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Operator: Hello, everyone. Thank you for joining us, and welcome to Procore Technologies, Inc. FY '26 First Quarter Earnings Call. [Operator Instructions] I will now hand the conference over to Matthew Puljiz, SVP of Finance. Matthew Puljiz: Good morning, and welcome to Procore's 2026 First Quarter Earnings Call. I'm Matthew Puljiz, SVP of Finance. With me today are Ajei Gopal, President and CEO; and Rachel Pyles, CFO. Further disclosure of our results can be found in our press release issued today, which is available on the Investor Relations section of our website and our periodic reports filed with the SEC. Today's call is being recorded, and a replay will be available following the conclusion of the call. Comments made on this call include forward-looking statements regarding, among other things, our financial outlook, platform and products, customer demand, operations and macroeconomic and geopolitical conditions. You should not rely on forward-looking statements as predictions of future events. All forward-looking statements are subject to risks, uncertainties and assumptions and are based on management's current expectations and views as of today, May 5, 2026. Procore undertakes no obligation to update any looking statements except as required by law. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Therefore, these statements should not be relied upon as representing our views as of any subsequent date. We'll also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of non-GAAP to GAAP measures is provided in our press release and our periodic reports filed with the SEC. With that, let me turn the call over to Ajei. Ajei Gopal: Good morning, everyone, and thank you for joining us. Continuing our momentum from 2025. Q1 saw strong performance that exceeded the high end of our guidance. For Q1, we delivered 15.7% revenue growth and 17% non-GAAP operating margin, which represents 650 basis points of year-over-year expansion. I'm particularly pleased with these results given the ongoing headwinds from a challenging construction environment. On our last earnings call, I outlined why Procore will be an AI winner. Our flagship products and early investments in AI, including our acquisition of Datagrid, has positioned us well to capitalize on the disruptive technology. Building on our flagship system of collaboration with nearly 3 million active users and a massive proprietary dynamic data set, Procore AI can deliver outcomes simply not possible with traditional software. In that call, I walked through a real example of a customer using our AI agents as a digital coworker capable of executing complex high effort tests with [indiscernible] a critical advantage for an industry facing a severe labor shortage. This also opened a meaningful new dimension to our TAM as Procore AI can access construction labor budgets well beyond the industry's software spend. Our path forward is defined by a powerful economic duality, upside opportunity through AI monetization and downside protection through our volume-based model. I believe Procore will unlock unprecedented value as the definitive winner in the Agentic AI era. I would like to begin today's call by discussing the great progress we have made with Procore AI on last call. Then I want to discuss our continuing success with our flagship solutions. Finally, I'll discuss our intention to continue to improve margins and free cash flow per share. Let me start the Procore AI, which include our recent acquisition of Datagrid. I am pleased that the technology integration has proceeded rapidly leveraging the foundational security and platform investments we had made earlier in Helix. We have taken the best of both products to provide customers with new capabilities and are now executing on a combined product road map for Procore AI. Our solution enables customers to deploy embedded Procore AI agents that can execute tasks such as RFI analysis submittal cross-checking and compliance auditor. We recently released agents in the triggers, which enable customers to define automated event-driven AI workflows transitioning from reactive to proactive test execution across their projects. We are piloting a new voice AI interface designed for field workers who want hands-free access to project data on the job site. We also recently introduced a specialized contract review agent that can efficiently analyze construction documents that flag any risk in the contract. By building on the foundations already established in Procore AI, we were able to introduce this workflow in fewer than 30 days, and it is already being tested by customers. As the hard Procore AI is a reasoning engine purpose-built to construction. It understands the language and logic of the project. For example, when an RFI is how a submittal connects to a drawing, how a change order gets approved. On top of that, it works as a [indiscernible] system that holds context across multiple steps. It don't just answer a question, it understands the threat. For example, why is the middle was sent, what is obligate and what needs to happen next. Think of it as a digital coworker that encodes the logical construction decision making, reasoning about the project the way and experienced practitioner would. This data and contact can only be accessed within a system of record and coloration like Procore. That capability is backed by a tool library of dozens of construction-specific capabilities, including co-compliance capulators, drawing analyses and documents cross-referencing engines. And it is still early. As we continue to develop Procore AI, going deeper into our proprietary data and broader across project types, the reasoning engine will only become more capable. We expect our solution to continue to improve with every layer we unlock, and we have a long runway ahead of us. Turning to go-to-market. We made a deliberate decision to launch Procore AI through a dedicated specialist team working today as an overlay alongside our core sales force. The team is very small and intentionally so. The goal was to learn what the commercial motion looks like before scaling it. We are now working on translating those learnings into enablement for the broader sales force and we expect much of our sales organization to be selling Procore AI in Q3. I'm excited that customers are adopting our Agentic solutions in addition to our flagship offering. A great example of this is within the estimating department and one of our Enterprise customers Crest operations. Crest is already seeing transformative ROI from Procore AI. For their most complex projects, bidding is an audios process involving thousands of data points across massive sets of doing. By leveraging Procore AI, Crest has done a manual process that could spend weeks of effort down to an automation that can take as little as 20 minutes. This isn't just an incremental improvement in speed. It is a fundamental shift in their competitive advantage, allowing them to bid more accurately respond to opportunities faster and ultimately drive a level of ROI that was previously unattainable. Moving to our flagship solutions. In Q1, we have driven more innovation at a faster pace than ever before. We expect that these new product capabilities will help to drive sales, increase customer satisfaction, and improve retention. I'll start with the largest and most mature part of our business today, U.S. general contractors. We are focused on improving our platform by enhancing products like quality and safety and by extending Procore Connect to support RFI in addition to drawings. I'm particularly pleased with the general availability of the updated Procore scheduling, our natively connected scheduling solution that has already been implemented by over 2,000 companies since February launch, making it one of the fastest adopted products in our history. Together, these releases defend and extend our leadership while opening new expansion opportunities in civil and infrastructure construction. In Q1, Trinity Group a long-time GC customer expanded its construction volume commitment to $1.1 billion, a 6x increase. Trinity is evolving from a heavy user of siloed tools into a platform-first organization to support rapid growth and the growing complexity of large-scale bills and is increasingly relying on the Procore platform to help run its business. Now let me move beyond general contractors. On our last call, I focused on owners, including data center operators, this time, I would like to discuss new functionality available to specialty contractors as well as international customers. For specialty contractors, we introduced materials management which provides end-to-end supply chain visibility for self-perform contractors from procurement and better management through delivery tracking to the job site. This is part of our broader investment in a purpose-built self-perform platform that unifies resource management, financial and scheduling for the specialty and self-perform contractor market. This represents a significant step in our strategy to serve the heavy construction market where equipment costs can be just as material as labor for some projects. Also in Q1, Helm Group, a leading specialty and mechanical contractor in the Midwest, ranked #61 on the E&R 600 significantly expanded its construction volume commitment after 18 months of successful usage. The company which specializes in major projects like data centers and Northwestern University's new football stadium initially started with only a portion of its construction volume. Following a successful initial rollout of project management tools, Helm Group decided to standardize on Procore. The primary goal of this expansion was to achieve increased labor productivity, mitigate risk and streamline project management operations in a single location. Moving to international markets. We launched a new BIN model federation and streaming viewer, which enable customers to federate and navigate large 3D building information models directly within Procore. A key requirement for winning upmarket in Europe. This is the anchor of our European common data environment strategy, which combines bin, asset management document management and product execution into an ISL-19650 compliance solution. This positions Pro port as the connected construction platform for markets where CD clients is a contractual requirement. In Q1, we signed a new contract with Collin Construction Limited, a large general contractor headquartered in Dublin. Collin had been using over 25 disconnected point solutions and is now standardized on Procore's unified form to solve reporting and mobile access challenges. The customer anticipates saving over 46,000 labor hours over the next 3 years, the equivalent of more than 13 full-time employees as well as decreasing nonrecoverable change order by 25%. Moving to strategic partnerships. In Q1, we announced that we are integrating the Procore platform with NVIDIA on [indiscernible] VSX Blueprint to accelerate the building of AI factories and other critical infrastructure. This integration will establish a digital thread throughout the entire construction life cycle to build safer, faster and smarter infrastructure. The combination of Procore and NVIDIA solutions will enable teams to rapidly model design changes using a high fidelity, physically accurate 3D digital twin resulting in infrastructure that comes online faster and is optimized for pet performance. This has started our strategy of developing meaningful relationships with leading vendors that will reap rewards in the long term. Next, I would like to briefly talk about our use of AI to enable us to grow more efficiently in the future to increase the speed of the organization and to improve margins. Today, every Procore employee has access to at least one AI platform from the leading vendors. In R&D, we're in the middle of incorporating AI to transform our operating model. The part of that organization that have already gone through this position are able to deliver products faster and more efficiently than before. The rest of the organization will follow R&D leads, and we expect to see and efficiencies from these changes to provide our financial model with incremental leverage in 2027 and beyond. Rachel will expand on this opportunity in a moment. And speaking of Rachel, I'd like to take this opportunity to formally welcome her to the team as our new CFO, along with our new CRO, Walt Hearn. Rachel and Walt, our business and technology [indiscernible] and each held a key leadership role with me at ANSYS. They are highly qualified individuals who is successful in vertical software. We have all worked together and know how to meet challenges and deliver value as a team. I'm excited they are joined Procore at this critical time. I have been CEO of Procore for about 6 months now, and my enthusiasm of the job, the company and the construction industry has only grown. I remain optimistic for Procore's future, which is reflected in our financial performance for Q1, where we exceeded the high end of guidance and increased our full year outlook. A special thanks to my colleagues at Procore of their hard work and dedication to our customers and stakeholders. Looking to the future, Procore plans to grow its presence in the construction industry become wider in the AI era and continue to compound free cash flow per share. And with that, I'd like to turn the call over to Rachel. Rachel? Rachel Pyles: Thank you, Ajei, and good morning, everyone. I am incredibly excited to be joining Procore at such a transformative moment. Before we dive deeper into the numbers in the overall business, I would like to briefly touch on why I joined Procore and my approach to the CFO role. Joining this organization represents a rare opportunity to serve as the CFO for a category leader that is digitizing the industry that builds the world. Beyond Procore's established leadership position, I see a compelling financial profile with clear levers for long-term value creation. Furthermore, my prior history with Ajei and Walt ensure strategic alignment from Dave Batten allowing us to move decisively as we scale. I'm thrilled to be part of this journey and look forward to building on the strong foundation already in place. My philosophy as CFO will be anchored in the pursuit of durable, profitable growth. Given Procore's market opportunity, this should remain our top priority. The pursuit of durable growth will be underpinned by disciplined and thoughtful capital allocation strategy, specifically to reiterate our capital allocation philosophy. First, we will prioritize high ROI organic growth investments. Second, we will remain targeted with acquisitions that accelerate our strategic road map. Finally, we are committed to returning excess capital to shareholders via opportunistic share repurchases. By aligning our investments with this framework, we aim to consistently compound free cash flow per share, ensuring that our category leadership translates directly into long-term value for our shareholders. Moving on to our Q1 results. Total revenue in Q1 was $359 million, up 15.7% year-over-year. Q1 non-GAAP operating income was $61 million, representing a non-GAAP operating margin of 17% and up 650 basis points year-over-year and free cash flow was $56 million, up 20% year-over-year. As for our key backlog metrics, current RPO grew 21% year-over-year and current deferred revenue grew 17% year-over-year. Turning to commentary on our results. We delivered another quarter of durable revenue growth driven by healthy demand across our customer base. This performance was underpinned by 3 primary strengths. First, we secured several significant new logo wins that highlight our increasing market share. Second, we saw a meaningful shift towards larger-scale engagements with a 6-plus figure ARR wins growing 24% year-over-year. And finally, we generated strong pipeline in the quarter. This momentum in high-value customer wins and overall pipeline strength gives us confidence in our trajectory and sets that a favorable foundation for 2026. Our strength in the quarter also contributed to strength in CRPO. This metric continues to benefit primarily from longer average contract duration. When normalizing CRPO for this dynamic, the year-over-year growth was consistent with both Q1 revenue growth and ending ARR growth. Once contract duration stabilizes, reported and normalized CRPO growth will eventually converge with revenue growth. Our performance this quarter unexplored our commitment to driving long-term shareholder value. By delivering durable top line growth, combined with strong year-over-year margin expansion, we improved our growth in year-over-year free cash flow. Those items, coupled with limiting our share count growth via disciplined equity compensation and our share buyback activity drove meaningful improvement in our North Star metric, free cash flow per share. We believe this approach of compounding free cash flow while managing our share count remains the most effective way to maximize returns for our shareholders over time. Looking ahead and to expand upon Ajei's commentary, we view AI as a fundamental catalyst for our long-term financial profile. On the top line, we expect AI to serve as a tailwind to revenue growth as we monetize high-value capabilities and deepen platform engagement. Regarding our margin profile, we do anticipate modest headwinds to gross margin given the increased compute expenses to support these workloads. However, we expect this to be more than offset by the tailwinds to our operating expenses as we leverage AI to drive internal efficiencies and scale across all functions. Ultimately, the convergence of durable growth and an optimized cost structure reinforces our conviction that AI will be a powerful tailwind to free cash flow per share, creating a highly efficient engine for long-term shareholder vacuum. With that, let's move on to our outlook. For the second quarter of 2026, we expect revenue between $364 million and $366 million, representing year-over-year growth of 13% at the high end. Q2 non-GAAP operating margin is expected to be between 17.5% and 18.5%. For the full year fiscal '26, we are raising our revenue guide to a range of $1.499 billion to $1.53 billion, representing total year-over-year growth of 13.6% at the high end. We are also raising our non-GAAP operating margin guidance for the year by 50 basis points to be between 18% and 18.5%, which implies year-over-year margin expansion of 390 to 440 basis points. Finally, we are maintaining our free cash flow margin guidance of 19%, which implies year-over-year free cash flow margin expansion of approximately 280 basis points. To wrap up, we are pleased with the quarter and are excited about the momentum we have created for the remainder of the year. We are confident that we can continue to provide durable growth, margin expansion, limited share count growth and compound free cash flow per share. With that, let me ask the operator to open it up for questions. Operator: [Operator Instructions] Your first question from the line of Joe Vruwink with Baird. Joseph Vruwink: [indiscernible] congratulate Rachel on your appointment. I wanted to start with a few things on financials. One is good to see the upside, but the magnitude of upside in revenue and CRPO is, I suppose, a bit less than the prevailing experience where you've been beating by 3% to 4% anything to read into that? And then the second is just on the outlook. You're bringing up the full year by more than the 1Q upside but it looks like that overage or upside remainder is weighted to the second half. Maybe what's informing your expectation there? Rachel Pyles: Thanks, Joe. I appreciate the question. Excited to be here. First, what I would say about our overall financial deal, we were really pleased with the results. If I think about we had strong pipeline, we had strong new logos. So just overall excited about the performance. In terms of the revenue upside that you saw, that was really consistent with what you saw in Q4 in terms of a beat so nothing really different there. And then if you think about our guide, Q2 at the high end is consistent with the Street estimates. No change in our guidance philosophy. We're still going to give you guidance that we feel a high level of conviction in. Joseph Vruwink: Great. And then I wanted to ask on broker scheduling and maybe a bit more feedback since general availability. I remember -- there is discussion at ground break, just spotlighting this particular area is one that's really differentiated in terms of pulling in the full Procore platform capability and AI to the extent that this gets adopted or maybe see as a landing point, does it open richer cross-sell opportunities or maybe give customers more obvious and explicit exposure to what Procore AI can do? Ajei Gopal: Yes. I mean absolutely, Joe, thanks for the question. Look, we're excited about broker scheduling. Firstly, we were able to get the product out and we were able to see very quick adoption because it's essentially natively connected into the platform, and that gives customers tremendous benefits when they take advantage of the product. And obviously, we're in a position to, as part of our strategy, continue to add more AI capabilities, and that will obviously reflect in the flagship products as well. Operator: Our next question comes from Saket Kaila with Barclays. Saket Kalia: Welcome, Rachel. Ajei, maybe for you, maybe just to zoom out a little bit. I'd love to get your views on kind of where we are in this construction cycle. There are tons of factors, of course, to consider. But I know you spend a lot of time with customers, what are they saying to you right now just about project starts this year and how they're thinking about the environment? Ajei Gopal: Saket, thanks for the question. So I would say that the construction environment has been pretty stable, certainly from the -- in the time that I've been with the company now with -- in the conversations that I've had with customers, it's been pretty stable over the last couple of quarters. What I would say, though, is that there's different levels of excitement about certain portions of the business. In fact, last time I talked about data centers, and even though data centers represent a relatively small amount of the overall construction volume, there's a lot of excitement about data centers. And certainly, there we are in the center of the conversations I mentioned in the script in the prepared remarks, I mentioned our relationship with NVIDIA, where we are working with them on a blueprint to accelerate the building of AI factories and other infrastructure. So those kinds of activities create a lot of excitement because there's those data centers are front and center right now. But otherwise, it's a pretty stable demand environment. And obviously, I'm excited about those conversations with customers because it does reflect their trust in Procore and their perspective on how we can help them as we move forward together. Saket Kalia: Got it. That makes a ton of sense. Rachel, maybe for you. It was great to see CRPO growth kind of continue at 20%. And of course, you noted the duration benefit there as well. Maybe the question is, how do you think about the glide path for maybe that growth rate starting to converge with revenue growth? Rachel Pyles: Yes, thanks, Saket. That's a great question. So CRPO has remained strong. We are starting to see that average contract duration start to normalize. So between Q4 and Q1, duration stay kind of roughly flat quarter-over-quarter. If you look forward kind of once that duration does stabilize, it will probably take around 3 to 4 quarters following that stabilization before you see the CRPO and the revenue growth kind of comes together. Operator: Our next question comes from Dylan Becker with William Baird. Dylan Becker: Maybe, Ajei, for you to start. It sounds like kind of platform consolidation remains a key theme in kind of the customer conversations and expanding volume. And I think that makes sense, right, in the context of leveraging your agents, utilizing more of the platform to deliver more of that -- realize maybe more of that value. I guess to what extent is that AI conversation playing a role in kind of catalyzing adoption from an industry perspective? And maybe validating the perception or buy-in into Procore AI strategy to help those customers solve for productivity, if that makes sense. Ajei Gopal: Yes. So if I understand the question, let me just -- let me sort of address it, and then if I miss the point, please ask more. But when I've had a number of conversations with customers about the overall platform and about AI, in general, certainly in the context of construction. When you talk to customers, many of them I mean, they don't really have the time or the inclination to become experts for AI and construction. They look to us as being their technology partner. They've worked with us for years. They trust us. And their objective is they just want to be able to build better projects, that's their business. And they want to make sure that their vendors, their tech vendors and their tech partners are in a position to do their job, which is to bring them the best and the latest technologies, including, of course, AI to be able to help them perform what they need to do. And so the fact that we are able to provide Agentic AI capabilities that have such compelling value. The fact that we're able to provide Agentic AI capabilities from within the context within security within the framework of their system of record, of their system of collaboration where they store their data, with the area where they rely on to participate with all of their partners and our projects, I think that gives them a lot of comfort as we are making these investments. So we can have those conversations with them. They see what we're able to do. And and that's been very positive for us. And I'll give you an example of customer engagement. We just had one of our largest customers here in Austin for hackathon last week. And they brought together about 85 of their employees, and it was a multi-day event. And we were able to, in the context of the platform, we were able to post their creation of agents and they've built something like 300 custom automation agents that they were able to pull together for their particular use case. So that just gives you an example of how customers are able to take advantage of our genetic capabilities under the overall umbrella of the Procore platform. Dylan Becker: Very helpful. And maybe to kind of stick with you or Rachel, love your kind of perspectives here. But as kind of an extension of that, you called out kind of some of the commercial learnings and how you're kind of deploying agents maybe being deployed a bit more broadly in the go-to-market muscle in the third quarter. I guess maybe kind of any learnings in receptivity around what the monetization strategy is going to look like. And then I think -- you also called out the internal efficiency leverage is kind of be felt more into 2027 and beyond. But maybe just kind of reconciling or how we should think about the timing between 2026 and 2027 for some of these benefits to layer in? Ajei Gopal: So in terms of the go-to-market, it's pretty much what I said in the script, which is we wanted to make sure that we completed the -- or we made significant progress on the technical integration between the projects. And as you know, we did the acquisition of Datagrid earlier this year that the data grid platform with the data capabilities were integrated into the Helix work that we've done earlier. So there was a lot of good positive energy there from that integration work. Coming out of that, we have obviously an updated product capability where we're now with a small overlay sales force, as I described, of a very small number of people talking to customers in conjunction with the sales force, but really as an overlay so that we can get the value proposition, the ROI down. And then the expectation, of course, is in Q3 that we'll be in a position to roll it out to the larger sales force. Our expectation is for our genic solutions that we'd be in a position to be able to monetize that and some capacity-based consumption-based licensing structures. In contrast with our ACV-based pricing licensing structures for our flagship offerings. And so that's the path going forward. As far as the -- I'll let Rachel address the rest of the question. Rachel Pyles: Yes, absolutely. So Ajei, I think highlighted a lot of the top line benefits that we're expecting from AI and from the token-based model we rolled this out across the sales force and engage our customers. So I'll speak a little bit more about kind of the margin impact. So I think that as we see more agents deployed, we're going to start to see some gross margin headwinds that come from that. Now I think over time, those will really be managed in 2 ways. So first, I'm optimistic that those overall costs themselves will come down kind of over the long term. Similar to, I think, about a little bit like cloud computing, when cloud computing, everyone moved to the cloud, costs were up, but then over time, those came down and optimistic that will happen here. But even more importantly, on our side, the benefits that we expect from deploying AI within our own workflows across all parts of our organization, I expect will more than offset any headwinds that we see from the gross margin. So I'm really excited about that opportunity and it gives me even more conviction about our margin expansion kind of over the long term. Dylan Becker: Ultimately, is this more of a fine tune? Or should we expect major changes going forward again? I'm just trying to kind of gauge the approach. Ajei Gopal: Great question. Thanks. So as I've been looking at the company, look, my core takeaway is that we have a really strong foundation. We certainly have great relationships with customers. We have built a great platform on which to be able to build our products and we've built a great platform in which to be able to sell and support our products. And so I think we're in a good place, of course, where we are today. But the reality is that the world that we're in continues to change the market conditions continue to change. Technology continues to evolve. And I believe that every company needs to be in a position to change to reflect market circumstances and the need to continue to move faster. And so what I felt was important as we go to this next stage was to make sure that I could bring on a couple of executives who I know well, who would allow us to be able to move really fast in a complex business environment, we stand what it means to run a global business. And certainly, you have that with Walt and Rachel I've worked as well for a number of years. given where we are with the opportunity, we need to continue to be able to move fast. And I expect Walt to provide leadership along the different dimensions of growth our organization as he has in the past working together with me. So I'm excited about his participation with the company. I'm excited about the foundation that we have and I'm excited about our ability to continue to evolve our business to take advantage of the optionality in front of us. Dylan Becker: And just a quick follow-on with Rachel saying the guidance at hasn't changed, but you're seeing decelerating growth at least in your guide. So many are asking, are you embedding the potential disruption of more changes in this guy in the front half of the year. Is that why it's so conservative on the total year deceleration? Rachel Pyles: So if I think about just coming back to our guidance philosophy, we consistently have a beaten raise methodology, and that's what you're seeing us do here. So really nothing different than what we've done historically. Ajei Gopal: So our expectation is to continue to execute as we improve our business. And so there isn't any subliminal message here. Operator: Our next question comes from DJ Hynes with Canaccord. David Hynes: Ajei, do you think the network effects of the business model get any stronger as AI is increasingly embedded into workflows and collaborators get insight into those capabilities. In other words, like is it only the payer that will realize the benefits of Helix and your AI agents? Or does the whole ecosystem equally benefit, which could be a good thing for generating broader demand? Ajei Gopal: Well, when you think about Procore, Procore is intrinsically a system of collaboration, right? Because if think about the nature of construction. Construction is essentially multiple parties getting together on a project of one and with strong commercial relationships between the parties with an ongoing sequence of changes and modifications, et cetera, based upon the realities of the day-to-day activities that are taking place on the construction side. And so it is intrinsically a system of all parties collaborating in a very safe and secure manner where changes are -- have financial consequences and therefore, need to be audited and managed effectively. That is a -- that is kind of a very unique -- it's a very unique environment. It's not just a sort of a system of record that's available to just a single party. And as such, when we're in a position to take advantage of and create a genetic workflows the benefit accrues to all of the people who are collaborating on the project because, obviously, as we create digital coworkers, for example, which is one way to think about agents. If you think about digital cowork is helping that allows people to be able to make decisions faster more effectively, that creates more speed that creates more accuracy in the overall collaborative effort on the construction side. David Hynes: Yes. Yes. Okay. Makes sense. And then, Rachel, I'm not sure if I missed it, but can you give us a sense for how much data grid and FX impacted both revenue and CRPO in the quarter. I think investors are trying to wrap their arms around inorganic ex FX growth rate in the quarter. So anything on that front would be helpful. Rachel Pyles: Yes, absolutely. So first with FX, FX on our overall consolidated business was immaterial. If you think about where you see FX it comes through in our international business, there was about a 2 percentage point impact in that business. But from a consolidated perspective, it was de minimis. On the Datagrid side as well, data grid, as Ajei said, we're just finishing the integration and going into GA shortly those capabilities. So Datagrid was really immaterial to the overall results. Our organic business continues to grow 15% to 16%. Operator: Our next question comes from Adam Borg with Stifel. Adam Borg: Maybe, Ajei, just on the macro going back to that, we talked about it being stable over the last 6 or so months. I'd love to talk a little bit more about the government vertical, in particular, especially following the FedRAMP modern authorization earlier this year. Ajei Gopal: Yes. Yes. Sorry, you said you want to talk about the government vertical and then I lost you [indiscernible] ask the question. Adam Borg: Apologies. Yes, just the government vertical, especially following the FedRAMP Moderate authorization earlier this year. Ajei Gopal: Okay. Yes. So look, I think the FedRAMP thing, we were very excited about the FedRAMP authorization that we got earlier it is fundamentally a longer-term play for us because it allows us to participate in some of these government contracts. There is inherently some latency in government contracts, but it is in order to allow us to participate with them, we need to have that authorization. So government agencies require the authorization, the GCs that build on their behalf required authorization. We're certainly able to have these conversations with customers but the impact takes a little bit of time before from the time of announcement to the time that you can actually see it as well. Adam Borg: Super clear. And maybe as my quick follow-up. Earlier this year, Procore began offering 4 bundled packages each with 3 tiers. Just curious how that new package and pricing is -- really new packaging has been receptivity from the customer base. Ajei Gopal: Yes. So we had a chance to roll that out earlier, and the feedback from customers has been positive. I think it gives us an opportunity from a proper perspective to really position the right capability for the customer, depending on what they're looking for. And it certainly gives us an opportunity to generate incremental monetization as our customers move up that packaging stack. So it's still early days, but we're pleased with the capabilities that we have. And frankly, I guess the other point is that the intent behind the packaging was to really streamline the sales cycle. So it provides an ability for customers to be able to digest kind of a bundled value price as opposed to wondering about multiple a la carte items. And that gives customers a very clear path to being able to add an adoptable products. And so that combination, I think, is something that I think works so well for the customer and frankly, works out well for us as well. Operator: Our next question comes from Matthew Martino with Goldman Sachs. Matthew Martino: Ajei, I wanted to touch on international for a moment. With Walt now in the seed, where do you see the most meaningful opportunities to strengthen the international franchise from your here? And how do you think about the trajectory of that part of the business over time? I know you announced some new products as well to capture the upmarket in Europe. So if you could tie all that together. Ajei Gopal: Yes. So on the new products, just to slide together, we announced a CDE in Europe. And in fact, last week, I believe, we had an innovation conference in London, where customer feedback on the CDE was very positive. I think we had something like 170 regional customers and prospects. We had strategic partners and I think that continues to help reinforce our central role in the construction type system because, certainly, in that geography, the CDE is an important aspect of the tech ecosystem. And so that's one of the reasons why we're very pleased with that. I would say that, overall, if I were to Think about our go-to-market. I mean, obviously, international has been a relatively smaller part of our business relative to the opportunity. And it's obviously an area where we will spend some more time. I think the U.K., Ireland is where we're spending some initial momentum, but we do see opportunities in EMEA and with Walt in seat, I think we'll have an opportunity to continue to accelerate that part of the business, and we're looking forward to seeing that. Matthew Martino: Got it. And then, Rachel, for you, you laid out a capital allocation framework across organic investments, targeted M&A and opportunistic share repurchases. So as the new CFO stepping in, how are you thinking about the relative priority of those 3 buckets in the current environment? Rachel Pyles: Yes, absolutely. Thanks for the question. As I think about it, I really do them in that order. So first, focusing on organic growth and making the right investments there. And then to the extent that we the M&A becomes available that helps us accelerate our strategic road map, we will definitely pursue that. I think about those 2 things kind of one and then the other M&A, you can't always predict when it's going to happen and when it's going to be available. But certainly, we'll look to pursue those opportunities. And then finally, third would be the strategic opportunistic share repurchases. Operator: Our next question comes from Daniel Jester with BMO Capital Markets. Daniel Jester: Maybe, Rach, just starting with you on the seasonality of margin performance this year. I think last quarter, it was suggested that maybe the fourth quarter exit rate of margin expansion this year might be a little bit lower from sort of typical events and things like that. Any updated color on how we should be thinking about the margin trajectory this year. Rachel Pyles: Yes, absolutely. Thanks for the question. So we're confident in kind of our overall margin profile. As you imagine all expenses are linear. And so margin does move around in the quarters. But from an overall perspective, you're very confident in our full year margin expansion numbers. Daniel Jester: