher payroll obligations. We closed the quarter with an unrestricted cash balance of $330 million, which has since increased to about $495 million as of May 4. Our earnings report includes guidance for the second quarter and only slightly updated guidance for the full year for Transocean Ltd. on a standalone basis. There are only two changes to note in our annual guidance. First, the upper end of our full-year revenue range has been reduced by $50 million to $3.9 billion, primarily to reflect the passage of time. While there are a number of negotiations ongoing, given necessary lead times to plan and commence work, there is a somewhat lower probability of filling certain gaps in our 2026 contract schedule. As we discussed in February, our revenue guidance is otherwise based primarily on firm contracts, with the upper range reflecting the possibility of new contracts commencing slightly ahead of schedule or the extension of existing contracts. The lower end of our revenue range assumes that no additional fixtures with 2026 commencement dates are secured. Second, we have increased our capital expenditure expectations for the year by $20 million due to certain customer requirements that were not anticipated in our initial guidance. Approximately half of this increase is related to environmental upgrades to exhaust systems on a rig operating in Norway. We will substantially recover the cost of this upgrade by the end of the year through specific contract provisions. As we highlighted in February, our cost guidance for the full year reflects our ongoing cost efficiency initiatives and also contemplates slightly lower levels of activity in 2026 versus 2025, with idle time assumed on certain rigs with contracts ending this year. This includes the KG2, Deepwater Proteus, and Deepwater Skiros, as well as costs associated with the mobilization and preparation of the Deepwater Asgard and Transocean Barron for contracts we have recently announced. As you might assume, given the dynamic nature of the market, we may incur incremental expense to position and prepare idle rigs to pursue work. These new opportunities, likely commencing primarily in 2027, will increase utilization, revenue, and cash flow. To the extent that this occurs, we will provide updated cost guidance. With respect to inflationary trends resulting from events in the Middle East, we are just now beginning to observe some small effects on our costs, mostly as it relates to scheduled projects rather than on our active rigs. Recall that we have escalation provisions in certain contracts to permit some cost recovery. While prices for fuel have nearly doubled, our customers are generally responsible for providing it, which means we are only affected by this increase for our idle rigs, for which fuel currently amounts to less than 1% of O&M expense. Ocean and air freight costs are also up as much as 30%–50%, respectively, but logistics in general comprise only 2% to 3% of our annual O&M costs. We do expect that over time, higher energy and logistics costs will influence the pricing of goods and services we procure, but for now, that does not warrant modification of our guidance. As Keelan noted, in March we opportunistically retired the 8.375% notes due 2028 that were secured by the Deepwater Titan, reducing debt by $358 million and saving nearly $40 million in interest expense. Right now, we have about $5.1 billion of debt principal remaining. At the end of 2024, we were forecasting a principal balance of $6 billion of debt remaining at the end of 2026, meaning we are currently over $900 million ahead of schedule in our efforts to reduce debt and strengthen the balance sheet. We ended the quarter with a trailing twelve-month net debt to adjusted EBITDA ratio of approximately 3.1x, and we expect to retire at least $750 million in total debt in 2026, ending the year with a principal balance of around $4.9 billion, excluding our capital lease obligation. Based upon the consensus EBITDA, this would imply a ratio of about 3.3x at the end of this year. We will continue to evaluate opportunities to accelerate debt repayment and reduce interest expense. We closed the first quarter with total liquidity of approximately $1.1 billion, adjusting for the effect of the Deepwater Titan note retirement. This includes unrestricted cash and cash equivalents of $330 million, restricted cash of $285 million after the reduction of $87 million associated with the debt service reserve for the notes, and $510 million of capacity from our undrawn credit facility. On a standalone basis, and absent any additional early retirement of debt, we expect to end the year with between $1.25 billion and $1.35 billion of total liquidity, inclusive of our undrawn credit facility. This range is consistent with our previous liquidity guidance when adjusted for the early repayment of the Deepwater Titan notes. This concludes my prepared remarks. Keelan, do you have any final thoughts? Keelan I. Adamson: Thanks, Thaddeus. To conclude, we will continue to focus intently on achieving our strategic priorities, including optimizing the value of our differentiated asset portfolio in this improving market to maximize free cash flow, reduce total debt and interest expense, and simplify our balance sheet to create a sustainable and resilient capital structure. This is our 100th year in business, and we are striving to be the most attractive offshore drilling investment for those desiring exposure to increasingly favorable energy and industry dynamics. We will now open the call for questions. Operator: Thank you, Mr. Adamson. Ladies and gentlemen, at this time, if you do have any questions, please press 1. Additionally, you can remove yourself from the queue by pressing 2. As a reminder, we do ask that you please limit yourself to one question and one follow-up. We will go first this morning to Eddie Kim with Barclays. Eddie Kim: Hi. Good morning. I wanted to start off with a bigger-picture question. The world has clearly changed since your last earnings call in mid-February. It feels like the market is tightening based on the number of fixtures announced year to date. You also raised your utilization expectation next year to approach 100% versus 90% previously. If I go back four or five years, 2020 and 2021 were extremely challenging years for the market, but things started to turn in a big way in 2022 and 2023. By mid-2023, leading-edge rates were in the mid-$400,000s with an expectation that pricing could exceed $500,000 a day by the end of that year. Unfortunately, we ran into some industry white space which halted that trajectory, but nonetheless 2023 was a very strong market environment. Based on how you see things now and the customer conversations you are having, do you think the market environment next year in 2027 could be as good, if not better, than it was in 2023? Keelan I. Adamson: Good morning, Eddie. Thanks for the question. As you look at the business and the current situation in the world, we are not seeing an impact per se of what is happening today. What we are seeing is the development of a market that we were forecasting prior to any of the recent conflicts. As an industry, we have been talking about improved tendering opportunities, growth in the market, a real concern about hydrocarbon demand and more so about hydrocarbon supply, and many of our customers starting to lean into the exploration activity that needs to progress. We are seeing the results of that in the number of awards that have been announced year to date. The term of those awards has nearly doubled, and we are starting to see what we expected to happen with respect to rig utilization into 2027. We said we expected 90% utilization into 2027 and then improvement from there. The activity and the forecast are being realized from our perspective. The continual concern with energy security is a real topic of conversation around the world and is amplifying the need for further investment in the offshore space, particularly in deepwater. Utilization is building, backlog is building, and the rate progression will reflect the supply and demand dynamics that exist in the industry and the visibility for future work. Roddie, would you like to add anything to that? Roderick J. Mackenzie: Yes, probably just to pick up on one of the things that you mentioned. In the previous run-up, we kind of stalled out—yes, we posted a few rates above $500,000, but the context is important. We hit a bit of a global economic bump that coincided with a moment when many of the majors were focused on capital discipline, and part of that was their push for M&A. That created white space. The difference now is that at that time there was still a heavy skew towards shale, but now everything is pointing towards offshore. Offshore CapEx is going to be a much larger chunk of the pie, going from about 13% of total CapEx to nearly 30% by 2028. Basically, CapEx spend in offshore and deepwater is expected to approach $100 billion annually by 2030. In that context, the upside for us is very significant. There are not as many M&A opportunities available on the operator side, and to Keelan’s point, everybody is now looking at exploration. Basins that were previously explored and had discoveries are now shifting to development, and on top of that, we are adding a lot of exploration work. Eddie Kim: Got it. That is very helpful color, and that is a great point on the changing mindset of the majors. My follow-up is on the Petrobras blend-and-extends. They extended both of the 6G rigs, the Orion and Corcovado, for three years, but the 7G rig, the Aquila, was only extended for one year. Was there some intentionality behind that decision on your end to not lock in your high-spec asset on a multiyear deal in a rising dayrate environment? Roderick J. Mackenzie: Yes. As we have always alluded to, it is very important to us that we get appropriate value for our assets. The sixth gens are workhorses of the fleet and do a fantastic job, and Petrobras were very keen to extend the rigs. It is an interesting moment because Petrobras is traditionally the barometer of where things are going, so when you see them go long, that is a pretty good sign for us. In that instance, note the delta between the average dayrates between the sixth and seventh gen, somewhere in the region of $50,000 to $70,000. That is a fairly big deal. In our view, the market tightness is not projected; it is already here. A few quarters back, we were talking about things that were going to happen; now the scoreboard has fixtures on it, and they are prolific. As Keelan pointed out earlier, we are a third of the way through the year, and we have already significantly eclipsed what happened in all of 2025. So 2026 is shaping up to be something potentially as big as 150 rig years awarded, and that is before we consider direct negotiations that are not necessarily on the market. You are spot on in that strategy. We have always taken a portfolio view on the fleet—very keen to see those sixth gens go long and give us a bit of optionality on the higher-spec units as we move forward. Operator: Thank you. We will go next to Fredrik Stene with Clarksons Securities. Fredrik Stene: Hey, team. Hope you are well. Happy to see that the market is looking better. According to my numbers, we have the highest market-wide visibility contracting-wise, even above 2023 levels. Something is happening, and I am happy to see that. Today, my question relates more to the M&A process—the acquisition of Valaris. You gave some color in your prepared remarks, Keelan, but could you elaborate a bit more on what this second request actually means and the implications for potential deal risk? You still said confidence in second-half closing, but is that timeline potentially delayed now compared to before? And what does this potentially mean for remedy sales, etc.? I am not trying to be a devil's advocate; I am just trying to get clarity on what this actually means, even though it seems like most deals that receive a second request end up going through. Any color would be helpful. Keelan I. Adamson: Sure, Fredrik, and thanks for the question. We remain confident that the DOJ will approve the transaction. The second request is part of the process. For a deal of this nature, it is simply a case of needing a little bit more time to understand the competitive dynamics post-close. We have been heavily engaged with the DOJ, working productively with them, answering their questions, and helping them understand the nature of our business in the U.S. Gulf and the market worldwide. Those conversations have been going very well. There is no read-through I would suggest to you that changes our expectations. When we declared the timeline we believe this transaction would close in, we are still in that window and very much believe so. We are happy with the progress we are making and will continue to work with the DOJ as they assess the situation. Fredrik Stene: Thank you very much. As a follow-up, I think you said Saudi and Trinidad and Tobago have cleared approval already. In addition to the U.S., it was Australia, Brazil, and Egypt. Are there any risks of similar second requests or hurdles in those countries, or do you feel confident that those discussions are on the track you originally perceived? Keelan I. Adamson: It is following the exact process and timeline that we would have expected to go through the regulatory approval process. Some are further along than others. We are engaged with all of those countries, and everything is moving as we would have expected at this point in time. Operator: Thank you. We will go next to an analyst from Morgan Stanley. Analyst: Hey, thanks. Good morning, guys. I wanted to ask: you shared a couple of years ago, or more recently, some of the terms and components around reactivating a cold-stacked rig. Could you refresh us with your latest thoughts on the cost to reactivate a rig, the timeline, and what type of contract terms or macro backdrop you would need to move forward with that decision? Keelan I. Adamson: Good morning, and thanks for the question. It is timely as we talk about a constructive market going forward. However, we are a little bit away from a situation where either the market needs it or the economics are present for a cold-stack reactivation of a deepwater drillship right now. In a few years, it may be slightly different. From a cost perspective, we are still in the $100 million to $150 million range to reactivate one of these assets. We are comfortable with the stacked fleet we have, the condition they are in, and we have a good handle on the timeline it would take to bring one back to market; we are still in the 12 to 15 month range to reactivate and bring one of those rigs back to service. We will not do that speculatively. We will want a contract that fully recovers that cost and provides a return on top. We are not quite there yet. We would look for 100% utilization in the drillship market, with visibility into market programs, to justify bringing one out. You can imagine we will be looking for term and productive dayrate for that to happen. Roderick J. Mackenzie: To add to that, term and return economics are very important. At this point in the year, the average award has been 480 days, which is double what it was in all of 2025. But that is still not enough, in our view, to bring out one of the cold-stacked assets. It is encouraging to see a doubling of duration and effectively a four-times multiple on how many fixtures are being made today, but we still think there is room to run before we reactivate the cold-stacked fleet. Analyst: Great, that is helpful. A higher-level question: as you toured the world and pointed to areas where you see potential for incremental tendering, are there any areas where customer conversations or incremental activity are more related to events over the last two months in the Middle East—more related to building strategic reserves or reducing reliance on Middle East exports? You highlighted Southeast Asia and India previously, and you mentioned some big numbers in Indonesia. Can you parse out any areas where incremental need or demand is more related to diversifying away from Middle East exports? Keelan I. Adamson: The conflict is not that old at this moment, but nations around the world are reassessing their energy security and policies for energy supply. You highlighted a couple that come to mind straight away. In India, Prime Minister Modi has set his government in motion with a mission to establish the nature of their reserves in country. That is driving ONGC and Oil India action. It was a bit of a surprise when it came—we announced it last earnings call—and from our conversations in country with both the ministry and the oil companies, this is not a short-term effort. This is a significant investment with several years of CapEx commitment to establish their position from an offshore oil and gas reserve and supply perspective. That is just one country. In Indonesia as well, and when you look around the world at what the IOCs are looking at, they are focused on ensuring a diversified global supply—major developments going through sanction right now in Suriname, Namibia, Mozambique, into the Med and West Africa. The importance of a globally diversified supply is only more heightened now for secure, reliable, and affordable energy. Roderick J. Mackenzie: We have already exceeded last year’s fixtures and rig-year awards, and none of that was based on the Middle East conflict. The tenders on the market today—collectively we think somewhere in the region of 150 rig years awarded this year, maybe more—are not predicated on what happened in the Middle East. It is based on the macro shift over the past 12 months: the shift towards deepwater, customers ramping up exploration and development, moving beyond the strict capital discipline mantra. All of that was predicated on $60–$70 per barrel outlooks. Now we are in a different position, which is good for our customers’ earnings near term, but our fixtures are predicated on mid-range oil prices, not elevated prices. We have not yet seen the impact in our business of a prolonged increased oil price; our current work is predicated on oil prices of six to nine months ago. Operator: Thank you. We will go next to Gregory Robert Lewis with BTIG. Gregory Robert Lewis: Hey, thank you and good morning. I was hoping to spend a little time talking about the harsh-environment market. It is good to see the Barron move back to Norway. We have the traditional North Sea, but there was a rig that just won work in Canada, we have Australia, you hear about other pockets like the Falklands. This is a market where there is not a lot of supply. As you think about positioning Transocean Ltd.’s harsh-environment fleet for 2027 and 2028, should we expect more of a return to the North Sea, or are there going to be opportunities to keep this fleet spread? How tight could we be for the harsh market as we approach 2028? Keelan I. Adamson: Good morning, Greg. The harsh-environment market, while in balance currently, was expected to get tighter based on projects being sanctioned and growing activity. You are right—the harsh-environment market is no longer just Norway. It is returning to places like Canada and Australia, and rigs can be used in other, not-necessarily harsh, shallower-water environments. The opportunity set for the harsh-environment fleet is more global now, and we are not even considering yet what could happen in Namibia. With licensing rounds and the imperatives of Equinor, Aker BP, Vår Energi, and the energy security conversation in Europe, Norway is going to get busier. The opportunity presented itself to take the Barron back to Norway. We are very pleased to begin that relationship with Vår Energi again. We will continue to keep our assets in the most strategic locations and ensure we are available to the market upswing we expect in harsh environment. Roderick J. Mackenzie: To add, the name of the game over the last few years was operators retaining optionality on rigs without making large commitments, but the dynamic has shifted. Awards in Canada have been made; there is another tender for an incremental rig there. Within Norway, you see commitments—Vår, Aker BP, and Equinor’s NCS 2035 plans. The number of wells and the longevity of the programs speak to the Norwegian government’s commitment to sustain energy security in Europe. Those are strong fundamentals. We are about to enter a period of a very tight market because there is a shift towards longer-term contracting. That showed up in some numbers already and will be more prolific as operators need to secure assets because there are not many of them. There is a high chance more rigs will return to Norway because demand is well beyond the fleet currently in Norway. Operator: Thank you. We will go next now to Noel Augustus Parks with Tuohy Brothers. Noel Augustus Parks: Hi. Good morning. I was intrigued by what you were saying about exploration conducted long ago, with some of those projects now heading for development. For perspective, can you think of what may be the oldest exploratory project that you are now seeing greenlighted for development? Roderick J. Mackenzie: Good question. A lot of activity in Nigeria fits that description. Nigeria is expected to go up to five rigs; they had gone down to one. Much of what is triggering the incremental rigs now is based on exploration that took place some time ago—some as long as eight to ten years ago, certainly at least five years ago. A shorter example is Namibia. You saw lots of announcements about discoveries, then a lull as results were digested, and now we are seeing several long-term tenders based on development. Even there, there are still several exploration wells on the books. It is a treadmill: you have to keep discovering and exploring. Petrobras is vocal that they must contribute a significant portion of the portfolio every year to exploration. If you take your foot off the gas on exploration, your reserves dwindle quickly. Reserve replacement is becoming more of an issue, and the only way to address it is to explore. Noel Augustus Parks: Thanks. With energy security coming to the fore and the ripple effects for importing countries and their plans, assuming sustained higher oil prices, are there any regions where the economic opportunity could become so compelling that it overcomes some political inertia or opposition to moving forward? Roderick J. Mackenzie: It is definitely a theme. The war in the Middle East reinforces decisions already taken over the last several years, particularly by NOCs, to look at what they have within their own borders. Domestic production makes sense: you retain taxes, employ your people, and reduce dependency. Energy security reinforces domestic exploration. India is a top example. Even in places like the UK, I think you are going to see a U-turn; they have been cutting back for some time, but it is almost inevitable that will shift in the near term. Norway is a great example—linked to energy security and providing energy for Europe as the biggest producer in Europe. Overall acceptance that hydrocarbons are here for a very long time—there is no peak oil this side of 2050—so time to get on with it. Keelan I. Adamson: To add, deepwater is a very long-cycle business, and the economics are compelling at much lower oil prices than today. Activity we are seeing is based on fundamentals regarding supply and demand of hydrocarbons, concern on replacement of reserves, and the need to explore. Layering in energy security amplifies the case and will continue to promote more investment in offshore. It is a very good place to get affordable, secure, and reliable energy, and we continue to see it playing that role going forward. Operator: Thank you. Gentlemen, it appears we have no further questions this morning. David Kiddington, I would like to turn things back to you for any closing comments. David Kiddington: We would like to thank everyone who participated in our earnings call today. We invite you to follow up with us for any additional inquiries. With that, we will close the call. Operator: Ladies and gentlemen, this concludes the Transocean Ltd. First Quarter 2026 Earnings Conference Call. Thank you all so much for joining us, and we wish you a great day. Goodbye.
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: 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: 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: Welcome to the Fiserv First Quarter 2026 Earnings Conference Call. [Operator Instructions]. As a reminder, today's call is being recorded. At this time, I will turn the call over to Walter Pritchard, Senior Vice President and Head of Investor Relations at Fiserv. Walter Pritchard: Thank you, and good morning. With me on the call today are Mike Lyons, our Chief Executive Officer, and Paul Todd, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed in this call, along with the reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise noted, performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. And now I'll turn the call over to Mike. Michael Lyons: Thank you, Walter, and good morning, everyone. As we began the year, we were firmly in execution mode, and our first quarter results were in line with the expectations we shared with you in February. Our teams continued to be laser-focused on executing against the One Fiserv action plan, and while there is still significant work to do, we are taking the right actions, with the right sense of urgency and feel really good about the progress to date. We are confident in our strategy and the unprecedented pace of change in banking and payments is creating an extraordinary opportunity for us. As our clients and prospects want a trusted partner to deliver sophisticated technology and value-added solutions. We are uniquely positioned to do exactly that. To drive these efforts, we continue to add outstanding talent across the organization, including new heads of operations for both Merchant Solutions and Financial Solutions, new Chief Revenue Officers for Clover and Enterprise Merchant and a new Head of Product for Financial Solutions. With respect to business performance, I'll start with Merchant Solutions, where we saw solid growth in Clover GPV supported by good execution against our strategic initiatives and a stable macro. Clover VAS revenue represented 27% of Clover revenue in Q1, growing 18% from a year ago, driven by software in Clover Capital. We also saw steady growth in enterprise transactions. While anticipation lending volumes in Argentina remain strong, lower inflation and interest rates in Argentina were a revenue headwind to Merchant in Q1. I would note that this revenue softness was largely offset by lower interest expense below the line. Our preliminary April merchant volume growth, including Clover GPV remained solid around Q1 levels. Going forward in Merchant, we're watching the impact of various environmental factors, including higher gas prices from the conflict in the Middle East, which, if sustained, can impact the mix of consumer spending. We saw some of this dynamic in the most recent Fiserv Small Business Index data. In Q1, we signed 27 new banks as Merchant Referral Partners. We also announced our largest agent bank partnership in our history with Western Alliance Bank, which has more than $90 billion in assets and expands our reach with merchants across the Western U.S. We also hit important milestones in the quarter, going live with CommerceHub omnichannel capability across a number of our largest petro customers. We also went live on CommerceHub with built rewards in neighborhood hospitality and via Americas in cross-border remittance. Our broadening global releases and customer go lives are driving CommerceHub transaction growth, which was up nearly 200% in Q1. Other key enterprise merchant wins in Q1 included a retail energy provider, Blue Shield of California, a leading tax compliance platform and a large telecom provider who added on fraud capabilities. In Financial Solutions, we saw solid underlying business volume growth, particularly in Finxact and our Payments businesses, excluding BillPay. New business sales showed continued momentum. We hit important product delivery milestones, and we saw an improvement in key client service metrics. While core bank account and revenue attrition remain above our long-term trend, we've seen early signs that our client service initiatives have been well received. We're also getting positive client feedback on our decision to continue supporting all of our cores, and we are signing and renewing customers across all core. Also contributing to an enhanced client experience is the value we are delivering from our recent acquisitions of StoneCastle and Smith Consulting, where both our strategic and financial results are in line with our business cases. Key new business wins in Financial Solutions included OceanFirst Bank, which is a $14.5 billion Northeast regional bank that is growing rapidly through its announced acquisition of Flushing Bank. It extended its premier core and surrounds agreement with us, adding Digital Payments and committing to deploy CoreAdvance. Nicolet National Bank, a $16 billion Wisconsin-based bank, is adopting our Premier Core with its Midwest One acquisition. Truliant Federal Credit Union, a $5 billion-plus North Carolina-based institution chose to move to our debit processing platform. We expanded our long-standing digital money movement relationship with PNC Bank to include cash flow central AR/AP Services for their small businesses. And we had embedded Finance Wins with a large payroll provider and a large retailer to bring new capabilities to their payroll members and customers. In these wins, we will leverage new integrated capabilities across Fiserv, including Finxact for ledger, PayFair for banking applications and program management and VisionNext as a cardholder platform. Finxact was named Best SaaS for FinTech at the 2026 FinTech Awards, recognizing the combination of its market-leading innovation and scaled customer deployments. Finxact continued to grow strongly in Q1 with accounts and positions up over 70% as clients find value and its ability to provide financial infrastructure to enable any asset class in any domain at scale under a common platform and business model. So our execution is improving across both businesses, but as expected, that progress is not yet visible in our reported financial results as we are still lapping a higher mix of nonrecurring revenue, fueling the lingering impacts from prior client service challenges and absorbing the incremental expense from investments that will drive long-term client-focused growth, all necessary and important elements of our transition year in 2026. We look forward to the second half of the year and 2027 and when we expect our operating performance will be more fully visible in our financial results. I'll now provide an update on our execution against the One Fiserv Action Plan. Of course, we will cover all aspects of the plan in greater detail at the May 14 Investor Day. Under our client-first pillar, we continue to make targeted investments to raise the bar for client coverage, relationship management, service delivery and product resilience. The number of client-facing personnel we have is up significantly, meeting a key demand from clients, and importantly, we are seeing better day-to-day execution. Our time to resolve client inquiries is down 27% year-on-year. While we still have significant work to do, high-impact client incidents are down nearly 60% year-on-year, and we launched important AI initiatives to enhance the performance of our primary client portal and call centers in Financial Solutions. Turning to Clover. Our second pillar, we continue to make progress towards establishing it as the preeminent small business operating platform. We launched 2 new verticals in March with PracticePay in the health care space and our Professional Services offering. We are seeing promising early results with annualized GPV per health care outlet running at double-digit levels above our existing Clover Health care merchants, and a 20% plus increase in new Professional Services outlets that attached our paid SaaS offering in the month. Internationally, our momentum continued with Brazil Clover outlets up over 30% sequentially, and we had another strong Clover quarter in Canada, where we remain on track to enable TD Merchant Solutions to provide Clover's product offering, processing and servicing to its clients in second half of the year. After launching in Q4, we continued to expand our Digital Merchant Activation capability, and now have 22 of our top bank partners signed. We will also add this capability to our clover.com online Merchant Referral Partners. Through integration with StoneCastle, we remain on track to launch Clover Savings, our merchant cash management program before the end of Q2. Through a number of important partnerships, we continue to build agentic capabilities for our Clover merchants and we'll showcase some of these at Investor Day. And finally, we are excited to share that Clover is slated to support 30 World Cup games this summer in the U.S. and Mexico. Next, on the innovation front, we continue to hit critical milestones on key strategic products including Experience Digital, CashFlow Central, Vision Next, Optis and CommerceHub, as I mentioned earlier. In our Enterprise Merchant business, we delivered a new developer portal supporting agentic commerce. Our teams have further ramped up their usage of AI tooling in the software development process with early results showing a significant reduction across key steps in new feature development and delivery time with mainframe modernization. And finally, we are on track to launch our previously announced stablecoin pilot this summer to facilitate interbank money movement. Fourth, we are in full swing with Project Elevate. With AI at the center of this program, we are very encouraged by the early results. The teams have identified hundreds of opportunities to drive revenue uplift, reduce expenses, increase simplicity and improved productivity, and we're moving with urgency to operationalize them. Paul will outline our financial targets for Elevate at Investor Day. Beyond Elevate, we took several important actions in Q1 to drive efficiency, including closing 2 subscale offices, exiting underperforming Merchant businesses in India, reducing management layers, and implementing more aggressive performance management. And just last week, we completed the migration of all customer activities from a significant data center as we continue our modernization activity. Last, but certainly not least on One Fiserv is our commitment to highly disciplined capital allocation. We continue to sharpen our focus on the businesses and assets that best align to our go-forward strategy, including evaluating potential dispositions. I'll conclude by saying we look forward to seeing you at Investor Day where among other topics, we will further highlight our strategic priorities describe how our businesses are converging further to unlock more synergies and share how we're using AI to transform systems of record into systems of collaboration, create new TAMs and increase efficiency. Together, these actions will support the mid-single-digit adjusted revenue and double-digit EPS growth that we've discussed since last fall. This will position Fiserv to return to its roots and create significant shareholder value as a constant compounder. I want to thank our employees for their hard work and dedication and our clients for their continued trust. With that, I'll turn it over to Paul to cover the details of Q1 and our guidance. Paul Todd: Thank you, Mike, and good morning, everyone. I will cover details on total company and segment performance in the first quarter and reiterate our guidance for 2026. Beginning on Slide 6, total company Q1 adjusted revenue was $4.68 billion, a decrease of 2.4% compared to the prior year period and was in line with our guidance as we lapped higher nonrecurring revenue from a year ago. Q1 adjusted operating income was $1.4 billion, resulting in adjusted operating margin of 29.7% also in line with the just below 30% view, I provided on our last call. Total company organic revenue was down 3.6% in Q1 and with a differential in organic-to-adjusted revenue of just over 1%, in line with the approximately 1% delta we communicated in February. First quarter adjusted earnings per share was $1.79. Our Q1 results reflect an adjusted effective tax rate of 11% driven by the release of a tax valuation allowance in the first quarter. Relative to our expected annual adjusted tax rate of between 19% and 19.5%, this lower tax rate resulted in a $0.17 positive impact to adjusted earnings per share in Q1. This 11% rate in Q1 is strictly a timing-related impact. Our full year adjusted tax rate guidance of 19% to 19.5% remains unchanged, and we expect higher quarterly effective tax rates through the balance of the year as an offset. Free cash flow for the quarter was $259 million and in line with our expectations we noted in February, and reflects typical seasonality where Q1 is our lowest free cash flow quarter of the year. Now I will turn to the performance by segment for Q1. Starting on Slide 7 for Merchant Solutions. Merchant Solutions organic revenue declined 1% for the quarter, while adjusted revenue was flat, which is largely in line with our expectations as we fully anniversary the CCV transaction. As Mike mentioned, lower inflation and interest rates in Argentina did have a negative impact on adjusted revenue in our Merchant business. Small Business revenue declined 1% on an organic basis in Q1 and grew 1% on an adjusted basis. Small Business volume grew 7% in the quarter. Clover revenue grew 6% in Q1. However, excluding higher nonrecurring revenue from the first quarter of 2025, Clover revenue growth would have been in the mid-teens. Clover revenue from Payment Processing grew 10%, more in line with volume trends. As we noted in February, we expect similar trends for Clover in Q2 with this period representing the peak in nonrecurring impacts and also expect that Clover processing revenue will grow in line with Clover GPV. Clover volume grew over 9% on a reported basis and was in line with our expectations as we saw stable growth, both in the U.S. and in key international markets. Clover volume, excluding the previously discussed gateway conversion, grew 12%. As the previously discussed gateway conversion continues to run off, the delta between Clover reported and ex Gateway growth will converge. We continue to expect Clover revenue growth in the low double-digits for 2026 and and GPV growth of 10% to 15% ex the Gateway conversion. The lower end represents the core growth rate, while the higher end assumes more significant conversion of non-Clover merchants. Value-added Services revenue contributed 27% of Clover revenue in Q1, growing 18% from a year ago, driven by software attach and lending, including Clover Capital. Moving on to Enterprise. Our revenue grew 3% on an organic basis in Q1 and grew 2% on an adjusted basis. Enterprise transactions grew 8%, and finally, in Processing, organic revenue declined 14%, while adjusted revenue declined 9%. First quarter adjusted operating income for Merchant Solutions segment was $626 million, down 23% with adjusted operating margin of 26.4%. Now I will cover Financial Solutions starting on Slide 8. For the quarter, organic revenue declined by 6% in Financial Solutions, while adjusted revenue declined by 5% relative to our expectations of adjusted revenue decline at the high end of mid-single digits that I mentioned on our last call. In Digital Payments, both organic and adjusted revenue declined by 5%. Our underlying account and volume growth in Financial Solutions was in line with what we expected and our recent history. This included low single-digit growth in debit processing and low double-digit debit network volume growth. Zelle transactions grew 18% in the quarter in line with recent trends we have seen while we saw BillPay transactions down high single digits. Also, we saw a further ramp in CashFlow Central revenue in the quarter. In Issuing, revenue declined by 6% on an organic basis and 5% on an adjusted basis. While global accounts on file grew in the low single digits, revenue comparables were impacted by nonrecurring revenue in Q1 last year, a trend we expect to be more pronounced in Q2. Finally, in Banking, revenue decreased 6% on an organic basis and was down 4% on an adjusted basis as we continue to be impacted by certain actions taken over the last several years as well as higher nonrecurring revenue in the year ago period as well as attrition that remains above our long-term target. We saw core counts declined 2% year-over-year while overall accounts and positions, including Finxact grew 6%. First quarter adjusted operating income for the Financial Solutions segment declined 24% to $877 million and adjusted operating margin was 38.1% versus 47.5% in the prior year period. From a leverage standpoint, we finished the quarter with a debt to adjusted EBITDA ratio below 3.2x measured on a gross basis. We expect to finish the year at approximately 3x. Turning to Slide 9. We repurchased 3.3 million shares during the quarter for approximately $200 million. As we noted in February, we are focused on managing our leverage ratio and remain committed to returning capital to shareholders. Now with Slide 10, I'll move on to our 2026 guidance. First, on revenue, we continue to expect 2026 organic revenue growth in the range of 1% to 3% with Merchant Solutions revenue growth in the mid-single digits and Financial Solutions flat to slightly down. Consistent with February, we expect adjusted revenue growth in the range of 1% to 3%. All of this continues to assume a stable macro environment. As we told you in February, we expect the second quarter to be the trough in terms of our year-on-year revenue decline and we expect our Financial Solutions business to decline at the high end of mid-single digits in Q2. We expect our weighted average share count to be approximately 530 million resulting in adjusted EPS of $8 to $8.30, consistent with our prior guidance. We continue to expect adjusted operating margin of approximately 34% for the year. In line with our commentary in February, we expect first half adjusted operating margin of approximately 31% to 32%. In the second half of the year, we continue to expect adjusted operating margin of 35% to 36%, with Q4 representing the high point in the year. We continue to expect capital expenditures to remain approximately flat with 2025 levels. We continue to expect free cash flow conversion of approximately 90% of adjusted net income for the year, in line with historical levels and our February guidance. And with that, I will turn the call back to the operator to start the Q&A session. Operator: [Operator Instructions] Our first question comes from Tien-Tsin Huang from JPMorgan. Tien-Tsin Huang: I wanted to ask just on maybe visibility on the Banking side and retention given some of the bank conversions that you're doing. Just any surprise there? I know the trough comments were made, but I'd love to hear a little bit more detail on attrition and retention, that kind of thing. Michael Lyons: I think broadly on Banking, we continue to be, obviously, very proud of the leading market share position we have in the business and all the support across almost 3,000 banks and credit unions on the core side. As we've said and we said again today, core attrition [ has been above ] where we want it to be and getting that back to normal is a significant focus for us. That attrition, as you know, is the result of actions taken over the last several years and especially around the client service front. And we're confident we have the right fixes and addresses, and the way we're addressing it is the right thing to do. And while there's significant work to do as I said today, we feel like we're bending that curve in a positive way. And contributing to that is we've significantly increased our client coverage efforts, which was an ask of our -- they came directly from the clients. But from that has come better service, and we're seeing that show up in both our surveys and anecdotal evidence. And then we've really leveraged a number of different forms of AI to help in call centers, enhancing our client portal experience, accelerating our tech modernization and reducing the books [ of what we ] have then obviously, the decision to support all of our cores was an important one for our clients and has taken a significant amount of pressure -- perceived pressure that they had on themselves to switch and obviously, pressure on us. So little things or less highlighted things. The StoneCastle acquisition has been a great value-added positive, supporting our clients, depository clients and one one of their biggest needs, which is continue to -- continued deposit growth. And then our approach to embracing the consultant community and even acquiring Smith Consulting to really drive value-added services to our depository partners, again, is another piece. Finally, we've taken an advanced approach again using AI to measure our -- what we call a Client Health Index across all their experiences with us in terms of pace of change, resolution inquiries, client touch and the like, and it's given us a much better view and perspective of where these clients stand, which allows us to play much more on the offensive side to getting to them. So a lot of self listed, but it's a complete package of behavioral changes, technology changes, service changes, alignment changes, enhancements. We talked about continued enhancement in the quality of our leadership team bringing in new executives to combine new executives here. So I wish it was more visible in the results, but when you go through the underlying KPIs that we have, we feel really good about the progress we're making and our ability to get core revenue-related attrition back down to more normal levels. Ideally would like to have none, but of course, you've got M&A and stuff. And we've had some over history, but getting it back to those historical levels, we feel like we're doing all the right stuff and are on the path to do it, just takes time and work. Operator: Next, we'll go to the line of Andrew Schmidt from KeyBanc Capital Markets. Andrew Schmidt: I wanted to ask just on SME back book. If you talk about the performance there ex Clover. And then I know there's a swing factor in terms of the conversion of non-Clover merchants. If you did any testing there? It'd be interesting to just understand how that testing is performed and how that might influence just the go-forward emphasis on converting those non-Clover merchants to Clover? Paul Todd: Yes Andrew, thanks for the question. And yes, first of all, I wouldn't call out anything unique as it relates to the back book conversion in the first quarter. And certainly, for the year, we don't have any different expectations around what that back book conversion looks like. We've commented for some time now, we're being very mindful about how we approach any of the non-Clover to Clover transition to make sure that we're doing it in a very mindful customer-centric way. And we've had some good tests around that, around the receptivity of those moves when there's a good product fit. But there [ is a ] peaking incremental. We've talked about and the overall Clover GPV guide for the year, the low side of the guide assumes very minimal back-book conversion. And the higher side assumes a more meaningful back-book conversion. But right now, everything is on plan as it relates to how we're looking at that. And we're going to talk a lot about this at Investor Day, [indiscernible] is going to be going through just the overall Clover strategy, the overall merchant strategy, you'll see all the pieces kind of fit together related to this topic at Investor Day. But right now, nothing has changed. Mike, do you have anything to add? Michael Lyons: I'd just add that we've said in the past that our ability and willingness to pursue conversions of Fiserv customers from one platform onto Clover. We obviously very much like to do that given the robust set of VAS we have on the Clover side, but that depends on us doing certain actions, and we're proud this quarter to launch 2 new verticals, as I mentioned in the prepared comments, in health care and professional services. And each time we build unique capabilities to address a certain vertical that allows us a greater opportunity to go in and address the back-book with compelling offers. We don't want to just go in and try to move that to Clover without a strong rationale and mutual benefit for the customer. And as Paul said, our efforts to date have been very modest. [indiscernible] will talk you through that study learn, test and then when we have the right capabilities and the right understanding of it, if you could pick up the pace of it. Operator: Next, we'll go to Dan Dolev from Mizhuo. Dan Dolev: Guys, great progress here. Quick question on AI. I think your competitor made an announcement yesterday on AI with regards to bank processing. Can you maybe, Mike, elaborate on some of the initiatives and how you add value with AI to your banking plans? Michael Lyons: Yes. Thanks for the question. And as we keep progressing with it for our businesses, we get more and more excited about what AI is allowing us to do, and we've seen incredible results to date, recognizing it's still early in the development of it. But we're really intensely focused on four areas, which is taking those great systems of record we have into systems of greater value and systems of collaboration, generating new revenue sources and TAMs, which goes a little bit to your question, enhancing client service where I just mentioned and then increasing our own productivity and efficiency across the company. With respect specifically to leveraging AI on the revenue side and for the benefit of our clients, agentic is clearly the next important phase on both the Merchant side and the Banking side and we have a number of extremely exciting developments going on there, including new agentic commerce capabilities, which we've been talking about in Merchant and rolling out through important partnerships and Takis will go through that in detail next week, but we see a great opportunity, especially with the Clover customer base and enabling them to access an agentic world without building all the back-end systems needed. And on the Banking side at IR Day, Divya will introduce a new governed AI operating layer that will importantly allow FIs to access and fully capture the power and benefit of all agents across many functions, including front, middle and back office and using any LLM, so we're already live with pilot agents with 2 financial institutions around this today and then have a number of others lined up with different use cases, think about loan originations, compliance in call centers. So not to steal too much thunder for next week, but Divya will formally introduce the product and you'll be able to actually see some demos of it. So again, whether it's internally or externally, Merchant or Financial, we're seeing great opportunities both to drive value for ourselves and help our clients access the agentic capabilities available to them. Operator: Next, we'll go to Vasu Govil from KBW. Vasundhara Govil: I just had a couple of quick ones on Clover. I guess the first one just on the nonrecurring revenue that you called out, Paul, from last year. Was that mostly hardware revenue or something else? And then more broadly, Mike, on Clover Capital, you've highlighted in prior calls how the penetration is still relatively low in your installed base. So maybe if you could just talk a little bit about what has constrained adoption so far? And as you look to scale that business, how should we think about the long-term penetration potential and sort of the mix between on-balance sheet, off-balance sheet to support that growth? Paul Todd: Yes. So Vasu, maybe I'll take two parts of those, and then, Mike, if you want to add anything. As it relates to the nonrecurring revenue on the Clover side, yes, hardware is a big piece of that. There are some other things from a nonrecurring standpoint in that comparative. We highlighted that up, that's why the Clover revenue grows in the mid-teens, a reported growth of 6%. But if you take the the comparative dynamics of the nonrecurring, not repeating in the first quarter of this year, that puts you to the mid-teens to roughly 15% in hardware is the biggest or one of the biggest pieces there. On the Clover Capital side, we will talk more about this at Investor Day and just our strategy around Clover Capital, you're right, we are under-penetrated relative to the opportunity set and we're going to kind of lay out a much broader strategy around how we're going to be approaching the marketplace both from a balance sheet standpoint as well as just an overall growth standpoint at Investor Day. So I'd rather kind of give a more wholesome view of that on a go-forward basis. But we did see good Clover Capital growth in the quarter. So I'm very pleased with the underlying volume growth that we saw. And we don't see any change in that growth trajectory as we look at the forecast for the remaining part of the year, but we'll give you more color at Investor Day. Mike, anything else? Michael Lyons: No. I think you highlighted perfectly that the opportunity is significant in front of us we're a couple of quarters into building our -- enhancing what we had core capabilities and going after that, and it's domestic and international opportunity. Operator: Next, we'll go to Bryan Bergin from TD Cowen. Bryan Bergin: I wanted to ask on Financial Solutions. Can you just give us a sense on the nonrecurring revenue headwinds where relevant across the subsegments. And I'm thinking particularly in Issuing and Banking. And then the relative potential size of those headwinds in 2Q? Just so we could unpack the recurring performance within overall performance. Paul Todd: Yes. So specifically, in the issuing area, the biggest single driver I'd point out to is the output solution there, where we had some significantly sized output solutions business that is not recurring this year, that is in the first half. And specifically in the second quarter, you'll -- how we had that team's growth rate on the Issuing business in the first half -- or in the second quarter of last year. And so that's providing a meaningful comparative headwind on the Issuing side. There are other nonrecurring across the digital channel as well as in Banking. But as it relates to general sizing, we kind of gave you when we talked about the high mid-single digit and the second quarter being the trough, relative sizing of what we expect the impact to be. I would say we are pleased with the fundamental growth in the -- across the Financial Solutions segment of each of the underlying growth across Digital, our Issuing business, Mike commented on the Banking. So we're seeing consistent. So the volume picture that we see in the first quarter and the second quarter and really for the back half of the year is very stable. It's just these comparative dynamics that we have in the first half and more acutely in the second quarter of the first half is what we're needing to grow through, and then we're going into be to a much more visible normalized growth picture in the back half of the year. We do have some natural tailwinds in the back half of the year as it relates to growth. We have a comparative tailwind in the back half on Financial Solutions due to some of the strategic things we did in the Digital space in the third quarter of last year. So that's a natural tailwind. And then we have some contracted revenue from some of the client wins that we've talked about that also will be additive in the back half of the year. Mike, anything else to add? Michael Lyons: No, I think it's the same comments we made last quarter. It's hard to go through every single recurring revenue item. And broadly, we think, and we'll talk at Investor Day that we're a mid-single-digit growth company with FS being a low single-digit growth company probably operating flattish today on a clean basis and Merchant being a mid- to high single-digit company today operating in mid-single-digit basis. And our plan is to obviously make -- we're anxious to get it so it's more visible in the financial results. But to Paul's point, you look at the underlying volumes, they track very much against what we're talking about from a high level and maintaining and growing that volume step, the revenue will come behind it and start to match. Operator: Next, we'll go to Will Nance from Goldman Sachs. William Nance: Mike, if I could just follow up on the comment you made. I think you've been pretty clear in sort of telegraphing what you think the right growth rate is for business and the message you expect to deliver at the Investor Day coming up. I'm wondering, to the comment that maybe the underlying growth in FS is more or less flat right now, and obviously, the investments that you're making that are weighing on margins right now. As you look out into next year, you've talked about seeing the benefits of some of the improved execution coming through the numbers. Is it your expectation that the company can actually get to that level of performance sort of exiting the year and into 2027? Or are there lingering kind of performance and attrition issues in FS or investments you want to make on the margin front that could delay that? Michael Lyons: I'd say that go back to the One Fiserv comments, we are confident we're taking the right actions. We obviously have to execute against those and complete them. And we are -- the team has rallied around those. We're laser focused on them. We know the fundamentals that we have to get in the right place to be a mid-single-digit grower. And those -- the efforts we need to get there are fully funded and fully resourced. And I believe that we've brought in some great talent to complement the talent we have here. So I feel good about all the execution. We have to go do it. And we've said, as you exit '26, you start to look -- they're still comparables, obviously, with some of the actions we did across the business in Q3 and Q4, some going the other way, being beneficial comps to us as you get into Q4. And then '27, we sort of see is the first full year where you can see really clear visible growth. But again, we're trying to give you and we'll give you more at Investor Day the underlying volume drivers that we're seeing that support our belief that we've got a great business. We've got two great TAMs in Merchant and Banking both in a very strong position today, both in an investment mode, probably the best meetings we've had in a long time here where whether it's an enterprise merchant or an FI, you leave with a lot of stuff to work on. So the environmental support is there, the fundamentals underlying our volumes are there, and we got to put ourselves in a position where the execution resilience and service is much crisper than it's been, and that's the path we're on. But I'm very confident we're taking the right actions to get to where we need to get to, to put the business in a position to do it. We have to execute. Operator: Next, we'll go to the line of Jason Kupferberg from Wells Fargo. Melissa Chen: This is Melissa Chen on for Jason. I wanted to ask about the launch of Clover PracticePay, it sounds like the initial reception there has been good. But can you talk a little bit about how big the addressable market is in health care POS and who you're mainly competing with in that space? Michael Lyons: Yes. The -- we were thrilled. This has been in -- we've been previewing this for some time now. We're thrilled to get it launched this quarter, very optimistic about our growth in that area, its a massive TAM. And the -- it was -- this was the #1 area from our bank partners, which is a major distribution channel for us where they need help, and we heard it loudly from our ISO partners, also the specific TAM, as you know, is massive. We're going -- think about more of the local doctor practice and our penetration there is low, and our growth rate relative to the FSBI over time, if you measure us against index using the FSBI as a proxy for the industry, we've been below that. So this is the key component that we're missing, and is a key component that will allow us to go after some of the back book conversion. Got a great partner in developing with Rectangle, and we're pleased. We launched this month, so it's still early, but we're very pleased with the progress we're making, and we'll continue to remain very focused on execution here. Operator: Next, we'll go to Jamie Friedman from Susquehanna. James Friedman: I was wondering at a high level, if you could share your perspective on the competitive dynamic of Financial Solutions, specifically in Issuing and Banking because it does seem like landscape is changing somewhat, investors are potentially anxious about it. Michael Lyons: Yes. I think Mike (sic) [ James ], I made a lot of comments on core banking earlier specifically. Obviously, we've got great competitors across Banking, Digital and Issuing. I think -- and all of them are -- we enjoy continuing against every day in innovation and competition fuels