Okay. And then, Ajei, just on the comments about specialty contractors that you made. It's great to hear about that. And I think in the past, I think there's a lot of focus on owners and as great opportunities for Procore. Maybe can you just double-click on the specialty contractor opportunity and how you can maybe see that additive to growth this year? Ajei Gopal: Well, we certainly -- with respect to specialty contractors, I think we've had, from a product perspective, incremental releases that we talked about. I talked about materials management on the call. And obviously, I talked about equipping telematics. Both of those are areas of products that I think will help with our specialty contractors. I mean we give them essentially a place to manage documents to attract labor to track equipment to coordinate the DCs to get paid faster. So there's a lot of value that we're in a position to provide 2 specialty contractors. I'm excited about the area, and this is this is obviously one of the areas of focus for us as we go forward. Operator: Our next question comes from Jason Celino with KeyBanc Capital Markets. Jason Celino: So maybe my first question is kind of the incremental operating leverage comment that you expect to see in 2027 from AI. When we think about this internal AI adoption, I guess where is Procore on that journey today? Or said another way to drive that incremental leverage next year. are those AI efficiencies that you've already implemented? Or is that based on a road map of AI adoption you look to take on? Ajei Gopal: So let me just jump in here a little bit to talk about kind of where we are today in terms of our use of AI. Look, when you think about -- and I mentioned this in the script, but I'm excited that within our R&D organization, we're in the middle of transforming our operating model using AI. And my expectation is that as we go through that transformation, the rest of the organization will be in a position to follow the lead the R&D organization has -- is driving. And to be honest, we are already seeing the benefits of that and the part of the R&D organization that has adopted a very different model from a more traditional model, taking advantage of Agentic capabilities. We're starting to see increased speed in terms of product delivery, increased capabilities. So that value and benefit is something they're excited about. We're in the middle of that taking place. And obviously, the rest of the organization will follow. And we expect, obviously, the speed and the efficiencies from those changes are the basis of some of the financial leverage that we talked about for the next year. Rachel Pyles: To kind of add on to what Ajei said, he mentioned R&D is going first and then the capabilities out to the rest of the organization. But I would also note that we do have AI capabilities in other parts of the organization and our employees have access those tools, although not quite as advanced as on the R&D side. As we go into '27, I'm excited about seeing that all come together and seeing the efficiencies really across all parts of the organization. So I don't -- you're not going to see the leverage coming just from one place. It will really be coming from all lines across the P&L. Jason Celino: Okay. Great. And then in prior questions, you've talked about seeing a stabilized macro, but maybe going a step deeper in your conversations with customers, how are they managing the increase in oil prices. Obviously, it adds to the project cost, and it doesn't sound like it's affecting near-term project starts, but curious how conversations are going in more recent discussions. Ajei Gopal: I mean I think the important thing to recognize is the projects that we are involved in working with customers on all long-term projects. And so there it's not about what happens that's perhaps contained to one quarter or another. So no customers have really, in my conversations have really talked about this as being a long-term consideration. And so we continue to see a stable demand environment for the products and from our customers. Operator: Our next question comes from Ken Wong with Oppenheimer. Hoi-Fung Wong: When looking at the shape of the guidance, it does seem to imply second half acceleration from 2Q. Should we think of that as just purely mechanical? Or are you guys -- as you think about the business, as you look at what's in the pipeline that there is some business momentum, there is some improvement and an inflection coming in that back half? . Rachel Pyles: Thanks, Ken. It's really mechanical. So consistent with what you've seen us do in the past, we did a beat and raise this quarter. Again, that no change in our guidance last year. We're continuing to give you guidance that we feel a high level of conviction in. Hoi-Fung Wong: Got it. And then Ajei, I think it was someone alluded to earlier, but again, great to see you pair up with Walt again. As you and Walt look at the current go-to-market, any additional changes you think that needs to be made whether it's in terms of the organization or just the approach to selling. Any thoughts there that you can share with us? Ajei Gopal: Well, Walt has been officially in the seat for a little over a month, April 1. So he's still evaluating the organization, the team, et cetera. But look, Walt understands the vertical software motion, he spent years in vertical software. Obviously, we work together in a vertical company -- vertical software company. So he understands the motion. He understands the customers and how to have those conversations. And he was, frankly, with me working -- we were working very closely together on the journey that we went through in our last company to be in a position to take the sales organization and continue to scale it both internationally as well as across multiple customer segments and continue to expand the business. So I'm excited about Walt's capabilities but certainly, what I can tell you is that even as we make changes, and obviously, every sales leader will find areas of ongoing improvement as we make changes we will -- my expectation is that we will continue to execute as we improve, and I'm excited about that. Operator: We have reached the end of the Q&A session, and this concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the InnovAge 2026 Fiscal Third Quarter Earnings Call. [Operator Instructions] Please be advised today's conference is being recorded. I would like to hand the conference over to your speaker today, Ryan Kubota. Please go ahead. Ryan Kubota: Thank you, operator. Good afternoon, and thank you all for joining the InnovAge 2026 Fiscal Third Quarter Earnings Call. With me today is Patrick Blair, CEO; and Ben Adams, CFO. Today, after the market closed, we issued an earnings press release containing detailed information on our fiscal third quarter results. You may access the release on the Investor Relations section of our company website, innovage.com. For those listening to the rebroadcast of this call, we remind you that the remarks made herein are as of today, Tuesday, May 5, 2026, and have not been updated subsequent to this call. During our call, we will refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings press release posted on our website. We will also make statements that are considered forward-looking, including those related to our 2026 fiscal year projections and guidance, future growth prospects and growth strategy, our clinical and operational value initiatives, the effects of recent legislation and federal budget cuts, including Medicare and Medicaid rate pressures, seasonality of cost trends, the status of current and future legal proceedings and regulatory actions and other expectations. Listeners are cautioned that all of our forward-looking statements involve certain assumptions that are inherently subject to risks and uncertainties that can cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors and other discussions included in our annual report on Form 10-K for fiscal year 2025 and any subsequent reports filed with the SEC, including our most recent quarterly report on Form 10-Q. After the completion of our prepared remarks, we will open the call for questions. I will now turn the call over to our CEO, Patrick Blair. Patrick? Patrick Blair: Thank you, Ryan, and good afternoon, everyone. I'd like to begin by thanking our InnovAge colleagues, our participants and their families, our government partners and our investor community for your continued trust and support. The work our teams do every day to care for a very complex and vulnerable population is what drives our performance, and I'm proud of the progress we're making and the consistency we're beginning to demonstrate as an organization. We delivered a solid third quarter and continue to see steady momentum across the business. These results reflect stronger operating execution and the benefits of the investments we've made over the past few years to strengthen the platform. For the quarter, we reported approximately $252 million in total revenue, center-level contribution margin of $61 million and adjusted EBITDA of $30 million. We ended the quarter serving approximately 8,050 participants in 6 states across 20 centers. Based on our year-to-date operating trends and financial performance, we are once again raising our fiscal year 2026 guidance for revenue and adjusted EBITDA. We now expect revenue in the range of $950 million to $975 million and adjusted EBITDA in the range of $85 million to $90 million. Overall, our performance continues to show steady year-over-year improvement across key operational and clinical metrics. Our performance this year has been supported by several in-year factors that came in more favorably than we expected, including better-than-expected Medicaid rates and favorable Medicare risk scores and continued discipline across medical management. So as we think about our momentum, we believe it is real and increasingly durable, but we are also being thoughtful about our assumptions as we look ahead to fiscal 2027. Just as importantly, we view our improving financial performance as an enabler, not an endpoint. The progress we're making is allowing us to reinvest in the business in ways that we believe directly benefit participants and strengthen the model over the long term. That includes continued investment in our clinical teams and interdisciplinary model, advancing our technology platform, including early and closely monitored applications of AI to improve care coordination and participant experience and strengthening how we measure and manage quality. We are also investing in growth, including our new centers in Florida, which are still maturing from an operations and financial perspective. Given the complexity of the PACE population we serve, these long-term investments are essential. Our goal is to deliver strong, sustainable performance while continuing to invest in the model and be a responsible partner to states and the federal government. In the PACE model, financial performance and quality are not separate. They are directly linked. When we improve quality, we see better participant outcomes, more consistent engagement, lower unnecessary utilization and ultimately better fiscal management for our state and federal partners. We track a wide range of required quality and utilization metrics, and these remain an important part of how we manage the business day-to-day. But we also recognize that many of these measures, while necessary, don't fully capture what matters most to our participants or to the full value of the model. At its core, our focus is helping participants maintain their independence, remain in the community for as long as possible and receive care that is individualized and aligned with their goals. This includes supporting caregivers, coordinating care across the continuum and intervening early before issues escalate. Over the past several years, we have made meaningful investments in our clinical teams, our care model and our operational infrastructure to strengthen our ability to deliver on those outcomes. More recently, we have begun to invest more intentionally in how we measure them. We are in the early stages of developing a more comprehensive set of outcome-oriented measures focused on areas like functional trajectory, the ability of participants to remain in the community and further aligning care with participant goals. These are areas where we believe the PACE model delivers meaningful value. Our initial focus is on building the data, processes and operational consistency required to measure these outcomes reliably. As the capabilities mature, we expect to incorporate them more formally into how we manage the business. We believe this is an important step, not only in demonstrating the full value of the PACE model, but also in ensuring that our continued financial progress is clearly aligned with better outcomes for the participants we serve and the partners we support. AI is another area in which we are investing more heavily. When we think about the objectives we share with our regulators, improving participant experience, enhancing outcomes for a complex population and doing so in a cost-effective way, we believe AI with the appropriate oversight has the potential to be a meaningful enabler. While still early, the work we've done over the past several months increases our confidence that these capabilities can have a real impact on both the quality and efficiency of our model. Much of our clinical AI work is being led by Dr. Paul Taheri. Although Paul has only been with us a short time, he has quickly stepped in to help shape our approach, bring a strong focus on practical application, clinical rigor and ensuring these tools are designed to support, not replace clinical judgment. We're piloting a range of use cases designed to support our clinicians and to streamline operations. In our clinical workflows, we're piloting AI tools to help synthesize information across the participant record to support care planning and to identify potential risks such as medication interactions or avoidable acute events. The goal is to increase the quality of the care we provide for our participants and enable our teams to operate more effectively at the top of their license. We are also applying these capabilities to operational areas such as scheduling, transportation and care coordination, where we see meaningful opportunity to reduce friction, improve the participant experience and better utilize our existing capacity. One area we are particularly focused on is how we schedule and deliver services across our centers. Today, there are structural inefficiencies that can lead to cancellations, unused capacity and administrative burden. We believe AI-enabled scheduling and coordination can help address these challenges, allowing us to improve the experience, to serve more participants within our existing footprint and to increase capacity over time. Importantly, we're approaching this work with discipline. We're testing, learning and measuring impact before scaling. And we're focused on use cases where we see clear alignment between improved outcomes, better participant experience and more efficient operations. Over time, we believe these investments will further strengthen our platform and expand our ability to deliver high-quality coordinated care at scale. Stepping back, one of the things these results and the progress we've made over the past several years now allow us to do is to take a more forward-looking view on growth. Over the last 4 years, our focus has been on stabilizing and strengthening the platform. And as a result of that work, we're now beginning to generate more consistent earnings and cash flow, which gives us greater strategic flexibility as we look ahead. That flexibility allows us to take a more proactive and thoughtful approach to growth. First, we continue to see meaningful opportunity within our existing footprint by filling our current centers, strengthening our sales capabilities and expanding our reach through new channels and partnerships. At the same time, we're beginning to evaluate a broader set of potential growth alternatives that could allow us to expand our model to more seniors over time. These may include acquisitions, joint ventures, partnerships or participation in new programs and demonstration models that align with our capabilities. Overall, we're entering the next phase as an organization, one that positions us well to expand access to our model and to serve more seniors who can benefit from it. Before I conclude, I'd like to spend a few minutes on the rate environment. As we know, this is an important area of focus for everyone. Ben will provide more detailed visibility into our fiscal 2027 outlook, including rates on our fourth quarter and fiscal year earnings call in early September. But given where we sit today, we thought it would be helpful to share some early perspective on how we're thinking about the environment, recognizing that our visibility is still evolving. Starting with Medicare. The final 2027 rate notice came in more favorable than initially proposed, particularly for Medicare Advantage plans. That improvement was driven in part by deferred changes to the V28 risk model transition, which had a more meaningful impact on MA than on PACE. For PACE, our rate setting framework and transition time line are different. And given the complexity of the population we serve, the benefit from the deferred changes to V28 is more limited. The net result is that we expect Medicare rates to increase approximately 1.5% to 2% in fiscal year 2027, which is more modest and increase than what will likely be experienced by MA plans. On the Medicaid side, we're beginning to see early indications from our state partners that budget pressures are increasing. That said, it's important to step back and view Medicaid rates in PACE over a longer horizon. This has always been a program with some degree of year-to-year variability. There are periods where rates run ahead of cost trend and margins expand and periods like the one we're planning for where cost trends may outpace rate growth and margins can tighten without other offsetting improvements. Over time, these dynamics tend to balance out. Rates have kept pace with the underlying cost of caring for this population and have supported appropriate and sustainable margins for operators who execute well at scale. We believe we're seeing normal cycle variability, not a change in the underlying economics of the model. Importantly, this is where the strength of our model matters because we are fully accountable for both the clinical and cost side of the equation, we can manage through periods like this and protect performance over time. So while we have benefited from a more favorable rate environment in fiscal 2026 and are planning for a more tempered environment in fiscal 2027, we remain confident in the durability of the model and our ability to execute through the cycle. As we approach the end of the fiscal year, we believe InnovAge is operating from a position of strength. The work we've done over the past several years is translating into more consistent performance and a more disciplined integrated operating model. We're focused on continuing to deliver strong, sustainable performance while investing in the model, supporting our participants and being a responsible partner to the states and the federal government. With that, I'll turn it over to Ben to walk through our financial performance in more detail. Benjamin Adams: Thank you, Patrick. Today, I will provide some highlights from our third quarter fiscal year 2026 financial performance and insight into some of the trends we saw during the fiscal third quarter. Starting with census. We served approximately 8,050 participants across 20 centers as of March 31, 2026, which represents growth of 6.9% compared to the third quarter of fiscal year 2025 and sequential quarter growth of 0.5%. We reported 24,060 member months in the third quarter, an increase of approximately 6.7% compared to the third quarter of fiscal year 2025 and an increase of approximately 0.4% over the second quarter of fiscal year 2026. Our third quarter census increase reflects normal seasonal growth resulting from the Medicare Advantage open enrollment period. Total revenues of $251.9 million increased 15.5% compared to $218.1 million in the third quarter of fiscal year 2025, driven by higher capitation rates and growth in member months. The capitation rate increase reflects annual Medicaid and Medicare rate increases and a lower revenue reserve, while member month growth was driven by enrollment expansion across our California, Colorado and Florida centers. Compared to the second quarter of fiscal year 2026, total revenues increased 5.1%, primarily due to higher capitation rates driven by annual rate increases in California and Medicare, both effective January 1, 2026. We incurred $113.2 million of external provider costs in the third quarter of fiscal year 2026, representing an increase of 5% compared to the third quarter of fiscal year 2025. The year-over-year increase was driven by growth in member months, partially offset by a reduction in cost per participant. Lower cost per participant was primarily attributable to reduced permanent nursing facility utilization and lower pharmacy expense following the transition to in-house pharmacy services. These improvements were partially offset by annual rate increases for assisted living and permanent nursing facility services as well as higher assisted living utilization. Compared to the second quarter of fiscal year 2026, external provider costs increased 1.1%, driven by modest growth in member months and a slight increase in cost per participant related to seasonal growth in the volume and cost of inpatient admissions. Cost of care, excluding depreciation and amortization, was $77.7 million in the third quarter, an increase of 11.8% compared to the third quarter of fiscal year 2025. The year-over-year increase reflects growth in member months and higher cost per participant. The increase was primarily driven by a net increase in salaries, wages and benefits due to higher wage rates, partially offset by reduced headcount, higher third-party fees and shipping costs associated with in-house pharmacy services and higher contract services and fleet costs, inclusive of contract transportation. Cost of care, excluding depreciation and amortization, increased 3.7% compared to the second quarter of fiscal year 2026, driven by higher salaries, wages and benefits associated with the annual reset of employee benefits and payroll taxes as well as an increase in consulting expense, partially offset by lower contract transportation. Center-level contribution margin, which we define as total revenues less external provider costs and cost of care, excluding depreciation and amortization, which includes all medical and pharmacy costs was $61 million for the quarter compared to $40.7 million for the third quarter of fiscal year 2025. As a percentage of revenue, center level contribution margin of 24.2% increased by approximately 550 basis points in the quarter compared to 18.7% in the third quarter of fiscal year 2025. Compared to the second quarter of fiscal year 2026, center level contribution margin increased 15.5% from $52.8 million and as a percentage of revenue increased 220 basis points compared to 22% over the same period. Sales and marketing expenses of approximately $8.7 million increased 26.3% compared to the third quarter of fiscal year 2025, primarily driven by higher wage rates and increased marketing spend to support growth. Sales and marketing expenses increased by approximately 8.2% compared to the second quarter of fiscal year 2026, driven by sales compensation and marketing spend timing. Corporate general and administrative expenses of $76.5 million increased 98.3% compared to the third quarter of fiscal year 2025, primarily driven by an increase in litigation liability. Corporate general and administrative expenses increased 187.6% compared to the second quarter of fiscal year 2026, primarily due to the litigation liability. Net loss was $29.9 million for the quarter compared to net loss of $11.1 million in the third quarter of fiscal year 2025. We reported a net loss of $0.22 per share, and our weighted average share count was approximately 135.7 million shares for the quarter on a fully diluted basis. Adjusted EBITDA was $30.5 million for the quarter compared to $10.8 million in the third quarter of fiscal year 2025 and $22.2 million in the second quarter of 2026. Our adjusted EBITDA margin was 12.1% for the quarter compared to 4.9% in the third quarter of fiscal year 2025 and 9.2% in the second quarter of fiscal year 2026. We do not add back losses incurred by our de novo centers in the calculation of adjusted EBITDA. De novo center losses are defined as net losses related to preopening and start-up ramp through the first 24 months of de novo operations. Accordingly, this quarter's de novo losses do not include our Tampa and Crenshaw centers as both have progressed beyond the initial 24-month de novo period. For the third quarter, de novo losses were $1.8 million, primarily related to our Orlando, Florida center. This compares to $3.5 million of de novo losses in the third quarter of fiscal year 2025 and $4.7 million of de novo losses in the second quarter of fiscal year 2026. Turning to our balance sheet. We ended the quarter with $95.5 million in cash and cash equivalents, plus $43.1 million in short-term investments. We had $69.4 million in total debt on the balance sheet, representing debt under our senior secured term loan, revolving credit facility and finance leases. For the third quarter, we recorded positive cash flow from operations of $18.1 million and had $3.6 million of capital expenditures. Building on the strong performance we delivered through the first 9 months of fiscal 2026 and based on information available today, we are updating our full year revenue and adjusted EBITDA outlook. All other guidance metrics remained unchanged. We expect our ending census for fiscal year 2026 to be between 7,900 and 8,100 participants and member months to be in the range of 92,900 to 95,700. We are now projecting total revenue for fiscal 2026 in the range of $950 million to $975 million. Adjusted EBITDA is now projected to be in the range of $85 million to $90 million, and we anticipate that de novo losses for fiscal year 2026 will be in the $11.5 million to $13.5 million range. As we enter the final quarter of fiscal 2026 and begin planning for fiscal 2027, I'd like to share a few observations on where we stand today and how we're thinking about the year ahead. First, the business is performing well overall. Our sustained focus on quality, compliance and operational discipline has created a stronger and more resilient foundation. Over the past several years, we have meaningfully improved the consistency and predictability of the business, and we now have better data and insight to inform care delivery and operational decision-making. Second, as Patrick mentioned, we are beginning to see rate pressures emerge as we engage with our state Medicaid partners. While it remains early in the rate setting process, initial indications suggest rate increases in fiscal 2027 may be lower than what we have experienced historically. If this persists and when combined with a more modest Medicare rate environment, it could create top line pressure in fiscal 2027. That said, we view this as a near-term dynamic rather than as a structural shift. Currently, we do not believe these conditions represent a new long-term run rate, and we expect the rate environment to normalize over time. Importantly, our improved cost discipline, operating visibility and focus on execution position us to manage through this period. In closing, we are pleased with the strong performance we delivered this quarter and year-to-date. The business is operating from a position of strength, and our updated guidance reflects both our execution to date and our current assessment of the operating environment. As we continue to refine our operations, we are placing greater emphasis on the full participant experience and evaluating opportunities to enhance care, delivery, efficiency and outcomes over time. We remain committed to disciplined execution as we close out fiscal 2026, and we believe we are positioned to manage near-term headwinds and to build long-term value. Operator, that concludes our prepared remarks. Please open the line for questions. Operator: [Operator Instructions] Our first question comes from Matthew Gillmor with KeyBanc. Matthew Gillmor: I guess I wanted to first follow up on the comments around 2027. Could you maybe first help frame up sort of the change in the Medicaid rate increases that you've seen on a go-forward basis versus maybe the rearview just so we get a sense for the change in that dynamic? And then as a follow-up to that, one of the things we've been particularly encouraged by has been your ability to keep cost growth sort of almost flat for the last 2 years. So as you're thinking about the go forward, I was just curious about your confidence in able to maintain your cost growth at those levels, which presumably would help the dynamic for 2027 and maybe what you're doing to prepare the organization for what you think may be a more challenging rate environment next year? Patrick Blair: Matt, it's Patrick. Thanks for the question. Overall, I'd say we don't have rates for fiscal year '27 yet. We're just, I think, navigating along with the states what is a pretty complex fiscal backdrop. I mean, states are seeing a combination of factors with sort of post-pandemic funding and broader budget pressures and they're having to rebalance across various health care priorities. So I think what we're doing is just trying to be transparent that it's going to be a different environment for rates than we have seen in the past. I mean this is pretty typical of operating in a state partnered model. It's not new or unexpected. I think our approach has been and is currently as we sort of head into the '27 rate setting is just to stay very closely aligned with our state partners and continue to focus on delivering high-quality care and outcomes and operate as efficiently as we can. One of the things we do hear consistently with every state is just the belief in the PACE value proposition and how well aligned it is to what the states are trying to achieve and caring for this really high needs population is something they take very seriously. So we're -- I think just overall, we still know very little about '27. So I wanted to just make sure I shared that. But I think that's sort of how we view it. So in summary, we're kind of mindful of the broader environment, but we think we have the ability to navigate it just like we have in the past. Now that kind of probably takes me to your second point about our ability to manage sort of cost trends in an inflationary environment. We're still feeling very confident about that. And as I shared in my remarks, we have a lot of work underway right now that's AI supported. So I mentioned in some of the opening remarks, some of the clinical work we're doing. But we believe there is a lot of opportunity across our care model to really empower our providers to better information to help them avoid unnecessary specialist referrals, avoid ER visits, unnecessary services, in some ways, providing as much care as possible in our centers. I mentioned, I think, scheduling. It's another area where we're using AI to really understand the throughput of our centers and understand something as straightforward as the impact the cancellations have on our transportation, on our staffing. And we're learning a lot about our business and the drivers and AI is really supporting that. And we think there's a lot of prep capacity. We think there's manual workflows that we can work around. We think there's augmentations to our staffing models that we can pursue that will make us more efficient and deliver a better participant experience. So that's a long way of sort of saying that the rate environment is one where we're used to navigating it. We'll do that successfully, and we're working hard to define next year's OVIs, operational value initiatives like the scheduling example and clinical value initiatives that we're doing to take clinical variation out of the system, we think there's real opportunity to operate more efficiency, improve the patient experience, deliver better clinical outcomes and do all of that in a very complex sort of fiscal backdrop for states. Ben, anything to add? Benjamin Adams: I actually don't have anything to add. I think that was exactly where we think of it. Matthew Gillmor: Okay. Great. That was really helpful. I appreciate it. And then as a follow-up, I did want to ask about revenue performance on the quarter. It's obviously a very strong quarter overall. But on the top line, you had mentioned better Medicaid rates and also some favorability with RAF. I was hoping you could discuss the details of that a little bit better. And one point I wanted to get at or one thing I wanted to ask about was just the sustainability of the revenue upside you saw in the quarter. I guess I normally would think of RAF and Medicaid rates as sustainable in future quarters, but I just wanted to get your perspective on that dynamic. Benjamin Adams: Yes. I guess, well, you're right, we did start seeing in the back half of the year, a step-up in rates on the Medicaid side and a step-up in risk scores, right? So both of those things were positive starting in January, and they rolled through the second half of the year. If you think about sort of which states sort of kick in with their rates on January 1, California is an important one for us. And we had a pretty good rate environment in California this year following on some difficult years in California. So that benefited us in the second half of the year. If you think about the risk scores, you're right, I think of those, assuming we don't have a mix -- a change in the mix of enrollment or some other mix in our population, that improvement in risk scores ought to be durable going forward in the future. But obviously, you kind of got to watch it every -- as you go into the future because they might -- they do change a little bit, but we're hoping for some durability there. And I think Patrick commented on the rate outlook a moment ago as it relates to Medicaid. So you can sort of factor some of those comments into how we're thinking about California for next year, which would be the next time it would renew in January. Operator: Our next question comes from Jared Haase with William Blair. Jared Haase: I appreciate all the color thus far. Patrick, I think you talked a little bit about sort of emphasizing the flexibility that you have now just based on the stable profile that you've reached here with the model in terms of the go-forward growth strategy, and I think you outlined a couple of different levers, whether that's M&A, joint ventures, partnerships. And then I think you even alluded to potentially some new programs or demonstrations. And so I was wondering if we could just dig into your thinking there a little bit further, maybe force rank some of those different options that are -- that you have available to you as to what might be more realistic over the next handful of quarters. And I'd also love to press on the new programs or demonstration models, how you guys are thinking about that and what programs seem interesting to you? Patrick Blair: Well, thanks for the question. I would start by just reminding folks that in many ways, we think of ourselves as having kind of come out of the turnaround at the beginning of the calendar year. And now we're in a place where we're feeling and seeing a lot stronger operational, financial and sort of compliance positioning and performance. And so we're beginning to devote more time to evaluating a range of options that we could pursue. M&A is clearly one of them. There are a lot of PACE programs across the country. Many of them are very successful. Some are not. And we've learned from an acquisition we did in California about 18 months ago that we have the ability to bolt on and smaller PACE programs that were maybe struggling to grow, putting them on our platform, on our staffing model in sort of our sales model. It really, in some ways, allows us to pursue a derisked de novo without the longer return on capital that a pure de novo can take. So understanding where those opportunities exist is something that we're spending a little time on. It's hard to handicap this early in the process where that exists. Obviously, some states are -- have more attractive environments than others. And so that's also a layer that we put on that. Partnerships, you've seen some of the partnerships we've done in Florida and in California. We think there's -- those are hospital partnerships. We are seeing kind of the proof of concept play out in a positive way. There's still calibration that has to be done so that both entities are sort of -- and participants are all sort of benefiting in the appropriate ways, but we do see more opportunities to do hospital joint ventures that really help us extend our place in the community. When it comes to PACE in general, I wouldn't want to overlook the opportunity from just basic policy modernization. There are opportunities that are not radical changes to sort of the regulatory contours of the program, more like practical evolutions of the program that would allow us to expand faster, something like simplifying enrollment, making it easier for seniors and families to choose PACE. We're working closely with our industry peers and our industry association to articulate those policy modernization opportunities that we see that could help the PACE program serve more seniors over time. And we're really pleased, I think, with the level of interest and curiosity that we see from CMS and CMMI and their openness to listen to what are the things that could change to really help PACE serve more seniors. So that's sort of the policy horizon. Then I think maybe the last element to your question was the notion of sort of these PACE-inspired adjacencies. We are a big believer that the PACE model can be adapted to serve seniors who are not eligible for PACE today, but could be eligible in the future. These are -- there are opportunities that we see there some via demonstration, some just kind of de novo adjacent new product development that we could pursue. Our focus still is very much on growing our core PACE business. But as we are able to experience better operating performance and a more consistent model, we really believe strongly that PACE can serve a broader segment of the population. And we're kind of doing everything sort of in our power and working with our industry peers to make that case. And so over time, we're hopeful that opportunities that are inspired by our core business and very close to our core business could present themselves, and we'd love to pursue it. Jared Haase: Okay. That's really helpful. And then as a follow-up, I really appreciate all the details you guys provided just regarding rate development and your current view for 2027. If I take a step back from a strategic perspective, if we do find ourselves in an environment where rates are lagging medical cost trend, do you have a bias as it relates to striking the balance between maintaining your current growth levels versus maintaining profitability? I realize from your comments, there are a number of initiatives in place that can sort of drive efficiencies. So maybe there isn't really a trade-off in that way. But I guess I'd just be curious if you do a year like this with a more muted rate environment, how you think about that in one direction or the other? Patrick Blair: I'll ask Ben to maybe share some initial thoughts and then I'll follow. Benjamin Adams: Yes, I'm sorry, I missed some of the question coming through. I couldn't figure it. What exactly is the question? Are you talking about -- are we talking about mitigants in a challenging rate environment? Jared Haase: Exactly. Yes. My thought was just as we think about potentially moving into this more challenging rate environment for 2027, obviously, you outlined a number of initiatives in place. But just kind of philosophically, do you approach your strategy with the mindset of pursuing growth as a priority or maintaining profitability? Benjamin Adams: Yes. Yes. Well, it's really interesting. Patrick talked a lot about quality in his prepared remarks. And I think where we are right now is we've gotten to a point where we're -- we've got some nice margins. We're generating cash flow. And we think one of the best things that we can do in a market that begins to slow down is not aside from looking at strategic things that Patrick talked about, is invest very heavily in quality in our business, in our centers. And I think we all feel really strongly that the better experience we give to our participants, the more likely it is going to drive growth and good financial outcomes for us. So I think what you'll see going into this year is we'll spend a lot of time on improving the patient experience on efficiencies in our center in ways that we can be more intentional in our strategies going forward. So aside from the growth metrics that Patrick talked about before, this sort of reinvest into the business and the quality business, I think, is going to be very important for the coming year. I don't know if that really answered your question. There are other specific areas we'll look at in terms of operational value initiatives and clinical value initiatives like Patrick talked about, but it's sort of a mindset. It's very much driven towards quality as one of the drivers of growth. Patrick Blair: Ben, I might just add that I do feel that we still have opportunity to enhance our sort of sales and marketing model. We made great strides in the last couple of years. But under Matt Huray, our leader of the sales and marketing function, we're really continuing to test and learn and try new things. We are adding new members to the team. We're exploring new channel partnerships. And so setting aside sort of rate, we really are focused on as much new census gross enrollment as we can attract. And there's a lot of great work that's going on in that area. Ben mentioned the participant experience. we are now at a place where we're spending a lot of time to really understand when people leave us, why do they leave us? Did they have a particular encounter that was frustrating. Was there some friction or abrasion in their time with us? Were we slow to recover on a service issue? We're really digging into why people choose to leave. And that's another opportunity to drive growth is to reduce the number of people that decide to leave us. Some of the people, it's voluntary and they're making a conscious decision, but there's also involuntary disenrollment. So we are very focused on sort of the sales and enrollment side of the growth equation as well as the participant experience, keeping people with us longer, basically increasing tenure. I think that's a real bias of ours. And on the margin side, in some ways, we've pulled forward into 2 years what we thought was going to take 3 years from a margin perspective. And now that we're at a place where we're achieving what we set out to and communicated in our Investor Day a few years ago, I think investing in growth while maintaining a consistent margin is probably more of a priority than expanding margins at this point, if that's helpful. Operator: Our next question comes from Benjamin Rossi with JPMorgan. Benjamin Rossi: So following up on your 2027 commentary, I appreciate that you're planning to provide more details next quarter. But as you think about initial enrollment growth, what are your initial thoughts on your aggregate patient risk scores and new member acuity mix? It sounds as though based on your Medicare rate assumptions, you're assuming acuity decline somewhat year-over-year. Is that a fair read? Patrick Blair: No, I don't -- I wouldn't read too much into it. I think we're going through the budgeting process right now. And our fiscal year ends June 30, so we're really getting into the meat of the budgeting process. I don't think we expect a material change in mix shift, either in terms of our population, independent assisted living or folks in nursing facilities or a significant change in risk score mix. But we're sort of getting into that process right now. We'll have more to talk about it when we get through the budget process and we issue guidance in September. Benjamin Rossi: Okay. Understood on that. And just as a follow-up on your updated outlook implies 4Q top line growth will decelerate a bit sequentially, while EBIT growth will remain elevated. What do you assume gets better quarter-over-quarter as we go into the next quarter, either across PMPM trend or cost design? And is there anything discrete across revenue or cost that you'd call out within your progression during fiscal 4Q? Patrick Blair: No, I don't think so. I think that we've generally benefited, as we said before, from better rates in the back half of the year and also better risk scores. And I would expect those trends would kind of continue going into Q4. If you think about how sort of the pattern of gross enrollment works and you can go back and look over the last couple of years, we usually have a pretty good, pretty steady Q4 in terms of gross enrollment growth. And I would think that we probably experienced something not too different from what we've seen in prior years. Operator: And I'm not showing any further questions at this time. And as such, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Kevin Lorenz: Good afternoon, ladies and gentlemen, and welcome to WashTec's earnings call on the results of Q1 2026. My name is Kevin Lorenz. I'm Investor Relations Manager at WashTec. With me, I have today our Chief Financial Officer, Andreas Pabst, who will provide a brief update on WashTec and guide you through our quarterly results. Following his presentation, the floor will be open for questions. Also, you might have just seen a short video on our newest product, JetWash Connect during the waiting room, which we are very proud of. If you are interested, you can find this and further videos on this new product on our WashTec website or you can also just send us a short mail, and we will share it with you. But without further ado, I'm now handing over to our Chief Financial Officer, Andreas Pabst. Andreas Pabst: Thank you, Kevin. Also from my side, a very warm welcome. I really appreciate that you are in our call today. Let me first give you some brief statements about our current topics at WashTec before I shift over to the figures of the first quarter of 2026. Let's start with our new JetWash Connect. We already mentioned the planned launch of this new product during our last call on the fiscal year 2025. But now we are live. And as you can imagine, we are very proud on our product launch on April 14. Our new JetWash has some really good features for the users, for our customers, the operators as well as for us. First, the new steel structure. We own the complete construction details, and that puts us in the position that we can source the necessary steel parts locally instead of shipping them from Germany to all over Europe. Second, Wash & Pay leads to the fact that the average paid time increases by 25% to 30%. That means more revenue for our customers. And third, the new polish is a real eye catcher. You can really see the difference when you clean your car with this feature. With all these advantages, we believe that we can expand our business in this production category even further. Already with our last generation, we were able to achieve double-digit million revenue in Europe in 2025 that stands for approximately 10% of our equipment business. So we expect more to come. That brings me to my next topic. You are already aware that we are optimizing our production. This is one of the biggest levers we currently have in the company. We have made a major step in the future development of our production network. The grand opening of our new plant in Czech took place on March 26. We started with the transfer of preassembly, assembly and logistics to the new building. The state-of-the-art facilities ensures process stability and efficient material flows while enhancing preassembly capacity with clear structured process change. Currently, we have already transferred around 50% of the total jobs to be transferred. That means on the other side, we currently have planned higher costs. There are people in Augsburg who train the new colleagues in Czech. The handover is in quite good shape, and our employees are working very well together. We expect that this higher capacity need will be resolved before the end of this year, and then we will collect the full saving from this lighthouse project. Let me now briefly address the potential risks related to the conflict in the Middle East. From a revenues perspective, our direct exposure in the affected countries is limited and remains modest. However, the broader uncertainty can lead to a temporary reluctance to invest, particularly impacting equipment demand on a global level. This is something we are closely monitoring. On the recurring side of the business, our assessment remains unchanged. Based on historical data, higher fuel prices may lead to short-term adjustments in driving behavior, but we do not expect a structural impact on car wash usage. Accordingly, we see no material long-term risk to our chemicals and service revenues. On the cost side, we are paying particular attention to supply chains and commodity prices, especially energy-related inputs and selected raw materials. For metals, we are in the lucky situation that we have secured a major part of our need until end of this year already in December 2025. For other parts, we are increasing our stock level cautiously. Higher fuel prices, we counteracted with some surcharges for our customers in the field of service. Currently, we are discussing further mitigation measures and put them in place, depending on the duration of the conflict. You see we are prepared and do the utmost to keep the financial impact on WashTec manageable and to protect margins. On this slide, which you probably already know, you see our main efficiency programs, which we are currently driving. And you are, of course, aware that these are already fundamental for our company. For sure, you also can imagine that not all of those programs always run 100% as planned. I have already given an update on the optimization of production footprint, where we currently have some planned negative impact on the gross margin, but where we are fully in line with our targets. In terms of installation costs, here, we are facing some delays, which are -- influence our gross margin negatively. We somehow have underestimated the complexity of this job in some details and have intensified our efforts here. Our program for cost down of production and modularization is currently slightly behind time line, but overall, with no significant impact for the 2026 figures. On the other side, our programs for quality excellence and the Global Scope Configurator are developing extremely well. Our quality cost per units are decreasing continuously and contribute to our profitability. The Global Scope Configurator has been rolled out now to 3 European countries and further to come. This program clearly delivers what we expected, a strong complexity reduction along the whole process chain from the customer order to production. Now let's come to the figures for Q1 2026. Summing up Q1 in a statement. Revenue is good, especially in equipment in North America, improvement of profitability necessary. But first things first. Starting with our revenues for Q1 2026. We achieved a new first quarter revenue record of EUR 111 million, representing an increase of 2.3% year-on-year. This growth was primarily driven by a strong performance in North America, particularly in the equipment business, supported by higher revenues with key accounts. In Europe and Other, revenues were stable overall compared to prior year. On a business line basis, equipment revenues increased by 7%, while service remained stable. Consumable revenues declined mainly due to the weather-related lower wash volumes. However, the revenue decline was less pronounced than the drop in volumes, underlining the resilience of the underlying business. Looking at our profitability, we see an EBIT of EUR 3.8 million. This is an EBIT margin of 3.4%, whereas on -- 1 year ago, we booked 4.5%. The shortfall was on the one hand side, expected by necessary expenses caused by some programs. Remember my statements to a production shift to Czech. On the other side, we saw a cost increase in terms of installation. Our measures we started are not finished and do not show positive effects in the first quarter, but they will come. We have full focus on this cost block. Having a short view on free cash flow. The number is down by EUR 9 million to EUR 7 million. This drop doesn't make me too nervous right now as we have increased our stock due to the real good order backlog we have. Therefore, our net working capital increased to EUR 94 million and comparable number of March 2025 was EUR 82 million. So overall, Q1 was mixed in terms of financials and hard work is still in front of us. But given the strong top line as well as our current order book, we can look optimistic in the future, especially if we look at the development in equipment, what brings me to the next page. In the first quarter, we see a clear differentiation across our business lines. Equipment was the key growth driver with revenues up 7% year-on-year. This growth was primarily driven by North America, supported by higher revenues with key accounts, while Europe and Others also showed a slight increase. Service revenues were stable compared to the prior year, once again underlying the resilience of our recurring revenue base. This stability is a key strength of our business model, particularly in a more volatile macro environment. Consumable revenues were below the prior year level, mainly due to weather-related lower wash volumes. Importantly, the decline in revenue was less pronounced than the decline in volumes, which demonstrates the fundamentally sound operational development of our washing chemical business. Overall, we are confident with the growth of our top line. Now let's put eyes on our segments. In Europe and Other, revenue remained broadly stable year-on-year. Earnings in the segment were impacted by planned temporarily higher costs, mainly related to the expansion to our Czech site as well as delays in the execution of certain efficiency initiatives, particularly in installation and logistics. I already gave some insights here. In addition, earnings were affected by weather-related lower activity in consumable business. In North America, we saw a clear improvement in both revenue and earnings, driven primarily by higher equipment revenues with key accounts. The segment benefited from improved execution and more favorable product mix. Looking at the EBIT number, we see an increase in this KPI by EUR 1.4 million to now breakeven. This is the best EBIT in the first quarter in North America since 2017. Yes, that's remarkable. Coming now to our EBIT bridge, showing the development of Q1 '25 to Q1 '26. The increase in group revenue in the first quarter generated a positive gross profit contribution, while at the same time, the gross margin declined year-on-year, coming from 29.3% last year to now 28.4%. This was mainly driven by a less favorable product and regional mix, including a lower share of consumables and a higher share of equipment business in North America. In addition, gross profit was impacted by planned temporarily higher costs, primarily related to the expansion of the Czech site and delays in selected efficiency programs, as already mentioned. Selling expenses increased in line with revenue growth and remained broadly stable as a percentage of revenue. Administrative expenses are slightly higher compared to last year, mainly to ongoing IT projects. On this slide, you see some more financial KPIs. Net income and earnings per share follow mainly our EBIT development. Our net financial debt is still in a very good shape despite the outstanding amount is higher compared to the same time 1 year ago. Reason for this is besides higher dividend payment and the share buyback program, we already mentioned higher net working capital. On the following slide, you see our equity ratio and our fixed asset ratio. Both in a reasonable shape. In terms of employees, it is remarkable that we have increased our workforce by 94 year-on-year. Most of our new colleagues have been hired in the business line service followed by sales department. Now to the equipment order backlog, as always, indexed basis this time is the year 2022. Equipment orders received was significantly higher in the first 3 months of the year than in the prior year quarter. This cut across both segments and was primarily due to the positive trend in North American segment, where the increase was even well into the double-digit percentage range. Therefore, as already mentioned, we have a very strong order backlog, plus 10% compared year-on-year, plus 16% compared to end of 2025. And by the way, the increase in North America is even stronger. This gives us a good view on the top line in the coming months. Let's now turn to our guidance for 2026. In general, WashTec confirms its guidance for 2026 and expects that the delays in the efficiency projects will be made good over the course of the year. That is where we, the management and the complete team, need to focus on. We expect revenue growth in the mid-single-digit percentage range and an increase in EBIT that is disproportionately higher than revenue growth. The forecast does not make allowance for any further significant worsening of the economic situation due to the developments in the Middle East or other global disturbances due to some political statements and actions. However, in addition to high volatility in raw material markets, we are currently seeing a significant increase in uncertainty regarding the future course of the conflict in Middle East and the resulting indirect economic impact. That doesn't help too much for stable guidance. So this time, it is even more important to state that this guidance is subject to uncertainties and all these figures reflect our expectations based on our current knowledge and significant deviations in either directions are not factored in here. This concludes my remarks. On the following page, you will find our 2026 financial calendar. Thank you very much for your interest so far. Kevin and I are now available to answer your questions you might have. Kevin Lorenz: [Operator Instructions] We have the first question from Stefan Augustin from Warburg Research. Mr. Augustin, we can hear you. Stefan Augustin: Great. I hope so. I have a couple of questions. So the first one is actually, can you elaborate a little bit more again on the headwinds? So when do you think which one of the headwinds is going to start to decline? I mean, Czech Republic is probably second half of the year, so not Q2 yet. When is the element of the installation efficiencies going to kick in? And can you remind us on the SAP integration costs in Q1 '26 compared to the ones you might have had in Q1 '25? So that would be the first block. Andreas Pabst: Okay. So yes, you are right, the profitability or the increasing profitability for the transfer to Czech Republic will kick in more, end of this year, and we will see full effect according to the actual plans. And we are in the current time line, we are fully on track. We will see that in 2027. In terms of installation costs, we are currently really a little bit behind. We detected some, let's call it, difficulties, yes, where we need to dig further and we need to create other solutions to come back here. So that means, I would say we are here now 1 quarter behind, but we will manage to come up with this one during the year. And then you asked about the cost for the implementation of SAP. So if you look to the EBIT bridge, which is in the presentation, the deviation in administrative cost is more or less coming from this cost for the introduction of S/4HANA. So it's around about EUR 200,000. Stefan Augustin: Okay. The next one is the -- you mentioned that the orders that you received in Q1 are largely also on the U.S. side, but we should also expect growth and a positive book-to-bill in the quarter on the European side. Is that okay? Andreas Pabst: So if I look at the order income, I'm positive in Europe as well as North America for the first quarter. Both showed an increase compared to prior year. That is good. The increase was even -- just what I said was, the increase was even higher in North America. So yes, you're right with your statement. Stefan Augustin: And probably the weather, especially in Germany has been quite good in the second quarter or in April. So it would not be wrong to expect a better chemicals business in the second quarter. Is that a fair assumption? Andreas Pabst: Let me think about -- so currently, we have May 5, I guess. So the second quarter is not completely done yet. But looking at April was good washing weather, especially in Europe in one of our key markets. That's some headwind we have -- or tailwind, sorry. Stefan Augustin: Okay. And then maybe just switching back a little bit. The -- say, the headwind on the installation efficiencies, is that more in Europe or respectively, if we have in the second quarter, stronger volumes to expect from North America, would we still see a very or a sizable drop-through in operating leverage as the installation part is quite okay in North America? Andreas Pabst: That's really a good question. Thank you for that one. So the topic what we see in installation cost is mainly related to Europe. So the installation costs in North America are on a reasonable level if we compare it over the year and compare it to the targets we have. Kevin Lorenz: And we have another question from Wolfgang Specht from Berenberg. Mr. Specht, can you hear us? We can't hear you. Sorry, okay, I see the question was actually in written form. So the question is, connection is a mess still would have several questions. Okay. And so Mr. Specht, our provider in EQS has now also included an option that you can dial in via phone. Currently, many analysts have the problems that their banks are very restrictive with their IT and so if you can -- if it's possible for you, then you can also dial in via phone and there should be -- the procedure should be described. There should be a number that you have to call and then -- so let's maybe give him a little bit more time to -- if there's a question coming or not. Else -- I don't see any other questions right now. So I don't know, should we give him another minute or should we. Andreas Pabst: Let's wait for 30 seconds and see if it works, if not yes. And that's also. Kevin Lorenz: There should also be an option to write down questions in text form, also for everyone else who might still have questions. Andreas Pabst: So Mr. Specht, we really like to answer your question. So if it doesn't work right now, yes, probably then we can do it later on. That is for all the audience. But then I would say no further questions right now. So then ladies and gentlemen, on behalf of the whole Management Board, we really would like to thank you for your interest in WashTec and wish you a pleasant day. Thank you. Bye-bye.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Centerspace Q1 2026 Earnings Call. [Operator Instructions] I will now hand the call over to Josh Klaetsch, Director of Investor Relations. Please go ahead. Joshua Klaetsch: Thank you, and good morning, everyone. Centerspace's Form 10-Q for the quarter ended March 31, 2026, was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplemental disclosure package have been posted to our website at centerspacehomes.com and filed on Form 8-K. It's important to note that today's remarks will include statements about our business outlook and other forward-looking statements that are based on management's current views and assumptions. These statements are subject to risks and uncertainties discussed in our filings under the section titled Risk Factors and in our other filings with the SEC. We cannot guarantee that any forward-looking statements will materialize, and you're cautioned not to place undue reliance on these forward-looking statements. Please refer to our earnings release for reconciliations of any non-GAAP information which may be discussed on today's call. I'll now turn it over to Centerspace's President and CEO, Anne Olson, for the company's prepared remarks. Anne Olson: Thank you, Josh, and good morning, everyone. I'm here with our SVP of Investments and Capital Markets, Grant Campbell; and our CFO, Bhairav Patel. I'll start by addressing the strategic review which we initiated in 2025. This process is ongoing, and we appreciate the feedback we have received from our stakeholders. The Board and its advisers continue to make progress, and we expect to provide shareholders with a more substantive update on the status of the review process before or in connection with our second quarter earnings release. There can be no assurance as to the timing or outcome of our process and no assurance that the review process will result in a transaction or other strategic change or outcome. We do not intend to provide further details in connection with discussion of our first quarter earnings results today. Thank you for your understanding as we keep our comments focused on our results and our outlook. Our revenues for Q1 were in line with our expectations, supported by stable demand and continued execution by our leasing teams. First quarter results reflect the negative impact of recent changes to Colorado regulations, timing of certain expenses and costs related to our strategic review. These were anticipated, and our expectations for full year core FFO and its drivers remain substantially unchanged. We are reiterating our previously released earnings guidance, and Bhairav will discuss this momentarily. Operationally, we are starting to see the expected seasonal pickup in leasing. While blended leasing spreads in the quarter were up 40 basis points over prior leases, each month demonstrated improvement, increasing from negative 90 basis points in January to positive 140 basis points in March. We've seen this trend continue into April with preliminary blended spreads of 1.8%. The Q1 blend was composed of a 2.1% decrease in new lease rents, combined with a 3.1% increase on renewals, while in April, new lease spreads broke into positive territory and renewal spreads increased to 3.3%. Retention of 54.1% in our same-store portfolio was a 2 percentage point improvement from the same quarter last year, and our resident base remains healthy, with rent-to-income levels at 21.2% and bad debt within our historical range. Our Midwest markets continue to see rent growth outpacing national averages, and our largest market of Minneapolis saw blended spreads of 1.3% in Q1. Notably, Minneapolis has shown the best acceleration into April with blended spreads of 3.8% and new lease spreads of 4.3% in the month. In Denver, Q1 blended rates were down 5.1%, and reimbursement revenues are exhibiting the impact of regulatory changes in the market. Concessions are prevalent in the market, and we experienced our highest usage of concessions to date in Q1. That said, we have reason for optimism. Q1 absorption levels were at their highest level since the pandemic rebound in 2021, and retention in our Denver communities was 51.9%, an improvement over Q1 2025. This data, together with the significant drop-off of new construction starts, sets us up for a better leasing profile as the year progresses, with improvement in both concessions and leasing spreads expected as we enter peak leasing season. Expenses in the quarter were higher than our historic trend or 2026 projected run rate. Much of this was related to timing, which Bhairav will elaborate on. Our team excels in expense management, as evidenced by our same-store expense growth of only 1.6% over 2024 and 2025, and we expect that discipline to show again in 2026 as the impacts of onetime expenses normalize. I would be remiss not to recognize our team. Their commitment and execution sets us apart, and we're proud that their efforts have been recognized through several awards, most recently being named a USA Today Top Workplace. I'm very grateful for our amazing team members. With that, I'll turn it over to Grant. Grant Campbell: Thanks, Anne, and good morning, everyone. Nationwide transaction activity continued showing signs of improvement, including a 13% total volume increase in 2025 compared to 2024. At the same time, investors are becoming increasingly selective with their investment decisions. There is a wide variation across individual markets as it pertains to investor conviction and actions. Within our geographic footprint, this dynamic exists. In Minneapolis, 2025 was a record year for transactions at $2.5 billion in total volume. This is driven by supply peaking in 2023, and at the peak, new deliveries representing only 6% of then existing stock, comparing favorably to the profile of high supply markets. Coupling this with stable and persistent renter demand, investors have been drawn to the market, and we expect this to continue throughout 2026, in part due to next 12-month deliveries representing 1.6% of existing inventory and the full construction pipeline at 2.1% of inventory. In our other Midwest markets, we continue seeing strong interest from private capital investors. These markets are anchored by health care, education and government and have muted supply profiles, including next 12-month deliveries ranging from 0% in our North Dakota and Rochester, Minnesota markets to 2.4% of existing inventory in Omaha. While the labor market has slowed nationally, we are seeing healthier relative performance in these locations, including in Grand Forks, North Dakota, where the U.S. Space Force is expanding its presence and a new $450 million food processing facility is underway, along with Rochester, Minnesota, which saw strong job growth in 2025, driven by health care and education. Shifting to Denver. Transaction volume was down 41% in 2025 compared to 2024, and this has carried into 2026 thus far. The market continues working through the influx of deliveries from the past 24 months, flat job growth in 2025 and the recent legislative changes affecting property level other income. This has generally put Denver's transaction market in a wait-and-see environment. Premium assets and locations are still commanding strong pricing, including a few recent trades at sub 5% in-place cap rates, though the divide between premium profile and the rest of the market has widened. We believe this theme will continue until growth indicators translate into hard data, providing investors more conviction in underwriting strengthening fundamentals. Strong Q1 absorption numbers are one building block. Taken together, we think this environment reinforces our historical focus on disciplined capital allocation. We expect household formation in our portfolio to outpace national averages by 50 basis points through the end of next year and employment growth to similarly outpace the U.S. We believe this positioning will allow us to navigate the current environment while creating value over time. I'll now turn it over to Bhairav to discuss our financial results and guidance. Bhairav Patel: Thanks, Grant, and hello, everyone. Last night, we reported first quarter core FFO of $1.12 per diluted share, driven by a 1.1% year-over-year decrease in Q1 same-store NOI. Revenues from same-store communities were flat compared to the same quarter in 2025, with a 1.7% increase to average monthly rental rate in the portfolio offset by a 40 basis point decrease to occupancy and the impact of lower RUBS revenue in our Colorado communities. On the same-store expense side, Q1 numbers were up 1.7% year-over-year, with controllable expenses up 3.5% and noncontrollables down 1.1%. Our G&A expenses increased by $1.3 million over the same quarter last year, with strategic review costs as the main driver of that increase. Turning to full year 2026 expectations. Our guidance is consistent with what we outlined in February with core FFO at $4.93, same-store NOI growth of 75 basis points, same-store revenue growth of 88 basis points and same-store expense growth of 1.5%, each at the midpoint of their guided range. Casualty recoveries in Q1 led us to increase our NAREIT FFO expectations for the year by $0.03 at the midpoint to $4.78 per share. Revenue growth assumes blended gross leasing spreads of approximately 2%, with occupancy in the mid-95% range and retention of about 52%. We continue to expect blended spreads will again be highest in our Midwest communities. That strength will bolster our Denver portfolio, where we expect spreads to be down for the year, though improving as the year progresses. As we have previously stated, regulatory changes are expected to temper revenue growth in our Colorado portfolio, with RUBS expected to be down nearly $1 million, which was already incorporated into our initial guidance. As Anne alluded to earlier, expenses in the first quarter were slightly higher than our expectations. However, part of that increase was driven by timing differences, especially on the noncontrollable side. We recorded approximately $400,000 in real estate tax true-ups during the quarter. True-ups are not uncommon during the first quarter, and we expect these to be offset when we resolve open appeals in the second half of this year. Our nonreimbursable losses during the quarter were also slightly higher than anticipated. This line item tends to be volatile, and our first quarter experience has not altered our expectations for the full year. Controllable expenses were impacted by a low team member open position count and the timing of R&M projects. We expect offsets to both will favorably impact the cost of these for the remainder of the year. Lastly, while G&A during the quarter was higher than the projected run rate for the rest of the year, we now expect full year G&A to be lower than our initial projection. As a result, we still expect to deliver financial performance within the initial guidance ranges we discussed at the beginning of the year. To further aid in modeling, I wanted to highlight our expectations for certain line items and related timing. Costs related to our strategic review are expected to be $1 million to $1.5 million for the year, with those costs expected to occur primarily in the first half of the year. This expense appears in both our G&A costs and has an add-back from FFO to core FFO. Amortization of assumed debt is expected to be $1.3 million for the year, with $490,000 expected in Q2 before quarterly amortization decreases to $215,000 per quarter in Q3 and Q4. Our guidance does not include any acquisitions or dispositions. Turning to our balance sheet. Q1 annualized debt-to-EBITDA was impacted by the higher G&A and taxes in the quarter, leading it to be atypically high. This is not indicative of any meaningful change to our leverage profile, and we expect this number to return to our historical mid-7x range as the year progresses and expenses normalize. Our debt schedule features both a compelling rate and a long tenure with a weighted average rate of 3.6% and weighted average maturity of 6.7 years, while our liquidity remains strong with $267 million of cash and line of credit availability compared to $98 million of debt maturing through 2027. To conclude, this quarter demonstrated the stability and consistency of our portfolio, with our results demonstrating our commitments to both operational excellence and financial discipline and positioning us well for the rest of 2026. Operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Brad Heffern of RBC. Brad Heffern: On Minneapolis, it sounds like you're seeing a strong inflection in spreads there. Do you view that market as being sort of back to normal at this point after we've passed all the supply? And then do you expect to see it overshoot to the upside to some extent? Anne Olson: Yes. I think you're exactly right, how we feel about it. We are certainly past the inflection point where the demand has stayed steady and the supply has been significantly absorbed and the new supply pipeline, as Grant discussed, is tapering to just over 2%. And so we're seeing really good rent increases there, and we think that, that will continue. We have no indicators that demand is softening here in Minneapolis. And the economy -- the regional economy here is healthy. So we do expect some outperformance from Minneapolis this year, particularly relative to our other markets. Brad Heffern: Okay. Got it. And then, Bhairav, on the guidance, 1Q was at the bottom end of the revenue growth guidance range. The expenses in 1Q were close to the top end of the range. Obviously, you didn't change the guidance, but I'm curious if you can just walk through the path to both of those getting to their midpoints? Or do you expect that NOI maybe won't get to the midpoint, just based on where we are so far? Bhairav Patel: Yes, let's go through the components. So revenue was still in line with our expectations. It was flat for the quarter, but we expected it. The increase in scheduled rent was offset by the loss of RUBS revenue in Colorado, and there was amortization and concessions that started in the second half of last year. But overall, revenue came in, in line with expectations, and April is shaping up also in line with expectations. We do expect that remains on track. On controllables, R&M was slightly higher in the first quarter. Some of that was timing, which will correct itself. And the remainder, we expect to offset with savings elsewhere. And we are fully staffed now, so we expect to be able to drive efficiencies as we enter leasing season by better managing overtime spend and third-party vendors. So we do expect that we'll kind of remain on track on controllables as well. With respect to noncontrollables, there were some tax true-ups in the first quarter. It's not unusual for us to see tax true-ups in the first quarter. We do expect some fuel savings to materialize in the second half of the year, so that should offset it. And also, as I said in my prepared remarks, there were some nonreimbursable losses, which again tend to be volatile. So we saw higher losses in the first quarter, which is not really indicative of the run rate going forward. So that should normalize as well. Lastly, there's G&A. That was also higher than the run rate. It was driven by some payroll tax accruals that are typically higher in the first quarter when we grant the equity awards. That should also normalize as we go through the rest of the year, and we actually did identify some additional savings. So overall, then you kind of combine all of these components, we expect to remain in line with the midpoint of our NOI as well as core FFO. Operator: Your next question comes from Ami Probandt of UBS. Ami Probandt: Just to dive in a little bit more on the markets. The other Mountain West markets are a relatively small part of the portfolio, but growth in the quarter was pretty soft. So I was wondering if you could talk through what's going on there? Anne Olson: Yes, sure. So the other Mountain West consists of Rapid City and Billings. And those markets, if you recall, are acting a little bit more like a Denver. So they had enormous rent growth in '21, '22 into '23, but then they did get some supply. And so being smaller markets, they have been impacted a little bit by supply. That is tapering off. And as Grant noted, we see very little supply coming there. But that market really has had some equalization going on there as they work through that supply. And then also a little bit softer job picture there. Immediately post COVID, they had a pretty big influx of people working remotely, particularly in places like Rapid City. And so we've seen that pull back a little bit. The market is still strong, but we're not seeing the growth that we had been there. We've had a little bit of a pullback in those markets. Ami Probandt: Got it. That makes sense. And then just on retention, this has been really strong, remains ahead of historical. I was just wondering if you think that retention might come down at all and to what extent it might come down as you change