growth for the industry. As I said, the backdrop of the industry is very, very supportive of solutions from all of us. And we're focused -- all the stuff we're doing in One Fiserv is to put us in a position to compete very, very effectively against any of the competitors. I think a lot of the questions we hear is around the modern core space, change in competitive dynamics. We are thrilled, as we said in the prepared comments with Finxact, which is are on the way, the largest -- with the most accounts being served on the modern core platform, cloud agnostic, asset-agnostic, true modern core -- truly modern digital ledger. So we're thrilled with our competitive position there. We continue to -- that continues to be the hallmark and both Divya and Takis will address that at Investor Day around our embedded -- the growing embedded finance space. So I think no major changes in the competitive landscape as we see it. We've got great competitors they're innovating, competing as always. And our focus is to make sure that our underlying fundamentals around service, product delivery, value-added solutions and speed to market are at the highest level to allow us to compete and maintain all the leadership positions we have across the FI businesses. Operator: Next, we'll go to the line of Timothy Chiodo from UBS. Vasundhara Govil: I was hoping we could spend a few minutes on non-Clover SMB. So it's roughly 20% of total company revenue, roughly 40% of the Merchant segment. I know there's a lot of moving parts there in terms of some of the the Argentina changes, some of the Clover migration. But I was hoping you could talk about the organic growth on an adjusted basis for that business this past quarter, but also over the past few and then what is implied in the guidance? And maybe a little bit bigger picture. I understand this might be more of an Investor Day topic. But to the extent that you could decompose some of the portions that are U.S. that are international, how large the ISB your partner business might be in there. et cetera. Any additional color. And again, I appreciate that last part might be more suited for the Investor Day. Paul Todd: Yes, Tim. So yes, that's exactly what I'd say on that last piece is we are going to go over this in good detail at Investor Day. So you'll get a lot of that clarity around some of the componentry there. We're going to provide additive disclosure of Clover just in general of the components of Clover as well as then non-Clover and you'll also understand maybe some of the strategic things around the non-Clover side, particularly in [ ISP ] and some of the international expansion there. As it relates to the organic growth, we do have comparative dynamics here. We have the Argentinian kind of noise. But as I said on our last call, we're expecting our non-Clover SMB business to have slight growth this year. We were down low single digits in the first quarter. So organically, we were down in the low-single-digits for the first quarter. And we would expect similar kind of performance if everything kind of holds in the second quarter. As it relates to the back half, kind of what changes there is we do have incremental ISV growth that's coming in there. And specifically, some of the international growth is we're seeing good ramping, particularly in Brazil. And so there's a few international dynamics that are playing through throughout the year that helped that. But generally speaking, we've talked about that non-SMB, non-Clover SMB, not being a growth business for us. But relative to the overall picture, we're managing it in a more systemic way than we have in the past. We've been very mindful about how we approach that of moving over that business to Clover over time in the right sort of way. That's the end goal is to move as much of that business to Clover where the product and the feature functionality of Clover fits with those merchants and Takis and team will cover that in more detail. Mike, anything to add? Michael Lyons: No, I think all great topics for next week and all in our materials to be addressed. Operator: Next, we'll go to James Faucette from Morgan Stanley. James Faucette: I appreciate all the commentary and apologies if I missed something because I've been bouncing between calls. But I would like to ask quickly, when you talk about like moving volumes and taking advantage of Clover's strength. How are you thinking about kind of the moving targets and competitive environment, especially as we see more companies looking to add incremental functionality for omnichannel, et cetera, even for SMB? And how do we think about that and its implications versus product road map? . Michael Lyons: Yes. Again, we'll do a deep dive next week on Clover, but high level. We think we've got the best small business operating system in the business. We're continuing to invest heavily across horizontal features vertical features we talked about PracticePay and Professional Services coming in this quarter, seeing great growth and opportunities on the international side. Takis and his team are digging deep on the experience piece of Clover, where as well as we've done, we have room for improvement there. And then we think we've got the best distribution channel by a significant margin combining not only a direct sales force, but 1,000-plus banking partners, thousand devices as Paul mentioned and was in the previous question, an unbelievable ISV business is growing at a very attractive rate and then other great partners, whether it's an ADP or some of the big food distribution businesses. So the opportunities there, the focus, the investment around the product is strong. And when you look across retail and restaurant, which we are characterized, even that, we have small market share, and then you go into some of these other verticals and Clover market share is still single digits. So we see a ton of room for growth. There's always a great competitive landscape. As I said to the earlier question on the Banking side. That's part of a natural part of any business with great growth opportunities. But we think we've got a great platform here and it's -- everything is about investing, focusing and driving Clover growth here and abroad. Operator: Next, we'll go to Ramsey El-Assal from Cantor Fitzgerald. Unknown Analyst: You called out some senior hires in Merchant Solutions. Could you comment more broadly... Paul Todd: We're having a hard time hearing you. Yes. We picked up that there were maybe some senior hires. But could you maybe repeat the question, maybe we'll be able to hear it clear. Rayna Kumar: Can you hear me now? Paul Todd: Yes, much better. Unknown Analyst: Sorry about that. This is Ryan on for Ramsey. You called out some senior hires on Merchant Solutions. So I was hoping you could comment more broadly on the org chart in terms of whether you have all the pieces in place to execute on the plan? And also if there's more opportunities to streamline head count by way of AI? Michael Lyons: Yes. First part of the question, were mentioned in the prepared comments that we've been thrilled actually blown away by the interest of seeing talented senior people from outside of Fiserv wanting to come join Fiserv, and we've added a number of incredibly talented people on both the Merchant side and the FS side, who are additive to an already strong team here. So we feel very, very good about where we are in terms of critical hires remaining to have the go-forward team. It's down to a very few. So yes, we've got the right team in place, an outstanding team. I look forward to -- we'll have a series of demos at the IR day next week. So in addition to give you all and Takis, you'll have a chance to meet a lot of these leaders and see some of the products they're working on. But we love the team, and we love the combination of some external talent we brought in along with the great institutional knowledge that's been built here at Fiserv. On AI, allowing for efficiencies, a couple of thoughts there. First of all, we're going pillar 4 of the One Fiserv plan, Project Elevate. We are deep into the process of Project Elevate, we're very pleased with the portions we've gone through so far, which is really the origination of ideas and sourcing of ideas. As part of that, there are no sacred cows, everything's on the table. All people from around the company are involved. There's a couple of hundred people very focused, almost fully dedicated to this. We put all of them around Paul, on the CFO floor, is very formal and dedicated effort, and we think there's great opportunities that are going to come out of that. I think, if you look at our head count over the last 4 or 5 years, we're down double digits in headcounts. We've already largely by leveraging early stages of automation. We've already taken significant gains there. So maybe we're a little bit different from where other peers have come from over the last several years. But from here, we continue to see whether in Project Elevate or outside of Project Elevate, significant opportunity to become more productive and more efficient through AI and it's even incremental generations of AI. For example, we've streamlined our call center services over the last 4 or 5 years, using sort of "old AI" and now modern solutions show a significant opportunity to make that experience even better for the customers and more efficient for us. So yes, we see great opportunities, especially in and around the areas we expect in operations and call center services, app development and the like. So as I said earlier, very excited about the potential for AI across all aspects of the business, and we're leaning in hard to it. Operator: Our final question comes from Dave Koning from Baird. David Koning: In the Acceptance segment, it seems like you're implying high single-digit growth in the back half. And it seems like the first half is probably close to mid-single digits. And I'm just wondering, source of acceleration. You answered Tim's question, there's going to be some SMB non-Clover but will Clover accelerate from the normalized 15%? And will Enterprise accelerate to the high single digits? And maybe how will those things happen? Paul Todd: Yes, Dave. So we do obviously expect that Clover on a certainly reported basis will accelerate from the 6% because we're expecting low double-digit revenue growth for Clover for the year. So if you just kind of do the math, you're going to see acceleration there. I would point to two kind of favorable dynamics in the back half of the year for the Clover acceleration. One is, you'll recall in the fourth quarter, we had some pricing roll backs on over specifically that provide a nice tailwind in the fourth quarter from a comparative standpoint that fuels just some of the additional growth on a reported basis from the fundamental growth that you would otherwise expect just relative to static volume growth. And then the other nice comparative tailwind that we get on the Clover side, is in the fourth quarter, we did have some weakness, particularly in November on the volume side. So we actually have a volume positive compare as well, in addition to all the other things of Clover Capital and all the other growth that you would otherwise see as we progress along the year. So from a Clover standpoint, if you look right now, fundamentally, we're in a mid-teens growth rate from the Clover side and would expect to see a fundamental growth rate in line with being able to deliver the low double-digit Clover revenue growth. On the non-Clover side, you heard me comment earlier, we are right now at a decline of low single digit overall, and there's competitive dynamics in there as well. But given some of the growth that I talked about on the ISV side, given some of the international expansion that will come through there. As I said, we expect that to improve and largely expect that to be a very small contributor to growth, but net positive for the overall year. So that's the way the shaping, nothing's changed in our volume assumptions. We are very pleased with the volume growth we saw in first quarter. The shaping of the year, we still expect to be intact. And so that gives you kind of from a Clover standpoint, the more moving parts. But overall, we're still expecting the same kind of growth rates for Clover and non-Clover that we did at the start of the year. Michael Lyons: Thanks, everyone, for joining today. We look forward to seeing you next week at the IR Day. Operator: Thank you all for participating in the Fiserv First Quarter 2026 Earnings Conference Call. That concludes today's call. Please disconnect at this time, and have a great rest of your day.
Operator: Hello, everyone. Operator: Thank you for joining us and welcome to the Equitable Holdings, Inc. Q1 2026 Earnings and Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Erik James Bass, Chief Strategy Officer and Head of Investor Relations. Erik, please go ahead. Erik James Bass: Thank you. Good morning, and welcome to Equitable Holdings’ first quarter 2026 earnings call. Materials for today's call can be found on our website at ir.equitableholdings.com. Before we begin, I would like to note that some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. Our results may differ materially from those expressed in or indicated by such forward-looking statements. Please refer to the Safe Harbor language on Slide 2 of our presentation for additional information. Joining me on today's call are Mark Pearson, President and Chief Executive Officer of Equitable Holdings, Inc.; Robin Matthew Raju, our Chief Financial Officer; Nicholas Burritt Lane, President of Equitable Financial; Onur Erzan, President of AllianceBernstein; and Tom Simioni, Chief Financial Officer of AllianceBernstein. During this call, we will be discussing certain financial measures that are not based on generally accepted accounting principles, also known as non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and related definitions may be found on the Investor Relations portion of our website and in our earnings release, slide presentation, and financial supplement. We will also refer to the pending transaction with CoreBridge. Any statements about the transaction made during this call are not an offer of securities. A registration statement containing a prospectus will be filed with the SEC in connection with the transaction. I will now turn the call over to Mark. Mark Pearson: Good morning, and thank you for joining today's call. The first quarter marked an extraordinary moment in Equitable Holdings, Inc.'s 166-year history with the announcement of our planned merger with CoreBridge, which will create a world-class platform to help our customers plan, save for, and achieve secure financial futures. This morning, I will spend some time discussing why we believe that by leveraging the complementary strengths of Equitable Holdings, Inc. and CoreBridge, the combined company will deliver tremendous value for both our customers and shareholders. On Slide 4, I will start by providing a few highlights from our first quarter results. We reported non-GAAP operating earnings of $1.62 per share, or $1.68 per share after adjusting for notable items. This increased 25% versus 2025, driven by healthy organic growth momentum, improved mortality experience, and a lower share count. We continue to expect earnings per share growth to exceed the high end of our 12% to 15% target range in 2026. Assets under management ended the quarter at $1.1 trillion, up 9% year over year. While equity markets declined modestly in the first quarter, they have since recovered, and higher average AUM versus 2025 levels should continue to provide a near-term tailwind for earnings. Our balance sheet remains a core strength with a combined NAIC RBC ratio of approximately 475% and $1.2 billion of holding company liquidity. Our credit portfolio continues to perform well, and as Robin will walk through, we are positioned to handle even a severe stress scenario. We remain committed to being a consistent returner of capital and executing the share buybacks assumed in our 2026 financial plan. Turning to organic growth, we see good momentum in retirement sales and flows even as the level of competition has increased. Total sales increased 10% year over year, driven by strength in RILAs, and we had $1.3 billion of net inflows. Wealth Management delivered another strong growth quarter with $2 billion of advisory net inflows. Over the last 12 months, the business produced a 13% organic growth rate. During the quarter, we also closed on the acquisition of Stifel Independent Advisors, which is a good example of how we can use bolt-on M&A to help scale our wealth management business. Asset Management earnings grew 11% year over year, driven by higher AUM and increased ownership. AB had net outflows of $7.1 billion in the first quarter, driven primarily by active equities and taxable fixed income. Private Wealth and private markets remain bright spots, as both had positive flows in the period. Total private markets AUM increased 13% year over year to $85 billion, and AB remains on track to meet or exceed its target of $90 billion to $100 billion in AUM by 2027. While near-term flows may remain volatile, AB has a record institutional pipeline of nearly $28 billion, which includes several large insurance mandates that will fund over the next few quarters. AB will also be a meaningful beneficiary of the CoreBridge merger as we expect it to receive at least $100 billion of incremental assets over the next few years. As I will walk through over the next few slides, the motivating factor behind the CoreBridge merger is our belief that it will accelerate our growth strategy and position us to be a long-term winner across all the markets we compete in. The companies have complementary strengths with limited overlap across products. We have already begun the integration planning process and have high confidence in achieving at least $500 million of expense synergies. As a result, the merger will be immediately accretive to earnings per share, and we expect to deliver 10% plus accretion on a run-rate basis by 2028 with potential upside from revenue synergies. Moving to Slide 5, before talking about the merger, I want to highlight five attributes we believe are critical for long-term success and which we use when evaluating any strategic option, including this merger. Underlying everything, of course, is providing an exceptional customer experience. Companies that are easy to do business with and offer the products and advice needed to transform complex financial risks into simple, reliable outcomes will attract clients and distributors. Developing deep brand loyalty will help create predictable and growing value for shareholders. Second, in intermediated markets like financial services, having strong distribution is critical as clients want local access to expert, personalized advice. Privileged shelf space, particularly in channels with high barriers to entry, provides a meaningful competitive advantage in acquiring new customers while also managing the cost of funds. Third is the imperative of competitive scale. Size matters. Being able to invest in technology and automation will improve efficiency and result in lower unit costs and a lower expense ratio. This provides capacity to reinvest in growth while simultaneously delivering higher profit margins. Fourth, we know that shareholders value consistent growth in earnings and cash flow across different market cycles, and having diversified sources of earnings and capital enhances the ability to deliver this. Disciplined risk management is also critical to give clients and investors confidence in the resilience of the balance sheet, especially during periods of macro uncertainty and market stress. Finally, we see significant value in owning insurance, asset management, and wealth management businesses to participate in the full value chain and benefit from the significant demographic tailwinds driving growth across each of these markets. It also means that shareholders capture the high multiple fee earnings generated by distributing and managing the assets associated with insurance and retirement solutions that are manufactured. By attracting the very best talent, and aligning to these five convictions, we ensure that when our clients win, our shareholders win. Turning to Slide 6, I will highlight why the merger with CoreBridge aligns to these convictions and will drive growth and shareholder value. The merger brings together three outstanding franchises to create a diversified financial services company with over 12 million customers, $1.5 trillion in AUMA, and leading positions across retirement, life insurance, asset management, and wealth management. Equitable Holdings, Inc. and CoreBridge complement each other well with different strengths and limited overlap. We intend to capitalize on our scale advantages to reduce unit costs and achieve a lower cost of capital. We expect to have a top-quartile expense ratio and will be able to combine our resources when making growth investments. This will make us more profitable, drive more cash generation, and increase our return on capital. We will have formidable distribution capabilities and leading positions across the retail, institutional, and worksite channels. The depth and breadth of our distribution should enable us to expand our offerings while achieving a lower average cost of funds, resulting in more profitable new business. We will also have flexibility to allocate capital where we see the best risk-adjusted returns and customer demand. In addition, our integrated business model allows us to capture the full value chain by acting as a product manufacturer, distributor, and asset manager. This differentiates us from our competitors, most of whom only participate in one or two of these verticals. While the merger will shift our mix more towards retirement, it also helps scale AB and Wealth Management, enhancing the value of these high-multiple businesses. We remain focused on maximizing the flywheel benefits inherent in our model. Finally, the new Equitable Holdings, Inc. will have a robust balance sheet and is expected to generate over $4 billion of cash flow annually. We are aligned in having strong financial principles that govern how we operate, starting with economic management of the balance sheet and a focus on cash generation. Ultimately, we want to produce consistent results and cash flow across market cycles so that we can provide attractive returns to shareholders while also investing for growth. I will conclude on Slide 7 by providing some clear examples of how the merger will help accelerate growth across all our businesses. Starting with Retirement and Institutional, the combined firm will have approximately $540 billion of AUM and unmatched breadth across products and distribution. We knew that Equitable Holdings, Inc. would need to become more diversified over time in order to fully participate in the growing U.S. retirement market, and combining with CoreBridge makes us a top-three provider of fixed and indexed annuities and expands our institutional capabilities, notably in pension risk transfer. It also adds a strong life business that provides earnings and capital diversification and should benefit from selling through Equitable Advisors. In addition, the merger doubles our third-party distribution network to approximately 900 firms, expanding our ability to reach new customers. The combined firm will originate $70 billion to $80 billion of liabilities annually, highlighting the size and scale of our platform. We will have a more balanced business mix that provides liquidity benefits and positions us well to generate consistent growth across market cycles while deploying capital where we can earn the most attractive returns. Moving to Asset Management, AB will also benefit from the merger in multiple ways. We expect AB to add at least $100 billion of CoreBridge general and separate account assets over the next couple of years, resulting in total AUM of nearly $1 trillion. AB will also benefit from the combined firm's increased liability generation, which should drive higher ongoing net inflows. We also see an opportunity to commercialize some of CoreBridge's internal asset origination capabilities, particularly for real estate and commercial mortgage loans, by leveraging AB's global distribution. Over time, we expect to find additional sources of incremental revenues and net flows, including the potential to develop new commercial partnerships. Lastly, the addition of CoreBridge Advisors accelerates the path to scaling our Wealth Management business and adds approximately $20 billion of AUA. The merger will expand our proprietary product offering to include fixed and indexed annuities and indexed universal life, which will be a win for advisors, particularly our emerging sales force. We will have a more attractive platform and more financial resources, which should enhance our ability to recruit and develop new and experienced financial advisors. Overall, the key message I want to leave you with is that having increased scale will provide competitive advantages that translate into stronger and more consistent growth and enhance our profitability. I will now turn the call over to Robin to highlight the financial benefits from the merger and discuss our first quarter results in more detail. Robin Matthew Raju: Thanks, Mark. I want to echo my excitement about the merger and the ways in which we will accelerate our growth strategy and deliver attractive financial outcomes for our shareholders. On Slide 8, we highlight some of the key financial benefits. First, the combined company will have a robust balance sheet with significant capital. As of year-end 2025, pro forma GAAP book value exceeded $30 billion, and the companies had over $25 billion of statutory capital. The pro forma leverage ratio is approximately 26%, which provides financial flexibility. Second, we will have a more diversified business mix with equal contribution from fee and spread-based earnings. This should help us generate more consistent earnings in different market environments. Third, we project at least 10% accretion to EPS and cash generation on a run-rate basis by year-end 2028, driven by expense, capital, and tax synergies. We also expect to have a 15% plus return on equity. These projections do not include any benefit from the anticipated revenue synergies. Finally, we forecast over $5 billion of annual earnings power and over $4 billion of cash flows to the holding company, which will make us the most profitable company in the sector based on U.S. earnings. Turning to Slide 9, I will provide some more detail on first quarter results. On a consolidated basis, non-GAAP operating earnings were $472 million, or $1.62 per share, and we reported net income of $621 million, or $2.14 per share. Notable items in the quarter included $32 million of below-plan alternatives and a $13 million benefit from the purchase of tax credits. Adjusting for these items, non-GAAP operating earnings per share was $1.68, up 25% year over year. This is consistent with our earnings per share growth guidance of above 12% to 15% for 2026. The 25% increase in earnings per share was driven by a 9% year-over-year increase in total AUM/AUA, lower mortality claims, the benefit of our increased ownership stake in AllianceBernstein, and a lower share count, which reflects the incremental buyback executed following the RGA transaction. In 2026, our alternatives portfolio, which is 2% of our general account, produced an annualized return of 3.5%, with results pressured by lower CLO equity returns. Given weaker market conditions in the first quarter, we currently project our portfolio to have a return of 2% to 3% in the second quarter. While it is premature to predict what will happen in 2026, based on the lower returns for the first half of the year, we now expect a full-year return to be below our prior 8% to 9% guidance. Adjusted book value per share ex-AOCI with AB at market value was $34.70. We view this as a more meaningful number than reported book value per share, which significantly understates the fair value of our AB stake. On this basis, our adjusted debt-to-capital ratio was 24.5%, down 40 basis points sequentially. On Slide 10, I will provide some more details on segment-level earnings drivers. In Retirement, first quarter earnings, excluding notable items, were $394 million. Net interest margin, or NIM, increased 3% sequentially, as lower alternative investment income was offset by growth in general account assets. Excluding alternatives, our NIM spread improved by 5 basis points sequentially, helped by a 4 basis point benefit from a modest recovery in MVAs. This reverses the downward trend in spreads we experienced over the past year and supports our view that spreads are beginning to stabilize. On a sequential basis, the growth in NIM was partially offset by lower fee-based revenues as market declines pressured average separate account AUM. Turning to Asset Management, AB reported earnings of $140 million, up 11% year over year, as a result of higher base fees and our increased ownership percentage. While base fees benefited from a 7% year-over-year increase in AUM, this was partially offset by a lower fee rate due to a shift in asset mix. As expected, performance fees were relatively modest in this quarter, but we raised our full-year forecast from $95 million to $115 million. Moving to Wealth Management, we experienced strong year-over-year growth in advisory fees and transaction revenues, driving a 22% increase in earnings. As a reminder, fourth quarter 2025 results benefited from favorable one-time items, and this quarter we had seasonally higher expenses and a couple of million of costs related to the Stifel acquisition. We still expect double-digit earnings growth in 2026. Finally, Corporate and Other reported a loss of $98 million in the quarter, after adjusting for notable items, which is consistent with our 2026 guidance. Mortality was slightly favorable in the quarter and improved versus previous periods. On Slide 11, I will highlight Equitable Holdings, Inc.'s strong balance sheet and cash flows, which enable us to be a consistent returner of capital to shareholders. We know there has been a lot of focus on credit risk, so we have updated our investment portfolio stress test to reflect our holdings as of year-end 2025. This assumes a hypothetical severe credit stress scenario at least as bad as the global financial crisis and a decline of 40% in equity markets. We estimate slightly less than a 50% decline in RBC ratio, which from a starting point of 475% still leaves us comfortably above our 400% target. As a result, we are well positioned to handle a potential downturn in credit markets. That being said, today, we do not see any signs of weakness in our portfolio. In the appendix, we provided updated disclosures on our private credit portfolio, which represents 18% of our general account and is 95% investment grade assets that match well against our liabilities. Let me now turn to cash. We ended the first quarter with $1.2 billion of cash at the holding company, above our $500 million target, and we remain on track to achieve our target of 2026 cash generation of $1.8 billion. During the first quarter, we returned $223 million to shareholders, including $147 million of share repurchases. We were blacked out from buying back shares for the second half of the quarter due to the merger with CoreBridge, which depressed our payout ratio for the period. We remain committed to delivering our 60% to 70% payout ratio target for 2026 and recognize that share buybacks look extremely compelling at the current valuation. We plan to be in the market purchasing shares during the open windows between now and the closing of the transaction. On Slide 12, we show a timeline with key dates related to the merger and a specific time period of when we will be able to repurchase stock. Both Equitable Holdings, Inc. and CoreBridge trade at a significant discount relative to where we believe they should be valued, making buybacks meaningfully accretive to shareholders. As a result, you can expect that we will be active in the market during the windows that are available to us. We expect to file the initial merger proxy statement today after market close, and we can repurchase shares from that point until we mail the final proxy. There is not a set date for that mailing, but we do not expect it to occur until at least early June. We would then be able to repurchase shares again after the shareholder vote. If any repurchases from our 2026 capital plan are not completed prior to the merger close, we plan to execute them as part of an ASR shortly after the closing. As a reminder, the exchange ratio for the merger is fixed and will not be affected by any share repurchases executed by either company. I will now turn the call back over to Mark for some closing comments. Mark? Mark Pearson: Thanks, Robin. Equitable Holdings, Inc. delivered solid first quarter results, and we remain confident in achieving our EPS growth and cash generation guidance for 2026, even with the volatile market backdrop. Looking forward, I am incredibly excited about the powerhouse franchise we are creating through the merger with CoreBridge. As we have talked about this morning, the combined company will have the scale, distribution strength, and product breadth to deliver differentiated growth and returns. I am confident that this merger positions us to win with customers and deliver superior value to shareholders over time. We will now open the call for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Wesley Carmichael with Wells Fargo. Your line is open. Please go ahead. Wesley Carmichael: Hey, good morning. Thank you. My first question was on the Retirement segment, and you had a pretty good earnings result in the quarter. Previously, I think you talked about spread compression abating in 2026, at least on a percentage basis. Do you still think that is the case given the mix of the book here, and could you talk a little bit about what you are seeing on the cost-of-funds side from a competitive dynamic? Robin Matthew Raju: Sure, Wes. Thank you for your question. We were happy to see spreads stabilize here in the first quarter. If you look quarter over quarter, spread income/NIM was up $11 million quarter over quarter. If you exclude alts, it was up even more, and excluding some of the MVA benefit, it was up about 1 basis point net. So if you look at it, it was about 1.69%, and I think that is the level you can probably expect at this point, and you can expect spread income to grow as the general account, excluding embedded derivatives, grows. The two primary factors that you see are, yes, with the abatement of some of the higher-margin in-force that has run off, that is a smaller part of the business mix, but also the discipline in the new business underwriting that we are seeing. Despite what you hear on the competition, RILA sales were up 14% year over year, and the pricing discipline has been maintained and the margins have been good. So the combination of that with the runoff of the in-force should lead to stabilization of spreads going forward. Wesley Carmichael: Got it. Thanks, Robin. And then maybe just a more broad one on the Equitable Holdings, Inc.–CoreBridge merger. I know you reiterated EPS guidance with materials. Just wondering if you have done a bit more work, in earnest, on progress toward the merger. Have any of your expectations changed in terms of the financial impact, and maybe where you are seeing more or less opportunity relative to a little bit more than a month ago when the deal was announced? Mark Pearson: Thanks, Wes. It is Mark Pearson. The things we would say are the integration planning process is well underway now with the top 50 or so leaders from each of the organizations. We really are confirming through that the complementarity of the two businesses. We are stronger together in terms of our product breadth, in terms of our distribution, and in terms of scale. So that is confirming everything we have told you in terms of the synergy opportunities and the look forward. We are also pretty excited on the revenue synergy side, but we are going to save telling you that until 2027 when we have done the work, and we can start to quantify it for you. We are confirming the expense synergies now and also starting to work on the revenue side as well. Wesley Carmichael: Got it. Thank you. Operator: Your next question comes from the line of Suneet Kamath with Jefferies. Your line is open. Please go ahead. Suneet Kamath: Great. Thanks. I just wanted to start on the buyback. With the window opening later tonight, how should we think about the pace of buybacks over the next month? And is there any sort of restriction or coordination required with CoreBridge, or are you operating on your own, so to speak? Robin Matthew Raju: Sure. Thanks, Suneet. As we laid out in the presentation, we are excited to say we are going to be back in the market with share buybacks. We expect to file the proxy this evening, and that enables us to open up the window again until the final mailing that will happen in June. Within that time period, expect us to be active in the market. The returns on a share buyback are very attractive at this point in time, so that is one of the reasons why we wanted to be back in. Both we and CoreBridge will coordinate together to make sure that share buybacks maintain accretion for shareholders throughout the period. Then, as I laid out in the presentation, after the shareholder vote that will open up the next window for share buybacks. Anything that is not completed by the closing will be completed as an ASR if needed. Shareholders should expect the same level of capital return from both companies that they would have otherwise received. We are happy to say we are going to be back in the market because buybacks are accretive given that both stocks look cheap right now. Suneet Kamath: Okay. That is helpful. And then on the $70 billion to $80 billion of originated liabilities that you are talking about, is there a practical limit in terms of how much assets AB can originate in order to back those liabilities? Mark Pearson: No. We are fortunate. Robin Matthew Raju: With $70 billion to $80 billion of liabilities, we are going to have four asset managers that we will leverage. Obviously, AllianceBernstein, our in-house; also we get to benefit from some of the capabilities that CoreBridge brings to the merger—so Blackstone, BlackRock, and their internal capabilities as well. $70 billion to $80 billion provides lots of assets to put to work, and allows us to be disciplined on the general account and get the best risk-adjusted returns on those assets across the board. We would expect everybody to benefit. Obviously, AB will from the broader revenue synergies as well. That does not take into account the future growth. That is the $100 billion in separate account and general account assets that will move over to AB as a starting point, and then there will be upside from there with the future growth of the $70 billion to $80 billion benefiting AB and our other asset managers as well. Suneet Kamath: Okay. Thanks. Operator: Your next question comes from the line of Ryan Krueger with KBW. Your line is open. Please go ahead. Ryan Krueger: Hey. Thanks. Good morning. In the merger call, you talked about 2% to 4% synergies from capital and taxes that were part of the 10% plus overall synergies. I wanted to ask if that is a true best estimate, or did you embed some conservatism there, and could you possibly, as you do more work, see some upside to capital benefits of the merger? Robin Matthew Raju: Thanks, Ryan. It is important to repeat a few benefits we spoke about. It is going to be day-one accretive and 10% plus on a run-rate basis going forward. In addition, the diversification of both businesses together means we will have more stability in earnings and cash flows, which I think will lead to a lower cost of capital and a better profile for us going forward. To your question on the 10% plus synergies, we referenced 6% to 8% coming from expense synergies. There, we said we expect to at least get $500 million; there should be upside to that. The remainder will be from tax and capital, which I would say is our best estimate at this point in time. We will always do more work going forward. You can see both companies, Equitable Holdings, Inc. and CoreBridge, very active in terms of capital management since the IPO, so you can expect that to continue going forward. Most importantly, as Mark mentioned earlier, these numbers do not include the benefit of revenue synergies. I think that is what will differentiate this transaction on a go-forward basis: more assets and revenues going to AllianceBernstein, leveraging CoreBridge’s indexed IUL and fixed annuity products with Equitable Advisors, and leveraging our B/D with their third-party distribution. If we can be successful in capturing more revenue with the two companies together, we will be a stronger franchise that deserves a higher multiple going forward. Ryan Krueger: Thank you. And then just one question on the PGAAP impacts. I understand that it is contingent on where interest rates are, and there is probably a lot of work to be done on this. But maybe directionally, can you give any sense of whether, if the merger closed now, this would be more likely to be a positive or negative potential impact to your GAAP earnings? Robin Matthew Raju: I think it is too early to say at this point in time. As we put together the PGAAP, we will finalize that prior to close, and we will certainly give you that guidance. I think there will be moving parts in the PGAAP on the balance sheet. Obviously, the book value of the combined companies will be bigger, and that will be reflective of wherever the market cap of Equitable Holdings, Inc. is at that standpoint. On the income side, there will be moving parts between VOBA, DAC, and fair value of some of the assets. We will do that work, and as we do that work, we will disclose it as we get closer to the close of the transaction. Operator: Your next question comes from the line of Thomas George Gallagher with Evercore ISI. Your line is open. Please go ahead. Thomas George Gallagher: Good morning. One question about the quarter and then one about the merger. On the quarter, the MVA gains that you had in Retirement—Robin, can you comment on absolute dollars of earnings that that represented this quarter? And would you expect there to be any sustainability there? Was there something unusual about why they were higher? Robin Matthew Raju: Sure. Thanks. The key point for me is that spreads stabilized ex-alts and ex-the MVA, so about a 1 basis point improvement. The MVA was approximately $10 million in the quarter. We do not expect benefits on a go-forward basis; that is not something we include in our forecast or budgeting. As you have seen, that has been positive or negative through different periods over time. But excluding the MVA and excluding the impact of alts, spreads improved by 1 basis point quarter over quarter. Thomas George Gallagher: Gotcha. So $10 million was the earnings contribution? Robin Matthew Raju: Yes, approximately. Thomas George Gallagher: Gotcha. And my question on the merger—I listened closely to what you have been saying about the revenue synergies. I have not heard much of an emphasis on your institutional spread business, which I know is small for you; it is bigger for CoreBridge. But is that an opportunity? Because when I look at you and CoreBridge on a standalone basis, you are probably half the size, or maybe 30% or 40% of the size of that business compared to the Met’s and the Pru’s of the world. So I am just wondering, is that a business that we should expect you to really scale up? Robin Matthew Raju: Sure. For CoreBridge and Equitable Holdings, Inc., the FABN market has been attractive. It has generated good returns for us. It is obviously spread dependent, so depending on where our spreads trade at different time periods, that allows us to go in and out. With the balance sheet being much bigger, it gives us more capacity to lean in to that market, given the spreads are there and pricing is there. So it is certainly an opportunity for us with the larger balance sheet going forward. Thomas George Gallagher: Okay. Thanks. Operator: Your next question comes from the line of Joel Hurwitz with Dowling & Partners. Your line is open. Please go ahead. Joel Hurwitz: Hey. Good morning. Robin, first, can you just talk about mortality perspective in the quarter? It looked pretty good with reported benefit ratio at 83.1%. Robin Matthew Raju: Yes. It was nice to have a good quarter on mortality. Our benefit ratio is 83%; that is the lowest it has been in any quarter over the last year, which is good. Overall, we saw lower claims and fewer high face-amount claims specifically, which benefited us this quarter. Going forward, we think the guidance that we have given to the market appropriately captures what we would expect to see in mortality, and we look forward to speaking more about good mortality and focusing on the growth in the other businesses as well going forward. Joel Hurwitz: Got it. And then in Retirement, it looks like you are starting to utilize flow reinsurance for some of your spread business. Can you talk about what products that is on, how much you plan to do, and the economics for Equitable Holdings, Inc.? Robin Matthew Raju: Sure. Yes. In the fourth quarter, we started to do some flow reinsurance on our RILA product. Flow reinsurance is a tool that we think is helpful for us when making a product accretive going forward, so it is an important tool in the toolkit. We could look at flow reinsurance in other products as well, and even post-merger, CoreBridge does some flow reinsurance as well. As long as it is accretive for us versus not doing it, it is something that we will look at selectively in different products. It is important to have a good counterparty, which we have, and we try to make sure AB continues to manage a portion of the assets for us going forward. We also have Bermuda as a tool in our toolkit as well. We will look at that for flow reinsurance for selective products for our internal products, and potentially for third-party opportunities going forward as well. Flow reinsurance is something that we will always look at across our businesses. Joel Hurwitz: Got it. Thank you. Operator: Your next question comes from the line of Alex Scott with Barclays. Your line is open. Please go ahead. Alex Scott: Hi. Good morning. Thanks. One I have is on cash flow. I wanted to see if you could talk a bit about the cash generation of the business and how that will trend through the integration process, with some higher expenses related to the integration itself and probably some sort of hockey stick dynamic. Could you help us think through the way that will progress over the next few years? Robin Matthew Raju: It is probably a little bit too early to give you too many specifics. Both companies obviously have strong cash flow generation. On the Equitable Holdings, Inc. side, we continue to feel comfortable with our $1.8 billion guidance that we provided this year and the $2 billion for 2027. Expect that to be in addition to the investments that we have in growth to help grow our new business franchises across the board. As part of the integration, we will target $500 million plus in expense synergies and expect that will be a 1.5 times investment with a very good payback associated with it. That investment is split between cash and non-cash, and on the timing we will provide further updates as we get closer to the close of the transaction and the integration planning is more complete. Alex Scott: Got it. That is helpful. And then a related topic is just the excess capital level that you have right now, particularly at the opco level—pretty significant. CoreBridge has a pretty significant MedEx of capital as well. How will this transaction change the way you approach the amount of excess capital you hold over time? It has been a while now that you have sat on a pretty high level, and you mentioned the stress test does not even take you down that close to your buffer at this point, and that was a pretty extreme stress test. Are you thinking about that differently with the transaction coming on? Robin Matthew Raju: We will have an Investor Day in 2027 where we will give further guidance on all those metrics. Stepping back, as we mentioned, the two companies are stronger together. The balance sheets are more resilient; they are more diversified across each other. There will be a lower cost of equity across the company, and we will be well positioned to maintain through different cycles in the market, whether that be credit or equity, because of the diversification of the businesses. What does that do? It allows us to leverage excess capital for best use for shareholders. Obviously, buybacks are a very attractive use given the valuations of both companies, but it also allows us to invest in growth. We see very good returns across the RILA market and the other markets across both companies. The more we can invest in growth and grow earnings going forward, which will translate into growth in cash, that will benefit shareholders over the long term. We will evaluate investments in growth and share buybacks for uses of excess capital as the two companies come together. Alex Scott: Got it. Thank you. Operator: Your next question comes from the line of Yaron Kinar with Mizuho. Your line is open. Please go ahead. Yaron Kinar: Just a couple on capital deployment. If the windows end up being a bit narrower than expected or liked, and ultimately you have to complete the buyback through an ASR at the end of the year, is that 15% plus EPS growth target still achievable? Robin Matthew Raju: Yes. I think we are pretty comfortable. If you look at where we stand this quarter, we are at plus 25% on an EPS basis overall. That was with a lower share buyback in the first quarter. If you look at the windows that we have available to us, we believe we can deploy a lot of capital in the markets to buy back stock at these levels, keeping within our 60% to 70% payout ratio by year-end. The windows that we have are pretty broad and give us the availability and timing needed to deploy our capital plan. Anything that is left, we will complete in an ASR, so we feel comfortable with the guidance. Remember, the guidance for this year is that we would be above our 12% to 15%, and we still expect to be above our 12% to 15% as we progress during the year. Yaron Kinar: Great. And then the second one also on capital deployment. With the Stifel deal done, I think you had expressed interest in continuing to grow the Wealth business both organically and inorganically. Assuming, though, that given where the share price is today, buybacks would be a far more attractive capital deployment avenue than doing a deal in Wealth? Robin Matthew Raju: It is deal specific. Ultimately, we are in a fortunate position where the company can execute on its capital return program for shareholders and invest for growth. That is a position of strength that we are in right now. We want the Stifel transaction to complete its closure to advisors who will transition to our platform later this year. We can also look for opportunities at AllianceBernstein to grow on the asset management side as well. Obviously, where the share price is now, any deal needs to be accretive to shareholders, as you see this merger is as well. Ultimately, we are well positioned because we can buy back stock at this price and deploy excess capital to fuel future growth and make us a stronger company going forward. Yaron Kinar: Thank you. Operator: Your next question comes from the line of Wilma Burdis with Raymond James. Your line is open. Please go ahead. Wilma Burdis: Hey. Good morning. Given that one of your buyback windows will be May 6 through sometime in June, maybe we could drill down a little bit. Is there any limit to the amount Equitable Holdings, Inc. could buy given limitations on the percentage of daily trading volume? Could you help us a little bit with the math there? Robin Matthew Raju: We obviously have some limitations on average daily trading volume that we have to keep, but we feel—and I think CoreBridge would say the same—that the windows available to us provide the flexibility we need to be in the market to buy back stock. We will have this time period between when we file the proxy tonight and the final proxy in June to complete a decent amount of share buyback, and we will also have the ability again post the shareholder vote. We feel pretty comfortable to execute within a reasonable average daily trading volume our capital plans this year. We would expect to end with an ASR at our 60% to 70% payout ratio and no change in the amount of capital returned to shareholders for this year. Wilma Burdis: Okay. If there is any way you can give a little bit more detail just on that there, just as a quick follow-up. And then second question: I think the commentary that you have implied on the capital and tax benefits, I back-calculated it to around $500 million to $1.5 billion of capital that would be freed up by the deal. Any way to tell us if that estimate is somewhere in the ballpark? Robin Matthew Raju: I do not have more color on the share buyback at this time. On the capital and tax benefits of the deal, as we mentioned, the EPS accretion will be 6% to 8% from the expenses—hopefully more than that. We would expect it to be more, given the size of synergy potential we have between both organizations. Then we will have capital and tax benefits as well. We are not going to give nominal amounts at this time. Going forward, as we get into the Investor Day next year, you can expect more information on those numbers and also the revenue synergy. Do not forget that is the big part that we get excited about internally—what this brings to AllianceBernstein, what this brings to our Wealth Management business, and what this does for broader product distribution across both companies that will lead to a higher multiple over time. Wilma Burdis: Absolutely. Love the distribution. Thank you. Operator: Your next question comes from the line of Pablo Sing Son with JPMorgan. Your line is open. Please go ahead. Pablo Sing Son: Hi. Good morning. Just a follow-up on the mortality. So 1Q and 4Q tend to be the highest mortality quarters for you. Given this, should we expect Corporate & Other loss to be there sequentially, or was 1Q just too favorable? Robin Matthew Raju: In the quarter, we did have some favorability in mortality. As we mentioned, the benefit ratio was 83%; that is lower than it was last quarter, as you can see in the supplement, and also lower than it was over the last year. The Corporate & Other guidance that we gave for the full year was a $350 million to $400 million loss. We expect to be within that guidance if you look on a normalized basis this quarter. Also keep in mind, going forward, the benefit of the RGA transaction really limits the volatility related to mortality for us. I think you are starting to see those benefits come through, and we do expect that to continue. Pablo Sing Son: Thanks, Robin. And then second question is the implementation of VM-22. Do you see that having any material impact, whether from a price or capital standpoint, on the fixed annuity block you are getting from CoreBridge? Robin Matthew Raju: I would like CoreBridge to answer that on the VM-22 side. We have done diligence on each other—on the asset side, on the liability side, and potential regulation—and we feel comfortable with where both companies combined are positioned ahead of any regulation or asset changes. Pablo Sing Son: Thank you. Operator: Your next question comes from the line of Tracy Benguigui with Wolfe Research. Your line is open. Please go ahead. Tracy Benguigui: Thank you. Good morning. Going back to the PGAAP changes, you mentioned some of the moving parts, but I want to touch on AB. It seems like a big thing that folks misunderstand about Equitable Holdings, Inc. is your asset leverage—they are not looking at the right denominator. My personal view is statutory capital matters more. Now with this merger coming up, I understand that your PGAAP could mark up AB. Should we expect a large goodwill asset? And I am also curious, is doing the deal the only way to mechanically recognize AB's equity value? Robin Matthew Raju: Thanks, Tracy. I think you are right. The way to look at it is not GAAP leverage—stat is a bigger piece and something that a lot of people do not look at. On the GAAP side, it does not capture the full market value of AllianceBernstein outside of a transaction like this. Since we own AllianceBernstein, we cannot write up the asset as it exists today. That is one of the benefits of the transaction. It will lead to some additional goodwill, but there are a lot of moving parts related to the PGAAP, so it is too early to give you precise numbers on how the PGAAP works. Ultimately, both companies—if you look—on a statutory basis are going to be at $25 billion of pro forma capital. The GAAP equity is going to be above $30 billion. We feel very well positioned in terms of the size of both balance sheets and especially well positioned having AB, a Wealth Management franchise, and a broader Retirement platform to grow sales. Tracy Benguigui: Staying with a 68% stake? Robin Matthew Raju: Currently, we are quite happy with our ownership of AllianceBernstein at approximately 68% to 69%. AB is a key part of the flywheel and expected to grow. The synergy potential of AB is pretty significant. Maybe I will ask Onur to talk about the revenue synergies potential with the AllianceBernstein team, but I think that is a big part of this deal—the benefits to AllianceBernstein and getting the $100 billion of general and separate account assets. Onur Erzan: Thanks, Robin. We are very excited about the $100 billion plus that Mark and Robin mentioned. It is going to come from both the general account and the separate account businesses, as well as funds and retirement plans. We have multiple opportunities to do work over the next seven to eight months before the merger closes. We have a very bankable bottom-up plan, and that comes on top of a record pipeline we had before the CoreBridge–Equitable Holdings, Inc. merger, so it builds on a very sizable pipeline that already exists. We are very excited about that, and also like the fact that it is a diverse set of asset classes, ranging from public to private, fixed income, multi-asset, and equities, that will allow us to scale multiple platforms all at the same time. Tracy Benguigui: So would you want to take that stake up if you like the business? Robin Matthew Raju: No change right now in our stake of AllianceBernstein. After we purchased the increase last year, we went from 62% to approximately 68% to 69%. We have no other plans at this time. We are really focused on the combined firms and execution of this merger. As Mark mentioned on the call, we established the integration office, we got our teams together, and everybody is focused on planning to execute the expense and revenue synergies and making sure we have the right people in the right seats. That is our focus at this time. Tracy Benguigui: Thank you. Operator: Your next question comes from the line of Mark Douglas Hughes with Truist. Your line is open. Please go ahead. Mark Douglas Hughes: Thank you very much. Good morning. In the RILA business, sales are pretty strong. I wonder if you could discuss the competitive environment and then maybe touch on the biggest impact, biggest benefit from the merger on distribution? Nicholas Burritt Lane: Great. As you mentioned, overall we had a strong quarter in sales and volume, with RILAs up 14% and $1.3 billion of net flows, translating to a 6% trailing 12-month organic growth rate. We are very mindful of competitive trends. As we mentioned last quarter, we saw new entrants in 2025 revert back to more rational pricing in the fourth quarter, and we do not see any material change in competitive activity this quarter. Looking forward, we continue to see strong demand for RILAs driven by favorable demographics and macro uncertainty. I would highlight consumer sentiment is at an all-time low, so people are looking for protected equity stories, and we believe we have a durable edge to capture it—generating attractive yields through AB, our differentiated distribution with Equitable Advisors and our third-party networks. As Robin and Mark alluded to, the merger will expand our reach in that area. Finally, we have deep relationships and scale. As the pie has grown, we have nearly doubled our sales over the last four years, and this was another first quarter in record sales and volume. On the benefits on distribution: better reach, deeper relationships, and as Mark mentioned, we see scale becoming increasingly important to generate profitable growth and protect margins. CoreBridge will give us both of these immediately, so we think we are in a privileged position to capture a disproportionate share of value in the growing retirement market. Mark Douglas Hughes: Understood. Then of the $70 billion to $80 billion in liability origination capacity, how much of that is third party versus owned distribution? Nicholas Burritt Lane: Yes. The way to look at it is the $70 billion to $80 billion is for the combined companies post-merger. Today, for Equitable Holdings, Inc., about 35% of our sales in the Retirement business come through Equitable Advisors. That is the way to look at it. Operator: We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. 