over to pushing a little bit more on rate as we move into the peak leasing season? Anne Olson: Yes, this is a great question. I think the market has changed the last couple of years across the industry, we've really seen higher retention. So you're hearing that from all the multifamily peers. You're hearing that on the private side. Whether or not that there's some fundamental shift there, I think people are starting to lean into that, right? The renters are staying renters longer. The average age of a renter is increasing. And so I think there's a higher percentage of renters in the market, which is helping retention. Now as we look into this year, the one thing that we're really looking at is with a lot of absorption coming and a lot of absorption happening, there's actually going to be fewer choices for people to move to. And one of the things we noted is while retention was really strong in Q1, it actually jumped up pretty significantly in April. So I guess I'm -- my early leaning is that this is a little bit of a fundamental shift in the industry away from that 50% general retention rate into something a little bit higher. Operator: [Operator Instructions] Your next question comes from the line of Jeffrey Carr of Cantor Fitzgerald. Jeffrey Carr: Just wanted to ask about with the review ongoing and no acquisitions or dispositions in guidance, how are you thinking about capital allocation priorities for the rest of the year? And specifically maybe around the revolver balance and value-add spend? And how much does the review kind of influence those decisions, if at all? Anne Olson: Yes, this is a great question. I think capital allocation is job #1 of an executive team, and particularly when you have hard assets. And we -- while we maintained our guidance on value-add for the year and we do think that, that's an important part of our program here and our operating platform, really, most of the value-add that we're spending is are things that were started or identified last year. So as we think about capital allocation priorities going forward, we're very focused on managing the line of credit debt and keeping our balance sheet strong and flexible. Operator: Your next question comes from the line of Mason Guell of Baird. Mason P. Guell: Has there been any change to the outlook for any of your markets this year? And are any doing better or maybe worse than expected? Anne Olson: Well, as Bhairav said, we really expect revenue is coming in line with expectations, and that's unchanged for the year. I think maybe the components are moving a little bit. We'd like to see Denver picking up a little bit faster, but -- and they had awesome absorption in Q1, as we discussed in the prepared remarks. And if that continues, we're going to be right in line there. Minneapolis is a little bit better than we expected, but these are all very slight offsets. And overall, I think revenue is coming in right where we thought, and we expect that to continue for the year. Mason P. Guell: Great. And then could you provide some color on the real estate investment impairment line item on your income statement? Bhairav Patel: Yes, we can go through the impairment. So overall, from a GAAP standpoint, you typically book impairment when your -- on real assets when your cash flows are going to be less than your book value. Now from real assets, you don't typically tend to see it because they have long holding periods. So you usually see impairments when we have assets that are held for sale. But with the ongoing strategic review, the considerations change a little bit, and we have to kind of tweak the holding period for certain assets, which resulted in the impairment that we booked in the first quarter. It was truly driven by a change in the potential holding period in light of all the other activity that's being reviewed at the strategic level. So that's really what drove the impairment. It was on one asset and was driven by property-specific factors. Operator: Your next question comes from the line of Michael Gorman of BTIG. Michael Gorman: Maybe just a quick one for me on a more strategic level as you're thinking about the portfolio and you're thinking about the business. Obviously, Denver, I think, has been a challenge, and that's not unique to you at all. There was an article in The Wall Street Journal over the weekend talking about the regulatory environment for business in general in the state of Colorado and some increasing concerns about the regulatory burden among the tech ecosystem. And I'm just wondering, have you started to see any of those concerns? Have you started to think about those concerns and what that means for the job market in those kind of core metro areas in Colorado? Or is this just a little bit too far out on the horizon? Anne Olson: Michael, this isn't too far out on the horizon, and it is something that we're thinking about. As we consider -- you may recall when we -- before we bought in Salt Lake City, one of the things that we really look at with respect to markets is the business climate, right, the friendliness, the tax regime, the regulatory environment. In Colorado, you can even see -- and we discussed in our prepared remarks -- you can start seeing the results of some of the regulatory actions that they have taken with respect to real estate, the RUBS, the collection, our ability to get reimbursement for RUBS and utility costs. So we're already starting to see that there. And I do think that some of the other regulatory actions that they're considering or considering taking are impacting their job growth. As Grant noted, it's been flat there after a few years of really, really strong growth. So is this part of the natural kind of maturing of Denver, which went from 1 million people to close to 4 million people in a relatively short span of time? A lot of jobs came there. Did the infrastructure not keep up? Do they feel pressure to put these regulations in place? Will that abate over time? I think that remains to be seen. We're really happy with the portfolio we have there. We're very happy with the basis we have in it, having started to acquire that portfolio back in 2017. And we're optimistic because it's still a place that has a lot of cultural gravitas. People are still wanting to live there for access to the outdoor amenities and things that other cities can't offer. And on a relative basis to places like California, it is still very affordable. So -- but definitely something that we're watching, something we're already starting to feel the impacts of and really keeping a close eye on. Michael Gorman: That's really helpful color. And maybe just a follow-up. I just wanted to make sure I had it clear. It sounds like, to your point, job growth is a little bit slower in Denver, but it sounds like absorption is running at pretty high levels. So I'm just wondering, kind of what could be driving that mismatch and how durable that can -- that absorption level do you think can be with the current level of job growth? Grant Campbell: Yes. Mike, correct. Q1 absorption numbers were very strong, peak data, looking back to the pandemic period. So we continue to see strong inflows of resident and renter demand in the market. I think a big driver there is the high cost of homeownership in that market. And although job growth has been flat in 2025, as we talked about, we do continue to still see folks from out of state relocating to the market, maybe not at the same clip that they were from '21 to '23. We actually looked within our portfolio, '21 to '23, about 1/3 of our applicants within our same-store portfolio were from out of state. And in '24 and '25, that was 25%. So a reduction, but still a meaningful inflow of folks coming from out of state, and it is very expensive to own a home in that market. Operator: Your next question comes from the line of Ami Probandt of UBS. Ami Probandt: Maybe a follow-up to Mike's question that was just asked. There's maybe some bias for some coastal -- at least coastal people about what your Midwest markets might look like. And so I'm just kind of curious, what's the hiring outlook for recent college grads across your market? Do college grads, are they attractive to these markets? Or do they tend to go to some of the bigger Sunbelt markets or coastal markets and then move into the Midwest as they get a little bit older and want to start a family? Anne Olson: Yes. Ami, this is a good question. And there -- as you probably know, there has been some recent publication highlighting where the hot markets for new college grads are. Very few of them are in the Midwest, but we still do see really strong companies in our markets and across the Midwest. And so Minneapolis, we have Target, 3M, huge health care in UnitedHealthcare and all the subsidiaries, Cargill, which is one of the largest private companies in the world. And then on the North Dakota side, Grant mentioned, we're starting to see some growth there. And Grant, maybe you can just comment a little bit on what we're seeing in some of those markets with respect to job growth that would attract some of those new college grads? Grant Campbell: Yes. I think to Anne's comments on Minneapolis, 17 Fortune 500 companies, Cargill, largest private company that there is. We see a lot of folks that -- maybe Chicago used to be the place, if they were Midwest-centric, it was Chicago, or we're going coastal. We see more and more of those folks coming to the Twin Cities. A strong underlying higher education system in the Twin Cities also serves as a feeder for a lot of those organizations and companies in our backyard. In the case of our other Midwest markets that you alluded to, Rochester, the Mayo Clinic is undertaking a very significant expansion phase that is drawing a lot of folks. So that market driven by health care and education, we're seeing it play out on the ground. In our prepared remarks, we alluded to North Dakota, where we're seeing some pretty significant investment, both from folks in state as well as other folks, in this case, a European company desiring to put their first U.S. plant in that market. So I think these things, although maybe they don't register at the same level as some of the coastal updates that we hear about, the wheel is turning in these markets. Anne Olson: And Ami, just one more thought on that is when I look at recent data and recent news articles about it, it does -- there is a big highlight there, which is the new college grads aren't just looking for coastal markets and jobs. They're also balancing that with overall affordability, and that's where the Midwest can be a real draw. And over the past few years, we've seen markets like -- not just Minneapolis, but Milwaukee, Columbus, Kansas City really get an outsized share of those grads given the affordability of living there. Operator: There are are no further questions at this time. Anne Olson: Great. Well, thank you all for joining us today. We look forward to meeting with many of you at the upcoming BMO and NAREIT conferences, and we wish you all a great day. Operator: This concludes today's call. Thank you for attending. 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: Welcome to the Powell Industries, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star and then one on your touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would like to turn the conference over to Ryan Coleman, Investor Relations. Thank you, and over to you. Ryan Coleman: Thank you, and good morning, everyone. Thank you for joining us for Powell Industries, Inc.'s conference call today to review fiscal year 2026 second quarter results. With me on the call are Brett A. Cope, Powell Industries, Inc.'s Chairman and CEO, and Michael W. Metcalf, Powell Industries, Inc.'s CFO. There will be a replay of today's call available via webcast by going to the company's website, powellind.com. A telephonic replay will be available until May 12. The information on how to access the replay was provided in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, May 5, 2026, and, therefore, you are advised that any time-sensitive information may no longer be accurate at the time of replay listening or transcript reading. This conference call includes certain statements, including statements related to the company's expectations of its future operating results, that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, and that actual results may differ materially from those projected in these forward-looking statements. These risks and uncertainties include, but are not limited to, competition and competitive pressures, sensitivity to general economic and industry conditions, international political and economic risks, availability and price of raw materials, and execution of business strategies. For more information, please refer to the company's filings with the Securities and Exchange Commission. With that, I will turn the call over to Brett. Brett A. Cope: Thank you, and good morning, everyone. Thank you for joining us today to review Powell Industries, Inc.'s fiscal 2026 second quarter results. I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions. The Powell Industries, Inc. team delivered another solid quarter of operational efficiency and order growth, as the momentum we experienced at the start of our fiscal year continued through the second quarter. Activity levels across each of our core end markets remained healthy, with notable strength in the quarter from liquefied natural gas projects, a mix of electric utility distribution and generation projects, and also data center projects within our commercial and other industrial market sector. Revenue in the quarter grew a steady 6% compared to the prior year, and continued solid project execution across the company delivered a gross margin of 29.6%. We recorded $490 million of new orders in the quarter, bringing our midyear total to nearly $1 billion in new awards. I would also note that our order book in the quarter continued to be very well balanced across the markets in which we compete. During the quarter, we were awarded two mega projects, one for a data center and a second for an electric utility generation project. Each of these projects is in excess of $75 million in value. The balance of the order book in the quarter was comprised of a higher number of small- and medium-sized projects. Our backlog now sits at $1.8 billion, 12% higher than the prior quarter and 33% higher than one year ago. The growth in our backlog now provides visibility well into our fiscal 2028. The composition remains healthy with a mix of projects of varying sizes that will help maximize productivity across our manufacturing plants. As of quarter end, the electric utility market represented 30% of our total backlog, while the oil and gas market, excluding petrochemical, and the commercial and other industrial markets each accounted for 29%. The diversification of the business in the electric utility market and more recent expansion of our commercial and other industrial market, anchored by a demand driver from data centers, are contributing to reduced cyclicality in the business, allowing us to plan beyond the current cycle and invest more broadly alongside our customers with greater visibility. At the same time, our outlook for our core oil and gas market remains strong. We are in the initial phase of a multiyear buildout of LNG export capacity. We believe the structural cost and competitive advantages possessed by U.S.-based exporters has been elevated by the risk of multiyear-long capacity impairments across the international markets and the need for importers to diversify and replace those volumes. We are cautiously optimistic that the petrochemical market is in the early stages of a cyclical inflection after several years of lower activity levels. We are seeing some activity in the gas-to-chemicals market and are further encouraged by recent upward price revisions within the global polyethylene market. I would like to take a moment to mention a commercial development that took place subsequent to quarter end. I am very pleased to share that Powell Industries, Inc. was awarded a mega project for the first phase of a new greenfield data center. The scope of this award is in support of a behind-the-meter design for the first phase of a planned multiphase campus. This project award is in excess of $400 million. This project now marks the largest project award in Powell Industries, Inc.'s history. This award is a testament to our employees, our culture, and the entire Powell Industries, Inc. team across the company as we assembled a multidivision, multicountry execution plan to meet the demanding timeline on this project. To that end, recent order trends, our market outlook, and our continued organic product development continue to support prudent additions in manufacturing capacity. Last quarter, we signed a lease for incremental space located near our Ohio facility. This past quarter, we leased office space in the Houston metro area, which will serve as a second satellite engineering center. This center complements our initial satellite engineering office that we announced and opened last year. This second center is geographically located to further enhance our ability to add critical members to our world-class electrical and mechanical engineering and design teams. In response to the growth of our backlog, we are evaluating a smaller leased facility of approximately 50 thousand square feet near our Moseley campus. This space would help support a new $8 million investment in fabrication equipment for short-term rapid expansion of our metal fabrication capacity. We have previously shared our efforts to evaluate a larger investment in a facility that would require $70 million to $100 million of capital and provide upwards of an additional 250 thousand to 300 thousand square feet of factory capacity. While we continue this assessment, we are currently evaluating complementary options for bridging between short-term requirements via a leased facility versus a somewhat longer term of a greenfield facility buildout. We are being very thoughtful throughout this process and expect a decision within the next few quarters. Meanwhile, the expansion of our Jacinto Port facility is progressing on schedule. This incremental 335 thousand square feet will be critical to ensuring our ability to support all of our end markets, but specifically by providing our oil and gas customers with a premier domestic facility to produce engineered-to-order power distribution solutions for both on- and near-shore projects as well as continued support for offshore applications. Operationally, our teams across our facilities are rising to meet the challenge of accelerating growth. We remain disciplined on the commitments we have made to our customers while staying focused on continuous improvement and driving incremental efficiencies throughout every step of our operations. As noted earlier in my comments around the recent large data center award, Powell Industries, Inc. has a market-leading strength that is inherent in our people and internal collaboration. When our teams across our North American facilities come together, we are able to leverage our substantial footprint to tackle large challenges either for a single project or a broad step-up in market demand as we are currently experiencing. Critically important to our growth and future needs, I would also like to call out the increased efforts of our strategic sourcing and supply chain teams. It is essential that our team engages our partners to both broaden and deepen those relationships and optimize our supply chain in support of our future growth. On the M&A front, we continue to evaluate a growing pipeline of inorganic opportunities that complement our organic initiatives and better position us within key markets. Candidates include complementary products and/or capabilities to our current portfolio or are oriented toward building out our services franchise. Along these lines, our recent acquisition of REMSDAQ continues to progress well and has quickly proven synergistic and accretive across the company. Lastly, pursuant to our ongoing efforts to build a stronger, more diversified business, we have recently begun investing in resources to build a wider funnel of government-related work, including U.S. military and defense applications. These are markets with secular, long-term growth drivers that typically carry recurring revenue profiles, which would be conducive to growing our services franchise. We are in the early days of this effort but believe our U.S.-centric supply chain, operations, and workforce leave us well positioned to play a critical role within the markets that support our national security and defense. On a related note, I would like to briefly commend the White House's recent presidential determination under Section 303 of the Defense Production Act, which formally designated both substations and switchgear, among other electrical products and their upstream supply chains, as essential to national defense. Ensuring the domestic production of critical electrical gear is essential to America's ability to deploy large-scale grid infrastructure, and the presidential memorandum authorizes the Department of Energy to expedite procedural requirements and immediately deploy federal capital to expand domestic grid manufacturing capacity. In summary, we remain very pleased with our financial performance for the first half of the year and are encouraged by the commercial dynamics that we continue to see across the markets we serve. With that, I would like to turn the call over to Mike to walk us through our financial results in greater detail. Michael W. Metcalf: Thank you, Brett, and good morning, everyone. In the 2026 second quarter, we reported total revenue of $297 million compared to $279 million, or 6% higher versus the same period in fiscal 2025. New orders booked in the 2026 second quarter were $490 million, which was nearly double the orders booked in the same period one year ago, and included two mega orders, each with an order value exceeding $75 million. The first mega order reflects the largest utility order that the business has ever recorded and is for a large generation facility in the Eastern United States. The second mega order in the quarter for medium-voltage electrical distribution equipment is destined for a data center in the Central United States. As a result of the strong commercial activity across our key end markets, book-to-bill ratio for both the second quarter as well as the 2026 first half is 1.7 times. The continued momentum across all end markets, particularly domestically, and the resulting orders volume in the second fiscal quarter elevated our backlog to $1.8 billion, a 33% increase, or $438 million higher versus the same period one year ago and $189 million higher sequentially. The composition of our backlog continues to diversify, with our core industrial end markets across petrochemical and oil and gas representing 33% of the total backlog, while the electric utility and commercial and other industrial markets represent 30% and 29% of the $1.8 billion of backlog, respectively. As Brett mentioned, in early April, after the close of our second fiscal quarter, the business secured a mega order in the data center end market with a value in excess of $400 million. This order value is not reflected in either the orders or backlog numbers for the 2026 second quarter, and will be included in our fiscal third quarter reported numbers. Turning to revenue, compared to the 2025 second quarter, domestic revenues were higher by $4 million, or 2%, while international revenues were up by $14 million to $64 million, primarily driven by the offshore projects that are being executed in the Far East and Africa as well as an uptick in project volume across our U.K. operation. From a market sector perspective, revenues increased 35% in the commercial and other industrial market versus the 2025 second quarter, while the electric utility and the oil and gas markets increased 14% and 11%, respectively. Offsetting these increases, the petrochemical market declined by 37% versus the same period one year ago on the softness across this end market over the past several quarters. The light rail traction power market was lower by 10% on relatively light volume as a percentage of the total business revenue. Gross profit increased by $5 million to $88 million in the 2026 second quarter versus the same period one year ago. Gross profit as a percentage of revenue was slightly lower by 30 basis points to 29.6% of revenue versus the same period a year ago, and was 120 basis points higher sequentially. Margin rates exiting backlog continued to benefit from strong execution and volume leverage across all of the Powell Industries, Inc. divisions, with favorable project closeouts contributing roughly 90 basis points of margin tailwind in the 2026 second quarter. Selling, general, and administrative expenses were $20 million in the current period, an increase of $4 million compared to the same period a year ago, primarily driven by higher compensation expenses across the business. SG&A as a percentage of revenue increased by 90 basis points year over year to 8.7% in the current fiscal quarter, but declined sequentially by 130 basis points reflecting a higher revenue base in the 2026 second quarter. In the 2026 second quarter, we reported net income of $45.9 million, generating $1.25 per diluted share, compared to net income of $46.3 million, or $1.27 per diluted share, in the 2025 second quarter. On 04/02/2026, the company effected a three-for-one forward split of its common stock and proportionally increased the number of shares of authorized common stock from 30 million to 90 million shares. This was at market open on 04/06/2026. Share and per share amounts disclosed have been retroactively adjusted to reflect the stock split. During the 2026 second quarter, we generated $51 million of operating cash flow, principally driven by higher earnings generated in the second fiscal quarter. Investments in property, plant, and equipment in the fiscal second quarter totaled $1.8 million, reflecting modest capital spending on equipment maintenance and production assets, as well as capital expenditures related to the Jacinto Port expansion project. The majority of the $12 million to $13 million planned investment to upgrade the Jacinto Port fabrication yard is expected to be incurred during the 2026 fiscal year. At 03/31/2026, we had cash and short-term investments of $545 million compared to $476 million at 09/30/2025, and $501 million at 12/31/2025. The company does not hold any debt. Looking forward, as we move into the back half of 2026, we remain encouraged by sustained commercial activity across our core end markets. Coupled with our continued focus on execution, our ability to leverage volume across our global manufacturing footprint, and the size and quality of our backlog, Powell Industries, Inc. is well positioned to deliver strong cash flows and earnings performance. We will now open the call for questions. Operator: To ask a question, please press star and then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. At this time, we will pause momentarily to assemble the roster. We are showing the first question from Tomo Sano with JPMorgan. Please go ahead. Analyst: Hey, good morning. Congrats on the quarter. Given the strong $490 million in orders booked in Q2, and then with the addition of the $400 million-plus data center orders, how should we think about your order outlook for Q3 and beyond? And also, in light of this, how do you plan to manage the associated increases in SG&A and R&D expenses, please? Brett A. Cope: Tomo, I will take the first part of that and have Mike jump in on the SG&A side. The outlook is strong. Activity entering Q3 shows no letup, just as in the prepared comments. We started at the beginning of the year with Q1 flowing into Q2. We feel good about all three of our core drivers in the commercial and other industrial market, which has really blossomed over the last two years; oil and gas, which we are built for with a very solid outlook; and I love the utility space, and we are hunting hard in that space. It has always been the distribution side, but now with the uptick in generation, that is business that we want as well. The capacity adds that we are doing, the incremental so far, and the larger one that is under evaluation, align with that. The data center order noted in the prepared comments was a team effort. It has roughly a two-year burn; it will run through fiscal 2028. As we typically share, we are very thoughtful about our schedules, and we feel good about how it lays in across all of our facilities and meeting the commitments we have made on that job. On the cost side, we are making some investments in the business. We have largely invested in some of the strategic pillars that you find on the investor slides, especially around service and automation. On the heels of the acquisition of REMSDAQ, we have added resources in the United States to start expanding that business, along with some synergistic adds we found in the data center market in the short term. We are still progressing our medium- and long-term plans that align with the reason we bought the business to begin with, which was to expand in the utility market. Michael W. Metcalf: Good morning, Tomo. With respect to SG&A costs, they continue to trend in the upper single digits as a percentage of revenues as we invest in some of these new programs that Brett alluded to. The increase on a year-over-year basis is driven by higher base and, to a lesser extent, variable incentive compensation expenses in the first half, in addition to the REMSDAQ acquisition. Remember, for the first half of last year, we did not have REMSDAQ in the numbers; this year we do. As we focus on growing the business organically and standing up some of these new capacity adds to address the market demand, while in addition investing in new initiatives such as the government initiative that Brett talked about in his prepared comments, these are investments that we are making in SG&A from a people and infrastructure perspective that we feel will generate a positive return as we look forward. On R&D, it is trending higher, which we view as favorable. We finished the quarter at about 1.4% of revenues, and you can expect this to probably hold in the range between 1% and 1.5% as the team ramps up the organic initiatives to develop and commercialize new products. Analyst: Thank you, Brett and Mike. And just one follow-up, if I may. Your strong core engineering capabilities, along with execution strengths such as ETO and key systems, have clearly earned customer trust. How do you view the evolving competitive landscape given increasing demand and expanding supply? What steps are you taking to maintain your competitive edge? Brett A. Cope: It has become much more competitive the last couple of years. There are a lot of new entrants, some new private equity money coming in and trying to build up new models. They are slightly different than what we do, but everyone is playing in the same general area. Powell Industries, Inc. takes pride in the fact that we have a long-tenured group and a very family approach in the way we compete. As noted in the prepared comments, we are adding a second center here in Houston to attract additional talent to the team, and we think that will prove fruitful in the next couple of quarters. We are also reengaging our offshore centers, expanding their capability, doing training, and investing there to ensure that we have options offshore as well. Buried within the whole model, in the data center and discrete commercial markets, we have talked about what the engineering load will mean to power this cycle that is going to be a lot more product-centric. We are still in the early innings, but we are starting to see that around the company. Mike and I just finished our spring operational tours, and I can share that we are seeing some nice engineering efficiency on these large jobs in the data center market, which will reduce the burden and allow us to make some adjustments in how we allocate our resources going forward on these different segments. That is an encouraging sign we suspected, and we are starting to see early returns to that thesis. Analyst: Hey, thanks for taking the question. Maybe a follow-up on that $400 million-plus order you got in April—fantastic. Is that all outside, or is there some inside the four walls as well? And you mentioned first phase and potential for additional phases—maybe start there. Brett A. Cope: Hey, Chip. Good morning. Fantastic opportunity. As you have gotten to know our model, when you get in earlier, given our strong engineering capability and our ability to work with our clients and really effect a great solution regardless of the market, that is exactly what this was. We were brought in early on a behind-the-meter project. It is not a simple job—they are generating on-site and there is some complexity around that. Again, that fits us very well. The initial award is all outside the data center. It is sizable—gigawatts in the initial phase—and there are multiple planned phases that we are anxious to see progress over time. We are certainly hopeful that they will. It is in the NeoCloud space. We think we will get a shot at the internal side of the data center on this one. There is no guarantee today, but we will do everything we can to put our best foot forward as this evolves now that we are on the early phases. We are following that commercially to see if we can get that over the line. Analyst: Excellent. And, Brett, two more on that one. Margin implications, given it is such a large order, and then the timeline being pretty quick—how are you thinking about execution risks and how will you manage that? Brett A. Cope: I think the margin potential fits with the comments made today and on earlier calls. I definitely believe there is opportunity here as we unlock our product-centric models as they develop across the company. Once you do the initial design, it is a multiproduct program. It is quite wide-reaching across the different products we offer at Powell Industries, Inc.—a mix of voltages, quite a bit of 15 kV, a lot of 38 kV, both primary switchgear as well as secondary switches that we produce here, along with the CableOS product in Chicago. It touches just about every division in the company in the North American footprint, which is why in the prepared comments we highlighted how we put the team together. For each one of the divisions, we will unlock some potential as we ramp up volumes. On timing, it is not $400 million over the next five years; it is a two to two-and-a-half-year buildout because we were able to use the incredible footprint that we have in the company. It was a real team effort. We came together and broke the order apart. We have done that in the past on other jobs. I go back to Hurricane Harvey where a job came in and the client needed it really quick. That is a super exciting competitive advantage that Powell Industries, Inc. has—our footprint is so similar from factory to factory with metal fab and our processes that we can lever that in times of need or market demand, as we are seeing now. That is absolutely what we have done here. We are excited to have earned the award and anxious to make it a success and, as you noted, see the additional phases in future years. Analyst: If I could sneak one last one in—around capacity, you outlined where you are going and the potential to grow capacity. Given strength across all your markets and data center in particular, if you were to see similarly sized opportunities, what is your ability to meet those as they come along? Brett A. Cope: We are definitely reacting, thus the comments in the prepared remarks. Along with any job, when we evaluate schedule, we look at everything all the way down to supply chain. We are clearly adding short-term capacity here in Houston, especially around what we can control on the metal fab side. While the organic build continues, we are looking at a pivot in the near term to maybe add a larger leased space that is a little bit more efficient. There are a lot of builds in different locales, including here in Houston and some other commercial centers in North America, where things are already there, and with minimal modification, we can get them productive quicker. If and when the next one comes, we could follow the same model. The constraints would be people and supply chain, which are not easily unlocked, but we would attack it with the same vigor that we attacked this one. Mike and I are very involved in the supply chain side, and the whole team has gone out over the last couple of quarters to really engage it much better, to ensure that as we make our schedules on our proposals and make firm commitments, we are backed by supply chain so we do not have a miss there. As long as we can unlock that, it will come back to just attracting talent and getting them trained and into the Powell Industries, Inc. model to execute. That would be the number one concern moving forward. Analyst: Yes, thank you. Good morning. My first question is on pricing power. Brett and Mike, you talked quite a bit about strong markets, but in your commentary, you mentioned pricing is stable, broadly keeping in line with inflation. Why are we not getting more pricing if the markets are as strong as they are? Brett A. Cope: We are getting some price, Manish, for sure. In certain product areas that have become constrained in the demand–supply curve, we are absolutely moving up price incrementally in those markets across all three verticals. We are very sensitive to where you can push price and where you need to hold your ground. Between price and efficiency gains, as we start to build our plans for 2027 and beyond, we will get a good feel in Q4. I do not think it will come out so much in the numbers in Q4, but internally we will start to see it. Going back to the earlier question on our operations reviews, we are seeing efficiency build, and I think that will come out as price. We will be able to better report on it as we hit the end of this fiscal year and prepare into 2027. Analyst: My other question pertains to you taking on larger, more complex projects. How should we think about the cadence for margins going forward? And then more specifically on the $400 million-plus award for the data center—was that a solo award, and how does that change your perspective on the TAM for Powell Industries, Inc. in the data center market? What percentage of market share is reasonable that you can achieve? Brett A. Cope: Those questions go together. On this particular job, we really do well on the complex power story problem, and this one has a degree of complexity that we had not seen in some of the other data center jobs that we have been building our market segment on. We got involved early. There is a unique complexity beyond the behind-the-meter design that is akin to a power island that we might see on an industrial facility or even an offshore platform, where you are generating and distributing load locally. These behind-the-meter projects have a higher degree of complexity around the gear and the automation, and that fits us very well. So the TAM on behind-the-meter is going up for Powell Industries, Inc., beyond a straight utility connect. We are interested in both—it is not that we will not pursue both models—but the behind-the-meter opportunity for Powell Industries, Inc. is clearly going up with this complexity equation. Depending on how they are generating—whether it is a mix of resources or renewable—there are a lot of ideas we are seeing commercially. Our excitement for that potential is growing. And yes, the $400 million award we got post quarter end was one purchase order. Analyst: Thank you. Operator: We have the next question from the line of Alex Rygiel from Texas Capital. Please go ahead. Analyst: Thank you. Just a maintenance item here first. Backlog as a percentage of total by market—could you provide that once again? Michael W. Metcalf: Yes, sure, Alex. As we deconstruct the backlog segmentation for Q2, roughly 5% was petrochemical, 30% was utility, 6% was traction, and 29% was commercial and other industrial, which includes data center, which is in the low twenties as a percentage of that 29%. The rest is other industrial and energy-related categories. Analyst: Very helpful. And then as you look into the data center market more broadly, how many customers are you working for right now, and how many customers are you talking to right now? You can generalize, but I am trying to get a sense of how broad your sales effort is into that segment. Brett A. Cope: Hey, Alex. It is becoming broader every quarter. If you go back a couple of years ago when data center was 7% of the backlog and then 15%, 22%, and now jumping the next couple of quarters, it started through different channels—in what I would call indirect channels through distribution or through partners where we were getting a piece of the scope, not really getting a look at the whole opportunity, whether outside the data center or inside the data center. Over the last couple of years, we have been adding resources—front-end, applications, folks from the industry—to help us better understand how to attack that market more thoughtfully, and that is clearly delivering a return. Today, we still have that indirect OEM and partner model, which has grown, but we are clearly driving our own direct destiny where we are getting in earlier and having direct conversations with the contractor or the ultimate end client, or a combination of the two, and that is starting to grow. We like both channels to market and will continue to thoughtfully invest where it makes sense to support the broader buildout of the market. Analyst: Hi, guys, and thanks for taking the questions. I am curious about how you are handling the spike in metal prices in 2026, and how that impacts the gross margin profile on a go-forward basis? Michael W. Metcalf: Good morning, John. We are very proactive with our metals, specifically copper. As you know, we use a lot of copper, and we do have a hedging program for copper. It essentially acts as an insurance policy to protect the margins that we have in backlog. We stay on top of steel and aluminum as well, and we are pretty proactive with the supply chain for those core commodities. Analyst: Got it. And I think in the prepared comments, you said something about small- to mid-sized projects being a net benefit in the quarter. Can you drill down a little on what is going on there? Brett A. Cope: Good morning, John. We had the two sizable jobs noted—the data center job we logged in the quarter pre-close of March and the utility job, which I do not want to lose sight of; I love the utility business. When you look at the balance—and you know our model well—when we get that nice mix of having those anchor jobs in the backlog and then being able to put different size jobs—the small zero to $10 million job and then the next step up, the $10 million to $50 million—that mix, given the cycle of a project build, is really advantageous for the Powell Industries, Inc. model. We bring the project in, we schedule it, and there are stop-and-hold points throughout its cycle. Given different job sizes, it gives us leverage to move the crews in and around it. When we lose that mix, it creates another pressure in the business to manage through the P&L of each of our factory locations. The really healthy bulk of small and mediums that came in Q2—and is continuing in commercial activity as we look forward—is very healthy and very encouraging for how we think about planning the business. We wanted to call that out. Analyst: Certainly. And is it running above that $50 million threshold, Brett, or no? Brett A. Cope: No. We see the normal cadence of potential out there going forward in terms of those jobs that are larger than $50 million. There is still a healthy mix across all of our core markets; the timing is the variable. Analyst: Good morning, Brett and Mike. Brett, the outlook is very strong, and you are considering a potential expansion of $70 million to $100 million. Given the outlook and what you are seeing, what do you need to see more of before you make that commitment? It seems like the business is very good and you could go ahead with it. What else might you need to make that commitment? Brett A. Cope: John, not too much more. Mike and I have a board meeting in a couple of weeks. We have been talking to the board the last couple of quarters about it. With the active quarter and with the commercial activity maintaining, we had to react on some of the short-term needs—unlock some needs that may be not optimal, if I am completely honest, but they will absolutely get a good return and were needed. I think we are just about there in being able to support not only the market activity but also our intentionality on our strategic builds, which is why we called out some of the work on the service side. That team is maturing; they are doing a great job building sub-strategies within that growth strategy of ours, and they are getting more confident. That adds into the options A, B, and C for the next big chunk of space. Analyst: If we think about it and, say, in three or four months you make that decision, what kind of timeline would it be to get something like this constructed and up and running? And what might be the revenue capacity or potential of such a new manufacturing space? Brett A. Cope: A greenfield is probably going to run us, conservatively, two years. The actual build time is less, but the variable is always permitting. That is one of the reasons that, given the rapid growth, we may bridge that with a similar-sized leased facility and have to outlay some capital for the cranes and things we would need for the various activities over a two- to five-year lease term while the other facility is being built. If we go the lease route, there is still some permitting, because no facility is purpose-built. You get the shell and you still have to do some things to it. We would see revenues quicker—we would move inventory to that space, get the cranes, and you would probably be looking at productive capacity within six months. Analyst: Total revenue of such a facility? Brett A. Cope: It is going to scale; it depends on the mix of service, projects, and products that we ultimately put into that, but you can run $100 million to $250 million. Analyst: Have you had to turn down any orders at this point? Brett A. Cope: I would not say we are turning anything down. Are we able to meet the schedules of everything coming in the door? The answer is no. We have a really broad funnel. We have expanded our process around that funnel with the growing commercial and industrial segment and the growing resources there, plus the growing capacity. The team play, as we noted today, has become much more prevalent day in and week out here at the company, which has been fantastic—seeing the company come together and the team really work across functional areas, geographies, and facilities. We are unlocking every little bit of opportunity, which has been fantastic to see. We are not able to respond positively to all the opportunities, but where we cannot hit exactly what they ask when they come in the door, we engage them on sequencing and constructability of their site and other things we can do to work together. Those conversations, given our model, are pretty effective at reaching a good solution for both the client and for Powell Industries, Inc. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Brett A. Cope for any closing remarks. Brett A. Cope: Thank you. Mike and I thank everyone for joining us this morning. We are very encouraged by the commercial strength we are seeing across each of our core end markets and continue to expect another strong year for Powell Industries, Inc. I would like to thank the entire Powell Industries, Inc. team for their hard work and commitment to both Powell Industries, Inc. and, of course, to our customers. Mike and I look forward to updating you all next quarter. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Q1 2026 results conference call and live webcast. I'm Moritz, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. [Operator Instructions] At this time, it's my pleasure to hand over to Christian Stohr, Senior Vice President, Investor Relations. Please go ahead. Christian Stoehr: Good morning, ladies and gentlemen, and welcome to our first quarter 2026 results presentation. Hosting our conference call today is Yves Muller, CFO and COO of HUGO BOSS. Before we begin, please be reminded that all revenue growth rates will be discussed on a currency-adjusted basis, unless stated otherwise. In addition, starting with Q1, we have adjusted our sales reporting structure. BOSS Menswear and BOSS Womenswear are now reported jointly under BOSS, while digital sales are included within retail and wholesale. As usual, during the Q&A session, we kindly ask you to limit your questions to 2, allowing for an efficient discussion. With that, let me hand over to Yves. Yves Muller: Thank you, Christian, and a warm welcome from Metzingen, ladies and gentlemen. Thank you for joining us today to discuss our first quarter results. As outlined in our release this morning, Q1 marked the first full quarter of execution under CLAIM 5 TOUCHDOWN following its introduction at the end of last year. As such, the first quarter was shaped by implementation, translating strategic priorities into concrete actions across brands, distribution and operations. Accordingly, our focus in the quarter was on disciplined execution. We implemented targeted top line measures to strengthen brand equity, continued to advance sourcing efficiencies and maintained rigorous cost control across the organization. These actions represent the first concrete outcomes of our realignment and are already translating into structural progress, particularly in gross margin and cash generation, which I will come back to shortly. Overall, we are pleased with the progress made in Q1. At the same time, we recognize that there is more work ahead, and we remain cautious on the near-term visibility given a high volatile macroeconomic and geopolitical environment. Let me now walk you through the quarter in more detail. Under CLAIM 5 TOUCHDOWN, 2026 is designed as a year of deliberate realignment rather than a year of chasing volume. In the first quarter, we made progress across all 3 pillars: brand, distribution, and operational excellence. This included refining product assortments, reinforcing our focus on full price execution, and taking targeted steps to optimize our distribution footprint. As part of this progress, we closed a net 15 freestanding stores globally, largely through expiring leases. As expected, these deliberate actions were reflected in our first quarter performance. Group sales declined by 6%, driven by the intentional quality focus embedded in CLAIM 5 TOUCHDOWN, alongside continued muted consumer sentiment. EBIT amounted to EUR 35 million, reflecting the planned impact of our strategic measures, partly offset by solid gross margin expansion and rigorous cost management. While these actions have a temporary impact on our top and bottom line performance, they represent important building blocks in strengthening the fundamentals of the business and laying the foundation for improved profitability over time. Beyond these deliberate actions, the external environment also remained demanding in the first quarter. Consumer sentiment was subdued across most key markets with continued pressure on traffic levels. Over the course of the quarter, conditions became more challenging, driven by the geopolitical developments in the Middle East. In this context, let me briefly put our exposure to the Middle East into perspective. The region accounts for around 3% of group revenues and is served through a limited and well-defined store network, primarily in the UAE and Qatar. The Middle East is also a high-quality and very profitable business for us, reflecting an upper premium store portfolio, a favorable channel mix and disciplined cost structures. From March onwards, store traffic in the region declined sharply, leading to meaningful disruption to overall retail activity and weighing on regional demand. As a result, developments in the Middle East reduced group sales by roughly 1 percentage point in the first quarter. In addition to these direct effects, developments in the Middle East also contributed to increased uncertainty more broadly. In particular, we observed early signs of a softening in consumer sentiment in selected markets alongside some moderation in international travel flows, which began to affect demand outside the Middle East towards the end of the quarter. Against this backdrop, we actively steered the business while remaining fully committed to our strategic priorities within CLAIM 5 TOUCHDOWN. With that, let me turn to our first quarter performance, starting with our brands. At BOSS, revenues declined by 3%, reflecting the challenging market environment as well as deliberate strategic actions. Menswear performed comparatively better, supported by continued strong demand in casualwear and athleisure, underlying the relevance of our 24/7 lifestyle positioning. This resilience was particularly evident at BOSS Green and BOSS Camel, both of which recorded growth in the first quarter. Womenswear by contrast was more affected by intentional assortment streamlining and targeted distribution refinement, measures fully aligned with our strategic priorities and aimed at strengthening brand positioning and long-term profitability. Turning to HUGO. Revenues declined by 21%, reflecting the strategic repositioning of the brand. During the quarter, we further advanced the streamlining of HUGO's product architecture into one overarching brand line, creating a clearer, more focused brand proposition and a more consistent market presence. While these measures continue to weigh on volumes in the near future, they represent fundamental steps to strengthen brand relevance, operational effectiveness and scalability over time. Speaking about our brands, let me emphasize once more: investing in powerful brand moments remain a core pillar of our strategy. While marketing investments were below the prior year level in Q1, primarily due to phasing effects, marketing spend amounted to 7.3% of group sales, fully in line with our CLAIM 5 TOUCHDOWN target range of around 7% of sales. Also for the full year, we continue to expect marketing investments as a percentage of sales to remain broadly in line with last year's level. In the first quarter, our brand investments focused on key initiatives such as the BOSS fashion show in Milan, which ranked among the top 10 most engaging brands during Milan Fashion Week; the launch of our Spring/Summer 2026 collections; and the third, BOSS BY BECKHAM. Together, these moments generated strong social media engagement and brand visibility. Importantly, these initiatives are designed to drive long-term equity and relevance rather than prioritizing short-term volume. From a regional perspective, revenues in EMEA declined by 8%, reflecting targeted measures to enhance distribution quality as well as muted consumer sentiment across several key markets, particularly the U.K. Despite the solid start to the year, revenues in the Middle East declined by a low double-digit rate in Q1, reflecting a sharp decline in store traffic in March, following geopolitical developments, which also weighed on overall EMEA performance. In the Americas, revenues declined by 5%, largely reflecting deliberate CLAIM 5 TOUCHDOWN measures in the U.S. market aimed at improving distribution quality across both wholesale and retail channels. As a result, reported revenues were intentionally impacted in the quarter. In addition, developments around Saks weighed on our U.S. concession business. Importantly, underlying performance in our U.S. brick-and-mortar retail business remained resilient with comparable store sales up modestly in the quarter. Outside the U.S., Latin America saw a slight normalization following a strong period of strong growth. In Asia Pacific, revenues increased by 1%, marking a return to growth. This was supported by renewed growth in China, aided by a successful Chinese New Year, as well as early progress in strengthening brand positioning and enhancing relevance in the market. Modest growth in Southeast Asia Pacific, particularly in Japan, also supports our regional performance. Turning to our channels. In retail, which includes brick-and-mortar and self-managed digital, revenues declined by 3%, also impacted by a negative space effect. On a comparable store basis, brick-and-mortar sales declined by 2%, reflecting lower traffic and our deliberate focus on full price execution, partly offset by a higher average basket size. Retail performance was also impacted by developments in the Middle East. Self-managed digital on the other side declined by 5%, reflecting our continued prioritization of full price sales in support of brand equity and margin quality. In wholesale, revenues declined by 10%, reflecting our ongoing focus on enhancing distribution quality through greater channel selectivity, a more curated assortment and a stronger emphasis on strategic partnerships. Performance was also influenced by a more cautious order behavior in the current environment as well as the known delivery timing shift of around EUR 20 million into Q4 2025, which has supported our wholesale business in the final quarter of last year. Turning to profitability. Q1 delivered a notable improvement in gross margin. Gross margin increased by 110 basis points to 62.5%, primarily driven by additional sourcing efficiency, including a further reduction in the airfreight share as well as improved pricing associated with the Spring/Summer 2026 collection. A slightly more favorable channel mix provided additional support during the quarter. Importantly, this performance demonstrates that the structural margin improvement we have been driving over recent years remain firmly intact even in a lower volume environment. Turning to cost and earnings. We maintained strict cost discipline in the first quarter. Operating expenses declined by 4%, supported by lower marketing spending due to phasing effects, ongoing efficiency improvements and further optimization of our retail cost structures, including rent renegotiations and productivity measures across our store network. As expected in a lower revenue environment, operating expenses deleveraged as a percentage of sales. As a result, EBIT amounted to EUR 35 million, corresponding to an EBIT margin of 3.9%, while earnings per share totaled EUR 0.24. Overall, this performance is fully aligned with CLAIM 5 TOUCHDOWN and our full year 2026 outlook. Let me now turn to cash flow and working capital. Building on the meaningful inventory reduction achieved at the end of 2025, inventory developed more moderately in Q1, in line with expectations. Year-over-year, inventories declined by 13% on a currency-adjusted basis, reflecting prudent buying, more focused assortments and targeted inventory optimization measures. As a result, inventory stood at 22% of group sales at the end of March, while trade net working capital declined by 10% currency adjusted. At the same time, capital expenditure remained at 3.2% of sales, continuing its normalization and remaining fully aligned with our midterm targets. Supported by both the improvement in working capital and continued CapEx discipline, free cash flow before leases improved by nearly EUR 100 million year-over-year, amounted to EUR 33 million. Let me conclude with a brief look at the remainder of the year. 2026 continues to be a deliberate year of realignment under CLAIM 5 TOUCHDOWN. Following our first quarter performance, we reaffirm our full year outlook. We continue to expect currency-adjusted group sales to decline mid to high single digits, reflecting targeted brand and channel measures. Currency effects are anticipated to remain a moderate headwind for reported sales. We likewise confirm our EBIT outlook of EUR 300 million to EUR 350 million. Gross margin expansion and continued cost discipline are expected to support profitability, while operating expenses are anticipated to deleverage due to lower revenues. At the same time, we expect macroeconomic and geopolitical volatility to remain elevated with heightened uncertainties related to developments in the Middle East. In this context, we remain vigilant and continue to closely monitor both direct effects and broader implications for consumer sentiment, international travel flows and overall trading conditions. Against this backdrop, we maintain a clear focus on operational delivery and the strategic priorities set under CLAIM 5 TOUCHDOWN. We will continue to prioritize profitability, cash generation, inventory discipline and flexibility over short-term growth. Ladies and gentlemen, let me close with 3 takeaways. First, the execution of CLAIM 5 TOUCHDOWN is firmly underway. 2026 is a year focused on strengthening the fundamentals of the business and elevating its quality rather than pursuing growth at any cost. In this context, we have made initial progress in sharpening brand focus, enhancing distribution quality and structurally strengthening the earnings profile of the business, marking an important milestone in delivering our strategy through 2026 and beyond. Second, Q1 delivered solid underlying performance. Gross margin improved, cost discipline remained intact and cash generation strengthened despite intentional top line effects from our strategic measures. Third, based on our Q1 performance, we reaffirm our full year outlook for 2026. While the external environment remains demanding and volatile, we are confident in our strategic direction and our ability to translate execution into stronger brand equity, improved profitability and long-term value creation. With that, thank you for your attention. We are now happy to take your questions. Operator: [Operator Instructions] The first question comes from Thomas Chauvet from Citi. Thomas Chauvet: Two questions, please. The first one on your introductory remarks, you said that demand outside the Middle East weakened towards the end of the quarter. Can you elaborate a little bit on what that means in the various regions? And how much was retail in April compared to the minus 3% you registered in the quarter? Secondly, on your comments about the resilience of menswear, particularly with BOSS Green and B Camel positive, can you comment on whether this is due to a very different customer profile you're now seeing in the store purchasing these 2 lines that are quite differentiated, I believe, or rather you think some relative weakness perhaps of the offering of black and orange, whether that's -- I don't know -- product quality or value for money proposition or simply the creative part. That would be useful. Also that you perhaps elaborate a bit on the 2 divisions you've created with menswear and womenswear and how this new unit of menswear is helping on the creative side? Christian Stoehr: Excuse me, this is Christian speaking, but we have to quickly follow up on question one, which was obviously a long question, but the quality was really bad on our end. I'm sorry for that. There was a bit of constraining in it. I remember you asked for retail trends in April, but what was the beginning of your question, if you can recall that, please? Thomas Chauvet: Yes. Sincere apologies for that to everyone. Yes, the comment -- can you hear me better now? Christian Stoehr: Yes, I'd say so. I mean, it's still -- it's not perfect but. Thomas Chauvet: Otherwise move to another question or two. You commented on demand weakening outside the Middle East towards the end of the quarter. And could you elaborate on what that means in the various regions? And was retail overall in April very different from the minus 3% you registered in the period? Yves Muller: So Thomas, you're asking whether the retail performance in April was different from the minus 3% in Q1. Is this your question? Thomas Chauvet: Yes. You mentioned that things weakened outside the Middle East at the end of the quarter because of the war. So I suspect that the consumer may have been impacted in the U.S. and Europe. So could you comment on the various geographies in April, please? Yves Muller: Yes. So perhaps let's take the first question regarding, let's say, current trading question. So firstly, I think we have to see that, of course, our retail business and the Middle East business is -- the Middle East business itself is predominantly a retail business, was definitely affected -- ongoing in April. So I think this refers to everybody. We are not alone in this, but we see that traffic is very low. It has slightly improved over the latest weeks, but now the last 2, 3 days have been also bad. So I would say it's a very, let's say, volatile environment. Secondly, I think this is the question around what do we see in terms of consumer sentiment. I would say here, we see in some selected markets that consumer sentiment is also affected, for example, like U.K. is affected -- was already affected in Q1, especially March, and is also affected in April. And we see that actually also the international tourist flow is also coming down and affecting the business. On the other side, I think I want to make the comment in terms of our strategic priorities. I think for us, it's also important to stay on track with regards to our strategic execution of CLAIM 5 TOUCHDOWN. And this means also for us in April, which is the month of, let's say, mid-season sale that you see very often due to the summer. For the summer collections, we decided in executing our CLAIM 5 TOUCHDOWN for this year that we don't take part in mid-season sale. So that is also one of the deliberate decisions that we have taken in order to improve the quality of our business and to have this long-term focus on brand equity. So definitely, of course, we are looking at the current trends up and down. But I think for us, it's now very important to keep our compass and to keep the course of our strategic execution. And therefore, we do not participate in April. And therefore, the month itself, it's difficult to read between the different effects that we have been seeing. With regards to your second question, actually, we are very happy with the development of BOSS Camel and BOSS Green. BOSS Green was actually up mid-single digit. You can see that our 24/7 lifestyle image is really working, especially with younger consumers. And you can also see that this is the current trend of the business with, like sports kind of activities. You've also seen that we have announced now the cooperation with Australian Open for next year. So this creates BOSS. We are working on kind of tennis and golf collection. So we are really deliberately driving BOSS Green going forward. And on top of this, we also opened some BOSS Green stores, especially in the Asian markets, where you can see this kind of positive trend. And we are following this kind of trend. With regards to BOSS Camel, which is, I mean, the majority is definitely a retail business. You can really see because of the outpricing of the luxury players and luxury competitors that some of the high value, high affluent consumers are trading down to us, and that's also driving BOSS Camel in selected markets, especially also we saw this in Asian markets, but also in the U.S., where we are actually happy. So I would view this -- I would see this positively in terms of that we have a certain portfolio to offer, and price value proposition for Black, I think, is good. Please keep in mind that we also increased the prices for the Spring Campaign 2026. And we get actually good feedback for this kind of measurement, and this is also driving our business. Operator: Then the next question comes from Manjari Dhar from RBC. Manjari Dhar: I also had 2, if I may. My first question was on COGS and raw materials. I just wondered if you could give some color on how you see the outlook on the raw material side as a result of what's going on in the Middle East? And does that have any impact on your own sourcing facilities in Turkey? My second question was on tourism. Yves, I know you commented on international tourist flow weakness. I just wondered if you could give some color on sort of how much of the BOSS estate is exposed to international tourist flows and perhaps maybe some more color on how you're seeing the performance in some of those stores. Yves Muller: Yes. Thank you very much, Manjari, for your 2 questions. First of all, regarding the COGS. So taking your concrete question regarding Turkey. So we -- for the time being, we don't see any implications regarding our factory in Izmir. Regarding raw materials, please keep in mind that the majority of the products that we have are coming from cotton and actually wool. So they are not so much influenced by this kind of high oil prices. We only have, let's say, limited exposure to polyester. You see price increases there. We have to look at it whether it's -- whether the duration will be longer. But I think what remains is that we are not as much exposed as perhaps like other sports brands, for example, and we don't see major implications for the year 2026. I think we have to observe the situation, but rather from the COGS development and also -- this also includes freight. We feel that we can compensate those effects that we might be seeing and that from -- with regards to the COGS, that we see further improvements regarding sourcing efficiencies, further reduction in airfreight share, and that these developments will support gross margin also going forward, alongside -- although we know that the Middle East has somehow implications on the oil prices. Regarding tourism, we know that our business is around overall 20% to 25% is coming out of tourism flow. We have seen some implications because of the Middle East, because of the big hubs in Dubai and Doha were closed for a certain period of time, there's less traveling. I think this has impacted the business in March and also in April, and we have to see how long it will last. I think it will also be slightly compensated in domestic revenues then, because people might be staying more at home or might be traveling less. So we have to observe this kind of development. Operator: The next question comes from Grace Smalley from Morgan Stanley. Grace Smalley: The first one would just be a quick clarification, please. So you mentioned that you are -- you're starting to see some impact from the Middle East in regions outside of the Middle East. And I think, Yves, if I heard you correctly, the U.K. was the main region that you pulled out. I just wanted to see if there were any other regions where you're also starting to see an impact outside of the Middle East or it's mainly centered within the U.K. Also on the answer on current trading, appreciate it. It sounds like April is very difficult to read given the Middle East disruption, but also the changes in the seasonal sales. But just if there's anything you can say to help us with how we should think about modeling Q2 relative to current consensus? My last one would just be on marketing. I believe you mentioned that the lower marketing spend in Q1 was partially due to timing and phasing. So if you could just help us with how we should think about the cadence of marketing spend throughout the rest of the year and how we should think about marketing on a full year basis? Yves Muller: Yes, another 3 questions. Thank you very much. So regarding marketing, I think -- so first of all, like I said during my presentation, we invested 7.3%. We have had the Milan fashion show. We have had BOSS BECKHAM. We had also the HUGO campaign, Red Means Go. So we -- you can really see that we invested. I think we invested wisely, and we get more out of the euro spend. And regarding -- and actually, this is all well in line with what we have said during CLAIM 5 TOUCHDOWN. There will be definitely a focus on the second half of the year, especially in Q4, which is actually the holiday season, which, as you know, Grace, is the strongest quarter for us. So we will, in terms of phasing, focus broadly on the second half of the year and especially on Q4 where we have the commercial and holiday moments of the year and where you have also some gifting in this kind of big quarter because as we know, the fourth quarter is between 20% to 30% higher than the first 3 quarters. Regarding the comment in terms of global sentiment, I think, like I said, and I can just repeat this, that we have seen in some selective markets like the U.K., some implications of the Middle East conflict, also slightly less tourists from the Middle East coming into the U.K. So these were also some implications that we have seen. But I think it's -- I think we have to observe the situation. And I think nothing more to comment right now because it's really changing on a weekly basis. Then was the question, was that regarding Q2? What was that question again? Christian Stoehr: Yes. It was -- Grace, you got your question, right? It was a bit of a quarterly phasing question, right? How to think about Q2 in terms of modeling, but also for the remainder of the year given the current trading comments that were made. Is that right? Grace Smalley: Yes, exactly. Christian Stoehr: So I'll take that, Muller, if that's okay for you. So I think the 2 comments we can make is, Grace, one related to Q4. I start with the final quarter of the year. And that's basically a reminder of what we have already said in March, the comps are particularly difficult in Q4. So that's something you will have to bear in mind. And I'm sure you're doing that in any case. On Q2, I think only the comments we've made on the Middle East, I guess, you probably will try to find these numbers or these comments finding the way into your Q2 modeling numbers. But that's all the comments we are making. Hard to be overly precise on current trading given the volatility we're seeing in the markets, and you said it, weeks can be quite different from one week to the other. But like I said, I think the implications from the Middle East in April were pretty clear, and that is something you should bear in mind -- and then Q4, as I just alluded to. Operator: Next question comes from Anthony Charchafji from BNP Paribas. Anthony Charchafji: The first one would be on the guidance. Curious to know the breakdown between the gross margin expansion and the OpEx. I mean, we've seen that the OpEx were down 4% reported, but rather 2% at constant FX. Do you see the OpEx cut, I would say, fading and being a bit less of a tailwind going into Q4? And in terms of gross margin, just to know if you have in mind gross margin expansion to be really back-end loaded Q4. So can we see Q4 gross margin expansion above the 110 bps that you just delivered? My second question is on pricing, but also pricing net of markdowns. Do you expect it to be net positive like in Q1 in each quarter in 2026? And do you expect to do more pricing versus the one that you did beginning of Q4 of mid-single digit? Is there anything planned? Yves Muller: Yes, Anthony, thank you very much for your questions. So regarding pricing, we have done now the pricing in Q4 2025, which will prevail in due course for 2026. There will only be, let's say, some slight adjustments, but not this kind of broad-based adjustment we have made. We might do it smartly. We will observe, of course, the competition, but nothing that I would call out in terms of pricing. What I would also -- what I would call out is definitely that we will give less promotions. We have started this already. And I think markdowns will go down and will turn over the course of the year also into a tailwind for gross margin in comparison to last year. We will strictly actually execute our CLAIM 5 TOUCHDOWN strategy. This means less discounts in the online channels. This will be shorter sales period. This will mean not participating in mid-season sale, like I said. So these are several measurements that we are taking to reduce our markdowns, always with the implication to drive the long-term profitability and the brand equity of the company. So it's -- all the measurements that we are taking are directed to increase our full price sell-throughs, and this will also help the gross margin going forward. I think we have been happy with our gross margin development already in Q1, which was primarily driven by sourcing efficiencies. But I also expect that we will see a good performance regarding gross margin over the next quarters regarding gross margin. As we have the history of having the OpEx overall under control -- minus 4%. I think it's -- for us as a management team, it's important to have the costs under control and to reduce the costs. I think you have also seen kind of deleverage this year, but this was overall well expected also in our guidance, and we will focus on those things that we can control on our own. And these are definitely gross margin things and also OpEx. And you have seen the direction also in Q1, and you can expect that this will continue in the next quarters, meaning gross margin being up and costs going down. Operator: The next question comes from Andreas Riemann from ODDO BHF. Andreas Riemann: Two topics. One is the HUGO brand. So the HUGO brand is written in red letter. So my question would be what actually happened to HUGO BLUE? Is HUGO BLUE still relevant within HUGO? The second topic, the tariffs. So in the press call, I think you indicated that you expect that U.S. tariffs will be paid back. Can you help us to guess how much that might be? And linked to that, what was actually the impact from U.S. tariffs on your gross margin in Q1? You didn't mention it. So was it that small? That would be my second question. Yves Muller: Andreas, thank you very much for your questions. Well, I will start with customs. Yes, of course, like every other brand is expecting that this kind of surplus that was introduced last year will be paid back. I think this is what might be expected. We are not quite sure because as we all know, the administration in the U.S. is also very volatile. So no effects have been included in our numbers so far. And actually, we are not disclosing the exact amount of the customs that we are having, but it's not such a huge amount that you can expect. Regarding HUGO, definitely, we streamlined the assortment regarding HUGO. We have the big campaign Red Means Go in terms of HUGO, and we are integrating the HUGO BLUE products into our HUGO -- in our HUGO appearance and have a clear focus on contemporary tailoring. So this means that we're going to streamline the assortment going forward. This has been a kind of -- also kind of strategic measurement. And of course, the effect regarding the net sales at HUGO are visible, but they were more or less expected from our side. And on top of this, we are also reducing here and there some of our distribution points also with HUGO. So these are the effects that we have seen with HUGO, but I think the most important thing is that we are streamlining the assortment and integrate HUGO BLUE into HUGO. Christian Stoehr: Ladies and gentlemen, that actually completes today's conference call. There is no more people in the queue wanting to ask questions. So we leave it with that. And we thank you for your participation. And of course, if there's any further open topics or questions you have, please reach out to the Investor Relations team. Thank you for joining today. Thanks for your interest and speak to you soon. Thank you. Bye-bye. Yves Muller: Thank you. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
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.
Mike Bishop: Hello, everyone, and welcome to Atomera's First Quarter 2026 Update Call. I'd like to remind everyone that this call and webinar are being recorded, and a replay will be available on Atomera's IR website for 1 year. I'm Mike Bishop with the company's Investor Relations. As in prior quarters, we are using Zoom, and we will follow a similar format. [Operator Instructions] We will open with prepared remarks from Scott Bibaud, Atomera's President and CEO; and Frank Laurencio, Atomera's CFO. Then we will open the call to questions. If you are joining by telephone, you may follow a slide presentation to accompany our remarks on the Events and Presentations section of our Investor Relations page on our website. Before we begin, I would like to remind everyone that during today's call, we will make forward-looking statements. These forward-looking statements, whether in prepared remarks or during the Q&A session, are subject to inherent risks and uncertainties. These risks and uncertainties are detailed in the Risk Factors section of our filings with the Securities and Exchange Commission, specifically in the company's annual report on Form 10-K filed with the SEC on February 24, 2026. Except as otherwise required by federal securities laws, Atomera disclaims any obligation to update or make revisions to such forward-looking statements contained herein or elsewhere to reflect changes in expectations with regards to those events, conditions and circumstances. Also, please note that during this call, we will be discussing non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in today's press release, which is posted on our website. Now with that, I'd like to turn the call over to our President and CEO, Scott Bibaud. Go ahead, Scott. Scott Bibaud: Thanks, Mike, and good afternoon, everyone. This quarter, we made solid progress with multiple customers across our highest value markets while also expanding the breadth of applications where MST can solve real current pain points for the semiconductor industry. We're seeing strong customer pull in advanced logic, memory and wide band gap materials like GaN and power and in RF, areas that are being shaped by the rapid growth of AI infrastructure, which is driving the need for better power efficiency, signal integrity and system performance. Today, I'll start with an update on gate-all-around, where we've been working closely with customers and our strategic partners to validate MST in these advanced geometries. Then I'll touch on our customer pipeline and close with updates on GaN, giving insights on some exciting new technical results that are shaping near-term opportunities. As we said before, the move to gate-all-around at 2 nanometers and beyond is one of the most important architectural transitions in the industry, and it's also one of the most difficult manufacturing environments since fabs must build incredibly complicated structures at line widths of 5,000x smaller than a human hair, where a small amount of atomic migration can cause big problems. Gate-all-around transistors are the building blocks for AI infrastructure and dopant diffusion control is critical to their effectiveness in terms of performance and reliability. Therefore, the industry is demanding clear proof that any new material can be deposited precisely and that it delivers measurable benefits in advanced silicon devices. Today, there are 4 companies in the world developing gate-all-around transistors, TSMC, Samsung, Intel and Rapidus. We know that each of them can use the capabilities of MST, so it's our goal to achieve adoption at all 4. Further, as these companies transition to the generation beyond gate-all-around called CFET, our technology becomes even more essential. So working with us now is in their best interest long term. In our last earnings call, we have just received measured silicon results that prove MST is the best solution for a critical source strain liner application in these small geometry transistors. At this point, we're actively working on evaluations of our technology with 2 of our target gate-all-around customers and discussions are underway with the others. It is typical that a customer asked to conduct multiple demonstrations before agreeing to accept a new technology for implementation in their fab wafer flow. These demonstrations help to validate our claims while simultaneously addressing the detailed implementation and functionality questions these customers are focused on solving. We also expanded the scope of our work with our strategic development partner this quarter, which is important because it strengthens both our technical velocity and our credibility with the ecosystem. Their test and development infrastructure helps us generate the kind of data that advanced node customers insist on seeing before engaging and their endorsement will certainly help us engage a broader set of teams within each target account. Each of the large memory manufacturers are facing similar challenges to the gate-all-around customers as they develop their next-generation transistors in DRAMs and high-bandwidth memories. Our team is in discussions with them right now, and we are currently working on multiple solutions using MST to assist in this area. Right now, memory manufacturers would do almost anything to get greater fab capacity, and they have the resources to evaluate different methods of doing so. We hope to take advantage of that opportunity with solutions enabled by MST. The momentum we're seeing in the advanced node transistor space is a result of many years of work targeting current market trends. The macro challenges that AI success has put front and center, capacity and performance of CPUs, GPUs, logic and memory, the power demands of cloud providers and the increased costs associated with these are all areas that Atomera can help solve. For that reason, we believe that MST is a fundamental tool for the future of AI. Our customer pipeline remains very active across multiple domains. For example, our work with our large IDM customer continues to go well, and we expect additional results from wafer runs soon. Our efforts with ST Microelectronics are bearing fruit, and we are confident we will reengage with them again in the near future, consistent with our view that MST can create value across multiple product lines, especially in a large diversified IDM or foundry. In RF SOI, we are seeing strong results confirming our extensive TCAD simulations. The technical results we've been focused on, including for both power switch and LNA have been confirmed through customer silicon runs. The near-term question is less about performance and more about the most efficient path to commercialization, particularly in cases involving fabless licensees where aligning the business structure with the manufacturing flow can be complex. In power devices, we're seeing excellent potential in new development work being done to target MST at both TrenchFET and HVT transistors, useful in high-frequency, high-speed and high-voltage applications. At the same time, wafers continue moving forward with our second JDA partner, and we'll keep pushing those efforts toward production pathway. Turning to GaN. We made meaningful advancements this quarter, including a breakthrough that could give us a technical leadership in RF GaN on silicon to augment the advantages previously outlined for power GaN on silicon. To explain the innovation, I need to give a little background. GaN on silicon is a much more economical growth method than alternatives built on exotic substrates like silicon carbide or sapphire. But when GaN on silicon is manufactured due to the GaN stack growth process, gallium and aluminum ions gather at the silicon substrate interface, forming an unwanted sheet charge layer called a parasitic channel, which is well known to limit RF performance and GaN on silicon applications. In fact, its elimination has been the subject of materials and growth studies for more than 20 years. In the past few weeks, we received preliminary performance data suggesting MST can dramatically reduce the parasitic channel. It does this by using MST's fundamental interface engineering to block the gallium and aluminum ions from getting into the silicon substrate. An industry veteran told us that in his 20 years, this is the best measured sheet charge data he has ever seen. We're continuing to validate this very promising discovery with our test and measurement partners. RF GaN on silicon is a value in the wireless infrastructure, military, defense and satellite markets. It's also being actively evaluated for high integrated RF front ends such as those for 6G cellular. So the market potential is large and growing fast. We are actively engaging on both 200-millimeter and 300-millimeter wafer sizes in GaN depending on our customers' requests. That matters because the wafer size for GaN on silicon is one of its key advantages leading directly to a customer's path to high-volume production, low-cost structure and a set of fabs that can support ramp, including opening doors for new applications with conventional silicon fabrication methods and devices. We're seeing expanded interest in partnerships across the ecosystem, including engagements involving Incize, Synopsys, Texas State University, Sandia and others. Those kinds of parallel tasks, commercial customers plus research and ecosystem partners can compress development cycles and accelerate the time from promising materials data to something customers can qualify and deploy. Work here is aimed at generating data that is both technically rigorous and directly translatable to customer device requirements. Finally, a quick note on our announcement last week about expanding our collaboration with Synopsys. We've worked with Synopsys for years to enable accurate modeling of MST inside the Sentaurus TCAD environment through our MST CAD tool set. This expanded collaboration extends that relationship into GaN workflows for both high-value RF and power devices. Practically, this means we're working closely with Synopsys to provide feedback on their GaN models, and we'll be jointly developing marketing materials so customers and partners can evaluate the physical and electrical effects of MST and GaN more quickly and with higher confidence. To summarize, we're making progress where it matters, expanding and deepening gate-all-around engagements, broadening GaN from power into RF with concrete technical innovations and continuing to advance multiple customer programs across our pipeline. We remain focused on converting technical validation into commercial structures that can drive repeatable revenue and are confident in our ability to do so. This is indeed an exciting time for Atomera. With that, I'll turn the call over to Frank, our CFO, to review our financials. Francis Laurencio: Thank you, Scott. At the close of the market today, we issued a press release announcing our results for the first quarter of 2026, and this slide shows our summary financials. Our GAAP net loss for the first quarter of 2026 was $6.1 million or $0.17 per share compared to a net loss of $5.2 million, which was also $0.17 a share in Q1 of 2025. On a non-GAAP basis, net loss last quarter was $4.9 million or $0.14 a share. And our Q1 2025 net loss was $4.4 million or $0.15 a share. GAAP operating expenses were $6.2 million in Q1 of 2026, which was an increase of $742,000 from $5.5 million of GAAP operating expense in Q1 2025. Stock compensation expense, which is excluded from non-GAAP results, increased by $397,000, primarily due to new hires and our adoption in Q1 of 2025 of performance stock units, or PSUs, for executives. PSUs vest over 3 years, whereas the time-based options and RSUs that we had previously granted to executives vested over 4 years. Although the vesting period is shorter, PSUs vest only if our stock performs well relative to the Russell 2000. The first tranche of PSUs issued in Q1 2025 lapsed without vesting because we did not hit the required stock price performance threshold. With the exception of stock compensation expense, the drivers of GAAP and non-GAAP expenses are substantially the same. So I will drill down into other factors that impacted our expenses by focusing on non-GAAP numbers. Please refer to the slide presentation for a reconciliation between GAAP and non-GAAP results. Non-GAAP operating expenses in the first quarter were $4.8 million, a year-over-year increase of $348,000 from $4.4 million in Q1 2025. Sales and marketing expense increased by $203,000, reflecting our 2 executive hires since October. R&D expenses increased by $127,000 from $2.8 million in Q1 of last year to $2.9 million in the first quarter of this year, primarily due to higher spending on outsourced engineering to support the wafer runs for our gate-all-around engagements, our IDM customer and our JDA customer, which drives spending on metrology. G&A expenses were basically flat from the first quarter of last year. Turning to sequential quarterly results. First quarter 2026 non-GAAP net loss was $4.9 million or $0.14 a share compared to net loss of $3.3 million or $0.10 a share in Q4 of 2025. Operating expenses were $4.8 million in Q1, which is a $1.6 million increase from $3.2 million in Q4. Let me offer some color on the magnitude of the sequential increase. As I explained on our last quarterly call, our Compensation Committee elected not to pay the full 2025 executive bonus, withholding approximately $669,000, which normally would have been paid out in January. The committee provided the executive team the opportunity to earn back the withheld amount in 2026 upon achievement of commercial objectives. This led to us reversing accrued bonus expense in the fourth quarter, which skews the comparison of expenses between Q1 and Q4. Our balance of cash, cash equivalents and short-term investments on March 31, 2026, was $41.1 million compared to $19.2 million on December 31, 2025. We used $4.6 million of cash in operating activities during Q1 compared to $3.2 million in Q4 and $4.8 million in Q1 of last year. As is typical for us, cash used in the first quarter of every year is higher than other quarters due to payments for items that are expensed over the year. In February of this year, we closed on a $25 million registered direct stock offering, selling 5 million shares of common stock at $5 per share, netting us proceeds of $23.6 million after fees and expenses. Prior to this offering, we had also raised $3.2 million in Q1 by selling approximately 1.3 million shares under our ATM at an average price of $2.47. Currently, we have 38.7 million shares outstanding. With the proceeds of our equity offering, we feel that our current cash balance puts us in a strong position to execute on the opportunities ahead of us, but we will continue to be disciplined about controlling our costs. On our last call, I said that we expected our 2026 annual non-GAAP operating expense to be approximately $18.5 million, and we are holding to that number. To reiterate, the reason why the expense increase appears as large as it does over $15.9 million of OpEx in 2025 is the bonus deferral, which essentially shifted expenses out of Q4 and moved them into 2026. Organic increases in spending mainly relate to the hiring of our VP of Sales in Q4 last year and our VP of Marketing in Q1. Revenue in Q1 was $11,000 and consisted of fees for wafer deliveries to the large IDM that Scott talked about. And we have $96,000 of deferred revenue on our balance sheet. Approximately $46,000 of revenue that we expected to recognize in Q1 pushed out to Q2 because wafer shipments that we anticipating making last quarter pushed out to early this quarter. Accordingly, we expect Q2 revenue to be in the range of $50,000 to $100,000. With that, I will turn the call back over to Scott for a few summary remarks before we open the call up to questions. Scott? Scott Bibaud: Thanks, Frank. And before we take questions, I want to thank our employees, our customers and our shareholders for their continued support. We're excited about the progress we're making, and we remain focused on translating our growing body of simulation and customer silicon evidence into commercial agreements that can drive long-term repeatable revenue and a strong sustainable business. Mike, we will now take questions. Mike Bishop: [Operator Instructions] And right now, it looks like Richard is ready to ask a first question. Richard, please go ahead. Richard Shannon: Scott, the gate-all-around stuff here, you made some very interesting comments. I want to touch on a few of these things here. So you mentioned that you've got -- now have measured silicon results here and your customers have said that they're better than the other solutions that they have here. Just want to make sure that that's what you said, and then I have a couple of follow-ups on that topic. Scott Bibaud: Yes, you maybe -- are you talking about GaN or gate-all-around? Richard Shannon: Gate-all-around. Scott Bibaud: On gate-all-around, we do have measured silicon results. And we evaluated our results against another method that people in the industry are using to accomplish the same type of thing we're doing, and our results are a significant improvement. So yes, we have definitely had that, and we're showing that to customers. Richard Shannon: So to follow up on this, so I assume that the measured results are wafers run at 1 of these 4 targeted customers. Is that correct? Or it's independent? Scott Bibaud: In fact the measured results are something that we did in conjunction with our strategic partner, where they had gate-all-around structures, and we use those devices to grow MST on those gate-all-around structures in the wafer, and then we're able to conduct this testing. So now that's -- if you think about how we approach customers, we go out and we show customers our simulation data, which we can do without a strategic partner. But then having silicon tested data is a massive improvement over that. So that's been able to really open the doors for us to get into the customers. The next step from there is the customer will typically say, okay, we can see you did that on your strategic partners' structure. Now we want you to do it on our structure because our structure is different. Everybody is different. And when I mentioned that we're -- we have work underway with 2 of the target customers there doing demonstrations, that's the step we're at where we're trying to do -- implement our technology on their structures and show them that. We believe that the step after that, Richard, will be that they'll have to install MST in their fabs to do any further testing because these structures are so small and hard to manufacture that it's difficult to do a lot more work by having us run demonstrations in our fab. Richard Shannon: Okay. So to that point, do you have a commitment to attempt to do this on your customer structures? Or is just the discussions to get that agreed to? Scott Bibaud: We're working on it with 2 of them actually -- I don't know what you mean by commitment, but I guess they're sending us wafers and we're putting on. So yes, that's pretty committed. Richard Shannon: Okay. That sounds pretty good. So what's the time frame for this work to get done? And then I assume, given what I've heard for the many years that I followed you guys that the analysis of these can often take a while, and these are more complex than most. So I would assume that analysis takes a while. So what's the kind of the turnaround time between getting that done, analyzing and getting to that next step? What do you foresee that taking? Scott Bibaud: It's going to take several months. Just us doing the work, we have to really do a lot of development work to just figure out how to grow things effectively in these tiny devices that they're sending us. And so normally, when someone sends us wafers within 3 weeks to a month, we can turn those around and send them back. In this case, my guess is it might take us longer than that, 2 to 3 months. And then when we sit in the back, they have to put them in their fab and run them for several months. So it could be in the order of 6 months before we start to see results coming out of this. Now in -- I mentioned a few times on the call and both structural analysis, which is where they are looking at what we did for deposition in those structures and making sure that what we did was appropriate, they can do that pretty quickly because you're taking TEM images like electron microscope images and looking at what we did, that -- those results will come quickly, but the electrical results will be the result of running the wafers through the whole line. Richard Shannon: Got it. Okay. And so you're expecting or expecting to run wafers with -- wafers from 2 different GAA customers then over the next few months? Scott Bibaud: Yes. Richard Shannon: Okay. Going back to my first question here and understanding the results you measured with the runs you did with your equipment partner. I want to get a sense of whether the customers agree that the comparisons you've done with, I think, an industry standard approach to dopant diffusion, they actually agree with that as well that, that is much better than what they've been -- what they can get internally? Or is this just what your equipment partners concluded for you? Scott Bibaud: I think there's no doubt that the customers that we've been able to engage with and get down to lots of details on it, they have been impressed enough that they want to move forward with these further demonstrations. So yes, they definitely saw the benefit of using MST to conduct -- to block the dopant diffusion in the areas that we're talking about and how it works better than what they're currently implementing. Richard Shannon: Okay. Okay. Fair enough. Some really interesting stuff going on there. Maybe a couple of other quick questions. So on the DRAM side, it sounds like we made some progress here. But if I'm to compare that with the progress on the logic side to the memory side, it sounds like the logic is reasonably farther ahead than memory. Is that a fair comparison? Scott Bibaud: Yes, that's true. We are talking with the memory manufacturers, and they -- one thing, memory is quite a different architecture than logic that we're using gate-all-around. But in memory, they're having the same type of dopant diffusion problems with their newer architectures as the gate-all-around folks are and our technology is directly applicable to that. So we have a lot of interest in -- from the DRAM guys about that. We're also talking to them about some other solutions that may be able to help them in different ways. So it's lots of different vectors of how we're engaged with DRAM guys. I should say with the memory guys because it's also in high bandwidth memory, not just DRAM. But we're further ahead with the gate-all-around customers than we are with them. Richard Shannon: Okay. All right. Fair enough. Maybe a question on the GaN side here. So I think before -- my recollection is you're talking more about applications of GaN into the power space, but more recently, it's been in RF here. How would you characterize kind of the -- which one is kind of the leader in terms of getting to the next step here and getting installation licenses, I know that's not the right term, but it's kind of what I think of it, installation licenses or using the wafers with that already built in there, which one is kind of in the lead here if either one is notably better? Scott Bibaud: Okay. So it's kind of interesting where you're right saying that we initially targeted the power market for our GaN on silicon work. The power market is actually much larger than the GaN on RF market today. And that's one of the reasons why we targeted it first. And for the power market, we -- our big value that we've been talking about is to improve crystal quality and therefore, to allow people to manufacture on larger wafers because there'd be less ball and warp as they're growing the GaN and fewer defects and therefore, would have a lot of inherent value. Now the only challenge with that is to validate all that work, you actually have to build wafers and build electrical devices and do a lot of testing. So that takes some time. And everybody's GaN growth properties are different. So there's some tuning that has to happen -- and so that takes time. The new things I just mentioned, GaN on RF, we got some test data and we just spoke about it at a big compound semiconductor conference last week, and there is a huge amount of interest in the industry. And just looking at this early data that we got, it has to be validated and so forth. But just looking at that data could be enough for someone to adopt us because it's such a big breakthrough in such an area where the industry needs solutions. In RF, they don't actually have to do the full electrical testing before they can decide to move forward on something. So it could be that we're moving -- although we're earlier into the GaN on silicon for RF market, that one could move faster. Richard Shannon: Okay. All right. Fair enough. One last question for me. And maybe going back to STMicro here, and I'm not sure if this is the -- who you're now referring to the IDM customer or not here. So maybe correct me if I'm misassuming that here. But maybe just kind of indicate where we're sitting here with those guys. Obviously, we have put a pause on the power stuff that you're hoping to move forward with that you talked about late last year. How about the other applications with them? Are they still moving as full force as you had expected and had been seeing since the cessation of the power work with them? Scott Bibaud: Yes. Just to clarify, when I talk about the IDM, it's not STMicro. STMicro is another IDM, and we think we have a lot of different areas that we can engage with STMicro, but that's a separate engagement. So yes, we've been talking with multiple business units over there and been doing some work, some evaluation work, and we have recently got some results that lead us to believe that we're going to start reengaging with them on developing a product. We aren't at the point where we can talk about that yet, and ST hasn't specifically given us any okay to talk about it. But yes, we've been saying since we had to give that unfortunate news about the BCD program at ST that we are working with other groups and that our relationship with the company was great. And the thing is they really know and understand MST technology and have seen it and they believe in it. So this is kind of an indication of those comments that we've been making and I haven't been able to announce a new deal with them yet, but we hope to be able to do that in the future. Mike Bishop: Okay. There are a few questions that have been asked in the Q&A line, and I'll just bring them up one by one. So the first kind of question is about gate-all-around and it's that given the evaluation periods that we've seen in other areas of Atomera, are there specific milestones that need to be hit to convert these gate-all-around customers into JDA? And what's a realistic time frame for such a conversion? Scott Bibaud: Yes. At a high level, I'll -- maybe I'll put a little bit more structure on what I showed -- I talked about Richard before. It's typical customers who want to see kind of 4 different levels. They want to see TCAD results that show that you have the potential to deliver performance, and they have to understand all the TCAD background and believe in it. Then they'll move ahead and say, we want to see that captured on silicon. So we've done those 2 steps and gate-all-around. The next step, they say, okay, we want to see that captured in silicon, but on our silicon on our structure, we're going to send you guys wafers. We want you to deposit it on our structure and send it back to us, and we'll evaluate it. Now they know they're not going to get the most perfect performance out of that because the work we have to do together and tuning them up and getting everything to work fully integrated. But they're just trying to do a proof of concept on their platform, right? That's the stage we're at right now with 2 of the customers. Beyond that, the stage after that would be where they install and do the actual implementation on their device, tuning it all appropriately. So yes, it's a fair question to say when should we expect to see a JDA sometime during -- in this period of us doing the evaluation on their devices and when we get to the point we'll install there because that would involve a license, then we should be having a JDA in place. These companies do not move fast when you're talking about kind of legal agreements. So -- but we're working hard to make those happen, and we hope to be able to announce them at some point in the near future. Mike Bishop: Okay. And Frank, the question regarding the equity raise. An investor asked, he is curious about the background and reason for the third-party private placement. And given the stock price rise, was that -- could we have had better timing? Francis Laurencio: Right. Yes, thanks for that. One of the comments I've made in talking about the capital that we raised in Q1 was some funding that we got via the ATM. And if you look at that, the average price on that was $2.47, which is roughly about where we were trading about 1.5 weeks or 2 before we did the equity raise. And so the $5 price that we executed on there, given what we had seen so far, not only in Q1, but really looking back over the last couple of years, it made us look at this as a very good opportunity because, sure, the stock had run up to $7. And now in the last couple of weeks, it's run up again. But given the past trading levels that we had and again, a lot of geopolitical uncertainty in the middle of February, which we've kind of seen play out since then. Of course, you can't know how the equity market is going to perform. But on balance, it seems like a very good opportunity for us to execute on that. And then frankly, be able to work toward commercial outcomes and not worry about the day-to-day movements in the stock price to have to use the ATM to keep our balance sheet strong. So we've now strengthened the balance sheet. It's always kind of easier with the benefit of hindsight to second guess the price, but I think it was a very good decision to execute then. Mike Bishop: Question on the tool partner. How has your relationship evolved with your tool partner, the strategic partner? And are they giving you more engineering personnel? And how has that relationship changed over time? Scott Bibaud: Yes, that's a good question. We have been -- we try to be good partners with each of the big tool vendors. There's 3 main tool vendors that the industry uses for epi tools. And we typically want to be kind of an arms dealer work with whatever tool our customers want to work with. So we have good relationships with all of them. The tool vendor that we have the strategic partnership with we've been working with for more than a decade, and had a good relationship with. But now that we've entered into the strategic partnership, the level of co-development work that we're doing is at a whole new level. So we have weekly meetings with their engineering team where we are working on developing the test data that we need for marketing to customers. And as customers ask us questions and want to get more demos, and we dig in and do work on that together. So yes, on an engineering cooperation level, it's at a whole new level. The second area is on the marketing and sales to customers, and that's something that we've never really done with them in the past, and that's where we would be developing the right materials for us to both go into target customers and talk about MST technology and what a good solution that is. Now one thing I've calculated a number of times is that if we are successful licensing our technology to customers, in many cases, the tool vendor is going to make more money from us winning designs there than we will. So there's obvious advantages for them making us successful. And so they're not doing this out of the goodness of their heart. But the good news is, I think they've recognized that in the last year since we started this, and we're really seeing the benefit as we're engaging with customers. Mike Bishop: Okay. And this is a follow-up kind of to the when moving of the gate-all-around customer -- engagement. But investor asked last -- commented that the last call sounded like 2026, we would see several deals being made. Is it safe to say that now that sounds unlikely? Or is there still hope for inking an agreement this year? Scott Bibaud: We're only in the fifth month of the year, and I'm hopeful every month that we're going to be inking deals. So definitely, we'd say there's definitely a very strong chance. Mike Bishop: And if you look at all the areas in which you are working, which of the segments do you think is closest to producing a royalty-bearing license? Scott Bibaud: So I spoke a call or 2 ago about wafer-based products. And I think that the development effort in a wafer-based product is relatively easier. So some of the areas where we're offering wafer-based solutions are in gallium nitride and in RF SOI. And there's -- we have wafer-based solutions that we're offering in the memory space. So I think one of those could be the fastest. But we also have been working on power and on RF SOI with customers for a very long time. So those could also be quick time to market. It's very hard to call with so many moving pieces. Mike Bishop: All right. And with that, Scott, I'll turn the call to you for closing comments here. Scott Bibaud: Okay. Well, I want to just thank you all for joining us to hear the progress being made within Atomera. I hope you're feeling the excitement that we are. Please continue to look for our news, articles and blog posts, which are available along with investor alerts on our website, atomera.com. Should you have additional questions, please contact Mike Bishop. We'll be happy to follow up. Thanks again for your support, and we look forward to our next update call. Mike Bishop: Thank you. This concludes the call.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Ingredion Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question-and-answer session. To ask a question, please press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. I would now like to hand the conference over to your speaker today, Noah Weiss, Vice President of Investor Relations. Good morning, and welcome to Ingredion Incorporated's First Quarter 2026 Earnings Call. I am Noah Weiss, Vice President of Investor Relations. Joining me on today's call are Jim Zallie, our Chairman, President and CEO, and Jason Payant, our Vice President and interim CFO. Noah Weiss: The press release we issued today, as well as the presentation we will reference for our first quarter results, can be found on our website, ingredient.com, in the investors section. As a reminder, our comments within the presentation may contain forward-looking statements. These statements are subject to various risks and uncertainties and include expectations and assumptions regarding the company's future operations and financial performance. Actual results could differ materially from those estimated in the forward-looking statements, and Ingredion Incorporated assumes no obligation to update them in the future as or if circumstances change. Additional information concerning factors that could cause actual results to differ materially from those discussed during today's conference call or in this morning's press release can be found in the company's most recently filed Annual Report on Form 10-Ks and subsequent reports on Forms 10-Q and 8-Ks. During this call, we also refer to certain non-GAAP financial measures, including adjusted earnings per share, adjusted operating income, and adjusted effective tax rate, which are reconciled to U.S. GAAP measures in Note 2, Non-GAAP Information, included in the press release and in today's presentation appendix. With that, I will turn the call over to Jim. Jim Zallie: Thank you, Noah, and good morning, everyone. While we expected a challenging quarter after last year's strong first quarter, results were weaker than anticipated in Food and Industrial Ingredients U.S./Canada due to operational challenges at our Argo facility. At the same time, performance in our Texture and Healthful Solutions and Food and Industrial Ingredients LatAm segments were in line with our expectations despite an increasingly uncertain macroeconomic environment. Overall, net sales were down 1% and adjusted operating income was down 22% versus last year, driven by Argo and softer industry volumes in Food and Industrial Ingredients U.S./Canada and LatAm. As expected, our Texture and Healthful Solutions segment delivered a solid quarter with broad-based volume growth reflecting increased adoption of our expanding solutions portfolio and continued customer demand for clean label offerings. Turning to the next slide, we are pleased that our Texture and Healthful Solutions segment posted its eighth straight quarter of volume growth, up 2%, led by clean label and texture solutions in EMEA and Asia-Pac. In Food and Industrial Ingredients LatAm, overall volumes were slightly down for the quarter due to expected weaker consumer demand versus a strong first quarter last year. We saw a modest recovery in Brazil, supported by improved customer demand and early benefits from our polyols network optimization completed at the end of last year. Additionally, this morning, we announced plans to cease operations at our Cabo manufacturing facility in Northeast Brazil by 2026 as we drive enterprise productivity to deliver operational efficiencies while sharpening customer mix priorities. We expect the actions we have taken in Brazil, both commercially and operationally, to deliver continued benefits throughout the year. In our Food and Industrial Ingredients U.S./Canada segment, net sales volumes declined 7% in the first quarter, driven primarily by operational issues at our Argo facility as well as softer demand across certain food and industrial markets. As noted earlier, Food and Industrial Ingredients U.S./Canada results were negatively impacted by Argo in the quarter. Within our February outlook, we expected $10 million to $15 million of additional costs to impact the quarter as the facility recovered to normal grind rates. However, additional operational challenges slowed the recovery and negatively impacted saleable inventory. As a result, the actual Q1 impact was much greater than anticipated, coming in at $40 million, comprised of higher maintenance spend and the costs associated with elevated levels of rework. Additionally, we incurred higher logistics costs as we sourced products from other facilities in our network to meet customer commitments. In response to challenges in our refinery operations, we took meaningful actions during the quarter to diagnose and remedy the sources of process failures. We assembled a multidisciplinary team of internal and external experts in refinery unit operations and are pleased to say that downstream production returned to normal levels by quarter-end. Unfortunately, in the midst of this progress, on April 10, there was an isolated thermal event in Argo's corn germ processing operations. While the front-end grind and refinery were not impacted, crude oil production went offline. Our teams are working diligently to restore our germ processing capabilities, and we expect to return to normal operations in this unit within the second quarter. Our balance-of-the-year assumptions for Food and Industrial Ingredients U.S./Canada are based on the germ processing recovery timeline that I just outlined, as well as sustaining current levels of production and yield through the refinery operations at Argo. Turning to a significant driver of Texture and Healthful Solutions growth in the quarter, our solutions sales continue to outpace overall segment growth. As a reminder, our solutions portfolio is approximately $1 billion, or 40% of this segment's revenue. Clean label remains a major growth driver within our solutions offering. It is noteworthy to point out that even against a challenging volume backdrop, customers continue to seek clean label options. Our industry-leading portfolio of functional native starches grew strongly in the quarter, benefiting from sustained customer demand for simpler ingredient panels and increased reformulation support. Examples include customized texturizing systems for dairy and dairy-alternative applications, as well as solutions supporting reformulation for healthier bakery and beverage platforms. Solutions growth is coming from more than just clean label ingredients. It also reflects the breadth of our capabilities and how we are partnering with customers through co-development, providing formulation expertise and differentiated ingredients. This combination is helping us deepen customer engagement and improve mix within Texture and Healthful Solutions. As part of the innovation engine for solutions, we are increasingly leveraging artificial intelligence to power the consumer insights and predictive formulation work that are at the heart of our solutions customer briefs. This is helping us accelerate the brief-to-solution cycle time. Moving to another bright spot in the quarter, our Healthful Solutions