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: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today At this time, I would like to welcome everyone to the JELD-WEN First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to James Armstrong, Vice President of Investor Relations. Please go ahead. James Armstrong: Thank you, and good morning. We issued our first quarter 2026 earnings release last night and posted a slide presentation to the Investor Relations portion of our website, which can be found at investors.jeld-wen.com. We will be referencing this presentation during our call. Today, I'm joined by Bill Christensen, Chief Executive Officer; and Samantha Stoddard, Chief Financial Officer. Before I turn it over to Bill, I would like to remind everyone that during this call, we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q filed with the SEC. JELD-WEN does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results. Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their most directly comparable financial measures calculated under GAAP can be found in our earnings release and in the appendix to our earnings presentation. With that, I would like to now turn the call over to Bill. William Christensen: Thank you, James, and good morning, everyone. Before turning to our results, I want to thank the teams across JELD-WEN. Even with continued market pressure, our organization is showing up every day with focus and urgency driving operational improvements, supporting customers and advancing the work needed to strengthen the company. A key element of that work is investing for our customers through improved service and customer experience. As a company, we continue to place incremental focus into service and responsiveness, and we believe that this will create value as the year progresses. The macro environment remained soft in the first quarter consistent with our expectations. As a reminder, the first quarter is the seasonal low period, and we anticipate improvement as we move through the remainder of the year. During the quarter, we also implemented a number of pricing increases, and we expect those increases to begin flowing through more meaningfully in the second quarter and beyond. Overall, we delivered the quarter within our expectations and managed through a difficult volume environment. As seen on Slide 4, sales for the quarter were $722 million. As we have previously discussed, we took deliberate actions to align our labor with current market conditions, and we continue to adapt the cost structure of the business. At the same time, we are balancing investments in our customers by maintaining the resources needed to deliver quality and dependable service. We are already seeing significant service improvements across the company including our On-Time, In-Full Rates. Adjusted EBITDA was a modestly positive $6 million for the quarter, and cash performance was generally in line with our expectations. As a reminder, the first quarter is typically the highest working capital quarter, and we would expect working capital to unwind as we move into the back half of the year consistent with the seasonality of the building products industry. As we look ahead, we continue to focus on what we can control. As we mentioned last quarter, customers are very clear that consistent delivery and follow-through are what they value most. And we continue to direct investments towards these priorities. With the improvements we are seeing, we continue to discuss opportunities to regain volume, and we now expect improved execution and service levels to contribute to incremental sales versus the 2026 expectations we shared in the fourth quarter results call. We are strengthening the customer experience through better execution and consistency, and we expect that to support improved performance as the year progresses. At the same time, we are also seeing higher cost pressure, particularly in freight and pricing remains competitive in certain areas versus what we expected previously. We are managing those dynamics, staying disciplined on what is within our control while continuing to prioritize customer service and operational execution. Finally, we continue to progress the strategic review of our European business. While the process is ongoing and we have nothing to announce at this time, we believe this review could provide meaningful liquidity and help further strengthen our balance sheet. We are also evaluating various alternatives thoughtfully with a focus on improving financial flexibility while preserving long-term value. With that, I'll hand it over to Samantha to review our financial results in greater detail. Samantha Stoddard: Thank you, Bill. Turning to the financial results on Slide 6. First quarter net revenue was $722 million, down 7% year-over-year. The revenue decline was driven by lower volume/mix. While mix was down slightly year-over-year, most of the volume/mix decline was driven by lower volume. Adjusted EBITDA for the quarter was $6 million, down 72% year-over-year and adjusted EBITDA margin was 0.9%, down 190 basis points year-over-year. The lower earnings performance was primarily driven by volume/mix, along with negative price/cost dynamics during the quarter as inflation was not fully offset by pricing. These headwinds were partially offset by significantly improved productivity year-over-year. Turning to cash flow. Operating cash flow was a $91 million use of cash in the first quarter driven by lower EBITDA, combined with a $43 million use of working capital. As a reminder, the first quarter is typically the highest working capital quarter of the year, and we expect significant working capital improvement as we move through the remainder of 2026. As a result of lower EBITDA and the use of cash, net debt leverage increased to 11.3x at the end of the first quarter. Given the seasonal use of working capital, we drew $40 million on our revolver. We continue to manage the business with a disciplined focus on cash, cost and balance sheet flexibility. Turning to Slide 7. The year-over-year change in net revenue was driven primarily by lower volume/mix. First quarter sales were $722 million, compared to $776 million in the prior year, and core revenue declined 10% year-over-year. Pricing was a slight positive, but it was more than offset by the volume/mix decline, which drove the majority of the year-over-year reduction. The comparison also reflects a $30 million tailwind from foreign exchange driven by a stronger euro relative to the dollar. Taken together, these factors explain the year-over-year change in revenue and are consistent with the market conditions we discussed earlier. Turning to Slide 8. Adjusted EBITDA for the first quarter was $6 million, compared to $22 million in the first quarter of last year. The year-over-year decline reflects a combination of cost pressure and lower volume/mix. Price/cost was a $21 million headwind as pricing was slightly positive, but it continued to be outweighed by cost inflation in areas like glass, metals and transportation. Volume/mix was also a $22 million headwind, and that impact was driven primarily by lower volumes year-over-year. These headwinds were partially offset by improved execution across the business. Productivity was a $22 million benefit year-over-year, and we also delivered a $6 million improvement in SG&A and other expense despite a $10 million other income headwind from prior year. Turning to Slide 9 and our segment results. In North America, first quarter revenue was $453 million, compared to $531 million in the prior year. The year-over-year decline was driven primarily by lower volumes and the court-ordered Towanda Divestiture which had partial impact in the first quarter of 2025. Adjusted EBITDA for North America was $4 million, compared to $16 million last year. And adjusted EBITDA margin declined to 0.8% from 2.9%. Profitability was pressured by continued inflation and lower volumes, partially offset by significant year-over-year productivity and SG&A improvements. In Europe, revenue was $269 million, up from $245 million in the prior year, an increase of 10% year-over-year. The improvement was driven primarily by foreign exchange and slightly better pricing, partially offset by continued volume decline. Foreign exchange contributed approximately 11.5 percentage points to the year-over-year revenue change. Adjusted EBITDA for Europe was $7 million compared to $11 million last year and adjusted EBITDA margin was 2.6% versus 4.3% in the prior year. Productivity was a slight positive, but those benefits were more than offset by lower volume/mix, along with higher SG&A expense. With that, I will turn it back over to Bill to discuss our updated market outlook and how we are positioning JELD-WEN for the path ahead. William Christensen: Thanks, Samantha. Turning to Slide 11. I want to walk through our market outlook for 2026 and the assumptions underlying our guidance. Importantly, our view of the market has not meaningfully changed from what we outlined previously in our fourth quarter 2025 results call. We continue to operate in a challenging and uncertain environment and our outlook reflects a cautious view rather than any expectation of a near-term recovery. In North America, we expect the overall windows and doors market to be down low to mid-single digits. Within that, we see new single-family construction down low single digits and repair and remodel down mid-single digits. We now expect U.S. multifamily to be up significantly year-over-year, while Canada continues to face more significant pressure with high single-digit declines, reflecting ongoing economic softness and continued weak housing activity. In Europe, conditions appear to be stabilizing. We expect volumes to be roughly flat year-over-year. Demand remains subdued, but we are not seeing further deterioration from current levels. At the company level, our volume assumptions are now more aligned with the underlying market. We continue to expect some impact from prior pricing actions but we are also beginning to see the benefits of improved service levels. Our guidance reflects a modest contribution from these service improvements while maintaining a clear focus on pricing discipline. Overall, our framework remains consistent. Our guidance is based on current demand levels with pricing actions largely in place and a continued focus on margin protection and execution rather than relying on an improvement in end market conditions. Turning to Slide 12. I I'll walk through our updated full year 2026 guidance. Overall, we are increasing our revenue outlook, holding our adjusted EBITDA range and maintaining cash flow expectations. We now expect net revenue in the range of $3.05 billion to $3.2 billion, up from our prior range of $2.95 billion to $3.1 billion. This reflects a modest benefit from improving service levels, which brings our company volume assumptions more in line with the underlying market. April sales have been in line with our expectations, which supports the updated view we are sharing today. As a result, we now expect core revenue to decline between 3% and 6% year-over-year compared to 5% to 10% previously. The adjusted EBITDA range remains unchanged at $100 million to $150 million. While the higher revenues progress, we are seeing incremental price/cost headwinds relative to our prior assumptions, which offset the benefit from improved volumes. Our outlook continues to reflect higher pricing and a focus on execution in a still changing demand environment. On cash flow, we continue to expect operating cash flow of approximately $40 million and a free cash flow use of approximately $60 million. We still anticipate capital expenditures of approximately $100 million that are largely maintenance in nature. Our guidance assumes no portfolio changes. However, as noted, we continue to evaluate strategic options, including our review of the European business, and additional actions to improve liquidity. Turning to Slide 13. This chart bridges our 2025 adjusted EBITDA of $118 million to the midpoint of our 2026 adjusted EBITDA guidance of $125 million. Starting on the left, market volume/mix remains a headwind of approximately $25 million, reflecting the continued pressure we see across our end markets. The next item is net share loss which we now expect to be a $30 million headwind, improved from our prior expectation of $60 million. This reflects early progress on service and a more stable customer response as those improvements begin to take hold. We now expect a greater headwind from price/cost, which we anticipate to be approximately $40 million, compared to $10 million previously. The environment remains highly competitive and as our service improves, we've been more active commercially, including targeted promotional activity to regain traction with certain customers. In addition, we are seeing higher-than-expected cost pressure, most notably in freight. These external and commercial pressures are offset by actions within our control. We continue to expect approximately $75 million of benefit from rightsizing and base productivity, reflecting actions that are largely executed and will be realized over the course of the year. We also expect about $35 million of carryover benefit from our transformation initiatives, including automation, footprint optimization and systems improvements as those efforts continue to move in a more steady state operating model. The remaining items include approximately $10 million of headwind from compensation and other timing-related factors, partially offset by foreign exchange and other items. Taken together, these elements bridge to the midpoint of our 2026 adjusted EBITDA guidance. While the mix of headwinds has shifted, the overall earnings outcome remains unchanged, reflecting both the ongoing pressure in the market and the impact of the actions we are taking to manage through it. Before we wrap up, I want to step back and highlight the progress we are making on service across our North America business. On Time, in Full delivery or OTIF, is a key customer metric and it is where we have been intensely focused. As you can see on Slide 14, our OTIF performance has improved significantly over the past year, moving to over 90%. This is a meaningful step change in how we are serving our customers, and we are seeing that reflected in the feedback we are getting across the business. Customers are noticing the improvement. We are seeing better engagement, more consistent order patterns and importantly, increased opportunities to quote and compete for new business as our service levels improve. This progress is being driven by both stronger execution and deliberate investment. Operationally, we have now deployed our A3 management system across the network, which has improved how we identify issues, solve problems at the root cause and maintain consistency as well as ownership at the plant level. At the same time, we have made conscious decisions to prioritize service, including higher transportation spend, such as shipping partial loads when needed and maintaining staffing levels despite lower volumes. These are targeted investments to support service and rebuild trust with our customers. We believe that as service continues to improve, that trust will translate into volume recovery and share gains over time. That said, we are not finished. Our goal is to consistently operate above 95% OTIF and reaching that level will require further progress, particularly with our vendor base and how we manage special order products. Overall, we are encouraged by the progress we are making. Service is improving, customers are responding, and we are beginning to see that translate into commercial opportunities. Turning to Slide 15. I'll close by stepping back and putting our progress into perspective. Over the past year, we've made significant improvements in how we serve our customers. We have invested in service, strengthened our operating discipline and focused the organization on the metrics that matter most. Cash and liquidity remain a priority. We are taking actions to preserve cash, and we continue to evaluate opportunities to strengthen liquidity and maintain flexibility in an uncertain environment. Our strategic review of Europe is ongoing, and we continue to evaluate other opportunities to improve liquidity and strengthen financial flexibility. Across the business, we are also aligning labor with current market conditions while continuing to invest in the organization for the long term. That includes work to improve culture and engagement. We recently completed a company-wide baseline employee engagement survey, and our managers are actively using that feedback to create individual action plans focused on local level engagement. Importantly, our customers are seeing the difference. Service levels have improved, performance is more consistent, and we are beginning to rebuild trust. That is showing up in better engagement and increasing opportunities to compete for new business. However, we are not yet where we need to be. There's more work to do and we know that this will not happen overnight, but we are moving in the right direction and starting to see the early benefits. At the same time, we are managing the business with a clear view of current market conditions. We are aligning the cost structure to demand, maintaining pricing discipline and staying focused on execution. As I close, I want to recognize the work of our associates across JELD-WEN. The progress we are seeing is the result of their effort and focus every day. Our customers are noticing the improvement and it is important that we continue to build on that momentum. Overall, we are becoming a more consistent and disciplined company. We are improving service, rebuilding customer confidence and managing the business with a clear focus on cash and execution. With that, I'll turn the call back over to James for questions. James Armstrong: Thanks, Bill. Operator, we're now ready to begin Q&A. Operator: [Operator Instructions] Your first question comes from the line of John Lovallo of UBS. John Lovallo: The first one is, at the midpoint, your outlook seems to imply 2Q adjusted EBITDA of about $31 million. That's versus about $6 million in the first quarter. Can you just help us kind of bridge the ramp from first quarter to second quarter? Samantha Stoddard: John, yes, this is Samantha. I can help bridge that gap. So it's primarily driven by normal seasonality with the second quarter typically benefiting from higher sales volume and then better labor absorption as well. This year, we also expect to see the benefit of pricing actions that we implemented already in Q1, but begin flowing through more meaningfully at the start of Q2. And as you heard Bill say in the earlier remarks, we are already seeing the uptick in April. So we do feel good about going into Q2. John Lovallo: Got it. That's helpful. And then on the North American decremental margin, it is around 15%, which was pretty favorable, and I think it speaks to the cost controls and the cost takeout you guys have achieved. I mean how sustainable do you think this level of decremental is? And maybe more importantly, how are you thinking about incrementals in an improving volume environment? Samantha Stoddard: Yes. So I can start, and then I'll let Bill jump in. I think that in the short term, you are going to see us holding the line with the costs in particular. So you're right in that a lot of the transformational actions and cost takeouts that we saw in '25 going into '26 are going to continue. With the improved volumes from what I just spoke about, the seasonality as well as some of the higher price, that should then flow, I would say, our normal incrementals, 25% to 30% on the upside. William Christensen: John, it's Bill. So the only thing I'd add there is what I'm really pleased with is if you look at our bridge coming out of our full year '25 guide to where we are now, we've removed about $100 million of headwind. And that speaks to the hard work that our teams are doing every day to really make things work for our customers. So we're starting to gain traction and reducing the rate of decline, which is great. So we do have some share loss that's lapping from '25, but we feel pretty good here headed into the last 3 quarters of this year. Operator: Your next question comes from the line of Susan Maklari of Goldman Sachs. Susan Maklari: My first question is on the improved service levels. It's encouraging to hear that you're seeing such a nice lift there. I guess, can you talk more about how you're thinking of the path from here, the specific programs that you are working on and putting in place to support that? And I know last quarter, we talked about standardizing some of your operating systems and processes to help with that service. Is this part of what's driving that? And where you are in that process as well? William Christensen: Yes, Susan. Thanks for the question. So absolutely, standard work across our network of sites, both in Europe and in North America is progressing very well. And you can see, based on what we showed on Chart 14 with the improvement on the OTIF metrics, clearly, there's still work to be done. But we are in a pretty choppy demand environment. And so our network needs to be very flexible and as we noted in the prepared remarks, we have incurred some additional costs based on not in full shipments, but making sure we're doing everything we can to meet our customers' expectations. So that's progressing well. I think the second thing I'd want to call out is that the teams are working extremely hard to connect with our customers and define areas of opportunity where we can lean in together with them to regain some of the share that we've lost in the last couple of years, and that's starting to show up as well. So we think this bodes well for the back half of the year, even though we still are expecting a pretty soft market environment as we outlined in prepared remarks. Susan Maklari: Okay. That's very helpful. And then can you give a bit more color on the magnitude of the inflation? How we should be thinking about that path for price/cost this year? I know you mentioned that you're starting to see some of the realization on the first quarter increase. And with that, how you're thinking about that balance between volume versus price in this environment? Samantha Stoddard: Yes. Let me go ahead and start that, Susan. So on the inflation side, I think the biggest area that we're seeing inflation is going to be around the freight and energy prices. So we're seeing that both in North America as well as Europe. On the better note, we are seeing slightly less tariff exposure that we did expect when we were starting the year. In terms of the magnitude, they're somewhat offsetting each other, not exactly, but materially, they're about offsetting. So when we think about the price/cost negativity, I think that there is some of that in inflationary pressures. And there is the affordability challenge from a price standpoint. We are seeing competitive pricing in different areas of the market. So while we have already gone out with price, that is why we're calling down some of the price/cost that we initially expected to be around negative 10% from an EBITDA bridge, we are now seeing that to be a little bit higher. Operator: Your next question comes from the line of Matthew Bouley, Barclays. Anika Dholakia: Anika Dholakia on for Matt today. So first off, for Europe, you guys mentioned that you're not seeing any further demand pressure from current levels. So I'm curious if this suggests that pricing strength can continue in this region similar to 1Q? And then just kind of going off of that, how have some of the recent geopolitical dynamics maybe impacted the review of the European business, if at all? So yes, any color on that? William Christensen: Thanks for your question. Yes. So we clearly are seeing more signals that we're at the bottom of the valley from a volume decline. So Europe has stabilized. We called it last quarter. We're seeing similar trends just to remind you, it takes 9 to 12 months post start to put our product in. So it's going to be a while until you see things tick up in the Doors world. On pricing, we've done a great job across many European markets of introducing price to offset inflation and headwinds. The macro reality is going to have a pretty significant impact in Europe on energy, feedstock input prices, transportation costs, et cetera. We're already in market with pricing to offset a number of those headwinds. So I'd say we're feeling fairly balanced currently in Europe. And then the third comment is we wouldn't really comment specifically on where we are on the strategic review and what the influences would or wouldn't be as we said in the prepared remarks, nothing further process is ongoing, but no further details today. Anika Dholakia: Okay. Great. That's really helpful. And then on the second question, so on the productivity initiatives on the $110 million, I'm curious, I think last quarter, you guys said 50% completed, 25% actioned, but hadn't hit and then 25% still needed to be actioned. Is this on track with what you guys expected? Or any updates to these numbers? Samantha Stoddard: Sure. So breaking it down, the $35 million of the transformation carryover, that is 100% completed at this point. So these are structural costs. We talked about it on an earlier question that we are seeing the benefits of and they're 100% complete. On kind of the base productivity, rightsizing of the business, I would say we're greater than 80% of those initiatives that are done. So there's still a little bit of work to be done on some of the smaller initiatives, but the majority have been banked at this point, and we'll see that carry through in Q2 through Q4. Operator: Your next question comes from the line of Jeffrey Stevenson with Loop Capital. Jeffrey Stevenson: Can you talk more about the improvement in on-time deliveries you've seen over the last year and whether it's corresponded with the stabilization in your share position over that time period of service levels continue to improve? William Christensen: Yes. So yes, that's the short answer. The longer answer is, obviously, we have a fairly broad portfolio in the North American market. So there's a number of different areas where we're performing very well and continue to do so. And there's other areas where clearly we weren't meeting expectations of our customers. And as we had described last year, there was some share loss, some pruning on our side, but also some share loss. And we're definitely regaining share in certain pockets that our North America team is very focused on partnering with our customers to give them the product at the right time at the right place. So we're pleased with the improvements. And as I said, we've probably reduced by about half the headwind that we thought we would have this year from a top line standpoint. So we're making good progress, not finished. There's more work to be done, but I think that's a good signal that we're moving in the right direction, Jeff. I think that's the important message today on the call. Samantha Stoddard: And Jeff, just highlighting back to the full year guidance bridge. As I talked about earlier with Susan, that the price/ cost, unfortunately, has become a little bit more negative but that share loss volume/mix, EBITDA impact, as Bill was talking about, has improved by about $30 million from last quarter. Jeffrey Stevenson: That's very helpful. And then thanks for the update on the Europe strategic review. But previously, you talked about divestitures of smaller noncore assets as well, such as your distribution business in North America. And I just wondered if there are still opportunities across your footprint for other potential divestitures as well. William Christensen: Yes. So Jeff, what we've said is we continue to evaluate other options in addition to the strategic review to improve liquidity, which clearly is a key focus point of ourselves given the current macro environment. And that includes assessing sale of other assets, potential sale-leaseback transactions. No further detail from our side. I think more importantly, we've said this a number of times, I want to reiterate, we expect to address our near-term maturities before they go current in December. And for the time being, as Samantha laid out in her prepared remarks, we have ample liquidity, and we're actively managing cash in this soft macro environment. So I think that important combination. We continue to evaluate options. We have a number of options, and we're staying very close to the cash situation, combine that with improvements on service and better volume outlook from our side. We're feeling good about where we are currently. Operator: There are no further questions at this time. And with that, I will now turn the call back over to James Armstrong for final closing remarks. Please go ahead. James Armstrong: Thanks, everyone, for joining us today. If you have any follow-up questions, please feel free to reach out. We appreciate your time and interest in JELD-WEN. Have a great day. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.
Operator: Hello, and welcome to the Expro Q1 2026 Earnings Call. My name is Alex, and I'll be coordinating today's call. [Operator Instructions] I'll now hand it over to Dave Wilson, Vice President of Investor Relations. Please go ahead. Dave Wilson: Thank you, operator. Good morning, everyone, and welcome to Expro's First Quarter 2026 Earnings Call. I'm joined today by Mike Jardon, CEO; and Sergio Maiworm, CFO. Both Mike and Sergio will have some prepared remarks, after which we'll open the call for questions. In association with today's call, we have an accompanying presentation and supplemental financial information on our first quarter results. Both of these are posted on the Expro website, expro.com, under the Investors section. Before we begin today's call, I'll remind everyone that some of today's comments may refer to or contain forward-looking statements. Such statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These statements speak only as of today's date, and the company assumes no responsibility to update such forward-looking statements. The company has included in its SEC filings, cautionary language identifying important risk factors that could cause actual results to be materially different from those set forth in any forward-looking statements. A more complete discussion of these risks is included in the company's SEC filings, which can be obtained on the SEC's website, sec.gov, or on our website, again, expro.com. Please note that any non-GAAP financial measures discussed during this call are defined and reconciled to the most directly comparable GAAP financial measures in our first quarter 2026 earnings release, which was issued this morning and can also be found on our website. With that said, I'll turn the call over to Mike. Michael Jardon: Thanks, Dave. Good morning, good afternoon, everyone, and welcome to Expro's first quarter 2026 earnings call. I'll begin by reviewing the first quarter of 2026 financial results from today's press release. I'll then comment on the overall macro environment, provide some insight into our Middle East and North Africa region, talk a bit about our exciting news today with our Enhanced Drilling acquisition announcement, then revisit our outlook for the year ahead. And finally, I will then conclude with some operational highlights for the quarter. Sergio will then provide some further details on our financial performance by geographic region and address the company's ongoing capital allocation framework. Let's begin on Slide 3. During the quarter, the company experienced the usual first quarter seasonality we have in our business. And as a reminder, this seasonality is a result of winter weather in the Northern Hemisphere, which slows offshore activity due to ongoing winter storms and rougher than normal season. Additionally, the seasonal dip is also a result of our customers' CapEx and operational spend cycle that tend to be lower at the start of their annual budget cycles. This is generally more typical with our NOC customers. Additionally, our first quarter results were only marginally impacted by the conflict in the Middle East. I'm pleased to report that local emergency response plans were implemented quickly and the efficiency in which these actions were taken, and that all of our employees still in the region remain safe. I will go into more detail regarding our MENA region in a moment. But from an overall perspective, the disruptions to our Middle East business late in the quarter only had a minor impact on our operational and financial results during the quarter. For the quarter, the company generated $368 million of revenue and $63 million of adjusted EBITDA, representing a 17% margin. Adjusted free cash flow for the quarter was $3 million and was affected by changes in working capital, which Sergio will comment more on later in the call. Now taking an assessment of the current environment, we, like others, see a global energy market that is increasingly influenced by the heightened geopolitical tensions, commodity price volatility and an expanding focus on long-term energy security. At some point, the uncertainties will subside with the expectations that oil prices will reset and begin to stabilize once these disruptions ease. However, there is still a significant amount of disruption that will continue to have global implications in terms of not only near-term supply and demand dynamics, but also over the medium- and longer-term as countries and companies around the world look to prioritize energy security and what will be needed to achieve that. There has been intensified interest in strengthening supply resilience and geographic diversification, trends that could develop and will likely shape industry behavior longer-term. It is our fundamental view that the new normal will look different than it did before the Middle East conflict. Many believe it will still take some time before the industry returns to a more normalized state of operations, and we believe that it will be the end of the second quarter before we have a sense of complete clarity. We remain optimistic that resolution of the situation could begin sooner than that, but we'll adapt our operations appropriately. One industry behavior that we are confident with that we do not believe will change is that of capital discipline. In this light, we see offshore and deepwater developments remaining attractive, not only by providing stable, lower-risk growth pathways, but also from an energy security standpoint as well. We expect such projects will continue to drive demand for Expro's well construction and well management businesses. Additionally, brownfield optimization continues to see a growing focus as operators look to enhance production from existing assets to reduce capital risk. We believe this industry trend also presents an opportunity for Expro's technologies and services as well. We still expect activity to strengthen in the second half of the year, and with Expro's strong offshore and international positioning, along with its production optimization capabilities, believe the company is well positioned to manage near-term uncertainty and benefit from increased activity in the coming quarters and years. To summarize, Expro maintains a constructive outlook for 2026 and beyond, allowing us to continue supporting customers throughout the full life cycle of their assets. Moving to Slide 4, which reflects our MENA region. Oftentimes, when the MENA region is discussed, the focus is heavily on the Middle East portion, which is certainly understandable, and we have received our fair share of questions related to our exposure to countries in that region. Having lived and worked in that part of the world earlier in my career, I think it's helpful to give our stakeholders some more clarity on how Expro is exposed in the region. I'll look to address that really in 3 fundamental ways. First, for Expro, there's more of a balance between our Middle East and North Africa operations in terms of financial contribution, and there has been no disruption to our operations in North Africa. Second, to the countries in the Middle East, while we do have some exposure to countries like Qatar, Kuwait and Iraq, they do not carry as large of a contribution to our revenue or EBITDA generation. The biggest contributor in those regards is Saudi Arabia and to a lesser extent, the Emirates. And while there were some interruptions in those countries' operations, we have continued to have more normal operational cadence. Third, given the timing of the commencement of the conflict in the Middle East, there was only 1 month affected during the first quarter, so that too lessen the overall impact. Now moving to Slide 5. We're very excited to announce Expro's acquisition of Enhanced Drilling. Enhanced Drilling is an industry and technological leader in managed pressure drilling, or MPD, really focused in the deepwater offshore operations. For Expro, this acquisition adds a critical technology solution that is proven and is increasingly gaining traction within the industry. As structured, this acquisition will be immediately accretive to cash flows and EBITDA margins, and it adds over $275 million of order backlog. We see a lot of growth opportunities in the service line going forward, especially as part of the Expro platform. Due to our size and breadth, we are able to bring services and technologies acquired into new markets around the world. We have a proven track record of doing this with our most recent example of Coretrax acquisition that we completed back in 2024. Currently, Enhanced Drilling is operating primarily in offshore Norway and in the Gulf of America. And we see opportunities in the Caribbean, West Africa, Brazil and Australia, where this technology could benefit customers tremendously. Turning to Slide 6. Here's a quick summary of the transaction from a financial perspective. The purchase price is NOK 2 billion, which is currently equating to roughly USD 215 million. We expect some final adjustments to the purchase price based upon customary and working capital adjustments as the transaction is finalized and closed. Expro will utilize a combination of cash on hand and borrowings under the revolving credit facility to fund the acquisition. Current projections are for Enhanced Drilling to add more than $50 million to our annual run rate adjusted EBITDA. Additionally, with adjusted EBITDA margins over 30%, this acquisition will contribute to further EBITDA margin expansion. Finally, we anticipate that the transaction will close in the third quarter and based upon our understanding at this point, will likely be some time in the early part of the quarter. The next few slides provide a little bit more detail on Enhanced Drilling and some of its services and offerings along its riser-based and riserless solutions. We have provided these slides for informational purposes. Now let's jump ahead to Slide #10. On Slide 10, we're providing our 2026 financial guidance based upon what we currently see in the global market. In essence, this means no change to our previously established annual guidance for 2026. With the continued global conflicts, uncertainty still exists, which adds to the complexity of providing forward guidance. That said, however, we believe that current industry optimism is tangible, particularly towards the back end of 2026 and especially as we go into 2027 and beyond. We remain constructive and confident in our second half of 2026, and the associated ramp in revenue and adjusted EBITDA, seeing sequential improvements in each subsequent quarter. With regards to the impact of the Middle East conflict on our future results, assuming a resolution to the Middle East conflict by the end of the second quarter, we would expect the impact on our second quarter results to be in the $10 million to $15 million revenue range. Including the first quarter and projected second quarter, impact of the Middle East conflict would equate to approximately 1% of total company revenues for the year. It is also worth noting for the second quarter, those revenue impacts carry elevated decrementals for EBITDA calculations. In other words, the impacts are disproportionate on the revenue versus the costs. Regarding our confidence and the ramp-up for the back half of the year, there are a few aspects I'd like to highlight. We see opportunities in our North and Latin America region with subsea well access and well flow management projects in the Gulf of America, tubular sales and well intervention and integrity work in Colombia, all of which should contribute a healthy amount to the projected increases. In our Middle East and North Africa region, besides assuming a resolution in the Middle East by the end of the second quarter and a return to more normalized activity, we still expect increasing contributions from our North Africa operations, particularly around a sizable production solutions project. For the back half of the year, in our Asia Pacific region, we see our well construction and well management businesses in Southeast Asia contributing incrementally more, along with some subsea equipment sales in China. Additionally, we expect incremental contributions from our Coretrax product line across our geographic regions. In Europe and Sub-Saharan Africa, while we do not expect much incremental growth in the back half of the year, we still expect operations there to be steady and be a sizable contributor to overall revenue and EBITDA. Finally, as we have mentioned before, we intend to expand our margins this year with the full year benefiting from our Drive 25 initiative and to improve our capital efficiency and wallet share with existing customers. Before moving on to our customer and technology highlights, I want to revisit a few attributes that we believe set Expro apart. These are included on Slide #11. Due to our breadth of services and technologies across the well lifecycle, we see opportunities to expand our wallet share with existing customers. Expro can leverage our installed base to provide additional services and technologies to customers, which adds value to their operations, while at the same time, helping to expand our underlying margins. Another thing that we see as distinct is our innovation and technology offerings. They are emblematic of how we see the industry evolving. Our technologies and our ability to address unique customer challenges place Expro as the vendor of choice for many of our customers and adds to the company's relevancy and longevity with those same customers. In addition to our service and technology breadth, we also have geographic breadth. Our global footprint enables us to leverage services and technologies, whether those are developed internally or acquired through M&A to be deployed in multi geographies where we operate. For example, as we've mentioned before, our acquisition of Coretrax in 2024. That business was operating in circa 15 countries at the time of the acquisition, but now we are deploying those technologies across over 31 countries. We plan to use a similar blueprint with the Enhanced Drilling acquisition, both in terms of integration, but also in terms of market expansion. Now moving on to our customer technology highlights for the quarter on Slide #12. During the first quarter, Expro continued to demonstrate its innovative technological capabilities with additional deployments and introduction of new technologies into the market. Similar to last quarter, we had several examples to choose from, but only a few to quickly highlight. In Norway, Expro successfully delivered a world-first fully remote completion joint makeup with a downhole control line and clamp without a single person in the red zone. The combination of these disruptive technologies enhances safety, increases execution and operational efficiency, and delivers consistent and repeatable outcomes. Another achievement during the quarter was Expro's iTONG offering, reaching a significant industry milestone. We have now successfully run and pulled over 1.2 million feet of casing and tubing in field operations since the technology was first deployed. This achievement underscores the iTONG growing momentum in the market with an increasing number of clients adopting the technology and experiencing its operational safety and performance advantages. Also during the first quarter, we launched Solus, a single shear-and-seal valve that replaces conventional 2-valve subsea well access systems. This technology reduces the complexity, operational risk, time and cost during subsea intervention and decommissioning operations. The last example I want to highlight is the successful deployment of our MultiTrace gas tracing technology for a customer that enabled accurate flow measurement on a large diameter flare system. This technology overcomes significant process challenges caused by the highly transient conditions surrounding the flow of gas and fluctuating gas consumption. MultiTrace allows accurate measurement of the flare gas in complex conditions, helping operators understand emissions and improve compliance without disrupting operations. At the heart of all these innovation examples and a common thread with all of them was the value creation for our customers. Before turning the call over to Sergio, I'd like to briefly revisit Expro's long-term strategic pillars, those we focus on to drive value for our shareholders. These are included on Slide #13. Expro's long-term strategy is to build a large diversified company that has increasing relevancy to our stakeholders, particularly our customers and our shareholders. Our relevancy to customers is built upon our service offering, including our innovative technologies, execution capabilities and market leadership positions. For shareholders, we continue to move forward, building a company that is able to generate healthy levels of free cash flow, which will be used to achieve our various capital allocation goals, all of which Sergio will expand on in his following comments. One of the pillars of the strategy that we have talked a lot about is our commitment to improve the company's financial profile. We have seen evidence of this over the last several years with EBITDA margin expansion and increasing free cash flow generation. These will remain in focus moving forward, and we expect to achieve further improvement through cost efficiencies and reducing our capital intensity. Another pillar and an important component of our strategy is our technology and innovation and how those are deployed into the market. We continue to develop and deploy new technologies into the market across our global footprint. Our expansive footprint also enables us to internationalize or globalize technologies, particularly those that we acquire through acquisitions that have limited geographic exposure, which leads to another component of our strategy, and that is to grow the company through scalable acquisitions like today's Enhanced Drilling announcement. The company has a strong track record of execution with acquisitions that we have made over the last several years. For these acquisitions and potential ones in the future, Expro looks to add to its services and technology offerings. In general, we seek opportunities with international and offshore exposure that have adjacent product offerings and are accretive to the company's financial position, again, very characteristic of today's announcement of Enhanced Drilling. Due to the slate of service offerings across the full well lifecycle, we have multiple avenues to pursue when looking at potential acquisitions. Our focus will continue to be on pursuing those that we believe will increase relevancy with our customers and shareholders. With that, I'll turn the call over to Sergio, to review our first quarter results in detail. Sergio Maiworm: Thank you, Mike, and good morning to everyone on the call. As we reiterated on our last call, Expro's quarterly results reflect the normal seasonality we experienced during the first quarter of the calendar year, caused primarily by -- as Mike mentioned -- the winter weather in the Northern Hemisphere and a slow start to customer spending. Again, this is normal seasonality and expected every year during the first quarter. With this backdrop, the company executed well on its operational and financial results. Both revenue and adjusted EBITDA reflected the relative midpoints of the ranges we previously provided. Specifically to Q1, our adjusted EBITDA was $63 million with a margin of 17.1%, which is a decline from the previous quarter, but again, reflects the seasonality of the first quarter, and we expect sequential improvement for the remaining quarters of the year. Slide 14 illustrates our annual margin growth for the past few years. Even with these results and noting the ongoing situation in the Middle East and the modest headwinds those have created for us, we remain focused on expanding our margins in 2026, and the drivers of margin expansion for us remain the same. In the near term, those are reflected on Slide 15, and they are the full year impact of our Drive 25 cost efficiency initiative, increasing customer wallet share at higher margins and to continue to internationalize services and technologies acquired in previous acquisitions, spreading those into new geographic areas. The Enhanced Drilling acquisition we announced today will further help expand our margins. Not only is the margin in that business already greater than 30%, but the internationalization of that technology will expand our margins even further. In the medium term, we expect to increase our top line revenue, continue to gain customer wallet share and more fully utilize services and technologies acquired across our geographic areas in order to achieve the next milestone goal of adjusted EBITDA margins greater than 25%. Also acknowledging that possible future M&A may play a factor as well, which we have executed on with today's announcement regarding the Enhanced Drilling acquisition. We're also keenly focused on cash flow generation. And in Q1, Expro reported quarterly free cash flow generation of $3 million on an adjusted basis. This was admittedly light based on our own expectations, but was really driven by working capital changes that worked against us this quarter. Those changes were roughly $20 million more than what we had expected and was primarily driven by the increase in our accounts receivable balance and prepaid amounts included in our other asset balances. This phenomenon is just timing-related. And in fact, subsequent to the quarter end, we have already seen most of Q1 related collections being received, and we already experienced a significant improvement in our working capital balances. I personally expect the second quarter to be a very good collections quarter. Considering the already seen improvements in our working capital, our operational outlook and anticipated CapEx for the year, we still believe we'll generate a good level of adjusted free cash flow this year, in line with our annual guidance. Now quickly turning to the liquidity position. We have included this on Slide 16. The company closed the quarter with $517 million in total liquidity. That includes $171 million in cash on the balance sheet. At quarter end, we had $79 million outstanding on our revolving credit facility, which was consistent from the previous quarter and put the company's net cash position at approximately $92 million. Now obviously, with the Enhanced Drilling acquisition, those numbers will change as we are funding the acquisition through a combination of cash on hand and borrowings under the credit facility. At the end of the day, we're still in a very strong financial position with substantially less than 1x net debt to adjusted EBITDA. Having and maintaining a strong balance sheet positions the company well to execute on its other capital allocation priorities. These are highlighted again on Slide 17. Our capital allocation framework is designed to maximize long-term value creation. As we have mentioned before, there are 4 equally important capital deployment priorities: invest in the business with CapEx, providing organic growth that enhances our core capabilities, improves efficiencies and/or supports technological innovation across our service offerings. As a reminder, the vast majority of our capital expenditures are geared towards specific projects with known return profiles that meet or exceed our standards. I would reiterate, these are not speculative investments. Another capital allocation priority is to deploy capital to inorganic growth. Just like today's announcement, through M&A, Expro can and has completed acquisitions that add to the company's complement of services across the well lifecycle. Our M&A strategy is focused on opportunities that offer clear industrial logic, scalable technologies and synergies and the potential to expand our presence in attractive markets. We maintain a highly selective approach when looking at M&A to ensure only the value-accretive opportunities are pursued and pursued at the right price. Another key aspect of our capital allocation framework is a commitment to return cash to shareholders. As we have already stated, during the first quarter, we repurchased approximately 1.2 million shares for roughly $20 million. This puts us on a really good path to meet or exceed our current year target of returning at least 1/3 of free cash flow to shareholders. On the final leg of the stool in terms of capital allocation is something that I have already covered, and that is maintaining a strong balance sheet. In doing so, we have the financial flexibility and resilience to act on our other capital allocation priorities. For example, even with an unexpected subpar free cash flow generation during the quarter, we were still able to make significant process on our share repurchase target for the year and still maintain the company in a healthy net cash position. This last example also reflects our ability to manage our capital allocation priorities dynamically with one not dominating the ranking. Along those lines, it's important to note that even in a seasonally weak quarter, we were able to execute across all of these capital allocation priorities recently. We invested organically in our business through CapEx. We returned cash to shareholders. We executed on accretive M&A, and we maintained a strong balance sheet. Before turning to our segment performance, I do want to reiterate and summarize our financial outlook for 2026, as Mike previously addressed in Slide 10. Overall, we remain very optimistic with the industry outlook for the second half of 2026 and beyond. Our current projections assume the adverse impacts of the Middle East conflict we seen in the second quarter with no lasting impacts for the third and fourth quarters. And Mike alluded to several real and live opportunities across the regions that we see providing tangible sequential increases in the back half of the year, which when combined with the more favorable working capital changes will result in more significant free cash flow generation. Now I'd like to quickly address our segment performance this quarter. These are covered in Slides 18 through 21 in the accompanying presentation. Turning to regional results. For North and Latin America or NLA, first quarter revenue was $128 million, down just $2 million quarter-over-quarter, reflecting various puts and takes comprised of lower well flow management revenue in Guyana and reduced well construction revenue in the U.S. and Brazil, partially offset by higher subsea well access revenues in the U.S. and increased well flow management revenue in Mexico. Segment EBITDA margin at 20% was down compared to prior quarter at 24%. This decrease was primarily attributable to a less favorable activity mix in the region due to normal seasonality during the quarter. For Europe and Sub-Saharan Africa or ESSA, first quarter revenue was $114 million, also down just $2 million on a sequential basis due to lower well flow management revenues in Angola and Bulgaria and lower subsea well access and well construction revenue in Ghana, partially offset by higher well construction revenue in Ivory Coast. Segment EBITDA margin at 28%, was down sequentially, also reflecting an unfavorable product mix relating to a reduction of higher-margin projects given the normal 1Q seasonality. The Middle East and North Africa region, or MENA, though impacted to some extent by the Middle East conflict that began late in the quarter, still delivered a fairly solid quarter. Revenues of $82 million were down sequentially from the previous quarter of $93 million. The decrease in revenue was primarily driven by lower well flow management revenue in Algeria, Saudi Arabia and Iraq, together with reduced well intervention activity in Qatar due to the ongoing conflicts in the Middle East. MENA segment EBITDA margin was 29% of revenues, decreasing from 39% in the prior quarter. The decrease in the segment EBITDA margin is consistent with the decrease in revenues and change in activity mix experienced during the quarter. Finally, in Asia Pacific or APAC, first quarter revenue was $44 million, a modest increase of $1 million sequentially. Here, the increase was a result of the puts and takes relating to higher subsea well access activity in Malaysia and increased Coretrax-related activity, partially offset by lower well flow management and subsea well access activity in Australia. Asia Pacific segment EBITDA margin at 16% of revenues was consistent with the prior quarter. With that reviewed, I'll turn the call back to Mike for a few closing comments. Michael Jardon: Thanks, Sergio. As we conclude our prepared remarks and before opening the call for questions, I'd like to conclude with the following comments. We share the industry's increased optimism over the medium and long-term, though recognizing it has come at a cost, both from a financial perspective, but also at a human level. I remain confident in the company and that our employees will continue to provide value-added services to our customers, which we intend to translate into value for our shareholders. As part of that, we continue to demonstrate our ability to execute across multiple capital allocation priorities and we'll continue to do so in the future. We thank our employees, customers and shareholders for their continued support and look forward to building on our momentum in the quarters and years ahead. Finally, I look forward to welcoming all the folks at Enhanced Drilling into the Expro family. We are very excited about the opportunities that we can jointly pursue. With that, we can open up the call for questions. Operator: [Operator Instructions] Our first question for today comes from Caitlin Donohue of Goldman Sachs. Caitlin Donohue: Can you walk us through your anticipated growth prospects with the acquisition of Enhanced Drilling, just the strategy of how you anticipate to further expand Expro's wallet share in certain geographies of existing services with the portfolio expansion with MPD? Michael Jardon: No, Caitlin, thank you for the question. And we're -- first off, we are so excited about the Enhanced Drilling acquisition. I mean, this is one we've been looking at and we've been working on for a while, and we've been able to get this closed out here over the last few weeks. And this is -- this really is beyond wallet share expansion for us. This really is a market share expansion opportunity. The technology has tremendous application. It's only in offshore, particularly deepwater, allows operators to drill more complex casing strings and those type of things because it's a dual gradient technology. So the predominant deepwater basins are really where this is going to have application. And as we talked about in the earlier and we've highlighted in the press release, today, it's really -- on the market penetration really has been in Norway and in some here in the U.S. Gulf. So places like Guyana has tremendous application. Brazil, especially with the sub-salt new applications, you start to move into West Africa, the Ghana, the Angola, Australia, I mean, this is a tremendously positive advancement for us that really allows us to expand our service offering into much more of the managed pressure drilling services. So the good thing for us is it's a very similar playbook to how we rolled out the technology from Coretrax. And so our ability, both from an integration standpoint as well as from a market penetration standpoint, we think we'll be able to do that. But I think over the course of the coming few months, we'll be able to get some good penetration into some of those key geographies and in particular, Guyana, to be frank. Caitlin Donohue: Just one more on my end. For the Drive 25 initiatives, bringing down costs over the long-term is a continued goal. Can you give some color on the progress there, particularly as now you have this Enhanced Drilling acquisition, some growth that you might now see from the expanded portfolio? Sergio Maiworm: Caitlin, this