portfolio, comprised of clean taste solutions for sugar reduction and protein fortification, continued to grow strongly. Sales of our pea protein isolates, driven by recent new product innovations, grew more than 50% in the quarter, and our clean-tasting stevia-based solutions also demonstrated a solid 6% growth in the quarter. Growth in these categories is broad-based across both branded and private label, reflecting the heightened consumer pull for protein-fortified and lower-sugar offerings. As we look ahead to the remainder of the year, we are actively monitoring and managing both the direct and secondary effects of higher energy prices. The largest impact we foresee is related to increased logistics costs, which we are actively working to offset within-year price increases. It is important to mention that at this point, we do not foresee major challenges related to sourcing any of our important manufacturing inputs. The work done in recent years to increasingly localize our supply chains should position us well to mitigate disruptions. We are also monitoring the impact higher energy costs are having on packaging inflation and gasoline prices, and the effect that together they could have on consumer demand in the second half. At this point, it is too early to estimate the degree to which these inflationary pressures may impact volumes. We are also carefully monitoring fluctuations in the value of the U.S. dollar. The Mexican peso has unexpectedly maintained its strength, and this is presenting a meaningful transactional foreign exchange headwind for the FNII LatAm segment. The dynamics brought on by new inflationary headwinds are familiar to us, as we have successfully managed through these periods before. We have the operational experience to react with agility, and we are leveraging our pricing centers of excellence to implement targeted price increases where they are required and where possible. With that, I will turn the call over to Jason for the financial review. Jason Payant: Thank you, Jim, and good morning, everyone. Moving to our income statement, net sales for the first quarter were $1.8 billion, down 1% versus prior year. Gross profit declined 14% with gross margin decreasing to 22.4%, driven primarily by operational challenges at Argo; lower volumes and unfavorable mix in Food and Industrial Ingredients U.S./Canada and Food and Industrial Ingredients LatAm; and transactional foreign exchange impacts in Mexico. Reported and adjusted operating income were $203 million and $212 million, respectively. Turning to our Q1 net sales bridge, the 1% decrease was driven by $32 million in lower volume and $22 million in lower price/mix, partially offset by $33 million of favorable foreign exchange translational impacts. Moving to the next slide, we highlight net sales drivers by segment for the first quarter. Texture and Healthful Solutions net sales were up 2%, driven by sales volume growth of 2% and foreign exchange favorability of 2%, partially offset by lower price/mix. Food and Industrial Ingredients LatAm net sales were up 1%, driven by favorable foreign exchange, partially offset by lower volumes and weaker price/mix. Food and Industrial Ingredients U.S./Canada net sales declined 9%, driven by operational challenges at Argo and weaker consumer demand. Now let us turn to a summary of results by segment. Texture and Healthful Solutions net sales were up 2% in the first quarter, and operating income was up 1%. The increase in operating income was driven by favorable input costs, foreign exchange, and better volumes, partially offset by strategic price and mix management. In Food and Industrial Ingredients LatAm, net sales were up 1% in the quarter. However, operating income decreased by 9% to $115 million, with operating margins of approximately 20%. These decreases were driven primarily by Mexico transactional currency impact and softer volumes in Mexico and the Andean region. Positive performance in Brazil and the Argentina joint venture helped offset some of these headwinds, allowing the total segment to deliver results in line with expectations. Moving to Food and Industrial Ingredients U.S./Canada, first-quarter net sales were down 9%. Operating income was $34 million, driven by operational challenges at our Argo plant and weaker volumes and mix. Net sales in All Other increased approximately 3%, driven by continued growth in protein fortification, particularly in higher-value isolate and specialty protein applications. Operating income improved by over $3 million year on year, reflecting improved mix and operating leverage. Turning to our first-quarter earnings bridge, the top half of the slide reconciles reported to adjusted earnings per share, and the bottom half walks through the drivers of the year-over-year change. Adjusted diluted earnings per share declined by $0.63 year over year, including $0.71 of margin impacts and $0.14 of volume impacts, that were primarily the result of the operational challenges we previously discussed. These headwinds were partially offset by foreign exchange benefits of $0.07 and other income benefits of $0.08 per share, as well as $0.07 of non-operating items, including $0.06 of share repurchase benefits. Turning to cash flow and capital allocation, we continue to demonstrate financial discipline in the quarter. Year-to-date cash from operations was $33 million, reflecting a planned investment of approximately $205 million in working capital. This was driven primarily by receivables and payables. We invested $110 million of capital expenditures, net of disposals, to support reliability, capacity, and strategic priorities across the business. During the quarter, we continued to return cash to shareholders through $52 million in dividends and the repurchase of $14 million of shares. This underscores our commitment to balanced capital allocation and long-term shareholder value creation. Now let me turn to our updated 2026 outlook. As Jim noted in his opening remarks, we have revised our outlook to reflect the updated impact from Argo; foreign exchange transactional impacts from continued strength of the Mexican peso relative to the U.S. dollar; the impact of higher energy prices on input costs and logistics; and softer volumes in LatAm. For the full year 2026, we now anticipate net sales to be flat to up low single digits and adjusted operating income will be flat to down low single digits. Our 2026 financing cost estimate is in the range of $35 million to $45 million and a reported and adjusted effective tax rate of 26% to 27.5%. Our full-year adjusted earnings per share is now expected to be in the range of $10.45 to $11.15. This outlook assumes sequential operating improvements at Argo and continued resilience in the Texture and Healthful Solutions side. Our adjusted earnings per share range is based on a diluted share count of 63.5 million to 64.5 million shares. We anticipate that our 2026 cash from operations will now be in the range of $725 million to $825 million, reflecting our updated net income expectation as well as working capital investments in line with net sales growth and normalized inventory levels in Food and Industrial Ingredients U.S./Canada. Capital expenditures for the full year are now anticipated to be between $400 million to $440 million. Please note that our guidance reflects current tariff levels in effect as of April 2026. In addition, this guidance excludes any acquisition-related integration and restructuring costs as well as any potential impairment costs. Turning to our updated full-year outlook by segment, our net sales outlook for Texture and Healthful Solutions remains the same, but operating income is now expected to be up low single digits, which still reflects volume growth but is partially offset by higher input cost inflation. For Food and Industrial Ingredients LatAm, net sales are now estimated to be flat to down low single digits and operating income is expected to be down low single digits, reflecting foreign currency transactional headwinds in Mexico and softer volumes in LatAm. As a reminder, our Mexico business is U.S. dollar denominated, but most of our SG&A and operating costs are in pesos. As the peso strengthens against the dollar, our transactional costs increase in dollar terms, which negatively impacts operating income and can more than offset translational benefits against a weaker U.S. dollar in other parts of our LatAm business. For Food and Industrial Ingredients U.S./Canada, we now expect net sales to be down low single digits, and operating income is projected to be down low double digits, which reflects the impact of operational challenges in Q1 on our full-year outlook. All Other operating income is still anticipated to improve by $5 million to $10 million from full year 2025. Lastly, for 2026, we expect net sales to be flat to up low single digits and adjusted operating income to be down high single digits, as we lap a very strong second quarter in 2025. That concludes my comments, and I will turn it back over to Jim. Jim Zallie: Thank you, Jason. To close, even in a challenging quarter, we continue to see momentum in the highest-value parts of our portfolio, particularly Texture and Healthful Solutions, where customer demand remains robust, supported by clean label, healthy eating, reformulation, and solutions-led growth. As stated, our Food and Industrial Ingredients U.S./Canada projections are based on the sequential operational recovery at Argo throughout Q2 and reflect sustaining current levels of production and yield for the balance of the year. We are actively monitoring and managing the impacts of energy and currency movements and are pursuing targeted price increases where required and where possible. Our enterprise productivity initiatives, specifically from network optimization, are providing operational and commercial benefits which will support margin. With a strong balance sheet and solid cash generation, we remain well positioned to invest for growth, support our strategic priorities, and deploy capital with discipline as we continue to build long-term shareholder value. We will now open the call for questions. Operator? Operator: Thank you. Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. And our first question comes from Pooran Sharma with Stephens. You may proceed. Analyst: Hi. This is Jack Harden on for Pooran Sharma. Thanks so much for the question. Once Argo normalizes, do you still view the Food and Industrial Ingredients U.S./Canada business as capable of getting back to the mid- to high-teens operating margin profile? And is that more of a 2027 target now, or could that run rate be possible exiting 2026? Jim Zallie: Yes, the answer to that question is yes. We are still committed to getting back to the mid-teens operating income margins for that business, consistent with what we put forward in the Investor Day in September. The issues at Argo are the predominant driving factor in relationship to the margin decline and the operating income decline in that business. We are encouraged by how the grind and how the refinery operations finished the quarter. We were disappointed with the April 10 issue in the corn germ processing unit, but, again, that particular issue is isolated. It is in a very specific location within the plant, separate from grind, separate from the refinery operations, and the repairs are well underway. That unit should be back up and running again within Q2. So in answer to your question from a standpoint of getting back the majority of the 1,000 basis points of margin decline in this quarter compared to the 16% to 17% that we are typically projecting, I think we would say for 2027, certainly, that is our expectation at this point in time. Assuming that we can string a couple of good quarters together of run-ability and reliability, we feel that from a standpoint of the demand and how we have been able to service customers through this period, we can get back to those levels of operating income. Analyst: Thank you. And a quick follow-up on capital allocation. With updated cash flow from operations guidance and CapEx guidance remaining the same, how should we think about capital allocation through the rest of the year? And is the prior commitment of $100 million roughly the right way to think about it, or has that been updated as well? Thanks. Jim Zallie: Jason, do you want to take that? Jason Payant: Yes. I would say yes. Certainly, based on our current cash flow projections and capital allocation priorities, we plan to build on the $14 million shares we repurchased in Q1 to meet our full-year targeted commitment. Jim Zallie: And Q1's CapEx came in consistent with the full-year projections as well. So yes, it is to continue as planned for the capital allocation priorities. Thanks so much. Operator: Thank you. Our next question comes from Joshua Spector with UBS. You may proceed. Joshua Spector: Hi. Good morning. I wanted to drill into Texture and Health a little bit more and just understand some of your assumptions through the year. I guess if I look at the first quarter, your organic growth was about flat. You got the couple points basically from FX. So assuming FX becomes less of a tailwind, you basically need organic growth to pick up. So I am just curious relative to the 2% volumes and the down 2% pricing, how do you expect that to evolve through the year to get the segment to the low- to mid-single-digit growth you expect for the year in total? Jim Zallie: The mid-single-digit target is part of our long-term algorithm for growth. We are pleased to deliver 2% net sales volume growth in the quarter, and I think it is noteworthy again to highlight that it is the eighth consecutive quarter of sales volume growth. We really believe that the focus that we have now on solutions, which is a result of the re-segmentation work that we completed nearly two years ago, and the solution selling approach that we have globally implemented with trainings and certifications and formulation experts that collaborate with our 30-plus Idea Labs around the world, plus our technical headquarters in Bridgewater, New Jersey, all of that continues to come together very well on behalf of the customer. At the same time, driven by regulatory changes and health and wellness trends, there are a number of reformulations that are coming to us from customers. We also have proactively decoded, I guess you could say, better than we have in the past, the private label ecosystem and the supply networks, the co-packing networks, and we have an increasing pipeline of project briefs to support customers with solution selling and co-creation, which is driving really deeper engagement and faster delivery of solutions to customers. And so I think all of that makes us feel confident that when the macroeconomic conditions and inflationary pressures lessen a bit, that is going to enable us to move from what currently is low single digits to that mid-single-digit territory that we believe is absolutely achievable and correct for that segment based on the portfolio that we have, based on the differentiated ingredients that we have, and based on the investments that we have made in capabilities, both in people capabilities as well as in equipment capabilities within our R&D facilities. So that is what gives us the confidence that we can do that. Joshua Spector: Okay. I appreciate that. I guess I would be more specifically curious on pricing, because you guys had done well on volumes, but pricing has been a persistent headwind. It sounds like from how you described the call today, you would expect pricing maybe to pick up to cover some of the higher costs that you are starting to see in logistics and other areas. Is that the right framework? Jim Zallie: Let me try to clarify in relationship to something that occurred uniquely in the quarter to help put that in perspective. So first of all, let me speak to margins, which is what you are also getting at with your question around pricing. What is encouraging to highlight is that margins in U.S. and Canada in Texture and Healthful Solutions actually increased in the quarter. The majority of the slight margin compression we are seeing is related to the rapid rise in tapioca costs in Asia Pacific. Tapioca for us is a significant business, and that pretty rapid increase in tapioca costs in Asia-Pac started to occur at the end of Q4 last year, and so the time lag that it takes to pass through those costs through increasing pricing is what we are seeing in Q1 manifest itself. That typically takes about a quarter to a quarter and a half to work its way through, just on how tapioca pricing works. So that may help to clarify what you are highlighting in relationship to the quarter and some of the margin compression that we experienced. It is something that is pretty heavily weighted and unique to that particular issue. Joshua Spector: Okay. One other quick follow-up around that issue is just so pricing was still reported down. How do I square an escalation in cost and the pricing side there? Is that the timing that that margin and that price recovers in 2Q? Or are there other factors outside of this which are still pressuring that? Jim Zallie: Yes. So regarding pricing and taking it back to, I think, the prior earnings call and what we said in relationship to Texture and Healthful for the full year: going into contracting, we were, for our less differentiated products, having to price to maintain market share and, in some cases, increase our market share to a degree. We are expecting and are seeing increases in fixed cost absorption through our Texture and Healthful Solutions manufacturing facilities because we did pursue volume in the contracting period, and that is why the setup for this year you are seeing some of that play itself out in the way of how pricing is being viewed. But we believe that that was absolutely the right approach to continue with our relevance with the customer base that we segmented and targeted to then bring our solutions capabilities, which over time are going to increase our margins just due to the higher gross profit associated with solutions versus the, say, less differentiated parts of the Texture and Healthful Solutions portfolio. So there are a few things going on here strategically as it relates to how we approached the year from a standpoint of what the market gave us related to competitive dynamics going into contracting and how we pursued pricing. But the thing to be most encouraged about is the solutions growth in the quarter, which is margin accretive over time. And then we had this one issue related to the tapioca costs, which, again, we have been there on the other side of that before many times. Given our market position, those prices will flow through; it just takes about a quarter to a quarter and a half to get them. Joshua Spector: Okay. Thank you very much. Jim Zallie: Thank you. Operator: Thank you. Our next question comes from Benjamin Thomas Mayhew with BMO Capital Markets. You may proceed. Benjamin Thomas Mayhew: Hi. Good morning, and thanks for taking the questions. So my first question has to do with customers having to manage pricing. So I am just wondering what you are seeing in terms of elasticity on your products, and how, when you are trying to take this pricing, how might that impact volumes should you need to pass through an extended amount of costs through the balance of the year? Jim Zallie: I am going to let Jason take this, but let me just set it up. Obviously, very similar to last year in relationship to the tariff implementation, we have been very proactive to put in place a Middle East response team that is collecting all of the input to our business as it relates to the inflationary impacts of increased energy prices, and we are monitoring and managing those direct and indirect impacts. So we have a handle right now on certainly the direct impacts and what we need to do to offset the logistics cost increases and any increases that are flowing through to us directly with chemicals and/or packaging. Jason, you are overseeing that. Do you want to give some perspective? It is early. I know it is very early in the cycle, but the team is actively working that. Jason Payant: Yes, and as we have done in the past with tariffs and other disruptions like this, we do believe that we will be able to pass through most of the costs. Jim Zallie: There may be a small but manageable net negative impact, but overall history has shown that, contractually and consistent with market dynamics, we are able to pass those costs through. At this point, what is more difficult to predict is the indirect impacts this may have on consumer demand as our customers work to pass through those incremental costs onto the market. Yes. I think that is absolutely correct. I think that last year, if you remember, we navigated tariffs extremely well. In fact, I think the net impact to us was, after putting through price increases, a net impact of about $6 million for all of the tariffs that went into place last year, and we managed through that very well. This year, as it relates to the direct impacts thus far that we have been able to project forward for the Middle East energy price situation, we are seeing a number in a similar range. So we think that is extremely manageable. But to Jason's point, the bigger watch-out, I think, for everyone, for the industry at large, is the longer the conflict lasts and the inflationary impacts are felt through increases that consumer products goods companies are putting through in packaging—plastic-related packaging, which is mid- to high-single digits—and passing that on to the consumer, as well as gasoline prices that are going to impact lower- to middle-income consumers. That is where I think the watch-out is for the second half of the year, which is very hard to predict, even though in the first quarter, we saw minimal to no impact of this. But everyone is watching cautiously, despite the fact that consumers seem to remain robust in the first quarter, at least in the United States. Benjamin Thomas Mayhew: Got it. Thank you so much for the context there. That was very helpful. And just a follow-up question going in a different direction here. Your balance sheet—the cash balance is still very, very strong. We know that you have been looking at a pretty robust M&A pipeline, but that valuations have not quite been where they need to be to take action. As you are looking at a potentially tougher environment for the industry, how are you thinking about your M&A pipeline? Is it getting more interesting? And are you prepared to pursue more inorganic growth? Thanks. Jim Zallie: Yes. One of the things we are obviously fortunate to have is a strong balance sheet and strong cash flows, and that does provide us optionality to pursue value-accretive M&A. I think it is important to note that we have a track record for remaining disciplined in pursuit of M&A prospects, and when we do pursue a target and integrate that business, we have typically integrated and delivered on the business case. We have a robust M&A pipeline—we always do—and we are actively pursuing a number of businesses that could bring us sales, EBITDA, talent, and technology. Anything that is going to, again, enhance our winning aspiration in the areas of Texture Solutions and Healthful Solutions is going to be our priority. But, again, we will remain disciplined in relationship to the value-accretive nature of those and the executability and the synergies that we can deliver from those targets. Analyst: Thank you. Operator: Our next question comes from Analyst with Barclays. You may proceed. Analyst: Good morning. Thanks for taking my question. I just wanted to follow up a little bit on the performance in Latin America and what has been driving this. You have called out the volume decline, but if we look at some of the underlying trends, be it at the Coke bottlers or even what we saw with a large beer brewer in Brazil earlier this morning as well—reporting surprisingly better results—I was just wondering where the mismatch is between what we saw operationally for the Coke bottlers and brewers in the region, where we have actually flattish to maybe even slightly up volume, versus you guys having about a 7% impact on volume. I just wanted to understand the mismatch here. Thank you. Jim Zallie: Yes, it is a really good question, and we saw those results as well that you referred to. What we can say about our LatAm volumes: we expect volumes to be down slightly, lapping a strong 2025. For us, brewery volumes have been lower than anticipated thus far due to conservative customer ordering ahead of the World Cup, which is surprising. We believe this has the potential to pick up in Q2. However, we are lapping soft volumes in Q3 of last year related to a particular customer contract management issue, and we think that in the second half the volumes are going to be stronger. The Mexican economy continues to demonstrate softness, and thus we have a cautious outlook on volumes for the remainder of the year for Mexico. I think GDP growth now is in the 1% to 1.5% territory. Overall, against a record Mexico performance last year, we are seeing softness, and then, as Jason alluded to, we have the impact of the Mexican peso, which is a headwind for us as well. We will dig more into the numbers that you refer to, specifically in brewing, and try to understand what may be happening in relationship to, say, no- and low-alcohol beers, which appears to be growing 25% in comparison to mainstay beers, and understand how that then flows through to us and impacts us. But that is what we are seeing. That is what we can say to you in relationship to trying to reconcile it at this point in time. Analyst: Okay. And then just following up, the price/mix—was it more price, or was it more mix in terms of what drove the headwinds here? Just to understand if it is more like a price pass-through or if it is an actual mix effect to lower-price items. Jason Payant: In Latin America, you are asking. Yes, correct? I would say that all the impacts from the price were reflected in our guidance and even our original guidance. It is really, at this point, a mix issue. We are seeing differentiated customer mix and some product mix that is having a little bit of an impact there. But, overall, results were in line with our expectations for the quarter, and we are not seeing a huge change in LatAm balance of year. Obviously, the bigger drivers in our guidance change are Argo, which is about half of it, and then the balance is really the Mexican peso and some of the Middle East impacts on energy costs. So the LatAm piece is really a smaller component of that. Analyst: Okay. Got it. Thank you very much. Operator: Thank you. Our next question comes from Kristen Owen with Oppenheimer. You may proceed. Kristen Owen: Hi, Jim, Jason. Thank you for the time this morning. Just following up on this thread on LatAm, I wanted to ask if you could provide a little bit of background on the Cabo plant—just what the decision factor was there, and how we should think about that influencing margins. Also, just clarification on the model: is the shutdown of that plant included in the updated outlook? And then I have a follow-up. Thank you. Jim Zallie: The answer to your last question is yes, and I will give you some context in relationship to the decision that we announced today. We are always continuously evaluating the efficiency and optimization of our operations and network. As part of a broader initiative to adjust our operating footprint in Brazil, with a goal of strengthening operational efficiency, competitiveness, and long-term business sustainability, we made the decision to cease operations at our Cabo plant. That plant is in the northeast part of Brazil. Economic growth in that part of Brazil compared to when we made the decision to make that investment has not lived up to its potential. Brazil at the time of that plant going in—Brazil itself—was growing 7%. I remember when the investment was made. Here we are fifteen-plus years later, and the potential for that plant with its location and the economic growth in that territory just has not delivered. So while these decisions are never easy, the decision regarding Cabo does align with our long-term vision for Brazil as we concentrate resources on higher value-generating businesses. What I think is also noteworthy is the decision we took in Brazil as well in Q4 to close our Alcantara plant. The ingredient polyols business in Brazil is a strategic growth platform, and we successfully have executed that, and we have expanded our polyols production at our flagship facility at Mogi Guaçu, and that is delivering now on all elements. We are encouraged by that, and that will provide some strength for the Brazilian business in this year as well as the savings associated with the Cabo facility. These were all necessary moves to strengthen our footprint and our network in Brazil, dealing with the realities of the marketplace. Kristen Owen: Okay. Great. Thank you for that. And then my follow-up question: we have talked about some of the moving pieces in F&NI North America. I am wondering if you can help us understand how to think about co-product opportunities just given where fed prices have moved—maybe some crosswinds on the paper and packaging side—how we should think about that influencing the balance of the year. Thank you. Jim Zallie: Do you want to take that, Jason? Jason Payant: Yes, I can take that. I think our co-products are always an important part of the business. What we have been able to do over the past few years is mitigate some of the volatility related to the co-products. So, as we have been able to hedge further forward on our corn during our contracting process, we are also hedging further forward on our co-products. That does somewhat temper any volatility relative to our forecast, which is actually a good thing. We will obviously see a little bit of benefit as prices rise for the unhedged portion of our contracts, but it will be muted relative to what we may have seen five or ten years ago. Kristen Owen: Thank you. Jim Zallie: Thank you, Kristen. Operator: Thank you. Our next question comes from Heather Lynn Jones with Heather Jones Research. You may proceed. Heather Lynn Jones: Good morning, and thanks for the question. I hopped on late, so I apologize if my question is repetitive. I was wondering on the guidance side—I guess I just wanted to ask about your confidence level. As far as the Argo issue, you had the issues from last year's fire, and now there was a recent fire, I think, in the corn germ part of the plant. I was wondering: have the issues from last year been fully resolved? And does your guidance for the rest of the year assume that the corn germ piece is fully resolved relatively soon? Jim Zallie: Yes. The answer to your last question is yes. In Q2, that issue, we believe, will be behind us. Because Argo was so significant in the quarter, I do want to take just maybe a little bit more time, picking up on your question, to try to put it in perspective. It has been a disappointment for us. Early in the first quarter, we had a failure in our corn conveying at the plant, which led to incremental intraplant logistics to have corn flow as it should, and that led to increased logistics and maintenance costs. This was repaired in the quarter, and that is now behind us. In addition, in our downstream refinery operations, we experienced operational reliability challenges in our syrup refining, and that led to product downgrades and unexpected rework costs. Typically, we can overcome that pretty quickly. In this case, the issue and getting to the root cause proved a little bit more elusive, and it just took longer than we had anticipated. This issue, unfortunately, persisted through the quarter and was the single biggest unexpected negative impact to results. That is now resolved, and that is now behind us, and that came about through really a SWAT-team approach to get that behind us. While these issues cumulatively had a significant impact, we are pleased to say with where we are at right now, the issues are behind us, and refinery production is operating at normalized rates as we exited the quarter. But to the question you asked about the thermal event that we had: on April 10, we suffered that thermal event in our corn germ processing unit, which took this unit offline for approximately five to six weeks. That is scheduled to be back online within Q2. It was isolated. It was limited to just the germ processing area; again, the front-end grind and refinery were not impacted. What is important to highlight is that, due to the nonrecurring nature and magnitude of this event, that impact will be excluded from our adjusted results. What I leave you with related to the Argo plant is that we are seeing sequential improvement at Argo, and our outlook assumes we will sustain the production and yield levels we are operating at today. So hopefully, that provides you some additional context as it relates to Argo and the impact in the quarter. Heather Lynn Jones: It does. And I just want to clarify before my next question: so the issues from last year—where I think there was a dryer issue related to your gluten feed and gluten meal—that was fully resolved and was not a factor in Q1? It was more on the downstream refinery, but that is all been resolved and is working well. The corn germ issue is not resolved, but it is expected to be. But regardless, it is excluded from your adjusted guidance. Jim Zallie: That is 100% correct. Yes. I can say the challenge you have when your germ processing goes down is you have more germ. We can store a good proportion of it that we can process once everything is back online, but some of that will go into the wet feed pile, and it will impact co-product values overall, because you have a larger portion of product that you need to dry. We will not be able to manage that through all of the dryers. But the issues of last year are resolved. We do expect a little follow-on co-product headwinds as we get the corn germ processing back online. Heather Lynn Jones: Okay. Thank you for that. Then I want to go through your segment guidance. If I was reading the releases and Q4's release correctly, I think you took down T&HS a little bit. I think you had been guiding up low single digit; you are guiding up low single digit; you had been low single to mid single. LatAm now down, and U.S./Can down low double digit. U.S./Can seems obvious because of Argo. I was wondering on the T&HS side and the LatAm side—beyond brewing—has there also been disappointing demand, or are those guidance changes related to costs? Jason Payant: Yes. I would say the impact on T&HS really just reflects the higher costs that we are expecting from the higher energy costs and the lag that it will take in some regions to pass those costs through. Again, there will be a net negative, but a small, manageable impact for certain costs that we cannot pass on to customers—warehouse-to-warehouse transfers, things like that. That is really the cause of the reduced outlook for T&HS. Beyond that, we are expecting volumes and sales to be roughly in line with our original guidance, although, as we said, it is hard to assess the potential impact on consumer demand that those higher cost pass-throughs may ultimately have. That is something that we are watching carefully and would be included in the lower end of our range. Heather Lynn Jones: Okay. Thank you so much. I appreciate it. Analyst: Thanks for taking my questions. Just one quick one for me. You alluded in your prepared remarks earlier in the call to optionality regarding growth investments. I am wondering a couple of things around this dynamic. First, have the issues that you have been forced to navigate—be it Argo or the various macro dynamics—in any way compromised your ability to really focus on growth initiatives so far year to date? Second, can you talk about how you see these growth investments evolving? Are you leaning more into the protein side of the business that you highlighted, still focused on the Texture and Healthful Solutions segment? Any context there would be great. Jim Zallie: One of the things that we did is, alongside our enterprise productivity initiative—which we always need to have as a lever to drive continuous improvement in our business—as a management team we got together early in the year, looking at that initiative and what we wanted to achieve from that this year alongside what our CapEx budget presented. We ring-fenced certain investments that we preserved for support of our Texture Solutions capability build, and we proceeded to make the people investments and the innovation investments. Right now, one of the bodies of work in enterprise productivity—which you would think could be solely about cost reduction—but actually one of the biggest parts is enhancing our innovation operating model: how do we become even more efficient and effective from innovation with the investments that we can make in artificial intelligence to get the predictive formulation that is at the heart of our solutions capability, as well as the measurement capabilities to do structure-function predictability work for, again, texture solutions. We have ring-fenced those investments. We are continuing to make those investments. The cash flows afford us the opportunity to invest both in a balanced way in growth capital as well as reliability capital. We are always assessing those needs, and I think we have the balance right going forward. We spent a lot of time debating and discussing that. Analyst: Very good. I appreciate that context. I will get back in queue. Jim Zallie: Thank you. Operator: Thank you. I would now like to turn the call back over to Jim Zallie for any closing remarks. Jim Zallie: I want to thank everyone for joining us this morning. We look forward to seeing many of you at our upcoming investor events, with the next significant engagement being the BMO Farm to Market on May 13 in New York. I want to thank everyone for your continued interest in Ingredion Incorporated. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