is Sergio. I'm happy to address that. So I mean, we are continuing with our cost outs, and we're continuing to make sure that we're getting as efficient as we can as a company. So this is a bit of an ongoing process, the efficiency gains, et cetera. I would say from a Drive 25, we've achieved way more than what we had set out to achieve initially. If you remember, at the beginning, we said that we wanted to take out about $25 million of costs per year. Then we actually increased that to $30 million per year. I think we're close to $40 million now, and a lot of those projects have already been completed. So you should see the full impact of that Drive 25 in our 2026 numbers and beyond. So all of those increased efficiencies, which means that we're taking some of these structural costs out of the system. This is not just we removed a number of people, given the level of activity that we have, but then we will have to bring those costs back into the system if the activity increases. These are sticky cost removals or meaning these are structural cost reductions that will give us a lot of operational leverage as we continue to see the market picking up in the second half of '26 and into '27. That will allow us to grow the top line without actually any meaningful increases in our -- or any increases to be frank, to our support cost structure. So that gives us a lot of incremental torque in the business and cash flow generation with that. Operator: Our next question comes from Eddie Kim with Barclays. Edward Kim: So obviously, the world has changed since your last earnings call. Are you seeing any noticeable change in your customer conversations? And if so, any specific products or business lines where you are seeing or where you expect activity to pick up meaningfully as a result of what's taken place over the past 2 months that's different from your expectations at the very beginning of the year? Michael Jardon: No, Eddie, and thanks for the question. Thanks for joining. I guess so. I was just in Asia here recently. And the Asia market is really -- there was an awful lot of customer conversation and dialogue around more production type projects, more OpEx-related type things, kind of incremental oil. So I think that's -- I think we're going to see that start to strengthen up. But also, quite frankly, both in Asia as well as other customer conversations I've had, there is much more of a situational awareness today around energy security. I think it's going to go well beyond the kind of phenomenon we saw in Europe to begin with, with the Russia-Ukraine conflict. I think there's just a lot more situational awareness around that. So I think that's going to translate into especially some of the deepwater basins, those have got very efficient breakeven costs at this point in time, I think can help add to energy security. And frankly, that means what we're going to see is more drilling and completions type activity. And that's really kind of a sweet spot for us today with our well construction product line, with our subsea product line. And that's one of the reasons that I'm so excited about Enhanced Drilling, because I think you've even heard commentary from the drilling guys here over the course of the last couple of weeks. The second half of 2026, I think if 60 days ago, we thought it was going to be at x level. I think what we see now globally, it's going to be x plus some margin in the second half of the year. I think it's going to kind of step up and ramp up. More drilling activity means more well construction activity means more completion activity. And I think we're really well positioned for that. I think it just sets up 2027 and beyond to be even more robust. Edward Kim: Great. My follow-up is just on the Enhanced Drilling acquisition. Adoption of MPD has picked up a lot over the past several years. Do you have a sense of what the overall market penetration is of MPD globally? Just of the -- I don't know -- 130 deepwater rigs today, how many rigs are utilizing MPD today? And for this Enhanced Drilling acquisition specifically, is it more about market penetration into rigs that don't have MPD currently? Or is it more about replacing incumbents? Michael Jardon: Yes. No, Eddie, it's a really good question. I can say it's part of what we spend an awful lot of time trying to make sure we had a good understanding of as we went into the acquisition. So of those kind of 130-ish floating assets today, there's probably roughly 100 of those have MPD on them today. And with Enhanced Drilling, we've probably got less than a 10% market share today. All 130 of those rigs have an application, have an opportunity for Enhanced Drilling. The difference with this technology is because it's a dual gradient, it allows the operators to drill more complex geology, more complex reservoir pore pressures, also allows them to have different casing designs. They can run larger casing designs to much deeper in the well. So it's going to help them enhance them from a safety, from an operational type standpoint. So we really see of those 130 rigs, you could run this dual gradient technology on all 130 of them, probably not required on all 130 of them, but it's required on an awful lot more than a 10% market share we have today. So long answer, but it's more around displacement of current MPD techniques with this particular technology. Operator: Our next question comes from Keith Beckmann of Pickering Energy Partners. Keith Beckmann: I want to say congrats on the acquisition. Obviously, MPD is not bad to get into if the floater market plays out like we all hope it does. But I wanted to kind of think about the technology side of things, given it's tech day. So I was wondering if maybe given maybe improved 2027 thoughts, maybe how are you thinking about the timing of potentially rolling out technologies? And if you could just kind of talk through how you plan to capture the value and the deployment of those technologies. Michael Jardon: No. Keith, thank you. It's really so much of our innovation focus and our engineering efforts really today is on creating additional operational efficiency. I mean, the things we've done around Drive 25 and really trying to make sure we have sticky cost efficiency, cost-out efforts, we're trying to do the same thing from an operational standpoint. We're trying to reduce the number of personnel that are required. We're trying to make things more autonomous, to make things more repeatable and more -- just more efficient. And so some of the technologies I highlighted earlier around our remote clamp installation system, it really does that, reduces personnel, makes things more efficient. Our iTONG technology allows us to reduce the number of personnel, reduce personnel in the red zone. And we're trying to do the same thing with our well flow management, our well testing operations as well. We're moving to more automation. You're talking about a technology that's been in the industry for 70 years. We've been doing it for 50 plus, and we're actually bringing some efficiency to it. We're reducing the number of personnel that are required, and that brings more efficient operations, but frankly, also helps us with being able to redeploy those personnel to other operations. So it's really kind of that same mantra of efficiency, both from a cost standpoint, but also from an innovation, engineering, technology deployment standpoint as well. Keith Beckmann: Awesome. The second question that I wanted to ask was just around slight Middle East headwinds in 1Q, 2Q. But really, the thing that I wanted to hit on was, how do you expect that you guys could potentially participate in a recovery once the conflict is essentially over? Are there ways that you've identified or you think in particular, you could try to capitalize on potentially in the event that the Middle East needs to start producing a lot more? Michael Jardon: Yes. I mean, it's -- we've had a lot of conversations around the Middle East. Several of us internally have lived and worked in the Middle East earlier in our careers. And I think what we're going to see is we're probably going to observe a different customer and operating dynamic in the Middle East than what we have historically. I think we saw that starting with the Emirates now announcing that they're going to exit from OPEC. They've already been kind of not staying consistent with their production quotas and those kind of things. I think we're going to see much more of a drive for enhanced production and enhanced operations out of the Middle East. So I think that's going to allow us to participate because an awful lot of that is going to be around drilling and completions. And especially on the drilling side for our well construction portfolio, we think that's something we can continue to expand in that marketplace. I just -- philosophically, I mean, right now, our assumptions are that we've come back to kind of more of a normalcy in terms of security and those kind of things in the Middle East here in the second quarter. I think we're going to have to see how that plays out. It seems to be we get one message in the morning and then we get a different message in the afternoon with how things are progressing from a geopolitical standpoint from the Middle East. So we'll continue to be flexible and adaptable with our business and our operations. Short-term, we'll see how that plays out. I do think medium and long-term, the reservoirs are so prolific in the Middle East. They're going to have to play a really strong role in future global production. So I think it will be tremendous in the medium and long-term. We'll just have to kind of see with this choppiness, how that plays out here in the coming weeks and months. And hopefully, we're not talking quarters. Operator: Our next question comes from Josh Jayne of Daniel Energy Partners. Joshua Jayne: You highlighted no logistical issues today as a result of the conflict, but maybe you could just go into a bit more detail on how you're positioning yourself to not be impacted in the event that this goes longer than we all think it may. Michael Jardon: Yes, Josh, thanks for joining us. I think it's -- today, especially for our activity in the Middle East, the vast majority of our revenue and our service intensity comes from services. It doesn't come from product sales. So we're less dependent upon the ability to transport equipment and gear into the region. So in the short-term, it hasn't had a significant effect on us. But frankly, we go beyond weeks and months and we start talking about quarters of conflict, it will become a little bit more of a constraint for us just because we actually have to be able to ship in M&S supplies for maintenance and those type of things. Those tend to be smaller volumes, smaller items that can come in via land, they can come in via air. So right now, we just don't see a significant impact in it. But if this goes on for an extended period of time, and frankly, I personally don't see anything that makes me think that this is going to go on for an extended period of time, we could get to the point where we would have an impact. But today, it's just not because of the makeup of our business and our activity in the Middle East, much more service related, just not having a tremendous influence today. Joshua Jayne: Okay. And then I just wanted to touch on the acquisition one more time. You talked about expanding it geographically as it's obviously relatively well concentrated today. You mentioned Guyana as an opportunity, for example. Maybe just could you go into a bit more detail on how long -- how long it may take once you're fully on board? Do you think it takes to really start to see diversification in the business and just how you're thinking through that a bit more would be great. Michael Jardon: No. I mean, Josh, it's another -- it's a good question. I appreciate you following up. I mean, this is one where the playbook that we've gone through for Coretrax is we've been very intentional on we're going to go to country A first. We're going to go to country B, second. We're going to go to country C, third. We did it in a very specific order because we wanted to maximize the market penetration. We want to maximize the pricing, and we'll go through that same type of process with Enhanced Drilling. The good thing here is, from a technology standpoint, this is so critical and really brings so much value to the operators that it almost sells itself. I think part of the challenge and part of why that management team is so excited to be part of a bigger platform is we've got more channels. We've got more customer engagements. We've got more opportunities to do that. So I think one of our -- and I don't want to call it limitation, but I think one of our throttling mechanisms here is going to be really our ability to -- from a CapEx standpoint to deliver additional incremental systems. We've got a certain number in flight right now, and we'll have to go through and reevaluate which markets we think we can get penetration in. So it's going to be the deepwater basins. We're going to focus on those. It brings efficiency. It brings additional safety. And frankly, I think brings -- could potentially bring an overall cost reduction element to the operators as they can start to change some of their casing designs, I think that brings some tremendous flexibility. So long answer, lots of things to say there, but I think it's part of what you'll really be able to hear from us over the course of the next few months as we start to move that thing forward, get it closed and then being able to really start to action and implement it. You'll hear a lot more about our plans on some of those things. Operator: Our next question comes from Derek Podhaizer of Piper Sandler. Derek Podhaizer: Sorry if I missed this before, I jumped on a little late here, but hoping to get some more color around the 2Q guidance. Just trying to think through it. We obviously, get the seasonal rebound, some margin expansion, but then trying to interplay of the $10 million to $15 million impact from the current Middle East conflict. You said that's going to come with fairly high decrementals, but just also just trying to think of the shape of the recovery as you maintain the full year guide and the big -- the sharp step-up in the second half of the year. So maybe just some help on second quarter would be great. Sergio Maiworm: Derek, this is Sergio. Happy to answer those. So I mean, as we've mentioned before, even before the conflict began and now it's even more so, this is going to be a stair step type of results, right? So second quarter results are going to be higher than first, and third is going to be higher than second and et cetera. So that is the shape of kind of how we should think about kind of revenues and EBITDA and cash flow generation throughout the year. So just kind of just using that as a starting point, as we talked about second quarter will have about $10 million or $15 million impact on our revenue generation in the Middle East because of the conflict. That comes with pretty high decrementals. So you shouldn't assume that there is a pretty significant EBITDA deficiency on that as well. So if you think more about a little bit of the third quarter is a bit of the fulcrum here. So if you think there's so much kind of EBITDA and cash flow that we need to generate throughout the rest of the year and assuming that second quarter is going to be better than first, but not quite as high as the third. So that kind of gives you a little bit of that shape of the recovery there, if that helps you. Derek Podhaizer: It does. Maybe just a bit of a holistic question, just given the Enhanced Drilling acquisition, which was pretty accretive. But just thinking about consolidation in the offshore space, we've seen it on the floater side. We've seen it with support vessels, decommissioning, P&A, obviously, Enhanced Drilling with you guys more through a technology lens. But just given we're entering this what appears like a multiyear up cycle in offshore, what else could we expect from the markets from a consolidation lens to keep up with the demand of these upstream customers that are about to deploy multiyear development projects? Just maybe some thoughts around what you could see when we look out over the next few years from a consolidation standpoint. Michael Jardon: Yes. Derek, it's Mike, and thanks for the question. I think it's -- you're asking the really key important element there. And it's -- for us, we're more relevant today post the Enhanced Drilling acquisition than we were yesterday. We need to continue to become more relevant to our customers. And if we're more relevant to our customers, I know we can be more relevant to investors. I think we need to continue to have consolidation in the market. I think especially offshore, international type areas, I think we need to continue to start to try to see that. We're active in it every day of the week. This is another acquisition. I think some of you heard me refer before that I really like the -- my 7-year-old grandson math. This is another one of those. My 7-year-old grandson can do the math to figure out this one is accretive. So we continue to look for those kind of opportunities. We continue to try to do things that help us be more relevant for our customers. I'm going to be particularly excited to talk to customers about Enhanced Drilling, because I think it's going to be like some of the other acquisitions we've made, it's going to make perfect sense to them why that brand under the Expro umbrella is really going to make a lot of sense. So we continue to be active in it. We continue to -- we're not just trying to become big for bigger sake, but we're trying to become more relevant to our customers. And I think that's where we'll continue to have our efforts. Some of it's going to be technology focused. Some of it's going to be market expansion focused. Some of it's going to be geographic expansion. It's all those kind of things that we continue to really put a lot of emphasis on internally. Operator: At this time, we currently have no further questions. Therefore, that concludes today's conference call. Thank you all for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to the Schaeffler AG Q1 2026 Earnings Call. I am Sargen, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's a pleasure to hand over to Heiko Eber, Head of Investor Relations. Please go ahead, sir. Heiko Eber: Thank you very much. Ladies and gentlemen, I'm very happy to welcome you to today's call on Schaeffler financial results Q1 2026. The press release, the following presentation and our interim statement has been published today at 8:00 a.m. CET on our Investor Relations home page. And as always, we will provide the recording and the transcript of the webcast after the call. I'm sure that you have all taken notice of our, by now, well-known disclaimer. As always, Klaus Rosenfeld, our CEO; and Christophe Hannequin, our CFO, has joined the conference call to guide you through the key information in our presentation. And afterwards, both gentlemen will be available for our Q&A session. And now let me hand over to our CEO, Rosenfeld. Klaus Rosenfeld: Thank you very much, ladies and gentlemen. Welcome to our Q1 earnings call. You all received the presentation that Christophe and myself will share in the next minutes. Please follow me on Page #3 with a quick overview. I think you saw the numbers. From our point of view, a good summary to say we started well into the year in an environment that is certainly challenging and in some areas, unpredictable. Sales growth FX adjusted 1% up. We'll share the details in a moment. The gross profit margin is at 21.6%, so more or less the same margin like Q1 2025, clearly driven by operational gains in E-Mobility, VLS and BIS with a slightly negative development in PTC, that should not come as a surprise. EBIT margin at 5%. Clearly, an improvement in E-Mobility, while PTC, VLS and BIS contributed strongly to the EBIT, also supported by lower R&D costs. Free cash flow seasonally negative with minus EUR 209 million. You know that in Q1, it was EUR 155 million, Christophe is going to give you more detail. This also includes higher restructuring cash out and some advanced customer payments in the prior year. And yes, EPS is slightly positive, also impacted by the financial result. Page 4 gives you the breakdown of where we grew, where we not grew. 6% growth in E-Mobility in the first quarter is certainly pointing in the right direction. Powertrain & Chassis, as I said before, slightly down and then moderate growth in VLS and BIS, certainly also driven by the environment. The strongest growth came out of region, Asia Pacific, However, that still has the impact that we explained several quarters now, are embedded with a switch from a bigger project from China to Korea. More important, Page 5, if you look at the auto powertrain OEM business, and that spans across E-Mobility and PTC, breakdown by powertrain type, quite interesting picture here. Schaeffler outperformed in all these 3 different powertrain types. 4% outperformance in BEV segment, 16% versus market growth of 12%; HEV, an outperformance of 1.5%; and even in ICE, where our sales drop was not as big as the market. That is exactly what I hope were that I can show you these pictures continuously for the next quarters, but that all points in the right direction. Order intake, again, by powertrain type, we'll come back to the numbers per division, also shows that in the important best sector, we are showing a book-to-bill of bigger than 1, while in the other sectors in this quarter, order intake was lower than relevant sales levels. Page 6, E-Mobility. As I said, order intake for the whole division is certainly bigger than just for BEV powertrain solutions, is EUR 1.2 billion, what leads to a book-to-bill of 1.0x. You may question, why that? We showed you in the last quarter that we have an order book by end of the year 2025 of more than EUR 40 billion. We are adjusting also volume assumptions constantly. And we are sure that with that order book we have at the moment, enough to do to deliver. So we are a little bit more selective on order intake. EUR 1.2 billion is a good result, and it's also driven by the right projects. Now let me go from BEV to Powertrain & Chassis. Also there, an order intake of EUR 1.4 billion was slightly below last year, was driven by phaseout and also by market development. And as I said before, the gross margin has suffered a bit. It is also impacted by one-off impacts that we can discuss in the Q&A. Vehicle Lifetime Solutions with a 1% growth that is less than before, but a further improved gross margin, that also leads to a superior EBIT margin. Here, we can say that, as you see in the highlights that our platform business, in particular, in China, is growing, serving an increasing number of retail partners, and we are also proud to say that we won the Sustainability Award for the E-Axle Repair Tool, what again demonstrates that, that is not just a PTC business but also very active in the new powertrain solutions. And then last but not least, Bearings & Industrial Solutions, a good development, 1.6%, good outperformance and also a growing book-to-bill ratio with certainly a different time horizon of the order book. There, just to mention one thing that also points to the new businesses, we are proud that we were part of the Artemis II launch, one of the most spectacular space activities in the last weeks, and were represented here with some high-performance turbo pump spinning bearings that have sort of highest-quality offers. So Bearings & Industrial Solutions, as you see from the rocket, is definitely moving in the right direction in its repositioning and performance drive. Then one page on new growth. We have selected here, again, the humanoid because that is what we -- from all the questions we get, obviously, the one that is most interesting to you, three points, just to put it in perspective and give you a little bit more data, how we look at this. This is a business that is in a situation where we are building the business. We are engaging today with [ 45 ] different customers and engaging means active conversations, of which 30 prototype orders have resulted. And from these 35 -- 30 prototype orders, 5 contracts have been secured. You will understand that I cannot mention here the names, but I can tell you that from the 5, these are prominent names, both from China and the U.S. and from Europe. And we are in ongoing negotiations to further build the order book. If I look at what we have today and put our more conservative assumptions of a million robots in 2030 behind it, our best estimate at the moment is that this order book in total order intake from the 5 customer contracts included has a value of somewhere in midsized 3-digit million range. For sure, that is further building and we'll give you -- as soon as these numbers are more solid, we will give you more information on how that develops. That's what I can say at the moment for Q1 customer side. Last point here, we will see first SOP from these customer contracts in Q2 '26 and then also have scheduled further SOPs for Q3 and Q4 2026. So you see the business is building, it is growing. We are part of the companies that is here at the forefront of the development. And the number of inquiries also from German OEMs is interestingly increasing. What helped us was also the recognition for our products. As some of you heard, we won the prestigious Hermes Award at the Hannover Fair. You see a small picture here that recognizes our rotary actuator platform in multiple sizes and multiple sort of nanometers and other functions. That's a positive thing. And as you all know, we will continue to expand our Automotive know-how into this area. Last point is on manufacturing. We are investing into that business, not only for building the business, but also for making sure that we can scale what we need to scale. I finish on Page 11 with my last page before I hand over to Christoph. Capital allocation continues to be driven by a very disciplined approach. Capital employed has been further reduced also through the project that we explained to you in the Q4 results. We had CapEx in Q1 of EUR 237 million, more or less in line with previous year. The investment grade stands at 0.5x and the capital employed at the end of the first quarter was EUR 12 billion. From an average point of view, Q1 over the last 12 months, this is a reduction of EUR 974 million. You see where we spent the money. And I can assure you again, we are disciplined, but also able to invest into the new growth businesses based on our strong cash conversion. With that, I hand over to Christophe. Christophe Hannequin: Thank you, Klaus. Good morning, everyone. As explained by Klaus, very solid first quarter for 2026. So taking a step back and walking you through a couple of slides on sales and gross profit and then EBIT. We see on Slide #12 the slight growth year-over-year, 1% of growth FX adjusted, demonstrates the confirmed scale-up of our E-Mobility activities. The slight erosion is planned from PTC, especially as we disposed of some activities at the end of last year. Slight slow start from VLS, but nothing to worry about on the year to go. This is mainly driven by some negotiations with some of our key customers that impacted a little bit the sales at the beginning of the year, we will catch up and no issues whatsoever on the year to go for VLS. Last but not least, BI&S also having an encouraging start beginning of the year for Q1. If you look at the makeup of our gross profit bridge going from 21.7 to 21.6, so more or less stable, you see a strong contribution from price. So a little bit of that is linked to compensating for the U.S.-related tariffs, but the rest is also the pricing policy that you see mainly for us within VLS and B&IS. The volume, slight decrease there, as I mentioned before, mostly related to PTC and as a result of decisions we took at the end of last year. The one that I would like to draw your attention to is the EUR 67 million of improved production cost year-over-year, a combination of structural improvements year-over-year as the restructuring programs pay off as we continue to drive efficiencies in our plants. And also happy to report, a significant part of it is related to our purchasing performance and the evolution of our raw material prices or our purchasing performance in general. On the other cost of sales, some impact from the U.S. tariff, there's about [ EUR 20 million ] in there. And then a not very helpful comparison to last year from an inventory revaluation standpoint, where we had a very strong quarter last year. We changed the method this year in order to smoothen this out a little bit and make it easier to understand and steer. But we took the hit there on the comparison. On a full year basis, this disappears. And hopefully also it will give us a more streamlined earnings and EBIT profile for 2026. I will finish on this slide by pointing out the FX impact on our gross profit line, still negative, mainly driven by the U.S. dollar, the RMB and the Indian rupee. And we could have listed as well the Ukraine war, which is impacting us quite a bit. On the next page, you see the EBIT walk, increasing by 0.3 points year-over-year. I already mentioned the gross profit evolution, which is very favorable for us. The other interesting news on there is the progress on R&D expenses, which is both increased efficiency in the way we conduct our development programs as well as some of the benefits of some of the restructuring that we've been doing in this field. Again, the SG&A suffering a little bit from the comparison with last year. There's some timing impacts in there. And there's also the impact of higher cost this year related to our S/4 HANA rollout and the fact that we are heavily investing in digitalization and AI deployment within the organization. That [ inflation ], mostly offset by our performance programs, which is what I'd like to see in the P&L. You see that at the EBIT level, FX switches back to a positive level. This is due to two main aspects. The first one is there is a natural hedge within the group between the different lines of our P&L, depending on where we sell and where we spend. And we also have in there the impact of some of the hedging instruments that are paying out favorably and protecting us against the [ evolution ]. So again, a solid 5% of EBIT, which puts us in a good shape for the full year guidance that we'll discuss a little bit later. I will go very quickly through the different slides. But E-Mobility, clearly, the scale-up paying off, both in terms of production efficiency as well as the R&D piece, driven the -- growth on the top line driven mostly this time for this quarter by the controls part of the business, but overall, unfolding as we had forecasted for 2026. On the PTC side, again, sales decline, which is known, planned and accounted for. The EBIT level remains very, very strong in the double-digit range. The 12.7% from Q1 2025 was a very, very, very high comp, but the 11.5% for Q1, again, clearly in line with what we were expecting when you think about, again, our guidance on the right -- on the good side of the guidance approaching the top end of it. On Vehicle Lifetime Solutions, 0.9% of growth year-over-year, not completely what we used to. VLS, nobody grows stronger, stronger than this and will grow stronger than this on a full year basis. This is just a slow start for Q1, but no warning, no alerts, no reason to worry on the year to go, the volume piece will catch up. Despite this, an extremely strong, almost 16% worth of EBIT driven, as I mentioned before, but also a strong pricing policy. The other encouraging point, I think already mentioned by Klaus is the expansion of our platform business on a global basis, which means that we are successfully diversifying out of Europe and out of the traditional repair and maintenance solution activities. On the Bearings & Industrial side, I'm not getting bored of saying this every time, but it's a very, very interesting combination of both growth and restructuring and operational performance, driving a very, very solid first quarter at 9% EBIT. The 10% last year, again, very hard to beat the comparison, which was mainly driven by the inventory valuation topic that I mentioned before and which was followed by a complicated or weaker Q2 in 2025. The change in method takes us away from that. And the 9%, again, very, very much on the progress path for B&IS, for Bearings & Industrial Solutions that we highlighted during the Capital Market Day, it is paying off, and they are executing properly. Free cash flow, seasonally impacted as usual within the group. Klaus already mentioned the slightly higher restructuring payments that you find in the Others category. Net working capital impacted by a conscious decision to raise our inventory levels and buffers in order to ensure that our customers are protected and safeguarded in a very volatile supply environment. This is something we will work down throughout the year as the situation stabilizes and hopefully resolves itself. But the decision was made there to invest a little bit in working capital to protect our customers. CapEx, as planned, in line with the investment plan for this year with quarter 1 that is where we expected it to be. From -- if I move on to the next page, you'll see, again, a not very surprising evolution or lack of evolution of our leverage ratio in the 2.1, 2.2, 2.2 range. Our maturity profile remains extremely well balanced with the upcoming maturities already prefunded, and we will continue to work on this as opportunities arise. Then that takes us back to the full year guidance, which I will hand back to Klaus. Klaus Rosenfeld: Yes. Thank you, Christophe. Very briefly, we confirm our guidance. We are, from our point of view, also with what we see in April on track here. Certainly, the impacts from the geopolitical and macroeconomic environment were not known when we approved this guidance. We have still said we will not change it and do what is necessary to stay within the range. The 5 percentage points, 5% EBIT margin is clearly at the -- pointing to the upper end here. We need to see what the second quarters bring. You know that our business is seasonable. But what I can say here is we confirm these main KPIs. Let me finish by a quick look at the financial calendar. The colleagues will go on roadshow, virtual, but also to the conferences. We see a lot of interest at the moment from U.S. investors, but also from Asia. So you see it on the schedule. We try to be as responsive as possible. And we thank you for your attention and interest in Schaeffler. With that, I hand back to Heiko. Heiko Eber: Thank you very much, Klaus. Thank you very much, Christophe. As already mentioned, if there are further needs -- if you see further need for discussion tomorrow, the virtual roadshow organized by JPMorgan. So if you have interest, please let us know. And with this, I would say that we directly jump into our Q&A session, and I would hand back to our operator. Operator: [Operator Instructions] And we have the first question coming from Christoph Laskawi from Deutsche Bank. Christoph Laskawi: The first one would be on the humanoid SOPs that you've highlighted. Now that you are moving into series production, I was wondering if you could comment in a bit more detail on the expected revenue contribution in '26 and '27. Is it fair to assume that in '26, it's probably closer to low double-digit euro million amounts and in '27, more towards the mid- to high double-digit range? That's the first question. And then you called out earlier that the environment is tricky currently and in some cases, unpredictable. Do you see any changes of customer behavior currently from the OEMs, any changes in call-offs also on the Industrial side? And with that in mind, should we expect Q2 to roughly trend in line with Q1? Any color that you could share there would be appreciated. Klaus Rosenfeld: Well, let me start with the second one. Again, we are -- we have 4 different businesses. And I start with BIS. I just came back from China, and we see that there, although the macroeconomic situation sounds a little bit subdued, there is a growing interest to work with us. We don't look at the Industrial business by call-offs. That's more an Automotive concept. And there, everything we saw, Christoph, in April doesn't look like a dramatic change. It's maybe a little softer than what we expected at the beginning of the year, but it seems to be quite resilient. When you see the news, when you see what's going on in the world, this is to some extent a surprise, but the numbers speak rather for a little bit of a softer development in the next months, but it's not a dramatic change in direction. So let's see how this is going to unfold and how the second quarter will look like. With what I've just said, we don't expect a dramatic change to our Q1. But certainly, Q2 is typically not as strong in terms of growth as the first quarter. The more important question is how will this unfold? Let me give you a little bit of a logic how we do this when we now estimate what's coming. You basically -- in these contracts that we have, and I said, 5 customer contracts where you will understand I cannot mention the names, I can also not mention what kind of products the customers order, but for sure, these are the ones that we have also communicated and shown at fairs. We typically look at the number of bots. We look at the pieces per bot, and we look at the price per piece. This is the simple logic that is behind this. Now SOPs will start in Q2. There's another customer that will then come in Q3 and another one in Q4. But this is the simple mix. So don't expect miracles in 2026. This is not a full year, that's the start of the year. Again, this is all estimated at the moment. We have no reason to believe that these SOPs are not happening because for sure, in particular, the bigger players want to get ready for their first generation. The real interesting question, how does it scale then? And how many more pieces are we going to expect then in 2027? Also there, what I see, and you just mentioned indicative numbers, going to 2030 revenues, I think you have a chance to go up above the 3-digit million mark. But the ramp-up curve as such, again, is premature. Again, 2026 will be also impacted by this timing aspect that I said. If everything works well, 2027 is more a 2-digit million number. And then it will -- however, the development in terms of the numbers is -- will go up to something in the 3-digit million at the latest in [ 2030 ]. From a revenue point of view, order book is certainly already bigger than a 1-year number. That's, again, my best estimate at the moment. We have told all of you also in the individual conversations that we will give indication today that you have a little bit of a sense what's going, but the regular reporting about order books, order intakes, revenues will need a little bit more time. Christophe and myself, we are 100% certain that we should only come out with numbers that are solid. And we are building this business. There's a lot going on here. I could spend most of my time on this, but I can't. So give us a little bit -- be a little bit more patient, give us a little bit more time. We'll come up certainly during this year with more figures here that you can also follow what we are doing. Operator: The next question comes from Jose Asumendi from JPMorgan. Jose Asumendi: A couple of questions, please. On the order backlog on humanoids, can you maybe just give some color maybe how broadly is split by region, maybe a little bit the geographical split, if possible? Second, do you foresee, as we think about a 1- or 2-year view, some expansion of plants, of maybe footprint either in the U.S. or in Asia to support the humanoid ramp-up? And can you talk a bit about also your -- I believe you call it -- it's like an R&D lab that you have next to Shanghai. When do you expect to open up that center for investors to visit it? And then second, on E-Mobility, can you talk a bit about how you reuse some of the capacity -- existing capacity you have to adapt the different powertrain trends we have globally, so we can make the best use of -- you can make the best use of fixed cost investments? Klaus Rosenfeld: So let me start with the first question. In what I told you again with the 5 customer contracts, I can say -- again, it's a development that still needs to be more solidified. It's more or less equally balanced between China, the U.S. and Europe. It depends a little bit how you define it, whether you define it by the humanoid builder or where the end demand is coming from. But if I just look at the big partner in the U.S. and the big partner in China, and that is together with the other ones, it is more evenly spread at the moment. So it's not China or the U.S., it's at the moment, both China and the U.S. plus a positive outlook on the humanoid players that have more a European base. You heard about Hexagon, that's the latest one where we entered into a cooperation. That's certainly a positive that this is not just one country or one region bet. The footprint -- sorry, the humanoid factory in China is open. So if someone is interested to visit it, you just need to organize it. We have seen significant interest there. Maybe we need to organize a little bit of a tour, but it's certainly something that we would open up and show you what's going on there. It's quite fascinating, also the speed how the Chinese colleagues build that up. Footprint to support the ramp-up. At the moment, we have not decided on any plans to change the footprint. What we have, in particular in Germany is, for the time being, sufficient, but we need to follow the development very carefully. It's a function of the ramp-up speed. If this goes very fast, we will react. If it goes more slowly, it's a different story. But we do this, as I normally say, with our eyes on the road and the hands upon the wheels. And we'll be very pragmatic to organize the necessary capacity. At the moment, it looks like that we can more or less handle what we have without bigger footprint investments. For sure, the cumulative total investment for the next year will be another interesting figure for you. And don't forget, we'll also spend money not only for plants or machines, but also for R&D and for people. If I may say this, my biggest challenge at the moment is to add the relevant people here to the team. This is a start-up. It's a very different environment. We have super engineers, super product developers, all of that. But if we want to build this as a global business, we also need to support David and his team, that is a global team with more talent, and that's where we're focusing on. So the next years will not only be looked at from a CapEx point of view, but also from the buildup of the right talent to drive this new market. Don't forget, there is a very important angle to physical AI and industrial AI. This whole ecosystem is not just mechanics, it's the interface between software and hardware. And if you really want to play there, you need to understand the AI angle very carefully. Also, Christophe said this, see it in a broader context. Then the last question was on E-Mob. Again, here, it's not so much capacity in the plant. It's more how do we optimize the fixed cost portion. We certainly have a way to go in terms of R&D. That's something that we certainly address under our existing performance program. Whether that's enough, we need to see. In general, I can say, with the improvement in Q1 2026, for, say, over Q1 2025, if you remember this little formula that we developed, is it possible to bring E-Mobility across the line in 2026, that delta of nearly 5.5 basis points -- but the delta from Q1 '26 to Q1 2025 is 5.5 to 6 basis points. If you consider that E-Mobility is a seasonal business with a stronger fourth quarter, that shift is -- if that we can maintain that shift over the next quarters, that really points in the right direction, even if revenues come in lower than what we expected when we had our Capital Markets Day. So let's see how Q2 goes and let's see that we are able to put the right measures in place. It's not a CapEx question so much. It's more a question of reallocating resources within the group and reducing also the R&D impact from headcount here in Germany. Operator: The next question comes from Ross MacDonald from Citi. Ross MacDonald: It's Ross MacDonald at Citi. I have three questions. I'll again ask on the humanoids, given there's so much client interest here. Klaus, just to help us back out, let's say, a potential content per vehicle to Schaeffler from these activities, I understand you're guiding around mid-3-digit million revenue potential on the current 5 contracts, assuming a global market of 1 million humanoids in 2030, would be good to just confirm that specific point. But then within that, what is the market share that you're assuming on that sort of revenue ambition, let's call it? I'm aware for 2035, you'd be comfortable or happy even with a 10% market share. So on that math, is that the 10% market share assumes that is driving a mid-3-digit million top line? That would be my first question. Klaus Rosenfeld: Well, Ross, again, we are working in a market that is emerging. And that certainly needs, to some extent, a scenario approach. Our sort of conservative scenario is 1 million humanoids to be produced globally by 2030. And I can also tell you, this is start-up territory. We here at Schaeffler, we don't like hypes, we don't want to see something where we are putting too much out. We want to be conservative. I think the 1 million humanoids, as it looks today, is a conservative number. It could increase, but we need to see. It's also a question where are they applied, and there are still very different views on this. So let's build on the 1 million and make sure that we make that and seize the upside if possible. The second cornerstone of our calculation is also nothing new to all of you. Andreas has said this also a year ago. When we look at the bill of material of an average humanoid build for different purposes, we're talking about a 50% addressable market for Schaeffler. And if I now say if we aspire to get 10% market share of that addressable market for us, then that's basically the logic that we have in mind. You all know that this is then a function of how costs are decreasing and how this is progressing and certainly, whether you can sell your products and your development competency to the right partners, that is, from my point of view, from a CEO perspective, the most important thing. It's the same like in the auto market. There are so many humanoid players around, so many people that claim that they can do this and this and this. For us, as one of the sort of leading suppliers in this space, we want to do business with the right partners. And I can say, you will hopefully understand that I cannot disclose names, but the names are prominent names. We want to be selective in the ones that we bet on. And that what I see at the moment gives me a good sort of positive feeling that we have the right contracts to start with. This is a start. It's not the situation where we can say we've already achieved everything we want to achieve. It will continue in 2026. And this concept of offering partnerships in terms of we can supply our parts and we offer people the ability to utilize their robots and learn together in a context where this is very much AI-driven, where the industrial metaverse plays a role, that is, from my point of view, the driver for success. Let's leave it here, but I leave you the rest of the calculation. At the end of the day, what counts is really what comes out in the bottom line. Ross MacDonald: That's helpful. And maybe I will fire two more quick questions for Christophe actually. Christophe, maybe on the second quarter trading, if I look at 2025, there was quite a large step down in margin from Q1 to Q2. So you went from 4.7% to 3.5%. How should we think about the seasonality within Schaeffler this year? Would you be hoping for a less extreme margin pullback in the second quarter? How would you think about Q2 within the current guidance range? And then a second question, just specifically on the other division, noting that was around about EUR 30 million loss per quarter on average last year, it has stepped up significantly to minus EUR 15 million loss in Q1. How should we think about modeling that specific division going forward? And maybe you can give us some color on what drove that EUR 20 million delta in Q1 versus Q4? Christophe Hannequin: So first question, and I touched on it during some of my comments, Q1 was overly impacted by inventory revaluations in 2025, some of it which resolved itself in Q2 and led to the performance that you saw. It's not really driven by the business itself, it was more of the way we essentially take our standard cost variances through inventory and the balance sheet. As I mentioned, we have switched some of our methodology on this one. So I expect a smoother quarter-over-quarter evolution in this one. The division that's primarily impacted by this one, especially last year, was BI&S, so Bearings & Industrial Solutions, first and foremost. And then PTC was probably the second strongest impact. So we'll see how Q2 unfolds. But if we did it right, we should have a much smoother quarter-over-quarter evolution. Now we do have a seasonal business where plant loading is important to us and efficiencies are driven by the loading of our plants. So you should not expect Q1 and Q4 to be directly comparable, if I put aside some of the R&D and the customer negotiations impact. But from a purely operational standpoint, Q1 and Q4, despite everything I've said before, will not be directly comparable. But again, smoother quarter-over-quarter is what we would like to see and what we're driving for in 2026. I'm also a big believer that a better load, better operational steering of our plants drives throughout the year drives higher efficiencies and higher performance overall. So let's see what Q2 gives us. But again, I'm on the optimistic side on this one. Division others, as you know, it's a mix for us of activities we're ramping up, ramping down. So the humanoid piece is in there, our defense efforts are in there, hydrogen is in there, so are some of the businesses that we are disposing off. So the comparison year-over-year is a little bit tricky. But if you use what you're seeing right now, you probably will not be off from what we should see in 2026. But that one is especially tricky, I guess, for you to model from the outside, unfortunately. Klaus Rosenfeld: And it's a task for us to think about maybe for next year, whether we guide something on this or how we best do this. But as you said, it's a mixed bag of things that are ramping up and ramping down. And we understand the point. But for the time being, I think you have the guidance that you saw, and it needs to add up to the group guidance. Operator: There are no more questions at this time. I would now like to turn the conference back over to Heiko Eber for any closing remarks. We have a last-minute registration from Klaus Ringel from ODDO BHF. Klaus Ringel: I wanted to ask on the Auto business. I mean it was quite nice to see the outperformance this quarter across different powertrains. And I would be interested in your view looking ahead, if we can expect to see such a nice outperformance or if you would expect also some seasonality in here? Klaus Rosenfeld: Klaus, it's a good question, but I don't have a crystal ball, to be honest. With this environment, it's really difficult to mention that. To answer that question, what is quite interesting from my point of view, if you follow what's at the moment happening on E-Mobility, not only in Europe, but also in the U.S., you see what comes a little bit as a surprise to us that in particular in the U.S., people are buying e-cars, although the production side is more going in the other direction. That may have to do with the fact that people look for fuel economy in a situation where [ ethylene ] becomes more important. We don't know yet. The trend is not stable. You also saw what happened here in Germany, what happened in France with more E-Mobility support. There are the obstacles with the loading infrastructure. For me, what is really most important is that we have this hedge across the three different types. and that we can play these corresponding cubes well. So I can't tell you what Q2 is going to look like. What I can tell you is that our focus on playing in this space from E-Mobility to PTC in a clever and smart way to utilize the opportunities that are there quarter-by-quarter. That's the game plan. And for sure, our biggest challenge is to deliver on our E-Mobility promise. And there, if outperformance helps there, I would expect that we probably see a continuation during the year. How this unfolds quarter-by-quarter remains to be seen. A critical element will be the China angle of this. And maybe I can leave you with the following information. My colleague or our colleague, Thomas Stierle, is spending more time in China than any other colleague that we have. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Heiko Eber for any closing remarks. Heiko Eber: Thank you very much. So first of all, thanks to our speakers. Thanks to my CEO, my CFO. Thanks to all of you for your continued interest. And as always, a big thank you to the team for the preparation. If there are more questions, please feel free to give us a call, happy to help. And with this, thank you very much. Have a good rest of the day and talk to you soon. Operator: Ladies and gentlemen, the conference is now over, and you may now disconnect your lines. Goodbye.
Operator: Good day, and thank you for standing by. Welcome to the Diamondback Energy, Inc. first quarter 2026 conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam T. Lawlis, VP of Investor Relations. Please go ahead. Adam T. Lawlis: Thank you, Corey. Good morning, and welcome to Diamondback Energy, Inc.’s first quarter 2026 conference call. During our call today, we will reference an updated investor presentation and letter to stockholders that can be found on Diamondback Energy, Inc.’s website. Representing Diamondback Energy, Inc. today are Kaes Van’t Hof, Daniel N. Wesson, Jere W. Thompson, and Albert Barkmann. During this conference call, the participants may make certain forward-looking statements relating to the company’s financial condition, results of operations, plans, objectives, future performance, and businesses. We caution you that actual results could differ materially from those that are indicated in forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company’s filings with the SEC. In addition, we will make reference to certain non-GAAP measures. Reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I will now turn the call over to Kaes Van’t Hof. Kaes Van’t Hof: Thanks, Adam, and welcome, everyone. As with the last few years, we are going to go straight into Q&A. Operator, please open the line for questions. Operator: Thank you very much. One moment. As a reminder, to ask a question, you can press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q&A roster. We will now open the call for questions. Our first question comes from the line of Neil Singhvi Mehta of Goldman Sachs. Neil, your line is open. Neil Singhvi Mehta: Good morning, Kaes, and good morning, team. The big development you have been signaling is the move to a green-light framework from yellow-light, adding two to three rigs and moving to the fifth completion crew. Can you take a moment to talk about the thought process that went into this decision and how you are thinking about where and when to add activity? Kaes Van’t Hof: Yes, Neil. Good question. There are macro and micro elements. From a macro perspective, there is a clear market signal. We are two months into the world’s largest oil supply disruption in history, and while Diamondback Energy, Inc. is solely based in West Texas and somewhat of a tourist in this situation, it is a very serious event with a lot of oil supply off the market. If that is not a signal to grow production in an advantaged area like the Permian Basin, I do not know what is. We hope there is a resolution to the conflict, but even if there is, there is a lot of noise in the system and a lot of barrels have been taken off the market. Global inventories are starting to decline rapidly, and we are going to do our small part to add production. On the micro, Diamondback Energy, Inc. has the best inventory quality and depth in North America, executed at the best cost structure. If this is not the time to grow now, then when? We are able to do this in a very capital-efficient manner and get it done quickly. We have a backlog of DUCs and we prepare our business for up, down, or sideways. By adding a frac crew earlier in the year, we can get production up immediately. It is a testament to the team’s preparation and the whole organization working together to do this very quickly. In other organizations, the decision might take longer. Neil Singhvi Mehta: Thanks, Kaes. On the return of cash framework, you did not move away from the fixed framework, and while you bumped the dividend, you indicated you might slow the buyback a little bit. What did you intend to communicate with that? Also, there is a concentrated seller ownership base. If the family ultimately sells down their stake, do you still view Diamondback Energy, Inc. as a logical buyer to help offset that potential risk on the stock? Kaes Van’t Hof: Let us take it higher level. Allocating capital is our most important job. The return-of-capital programs were put in place after the COVID near-extinction event, when investors said, “I want my money back and I want it in a formulaic manner.” That has worked very well. We do not expect our ability to return capital to stockholders to change. We just want the flexibility to make more cyclical moves versus moves within a 90-day window. We have a very good track record buying back our stock: 42 million shares for $6 billion to date at $148 per share. With the stock where it is today, that is a very positive return for our stockholders, and I expect that to continue. We recognize we also have a large shareholder, and we have found ways to help monetize their stake efficiently. They are most focused on us creating long-term value. Allocating a ton of free cash to the balance sheet in times of extremely high oil prices creates long-term value with, in our mind, a higher floor for the stock. I would not expect anything to change. We have a great relationship with the family and the ability to help them monetize. If we use excess free cash flow over the next couple of quarters to pay down debt, we can help monetize their stake more efficiently coming out of this. They are long-term holders and they want the stock higher. Operator: Thank you very much. Our next question comes from the line of Scott Michael Hanold of RBC Capital Markets. Scott, your line is open. Scott Michael Hanold: Thanks. You all had pretty robust production performance in 1Q. Based on our chat last night, it sounds like your completions were as planned. Can you walk through why performance was so strong? It sounds like it was a lot more well performance versus any other dynamic. Is that something we should anticipate moving forward, and what is embedded in guidance? Kaes Van’t Hof: Yes, Scott. High level, our well performance year-to-date looks up relative to last year, which is probably even a surprise to us internally. We continue to try new things in completion design and efficiency that are starting to pay dividends. On the production side, there are a lot of good things happening in the field: less downtime, more automation—call it AI or automation—impacting that side of the business. Better wells and lower downtime is a good recipe for a production beat. Daniel N. Wesson: Post the Endeavor merger and getting the team together, we started trading a lot of ideas to optimize primary completions as well as the base. On the completion optimization side, with perforating strategies, rate design, and sand loadings, we think we are seeing uplift, and time will tell as we continue to implement that design. On the production side, workovers and treatments—acid jobs, chlorine dioxide jobs, surfactant jobs—are starting to pay dividends. Layering on machine learning as we continue to look at our data streams and processes, we are working toward implementing AI into field operations. We are seeing downtime come down, which was a big part of the beat in Q1. Little bits of optimization across the board are starting to show through to the top-line number. Scott Michael Hanold: When you guided oil, it looks like you could be greater than potentially 520 thousand barrels per day. If the macro environment continues, how much desire is there to continue to let oil production grow versus curtail it? Is there a scenario where you would step it up even higher if the macro remains heightened? Kaes Van’t Hof: It is fluid, and the board wants us to take this quarter by quarter. If there is outperformance and we still have triple-digit oil prices and the market is calling for oil, this could be a year where, instead of pulling back activity, you keep efficiencies going and let production continue to climb. We are only two months into this conflict, and it could be resolved quickly. We are ready to react. We still have levers to grow further, but for now, 520 thousand-plus barrels per day of oil is the new baseline. Operator: Thank you very much. Our next question comes from the line of Neal Dingmann of William Blair. Neal, your line is open. Neal Dingmann: Morning, Kaes and team. Thanks for fitting me in. My question is on activity. How much, if any, will negative Waha prices impact what you might or might not do? Same question with oilfield service prices—are you expecting OFS inflation given what is going on with prices? Kaes Van’t Hof: On Waha, pricing is deeply negative. We are well protected with financial and physical hedges. Our mix is moving more toward physical when the two new pipes come on, hopefully in the second half of the year. We are protected to get through this tight spot financially while we continue to add oily inventory—we are drilling some of the oiliest stuff in the basin. We will continue to work on physical protection on the gas side. We have worked on a power project for almost a year; we will see if we can get that done. We have talked at length about monetizing our gas, and we are on the cusp of that starting to happen when these pipes come on. Danny, on services? Daniel N. Wesson: We have not seen much pressure to date on service pricing. It is really a capacity question—what does service capacity look like? We have not seen industry activity ramp aggressively through these first couple of months of this conflict, so there is still quite a bit of capacity in rigs and completions. Calendars are not squeezed enough yet for providers to push pricing when we look for additional equipment. We have seen some inflation in consumables tied directly to commodity price, but those have been minimal thus far. We will see what activity does in the Permian and the Lower 48 to gauge service inflation through the rest of the year. Neal Dingmann: On capital allocation—given likely record free cash flow per share—how does capital for M&A stack up against buybacks or near-term debt repayment? Kaes Van’t Hof: The options for free cash flow are to grow—organically or inorganically—return cash, pay down debt, or hold cash. On organic growth, we pulled that lever in a small way by going to the top end of our CapEx guidance. On inorganic (M&A), we have been very good over the years, but this volatility makes deals difficult, private or otherwise. M&A is likely fairly quiet at Diamondback Energy, Inc. for the foreseeable future. We increased the base dividend. With oil prices where they are, we do not know if investors are capitalizing this price environment yet. For us, the bigger use of free cash is to pay down debt rapidly and convert that debt value to equity value in our NAV, and to keep some cash for a rainy day because this is a very volatile environment. Operator: Thank you very much. Our next question comes from the line of Arun Jayaram of JPMorgan Securities. Arun, your line is open. Arun Jayaram: Good morning. The 2026 and 2027 strips are around $90 and $75. How do you think about development in a much stronger oil price than 90 days ago? For the two to three incremental rigs, how are you thinking about capital allocation across the asset base? Are deeper benches now competing for capital as you drive down well costs in the Barnett? Kaes Van’t Hof: Even with higher commodity pricing, we are going to hold to the vast majority of our spacing assumptions throughout the basin. We look at each DSU-level project to maximize wells until the incremental last well generates a 40% rate of return at $60 oil. That provides prudent spacing and solid returns despite volatility. Drilling our best stuff first and sticking to that knitting continues. The Barnett, particularly given well sizes from a production perspective, generates more PV today, so it is getting more attention. Albert Barkmann: That is right, Arun. The acceleration coming in with these two rigs is really an acceleration of the Barnett plan. We are focused on that development and getting ahead of the Barnett obligations we discussed last quarter. Daniel N. Wesson: I will add that Barnett activity and obligation activity are almost entirely focused on the JV area with another partner. Those wells are not as high working interest—about half and half, a little heavier weighted to Diamondback Energy, Inc. The two to three rigs equate to about 1.5 net rigs at Diamondback Energy, Inc. The top line looks like we are adding a bunch of activity in the back half, but net to us it will be less impactful. Arun Jayaram: For Jere, you have taken pro forma net debt down to $12.7 billion. Given the intention to pay down more debt in a higher commodity price environment, what are your targets for the balance sheet from a gross or net debt perspective? Jere W. Thompson: Great question. We previously talked about hitting $10 billion net debt sometime in the next 12 to 18 months. With current commodity pricing and excess free cash flow generation, it looks like we can hit that much earlier—potentially in a couple of months. As we move into the back end of the year, we will have an opportunity to reduce both net and gross debt. We will build cash on the balance sheet through the fourth quarter and then look at calling our $750 million of 2026s outstanding. As we move into 2027, we may consider a larger liability management exercise with additional cash to take out as much as we can from near-term maturities, particularly anything maturing prior to 2030. We are in an advantaged position to move our balance sheet from a position of strength to a fortress in the near term. Operator: Thank you very much. Our next question comes from the line of John Christopher Freeman of Raymond James. John, your line is open. John Christopher Freeman: Thank you. Even after increasing activity, your reinvestment rate still fell sharply from what you planned last quarter—from 44% to 34% at the current strip. You have the ability to increase activity more and still have an industry-leading low reinvestment rate. Is there a reinvestment rate that you want to stay below regardless of the commodity environment? Kaes Van’t Hof: We have polled investors who own the stock. The general consensus: a little growth will differentiate Diamondback Energy, Inc. and makes sense, but do not do it in a capital-inefficient manner. We were going to run between four and five frac crews to hit our original guide. That fifth crew was going to go away for five or six months and then come back. It is a Halliburton e-fleet simul-frac, as efficient as it gets. We are just bringing that crew back to run five crews consistently. That maintains capital efficiency versus going too fast too soon, which has driven inefficiencies in E&Ps’ plans and, at times, ours. Staying capital efficient is the priority; the reinvestment rate is an output of that. John Christopher Freeman: Along those lines, the original 2026 plan did not forecast meaningful DUC draws or builds. How does that look now with the new plan? Kaes Van’t Hof: It evolves through the year. We will draw down DUCs in Q2 and backfill with two rigs worth of activity to build the DUC balance back up. We peaked a little over 200 DUCs in Q1. That number will come down in Q2, and the backfill rigs will rebuild it. We likely need to keep a slightly higher DUC balance than with four crews—around the high hundreds, about 200 DUCs—so we have two projects behind each crew ready to go. Daniel N. Wesson: We like to keep a quarter to a quarter-and-a-half worth of inventory ahead of each crew for flexibility if we run into a pad issue or takeaway constraint. Each crew will do about 100 wells per year, maybe a little more. A couple hundred wells ahead of five fleets is the right carry DUC balance. As crews get more efficient and complete more wells, it either means releasing crews to keep the same well count or building 20 to 30 more wells for the year in total—still within our original guidance window. We took the momentum from Q1’s beat and kept it going through the rest of the year. Operator: Thank you very much. Our next question comes from the line of Analyst of Barclays. Your line is open. Analyst: Good morning. On crude oil marketing, 1Q pricing was a bit stronger. Can you remind us of your exposure to premium price indices and the marketing strategy on oil? Kaes Van’t Hof: Strategy-wise, we learned from the Permian takeaway crisis of 2018 that we needed to use our balance sheet to get crude to the biggest markets—Corpus Christi and Houston. We invested in EPIC, Gray Oak, and Wink to Webster. Those made our investors money and protected Diamondback Energy, Inc. commercially. We have about 300 thousand barrels per day going to Corpus on EPIC and Gray Oak, and another 100 thousand barrels per day going down Wink to Webster into Houston refineries. We are exposed to water-based pricing and even have a small contract with dated Brent exposure. That has helped us. This is a good playbook for gas; we are a little behind there because oil is 90%+ of revenue, but the next trend is to improve gas marketing. Analyst: On the acquisition line item in 1Q, there were just a few hundred million. Are you doing any organic acquisitions or bolt-ons at good pricing? Jere W. Thompson: There were a couple of small acquisitions in our backyard in the Midland Basin. In that line item, we also have capitalized interest and capitalized G&A, which made up the vast majority. Add a couple of small acquisitions and about $50 million to $75 million in leasehold bonus as well. Operator: Thank you very much. Our next question comes from the line of Phillip J. Jungwirth of BMO. Phillip, your line is open. Phillip J. Jungwirth: Good morning. Can you talk about how you are viewing Viper ownership and what is optimal for Diamondback Energy, Inc.? You sold some in the quarter, still own 39%. With a stronger free cash flow outlook, there is less need for divestitures. Is there a minimum level of ownership you would maintain, and how does that play into capital allocation? Kaes Van’t Hof: We sold down a little Viper ownership as a follow-on from the drop-down where Diamondback Energy, Inc. took a lot of Viper stock. We could have taken more cash then, but instead waited and sold a little last quarter. We are done selling Viper shares at Diamondback Energy, Inc. The growth opportunity set for Viper is significant. Could Diamondback Energy, Inc.’s ownership be reduced through dilution? Possibly. But no desire today to monetize more shares. In a few months, both companies will be very well positioned from a balance sheet perspective to do anything from an M&A perspective, which is where we wanted to be. Phillip J. Jungwirth: In the 2022–2023 upcycle, private operators drove an outsized share of rig additions and oil growth. How would you characterize privates’ ability in the Permian to respond to higher oil prices now versus a couple of years ago, given implications for tightening OFS markets? Kaes Van’t Hof: Important question, and it has factored into our calculus. In 2022, Endeavor (now part of Diamondback Energy, Inc.) went from 2 rigs to 15; CrownRock (now part of Oxy) from 2 to 8; EnCap North (now part of Aventa) from 2 to 6; DoublePoint/Double Eagle (now part of a combination of us and Exxon) from 1 to 6. Big private-side moves back then. Much of that Midland private activity growth has been consolidated. There will be private growth—the model has shifted to smaller asset packages developed quickly, farm-ins to larger operators, and growth in Northern New Mexico—but by our math that is 20–30 rigs, not 100 like 2022. They will move quickly, but the volume impact will be much smaller than 2022. Operator: Thank you very much. One moment for our next question. Our next question comes from the line of Scott Andrew Gruber of Citigroup. Scott, your line is open. Scott Andrew Gruber: Good morning. In light of the impact of privates, how do you think about Diamondback Energy, Inc.’s volumes over the next five to ten years on an organic basis? Do you think about modest growth, stepping higher during periods of elevated prices and then maintaining that new level so net-net you are growing? Or, when prices are soft, do you pare back activity and let production fade? Kaes Van’t Hof: The operator with the best inventory quality, lowest cost structure, and longest inventory depth has the right to grow organically and create shareholder value. We have been looking to hit the organic growth accelerator for a while but did not have macro support. If mid-cycle pricing is a little higher—say $70–$75 WTI—I think a couple percentage points of organic growth adds to NAV and long-term free cash generation. Importantly, this new plan generates more free cash flow per share at any oil price above $60 than prior plans. In a $70+ world, that is advantageous to shareholders long term. Scott Andrew Gruber: On capital efficiency, it appears to improve on the margin with the updated plan, but it is hard to separate the DUC draw impact from adding rigs in the Barnett where you are still ramping learnings and efficiency. How would you describe the underlying trend in capital efficiency as you lap the DUC draw into 2027? Kaes Van’t Hof: DUC draws and Barnett timing are noise. Below that, the team is executing. We set records on drilling two-, three-, and four-mile laterals. Wolfcamp D development: we set a goal of $300 per foot for drilling, down from $360 per foot last year—we are already at $300 per foot. Barnett drilling needed to be below $400 per foot to target $800 per foot well costs to be competitive with the base program—we have already put a well in under $400 per foot. Efficiencies continue to improve above ground, and the big move is drilling and completing better wells subsurface. Those are the long-term drivers of capital efficiency. Operator: Thank you very much. Our next call comes from the line of Derrick Whitfield of Texas Capital. Derrick, your line is open. Derrick Whitfield: Good morning, and thanks for taking my questions. Regarding your share buyback and guiding principles, where do you view mid-cycle pricing now in light of the Middle East conflict and the risk premium? Also, what are you seeing in degradation of inventory quality across the Permian, clearly beyond Diamondback Energy, Inc.? Kaes Van’t Hof: We are long-term bullish. Within three months, we went from a projected largest oversupply (which was debatable) to the largest undersupply, and we are only two months in. It is hard for us to move off our mid-cycle framework—mid-$60s WTI, mid-teens NGLs, and $3 gas with Waha differentials. Energy security is becoming more important, meaning more landed storage and the U.S. barrel being more important than ever. We think the U.S. shale cost curve is moving up. Operators have done a good job with efficiencies, but geologic time catches up and there are signs of degradation in productive quality across the U.S. Our job is to keep Diamondback Energy, Inc. at the low end of the cost curve, with top-tier inventory depth and quality and low execution costs. We are very well positioned. It is too early to raise mid-cycle pricing. Derrick Whitfield: As a follow-up on the Barnett, referencing the play outline, how large could you reasonably grow this position beyond the 200 thousand you are highlighting? You have one of the most prolific buyers in Midland working with you. Kaes Van’t Hof: We announced the position after we felt we had a solid base of what we could get. We continue to add in Q1 on a small basis. Now we are doing a lot of trades. Big operators have Barnett positions, and we are all looking to block up to three- and four-mile laterals. There is a lot of Midland-based private equity building six- to eight-section positions that likely come to market. I think the position will grow, and we have the sizable base to continue growing it. Operator: Thank you very much. Our next question comes from the line of Analyst of Pickering Energy Partners. Kevin, your line is open. Analyst: Good morning. Can you provide color on the cadence of net lateral footage per quarter throughout the year and the lateral length per well? We assume the additional 200 thousand lateral feet is back-half weighted. Daniel N. Wesson: It will be pretty evenly weighted toward the back half. We went up to around 6.2 million lateral feet, so we are looking at probably 1.5 to 1.6 million per quarter for the back half of the year. Q1 was one of our lighter quarters on lateral length—about 11.5 thousand feet. For full-year 2026, we still expect to be at 12.9 thousand feet, ramping through the back half. Analyst: As a follow-up, any updates on the surfactant tests? Daniel N. Wesson: We had a big push toward the end of last year to get tests in the ground and try different surfactant combinations across rock types to understand drivers of well performance. Those tests are in, the team is studying results, and we are refining the process. We plan the next deployment early this quarter. Kaes Van’t Hof: One thing I would add: we tested about 50 wells last year. On average, we saw a 100-barrel-per-day uplift, but some wells were up 400–500 barrels per day and some were zero. We are figuring out what we did right in the 400–500 barrel-per-day wells and what we did wrong in the zeros. This is version 1.0. I think the basin and Diamondback Energy, Inc. are on the cusp of technological breakthroughs related to increasing recoveries past primary development. That will likely be a mega theme over the next four to six years. That is why we have held as much acreage as we have. We have some of the best oil in place in the basin and some of the smartest people working on this—potentially extending the basin’s life by a decade or two. Operator: Thank you very much. Our next question comes from the line of Analyst of Truist. Your line is open. Analyst: Morning. Thanks for the time. On the return-of-capital framework and pursuing growth this year—which makes sense—what is an upper bound of oil production growth for Diamondback Energy, Inc., assuming a green light on the macro? Is 5% a fair assumption, or could it be higher? Kaes Van’t Hof: I do not want to get into a specific number. We have already grown low single digits year-to-date. I do not think there is a lot of investor appetite for a large CapEx bump and more than mid-single-digit growth. It is early, there is a lot of noise, and no one is sure how the macro unfolds. We are keeping our cards close, coming out with a good Q1 forecast, and will see how the year unfolds. Investor appetite is not for the “go-go” days of 2017–2018 with multiple CapEx increases and mid-double-digit growth. We will keep it steady and capital efficient and take the macro quarter by quarter. Analyst: Any update around your surface position in light of a potential new market entry there—specifically the power project? Jere W. Thompson: As Kaes alluded to, we are making meaningful progress with our partners. We view the power and data center opportunity as a unique way to use our natural gas in-basin at advantaged pricing. Once we finalize a project, we will discuss more details, but it continues to move forward. Operator: Thank you very much. Our next call comes from the line of Charles Arthur Meade of Johnson Rice. Charles, your line is open. Charles Arthur Meade: Good morning, Kaes and team. On the acceleration of CapEx, can you give us an inside-baseball account of how you came to that decision—board latitude versus a quick telephonic/Zoom meeting? I am looking for insight into how you operate as a fast mover in a volatile tape. Kaes Van’t Hof: Our board is very nimble for its size—13 members who are responsive and move quickly when the decision is obvious. We also got advice from Jamie Dimon last year: communicate with your board often and tell them everything. We decided to overcommunicate through this crisis. The crisis kicked off a week after earnings; we had set the budget. We sent three or four notes to the board in March to update how we were thinking. Then it was a simple meeting ahead of earnings to make this decision. The board had resounding support for the plan. That is the inside baseball on how Diamondback Energy, Inc. works with its board. Operator: Thank you very much. Our next question comes from the line of Leo Paul Mariani of Roth. Leo, your line is open. Leo Paul Mariani: There has been discussion of weak Waha prices in 2Q. Could there be short-term negative volume impact for the company? Are there wells with a lower oil cut you might choke in for a period given how bad gas prices are? Kaes Van’t Hof: At these NGL prices, we think negative $3 Waha basically cuts out the value of your NGLs. Worse than that—negative $4 to negative $6—you start to eat into the value of oil production. Oil is $100 a barrel, not $60, so the math on shutting in oil barrels is different, but I do think shut-ins are happening in the basin. In areas like New Mexico, with tighter restrictions on midstream development and flaring, that is probably happening. For us, back in October when Waha blew out due to maintenance, we shut in 2 thousand–3 thousand barrels per day of production for a period and then brought it back. I would bet we are around that range today with Waha as weak as it is. It is not impeding new development, particularly with the amount of financial hedges we have. Leo Paul Mariani: That is helpful—it sounds like you still have flow assurance and this is more of an economic decision. Kaes Van’t Hof: That is right. Every molecule we have produced has moved; it is just moving at a negative price. Leo Paul Mariani: On growth, your oil guidance is a bit open-ended with 520 thousand-plus. You did around 520 thousand in 1Q. If the oil environment holds, should we think about that plus a little growth in the second half? Kaes Van’t Hof: That is fair. We will take it quarter by quarter. If we are outperforming the plan, we will hold activity and produce more oil into a market that needs it. Operator: Thank you very much. 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 the line of Analyst of Wolfe Research. Analyst: Thanks. Back to the balance sheet—Jere, with no variable dividend in the capital return structure, is it inconceivable that your net debt could go to zero over the next two or three years? Would you allow it to go to that level? Kaes Van’t Hof: That would be a good problem to have. We will be transferring a lot of value from the debt side of the NAV to the equity side over this quarter. We will take things quarter by quarter. If this oil price environment persists and the stock continues to go up, we will allocate less to buybacks and continue to put cash on the balance sheet. This is a cyclical business. We want the ability to pounce on opportunities when the cycle turns—M&A, buying back a lot of stock, or leaning on the balance sheet to buy back stock. The key is flexibility and long-term value creation. We want to get to zero debt and one share outstanding—it will be a race between those two with free cash generation over the coming decades. Analyst: Follow-up on non-operated positions: what are you seeing from your non-op and how could that influence consolidated growth? Perhaps a Viper question, but any color on private-side rigs and non-op activity? Kaes Van’t Hof: Diamondback Energy, Inc. carries very little non-op. Viper sees about half the wells in the basin. Early signs show nothing major on permitting, but field discussions suggest rigs are getting picked up on the private side. If we had to give a Permian rig count forecast for year-end, we are probably up 25–30 rigs from today. Operator: Thank you very much. Our next question comes from the line of Analyst of Melius Research. Your line is open. Analyst: I know things are fluid and you are taking it quarter by quarter, but the market has significantly changed in the last 60 days with structurally higher oil. You raised guidance for this year. How are you thinking about out-years and setting up the company to continue to grow at a mid-single-digit rate or not in 2027, 2028, 2029? Kaes Van’t Hof: We have to think long term. If we are in a higher-for-longer world, an advantaged company with advantaged inventory like Diamondback Energy, Inc. should answer the call for production growth—so long as it maintains capital efficiency. That would shift the business from a steady-state bond-like free cash generator to a free-cash-flow-per-share growth generator over the next few years, into the decade. It is early; we will see what the macro holds. It does feel like the world changed a lot since our last call. Analyst: As you think about your inventory depth versus peers, you are in a leading position. How would you characterize your position versus peers given the longevity you have? Kaes Van’t Hof: We are fortunate to have incredible inventory quality and duration. Within Diamondback Energy, Inc., we are always looking for the next stick—organically (Barnett generation, Upper Spraberry development) and inorganically. This machine is built to do significant transactions like Endeavor, but also the sub-$20 million deals. We do not want a unit in the Midland Basin to trade hands without Diamondback Energy, Inc. knowing it could be in our hands. We are set up for both small bolt-ons and larger transactions. Operator: Thank you very much. I am showing no more questions at this time. I would now like to turn it back to Kaes Van’t Hof for closing remarks. Kaes Van’t Hof: Thank you, everybody, for your interest. We are always available to answer any questions. Please reach out to the number or email on the notices. Operator: Thank you for your participation in today’s conference. This does conclude the program, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to Wolfspeed, Incorporated Third Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to [ Ed Goodwin ], Investor Relations. Please go ahead. Unknown Executive: Thank you, operator, and good afternoon, everyone. Welcome to Wolfspeed's Third Quarter Fiscal 2026 Conference Call. Today, Wolfspeed's Chief Executive Officer, Robert Feurle; and Chief Financial Officer, Gregor van Issum, will report on the results for the third quarter of fiscal year 2026. We would also encourage you to reference the slides that were published on our IR website today. Please note that we will be presenting non-GAAP financial results during today's call, which we believe provide useful information to our investors. Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered as a supplement to and not a substitute for financial statements prepared in accordance with GAAP. A reconciliation to the most directly comparable GAAP measures is in our press release and posted in the Investor Relations section of our website, along with a historical summary of our other key metrics. Today's discussion includes forward-looking statements about our business outlook, and we may make other forward-looking statements during the call. Such forward-looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially. With that, let me turn the call over to Robert. Robert Feurle: Thank you, and good afternoon, everyone. We appreciate you joining us today. We are pleased to see that our strategy is building meaningful momentum. The third quarter of fiscal 2026 delivered revenue of $150 million, in line with the midpoint of our guidance. We continue to make strong progress on the areas of our business within our control, addressing our capital structure, improving our operational efficiency and deepening engagement with customers across the broad set of end markets. As we move forward, we remain focused on 3 key strategic priorities: advancing technology leadership, demonstrating strict financial discipline and driving operational excellence. We have made strong progress in each of these areas this quarter. Starting with technology leadership. We continue to accelerate innovation across our silicon carbide platform to create a fundamental technology advantage. We are maintaining a disciplined approach to R&D, focusing our investments on high-return programs in the fastest-growing markets, and our efforts are delivering tangible results. This quarter we introduced the first commercially available 10-kilovolt silicon carbide power MOSFET and launched our next-generation TOLT portfolio. These innovations, particularly 10-kilovolt will help to cement Wolfspeed's position as a leader in high-voltage applications. At the same time, we are making progress on our materials capabilities. After shifting all device production to 200-millimeter at Mohawk Valley, our Durham facilities anchor our materials capabilities. The infrastructure, talent and floor space there today support at least our near-term growth ambitions, including commercial scale 300-millimeter development as the market evolves. Now turning to financial discipline. We took an important step this quarter to further optimize our capital structure through the refinancing of a portion of our first lien senior secured notes. This refinancing was supported by both new and existing institutional investors, demonstrating confidence in the long-term growth prospects of Wolfspeed and silicon carbide technology more broadly. Gregor will provide more on the specific financial implications shortly. This brings us to our third priority, driving operational excellence. We remain focused on differentiating through quality, customer responsiveness, time to market and supply chain resilience. We continue to refine our manufacturing processes to improve quality, cost and speed across everything we do. As mentioned last quarter, we completed the shutdown of 150-millimeter device production at Durham ahead of schedule. This creates optionality to redeploy that space. This approach allows us to increase output and improve our earnings potential by leveraging our current tooling base without the heavy incremental capital investment that would otherwise be required. The Durham campus can currently support all commercial materials activities as well as our emerging 300 millimeter platform. We are also leveraging AI within our own operations. Through our expanded partnership with Snowflake, we have unified factory, supply chain and enterprise data on a single platform, and we've deployed AI-driven tools that enable real-time insights and faster decision-making across the organization. Last quarter, we outlined the realignment of our go-to-market strategy around 4 verticals: auto, I&E, aerospace and defense and materials. During the quarter, we have sharpened our approach with the completion of recent leadership additions, including Daihui Yu as Regional President for Greater China; Stefan Steyerl as Vice President of Sales for EMEA, and, most recently, Yasuhisa Harita as Regional President for Asia Pacific. These leaders strengthen our ability to scale our go-to-market efforts globally, and we are encouraged by early traction we are seeing across each of these end markets. In auto, global EV adoption continues to grow, though more modestly in certain regions. Silicon carbide revenue doesn't necessarily scale in lockstep with vehicle sales due to design-in and qualification cycles. As the industry evolved, we believe that we needed to retool the approach as the market entered its next phase. Therefore, we strengthened our team with experienced automotive executives and launched a focused strategy targeting key global accounts with high electric adoption, positioning Wolfspeed to capture the next wave of design wins. Given the qualification cycles of EV programs, our success from these engagements are expected to translate into revenue over time. In I&E, momentum in AI data center applications continues to build. Our TOLT portfolio is purpose-built for AI rack power, and we are actively collaborating with AI ecosystem partners on the transition from 400-volt to 800-volt architectures. While it represents a moderate portion of our business today, we have continued to see strong sequential growth in AI applications with approximately 30% sequential growth from Q2 to Q3 and increasing customer engagement, which gives us confidence in the long-term trajectory of this opportunity. In aerospace and defense, growth is supported by electrification trends and increasing demand for secure domestic supply chains. In addition, we continue to expand our presence in emerging applications such as electric aviation. Our partnership with a leading manufacturer of electrical vertical takeoff and landing aircraft is a strong example of how our solutions enable higher efficiency and power density in the next-generation platforms. Finally, in our materials business, we continue to serve our 150-millimeter materials customers, including under the LTA framework. In addition, we are making progress with qualification on 300-millimeter materials. At the same time, we are engaging with AI ecosystem companies to explore how 300-millimeter substrates can address thermal, mechanical and electrical challenges in next-generation AI and high-performance computing packaging architectures. We continue to engage on 300-millimeter as a longer-term opportunity. I want to thank the team for their continued execution against our strategic priorities and for the excellent progress against our technological, operational and go-to-market objectives. With that, I will turn it over to Gregor. Gregor Issum: Thank you, Robert, and good afternoon, everyone. Before walking through our financials, I want to highlight the benefits of our recent refinancing. We took a significant step to strengthen our capital structure through the private placements of new convertible 1.5 lien senior secured notes, common stock and prefunded warrants, generating approximately $476 million of aggregate gross proceeds. We used the cash on hand to cover fees associated with the private placement, directing the full aggregate gross proceeds towards reducing our existing senior secured note balance by approximately 43%. These actions reduced total debt principal by approximately $97 million and are expected to lower the annual interest expense by approximately $62 million. Our first debt maturity remains in 2030, providing runway to execute our strategic plans as we continue to optimize our capital structure. Additionally, during the quarter we received CFIUS clearance that resulted in the release of equity to Renesas. CFIUS approval, coupled with our strategic refinancing, primarily drove the more than $400 million increase in the company's equity position during the quarter, significantly improving our debt-to-equity ratio. Now I will turn to our third quarter results. We generated $150 million in total revenue for the quarter, in line with the midpoint of our guidance. Power revenue was approximately $100 million, of which 90% was from our Mohawk Valley 200-millimeter device fab. The remaining 10% of power device revenue was last time buys of our 150-millimeter device inventory. Materials revenue was approximately $50 million, flat sequentially. Next, our gross margin for the third quarter was negative 20.6%, representing a double-digit percentage point improvement compared to the last quarter, partially driven by a more favorable product mix as well as beneficial impact from digesting the fresh start accounting inventory in the last quarter. The impact of underutilization across our manufacturing footprint was approximately $46 million in Q3. Underutilization continues to be the primary driver of our gross margin profile and improving factory utilization remains one of the most important levers to drive margin expansion going forward. One point worth highlighting is as our operation performance continue to improve, we are producing the same revenue with less capacity consumed. These continuous efforts position us to keep expanding our earnings potential per dollar of invested capital even if it makes the reported underutilization look larger. Non-GAAP operating expenses totaled $61 million in the quarter. With headcount reduction actions largely complete, we expect to maintain approximately this level of OpEx moving into the next quarter. Adjusted EBITDA for the quarter was negative $62 million. Now turning to cash flow, which remains one of our top priorities. Operating cash flow for Q3 was negative $84 million, driven by improvement in precious metal reclamation, interest income and continued working capital improvements. Capital expenditures were approximately $5 million on a net base in the third quarter, reflecting $38 million of gross CapEx, mostly coming from previous commitments we have made. These investments were nearly entirely offset by $33 million of incentive receipts from the New York State related to Mohawk Valley. We ended the quarter with approximately $1.2 billion in cash and short-term investments, allowing us to continue to pursue our strategic priorities with confidence. Whilst we've taken meaningful steps to strengthen our balance sheet, we recognize there is more work ahead. Looking ahead, while near-term demand in automotive remains uncertain, we continue to see encouraging momentum in high-growth areas such as AI data centers and other I&E applications. These markets represent meaningful long-term opportunities, though it will take time for them to scale and offset current softness in automotive. During the fourth quarter of fiscal year '26, we are targeting revenues between $140 million and $160 million. We expect non-GAAP gross margin to remain negative in the fourth quarter and OpEx to be roughly flat quarter-over-quarter. On the long term, our objective remains clear: to return to above-market revenue growth driven by a more diversified customer base and to achieve EBITDA and cash flow profitability. Robert Feurle: Thank you, Gregor. This quarter reflects continued progress against our 3 strategic priorities: advancing technology leadership, demonstrating strict financial discipline and driving operational excellence. The actions we have taken this quarter, strengthening our balance sheet, launching industry-leading products, deepening our leadership team in the region with a focus on customer centricity and enhancing our operational capabilities are all directed towards one objective, positioning Wolfspeed to capture growth and expand earnings power as the market environment improves. With that, operator, we are now ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Christopher Rolland with Susquehanna. Christopher Rolland: I guess my first one is going to be around AI and your opportunities to address AI very specifically. If you could talk about perhaps the AI power tree, what's available in your view for silicon carbide, what applications you might address earliest, whether it might be PSUs or power delivery boards or solid-state transformers or the 300-millimeter kind of future applications that you spoke about in your prepared remarks. If you could just talk about what you think actually comes to revenue first and what might be meaningful for Wolfspeed, that would be great. Robert Feurle: Thank you. So that's a great question. Let me quickly start kind of answering, you discuss 2 things. The one is on the device side here. It's everything which is, I call it, 650 volt up, right? Then if you look at from an application perspective, these are the power supplies in the data center, the traditional new customers around that space. And this is, of course, battery backup storage, kind of powering also the air conditioning in the data centers consuming silicon carbide. And then outside of the data center, more of the transmission piece where pretty much you will see the future adoption of solid state transformers, right? So this is really a significant driver of future silicon carbide demand. And we are engaged, I would say, the whole chain from energy generation to up to the kind of 650 volt level. Below that, that's then a different wide bandgap technology kind of taking that space. But up to that space, I think we are engaged with everybody in the ecosystem. Lower voltages are primarily, I'll call it, component and discrete approaches and the higher voltage are modules. So the qualification times are also a little bit different between modules and improving reliability of a solid-state transformer versus pretty much selling components to the power supply. So the one which is probably ramping faster is more the power supply stuff while then solid-state transformers, I think, will kick in kind of over time. And second piece to the second answer to your question is around 300-millimeter. So again, we started these, we call it beyond power activities, and we see quite some really good momentum here with a lot of ecosystem partners on using silicon carbide's unique property around thermals and mechanicals in various aspects, but all of them come around packaging, co-packaging, interposers, heat things in that kind of application area. I think people are looking like, wow, there is really unique properties being super conductive while also being insulating, and I think here, the discussions have started here. This is early discussions. Also as we've indicated, there's nothing where we see revenue short term. But we believe here the technology has certainly a right to play. Christopher Rolland: Excellent. Maybe as a follow-up, I think the legacy for Wolf for silicon carbide has primarily been automotive. I was wondering if you could speak to how the end markets might change under your management, particularly between automotive, industrial and AI. And AI, in particular, might you be able to offer maybe an aspirational AI target for revenue at some point in the future? Robert Feurle: No, absolutely, very good question here. Look, when I came in, I mean the company was organized around products. There was one gentleman running modules, one gentleman running discrete. And so what I said is we got to change this to be application-oriented because, look, at the end of the day the focus was all around EVs. And then we did an organizational change and said let's move to an application-focused go-to-market approach. And so the business lines are now pretty much we've got an automotive business line, the gentleman from Onsemi running that business line. And there's an I&E business line and that I&E business line is kind of with some substructures around renewables, AI data center and then generally drives business, which is pretty much all of what we call industrial here. And then we have a segment around aerospace and defense, and then there's the materials business. And this is kind of how we view kind of the go-to-market to really support a more differentiated view of how do we approach customers, but also how do we service the customers because the design cycles are different, the requirements are different and the dynamics are certainly different. I think that's something which we really see that organizational change which I put in place last year is really starting to pay off to get that focus on it. And as you've probably seen here, previous quarter, Q1 to Q2, we grew 50% on the data center side. This quarter, Q2 to Q3, we grew 30%. So it's really growing here. Again, it's not a huge size of revenue yet, but it's certainly the growth shows putting the focus on it. We got the product portfolio, yes, and we are making really, really good progress. Operator: Your next question comes from the line of Jed Dorsheimer with William Blair. Jonathan Dorsheimer: Robert, a question for you, just maybe a little bit on the go-to-market strategy. Some of your competitors, I mean, everybody is talking of the use in AI in terms of 800 voltage. But utilization at some of the competitors has actually come down, which tells me that auto is still the main driver. So I'm just -- I guess my question for you is, as you think about your go-to-market strategy on the product level for AI applications and maybe also for solid-state transformers, how much absorption do you think you can -- what type of utilization do you think you can get to in Mohawk Valley? And then I have a follow-up question. Robert Feurle: Yes. Look, I mean, at the end of day, first of all, we're not disengaging from automotive, yes. Let's make this very clear here. Automotive is a very, very important part of our business. And I think, look, the cars are becoming electric and the cars are becoming connected. So we will clearly focus on, I call it, technology leadership around really penetrating these, let's say, high-end sockets. And quite frankly speaking, the customers are really appreciating kind of what we're doing on the technology side. And you will see here some announcement at PCIM. PCIM is the upcoming trade show on the power side here, beginning of June here, and you will see some announcement around the technology side coming out on that trade show. Then on your question on AI data center, again, this is being driven out of our I&E business line. And again, it really represents a significant growth for us in a sense that really diversifying Wolfspeed away from pretty much being a pure-play auto company and really diversifying the revenue. And then within I&E, like I already mentioned, right, it goes pretty much everything from 650 volts upwards. So a 650-volt discrete, it's pretty much 1,200-volt discrete. And then kind of in the 2.3 kilowatt, 3.3 kilowatts, you look into modules. And these are pretty much modules which are used for the solid-state transformers. And as these transitions in this transformer space happens, I think we are very, very well positioned here with the customers in this ecosystem. And then, of course, we see demand picking up and that then also will increase the loading effectively in our Mohawk Valley. I mean the good news is, quite frankly speaking, that the restructuring on our, let's say, device side is done. We talked about we phased out 6-inch. We pretty much exited our Durham facility. This means we have completely made the move over to Mohawk Valley, which means also it's the ability to scale, yes, because a lot of -- if I look at the competition here, a lot of them are still on 6-inch. A lot of them are really trailing in that conversion. And I think this puts us in a unique position that we can also tell the customer, look, there is no PCN. We don't have to move the product anywhere to go through as kind of the demand picks up on these applications. Jonathan Dorsheimer: Great. And then maybe as a follow-up for Gregor, just it looks like you've been able to restructure a little bit more than half of the L1. I'm just curious what your intentions are in terms of that. Can you -- is the goal to -- and I may have missed this in the remarks, but get that completely restructured before the June time frame or July time frame? Gregor Issum: Yes. Obviously, you saw that we took a first big step by taking out 43% of the first lien debt. That is the most expensive debt we have. It's around 14% interest rate. And there will be a further step up to 16%. So clearly this is the prime focus to address. We felt it was very important to take this first step, and we are very pleased with the signal of strength with new long holders coming in and even having a part of equity at a premium be part of this mix of taking a part of the L1 out. The size of the L1 was, however, such that doing this in one go would have been too costly, particularly because we expected that the stock would rerate after taking a first step and showing the signal of strength that we have disability. We think we see some of that over the last couple of weeks. And what we're doing right now is evaluating which exact steps we're going to take and when. We are not in a rush because of the maturities in 2030, but obviously I'm keen to do something. We're not going to put a specific time line against that. That is not necessary to put that pressure on ourselves. We will take the best possible approach when the market conditions are optimal to get the best cost of capital for the company. Operator: There are no further questions at this time. I will now turn the call back to Robert for closing remarks. Robert Feurle: All right. Thank you also for joining us on the call, and thank you for the very constructive questions. Gregor Issum: Thank you. Bye-bye. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen. Welcome to Workiva's Q1 2026 Earnings Call. My name is Darcy and I will be your host operator on this call. [Operator Instructions] Please note that this call is being recorded on May 5, 2026 at 5:00 p.m. Eastern Time. I would now like to turn this meeting over to your host for today's call, Katie White, Senior Director of Investor Relations at Workiva. Please go ahead. Katie White: Good afternoon, and thank you for joining Workiva's Q1 2026 Conference Call. During today's call, we will review our first quarter 2026 results and discuss our guidance for the second quarter and full year 2026. Today's call will include comments from our Chief Executive Officer, Julie Iskow, followed by our Chief Financial Officer, Barbara Larson. We will then open up the call for a Q&A session. After market closed today, we issued a press release, which is available on our Investor Relations website, along with our quarterly investor presentation. This conference call is being webcast live, and following the call, an audio replay will be available on our website. During today's call, we will be making forward-looking statements regarding future events and financial performance, including guidance for the second quarter and full fiscal year 2026. These forward-looking statements are based on our assumptions as to the macroeconomic, political and regulatory environment as of today, reflect the management's current expectations and belief based on factors currently known to us and are subject to significant risks and uncertainties. Workiva cautions that these forward-looking statements are not guarantees of future performance. We undertake no obligation to update or revise these statements. If the call is reviewed after today, the information presented during this call may not contain current or accurate information. Please refer to the company's annual report on Form 10-K and subsequent filings with the SEC for factors that may cause our actual results to differ materially from those contained in our forward-looking statements. Also during the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations of GAAP and non-GAAP measures are included in today's press release. With that, we'll begin by turning the call over to Workiva's CEO, Julie Iskow. Julie Iskow: Thank you, Katie, and thank you all for joining us today. Q1 2026 delivered another quarter of continued demand for our trusted platform. Our 2 dozen purpose-built solutions are continuing to resonate with our customers. We beat the high end of our revenue guidance with 21% growth in subscription revenue and 20% growth in total revenue. We also continued to deliver on profitable growth, with Q1 2026 non-GAAP operating margin greater than 18%. This was a 240 basis point beat on the high end of our guide and it was a 1,600 basis point improvement compared to Q1 of last year. Our Q1 momentum reflects broad-based durable demand across our platform. In a market where organizations must navigate evolving regulations and complex data ecosystems, the office of the CFO relies on Workiva as their platform of trust. We provide the accuracy, accountability and assurance that they need, ensuring that every number and every narrative is traceable with full lineage. Customers are increasingly standardizing on the Workiva platform. This is showcased by the continued strength in our large contract cohorts. In Q1, the number of contracts with an annual value of over $300,000 increased 38% and contracts valued over $500,000 increased 39%, all compared to Q1 of 2025. The growth in each of these categories was driven by both additional solution sales within our existing customer base and the landing of larger new logos. Let's look at a few specific examples from Q1 that demonstrate how our platform is winning in the market. We're helping our customers solve their most complex data and reporting challenges with solutions across multiple categories. First, a European networking and communications company landed as a new platform customer with a mid-6-figure deal for 3 solutions. The deal included our ESEF, SEC and sustainability offerings. As a dual-listed company on the NASDAQ in both the U.S. and Europe, this company invested in the Workiva platform to replace their point solutions and manual processes. The investment in the Workiva platform will transform their financial reporting, regulatory filings and collaboration activities, ensuring compliance with ESEF, SEC and sustainability standards. The deal was a co-sell and will be delivered by a Big 4 partner. Second, a large European financial services provider landed as a new customer with a mid-6-figure deal for 4 solutions. The solutions included ESEF reporting, multi-entity reporting and bank regulatory reporting as well as sustainability. The institution is in the process of an ERP transformation and is required to comply with the CSRD. Workiva was the only platform evaluated to address the specifics of financial, sustainability and bank regulatory reporting in a single platform. The deal was sourced and will be delivered by a Big 4 firm. Third, a multinational bank and financial services company signed a mid-6-figure expansion deal for 3 solutions, including multi-entity reporting, policy management and Pillar 3. One of the drivers of this deal was the evolving requirements of Pillar 3 reporting. Pillar 3 is the Basel regulatory framework requiring international banks to publicly disclose detailed information on their risk exposure, their capital adequacy and their risk management practices to enhance market discipline. With the recent changes to Pillar 3, disclosures are no longer static reports. They now need to be delivered as regulatory data sets. This company became a new customer in Q3 of 2025, making a 3-solution purchase on their initial deal. This Q1 expansion was a co-sell and will be delivered by a Big 4 partner. I'll move on now to financial reporting. Demand for these solutions continues to build as companies modernize increasingly complex global operating models and move away from legacy manual workflows. Now as companies transform these processes, they're also keeping a close eye on the evolving regulatory landscape. I want to briefly address a financial reporting topic that received a lot of attention this quarter. It's the SEC's consideration of a proposal that would let companies opt for semiannual rather than quarterly reporting. Any change of this kind would introduce new decisions for both issuers and investors. Most companies we've spoken to expect to continue reporting quarterly, reflecting ongoing investor and stakeholder demand for timely, decision-useful financial information. As far as any potential impact to Workiva, a change in filing cadence would not alter our value proposition. The value of our platform extends well beyond the filing itself. For the office of the CFO, Workiva provides a trusted data foundation that helps teams remain report-ready and audit ready at any point in any quarter. CFOs need continuous access to accurate, traceable and defensible information to serve internal stakeholders, lenders, business partners, regulators and investors. Simply put, Workiva's value is not dictated by how often a company files, it's tied to giving CFOs absolute confidence in their data every day of the quarter. It's this foundation of trust that enables us to win both new logos and account expansion deals across our financial reporting portfolio. Let me highlight a few of our Q1 wins in this area. First, a global delivery and logistics leader purchased a mid-6-figure account expansion deal for multi-entity reporting. The business driver of this platform expansion for this 14-year loyal customer is to transform the processes of reporting across the company's more than 250 legal entities. This was a competitive deal to replace a legacy software provider. The deal was a co-sell and will be delivered by a Big 4 partner. Second, a U.K.-based AI-native cybersecurity company landed as a new customer with a multi 6-figure deal for 3 solutions: private company financial reporting, multi-entity reporting and management reporting. The primary driver for this purchase was enhancing their internal financial reporting processes and displacing legacy manual workflows. The deal underscores our growing traction among the world's most technologically sophisticated software and cybersecurity companies. The deal was sourced and will be delivered by a Big 4 partner. Third, a European-based global health care leader signed a mid-6-figure account expansion deal for multi-entity reporting. This 5-year loyal SEC customer had just invested in a multi 6-figure GRC deal back in Q4 of 2025. The primary driver for this multi-entity reporting investment was a financial transformation driven by a large-scale SAP S/4HANA initiative. As part of this larger project, Workiva will displace a legacy on-prem tax and reporting solution. As the customer transforms processes across the organization, they will deploy Workiva to support the global rollout of their multi-entity reporting. This deal was a co-sell and will be implemented by a Big 4 partner. We also continue to see strong momentum with our governance, risk and compliance solutions as companies seek to replace legacy systems and consolidate risk management on a single unified platform. Let me share a few Q1 GRC deal highlights. First, one of the largest financial services institutions in the U.S. expanded their investment in Workiva with a mid-6-figure deal for controls management. This new investment will support 5 key GRC use cases: internal controls over financial reporting, finance data governance controls, business process controls, sustainability controls and resolution and recovery plan controls. The primary drivers for this engagement were changes to banking regulations and a strategic initiative to better manage risk. This was a competitive win that displaced multiple incumbent solutions. The deal was a co-sell and will be implemented by a regional advisory firm. Second, a regionally prominent community bank in the United States landed as a new customer with a mid-6-figure deal for 5 solutions. The solutions included audit management, policies management, controls management, compliance management and SEC reporting. The primary driver for this engagement was a GRC transformation project to standardize GRC processes on a single platform. This was a highly competitive win over a crowded field of legacy point solutions. The deal was sourced and will be implemented by a regional advisory firm. Third, we closed a multi 6-figure account expansion deal with the U.S. state government. Already a financial reporting customer, this organization expanded its footprint by adding 4 GRC solutions: controls, operational risk, policies and procedures and compliance. The primary driver for this expansion was the need to optimize their current risk and compliance processes. Leveraging Workiva's platform and technology is enabling them to accomplish more with a leaner team. This deal was a co-sell and will be delivered by a regional partner. Moving now to sustainability. We're seeing this market shift from a voluntary practice to a more formal business requirement. Regulations are taking shape across major markets. Deadlines are firming up and companies are building out the necessary processes to meet them. The bar for these disclosures is rising as well. Regulators and investors are increasingly expecting the same level of rigor that's applied to financial data, applied to nonfinancial or sustainability data. And this is pushing accountability into the office of the CFO. To meet these high stakes, customers are increasingly moving away from isolated point solutions and choosing unified platforms. Workiva provides the single system of record that links financial and nonfinancial data together. And this gives CFOs the full lineage, traceability and audit readiness that's required for them to stand behind their disclosures with confidence. Let me highlight a few sustainability deals from Q1. First, one of the world's largest chemical companies signed a multi 6-figure account expansion deal, adding our sustainability advanced and CSRD solutions to their existing platform relationship. Their existing solutions included SEC reporting, audit management and multi-entity reporting. The primary driver for this expansion was the need to comply with the emerging CSRD requirements. This was a competitive win over a point solution and reflects the growing need for integrated sustainability management at multinational organizations as they navigate the evolving European regulatory landscape. The deal was a co-sell and will be implemented by a Big 4 partner. Second, one of the world's leading global biotech companies signed a multi 6-figure account expansion deal, upgrading to sustainability advanced and adding sustainability for multi-entity access and the CSRD. The primary driver of this expansion was the need to comply with emerging CSRD requirements. The customer will leverage Workiva to manage their corporate and entity-level sustainability disclosure across multiple international frameworks, including the Australian Sustainability Reporting Standards. The deal was a co-sell and will be implemented by a global systems integrator. To conclude our solutions section, let's briefly touch on the capital markets landscape. We were encouraged to see the IPO market reaccelerate in Q1. We supported several IPOs in the quarter and saw consistent demand for our capital market solution as more companies prepare to go public. We believe there is a healthy backlog of companies waiting for the right conditions, and we're ready to support them on our platform through their private to public journey and well beyond. A compelling example is one of the most widely watched potential debuts in market history, a company whose valuation, distinct business lines and cultural footprint make it unlike anything the IPO market has ever seen. This company more than doubled its spend with us with a mid-6-figure expansion deal for multiple solutions, including capital markets, SEC advanced, multi-entity reporting and controls management. The company signed on as a new customer more than a year ago with their initial investment in the Workiva platform. As part of this deal, this company plans to replace multiple point solutions as it transforms and standardizes its financial reporting and financial controls processes on the Workiva platform. This deal highlights Workiva's unmatched value proposition for companies on a private to public journey, and it underscores our platform's ability to serve some of the world's most complex organizations. The deal was a co-sell and will be delivered by a Big 4 partner. I'll turn now to product innovation. Workiva is in the midst of a fundamental transformation with AI, transformation of our platform, our solutions and what we deliver to the market. Our AI strategy is outcome-driven and customer-focused, deploy AI natively across mission-critical processes that define the office of the CFO backed by purpose-built solutions and deep domain expertise that turn AI capability into measurable results. Because in the office of the CFO, the tolerance for error is 0. And as reliance on AI increases and there's more unverified data and there are more unverified data sources, trust in data becomes even more critical. And our customers, CFOs, finance leaders and audit and risk teams need to be audit-ready. And they need to be able to explain and defend any number at any point at any time. This is why our platform remains differentiated. This is our core. This is our moat. This is our advantage. To solidify and build on this advantage, we're accelerating our innovation with AI across the platform. Here's what we've recently delivered to turn that advantage into customer value. First, for GRC, we launched the Workiva Flowchart Visualizer and enhanced GRC intelligence agents. The Flowchart Visualizer automatically turns process narratives into audit-ready visual diagrams, mapping risks and controls to each step and surfacing gaps in documentation. The GRC agents enable our customers to spot patterns across issues to uncover systemic risks before they escalate into material events, to surface top themes and trends to inform faster, more confident risk decisions and to track engagement for ongoing assessments and remediation. Second, for sustainability, we released an AI agent for use with the IFRS sustainability disclosure standards. This agent is designed to summarize disclosure requirements in plain language summaries, identify disclosures related to existing data or content and generate first drafts of and iterate on narrative responses based on collected values. And third, an example of the many innovations in financial reporting is the launch of the internal tie-out agents. These are purpose-built for one of the most time-pressured tasks in the office of the CFO. These agents automate data consistency checks across financial documents and associated schedules. They flag inconsistencies and variances instantly before they reach reviewers, management or auditors, and they go beyond notifications. These agents help you review and resolve each issue with full document context, line item links and targeted alerts. This is the foundation of our agentic approach. Every human or agent action logged automatically, every workflow audit-ready by design and at enterprise scale with security built in. As AI reshapes how the office of the CFO operates, Workiva will be the foundation that organizations rely on, not because we're adapted to the moment, but because we were built for it. Our commitment to speed, innovation and transformation doesn't stop with our customers, it extends directly into our own operations. As we noted at the close of last year, we entered 2026 as a stronger, more disciplined and more agile company. We remain deeply committed to our dual focus, both growth and profitability, demonstrating our ability to drive meaningful operating leverage while maintaining durable top line growth. Our Q1 operating margin is a direct reflection of our focus on operational rigor. The 1,600 basis point margin improvement is the direct result of deliberate operational discipline executed across every function of the business. We've made progress on restructuring for efficiency, aligning our teams around our highest leverage market opportunities and embedding AI and automation into workflows that previously required manual effort at scale. Six months ago, Michael Pinto joined Workiva to reshape how we go to market. That work is underway. He's building a leaner, sharper sales organization that's designed to carry us well beyond $1 billion in revenue. This means raising the bar on seller performance and pairing deep industry knowledge with experienced leaders who've scaled businesses like ours. With a tighter focus on our multi-solution platform and more intentional decisions about where we compete and how we partner, we're developing a go-to-market engine built for sustained growth. The result, a disciplined foundation that captures our expanding market opportunity while keeping us on track toward our medium- and long-term margin goals. And yes, more operating margin on the sales and marketing line. In closing, I want to thank our customers for their continued trust and their partnership. I would also like to thank our employees and our partners around the world for their commitment to innovation and to our customers. Their support, their focus and their execution continue to strengthen our business and position us for long-term success. With that, I'll turn the call over to Barbara to walk you through our financial results and our guidance in more detail. Barbara Larson: Thanks, Julie. I'll start with an overview of our financial and key metric highlights for the first quarter 2026, followed by our guidance for the second quarter and updated guidance for the full year 2026. We started the year strong with broad-based demand across our portfolio of solutions. First quarter total revenue was $247 million, up 20% year-over-year and beating the high end of our guidance range by $1 million. Foreign currency fluctuations had an approximately 2 percentage point favorable impact on our reported growth rate. Subscription revenue was $225 million, up 21% year-over-year. Both new customers and account expansions continue to contribute to our revenue growth with new customers added in the last 12 months accounting for approximately 45% of the increase in Q1 subscription revenue, consistent with our expectations. As of quarter end, our current remaining performance obligations were $765 million, up 20% over the prior year. This growth, which reflects the revenue we expect to recognize in the next 12 months, includes an approximately 1 percentage point favorable impact due to foreign currency. Professional services revenue was $22 million, up slightly versus the prior year. In line with our expectations, higher-margin XBRL services continued to grow, while our partners took on more of our lower-margin setup and consulting services. Our non-GAAP operating margin for the quarter was 18.4%. This beat the high end of our guidance by 240 basis points, driven by our continued focus on operational rigor and productivity and the timing of certain headcount-related expenses. Moving on to our performance metrics for the quarter. We had 6,665 customers at the end of Q1 2026, an increase of 280 customers year-over-year. Our gross retention rate was 97%, exceeding our 96% target. And our net retention rate was 112% for the quarter compared to 110% in Q1 2025. Consistent with our reported revenue growth, there was an approximately 2 percentage point favorable impact on NRR due to foreign currency fluctuations. During the quarter, 75% of our subscription revenue was generated from customers with multiple solutions, up from 69% in Q1 2025. Growth in our large contract customer cohorts also reflected strong momentum. As of the end of the first quarter, we had 2,575 contracts valued at over $100,000 per year, up 24% from the prior year. The number of contracts valued at over $300,000 totaled 605, up 38% year-over-year. And the number of contracts valued at over $500,000 totaled 265, up 39% from Q1 2025. Moving on to the balance sheet and cash flows. As of March 31, 2026, cash, cash equivalents and marketable securities were $863 million, a decrease of $28 million from the prior quarter. This was primarily driven by the repurchase of 763,000 shares of our Class A common stock for $50 million. Combined with the $72 million repurchased in 2025, we have repurchased a total of $122 million under our $350 million share repurchase program with $228 million remaining as of quarter end. As we've previously shared, we remain focused on investing in growth and innovation. At the same time, our strong free cash flow profile enables us to return capital to our shareholders while effectively managing dilution through opportunistic share repurchases. Before I move on to our guidance, I'd like to briefly touch on the governance topic. We disclosed today that the Audit Committee has approved the appointment of Grant Thornton as Workiva's independent auditor. This appointment comes as part of the Board's normal governance process, and we look forward to working with the Grant Thornton team in this capacity. Turning now to our outlook for Q2 and the full year 2026. We are focused on Workiva's commitment to delivering both durable top line growth and expanding operating leverage across the business. With that in mind, for the second quarter of 2026, we expect total revenue to range from $250 million to $252 million. We expect services revenue to be relatively flat compared to Q2 2025. And we expect non-GAAP operating margin to be in the range of 14.5% to 15.0%. As a reminder, we stated last quarter that we expected Q2 operating margin to be lower than Q1, driven by headcount-related expenses. For the full year 2026, we now expect total revenue to range from $1.037 billion to $1.041 billion. We continue to expect subscription revenue to grow approximately 19% year-over-year. And similar to 2025, we still expect total services revenue to be relatively flat year-over-year. We are raising our non-GAAP operating margin outlook by 100 basis points and now expect it to range from 16.0% to 16.5%. This 660 basis point year-over-year improvement at the high end reflects our ongoing commitment to drive operating leverage as we scale the business and make meaningful progress toward our medium- and long-term financial targets. We are also raising our 2026 free cash flow margin outlook by 100 basis points to approximately 20%. For additional details on seasonality and other model assumptions, please see our quarterly investor deck available on our IR website. To wrap up, our strong Q1 financial results are a direct reflection of our ongoing commitment to profitable growth at scale. Having now completed my first full quarter with the team, I am more energized than ever by the significant opportunity ahead of us. Our platform continues to clearly resonate with offices of the CFO around the world, and we are executing with the operational rigor needed to deliver both durable top line growth and expanding operating leverage. As we progress through 2026 in our next phase of growth as a $1 billion revenue company, my team and I remain focused on the disciplined execution required to scale the business efficiently and drive durable long-term value for all of our stakeholders. Thank you all for joining the call today. We're now ready to take your questions. Operator, please open the line for Q&A. Operator: [Operator Instructions] Your first question will come from Rob Oliver from Baird. Robert Oliver: I had 2 questions. Julie, first for you. Just I would love to hear from you, obviously, a really good quarter for you guys and really strong metrics upmarket and some nice examples you laid out on the power of the platform. On that topic, I mean, your customers are likely really inundated right now with lots of mandates on AI and AI usage, I think we all are. I'd just be curious to hear from you what you're hearing from your customers about that. I mean you laid out some of the concerns around risk and how every number needs to be verifiable. That said, is any change in sales cycles or anything you've seen within the buying patterns that either give you cause to be excited or to think, hey, there's some additional features or functionality or things that we need to do to prepare for our user conference coming up, I guess, later this year? And then I had a quick follow-up for Barbara. Julie Iskow: Sure, Rob, and thank you for the question. I did mention the transformation we're making given the new era of AI, so to speak, and we are continuing to provide capabilities within our platform around AI, and our customers are very interested. You know the base of customers that we sell into, and they're very enthusiastic about leveraging our AI -- hesitant, but enthusiastic about Workiva's AI because it is in a secure controlled environment. So we are seeing that, and we are seeing increasing use of those who have activated and those who are, yes, actively using it. We continue to look at metrics and ensuring that we are not just relevant, but continuing to increase in relevancy. And you mentioned sales cycles. And I would say for us, because our execution is strengthening that we're actually seeing less length in our sales cycle. So for us, it's a positive, both from just a go-to-market perspective, from the kinds of sellers that we're putting out in the market and bringing into the organization and so forth and the platform and the partnerships that we have with our consulting and advisory. So we're seeing a big push for faster sales cycles, enthusiasm from our customers. Of caution, of course, it's the office of the CFO, but enthusiastic about our offerings, absolutely. Robert Oliver: Great. Okay. Well, on that note, I'll pivot to your CFO. So Barbara, I guess one for you. And just not to nitpick too much, but on the Q2 guide on revenue, maybe a little bit lighter than we would have expected, I think, relative to the strength you guys have called out, obviously, maintaining your targets and guidance on the full year. But just wanted to understand better if there was anything we should be reading into that, conservatism, wanted to have a little bit of extra cushion in your pocket, whatever necessary. Barbara Larson: Rob, thanks so much for the question. So as you said, we're really pleased with our Q1 performance. We beat the high end of our revenue guide by $1 million, and we did flow that through to the full year and increased our full year guide by that $1 million beat. In terms of Q2, if you recall, last quarter, we talked about seasonality and the fact that Q1 is seasonally our smallest bookings quarter of the year. Therefore, we expect that the Q-over-Q sequential revenue growth will be the smallest in Q2, and that's reflected in our guide of $250 million to $252 million for Q2 revenue. But thanks for the question. Operator: Your next question comes from Adam Hotchkiss from Goldman Sachs. Adam Hotchkiss: I guess, Julie, just on that large IPO deal you called out, I think you said they doubled spend with you. Can you just talk a little bit about the dynamics of capital markets deals today? Are you getting involved maybe earlier than you were historically? Or is that something that only happens with the larger deals? And then because GRC and sustainability have gotten a lot of traction in recent years, are you now often selling bigger to these pre-IPO companies in areas like GRC and sustainability? Or would you generally say IPO deals look similar to prior years? Julie Iskow: So I'll start with the large companies as the one I highlighted. And I would say the trend is similar. I mentioned in my prepared remarks that they had become a customer a year prior to their -- purchasing their IPO capabilities, our S-1. And that's a trend that we've continued to see. 12 to 18 months is not unusual for us to see companies purchasing internal controls or private company reporting as they prepare for their IPO. So not much change there. And I will say a lot of it is just private companies. We're just not in the private to public journey with these private companies. Some are staying private a lot longer or staying private indefinitely or pushing IPOs out. You can think of the big ones in the market now that have been IPO-ready likely, but have been waiting for right or better market conditions. So it takes a while. So yes, we may be selling other capabilities or offerings to them as they wait for an IPO or stay indefinitely as a private company. So yes, we are selling more to private companies, whether pre-IPO or others. So those deals are increasing in nature. Very happy with the private company capabilities. And yes, you mentioned they are getting -- you asked about them getting bigger. They are, in fact, getting bigger. Our deal sizes are larger and multi-solution is the way we land increasingly. So IPO market, definitely stronger in the quarter than last and continue to see good deals come through and larger deals. Adam Hotchkiss: Okay. Great. That's really helpful, Julie. And then Barbara, I'd love to just extend on Julie's discussion on the potential change to the earnings calendar and how that might impact your financials. Could you just remind us of what exposure you have from a pricing model perspective to actual financial reporting filing counts, whether that is or isn't a factor? And then how, if at all, your XBRL services revenue could be impacted? Julie Iskow: Are you talking about the semiannual reporting news that came out today? Adam Hotchkiss: Yes, that's correct. Julie Iskow: Okay. Yes, I mentioned that in my prepared remarks, and I'll take that. That SEC communication was very clear. It is a proposal that would provide issuers the option to choose a more -- or less frequent reporting, a move to semiannual reporting. And what was proposed today was not unexpected. And I'll reiterate this again about the proposal. It's providing an option to choose semiannual reporting. It's definitely not a mandate. And if you go back and look at the exact language of that proposal, it enables public companies to choose interim reporting frequency that would best serve their company and its investors. So I'll say that based on our customer conversations, most of those companies we've spoken with expect to continue the rigor of that quarterly reporting just to meet the ongoing investor demand for timely decision-making. So the concept for us is around value and the value of our platform extends, of course, well beyond the filing itself. So we will continue to provide that trusted data foundation that helps our teams remain report-ready and audit-ready really at any point in time in the quarter. So I think the concept again is our value is tied to giving CFOs absolute confidence in their data at any point. Therefore, we don't even price based on the number of reports or the number of users. We don't sell by seats or number of filings. So we feel confident it is a nonevent for Workiva. Operator: Your next question comes from Andrew DeGasperi from BNP Paribas. Andrew DeGasperi: I guess, first, I wanted to touch on a follow-up to Adam's question in regards to your response saying that deal sizes were larger. Should we -- if we take that a step further and just think about it in terms of net retention rate, should we see that net retention rate number become less relevant going forward or at least the balance between existing and new shift to more new customers as those deals land at a substantial size? Barbara Larson: Yes, I'll take that. From an NRR perspective, we can see that metric move around from quarter-to-quarter. But our current internal target in terms of NRR is maintaining that north of 110%. Really pleased with the performance we saw in that metric in Q1 at 112%. Julie Iskow: And we're going to continue to focus both on new logo acquisitions with a multi-solution and multi-category land as well as account expansion of our existing accounts. So we're pushing hard. Our strategy has been account expansion, larger deals, larger deal sizes up in the enterprise, again, multi-solution, multi-category, and that's both with land and expand. Andrew DeGasperi: That's helpful. And then I have to ask this question, but in terms of the strength in Q1, you called out in capital markets. I was just curious, did you -- are you still leaving your expectations for the year unchanged? In other words, are you being more just as conservative as you've been historically? Barbara Larson: Yes. So our expectations, we're really pleased with the performance in Q1, broad-based, but for capital markets as well. And our expectations for the year remain consistent. Operator: Your next question comes from Patrick McIlwee from William Blair. Patrick McIlwee: My first is just on the leadership team. So it's been roughly half a year since you made a handful of changes at Workiva, bringing in a new CRO, Head of Product and obviously, Barbara, CFO. So my question is really how is that team meshing? And how do you feel that this new slate of talent positions Workiva for the next chapter of its story? Julie Iskow: We were very intentional on the hiring of those 3 roles, and I appreciate you asking the question because it does highlight where we're going and our approach. And all 3 of them have been there, seen the scale. They have executed and driven growth well beyond the $1 billion, which is exactly what we were looking for. They've seen successes and failures. So they're very well positioned to help Workiva lead. Our executive team across the board has strength now. They are all bringing expertise and focused on what we are focused on, long durable growth and sustainable growth and profitable growth. Patrick McIlwee: Okay. And on margins, I know you walked through a number of profitability levers that you're focused on during your Investor Day last year. But just given how much productivity technology has advanced since then, I wanted to ask if and how you're leveraging AI to drive efficiency within Workiva, the organization itself? And if that changes anything in terms of how you view your longer-term margin targets or where you're looking for efficiencies? Julie Iskow: Sure. Barbara, you may want to start? Barbara Larson: I'll start on that. That's a great question in terms of how we're leveraging AI for Workiva. On the R&D side, absolutely, we're focused on engineering productivity. That includes leveraging AI and automating across our teams, really making our own teams more efficient and then across the entire organization. We've got ongoing productivity initiatives, and that's a component of the strong operating leverage that we've demonstrated over the past 5 quarters. So continuing to make progress there. Operator: Your next question comes from Alex Sklar from Raymond James. John Messina: This is John Messina on for Alex. Maybe, Julie, I did want to ask on -- I know you were asked earlier on sales cycles, but I wanted to ask about linearity in the quarter. Commentary during the prepared remarks really pointed to strong win and deal expansion environment and cRPO bookings look really strong. But I did want to ask, was there any timing factors you'd call out, any deal linearity or revenue recognition dynamics in the quarter that you think are worth calling out there? Julie Iskow: I don't think anything has changed in any way. I can't think of anything that's different. The deal timing is very similar. When we see the bookings come in, again, the deal cycle is similar. So no, I don't see any difference in cycles and timing. John Messina: Okay. Great. And then I do also want to ask on sustainability. I know you guys have emphasized that it's not only a regulatory story, but I am curious as far as the resiliency that you're seeing there from the nonregulatory side, whether it's supply chain requirements or sort of reaching internal operating goals. Just curious on what's proving to be the most resilient there. And if you're seeing any meaningful changes in the deal sizing when sustainability is being sold not as part of a regulatory requirement? Julie Iskow: Yes. Definitely on the regulatory side, I had talked about that. It really is stakeholder demand still, and you can come up with a lot of examples of why companies are making sustainability commitments, well over 10,000 companies have made net zero commitments with -- aligned with the science-based target initiative. It's stakeholder demand, and they know it's coming, and they want to be thoughtful and organized and the demand for the information being treated as if it were financial data is very strong. That's why we're seeing the trend of sustainability reporting being part of the office of the CFO. But it really is the stakeholder demand and business requirements. I mean, renewable energy, important for running data centers, for example. I mean there are economic reasons. Sustainability is about risk mitigation and economics, it isn't about a regulation always. So definitely seeing that trend in companies. Larger companies, absolutely for business and stakeholder reasons and those with -- in the retail sector and so forth with stakeholder demand being very key. Operator: Your next question comes from Terry Tillman from Truist. Giancarlo Valle: It's Giancarlo on for Terry. I just want to double-click on how our efforts going to drive more products per customers? And where are those actual plays working best to increase platform spend? Julie Iskow: Sure. I mean the world is fast moving to Agentic, and we are well positioned to be part of that world. I mentioned the transformation that we are going in. We are moving toward the data-centric platform. We've been in that transition. We are rolling out capabilities and products leveraging that transformation. We are giving them to customers and putting them in customers' hands. I highlighted a couple of the offerings that we've put out in the market. We are, of course, as Barbara mentioned, going faster in R&D and rolling out the innovation in a more effective and efficient and productive way. So you will see us continue in that path, rolling out agents everywhere, building agents for our customers, enabling our customers to build agents on our platform. That is the direction that we are going in, Agentic world, and we are a part of that. Operator: Your next question comes from Steve Enders from Citi. Steven Enders: I guess maybe just to start, just following up on that last point around leveraging Agentic AI. Just how are you kind of thinking about what that means in terms of further monetization or maybe how it kind of changes some of the value-based pricing model that you've had historically? And I guess kind of dovetailing on top of that, just maybe what have you seen so far from the shift to the good, better, best pricing model and the adoption of those tiers so far? Julie Iskow: Sure. I appreciate you bringing up the pricing conversation and -- you mentioned the value-based pricing, and I'll remind everyone on the call that Workiva is non-seat-based model. We've not operated as a seat-based model for over 7 years now. We are metric-based value-driven pricing models, a number of entities, number of controls, number of integrations for our data connections and so forth. And as you mentioned, we have not long ago introduced a tiered pricing model for our solutions, good, better, best model, and we call them essential standard and advanced versions, an example that we highlight that had the most time in the market is our SEC advanced solution. We've had customers with SEC for more than 15 years. So we offer them premium solutions now, whether at the time of renewal or mid-cycle. And those features are our intelligent finance offering, and we offer design features, or report translation, data collection for SEC disclosures, financial statement automation and so forth. But of course, we add in those premium offerings for AI, those that we don't make available to our entire customer base. And we are seeing strong traction. We are just getting started, however. We will, of course, be a multiyear journey. And again, one of the many vectors we have for growth going forward. So thank you for highlighting that. Steven Enders: Okay. That's great to hear. Just maybe kind of following up on some of the, I guess, kind of like deal dynamics, but I think we've been getting the question on just like billings this quarter and it may be looking a little bit softer versus some of the other kind of forward-leading metrics. Just I guess, anything that we should kind of keep in mind on the timing of billings versus some of the subscription booking strength? And I guess, similarly on kind of the guidance framework, kind of any change in terms of the beat and raise cadence that maybe we should be thinking about for this year and anything to read on the beat magnitude this quarter? Barbara Larson: So why don't I start off in terms of billings? So billings in particular, is a noisy metric. It can be impacted by things like payment terms, invoicing schedules, the timing of renewals. And for Q1, particularly, a clear example of kind of the payment terms is last year, we had a higher mix of multiyear upfront invoicing in Q1 compared to this Q1. And to be clear, this is separate from contract duration. What I'm talking about is the invoicing terms, which is really set by customer preference. So it's the change in that multiyear upfront invoicing that impacts our long-term deferred revenue and therefore, impacted our calculated billings metric in the quarter. So of all the metrics in terms of the forward leading indicator, I would say current RPO is a much better indicator of future revenue because it normalizes for that invoice timing. And then in terms of just the guidance philosophy, there's been no change to our guidance philosophy in terms of the magnitudes of beat. We are looking at the business and just giving you our best view of what we have clear line of sight to right now. And Julie and I and the rest of the management team are all very aligned on that. Operator: Your next question comes from Daniel Jester from BMO Capital Markets. Daniel Jester: Julie, in your prepared remarks, I think you mentioned that this is Michael Pinto's 6-month anniversary. And so maybe it would be great to just get an update in terms of the areas of deep focus on the go-to-market efficiency front and any potential tweaks that you're evaluating as the year progresses? Julie Iskow: Sure. I appreciate the question. And Michael may be listening, I've given him a list of areas to focus on. And certainly, sales efficiency is on there, the pipeline quality, enterprise -- large enterprise ACV growth, ramp capacity productivity, partner sourced influenced ARR, et cetera. So he's got a fun role, and he's moving and making progress. So on the productivity side, I have outlined even prior to his arrival, some of the activities we've been engaged in and some of the initiatives we've been focused on, and he has come in and taken those and moved them forward. So whether it is the structure of our sales organization, whether it's the staffing and the profiles of hires that we have and the enablement and training and so forth or just the strategy that we have in our go-to-market, whether here in U.S. or outside and perhaps EMEA and so forth, he's taking all of that. And essentially, it comes down to building a high-powered go-to-market machine that sets us up for future scale and growth. Daniel Jester: That's great. And then maybe Barbara, on the gross margin side, another really strong gross margin year-over-year expansion performance in the quarter. I think you're kind of approaching the midterm targets ever so slightly now. But as you introduce these AI agents and those ramp over time, I guess, maybe how is your thinking around the gross margin opportunity maybe evolving as maybe those impact your ability to scale margin? Barbara Larson: Yes. Thanks so much for the question. I would just say in the near term, we feel really good about our gross margin and the improvement. We are currently getting our AI compute through our broader infrastructure contracts. So at this point in time, we're not seeing any pressure on our gross margins, and we still expect to make progress towards that 2027 and 2030 gross margin target. So feeling good about where we are and continue to monitor very closely. Operator: Thank you. Unfortunately, this concludes our time for the question-and-answer session. And with that, that concludes our conference for today. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Addus HomeCare's First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Drew Anderson. Please go ahead. Darby Anderson: Thank you. Good morning, and welcome to the Addus HomeCare Corporation First Quarter 2026 Earnings Conference Call. Today's call is being recorded. To the extent any non-GAAP financial measure is discussed in today's call, you will find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's website and reviewing yesterday's news release. This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2026 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, discussions of forecasts, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors, among others, set forth in Addus' filings with the Securities and Exchange Commission and in its first quarter 2026 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir. R. Allison: Thank you, Drew. Good morning, and welcome to our 2026 First Quarter Earnings Call. With me today are Brian Pop, our Chief Financial Officer; and Heather Dickson, our President and Chief Operating Officer. As we do on each of our quarterly earnings calls, I will begin with a few overall comments, and then Brian will discuss the first quarter results in more detail. Following our comments, the 3 of us would be happy to respond to any questions. As we announced yesterday afternoon, our total revenue for the first quarter of 2026 was $363.6 million, an increase of 7.7% and as compared to $337.7 million for the first quarter of 2025. This revenue growth resulted in an adjusted earnings per share of $1.62 and as compared to adjusted earnings per share for the first quarter of '25 of $1.42, an increase of 14.1%. Our adjusted EBITDA was $44.5 million compared to $40.6 million for the first quarter of 2025, an increase of 9.7%. For the first quarter of 2026, cash flow from operation was $52.4 million as compared to $18.9 million for the same period in 2025. As of March 31, 2026, we had cash on hand of approximately $103 million. With our strong cash flow in the first quarter, we reduced our bank debt to $94.3 million, leaving us with the financial flexibility to consider larger acquisitions as we continue to pursue expansion of our market reach and creating geographic density. During the first quarter, we saw an impact on revenue due to the widespread weather event that occurred towards the end of January. Our team did a good job of rescheduling affected personal care visits where possible. However, we could not make up for every weather-impacted miss visit. While the amount of the revenue was immaterial to our company overall, we did see a loss of revenue of approximately $1.5 million as a result of these storms. However, February and March returned to our normalized revenue expectations. As we announced on May 1, we closed on the acquisition of the Personal Care operations of home court home care based in Fort Wayne, Indiana. This acquisition marks our entry into an attractive state, which is adjacent to our largest personal care market of Illinois. We have been interested in Indiana for some time as over the past 3 years, they increased rates and worked to eliminate client wait lists. I'm excited to welcome all of our new team members from home court home care. We have also entered into a definitive purchase agreement for an additional personal care operation in Indiana, which will complement HomeCourt home care. We anticipate that this additional Indiana acquisition should close in the coming months subject to customary regulatory approvals. These 2 acquisitions continue our strategy of entering new markets with scale and where we have the ability to expand our services. As we mentioned on our last earnings call, the State of Illinois increased our rates in personal care service effective on January 1, 2026, adding approximately $17.5 million in annualized revenues. This most recent rate increase continues to show the important support we are receiving from our state partners as we continue to provide these much-needed services to our elderly and disabled clients. We also understand the New Mexico legislature included increased funding of $10 million for home and community-based services in the budget for the upcoming fiscal year. We are waiting for communications from the New Mexico Medicaid department regarding how and to which programs the funding will be extended. As we have stated before, we continue to believe that the 80-20 provision of the CMS Medicaid access rule will be eliminated in the near future. While implementation is still several years away and has no current impact on our business or financial performance, we believe this outcome would be an encouraging development for both our industry and our company. All our recent communications indicate that this part of the Medicaid access rule is expected to be eliminated this year. During the first quarter of 2026 we continued to experience positive current trends in our Personal Care segment. Our number of hires for [indiscernible] in the first quarter of 2026 was 108, up sequentially from 103 hires per day in the fourth quarter of last year and consistent with the first quarter of 2021. We achieved this number in spite of the impact of the weather event I mentioned earlier. As we have mentioned in the last few quarters, our clinical hiring remains consistent and has been mostly stable outside of a few of our urban markets. However, even in those markets, we have been able to staff our operations appropriately. Now let me discuss our same-store revenue growth for the first quarter of 2026. For our Personal Care segment, our same-store revenue growth was 6.5% compared to the first quarter of 2025. During the first quarter of 2026, we saw personal care same-store hours increased by 2.2% compared to the same period in 2025 and while our percentage of authorized hours served in the first quarter remain consistent with what we experienced in the fourth quarter of 2025. On a sequential basis, Personal Care same-store census was down slightly, partially due to the weather we mentioned before. However, during the first quarter, we saw growth in clients served in Illinois, our largest market, which is something we had anticipated for a while. This is important as we look to achieve year-over-year census during 2026. Turning to our clinical operations. Our hospice same-store revenue increased 7.7% compared to the first quarter of 2025. Our average daily census increased to 3,804 for the first quarter up from 3,515 for the same period last year, an increase of 8.2%. For the first quarter of 2026, our hospice medium length of stay was 23 days as compared to 25 days for the fourth quarter of 2025 and 19 days for the first quarter of 2025. We are very pleased by the continued growth in our hospice segment over the past several quarters. While our home health same-store revenue decreased when compared to the same quarter of 2025, our home health operating income improved over last year's first quarter and sequentially versus the fourth quarter of 2025. It is also important to understand that over 25% of our hospice admissions in New Mexico and now in Tennessee are coming from our own Addus Home Health operations, which overlap in these 2 markets as we continue to focus on our bridge program. We are pleased to see more patients receiving the benefit of the full continuum of post-acute home-based care and anticipate seeing similar clinical teamwork developed in Illinois, where we also have both home health and hospice operations. We continue to believe that size and scale are important to health care services and have been the focus of our strategy for the past 10 years. We continue to evaluate opportunities, which will increase both density and geographic coverage as well as seek to further strengthen our relationships with states and managed care organizations. Recently, we have begun to see an increasing number of personal care opportunities. Due to our focus on maintaining a conservative balance sheet, we have the ability to actively pursue these transactions. Recently, there appears to be more optimism around home health care due to the final home health rule for 2026 being more favorable than was originally proposed. While there is still some uncertainty about the future rate increases, there does seem to be more potential activity in home health care. While we will be open to home health opportunities, we will continue to be diligent as we evaluate possible transactions to further our strategy. Before I turn the call over to Brian, it is important that I thank the Addus team for the care they are providing to our elderly and disabled consumers and patients. We all have come to understand that the majority of this population prefers to receive here at home, which not only remains one of the safest but also the most cost-effective places to receive this care. We believe the heightened awareness of the value of home-based care is favorable for our industry and will continue to be a growth opportunity for our company. We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and other employees who work so incredibly hard providing outstanding care and support to our clients, patients and their families. With that, let me turn the call over to Brian. Brian Poff: Thank you, Dirk, and good morning, everyone. The first quarter of 2026 marked a solid start to a new year for Addus. The results for the quarter reflect our continued ability to execute our strategy and deliver consistent growth. Results were highlighted by a 7.7% increase in top line revenue to $363.6 million and a 9.7% increase in adjusted EBITDA to $44.5 million when compared with the first quarter of 2025. Our Personal Care Services segment, which accounted for 77.3% of our revenues, was a key driver of our business. Revenues for the segment grew to $281.1 million, an increase of 8.8% overall and an increase of 6.5% on a same-store basis compared to the same quarter last year. We are continuing to see contributions from our acquisition of Gentiva's Personal Care operations in late 2024 and the acquisitions of Helping Hands home care services and [indiscernible] Home Care, both of which were acquired in the back half of 2025. The revenues of Gentiva's Personal Care operations are included in our same-store numbers for the first time this quarter. In addition to higher volumes, we are continuing to benefit from rate support in some of our key state markets including our 2 largest in Illinois and Texas. Our first quarter results included the impact of the 3.9% rate increase in Illinois, which became effective on January 1, 2026, and as well as the 9.9% rate increase in Texas that became effective on September 1, 2025. Our hospice care business continued to perform well and accounted for 18.1% of revenues for the first quarter. Our hospice revenues were $65.8 million, with a same-store increase of 7.7% over the same period last year and year-over-year improvement in average daily census. For the period, Home Health Services, our smallest segment, accounted for 4.6% of first quarter revenue at $16.7 million. We continue to look for ways to support and expand our home health service line, including through acquisitions, as we believe important synergies can be realized by offering multiple levels of home-based care in the markets we serve. Yesterday, we announced 2 transactions in Indiana, HomeCourt Home Care based in Fort Wayne which closed on May 1, and the signing of a definitive agreement to acquire additional operations of a similar size in the state. Currently, HomeCourt serves approximately 240 clients with annual revenues of approximately $9.7 million. We anticipate our second acquisition in the state will close later this year. We believe our announced expansion into Indiana, a new market for Addus is aligned with our strategy of broadening our geographic coverage with density and scale. Our team looks forward to welcoming the clients and caregivers to the Addus family. We intend to provide additional details on the second acquisition when regulatory considerations permit. Strategic opportunities will continue to play a role in our long-term growth planning. Our primary focus will be on identifying opportunities where we can leverage geographic coverage and density providing us with a competitive advantage. We will also seek opportunities to add services to meet our ultimate objective of offering multiple levels of care in the markets we serve. With our size and expanding scale and the support of a strong balance sheet, we are well positioned to execute our strategy. As Dirk noted, total net service revenues for the first quarter were $363.6 million. The revenue breakdown is as follows: Personal Care revenues were $281.1 million or 77.3% of revenue, Hospice care revenues were $65.8 million or 18.1% of revenue and home health revenues were $16.7 million or 4.6% of revenue. Other financial results for the first quarter of 2026 include the following: our gross margin percentage was 31.9%, consistent with the first quarter of 2025. As usual, our gross margin was affected in the first quarter by our annual merit increases and the annual reset of payroll taxes. Looking forward, we anticipate our gross margin percentage will remain relatively stable and consistent with our historical annual pattern. G&A expense was 21.4% of revenue compared with 21.7% of revenue for the first quarter a year ago. Adjusted G&A expense for the first quarter was 19.6% and compared with 19.9% a year ago as we continue to generate leverage from our growing revenue base. The company's adjusted EBITDA for the first quarter of 2026 was $44.5 million compared with $4.6 million a year ago, an increase of 9.7%. Adjusted EBITDA margin was 12.2% compared with 12% for the first quarter of 2025. Consistent with 2025, we anticipate our adjusted EBITDA margin percentage for the full year will remain above 12%. Adjusted net income per diluted share was $1.62 compared with $1.42 for the first quarter of 2025. The adjusted per share results for the first quarter of 2026 exclude the following: acquisition expense of $0.06 and noncash stock-based compensation expense of $0.20, including the impact of accelerated vesting for the previously announced retirement of our former President and COO. The adjusted per share results for the first quarter of 2025 exclude the following: acquisition expenses of $0.13 and noncash stock-based compensation expense of $0.13. Our effective tax rate for the first quarter of 2026 was 22.7%, benefiting from the excess tax benefit related to our stock compensation. For the full year 2026, we expect our tax rate to be in the mid-20% range. DSOs were 63 days at the end of the first quarter of 2026 compared with 38.2 days at the end of the fourth quarter of 2025 with DSOs for the Illinois Department of Aging at 47.4 days compared with 54.7 days at the end of the fourth quarter of 2025. As expected, we saw a resolution in some of the normal timing differences in payment cycles we experienced around year-end. Our net cash flow from operations was $52.4 million for the first quarter of 2026, a strong start to the year. As of March 31, 2026, the company had cash of $103.1 million with capacity and availability under our revolving credit facility of $650 million and $547.8 million, respectively. Total bank debt was $94.3 million at the end of the quarter a reduction of $30 million from the end of the fourth quarter of 2025. We have continued to reduce our revolver balance in the second quarter of 2026, with $10 million paid to date. We have a capital structure that supports continued pursuit of our strategic initiatives. Looking ahead, we expect to maintain our disciplined capital allocation strategy and continue to diligently manage our net leverage ratio while also focusing on enhancing shareholder value. This concludes our prepared comments this morning, and thank you for being with us. I'll now ask the operator to please open the line for your questions. Operator: [Operator Instructions] And our first question comes from Brian Tanquilut from Jefferies. Brian Tanquilut: Maybe I'll start, Dirk, when we think about the caregiver app rollout, I know that's something that you're working on in Texas. How do we think about the progress there? And what it will take to get it to where you want it to be as quickly as possible? And then what are the expected benefits for that? I mean, how do we think about the P&L translation of this app rollout and why it's important. Heather Dixon: Brian, I'll start, and then Dirk can add to anything [indiscernible] that I say. So I'll start with just the progress that we're seeing. With that Caregiver app, we now have deployed it in all 3 of our 3 largest states, Illinois, as you know, has been deployed for a while, and we're continuing to see really good utilization and uptick of that utilization throughout the state. In New Mexico, we have deployed it for a portion of our branches. We have some special nuances associated with the state EVV system there. So we're going to roll it out in 2 tranches. But we have deployed it, and we expect to be deploying to the rest of the branches soon in the coming quarters. And then finally, in Texas, we rolled it out during Q1, and we're seeing some really positive momentum in the utilization of that and caregivers actually downloading that app. We saw even in the first few days to a week, we saw up over 10% of our caregivers had already adopted that app. So we're seeing really good momentum. And as we think about where we go from here, there are a couple of things. One, continue to roll it out to other locations, and that's really going to enable our caregivers and help us focus on increasing our service percentage. And then two, we can use that to really drive communication and really create a good engagement -- positive engagement with our caregivers. R. Allison: Yes, Brian, and I think what Heather just mentioned, there are the 2 aspects that we really focus on and why we invested in the caregiver app. You've seen positive momentum in Illinois for the percent of hours served that we believe a large part of that is directly attributed to the fact that there's the caregiver app at the allows to be particular career to see how many hours are left on the authorization and make sure that we're serving to an appropriate amount. Also, we think it can allow us to be a little more sticky, as Heather said, with our caregivers, make it easier for them to know what their paycheck is going to be to know their hours served and now also the ability for them if they want to pick up additional hours we have this app out there that allows them to be able to do that in an effective manner. So those are really the benefits that we're looking for from this app. Brian Tanquilut: That makes sense. And then maybe my follow-up, Heather, for you or maybe for Brian. As I think about the length of stay on the hospice side, you just gotten questions on cap risk and how you're thinking about that. So just anything you care with us just on the hospice cap concern. Brian Poff: Yes, Brian, right now, we don't really have any cap consideration. We actually are managing, I think, our referral mix and our patient base pretty well. Discharge length of stay was a lite here this quarter. But again, those are just a factor of the people that actually discharged during the quarter and probably not indicative of you would pick a cap. Our median length of stay, as Dirk mentioned, was 23 days, which actually is probably a little bit low for us. I think we've got a really good mix and no cap concerns for us at the moment. Operator: Our next question comes from Raj Kumar from Stephens. Raj Kumar: Maybe just a date on the kind of from each states. I'm curious kind of Indiana, more specifically. I know when you guys went into Texas with Gentiva, that was kind of on the front of the state passing or kind of in the process of passing a rate update. So curious on the kind of Indiana rate backdrop and any commentary there? Brian Poff: Yes. I think in India, specifically, I mean we talk about some other states as well, Raj. Indiana, as Dirk mentioned, we've seen some nice rate support from that over the past several years. I think if you went back about 5 years ago or so, I'm not sure it would have been probably quite as attractive for us, but we've seen nice support for them, a nice margin and that stay pretty consistent with where we are on a consolidated basis. I think the ability for us to do 2 acquisitions simultaneously or in close proximity gives us really good coverage. I think we've always wanted to have a pretty good footprint when we go into a new market. I think if we were to do one the other, it probably wouldn't have been quite as attractive, but I think doing both gives us a nice -- a nice place to start in Indiana and the ability to continue to add either additional services or more density there. So we're more placed on the map where we have opportunities. I think just thinking about it from a budgetary standpoint, Obviously, Texas is every other year. So they're not going to meet this year. So nothing to really report on that in our kind of reference New Mexico, we just finalized their budget. There are dollars allocated for home and community-based services. We're just trying to determine it gets the information on the logistics of how that will pass down to providers. Indiana -- I mean, I'm sorry, Illinois, is our largest market is still [indiscernible] has not been finalized our budget this year. Our understanding is there's conversations from the union as we would expect every year about our services and rates, but nothing to report. We would expect them to probably finalize their budget over the next few weeks. So we'll know more then. But those are probably the 3 largest obviously, that we keep our eye on. Raj Kumar: Got it. And then maybe looking at home health, I guess there was a shift in the payer mix trend higher Medicaid year-over-year. I guess maybe anything to call out on that front, I guess, more intentional or just kind of how it played out. And I guess, has it been paying better than MA if it is intentional. I'm just kind of curious on the payer mix trend for home health in the quarter. Brian Poff: Yes. I think [indiscernible] quarter probably a little bit of a mile, we had some rate updates, some positive rate updates in one of our programs that kind of falls into that other bucket that you saw in our press release yesterday. So we saw that in the quarter, we'll probably revert back to more historical norms next quarter. Nothing intentional. I think, obviously, we're focused on making sure we try to get the best rate possible in the business that we take in home health. I'm trying to make sure that it's profitable. Our guys on the payer side are having conversations consistently with folks on trying to get as many episodic rates as we can and looking at taking cases that makes sense for us from a profitability perspective. Operator: The next question comes from Matthew Gillmor from KeyBanc. Matthew Gillmor: Maybe following up on some of the census comments for Personal Care. I think I saw the census was down a little sequentially you mentioned Illinois was up, which is encouraging. I just wanted to confirm I heard that correctly. And then maybe more broadly, I know census for personal care, oftentimes is lower in the first quarter. And if Illinois was stronger, does that imply there was weakness elsewhere? Or would you just sort of categorize it as sort of normal seasonal trends. Just wanted to see if there's any other details to share on this topic. Heather Dixon: Sure. I'll take that. So as Dirk mentioned, we did have some weather impact of the quarter. and that impacted our sequential census growth. That's what you saw as a slight sequential decline. But you did hear correctly, we had census improvements throughout the quarter, and we saw gains as we exited the quarter. And I think, very importantly, March since this exceeded January and February census. So we're focused on those sequential gains. And going forward, that should lead to year-over-year gains as we move through the next couple of quarters. And then specifically in Illinois, we were very pleased to see that start the care exceeded discharges throughout the quarter, and that led to sequential monthly improvement there as well. And so as we exited the quarter for Illinois, we saw a nice trajectory, and frankly, overall with census, and then we saw that trajectory really continue as we moved into the second quarter as well. There is nothing to point to. It's not that Illinois is masking anything else. It's just as our largest state and one that we're very focused on. We wanted to be sure that we shared the positive improvement that we've seen there. Matthew Gillmor: That's great. Appreciate it. And then maybe following up on some regulatory topics. CMS has made some comments that have been skeptical of the self-directed care model within personal care and sort of home and community-based services. broadly, especially with some key states like New York, which I know you don't have exposure to I was curious if the skepticism on the self-directed care model created opportunities for Addus more broadly, given your focus on the agency directed model? R. Allison: Self-directed care does have an issue. You don't have anybody in between the patient and the caregiver and the patient to make sure that the surface is actually being performed. So it's -- the state has a little more responsibility on themselves to do that. So we saw in New York that it was a program that was probably in our mind, going to have issues and not really sustainable. That's why we left New York. There's also issues out in California. There is a large issue out there because it's self-directed care. We don't participate in medical out there, most of the business we have is VA and private pay. But as you look at it, we've been saying for years, Personal Care is a great service and much needed and saves the states a lot of money but it needs to be done in the right way. And one of the things that is an advantage to having the companies like Addus and others sit out there hiring the caregiver and matching them with the patient is that we have responsibilities to do a lot of extra things to make sure that service is being provided. Whether that's supervisory visits, actually in person calls on the telephone, we have EVV. We have to make sure that the client shows up. I mean the caregiver shows up and stays the amount of time when they leave so that we're billing a proper number of hours. So there's a lot of compliance issues that are placed on companies like Addus as opposed to the self-directed care where there's very little, if any, of those. So we think it's a real encouragement to our industry. From our standpoint, we agree with the fact that there needs to be a look and make sure that when you're paid for services, those services are being rendered. We think that will benefit a company like Addus. Operator: The next question comes from Sean Dodge from BMO Capital Markets. Christopher Charlton: It's Chris Charlton on for Sean here. Maybe back on Personal Care. You've again driven strong growth in same-store a billable hours even amid a declining census. Can you just share some more detail on some of the dynamics behind the strength here and continuing to fill a strong percentage of the authorized hours and kind of how you anticipate that evolving throughout the year as you expect to return to some census growth? Heather Dixon: Sure. Sure. I'll take that. Chris, I'll start with talking about billable hours and sort of what we're doing that really fuels that growth in billable hours. A couple of things specifically. One, we're working on refining our operational processes from the support center and then also from the branch perspective, and that's particularly with scheduling and utilization of our authorized hours. And then as we talked about just a couple of minutes ago, we've been focused on creating tools and deploying them that will help our providers, actually, the caregivers have access to those hours as well, and that's in the form of the app. What we have seen is improvement in that service percentage or fill rate. So the hours that we are posting are really a higher utilization of the authorized hours. We're seeing that in most of our states, and we're seeing that specifically where we have deployed the app and we've had some really good usage. And we would expect for that opportunity to improve the service percentage to improve as we move throughout the year, particularly as we deploy the app in Texas, one of our largest states. If you think about from Q4 to Q1, your question about even though census is down just a bit sequentially, billable hours are up. I think that's just a function of the weather that we saw earlier in the quarter and nothing else really to point to there. R. Allison: Let me jump in on census because I know everybody is focused on that number, and it is an important number. It's not one that we get paid on billable hours. So we really focus on making sure we get the proper amount of hours per census as opposed to just census per se because you got to get the right census. You got to get the right hours from that patient coming on board to make sure that it's something we can serve appropriately and profitably. That being said, we do understand that people are looking at that. And I think the important thing this quarter that's very exciting to us is Illinois made the turn. And Illinois is one we really worked on the last 4 quarters to get it back into a growth mode. It just so happens this month, Texas was a little soft coming out in January, really. And so we saw a little bit of effect in Texas for the census for the quarter. But by the end of the quarter, Texas was back. Illinois was continued to grow. So the important thing is we believe most of our states now are in the situation where starts of care are exceeding discharges. Sometimes you're going to have a little bit of issue in a state maybe during a quarter. But the general trend is we think we've seen that change. And now we think all 3 of our big states are in that particular situation where we should grow census. Christopher Charlton: Okay. That's helpful. And then on home health, obviously, there was some encouraging adjustments to the final rate from CMS there last year. As you kind of come up on their initial proposal for 2027 rates in the coming months. Maybe just qualitatively, can you just share some thoughts on the backdrop and kind of what you would like to see initially just kind of give everyone some clarity that the environment might be starting to stabilize and might be looking just to be a more favorable backdrop for some opportunities there? Brian Poff: Yes. I think I can take that one, and Dirk can add some color as well. I think in Dirk's comments, I think, obviously saw some positivity in the final rule last year. I think we're interested to see what the rule will look like this year. It feels like maybe there's more appreciation coming out of CMS for what the industry has gone through the last few years, I think, in kind of focusing on some of the areas where there might have been some issues that might have impacted the way that they've looked at reimbursement in the last few years. And the industry, I think, has been lobbying for some time for them to see that in the way that some of the things in the fraud, waste and abuse area potentially have been used in the calculation. And with those kind of maybe out of the mix and maybe identified, I think we're hopeful that, that means maybe there'll be more positivity in the rate that we'll see coming up this year. So a small segment for us. We think there's a lot of synergies of having multiple lines of care. So something that we'll watch closely, but things that we're still interested in looking at. Operator: The next question comes from Andrew Mok from Barclays. Unknown Analyst: This is Jeffrey on for Andrew. So I appreciate all the color around the Personal Care segment, but maybe I just wanted to better understand Addus' exposure to self-directed personal care and the impact that's had on recent Personal Care segment results. R. Allison: Yes. We don't really see an impact from self-directed care in most of our states. As we mentioned, there was some issues in New York. We left that state. California, we used to -- if you go back 10, 15 years ago, we did business in California, and California really decided to go self-directed care, and it wasn't something that we provided. So we focused on states that really understand the difference between sub-directed care and agency care. And that really goes back to what I said a few minutes ago, was what you get with agency care is a compliance program. You get companies like Addus that are making sure that, that care never who may or may not just because it's called family caregiver. It may not actually be a family caregiver or a family member. It may be somebody that knew the patient and is willing to serve in that market. So for that aspect, we still do all the things. We do all the training. We make sure that EVV is in place. We go through our complete compliance program to make sure that we are being paid appropriately and that we're providing the appropriate care that per the plan of care. So really from us, the self-directed care does not have a direct impact, but we are glad to see that they're looking at self-directed care to make sure that it is following the rules just like agency care. Unknown Analyst: Okay. And maybe on the hospice side, I think revenue per patient day growth was negative for the first time while could you help us better understand the dynamics there? -- including any trade-off with average length of stay? Brian Poff: Yes. I think there's 2 elements to that this quarter. I think primarily, we talked last year that we had some positive impact from the implicit price concession or revenue adjustment, whichever term you want to use. And I think we had indicated we expected that revert back to kind of historical norms. And I think that's where we were this quarter. So that definitely was part of the consideration between last year and even Q4 rated into Q1. I think there's a little bit of probably impact from just mix as well, but nothing really material there, but those are really the 2 factors. Operator: The next question comes from Constantine Davides from Citizens. Constantine Davides: Dirk, you highlighted your balance sheet strength and ongoing debt reduction both in the quarter and post the quarter and I guess can you just comment a little bit on the size of the opportunities in the M&A pipeline, whether that's starting to skew up a little bit more in recent months? R. Allison: Yes. What we're starting to see this year, and there's already 2 or 3 opportunities out there that are upside that we're looking at. I think it's really something that changed probably in the last 3 months or so where we're seeing processes begin on these larger opportunities. And that's one of the reasons, I think, constant team that we've worked very hard to keep our balance sheet clean. It's the reason we were able to do Gentiva very quickly and bring it on board. So we're looking at some of these bigger opportunities that because of our balance sheet, we could do and bring on fairly rapidly without having to stress our balance sheet. So again, they are out there. They're in a process, and we're more looking at them. Constantine Davides: And when you say of size something along the size of -- or scale of Gentiva. R. Allison: Yes, they're similar concise to Gentiva. That's correct. Constantine Davides: Great. And then a quick follow-up on India. You talked about that being -- that state being attractive and good rate momentum, I guess, in recent periods. Where do rates kind of compare to either other states you're in or your blended average? R. Allison: The rates are a little higher than some of the Midwestern states. I mean, obviously, Illinois is going to be our highest market. But Indiana, if you look around the other states around there, the rates now are very -- there are nice rates. There are rates that we can operate in very effectively. Also, there seems to be a little less competition in Indiana in the number of providers of our care. So it's a state that we've been looking at. And with -- I think it was in like 2023 time frame is when they really raise their rates to make them more competitive. Ever since then, we've been looking for opportunities to get into a state. And this [indiscernible] home court home care brought to us and the other acquisition that we announced allow us to that state and start looking for other opportunities to grow. Operator: The next question comes from Ryan Langston from TD Cal. Ryan Langston: Maybe just dovetailing off Indiana. Obviously, strategy to enter states the size and scale. Do you know if you combine the 2 assets where that would put you in terms of market share in the state. And I just caught your comments on decent rates and competition dynamics. But anything else in particular that made Indiana attractive? Brian Poff: Yes. I can start and Dirk could add some color on. I don't know that we have a detail of exactly where we stand. I think it's going to be a good footprint for us from just a coverage standpoint. All in, the other acquisition is going to be similar size. So we're going to be just under $20 million in revenue, which is a pretty good start for us in the state. I think one of the things that made it attractive for us in addition to what Dirk had kind of referenced is the managed Medicaid component. Obviously, a lot of the larger players there, I think United and those folks, we have good relationships with all of those guys, as everyone knows kind of nationally. So I think it is a good fit for us as it's always been something that's been part of the profile that we like as we get into states that have managed Medicaid where we can have those relationships in place. So I'm excited about that. Ryan Langston: Okay. And then I appreciate the commentary and response to Matt's question, but maybe just more broadly, obviously, this administration is really focused on fraud, waste and abuse and have made some statements to that quite a bit over the past several months to a year plus. Like I guess, just in general, what do you think any of that could mean for Addus? Is that potential benefit because you're so large and sophisticated maybe versus some of your smaller competitors in your markets? Just maybe more broadly, what do you think this administration sort of stands on FWA, how that could affect that? R. Allison: Yes. One of the things that Addus as did, we participated with the alliance in talking to the current administration about the fact that front abuse is out there, and it causes companies that are legitimate providers. It causes issues with various things you can talk about. And so from the standpoint of Addus, we're glad to see the administration focus on fraud and abuse. We spend a lot of money on compliance. We have for the last 10 years, we want to make sure that when we operate in a state that we're following the rules and we're doing what's proppant. And at times that you find that maybe something was built in properly, we pay it back very quickly to stay in compliance with the state. So the fact that we are large, we spend millions of dollars into the compliance aspect, we think -- bodes very well for what the administration is trying to do, and that is take out the players -- mostly smaller players, but take out the players that aren't doing the right thing. They're just billing and not following through with what they need to do to make sure the rules are being followed. And more importantly, the most important thing is that the care is being given to the patient. There's a reason that patient has a plan of care that has stayed approved, and that is they need that care. And so for us, calling out personal care, we'd rather than just call out home care and talk about the fact that there's a lot of fraud and abuse in home health. There seems to be an in hospice. From a personal care standpoint, we believe that we're a leader in the industry, and part of that being a leader is to lead the compliance effort. And so we're pleased with the fact that we're focused on that. And we believe long term, it will be a benefit to our company. Operator: The next question comes from Jared Hasse from William Blair. Jared Haase: Maybe just one for the model. I appreciate all the detail you guys have given as far as hiring and some of the initiatives you have going on like the caregiver application. That hours per se a month metric has been about 70% for a couple of quarters now. I guess, is there anything structurally that would cause that decline? I think the typical seasonality would have that sort of continue to grow sequentially over the rest of the year. But I just want to make sure that's sort of the right expectation to level set how we're thinking about things for the model, just given the moving parts as it relates to sort of census and volume trends. Brian Poff: Yes, Jared, I wouldn't expect to see that. There's nothing structurally that's going to cause that to decline. I think you're always going to have a little bit of ebb and flow in mix in the states. But with the efforts that we're using in the caregiver app and that rollout and thinking about our full rate, we would actually probably expect that longer term to actually continue to grow because we think there are hours that are available for clients under their care plan that we are currently not serving. So no, I wouldn't expect from [indiscernible] I would not expect to see that decline for any structural reason. Jared Haase: Okay. Got it. That's helpful. And then maybe just another one on Indiana as a market for you guys. I'm just curious do you get any sort of regional leverage in a market like Indiana, just given obviously the proximity to your largest market, Illinois. I don't know if there's any sort of infrastructure that you're able to leverage that would help you scale up and extract synergies a little bit more quickly than normal. Brian Poff: Yes. If you look at it from where we have markets around India, obviously, we're very large in Illinois. We're in Michigan, we're Ohio. So Indiana is kind of right in the middle of that geographically. So if you think about from just a regional or leadership perspective, there's not going to be a need for us to add any additional layers there. They should be able to just talk under kind of what exists for us on the infrastructure today. Obviously, you'll have people in those branch locations. But really that should be the limit of it. So from a -- just from a lift perspective on G&A, that definitely should slide right into the operations that we have that kind of surround the state. Operator: Next question comes from Clarke Murphy from Truist. Clarke Murphy: I had a follow-up on labor. I appreciate all the commentary that you guys have around the caregiver app and hiring trends. But I wanted to see if you guys are seeing perhaps any benefit on labor availability, even some of the macro concerns that seem to have amplified over the last couple of months and the impact that, that's had on kind of a broader consumer environment. Heather Dixon: I'll take that. The short answer is that we're seeing positive hiring trends and we are seeing some of the leading indicators in terms of wage inflation and availability of candidate full trend in the right direction. And frankly, with wage inflation, we're back to sort of that normal roughly 3% base, a little -- some are a little higher, some are a little lower. But in terms of candidates, we're seeing really good candidate flow across our markets. As Dirk mentioned, we're always going to have small kits where it's a little bit more difficult to staff, but that is really limited to mostly rural locations and frankly, just a couple of skilled categories in those rural locations, but we continue to [indiscernible] though those so that we can make sure we're hiring the right staff to drive growth and to serve our patients and clients. So really seeing some good trajectory there. Now whether it's attributable to the macro environmental issues, that's really hard to say, of course, but I can tell you that we are seeing positive trends. Jared Haase: Got it. And then just switching gears to capital deployment. The other question I had was just if I think about your current pace of debt paydown relative to your debt balance suggests absent M&A be kind of largely paid off by the end of the year. Just wanted to see absent any large-scale M&A, how that would potentially impact your capital deployment priorities going forward? R. Allison: We spent a lot of time talking about this at our Board meeting, as you would expect with the company in our position. I think the thing we see that maybe is not as apparent to outsiders is the number of deals that are now starting to come on board. We're starting to see some larger transactions as we mentioned. And remember, with those large transactions, there still are a number of smaller transactions that we just announced that are out there that we consider in most cases, backfilled. And in this case, it was entering into a new market. So we believe that before our data is paid off, we will put to work, a great deal of our capital in these opportunities that are out there. So it led us to decide that that's really what we understand we're going to use our cap for today. Now if that didn't [indiscernible] over the next year, you would see us maybe come up with a different decision on how we use our capital. But we believe right now that with the opportunities that are there for us, and we'll be able to use our debt and our cash and debt to grow the company. Operator: The next question comes from Ben Hendricks from RBC Capital. Michael Murray: This is Michael Murray on for Ben. You saw some pretty good leverage on adjusted SG&A even with the weather headwinds. Are there specific cost initiatives driving this improvement? Do you think the caregiver app is helping there? And how should we think about SG&A ratio as we move through the year? Brian Poff: Yes. I would say, first, the caregiver app probably isn't going to really have an impact on G&A. I think what we continue to see is kind of ongoing leverage, particularly on our corporate G&A as we grow our revenue base as we would expect. So we're not having to obviously add incremental cost there. On the labor side, as we kind of mentioned earlier, this year in this cycle, we're back to kind of a 3-ish percent kind of default rate there, so kind of back to norm. I think kind of going forward, we do give our merits on March 1. So we think sequentially into Q2, there's going to be a little bit of additional dollars in G&A in Q2 as those kind of flow through for the full quarter. But nothing else really from a seasonal perspective. So I think we would expect it to maintain a pretty stable percentage of revenue and continue to see additional leverage as we grow. Michael Murray: Okay. And then just shifting gears to home health. Organic revenue declined 6.6%. I think you previously indicated a return to growth in the second half of this year against some easier comps. So just wanted to get an update on admission trends, the impact of your new leadership and your confidence in achieving that time line. Heather Dixon: Sure. Michael, I'll take that one and talk about home health. Just start by reminding everybody, it's less than 5% of our business. But that said, we've made changes from a leadership perspective and then also from a sales perspective and how we go to market for that business recently. In Q1, we saw our margins really where we want them to be. And so our focus is now on volume. We did see some positive trends in Q1. In fact, in Q1 2026 new admissions, total volume and total visits, all improved sequentially versus Q4 2025. So that is the trend that we would like to see. That's part of what we're focused on seeing and we continue to think that certainly later this year and feel good about that statement. Just to just step back a little bit at a higher level picking up on something that Dirk said earlier, the real value in our home health business is the interconnecting care that we provide and the correlation that we see in markets where we have multiple lines of service there and different levels of care between those lines of service. So for example, I think it bears repeating in New Mexico and also Tennessee, where we have what we call the bridge program in place, and we really focus on creating referrals and admissions from home health into hospice for patients where that's appropriate, we've seen those rates exceed 25%. And we've also now begun that program in Illinois. Obviously, Illinois Home Health is a little bit earlier for us, but there is great opportunity there and opportunity to continue that pattern Operator: And our next question comes from A.J. Rice from UBS. Albert Rice: First, I think at one point, you were -- had said that you thought in the second quarter, you'd still see above average growth in personal care and hospice and then it would moderate in the second half. Just wanted to give you a chance if there's any update. Are you thinking about seasonality, what that might be or if there's any comments on thinking about the seasonal layout of the business for the rest of the year. Brian Poff: Yes, A.J., this is Brian. I think maybe not so much seasonal, but I think you started thinking about comps over prior year and some of the rate impact, particularly in Personal Care. I think our prior comments that we expect it to be probably toward the high of our kind of normal 3% to 5% range, if not above. So starting this year, obviously, at 6.5% same-store basis. We would still expect that to be the case for the remainder of this year. I think once we kind of get confirmation on New Mexico and that flowing through as well, that will obviously benefit the back half of the year. So I think we still feel pretty comfortable with that commentary thinking about kind of where we'll be on a same-store basis for each quarter going forward in [ BCS ]. Home health -- I mean, sorry, hospice has been double-digit plus in same-store. I think we had guided people to think that's probably not long-term sustainable. Our ultimate expectation is probably upper single digits, so we're just under 8% this quarter. I think we've seen some nice trajectory in ADC coming out of the quarter. We were a little bit softer coming off of the holiday. So I think that sets us up pretty well. I think going forward to be in really good shape to continue to meet that as well for the remainder of this year. Albert Rice: Okay. And then I guess your comments about M&A and the pipeline and so forth. Obviously, these deals are more in the personal care arena. You sound like you're feeling a little better about the home health backdrop. Would that be something you would now sort of lean into again on M&A? Or is it still too early to do that? R. Allison: I think we would look at home health deals today as opposed to maybe a year ago. As you can understand, we'd be very careful in what we did, make sure it's strategically met. For us, the overlap with our hospice and personal care so that our [indiscernible] bridge program can work. But yes, we would start looking at home health care opportunities today. Operator: The next question comes from Joanna Gajuk from Bank of America. Joanna Gajuk: Full of questions here. So on personal care same-store hours per business day, I think grew, call it, 2%, 2.2% -- so what was it excluding weather? I know you gave a revenue, I guess, impact from that? And what was it as you exited the quarter? So essentially what I'm trying to get at is kind of what was your growth in March? And do you expect sort of the acceleration and a little bit higher over the rest of the year on that metric? Brian Poff: Yes. I think, Joanna, I think our target has always been and we've been talking about it for some time now. We can keep that same-store hours per business day between 2% and 2.5%, we're probably going to be in a pretty good spot. We've been 2.4% each of Q3 and Q4 [indiscernible], but we were a little bit softer as we kind of mentioned in Heather -- with some of the weather we saw in January. So we're probably not going to go into kind of a month-by-month metric on that. I think we feel pretty comfortable coming out of the quarter with where we were from just a census perspective in hours in March and going into that 2% to 2.5% range still feels very, very solid for us going forward. Joanna Gajuk: It's great. 2.5%. And then the gross margins, so Q1 is seasonally low, right? But can you help us kind of call out anything as we think about Q2 from Q1? Brian Poff: Yes. I think yes, seasonally is usually always our low watermark of the year with the reset of payroll taxes and our merits. I think traditionally, what we see is -- usually you see a little bit of improvement with some of the payroll tax caps getting Q1 into Q2. So usually, there's a little bit of benefit into Q2. Q2, Q3, usually pretty flat. I think Q4 usually is the best quarter for us from a margin perspective, just with some additional benefit from payroll tax caps but also our hospice rate increase kicks in, in that quarter as well. I think if you look at the mix of our business, personal care was a little over 77% this quarter. As a comparison, you think about that versus hospice and home health, hospice and wealth have a higher gross margin. So if that mix gets back more to 75-25 on skilled and non-skilled that would benefit as well, but mix is going to potentially play in as well. So I think we feel really good coming out of the quarter on the track for [indiscernible] ADC. So if that were to be a bigger part of our mix going forward, that would benefit our gross margin percentage as well. Joanna Gajuk: And the last one on the quarter. The stock comp was higher sequentially from Q4. Is there -- was there something kind of onetime in nature? Is the $5 million a good run rate? Or is this something outside of [indiscernible]? Brian Poff: Yes. That's not a run rate. I mentioned in my comments. So with our former President and COO, retiring, there was some accelerated vesting as part of this retirement that impacted the quarter, but should be onetime and would not be continuing going forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Dirk Allison for any closing remarks. R. Allison: Thank you, operator. I want to thank each of you for taking the time to join us today on our call, and we hope that you have a great week. Thank you. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to CPI Card Group Inc.'s First Quarter 2026 Earnings Call. My name is Carrie, and I will be your conference operator today. If you are viewing on the webcast, you may advance your slides by pressing the arrow button. The call will be open for questions after the company's remarks. If you would like to enter the queue for questions, please press star then 1. If you would like to withdraw your question, press star 1 again. Now I would like to turn the call over to Mike Phillips. Please go ahead. Michael A. Salop: Thanks, operator. Welcome to CPI Card Group Inc.'s first quarter 2026 earnings webcast and conference call. Today's date is 05/05/2026, and on the call today from CPI Card Group Inc. are John D. Lowe, president and chief executive officer, and Tara Grantham, interim chief financial officer. Before we begin, I would like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see CPI Card Group Inc.'s most recent filings with the SEC. All forward-looking statements made today reflect our current expectations only. We undertake no obligation to update any statements to reflect events that occur after this call. Also, during the course of today's call, the company will be discussing one or more non-GAAP financial measures, including, but not limited to, EBITDA, adjusted EBITDA, adjusted EBITDA margin, net leverage ratio, and free cash flow. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release and slide presentation we issued this morning. Copies of today's press release as well as the presentation that accompanies this conference call and the Form 10-Q are accessible on CPI Card Group Inc.'s Investor Relations website, investor.cpicardgroup.com. On today's call, all growth rates refer to comparisons with the prior-year period unless otherwise noted. The agenda for today's call can be found on slide three. We will open the call for questions after our remarks. I will now turn the call over to John. John D. Lowe: Good morning, everyone. Overall, we are off to a solid start in 2026 and are on track to achieve our full-year outlook. We are executing on our initiatives to deliver on our strategy of growing and diversifying the business by helping our customers win as we expand our proprietary technology platform, grow our marketable base of relationships, and evolve our payment solutions to meet market needs. We exceeded our expectations in the first quarter, delivering 20% revenue growth, which reflected another strong contribution from AOI, as well as good growth across our other Secure Card Solutions businesses. This included strong performance from our contactless solutions, led by continued strength of contactless metal as we emphasize our offerings of value-driven metal solutions, and increased sales of personalization services. As expected, our Prepaid Solutions segment had a slow start to the year, but we continue to anticipate growth for the full year. Integrated Paytech grew only slightly due to comparisons with a strong prior-year quarter, and we continue to expect the segment to grow more than 15% for the full year. Adjusted EBITDA increased 9% in the quarter, and we generated strong cash flow with more than $10 million of free cash flow in the quarter. We also improved our financial position, ending the quarter with a net leverage ratio just below three times. Based on first quarter results and our current forecast, we are affirming the full-year financial outlook we provided in March. Tara will give you more details on first quarter results in a few minutes, but first, I would like to provide a brief strategic update on slide five. As I said before, we are executing on our strategy as we start 2026 and are fortunate to operate in multiple growing markets. In addition to ongoing increases in cards in circulation in the U.S. payments market, our business is supported by increased demand for digital solutions by financial institutions and an increased focus on security for prepaid cards and packages. As we discussed last quarter, our strategy is to continue providing payment technology solutions that help our customers win, driven by three primary growth pillars that underpin our value proposition. First, our proprietary technology platform with a vast reach into the U.S. payments ecosystem. Second, our marketable base of thousands of deep and broad relationships across the U.S. payments market. And third, our proven track record of delivering evolving payment solutions that reflect changing market needs. We continue to make progress on driving our strategy forward, laying more pipes to further expand our platform, expanding our marketable base of relationships, and introducing new solutions for the market. We mentioned at year-end that we had locked in a new referral agreement giving us the opportunity to significantly advance our marketable base for our Integrated Paytech segment. We are excited to share that we are actively marketing our solutions with the help of Fiserv and are seeing positive customer interest. And we continue to expand our pipes on our technology platform, creating further integrations and customer connections for our digital solutions. We have also expanded our solution set by delivering for the closed loop prepaid market, seeing strong closed loop revenue growth from Q4 2025 in the first quarter. And we continue to explore the viability of chip-embedded cards in the U.S. prepaid market, advancing our extensive pilot with a large national retailer testing Card Safe-to-Buy technology. We believe our strategic efforts and investments will continue to drive long-term growth, expanding our addressable markets and providing the solutions needed by the market as it continues to evolve, creating value for our company and our shareholders. We will continue to update you on progress throughout the year, but now I would like to turn the call over to Tara to take you through the first quarter results in more detail. Tara? Tara Grantham: Thanks, John. I will begin with the segment results on slide seven. Overall, as John said, we are pleased with our first quarter performance. First quarter revenue increased 20% to $147 million, led by our Secure Card Solutions segment. Secure Card Solutions revenue increased 35%, which included a $16 million contribution from ArrowEye. As John mentioned, we experienced strength across this segment in the first quarter with good growth from our contactless solutions and personalization services. Our Prepaid Solutions segment declined 17% in the first quarter, reflecting timing of orders from key customers, with the first quarter decline partially offset by better-than-expected incremental sales of closed loop cards. Integrated Paytech increased 1% in the quarter due to comparisons with a strong prior year while we maintained strong gross margins at over 55%. As John said, we still expect to grow revenue in this segment by more than 15% in 2026. Turning to profitability on slide eight, first quarter net income declined by 57% to $2.1 million, primarily affected by $3 million of pretax integration costs, while adjusted EBITDA increased 9%, driven by sales growth including the addition of AOI. Integration costs were high in Q1, and we expect them to remain at similar levels in Q2 but drop significantly in the second half of the year. Our 2026 integration costs are meant to drive revenue synergies and lower operating costs and primarily result from go-to-market spending, technology investments, and certain vendor termination fees as we drive operating synergies. As a reminder, integration costs are not included in adjusted EBITDA but do impact net income. Gross profit margin declined from 33.2% to 30%, affected by lower sales and margins in our Prepaid segment and increased production costs including tariffs and depreciation, partially offset by benefits from increased sales from Secure Card Solutions. Production costs in the quarter compared to prior year included $2 million of increased depreciation primarily related to ArrowEye and the new Secure Card production facility and $1.2 million of tariff expenses. We expect Prepaid margins to improve in the second quarter with higher revenue levels, and we also expect overall company gross margins to be much stronger in the second half of the year. Margin comparisons with prior year should also improve going forward as ArrowEye depreciation and tariff primarily began impacting results in 2025. Overall, we anticipate full-year gross margins to be relatively consistent with prior-year levels. We have multiple initiatives in place to drive margin improvement over time, including targeted supplier negotiations, automation investments, production optimization across our sites, driving more favorable product mix, and achievement of ArrowEye synergies. We are also managing discretionary spending and driving operational efficiencies as volume increases, including in our new Indiana production facility, where we expect volumes this year to be 30% higher than 2024 levels in our old production facility. First quarter SG&A expenses increased $6.5 million from the prior year, primarily due to ArrowEye integration costs, the inclusion of ArrowEye operating expenses, increased employee performance-based incentive compensation, increased severance, and higher technology spending. Investment spending was less than anticipated in the first quarter, and we expect that to ramp over the remainder of the year beginning in the second quarter. Turning to slide nine, we had strong cash flow generation in the first quarter. Our cash flow generated from operating activities for the quarter increased from $5.6 million last year to $13.6 million, driven by strong working capital management. Free cash flow increased from $300,000 in the prior year to $10.1 million in 2026. We spent $3.5 million on CapEx in the quarter compared to $5.3 million in the prior year, although we still anticipate full-year capital spending to be similar to 2025 levels, with increased focus on technology spending. On the balance sheet, at quarter-end, we had $19 million of cash, $15 million of borrowings on our ABL revolver, and $265 million of senior notes outstanding. Turning to our 2026 financial outlook on slide 10, we are affirming the full-year outlook provided in March. This includes high single-digit revenue growth, low- to mid-single-digit adjusted EBITDA growth, free cash flow conversion at similar levels to 2025, and a year-end net leverage ratio between 2.5x and 3.0x. We expect Q2 revenue to be similar to Q1 levels, with adjusted EBITDA expected to be slightly lower than the prior year due to timing of investment spending, including some spending that was delayed from the first quarter. I will now turn the call back to John for some closing remarks. John D. Lowe: Thanks, Sarah. Turning to slide 11 to summarize before we open the call for Q&A. We are executing on our strategy with a better-than-expected start of the year. The segment trends are largely as we anticipated, and we are on track to achieve our full-year outlook. We also generated strong cash flow and brought net leverage back down to just below three times after the temporary increases following last year's ROI acquisition. We intend to continue growing and diversifying our business, leveraging our expanding proprietary technology platform, our extensive marketable base, and our evolving portfolio of payment solutions to meet market needs, drive growth, and enable our customers to win. Operator? We will now open the call for questions. Operator: Thank you. We will now open the call for any questions. If you would like to ask a question, please press star then 1. If you would like to withdraw your question, press star 1 again. Your first question will come from Peter James Heckmann with D.A. Davidson. Peter James Heckmann: Hey, good morning. Thanks for taking my question. In terms of thinking about Instant Issuance, Card@Once solutions, you did not mention it in the prepared remarks, but what are you thinking for this year in terms of base business as well as some of the tangential areas that you have expanded into over the last fifteen months? John D. Lowe: Yeah. Pete, good morning. We are excited about Instant Issuance. It is a great platform for us. Just as a reminder, it is a software-as-a-service platform. We built it from the ground up. It took us, you know, ten-plus years to build it, especially all the integrations into what we refer to as the payments ecosystem that we service. So we have thousands of customers across the U.S., and we expect that to be a large chunk of the growth out of our Integrated Paytech segment for 2026, growing that segment from an outlook perspective greater than 15%. I think the Fiserv deal we announced helps us grow. And just on the breakout between Instant Issuance and everything digital — I will say digital — we are essentially building the business there. It is small in relation to the rest of the business, but we are seeing strong customer demand, a good pipeline, and we continue to build out the pipes and integrations, if you will, to continue to service multiple areas of the market. So we are excited about what we are doing in Instant Issuance, but broadly in digital too. Peter James Heckmann: Okay. Great. And then just in terms of contactless, where do you think we are in terms of contactless cards? I have not seen recently any information that would suggest what percentage of cards out today have a contactless chip embedded. John D. Lowe: Good question. What we produce today is 90% plus contactless. So, you know, we used to use the baseball analogy. I would say we are in the very late innings of the transition. That is on the debit and credit side. I would say on the prepaid side of our business, there is a lot of opportunity. The volumes within prepaid broadly, when including open loop and closed loop, are somewhat greater on an annual basis than even the debit and credit side in terms of what is produced. So to the extent that that market starts to move more towards chip, it starts to move specifically towards contactless — which is what we are doing with Carta and what we are doing with a large national retailer, where we have a pilot underway, which we are having positive kind of movement on, if you will. If that market continues to move towards chip and grows, we will see a long transition there. It is what we would expect, and we would be in a unique position to capitalize on that transition. So on the debit and credit side of your question, I think we are late innings; we are pretty much fully penetrated, but I think there is a lot of opportunity on the prepaid side. Peter James Heckmann: Got it. I appreciate it. I will get back in the queue. John D. Lowe: Yep. Thanks, Pete. Operator: Your next question comes from Jacob Michael Stephan with Lake Street Capital Markets. Jacob Michael Stephan: Hey, guys. Good morning. Nice quarter. I just wanted to ask on the Fiserv relationship. It seems like that was expanded a little bit. Maybe you could touch on some of the things and ways that it was different from the past contract with them, or agreement. And then maybe touching on the supply chain a little bit — last year about this time we were talking a lot about tariffs. From a supply chain perspective and chip tightness, what are you seeing out there in the market today? And lastly, you are kind of expecting a bigger ramp in the second half from the Integrated Paytech segment. What are going to be the main drivers of that growth in Paytech? John D. Lowe: Yeah. No. Jacob, I think the main difference is we call out their name. We had entered into this agreement around year-end, so we mentioned an agreement at year-end, but we just did not call out Fiserv's name. I would say getting marketing teams together to finalize documents takes a long time, but the agreement is in place. We are excited about it. We are seeing positive customer interest in Q1, kind of ramping up, if you will, and Fiserv is a great partner. We love working with them. They have thousands of customers across the United States that we have worked with them to build good relationships with and make sure we are helping our customers win and helping their customers win at the same time. On supply chain, broadly I would say it has normalized, and I think that is credit to not only the teams that we put in place to manage it that continue to focus on how to manage things well, especially today in light of the Iran war. That is another kind of thing to tackle from a cost perspective, although that is not significant, I would say. But tariffs are something we had to work through from a supply chain perspective. I would say tariffs have somewhat normalized as well. But we are — just to get ahead of your probably next question — we are expecting refunds on tariffs. But we do not necessarily have a timing aspect to that. We hope to see them at one point, but as I tell my team, I will believe it when I see it. Put it that way. On the second-half ramp in Integrated Paytech, a lot of it is in relation to the deal that we signed with Fiserv. That is a chunk of it. Another chunk is just the growth in the business as it stands. Last year, it grew roughly at a 20% rate. If we look back over time, it has been growing at a faster pace generally than the rest of the business, and that is because we have a unique value proposition in the market. I am talking about our Instant Issuance solution specifically. On the digital side of the house, that is an area that is growing even faster. Now you are talking about smaller dollars — so it is smaller dollars growing — but at the same time, that is an area we continue to see just a large amount of interest in, and we are trying to build out that business as quickly as we can to support that large customer interest. So it is our Instant Issuance solution growth, which we have seen historically be pretty strong — we are confident in that, especially in light of the new deal — and digital growing just given what we are seeing in the market and the customer demand. Jacob Michael Stephan: Got it. Very helpful. Appreciate it. Thank you. John D. Lowe: Yep. Thank you. Operator: Your final question will come from Craig Irwin with ROTH Capital Partners. John D. Lowe: Hey, Craig. We cannot hear you. Craig Irwin: Thank you. Sorry about that. Can you hear me now? John D. Lowe: Yes, we can. Okay. Perfect. Good morning. Craig Irwin: Good morning. So can you help us unpack the comments around Indiana, the 30% increase in volume? Is this something novel in the last quarter? Did something materially change there? And then with 30% higher volumes, this clearly is not translating to the top line. Is there a mix issue or price erosion or something like that impacting the contribution to revenue growth and, obviously, profit growth if the revenue is not following? Any color there would be helpful. John D. Lowe: Yeah. Craig, good question. The reason that we shared that number specifically is it is an indicator as we have kind of come to the end of building out Indiana. You know, just a step back, it took about a year plus to build. The team in Indiana has done a great job. We essentially had nearly zero customer complaints as we were transitioning. And the reason for the growth in volume disclosure is really the fact that we could not have done what we were doing in our old facility. We were at capacity. If you go back two, three years — in 2022, as an example, when the market was insatiable in a sense — we were busting the team. So there were multiple reasons to move, but I think moving has been a large success for us. And I think your question about margins — there is depreciation on ROI. There are tariffs that have come up. Those types of things have affected our margins. There is always a competitive pricing market, but I would not say the pricing is irrational. I would say that overall, from a margin perspective, we have definitely had some impacts, but nothing that has created an irrational pricing market. I do not know. Derek, you would provide any other comments. Tara Grantham: Yes. So I would just say that we did grow pretty strongly in our overall Secure Card Solutions space, up 35% overall, and then from an organic basis, we did grow 15%, so we did get strong top line growth in that solution, and that was in part driven by contactless growth across our Secure Card Solutions. So, related to that, as John said, we did get operating leverage based on that growth. It was offset by things like tariffs as well as the higher depreciation across the business related to our new Indiana facility as well as related to the acquisition of ARY. John D. Lowe: Craig, one thing I would add, though, we do expect our overall gross margins — they are somewhat stabilized. Right? So we would expect them to be somewhat stable over the course of the year, if not increasing. Tara and team are doing a good job driving a lot of margin improvement goals. So between that and the growth of the business and the leverage we expect to get, I know we have had a lot of impacts over the last year and a half, two years, but we do expect margins — not only on a gross margin basis, but on an EBITDA basis — to improve over the course of the year. We expect this year, similar to last year, fourth quarter to be our biggest quarter. And so think of Q1 as kind of a starting point for the year, if you will. Craig Irwin: Understood. That makes sense. So then, ROI — I will admit, I was a little surprised to see the increased integration expenses this quarter. I thought that you were a long way down the path of already integrating that. Can you maybe give us some detail around the actions that are being completed right now? What did you complete over the last couple of months? Strategically, I thought that you might be actually adding a little bit more CapEx for ROI and focusing on the growth of that platform, given that personalization really is such an exciting opportunity. John D. Lowe: Yeah. I mean, I would say the integration costs we are spending now are really in two big areas. One is technology, and one is go to market. And when we look at ROI and its position in the market specifically, when we look at our broader solutions that we provide outside of Airline, we see a lot of revenue synergies. Airline signed, even in their first deal — I mean, 10 plus deals — and we have not owned them, I mean, since essentially one year ago from now. So we have seen really strong progress in terms of AirWise performance on a revenue basis. And the other side that we are spending on is operating synergies, trying to make sure that the way that we operate on the floor is — I would not call fully integrated, but essentially aligned with everything we are doing on a broader basis, which ultimately means we get purchasing power, things of that nature. So there were some termination fees from a vendor perspective as we transition vendors. Things of that nature pop up, and unfortunately they are not small. But we do expect integration to drop off in the second half of the year. We expect a little bit in Q2 — that will continue — but in the second half of the year, you should see that drop off dramatically. Craig Irwin: Thank you for that. I will take the rest of my questions offline. John D. Lowe: Thanks, Greg. Operator: Your next question will come from Harold Lee Goetsch with B. Riley Securities. Harold Lee Goetsch: Hey. Thanks for taking my question. On the Prepaid statement, it was said it was down 17% in the quarter. Can you give us some of the friction points? And again, were there some maybe significant nonrecurring customer revenues that came in 2025 and before that that are at least driving these declines? Or is the channel rather full right now and we are working through channel inventories? And is organic growth through the channel slower than expected? Thanks. John D. Lowe: Yeah. Hal, on the Prepaid side, just as a reminder, the whole business and the market in general — think of on the open loop side — we have leading market share. We are positioned really well, especially if that market starts moving towards chip. And so if you think about the broader market and our customers, they are trying to determine, based upon not only regulatory demands, but just customer demands, how do you increase security around the package itself? You can do that in two ways. You can increase the actual security around the package itself, or you can put a chip in the prepaid card itself. And that is why we are working with Carta. That is the pilot we are working with the large national retailer on. And because of that kind of testing and transition that we ultimately do expect to occur over a long period of time, we are seeing the normal-course open loop market be weaker. And we knew coming into the year this would be a slow start to the year. We are hearing that from our customers on the Prepaid side. That is because we believe from a longer-term transition perspective the value of the market is going to grow, and we are well positioned to capitalize on that. The other side on Prepaid is the closed loop side of the business, and that actually has performed very well for us. It is fairly small today, but we had pretty strong growth over Q4 of last year in Q1. And so we are excited about where the Prepaid business is going, but it is definitely a weaker quarter for us. And you can see this in the Prepaid financials. That business gains a significant amount of operating leverage as it grows, and you saw the opposite in Q1, and that brought down broader margins. Tara Grantham: Yeah. Just a reminder that we do expect good growth across our segments this year, including in Prepaid. So even though it was down in Q1, we do expect better growth throughout the year. And just looking back, still very confident in that business. Look back to 2024, we did grow that business 26%. And even though we were down last year, we were only down 3% once you adjusted for the accounting change that we made in Q2. So I do expect that return to growth as well as the increase in gross margins throughout the year. John D. Lowe: Okay. Thank you very much. Thanks, Hal. Operator: And there are no questions in the queue. I would like to turn the call back over to John D. Lowe for any closing remarks. John D. Lowe: Thank you to all of our CPI Card Group Inc. employees for their dedication and for continuing to deliver for CPI Card Group Inc. and our customers. Tara Grantham: Thank you all for joining our call this morning, and we hope you have a great day. Operator: Thank you for your participation. This does conclude today's conference. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Orthofix First Quarter 2026 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Julie Dewey. Julie Dewey: Thank you, and good morning, everyone. Welcome to Orthofix' First Quarter 2026 Earnings Call. I'm Julie Dewey, Orthofix' Chief IR and Communications Officer. Joining me today are President and Chief Executive Officer, Massimo Calafiore; and Chief Financial Officer, Julie Andrews. Earlier today, Orthofix released its financial results for the first quarter ended March 31, 2026. A copy of the press release and supplemental presentation are available on our Investor Relations website, and a replay of this call will be posted shortly after we conclude. Before we begin, please note that our remarks include forward-looking statements. These statements involve risks and uncertainties, and actual results may differ materially. All statements other than those of historical facts are forward-looking statements. We do not undertake any obligation to revise or update such forward-looking statements. Factors that could cause actual results to differ materially are discussed in our most recent filings with the SEC and may be included in our future filings with the SEC. We will also reference various non-GAAP financial measures during today's call. Reconciliations to U.S. GAAP and additional details are in our press release and supplemental materials. Unless otherwise stated, net sales growth rates are on a pro forma constant currency basis and exclude the discounted M6 artificial disc product lines and all results of operations will be on a non-GAAP as adjusted basis. Here's today's agenda. Massimo will start with business performance and operational highlights. Julie Andrews will follow with her financial results and guidance, then we'll open up the call for Q&A. With that, I'll turn the call over to Massimo, who will discuss how our early year execution and recent operational actions are beginning to support improved performance as we move through the year. Massimo? Massimo Calafiore: Thank you, Julie. And good morning, everyone. I appreciate you joining us today. We delivered a good start to 2026. First quarter results reflect steady execution, improving stability and sharper strategic focus. As the quarter progressed, we began seeing the expected progress from our spine commercial channel actions, along with stronger operating discipline, supporting our confidence that performance will continue to build through the year. While these results reflect meaningful progress, they also crystallize where we could further raise the bar. That's why in April, we took deliberate steps to simplify our spine leadership structure, a proactive move as we continue to scale, enabling technologies like 7D and advance the launch of VIRATA later this year. By bringing decision-making closer to the field and increasing accountability through direct oversight, we're improving speed, consistency and commercial focus where it matters the most. Stepping back, Q1 reflects where we are as a company today, moving into the next phase of our journey, executing with greater consistency and strengthening our position to benefit from our innovation pipeline as the year unfolds. What we delivered this quarter supports our confidence in continued improvement. Our priorities are straightforward: execute consistently, convert opportunity into results, and demonstrate progress quarter-by-quarter. Let me turn to business performance highlights, starting with Spine. In Spine, Global Spine Fixation net sales grew 6% on a constant currency basis, with U.S. net sales growth of 4%. Results were supported by enhanced commercial focus, deeper procedural penetration and the ongoing benefits of our distributor transitions. Importantly, those transitions are now largely behind us. As alignment has improved, we are seeing positive momentum from more consistent field execution. In Q1, our top 30 distributor partners delivered net sales growth of 27% year-over-year and 24% on trailing 12-month basis, reflecting the success of our strategy to prioritize larger, more dedicated distributors and deeper relationship with our top partners. A key driver of that momentum is 7D, which remains a core differentiator in our surgical ecosystem, enhancing precision, workflow and surgeon engagement. Following our leadership realignment, we are intensifying our commercial focus on adoption of our 7D FLASH navigation system to deliver a more integrated spine offering. While Spine is benefiting from better alignment, we are applying the same discipline to Biologics. Performance improved sequentially during the quarter as we implemented targeted actions to strengthen execution, expand account penetration and increase utilization across the portfolio. We are refining our go-forward strategy, building clinical evidence and supporting advocacy. Collectively, these actions are designed to drive improvement through the year and position Biologics to exit 2026 with stronger momentum and a more durable growth profile. Beyond Spine and Biologics, our other growth platforms remained resilient. Our Therapeutic Solutions business, formerly Bone Growth Therapies, delivered 5% year-over-year net sales growth and continue to outperform the broader market. Demand remained stable, utilization is improving and prescribing activity is increasing across both spine fusion and fracture care. With its consistent performance and healthy margins, this business continues to be an important contributor to margin and cash generation. Global Limb Reconstruction posted 3% constant currency growth, reflecting steady demand across our core fixation and reconstruction systems. Over the past year, we sharpened our focus by prioritizing high-value categories, enhancing our mix with platform like TrueLok Elevate and Fitbone and deemphasizing lower return product. We believe this action positions limb reconstruction for acceleration as we move through 2026. A common thread across the business is the increasing impact of our innovation pipeline. We will have a full year contribution from TrueLok Elevate and Fitbone, and we remain on track for the full market launch of VIRATA in the second half of the year. Together with the continued inspection of our 7D FLASH ecosystem, this platform are designed to deliver differentiated clinical value and support durable multiyear growth. In closing, Q1 was a solid start of the year. We are carrying that momentum forward with disciplined execution and targeted investment. The quality and the commitment of our U.S. spine distributors is greater than ever and meaningfully contributing to our success. Our innovation pipeline is strong. Our operating model is more focused, and we believe we have the right team and the financial foundation in place. There is more work to do, and we are increasingly confident in our ability to execute, doing fewer things better, sharpening accountability, generating cash and delivering on what we said we would do. With that, I'll turn the call over to Julie Andrews to review our financial results and guidance. Julie Andrews: Thank you, Massimo, and good morning. All growth rates I'll reference today are pro forma constant currency, excluding the impact from discontinued M6 product lines. We delivered a disciplined start to 2026 reflecting an execution that is consistent with our plan. For the first quarter, total global net sales of $196.4 million increased 3% year-over-year. Results reflect steady execution following the Spine Commercial channel actions, and we expect further improvement as productivity continues to increase. Spine Fixation was in line with market growth, while Therapeutic Solutions delivered above-market growth largely offsetting the remaining impact of commercial channel transitions and softness in Biologics. While timing of certain international stocking orders benefited Q1 in results by approximately $2 million, the majority of performance reflected underlying execution across our core franchises. As a reminder, Q1 had 1 less selling day than last year, which reduced first quarter growth rates by roughly 1.6%. In addition, the CMS TEAM pilot program that began in January and includes bone growth stimulation had a onetime impact of less than 0.5% on our fourth quarter growth rate, slightly less than the 1% impact we had originally anticipated. Taking these factors into account, our Q1 growth rate was within the range implied by our full year guidance of 5% to 6%. From a segment perspective, global spinal implants, biologics and enabling technologies delivered $105.8 million in net sales for Q1. Our performance was supported by continued growth from our top 30 distributors in the U.S., partially offset by the timing of stocking orders from our Middle East distributors due to the impact of the war. Therapeutic Solutions, BGT, net sales were $57.8 million, up 5% as we continued to outperform the market. Fracture sales grew 6% in the quarter. We expect growth to remain above market rates of 2% to 3%, driven by disciplined execution, new surgeon additions and competitive conversions, especially in the fracture channel. Global Limb Reconstruction net sales were $32.8 million in the first quarter, up 3%. U.S. performance was flat, largely due to the timing of OSCAR Capital sales. We have recently restructured our capital sales team, which we believe positions us for future growth. Early indicators are encouraging with a strengthening capital pipeline. Additionally, we are seeing continued acceleration in the worldwide adoption of TrueLok Elevate and Fitbone. As we sharpen our focus on our core limb reconstruction pillars and benefit from ongoing portfolio and commercial enhancements, we expect to return to double-digit growth in the U.S. in the second half of 2026. Moving down the P&L. Pro forma non-GAAP adjusted gross margin was 70.7%, a 40 basis point improvement over prior year, reflecting the impact of freight and logistics productivity improvements, partially offset by unfavorable geography mix. First quarter pro forma non-GAAP adjusted EBITDA was $9.7 million, in line with our expectations, reflecting impacts from geography mix and commercial transitions. We ended the quarter with $120.9 million in total cash, including restricted cash, providing ample liquidity to support our operating needs and strategic priorities. The cash increase was a result of financing activities during the quarter, including our draw on the second tranche of our debt facility. As we move through the year, our focus remains on disciplined execution, strengthening our commercial foundation and supporting upcoming product launches that we expect to contribute to growth and margin improvement over time. Now let me turn to our full year 2026 guidance. Against the backdrop of our fourth quarter performance and current visibility, we are reaffirming our full year 2026 guidance. As Massimo noted, we expect performance to improve as we move through the year, driven by a steadier commercial cadence and increasing contributions from recent and planned product launches balanced against macro and operational considerations. Net sales are expected to range between $850 million and $860 million, representing approximately 5.5% pro forma constant currency growth at the midpoint. Net sales growth is anticipated to be approximately 5% in the first half of the year and about 6% in the second half of the year. These projections are based on current foreign currency exchange rates and do not account for any further changes to exchange rates for the remainder of the year. Non-GAAP adjusted EBITDA is expected to be between $95 million and $98 million, reflecting approximately 70 basis points of margin expansion at the midpoint. Free cash flow is expected to be positive for the full year, excluding potential legal settlements. In closing, while progress is evident, we are still early in the year and remain focused on converting improved activity levels into consistent above-market profitable growth. We remain grounded in operational rigor, disciplined capital deployment and prioritizing high-value opportunities across our Spine, Therapeutic Solutions and Limb Reconstruction portfolios with the objective of creating sustainable long-term shareholder value. Now let me turn it back to Massimo for closing remarks. Massimo? Massimo Calafiore: Thank you, Julie. I am pleased with the progress we made in the first quarter and our anticipated trajectory for the remainder of the year. As we move through 2026, our focus is clear: deliver quarter-by-quarter progress, expand margins, generate cash and translate our innovation and execution into durable shareholder value. Before we open the line for questions, I want to thank our global teams and commercial partners for their performance in Q1 and their continued focus and execution as we continue to build Orthofix into their unrivaled partner in medtech, delivering exceptional experience and life-changing solution. With that, let's go ahead and open the call for your questions. Operator: [Operator Instructions] Your first question comes from the line of Tom Stephan with Stifel. Thomas Stephan: Nice start to the year. First question on U.S. Spine. Massimo, you talked about the distributor transitions now largely behind you. U.S. Spine up 4%, probably a bit stronger adjusting for selling days. So Massimo, maybe talk about how we should think about growth in this business as we move through 2026 and beyond as well would be helpful. And then I have a follow-up. Massimo Calafiore: As we described 2026, you're going to see an acceleration of the business towards the year. I think that you have a couple of drivers. All of this, you're going to see a phase out of the annualization of the distributor termination that we made in order to optimize our distributor infrastructure, so a natural acceleration there. But also, as you know, we have a very focused and strong innovation pipeline that is coming. We are on time for the full market launch of the VIRATA open system and on time on the alpha launch of the VIRATA MIS. So we're going to see a very good strong contribution of these two foundational systems for us in the second half of the year. So the combination between innovation, annualization of the distributor transition and key capital investment that we're making, I'm very confident they're going to drive a very strong 2026. And as you know, we made -- we shortened, let's say, the distance between myself and the business. I think that the optimization on the leadership side has let me be very close to the field, very be present and keep nurturing the talent that we have. So I'm very excited about where we are with Spine. And we made bold decisions to create a strong foundation and now it's on us to execute. Thomas Stephan: Got it. That's great. Super helpful, Massimo. And then my follow-up just on sort of guidance and cadence for rest of the year. Julie, this may be for you. By reaffirming 1H constant currency growth of 5%, you did 3% in 1Q. I guess, do we think about 2Q as around 7% constant currency? I just want to make sure I'm contextualizing the 5% correctly for 1H. A, is that correct? And then B, for 2H, any comments on selling day dynamics, maybe other fundamental considerations sort of from a headwind perspective in the back half that we should be mindful of for top line? Julie Andrews: Yes, so Tom, we are reaffirming our guidance. Our comments were we do expect growth in the first half of the year to be around the 5% and then accelerating to 6% in the second half of the year. And if you look at Q1, when you adjust it for the selling day, 1 less selling day, and the TEAM's impact, we were right at kind of that 5% growth rate in Q1. In Q2, we would expect our growth rate, I think, to be in the 6-ish percent, 6% range would get you there for Q2. Operator: Your next question comes from the line of Caitlin Roberts with Canaccord Genuity. Caitlin Cronin: Maybe just a little bit more color on the geopolitical impact in the Q1. And then just any expectations that might be built into the guidance there? Julie Andrews: Caitlin, so built into our guidance, we expect very minimal impact for the full year related to the activities in the Middle East. Q1, there was a little bit of what we see as timing just in our Spine business primarily with orders, but kind of more than made up for with other stocking orders. So very limited impact that we have from that and not necessarily in our guidance for the year. Caitlin Cronin: Understood. And then maybe just talk a little bit about putting the Biologics business under the Limb recon leadership and where you would expect Biologics growth to end 2026? Massimo Calafiore: For Biologics, I think that we are expecting to go back to market growth. It's clear that we have still work to do. But since the realignment, the performance has improved sequentially during the quarter. So the targeted actions that we are putting in place are working. We have strengthened the execution. We expand account penetration. And also, we increased the utilization of the portfolio, as you hinted before, not just in spine, but also in the orthopedic side. So I'm very confident about the quality of our Biologics portfolio. I think that the optimization that we are putting forward in terms of sales channel and leadership is working. But let me highlight a specific comment that you made. It's not a realignment under orthopedics. It's more a realignment under a leader that is Patrick Fisher, who has a lot of experience in the space. So of course, as I said before, you're going to see a natural expansion in the orthopedic side, but the idea of the realignment was mostly driven by the talent and the experience that we have in the company around this specific space. Operator: Your next question comes from the line of Mathew Blackman with TD Cowen. Mathew Blackman: Can you hear me okay? Massimo Calafiore: Yes. Mathew Blackman: Two little housekeeping questions for Julie, and then one question for Massimo. Julie, you didn't call it out, so I'm assuming it wasn't a headwind, but any impact from weather in the quarter? And also there was a big hospital strike on the West Coast. Just any other headwinds to call out besides the ones you did mention already? And then can you give us just a sense of the size of the Biologics business, even the roughest sense, whether it's as a percent of the total business or a percent of Spine, just for some context there, and then a follow-up for Massimo. Julie Andrews: Okay. Matt, no, we didn't see any sustained impact from the weather, and we didn't have an impact from the hospital strike on the West Coast. So those did not impact our business. From a Biologics perspective, we don't break that out separately. So I can't give you a context in terms of the size. I think I'd point you to a couple of places, you can look at pre-merger results, and then also a portion of our Biologics revenue, you can see in our Q with our MTF service fee for that portion. Mathew Blackman: I'll remember that. And then Massimo, as you sort of look at the top 30 distributors, obviously, tremendous performance there. Is there anything that you can take from that playbook and pour it over to the rest of the distributor book, such that you can sort of bring along that rest of the business? I mean, obviously not sort of approaching 30% growth. But anything that you could do to sort of bring up the tail of the business now that you're seeing, obviously, really solid execution on a large part of the business there. Just curious how you can execute across the entire distributor network now. Massimo Calafiore: The plan that we put in place was divided in different phases. Phase number one is the one that we just accomplished. Now phase number two is really started to pick among the networks that we have, the next tier of distributors that we want to help to grow. And as you hinted, we're going to apply the same discipline and rigor that we apply for our top 30 distributors to the second tier to make sure that over time, they can grow and create the operational excellence we are expecting by our partner. But 2026 is going to be mostly for us working on the next 30, more than -- keep fueling the growth with our top 30 and laser-focused on the second tier. Operator: [Operator Instructions] And your next question comes from the line of Mike Petusky with Barrington Research. Michael Petusky: I'm juggling on a couple of conference calls, I may have missed this. Did you guys give any detail around 7D placements, any percentages or just any detail around that this morning? Julie Andrews: Mike, we're doing that more on a biannual or annual basis updating this. So our last update on those were in our Q4 call. And as a reminder, for 2025, our Voyager earnout placements increased 30%. And our purchase commitments on those placements exceeded their purchase -- the accounts exceeded their purchase commitments by more than 50%. Michael Petusky: Okay. And then I guess I just want to ask around U.S. Ortho or Limb Reconstruction. It feels like the momentum has slowed there last couple of quarters. Can you guys speak to that and maybe speak to actions that you may be taking to try to reaccelerate growth there? Julie Andrews: Mike, the momentum hasn't slowed. We've had some transient issues or things that we're dealing with. So we did sunset about 30 product lines last year. We really saw that start to impact in Q4. And then we talked -- and continue some into Q1 as well. And then really the timing of OSCAR sales, which is a capital sale, in Q1 impacted the overall growth rate. But very good results and adoption that we're seeing on Elevate and Fitbone. So again, we expect that business to return in the U.S. to double-digit growth in the back half of 2026. Operator: There are no further questions at this time. I will now turn the call back over to Julie Dewey for closing remarks. Julie Dewey: Thank you for your questions and for joining us today. We appreciate your time and interest in Orthofix. If you need any additional information, please reach out. We look forward to updating you next quarter. This concludes today's call. Operator: Ladies and gentlemen, thank you all for joining. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the First Quarter 2026 Sequans Earnings Conference Call. My name is Howard, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Mr. David Hanover, Investor Relations. David, you may begin. David Hanover: Thank you, operator, and thank you to everyone participating in today's call. Joining me on the call from Sequans Communications are Georges Karam, CEO and Chairman; and Deborah Choate, CFO. Before turning the call over to Georges, I would like to remind our participants of the following important information on behalf of Sequans. First, Sequans issued an earnings press release this morning, and you'll find a copy of the release on the company's website at www.sequans.com under the Newsroom section. Second, this conference call contains projections and other forward-looking statements regarding future events or future financial performance and potential financing sources. All statements other than present and historical facts and conditions contained in this release, including any statements regarding our business strategy, cost optimization plans, strategic options, the ability to enter into new strategic agreements, expectations for sales, our ability to convert our pipeline to revenue and our objectives for future operations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended. These statements are only predictions and reflect current beliefs and expectations with respect to future events and are based on assumptions and subject to risks and uncertainties and subject to change at any time. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. Given these risks and uncertainties, you should not rely on or place undue reliance on these forward-looking statements. Actual events or results may differ materially from those contained in the projections or forward-looking statements. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission. And now I'd like to hand the call over to Georges Karam. Please go ahead, Georges. Georges Karam: Thank you, David, and good morning, everyone. I'd like to begin with a brief update on our capital allocation strategy, including how we are approaching the management of our digital asset holdings alongside the continued execution of our IoT semiconductor business. Our priority remains clear. We are focused first and foremost on executing our IoT strategy, scaling our product business and advancing our 5G road map in a disciplined way to create long-term shareholder value. In parallel, we have continued to manage our Bitcoin holdings with a pragmatic and opportunistic approach. In light of current market conditions, we made the decision earlier this year to eliminate all debt-related risk by negotiating an early redemption agreement with our debt holders. This allows us to fully redeem the $94.5 million of convertible debt by June 1, 2026, funded through the sale of Bitcoin that had been held as collateral. As of today, we have already redeemed approximately 62% of this debt, and the remaining balance will be redeemed in the coming weeks. By June 1, we expect to have a near debt-free balance sheet with at least 600 Bitcoin held as unencumbered asset. Looking ahead, we do not intend to further pursue our treasury strategy. Instead, our objective will be to monetize these holdings over time in a disciplined manner, balancing market conditions with our broader capital needs. Importantly, we remain focused on maintaining a strong cash position to support operations, invest in our 5G IoT road map and provide stability as we scale the business. Turning now to the operational side of the business. Our IoT semiconductor business continues to demonstrate solid underlying momentum. For the first quarter, we generated $6.1 million revenue. This performance is broadly in line with our expectations and reflects continued strength in product revenue despite supply challenges, partially offset by variability in the timing of services revenue. Looking ahead, we continue to benefit from a strong backlog, which provides good near-term visibility. Our order backlog continues to build with approximately $22 million in revenue, primarily product-related, already secured for the year, along with early indications of orders extending into the first quarter of next year. This provides us with increasing confidence in the trajectory of the business as we move through 2026 and confirms the healthy nature of our design-win pipeline and related KPI we track. Our full year outlook continues to be supported by an increasing number of design-win projects transitioning to production. We entered the year with more than $300 million in potential 3-year product revenue from design-win projects. Of these, 44% had already reached the production phase and are generating revenue. During the first quarter, 3 additional design-win projects transitioned into production, and we expect additional projects to follow in the second quarter. As a result, we continue to anticipate that more than half of our current design-win pipeline will be in production by the end of June, representing approximately $150 million in potential 3-year revenue. We are also seeing strong momentum with the new customer engagements. In the first quarter, we engaged more than a dozen new customer projects with 6 already confirmed as design wins. These programs are expected to contribute to growth, beginning in 2027 and beyond. Our product pipeline remains primarily driven by our 4G, CAT-M and CAT-1bis technologies. It also includes our RF transceiver product, which supports a wide range of software-defined radio applications, including defense and drone use cases. In addition, we have initiated early engagements around 5G eRedCap, which will be the future successor to 4G and cellular IoT deployments. Smart metering, telematics and asset tracking continue to represent our strongest verticals, followed by security, e-health and medical and other industrial applications. Turning now to product ramps and key drivers. Cat-M continues to be a meaningful growth driver in 2026, led primarily by asset tracking and smart metering deployments. This business is scaling in line with expectation, supported by strong visibility and steady ordering patterns as many Cat-M design-win projects are now in production with key customers deployment underway. CAT-1bis is positioned for a breakout year, supported by multiple customer ramps across telematics, security and some metering use cases. We are already seeing revenue contribution from several design wins with additional projects expected to enter production in the second half of the year. We're also seeing incremental opportunities driven by current market dynamics, which are creating opening for Sequans to gain share. In our RF transceiver business, we continue to see stable demand from existing customers, supported by committed backlog, and we expect additional contribution in the second half of the year. At the same time, we are engaging with a number of new prospective customers, particularly in defense and drone applications, and we expect to begin securing some of these opportunities in the near term. We are also advancing discussions around licensing and collaboration opportunities, which could further expand the reach of our RF portfolio. More broadly, our product pipeline continues to mature with several design-win programs progressing towards production. We are also seeing new generation product opportunities with existing customers, which provide incremental upside with our installed base. At the same time, we are actively preparing for the next major transition in IoT connectivity, which is the migration from 4G to 5G. Market demand for our 5G eRedCap solution continues to strengthen, particularly as mobile network operators look to refarm 4G spectrum and accelerate broader 5G deployment. Importantly, IoT applications represent the final phase of this 4G to 5G transition. And these applications require long device life cycle, often 10 years or more, making a seamless and future-proof migration path essential. Unlike the 4G era, where the market became fragmented across multiple cellular technology categories, we expect the 5G IoT landscape to be more streamlined, centered around eRedCap as the primary standard. This creates a more efficient and scalable ecosystem for both customers and suppliers. Sequans is well positioned in this transition. We already have an established customer base across our 4G portfolio, and we expect to leverage these relationships as we introduce our 5G solutions. In many cases, customers will be able to transition using solutions designed to be compatible with existing deployments, enabling a smoother upgrade path. We continue to make strong progress on our 5G eRedCap program. During the quarter, we received our first engineering test chips, which are now in-house and under evaluation. This represents an important milestone as we advance toward customer sampling, which we continue to target for the second half of 2027. Looking ahead, we believe 5G IoT will represent a significant long-term growth opportunity, both in terms of market size and value per device, supporting improved pricing dynamics relative to 4G. Now turning to services and licensing. Our services and licensing business continues to represent an important source of high-margin revenue, although timing of revenue recognition can vary from quarter-to-quarter. On this front, we have several ongoing discussions that could contribute to revenue over the course of 2026. These include engagements with large global partners, licensing and collaboration opportunities, leveraging our RF and 5G IP portfolio as well as a range of smaller service agreements. These opportunities provide potential upside to our product-driven revenue base while also expanding our reach into new markets and applications. We remain focused on converting these discussions into revenue while managing expectation around time. On the supply chain side, we continue to operate in a dynamic cost and supply environment. We are seeing significant increases in memory pricing, which are impacting the cost of both our chips and modules. We are actively working to address these cost pressures while ensuring we can meet customer demand. At the same time, we have taken proactive steps to secure supply, including multi-sourcing across key components such as memory and packaging. Based on our current plan, we believe supply for our 2027 baseline demand is secure, although we continue to monitor potential upside scenarios. Overall, while cost pressures and supply challenges are real, they are manageable and consistent with the broader industry trends. As we move through 2026, we remain focused on disciplined cost management and reducing cash burn. Our objective continues to be reaching a breakeven run rate by the end of the year as revenue scales. We implemented the cost reduction plan at the end of last year. And while the full benefits will not be realized until midyear, we are confident in achieving our expense targets in the second half. Working capital dynamics will continue to evolve alongside growth, particularly as we support production ramps and manage supply chain requirements. These dynamics may create short-term variability, but they are aligned with long-term revenue growth. Overall, our performance underscores the progress we are making in strengthening our core IoT business, improving financial discipline and maintaining flexibility in our capital strategy. Regarding our outlook for the second quarter, we currently expect revenue to be in the range of $6.8 million to $7.4 million, driven predominantly by product revenue, with potential upside if new licensing deals are closed. Based on our backlog and continued momentum across our design-win pipeline, we expect revenue to build sequentially throughout the remainder of the year. We also remain focused on reducing cash burn and continue to believe we can approach cash flow breakeven by the end of the year as the business scales. Looking ahead, we continue to evaluate strategic alternatives that could accelerate profitability and unlock additional value for shareholders. What's clear to us is that we are operating from a position of strength. We have a solid balance sheet, a growing and increasingly productive IoT business and a differentiated 5G and RF IP portfolio that we believe will be a key driver of long-term value. As we discussed earlier, the transition from 4G to 5G in IoT represents a fundamental shift in the market. With eRedCap expected to become the primary standard, we believe this will create a larger, more unified and more scalable market than what we saw in the 4G cycle. Sequans is uniquely positioned to benefit from this evolution. We expect to leverage our existing 4G customer base as a natural entry point into 5G, enabling a more efficient transition for our customers while accelerating our own time to market. Combined with the expected premium pricing and expanded market opportunity, we believe this positions us to drive meaningful long-term growth and improved profitability. In parallel, we will complete the redemption of our debt by June 1 and continue to manage our capital allocation with discipline, maintaining a strong cash position while preserving flexibility to act opportunistically as conditions evolve. Overall, we remain focused on scaling our IoT business, advancing our 5G road map, developing our new RF transceiver business and executing against the key drivers that we believe will unlock the full value of Sequans over time. With that, I will now turn the call over to Deborah to review our financial results in greater detail. Deborah? Deborah Choate: Thank you, Georges. Hello, everyone. I'll begin by reviewing our first quarter financial results and then provide an update on our balance sheet and digital asset holdings. During the first quarter, our financial results continued to reflect the underlying momentum in the IoT business, along with the impact of actions taken earlier this year to strengthen our balance sheet and simplify our capital structure. For Q1 2026, total revenue was $6.1 million compared to $6.9 million in the fourth quarter. As Georges mentioned, revenue in the quarter was primarily driven by product sales with ongoing variability and licensing and service revenue timing. Gross margin for the quarter was 37.7% compared to 41.4% in the fourth quarter and reflects the ongoing impact of supply chain dynamics and especially revenue and product mix. Operating expenses in the quarter, including R&D and SG&A expenses, were $11.8 million compared to $12.3 million in the fourth quarter. We continue to make progress on our cost reduction plan and remain on track to achieve lower operating expense levels in the second half of the year. During the quarter, we recorded $29.3 million of noncash charges related to the mark-to-market valuation of our Bitcoin holdings compared to a loss of $56.3 million in the fourth quarter. As a reminder, these charges are driven by market price movements and do not reflect underlying operating performance. We also recorded $11.7 million of realized losses on the sale of Bitcoin during the quarter compared to $6.1 million of losses in the fourth quarter, primarily associated with the ongoing redemption of our convertible debt. As discussed previously, the convertible debt and associated embedded derivatives continue to be remeasured each reporting period, resulting in noncash impacts to the P&L. In addition, IFRS accounting requires us to recognize noncash interest expense associated with the 0% coupon instrument. Reflecting these factors, we reported an IFRS net loss of $54.3 million for the quarter compared to an IFRS net loss of $76.4 million in the fourth quarter. On a non-IFRS basis, excluding significant noncash items, we reported a net loss of $20.7 million or $1.42 per ADS compared with a non-IFRS net loss of $16.2 million or $1.04 per ADS in Q4. The comparative numbers for Q4 and Q1 2025 have been adjusted from the unaudited figures published in February 2026 and May 2025. In finalizing the 2025 audit, we made adjustments related to the timing and amount of revenue recognized, the accounting for the compound financial instruments issued in July 2025 and related embedded derivatives, finalization of the ACP purchase accounting and other adjustments attributable to normal year-end closing procedures, audit adjustments and the completion of management review. We are currently still finalizing with our auditors the documentation and disclosure of the impairment test for ACP, goodwill and other acquired intangibles on the balance sheet. The ongoing discussions regarding determination of the cash-generating units to be evaluated and the most appropriate valuation models resulted in delays in issuance of the audit report, and therefore, we filed a statement indicating we would need to extend our filing deadline. We expect to file our Form 20-F this week. Turning to cash flow. Normalized cash burn for the quarter was just under $10 million compared to approximately $7.7 million in the fourth quarter, including working capital movements. As Georges mentioned, working capital can fluctuate as we support production ramp and secure supply. During the quarter, we continued to execute on our balance sheet strategy. As of March 31, 2026, we had redeemed $28.3 million of the $94.5 million face value debt that was outstanding on December 31, 2025. As of April 30, we had redeemed approximately 62% of this convertible debt, funded through the sale of 800 Bitcoin, leaving a balance of approximately $35.9 million due, which we expect to redeem in full by June 1, 2026. At the end of Q1, we held cash and cash equivalents of approximately $10.6 million compared to $13.4 million at the end of 2025. As of the end of Q1, we held 1,514 Bitcoin compared to 2,139 Bitcoin at year-end 2025. And as of April 30, we held 1,114 Bitcoin and expect that we will hold at least 600 Bitcoin after full redemption of the debt, all of which will be fully available for sale. Following completion of the debt redemption, we expect to have a near debt-free balance sheet with a simplified capital structure and increased financial flexibility. Overall, our financial results for the quarter reflect continued progress in scaling the IoT business, improving cost discipline and strengthening the balance sheet. Before turning the call back to Georges to conclude, I'd like to cover a few housekeeping matters. We expect to conclude the final audit procedures with our auditors this week and be in a position to file our annual report on Form 20-F. Since we filed an extension notification last week, as long as we file by May 15, we will still be considered a timely filer. We are currently preparing for our Annual Shareholders Meeting on June 30, 2026. You should expect to see voting materials by early June. Most of the resolutions will be our normal recurring resolutions that you see each year. One of these resolutions is to ask for authorization for a capital increase. This year, we will ask for authorization to issue up to 7.5 million ADS, including up to $15 million in the form of convertible debt. We would like to clarify that we are asking for this authorization only to provide flexibility in the event that we have a strategic opportunity that would require issuance of convertible debt or equity. We currently have no plans to do any equity raise to finance operations. In fact, the shelf registration statement and ATM program that we filed in August 2025 were filed when we had the market cap to be an accelerated filer and were automatically effective. Upon the filing of the 2025 annual report on Form 20-F, we will no longer satisfy the requirements for using an automatic shelf, and therefore, we can no longer issue equity under that August shelf registration or the ATM program. With that, I'll turn the call back to Georges. Georges Karam: As we close, I want to reiterate that our primary focus remains on executing and scaling our IoT business and expanding to software-defined markets such as drones and defense. We are seeing solid momentum across the portfolio, supported by a growing backlog, a maturing design-win pipeline, an increasing number of projects transitioning into production and several advanced licensing and services deals. With continued strength across Cat-M, Cat-1bis and RF transceivers, and with early engagement around 5G eRedCap, we believe the business is well positioned to drive sequential growth while maintaining a clear path towards cash flow breakeven. At the same time, we have taken decisive steps to simplify and strengthen our balance sheet. By eliminating our convertible debt and transitioning away from the treasury strategy, we are increasing financial flexibility and sharpening our focus on the core business. Going forward, our priority is to monetize our remaining Bitcoin holding in a disciplined way while ensuring we maintain the liquidity needed to support operations and invest in our 5G road map. Overall, we believe we are entering an important phase for the company with a stronger financial foundation, improving operational visibility and a clear path to long-term value creation. Thank you for listening. We can move now, operator, to the questions, if you don't mind. Operator: [Operator Instructions] Our first question or comment comes from the line of Luke Horton from Northland. Lucas John Horton: This is Luke on for Mike Grondahl. Just wanted to touch kind of on the 5G road map and pipeline you have there. And I guess, specifically with RedCap, I guess, how large do you expect this opportunity to be relative to the existing kind of Cat-M, Cat-1 business? Georges Karam: Yes. Luke, I mean, just not to be confused, you said RedCap, I'm talking about eRedCap. eRedCap is really the standard that's going to replace literally CAT-M and CAT-1bis. When you look to the 4G -- the 4G IoT, we had like 4 technology used in 4G: NB-IoT, mainly in China, but you have some in Europe and even in Australia and other place; Cat-M, mainly U.S., Japan and half of Europe, I would say; CAT-1bis is -- and CAT-1, which is the fourth one. And as you see, this is really because IoT -- cellular was for the first time entering IoT and for the good and the bad, they ended by having almost competing technology, not 100% competing, covering some application, but there is also a piece of it competing. And this fragmented the market. Obviously, now the carriers, starting in the U.S., and obviously, this will be followed by other region of the world, the carriers, they would like to finish their deployment of 5G. And in other words, they need to refarm the 4G spectrum to use it on 5G and one day switch off the 4G. To do this, you can do it today for all applications on the phone, but you cannot do it for IoT because all the IoT runs on 4G. That's why there is a push to come with the IoT -- 5G IoT, and this is the eRedCap. So eRedCap, by definition, will come and replace [indiscernible] all those Cat-M, NB, CAT-1 and CAT-1bis. You will have like kind of supporting low speed and medium speed. The same technology is able to do this. And because it supports 5G, it will have a little bit higher ASP. And because it supports the low speed and the high speed, so it will be really benefiting from the continuation of the IoT business in cellular and it will be expanding over time as well increasing in the price and increasing the size. So definitely, the opportunity will be, let's say, at least the sum of the 4 opportunity of Cat-1, Cat-1bis, Cat-M and NB-IoT today, plus some premium, let's say, 10%, 15% related to ASP increase because of the 5G. Lucas John Horton: Okay. Got it. I appreciate the color there. And then I guess on the kind of $300 million pipeline that you called out with about 50% of that expected in the next 3 years. And then also just kind of given the sequential growth acceleration, kind of quarterly cadence throughout this year, I guess, where does that confidence come from? And could you provide any other color around those? Georges Karam: Yes. Sure. Luke, I mean, the $300 million, this is what we had, let's say, on January this year as design win in hand, and we said like first 4% of them were in production, which means generating revenue. And we expect to be, by June, 50% of them in production, which will be $150 million. In other words, if you take $150 million in average over 3 years, this is $50 million yearly revenue in average. Obviously, there will be a ramp depending on the project, year 1, year 2, year 3. And the confidence there continues to build. And literally, when you look to our backlog, if you compare this to beginning of the year, this year in Q1, as I'm speaking, we have backlog securing close to $22 million for the year, this year, in product revenue. And we have even portioned, like $2 million, $3 million already in hand for Q1 next year. This backlog is coming from existing design win in production. And this means all our analysis on the fact of our design-win pipeline is really true and accurate, if you want, reflected in the ramp of our customers. So that's why we have really strong confidence on this. Now obviously, we need to continue the conversions from design win to full mass production. That will happen in the second half of the year, I would say, in June and beyond June, let's say, for the second half of the year. And to some extent, if you look to Cat-M business, Cat-M business today is really -- versus our target, we feel almost secured. I don't want to say 100%, but maybe 90% of our plan is already in hand. Why? Because on the Cat-M is really -- a big portion of the Cat-M is design win in production. The Cat-1bis, we have design win, not all of them in production, and this is the piece where we're still working on to ensure the ramp is going to continue in the second half of the year in terms of product revenue. Lucas John Horton: Okay. Great. And then just lastly for me on the digital asset strategy after the June 1 redemption, how do you think about Bitcoin holdings on the balance sheet and kind of capital allocation strategy, I guess, kind of specifically in different crypto market situations, like if there were to be another bull run in crypto versus kind of digital asset pricing pulling back again? Georges Karam: Yes. I mean, Luke, I mean, we went through digital asset thinking seriously that we can develop this business and we can trade above NAV. And then after this, maybe separate the 2 business, which is the core business, IoT from the digital assets because they cannot live together forever. I mean it was really -- my plan was if the 2 -- if digital asset is working in addition to the IoT, knowing that IoT will be working, we'll have, at some time, to separate them and do something there. Unfortunately, for many, many reasons, the digital assets didn't work in a sense like we were not able really to create -- to benefit from the leverage of the debt and be able to get our NAV higher than [ 1 ] , allowing us to keep scaling. So any digital asset strategy needs to have the ability to scale in number of Bitcoin and so on. And unfortunately, because we realized on top of this, the pressure on the Bitcoin, put us almost at risk. And I believe many people were nervous at the beginning of the year if this can hurt the IoT business as well. For all those reasons, we decided really to take out the risk by redeeming the debt. And obviously, from there, have a balance sheet which is clean, no debt. We'll have there, obviously, Bitcoin after -- in June 1. From there, the question becomes, are we going to go and buy Bitcoin? I don't believe so today. This is what I'm clear on it. Now we will have a holding, more than 600 Bitcoin. Are we going to sell them on June 2? I don't believe we'll be doing this on June 2, but we will be taking our time to monetize those Bitcoin in the coming, I would say, couple of quarters, knowing that the purchase price of this Bitcoin, I mean, is higher. And obviously, the trend we are seeing today that the Bitcoin is going into the right direction. So we would like to benefit from this if we can. But in any case, we'll not sacrifice IoT. And in other words, we secure enough cash on the balance sheet to be sure that the company can operate independent of the variability that you could see on the Bitcoin. Operator: Our next question or comment comes from the line of Scott Searle from ROTH Capital Partners. Scott Searle: Maybe just to dive in, Georges, on the RF business, it sounds like there's a lot of momentum building. Could you calibrate us in terms of where that is from a current revenue standpoint, what the backlog and opportunity looks like as you think about '26 and '27? And then as it relates to the RedCap -- eRedCap licensing opportunity, it sounds like there are a number of opportunities in the pipeline. I wonder if you could provide a little bit more color in terms of the magnitude and time line that you could see some of these deals materializing maybe a little bit in terms of how you're thinking about different vertical markets on that licensing front? Georges Karam: Yes. Scott, thanks for the questions. Indeed, as you know, one of the nice surprise we saw this year, which is we acquired the ACP and by acquiring ACP, the original goal was there to get the IP of the RF and accelerate our 5G eRedCap road map. And this is really executed on. As I said, we have already a chip in-house, and this has all the RF and all the analog and everything is working well as we are speaking. So this is -- we did it. But at the same time, we have, let's say, as a bonus on top of this, a product -- RF product that can be sold on stand-alone to existing customer. And when we dig in, we realized that this product is really a great product to go to drone market and defense market where you have very high ASP, very high margin and the market is booming. From this, we obviously secure the existing customer we have. And I could say today, around those customers, we could be doing close to, maybe this year, $5 million or $4 million, $5 million. They are not -- they are -- I'm putting inside this as well the royalty we collect with our Chinese RedCap. But let's call it, outside of this regular IoT business, we have around $5 million almost secured for the year and maybe we can do a couple more, depending, in the second half, if the backlog will confirm versus forecast. But the good news as well there is like we expanded to go to this defense market and drone market. And here, since we announced the Iris family, this product, we had like a dozen of leads across the world, really from many, many countries. And we realized that we have really great product, very competitive in terms of feature set, and people are really happy to use it and test it and engage projects. And as I'm speaking, I have at least several -- a few of them very advanced to consider it a design win. I don't qualify it yet a design win, but a few of them are there. So the potential of this RF business, honestly, could be -- when we're talking about the market, it's very hard to size this market around defense and drones, if you take only the transceiver business, but we are talking about maybe $100 million plus per year potential market. And as you know, this is really very high margin. We're talking about 99% gross margin. So we believe like it makes sense for us to capture a nice market share from there, whether 20%, 30%, we'll see how good we are. but this is really a very nice potential for the company, coming almost with very minimum investment. The only investment we are doing is really in support, marketing because the R&D is already done. So this is on the RF. And then if I look to the licensing and in general, those opportunities, licensing remains very important for us, specifically if we want really to achieve our cash flow breakeven in Q4. Even if the product revenue is really growing nicely, and if you look to our number in Q1, 90% plus is product and my guidance for the Q2, same. So we are really moving to almost product revenue, but we still have several deals under discussion, maybe more than 5 of advanced discussion covering RF covering the eRedCap or let's say, the modem portion as well as the protocol for satellite communication. So on those, we are advanced with many of them. We hope we'll close something in Q2. We're not -- timing sometimes, it's not obvious how much revenue you can take it if you close at end of June. But we are looking to close at least 1 deal this quarter and maybe another 1 or 2 in the second half. And those deals, they vary. I mean there is -- obviously, we have some smaller ones. I'm not mentioning this. It could be a few hundred thousand dollars, but those are really associated with the product revenue in general. But pure service revenue, we're talking about deals here, they could be from a couple of million dollars up to $15 million, 1-5, that we are contemplating there. So potential is big. But obviously, they are binary. I mean, if you get them, you get the $15 million, if you don't get them, you get 0. But we have, as I said, several of them quite advanced. So that's why we are optimistic that we can secure something this year that can help us support -- that add to the product growth in the second half of the year. Scott Searle: And then, George, looking to the second half of this year, you're talking about getting cash flow breakeven. That obviously implies that the product revenue ramps considerably in the second half of this year. Could you expand a little bit on your confidence level on that front? Certainly, that $300 million pipeline is helping, but it sounds like new wins are starting to ramp as well. And could you give us an idea about where you expect product to ramp to by the end of this year? The backlog supports some of that current visibility. But just kind of maybe help us out a little bit with some end markets and the competitive landscape as well. Cat-1bis is very, very hot right now. Kind of where you guys stand from a win rate on that front? Georges Karam: It's really -- the confidence is coming with the maturity of the design win, means those design wins are already in production. Everything which is in production today, and we start to have a sizable number of projects, and as I mentioned, mainly in metering and tracking. These are the 2 markets where we are very good at in a matured way. All those are coming, scaling. Last year, we did some number. This year, we plan to do something that's already secured. So the confidence level is really coming very strong from everything in production. So if I look to my ramp for everything in production, I'm more than 90% sure about it. Everything really shipping. It's really good. We have backlog and we have forecast from customers, and we should have no big surprise in the second half on this. The other piece, which is really where really the risk is or, let's say, where we have a little bit of challenge of timing, not to lose the customer. But if we are planning, obviously, and mainly in the Cat-1bis space because the Cat-M is much more mature today, more than 90% of the Cat-M -- of our Cat-M plan this year is already done, as I said, while maybe in terms of Cat-1bis, we are at 30%, let's say, if I give it a number. Why? Because the Cat-1bis is a product that we introduced after the Cat-M, which means the design wins we have there came later and those guys are not yet all in full production. Some are in full production, and we continue to win in security and telematics and they start moving and we start getting order. But obviously, we're expecting to have more in the second half. So this is the risk really or, let's say, the point to observe if those Cat-1bis projects come on time in terms of moving to production in the second half of the year. But we are optimistic because they are happening and the customer is serious, the projects are moving. And if there is a shift, it will be really minor delay with the customers taking a month or 2 delay, but this will happen at the end of the day. And then if I look to the RF, I told you already, I mean, we are in good shape there because all what we have in hand, we secured maybe 60% power plant in RF already. Still the remaining needs to happen in the second half based on forecast, not yet an order, but based on forecast. So all this give us strong confidence, to be honest. And when you compare to the last year, it has nothing to do -- I mean the company really now -- we talk about many, many customers, many projects, repeating order, established customers to whom we ship -- we ship to them maybe in the last 2 years already, maybe a little bit and growing. And some we started shipping last year and now growing strongly this year. So that's why we are really very, very positive on the ramp of our product revenue in the coming quarters. Scott Searle: Very helpful. Georges, maybe just quickly, the competitive landscape right now for Cat-1bis and kind of what your win rate is. And Deborah, if you could remind us, I know that there -- you've got cost reduction efforts, but there are a lot of moving parts in the world today with currency fluctuations, et cetera. What should we be thinking about in terms of where that OpEx is in the second half of this year and therefore, the breakeven? Georges Karam: Yes. I mean on the competitive landscape, there is not a big change, to be honest, Scott. It's the same thing. Even if -- I saw in the Cat-1bis, Nordic announcing a product, I believe they got it through IP licensing from somewhere, without saying more on this. But you need to understand that Cat-1bis in the U.S. is closed. There is no more certification of new module in Cat-1bis. So any new Cat-1bis will be coming more to address Europe and not in the U.S., not North America. And there, if you go to North America, it's left between Qualcomm and us, to be straight on this. And the challenge of all this, again, you need to imagine that starting in 2029 and maybe not that far, maybe 2030, if this shifts a little bit, you're going to see all the market will be pushing to get eRedCap support, 5G support and you will not be able to deploy new product with 4G without having the 5G. So -- and here, obviously, the competitive landscape is who has 5G technology. And as you know, we benefit from all the investments we have done in the 5G, and we believe we'll be leading in the eRedCap in the market and take a strong position there. Deborah Choate: Yes. And on operating expenses, we expect those to keep coming down. We're targeting to have cash operating expenses below $10 million, targeting $9 million by the end of the year. Operator: Our next question or comment comes from the line of Jacob Stephan from Lake Street Capital Markets. Jacob Stephan: Maybe first, I want to touch on the balance sheet, kind of post June 1. Obviously, $10.6 million in cash. Just kind of help walk us through that a little bit. I know you're going to have roughly 600 Bitcoin, but the collateralized number of 817 that you guys cited in the press release, I guess when you kind of subtract the current holdings from that number, you get like 300. So can you kind of walk us through that a little bit? Georges Karam: Yes. I mean, Jacob, you're right. I mean it's a little bit tricky because we have some Bitcoin already free. We have around 300 Bitcoin in hand that they are free. They are not part of the 800 that Deborah was mentioning. When we talk about the 800, we're talking about the piece which is in the collateral. And obviously, the deal we have with our debt holders is we're keeping all the amount of Bitcoin in collateral until we redeem all the debt. So obviously, once we redeem all the debt, we get all what's left in there. So the more than 600 -- we'll be at least 600, I believe, we should have more. Mainly if the Bitcoin stays where it is today, maybe we'll have a nicer number. It's just only the fact that you pay what's left -- you sell the Bitcoin, you pay what's left. And then when you combine what's left from the collateral plus what we have already in hand, free Bitcoin, we'll end above 600 Bitcoin. So in a very simple way, don't matter the detail there. On June 1, we'll pay all the debt. We'll have more than 600 Bitcoin. And we'll have almost debt-free company, maybe we have $1 million or $2 million. Deborah Choate: The only remaining debt after that will be related to government, like R&D funding that's 0 or low interest. Georges Karam: More short-term debt. Jacob Stephan: Got it. So the actual collateral, the $62 million or so is really just security for the $36 million of debt. But once you pay the $36 million of principal off, that's the remaining. Deborah Choate: Yes. Jacob Stephan: Okay. I got you. Second, I just want to touch on the supply chain. I know you guys talked a lot about it with the memory costs increasing, but what's kind of your confidence level you can procure any additional supply, should any of the kind of upside opportunities that you mentioned to the full year present themselves? Georges Karam: Yes. I mean the -- you're absolutely -- you're mentioning a good point, Jacob. On one side, what I said, like for our, what I call it, baseline, we are good today. We were not -- last quarter, we were a little bit worry about Q4. Now we are fine. I mean maybe we'll not -- however, we are short in terms of covering upside, depending how big is the upside, right? I mean if we have a big deal and we need to serve it in Q4, we'll be short if I look to the number today. However, we have capacity to increase, we will be paying more in reality. So there is always some supply capacity that will cost you more, like you lose on margin and so on. So we are contemplating this. We are working on those angles. We believe there is a potential of upside that we can cover it, but maybe this will come with a reduced margin if we have to get it because we'll be paying more. And on the memory supply, as you know, this is an industry problem today and mainly driven by AI demand. But just to make it very simple, for me, even if there is -- even if AI is taking all the capacity of memory, if this is true at the end of the day, AI will not work neither, right? Because you cannot have all the electronic only running with the AI processor, right? I mean you need a lot of things around it, some communication and so on, and you need memory. So there is availability of memory, just only people benefiting off the cycle. And I can tell you, you have crazy price increases. We're not talking in percentage. You talk about multiple -- you can talk about 2x, 3x, some memory, sometimes more than this. So that's what we are seeing. And obviously, this is the industry trend. We cannot fight for it. But however, we have good relationship with the supplier, and we are securing our capacity. So we are not missing capacity. We also introduced some second sources on some of them. We have one memory, which was really key. We have already a second source already available and shipping to some customers, not to everybody. And obviously, over time, this gives us a chance as well to secure supply, but also keep pressure on the pricing not to pay -- at least to pay based on what the market is setting as a price for memory. Operator: Our next question or comment comes from the line of Fedor Shabalin from B. Riley. Fedor Shabalin: Georges, Once the convertible debt is fully redeemed, how should we think about the preferred use of the proceeds from the sale of remaining Bitcoin? How would you rate funding operational expenses versus maybe share buybacks? Georges Karam: Yes. Fedor, I mean, it's a good point to mention on this. Obviously, we still have the share buyback plan in hand, and we can execute on it. And in Q1, we did some share buyback already. Honestly, we don't need all this money on our balance sheet. And as I'm speaking, we'll be turning -- we don't need it in a sense for operation, for cash burn. Our cash burn should be reduced and be limited, and this will put the company in a very strong position in terms of balance sheet. The option of buying opportunistically, we could be looking to this. We're not giving up on this, making some buyback. Obviously, it depends on the business evolution in the second half, on the licensing deal we secured, let's assume we secure a big licensing deal and we add -- because maybe on revenue, we will not take all the deals now, but this can add a lot of cash because in the licensing deal, you have always some upfront payment that could be significant. There, maybe we feel like we have enough cash to -- and if the share is not performing, to come and support the share and make some buyback. So this is really on the agenda of the Board, and we can execute on it opportunistically, based on the market condition. Fedor Shabalin: That's helpful. And my follow-up is about -- you did a great job outlining revenue pipeline and timing and cadence for 2026, and the same for operating expenses. I would like to dig a little bit deeper into details on operating expenses side. You mentioned that you would expect decrease in OpEx for the year. And I remember you mentioned $9 million, something like that, the number by the end of 2026. Where most of the savings come from on the OpEx side? That's the question. Georges Karam: Yes. I mean, Fedor, last year -- to be honest, now the company is in, I would say, efficient mode. But as you remember, last year, with all the movement of the company with the deal we did with Qualcomm and we had the acquisition of ACP, and we have a lot of even exceptional items related to Bitcoin, digital strategy in general as well. So all this, let's say, got cleaned, we cleaned it in Q4. Some of it was not effective in Q1. So -- and some will be effective in Q2. And for sure, by end of Q2, we'll get the full benefit of what we have. And we continue watching this. But in general, the focus was really -- we have our -- if I take in terms of R&D, our 4G product is maturing. There is only need for support on the 4G product. So in other words, we moved all the spending in 5G -- sorry, in R&D to 5G and with very minimum 4G, just all what we need for the support. This was an angle of saving. The investment into the 5G was aligned with time to market. We could go much faster if we want. We can go slower. And this was the decision based -- we need to be just in time. We don't want to be, with our eRedCap, 1 year ahead of time because this will not benefit for the company. And we don't want to be late. So -- and this also give us a variation, if you want, that a level -- a variable that we can play with. And obviously, in general, I would say all the G&A spending... Deborah Choate: Yes. I don't think -- there's not one particular item, but across the board, we've had some planned headcount reductions, basically people leaving that we're not replacing. We have -- we work with a certain number of contractors that gives us leverage there when we are -- to reduce that number as different R&D projects finish. We've also looked at just the overall structure in terms of rent, basically, overall, all of the G&A expenses are being reduced across the board. Operator: I'm showing no additional questions or comments in the queue at this time. I'd like to turn the conference back over to Mr. Georges Karam for any closing remarks. Georges Karam: So thank you all for joining the call and for all your questions. Looking forward to see you in the near future. Bye-bye. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.