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: Morning. My name is Jason, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade Company's First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Chris Forrey, Senior Vice President of Finance and Investor Relations. Mr. Forrey, you may begin your conference. Chris Forrey: Thank you, Jason, and good morning, everyone. I would like to welcome you to Boise Cascade Company's First Quarter 2026 Earnings Call and Business Update. Joining me on today's call are Jeff Strom, our CEO; Kelly E. Hibbs, our CFO; Joanna Barney, leader of our Building Materials Distribution operations; and Troy Little, leader of our Wood Products operations. Turning to Slide two. This call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides, and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that the appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA, and segment income or loss to segment EBITDA. I will now turn the call over to Jeff. Jeff Strom: Thanks, Chris. Good morning, everyone, and thank you for joining us for the earnings call. I am on Slide three. As I step into the role of CEO, I want to express my deep confidence in our company, our talented people, and our established direction. We have a strong foundation and a proven strategy that has positioned us well in the marketplace, and I am committed to building on that momentum. My thanks to our outstanding team whose dedication, expertise, and commitment to our customer and supplier partners are what drive our continued success. I am excited to lead us forward, focused on delivering sustained value for all of our stakeholders. Let me turn to our first quarter results. Total U.S. housing starts increased 1% compared to the prior-year quarter. However, single-family housing starts were off 5% for the same comparative period. Our consolidated first quarter sales of $1.5 billion were down 2% from 2025. Our net income was $17.8 million, or $0.50 per share, compared to net income of $40.3 million, or $1.06 per share, in the year-ago quarter. Our businesses delivered solid results for the quarter despite continued demand uncertainty resulting from geopolitical events, volatile mortgage rates, and severe weather. The challenges of consumer sentiment and home affordability remain the most significant headwinds for residential construction activity. In this environment, we are continuing to leverage our integrated model, which consistently demonstrates its value and resilience, particularly in challenging market conditions like these. As a follow-up to our previously disclosed legal matter that was resolved last week, this was a legacy issue involving certain hardwood plywood purchases made at a single distribution facility in Pompano, Florida between 2017 and 2021. We bought the wood from a former U.S.-based supplier that improperly imported the products. We were not involved in creating or operating the supplier scheme, but we did not follow some of our own internal processes that would have prevented us from making these purchases. We have taken responsibility for that and have strengthened our processes to prevent this from happening again. Kelly will now walk through our segment financial results, capital allocation priorities, and second quarter guidance, after which I will provide insights on our business outlook and make closing comments before we open the call for questions. Kelly E. Hibbs: Thank you, Jeff, and good morning, everyone. BMD sales in the quarter were $1.4 billion, down from the first quarter of 2025. BMD reported segment EBITDA of $48.2 million in the first quarter, compared to segment EBITDA of $62.8 million in the prior year. Selling and distribution expenses were up $8.2 million from the first quarter of 2025. In addition, gross margin dollars decreased $6.5 million compared to the prior-year quarter, reflecting lower gross margins on all product lines, particularly EWP. In Wood Products, our sales in the first quarter, including sales to our distribution segment, were $398.2 million, down 4% compared to the first quarter of 2025. Wood Products segment EBITDA was $32 million compared to EBITDA of $40.2 million reported in the year-ago quarter. The decrease in segment EBITDA was due primarily to lower EWP sales prices as well as higher per-unit EWP conversion costs. These decreases were offset partially by lower per-unit OSB costs, as well as higher plywood sales volumes and price. Moving to Slides five and six, BMD's year-over-year first quarter sales decline of 1% was driven by net sales price decreases of 3% offset partially by net sales volume increases of 2%. By product line, general line product sales increased 4%, commodity sales decreased 5%, and sales of EWP decreased 7%. Sequentially, BMD sales were up 2% from the fourth quarter of 2025. Weather had a significant impact on first quarter sales activity at our Southeast and Northeast distribution centers, as the affected locations were closed for a combined 35 days in January and February. The impacts were evident in BMD's daily sales pace during the quarter, with daily sales of approximately $21 million in both January and February before rebounding nicely in March to $24 million. Our first quarter gross margin was 14.4%, down 30 basis points year over year. The decline was driven by EWP competitive pricing pressures, as well as lower margins on general line. BMD's EBITDA margin was 3.5% for the quarter, down from both the 4.5% reported in the year-ago quarter and the 4.1% reported in the fourth quarter. Lower gross margins, coupled with the effects on our operating expense leverage from branch closures in the first quarter, negatively impacted our EBITDA margin result. Turning to Slide seven, on a year-over-year basis, first quarter I-joist and LVL volumes were down 51%, respectively. Sequential I-joist and LVL volumes were up 168%, respectively, driven by seasonal demand improvements and channel restocking ahead of the spring building season. As it relates to pricing, first quarter EWP sales prices declined about 7% year over year and remained flat sequentially. Turning to Slide eight, our first quarter plywood sales volume was 373 million feet compared to 363 million feet in the first quarter of 2025. The year-over-year increase in plywood volumes was due primarily to the restart of operations at our Oakdale mill in the fourth quarter of 2025. Sequentially, our plywood sales volumes were up 5% from the fourth quarter of 2025 as anticipated due to seasonal demand improvement. The average plywood net sales price was $343 per thousand in the first quarter, representing a 1% increase year over year and 4% sequentially. We attribute the recent improvement in plywood pricing primarily to weather-related supply constraints in the South combined with reduced imports. Notably, Brazilian imports declined by more than 60% year over year in 2026. However, following the late February Supreme Court decision that validated the use of IEPA to impose tariffs, higher import volumes are anticipated, which are expected to influence market dynamics in the coming months. I am now on Slide nine. We had capital expenditures of $40 million in the first quarter, $23 million of spending in BMD and $17 million of spending in Wood Products. The capital spending range for 2026 remains at $150 million to $170 million. Roughly a third of BMD's 2026 spending relates to growth projects across our system, with the balance of our spending in both segments attributable to business improvement and efficiency projects, replacement projects, and ongoing environmental compliance. Speaking to shareholder returns, we paid $10 million in dividends during the quarter. Our Board of Directors also recently approved a $0.22 per share quarterly dividend on our common stock that will be paid in mid-June. Through the first four months of 2026, we repurchased approximately $91 million of our common stock, including approximately $66 million in the first quarter. Since the beginning of 2024, we have repurchased approximately 12% of our outstanding shares. As of today, approximately $148 million of our outstanding common stock is available for repurchase under our existing share repurchase program. As expected, we utilized cash in the first quarter, primarily driven by seasonal working capital needs along with our planned capital investments and shareholder returns. However, the ongoing strength of our balance sheet remains in place, which positions us well to continue the pursuit of our strategic objectives. I am now on Slide 10, where we have outlined a range of potential EBITDA outcomes for the second quarter, along with the key assumptions underlying these projections. As we look ahead, end market demand remains uncertain, and certain cost inputs are volatile. For BMD, we currently estimate second quarter EBITDA to be between $65 million and $80 million. BMD's current daily sales pace is approximately 15% above the first quarter sales pace of $22 million per day. Gross margins are expected to be between 14.25% and 15%. Importantly, as our guide suggests, if our current sales pace is sustained, we expect BMD to show a healthy sequential improvement in EBITDA margin. For Wood Products, we estimate second quarter EBITDA to be between $32 million and $47 million. Our EWP order files are showing seasonal strength, and we expect sales volumes to increase mid-single digits sequentially. EWP pricing is expected to range from flat to low single-digit declines sequentially. In plywood, we expect sequential volume increases in the mid-single digits. On plywood pricing, quarter-to-date realizations were 8% above our first quarter average, with the balance of the quarter market dependent. We expect our per-unit manufacturing costs will be comparable to the first quarter, as higher volumes and early results from focused site improvement plans across our manufacturing system are expected to offset recent energy-related cost increases. I will turn it over to Jeff to share our business outlook and closing remarks. Jeff Strom: Thank you, Kelly. I am on Slide 11. Given the current environment, visibility into end market demand for 2026 is limited. For much of the first quarter, mortgage rates declined to the lowest level in over three years. However, recent geopolitical turmoil has led to volatility in Treasury and mortgage rates alike, introducing greater uncertainty on the remainder of the spring selling season. Homebuilders are responding to the cautious demand environment with thoughtful approaches to starts, home sizes, location, and inventory. As a result, maintaining our focus and staying agile remains central to Boise Cascade Company's strategy for delivering outstanding service across a broad selection of in-stock, industry-leading building materials in any operating environment. The alignment of our two business segments is evident every day and is a driving force in our world-class operations. Enhanced channel visibility supports the alignment of our production rates and inventory strategies with end market demand. Cross-divisional coordination and our strong financial position provide the security and flexibility for our teams to execute our strategy and deliver long-term value creation. We are committed to continuously seeking new opportunities to leverage our integrated model by driving greater efficiency, responsiveness, and innovation across our organization. As we consider the future of homebuilding, we remain confident in the structural drivers of U.S. housing demand, which include the persistent undersupply of housing driven by generational tailwinds, near-record levels of homeowner equity, a decade of underbuilding, and an aging U.S. housing stock with the average home being more than 40 years old. The strong fundamentals for both new residential construction, repair, and remodeling reinforce the industry's favorable outlook. Boise Cascade Company's investments throughout the business cycle give us confidence that we can outpace industry growth as these market tailwinds materialize. Thank you for joining us today and for your continued support and interest. We welcome any questions at this time. Jason, please open the phone lines. Operator: Thank you. We will now begin the question and answer session. Our first question comes from Michael Roxland from Truist Securities. Please go ahead. Michael Roxland: Yes. Thank you, Jeff, Kelly, and Chris for taking my questions. First question I had, Kelly, just in response to one of your comments regarding Brazilian import and lower tariffs. You mentioned expecting to see them in coming months. Have you started to see any increased plywood or wood flows from Brazil at this juncture? And it also seems like my second question, just EWP prices in the first quarter sort of stabilized quarter over quarter. One of your peers was showing mid-single-digit decline in pricing. Can you provide any more color around what is driving the price stability in your business maybe versus some of your peers? Kelly E. Hibbs: Yes. So my understanding, Mike, is that the true answer is yes. We are expecting to see more and more of that show up at the ports, maybe a little bit delayed because there was a phenol disruption at a manufacturing site in Brazil. But we know the wood is coming and we are seeing quotes show up in the coming months. Jeff, do you have some more color on that? Jeff Strom: I would add that there has been some that has showed up, but not significant enough that would cause any major impact. Troy Little: Yes. I mean, we were able to hold prices relatively flat since the third quarter of last year, but that is definitely not a function of less pressure in the market. It has come back. There has been more chatter. There is regional pricing pressure from our competitors still. We have the conversations with homebuilders and still a strong concern for home affordability. So right now, it is just a matter of being very strategic. It is regional conversations, making sure that we are competitive, but we are not leading with price, leading into our model and our service proposition. Fortunately, so far, we have been able to hold prices, and right now, quite honestly, our order file is strong, which allows us to be selective in how we address our pricing. Operator: The next question comes from Ketan Mamtora from BMO Capital Markets. Please go ahead. Ketan Mamtora: Good morning, and thanks for taking my question. Perhaps to start with, can you talk about freight and transportation inflation that you are seeing across both Wood Products and Distribution? If you can quantify that headwind and how you all are mitigating that? And then, when I think about the second quarter EBITDA guidance, appreciate that it is a dynamic environment. As I think about your top end versus the bottom end of the guidance range, can you at a high level talk about what that contemplates? Should I think about your current daily pace getting you to the midpoint of the guidance range in Distribution? Is that the way to think about it? Troy Little: Ketan, this is Troy. In terms of diesel prices, we are seeing that in various aspects of our business. The biggest one for us is probably in our resin costs. That is the input cost that is affected related to the increase in prices. We did have a price increase probably in the 10% range around our resin. Then we have some direct cost, if you think about fuel for rolling stock and things like that, which is not a huge spend for us, but that will be an impact. Moving veneer around the system, we see that in our wood costs. Then there is the indirect, every piece and part that comes into our system has some type of inflationary pressure around freight. We are working on our cost control on the opposite side of that to help mitigate some of that. It is hard to quantify all that, but I think we are still comfortable that we should have comparable manufacturing costs, as Kelly mentioned. Joanna Barney: And then I will jump in on the Distribution business. Diesel rose significantly during the quarter. We were paying almost double at the end of the quarter what we were paying at the beginning of it. Most of it we are able to pass on through our daily transactions with our customer base. There are some fuel surcharges, and our people have done a tremendous job of passing those along, but there has been some short-term impact to our margin on program business where freight was included as part of the original program. At times, there are delays in what we are able to go out and recoup as far as those costs. I would also add that there has been a lack of trucks and drivers due to tight immigration policies. That has impacted freight rates and the availability of trucks as well. Jeff Strom: The thing I would add on the BMD side is that every load that goes out of our warehouse every single day, we make sure that we optimize. We are sending out a full truck to spread that freight as efficiently as possible, and we have been working really hard on doing that. Kelly E. Hibbs: So, Ketan, let me take a shot at the guidance piece. I will start with BMD first and then give you a little color on Wood Products also. You kind of hit it in your question, which is we still have two months to go in the quarter. End market demand is pretty uncertain, and how much of the demand we have seen so far is replenishing the channel versus end market demand is a little hard to tell. There are unknowns and volatility around the cost inputs. That is why we draw a pretty wide range around our EBITDA forecast for both businesses. Specific to BMD, if you assume that the sales pace we spoke to so far this quarter is sustained, and our margins are at the midpoint of the range that we put out, that would get us into the midpoint of the range, into the low $70 millions. That would get us back to a really good spot in terms of a healthy improvement in EBITDA margin, into the mid-4% range. In Wood Products, it is a similar theme in terms of the challenges with forecasting. Troy spoke to good order files in EWP and pretty good order files in plywood, but we know, particularly in plywood, how quickly things can flip. Again, that is why we purposely put a pretty wide range around those results. Operator: The next question comes from Susan Marie Maklari from Goldman Sachs. Please go ahead. Susan Marie Maklari: Good morning, everyone. Thanks for taking the questions. My first question is around thinking of the environment that we are in and the increase in macro uncertainty that we saw at the end of the first quarter. Has that had any impact on the mix you are seeing between sales coming out of the warehouse versus direct? What is the overall read of your customers, and how is that influencing the guide and how we should think about the flow through to results? And within general line, can you talk about what you are seeing from your suppliers in terms of competitive dynamics and pricing over the next couple of quarters? Jeff Strom: I will take a stab at the first part. What we did see in the first quarter, when commodities started to move and prices were down to begin with, was people stepping in and buying more directs than we have seen in the past few quarters. There was absolutely a shift to that. But as we move forward, with the uncertainty that is out there, that most often creates more reliance on distribution, and we are absolutely seeing that. Our warehouse business continues to be very strong and continues to be what people want to use. Joanna Barney: On suppliers and pricing, we saw late in the first quarter somewhere in the neighborhood of 25 to 30 price increases. Some of those were surcharge-driven, based on gas and freight, but most of them were product price increases. We are seeing broader product offerings and suppliers starting to understand that there has been some strength in the market that they are pushing into, and they are starting to move their prices accordingly. Operator: The next question comes from Kurt Yinger from D.A. Davidson. Please go ahead. Kurt Yinger: Great. Thanks, and good morning, everyone. I just wanted to go back to BMD. Looking at the volume performance there, even if we strip out an assumption on hold-in, it looks pretty flat, which I would say is good in this market. Can you talk about whether it is product category or customer initiatives that seem to be bearing fruit there? And then on the gross margin line, as we move into the back half, is the competitive environment so challenging that it would be tough to get back to that 15% plus gross margin level, or is that still an attainable goal? Joanna Barney: I would say it is both product and customer initiatives. As a backdrop, we had some margin return-on-sale impacts that were either a onetime event or not expected to be permanent. To Kelly's point in his prepared remarks, we had 38 days of closures with weather. Some of that business we recaptured, some of it we lost, but our costs remained fixed, so there was an impact there. We had fuel surcharges that we passed through, but there is timing that goes on there, so there is a margin shift. Within general line, we are focused on growth of our home center special order business, which we grew by double digits, and we continue to build out our door segments, gaining market share there. We are driving top-line revenue. Tied to our door initiative, we have pushed into the manufactured housing sector and saw double-digit growth in the first quarter, with a lot of upside opportunity there. We are making strides with our digital strategy. Our e-commerce business was up 57%. On commodities, you will continue to see us outperform the market because we have built out commodity technical systems that give us early indicators and real-time views into trends, inventory levels, and market segments, so that we can move quickly across our system. Our commodity volume and footage was flat to up in the first quarter, and we actually saw margin expansion, in spite of lower pricing. We feel confident that we are expanding our market share in commodities based on the systems we have built and the educated risks we take in putting inventory on the ground, built on years of experience and the expertise of our people. That has helped us in deflationary pricing environments to hold on to our volume and expand our margins. On gross margins versus 15% plus, I think it is an attainable goal. The current demand environment is uneven and rate-sensitive. There are still a lot of opportunities, but they vary by geography, product category, and builder type. When interest rates dipped below 6%, we saw strength return pretty quickly. If rates pull back and geopolitical tensions ease, BMD could see some improvement from seasonality as commodity prices improve. We are still seeing pricing pressure on EWP, although it is abating. We have had margin impacts across a wide breadth of general line products, and we saw year-over-year commodity price deflation, but we have offset that with margin expansion. If nothing changes in rates or tensions, we would have a more measured outlook: some seasonal improvement, but not a broad-based acceleration. Operator: The next question comes from George Staphos from Bank of America. Please go ahead. George Staphos: Hi, everyone. Good morning. Thanks for taking my questions. First, is there a way that you can give us a ballpark figure for the inflation you have seen in your cost of goods on an annualized basis that you have yet to recover in pricing actions already? Second, on plywood, you said there is some wood already showing up from Brazil and South America, but it has not had a big effect. Why do you expect it might have a bigger effect? What would some of the factors be, given your experience? Kelly E. Hibbs: I will start on the first one and speak specifically to Wood Products. In BMD, we are seeing some freight increases that we will largely be able to pass through over time. In Wood Products, the big items subject to inflationary increases that we are experiencing now and did not really see much of in the first quarter are glue, natural gas, and purchased electricity. Generally speaking, that is roughly 10% of Wood Products cost of sales. To the extent we see, and we have seen, about 10% increases in some of those key inputs, that gives you a sense of the cost impact, assuming volumes remain the same. On the second question around plywood imports, Jeff? Jeff Strom: We have not seen a huge impact because there has not been a whole lot that has come in so far. Why do we expect there will be an impact? It is supply and demand. It depends on where it comes in—what port, whether it is a big plywood market or not—and how much comes in. If there is a lot and a big price advantage, imports will grab some share. We have seen that before. But with what is happening there, there has been a delay with transportation and freight coming over. It will be wait and see when it gets here. George Staphos: As a quick follow-up, what are the spreads between current market pricing and what the quotes are coming in on imports? Can you give us a sense of the arbitrage? Jeff Strom: When it first got here, if I remember right, it was about a 10% difference between the two—what the pricing spread was when it first arrived or what they are quoting. Operator: The next question comes from Jeffrey Stevenson from Loop Capital. Please go ahead. Jeffrey Stevenson: Hi, thanks for taking my questions today. How much did restocking ahead of the spring selling season contribute to the improved sequential EWP volumes during the quarter? And could you provide an update on current EWP channel inventories at this point of the year compared with both last year, when they were elevated, and historical levels? Also, could you provide an update on the new Thorsby line and how we should think about the ramp and production at the facility as we move through the first half of the year? Troy Little: Undoubtedly, the better part of the first quarter was probably a restocking story. Maybe late in the quarter there was some follow-through, so it was a combination of both. Our order file grew to a solid two-week order file, and we have carried that through April and into May. On channel inventories, there is still a reliance on two-step distribution. Talking to our channel partners, they have increased inventory, but they are not back up to the high end of their targets for this time. On Thorsby, it is largely as planned. Right now, we are testing out and getting our products certified in the various depths and series. That is expected to go through the second quarter. In terms of sellable product, we would not have sellable product until probably the beginning of the third quarter. To a degree, that is capacity we have, but demand will dictate. To the degree demand is there, we will start producing out of Thorsby; to the degree it is not, we will use that as throttle. Going into the third quarter, I would not anticipate that being a huge volume contributor right now. Operator: Our next question comes from Reuben Garner from Benchmark. Please go ahead. Reuben Garner: Thank you. Good morning, everyone. Maybe just a follow-up on EWP price-cost dynamics. I think you referenced an expectation of low single-digit sequential pricing declines. What is driving that? You mentioned a strong order file and inflationary pressures. Is it still just so competitive, or supply-related? Is there a lag from competitiveness several months ago that is flowing through now? Why would we see sequential declines when we have a strong order file and inflationary pressures? And then on the BMD side, I think, Kelly, you mentioned margin pressure in general line products. Is there something unique going on there in any specific categories driving that? And where do inventories stand today in general line, and how are you thinking about them for this year? Troy Little: It is flat to down. There is enough chatter out there that we could see continued erosion from the competitive environment—primarily on retaining business. On delivered cost, if freight increases are not fully passed through the channel, there is some impact to net sales price on the freight side. That combination may lead to a little erosion, but we are not anticipating a lot. That is why we have the flat to low single-digit range. Joanna Barney: From a margin compression standpoint, the biggest pressure we have seen has been across engineered wood, but that is abating. The rest of general line shows small margin impacts across a wide breadth of products, mostly market-based at the distribution level—nothing out of the ordinary. On channel inventories, the business starts we have seen are starting to normalize a bit. The channel is lean but relatively stable. Customer purchases have been more consistent than the start-stop we saw last year. We have started seeing price increases from multiple suppliers on the general line side as well. Jeff Strom: I would just add that single-family is such a driver for us, and single-family demand is very much muted. When it gets like that, everybody is fighting for what is out there. It is hyper-competitive right now across pretty much everything. Operator: And the next question is a follow-up from Kurt Yinger from D.A. Davidson. Please go ahead. Kurt Yinger: Great. Thanks. Troy, have you seen any derivative impact in terms of the EWP price conversations you have had, maybe specifically on floor systems, given what we have seen in dimensional lumber inflation? And then, looking at the outlook, it sounds like the order book is pretty strong. I know the first quarter benefited from some restocking, but it does not seem like much of a sequential seasonal lift in EWP volumes in the second quarter versus the first. Is that related to the restock dynamic or more of an assumption around some softening in single family as we progress into summer? Troy Little: Nothing that I am aware of on floor systems. Typically, once you get builders to convert to EWP floor systems, you do not see them convert back. On open-web truss, that is a competitive product to I-joist, and the cost inputs for those products have been quite volatile in recent quarters. But I-joists are maintaining share. We were happy to see the good sequential volume increase we saw in I-joist. Kelly E. Hibbs: On the outlook, it is a little hard to sort out exactly how much of the first quarter was end market versus channel restocking; it was some of both. As we move into the second quarter, if you read the transcripts from the national homebuilders, they are very focused on sales pace and moving spec inventory, moderating their starts pace to their sales pace. Some are talking about increasing starts, but more seem to be talking about decreasing starts and transitioning a bit more to build-to-order, given improved cycle times. That all plays into the narrative. We are doing our best to pick up the demand signal from the homebuilder channel, which suggests we are not going to see a big seasonal increase into the second quarter. Operator: This concludes our question and answer session. I would like to turn the conference back over to Jeff Strom for any closing remarks. Jeff Strom: Thank you for your continued interest in Boise Cascade Company. Please be safe and be well, and we look forward to talking to you next quarter. Thank you all. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good day, and welcome to the Key Tronic's Fiscal Year 2026 Third Quarter Investor Call. Today's conference is being recorded. After the presentation, we will begin the question-and-answer period. At this time, I would like to turn the call over to Tony Voorhees. Please go ahead. Anthony Voorhees: Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Key Tronic. I would like to thank everyone for joining us today for our investor conference call. Joining me here at our Spokane, Washington headquarters is Brett Larsen, our President and Chief Executive Officer. As always, I would like to remind you that during the course of this call, we might make projections or other forward-looking statements regarding future events of the company's future financial performance. Please remember that such statements are only predictions. Actual events or results may differ materially. For more information, you may review the risk factors outlined in the documents the company has filed with the SEC, specifically our latest 10-K and quarterly 10-Qs. Please note that on this call, we will discuss historical, financial, and other statistical information regarding our business and operations. Some of this information is included in today's press release. During this call, we will also reference slides that accompany our discussion. The slides can be viewed with the webcast, and the link can be found on our Investor Relations website. In addition, the slides, together with the recorded version of this call, will be available on the Investor Relations section of our website. We will also discuss certain non-GAAP financial measures on this call. Additional information about these non-GAAP measures and the reconciliations to the most directly comparable GAAP measures are provided in today's press release, which is posted to the Investor Relations section of our website. For the third quarter of fiscal year 2026, we reported total revenue of $89.6 million, compared to $112.0 million in the same period of fiscal year 2025. Year-over-year revenue for the third quarter of fiscal year 2026 continued to be adversely impacted by reduced demand from a legacy customer and an end-of-life program. Additionally, we also faced temporary challenges during the quarter related to winter storm Fern in the Southern U.S., customer design delays on a new program with a legacy customer, and delays in receiving allocated components on a separate new program. For the first 9 months of fiscal year 2026, our total revenue was $284.6 million, compared to $357.4 million in the same period of fiscal year 2025. Despite these short-term impacts, we are already seeing activity improve, with demand returning from several legacy customers and multiple new programs continue to launch and ramp, driving expected revenue growth for the fourth quarter. Importantly, even with lower revenue in the third quarter of fiscal year 2026, we delivered an improvement in gross margin compared to the prior year period. This demonstrates the operating efficiencies gained from our cost-cutting initiatives during the past 2 years. Gross margin was 8.0% and operating margin was negative 0.3% in the third quarter of fiscal year 2026, up from 7.7% and negative 0.4%, respectively, in the same period of fiscal year 2025. Excluding the charges related to the China closure, which we will discuss in a moment, the adjusted gross margin was 8.5% for the third quarter of fiscal year 2026, up from 8.4% in the same period of fiscal year 2025. These results demonstrate that our business today is structurally more efficient and better positioned to generate margin as volume returns. In line with our long-term strategic plan, we continue to prepare for anticipated long-term growth by executing our nearshoring and tariff mitigation strategies to reduce costs while maintaining the diversity and flexibility of our key locations and capabilities. During the quarter, we continued to wind down manufacturing operations in China, shifting more production to our expanding facilities in the U.S. and Vietnam. The China winddown is expected to be completed by the end of the current fiscal year and anticipated to save approximately $1.2 million per quarter following completion. As top line growth returns, we anticipate margins to be strengthened by the improvements in our operating efficiencies and the positive impact of our strategic cost-savings initiatives. We also believe the recent cost-savings initiatives have made us more competitive when quoting new program opportunities. As production volumes increase and our operational adjustments take full effect, we expect to see greater leverage on fixed costs, enhanced productivity, and a more streamlined supply chain, all contributing to stronger financial performance. The reduction in revenue had a significant impact on our bottom line. The net loss was $2.6 million, or $0.24 per share, for the third quarter of fiscal year 2026, compared to a net loss of $0.6 million, or $0.06 per share, for the same period of fiscal year 2025. For the first 9 months of fiscal year 2026, the net loss was $13.5 million, or $1.24 per share, compared to net loss of $4.4 million, or $0.41 per share, for the same period of fiscal year 2025. Our adjusted net loss was $2.8 million, or $0.26 per share, for the third quarter of fiscal year 2026, compared to adjusted net income of $0.1 million, or $0.01 per share, for the same period of fiscal year 2025. For the first 9 months of fiscal year 2026, our adjusted net loss was $3.9 million, or $0.36 per share, compared to adjusted net loss of $1.2 million, or $0.11 per share, for the same period of fiscal year 2025. Our focus on operating discipline continues to support a strong balance sheet. Our inventory for the third quarter of fiscal 2026 is down $13.5 million, or 14.0% from a year ago. Our current ratio was 2.1:1 compared to 2.7:1 from a year ago. At the same time, accounts receivable DSOs were at 85 days, compared to 92 days a year ago, reflecting stronger collection on receivables. Year-to-date cash flow provided by operations for the first 9 months of fiscal year 2026 was approximately $10.0 million, as compared to $10.1 million for the same period of fiscal year 2025. Our continuing ability to generate cash from operations has allowed us to reduce debt year-over-year by approximately $14.3 million and helps position us well as demand accelerates and new programs ramp. Capital expenditures in the third quarter were minimal, while year-to-date total capital expenditures through the third quarter were approximately $3.7 million. We expect CapEx for the full year to be around $5 million to $8 million, largely spent on new innovative production equipment and automation. While we're keeping a careful eye on capital expenditures, we plan to continue to invest selectively in our production equipment, SMT equipment, and plastic molding capabilities, utilize leasing facilities, and make efficiency improvements to prepare for growth and add capacity. As we move further into fiscal 2026, we continue to face a lot of global economic uncertainties and volatile trade policies. Nevertheless, we are increasingly encouraged by the demand trends we're seeing as we enter the fourth quarter. Activity with several longstanding customers is improving, new programs are ramping, and our expanded U.S. and Vietnam capacity is generating increased customer interest. Our improved operating efficiency makes us more competitive, resulting in a stronger pipeline of potential new business, and we remain focused on further improving our profitability. Our production backlog has grown, and we believe that we are increasingly well positioned to win new programs and profitably expand our business. Due to the uncertainty of timing of new product ramps in light of continued macroeconomic uncertainty, we are not providing forward-looking guidance in the fourth quarter of fiscal year 2026. That's it for me. Brett? Brett Larsen: Thanks, Tony. Despite reduced demand from certain longstanding customers and the delays in production caused by winter storm Fern in the third quarter, we're encouraged by the improvements in our operating efficiencies and by the gradual rebound in demand from several longstanding customers and the continued growth of new programs that we're seeing in the fourth quarter. We continue to provide our customers with options to better manage macroeconomic uncertainties and enhance our potential for profitable long-term growth as we cease manufacturing operations in China, continue to right-size our Mexico facility, and build out new production capacity in the U.S. and Vietnam. Our improved operating efficiency has made us more competitive, and we expect our revenue to gradually begin to rebound and see a return to profitability in the fourth quarter of fiscal 2026. As part of our long-term strategy and in recognition of the continuing geopolitical tensions, tariff uncertainties, and increasing costs associated with China-based production, we are winding down our facilities there and transferring programs to Vietnam. We anticipate savings generated from the shutdown to approximate $1.2 million per quarter once fully executed. As part of our global sourcing strategy, we will, however, continue to operate in China with a small team focused on sourcing critical components locally. Over the past 24 months, we have also reduced our total head count by approximately 42% in Mexico and have begun transferring some programs from Mexico to the U.S. and Vietnam. Our Mexico facility continues to offer a unique solution for tariff mitigation under the existing USMCA tariff agreement. Given the sustained trend of continued wage increases in Mexico, we have streamlined our operations, increased efficiencies, and invested in automation to be more cost-competitive in the market. Due to the successful cost reduction and streamlining production processes, we have recently seen an increase in the quoting volume and probability of landing new programs manufactured in our Mexican facilities. We've also seen an influx of new customer visits and audits of our Juarez campus as of late that demonstrates we are competitive for a growing variety of quoting opportunities. Our improved cost structure in Mexico is anticipated to lead to new programs and growth over the longer term. We are very excited about the recent investments made in the U.S. and Vietnam to build out capacity and new capabilities to meet evolving customer demand. You will recall that we opened our new technology and resource and development location in Arkansas during the first quarter of fiscal 2026. Our U.S.-based production provides customers with outstanding flexibility, engineering support, and ease of communications. We expect double-digit growth in our facility in Arkansas during the upcoming fiscal year. You will also recall that we have recently doubled our manufacturing capacity in Vietnam that now has the capability to support anticipated future medical device manufacturing. Our Vietnam-based production offers the high-quality, low-cost choice that was associated with China in the past. In coming years, we expect our Vietnam facility to play a major role in our growth. We anticipate that these new facilities in the U.S. and Vietnam will enable us to benefit from customer demand for rebalancing their contract manufacturing and mitigate the severe impact and uncertainty surrounding the tariffs on goods and critical components. By the end of fiscal 2026, we expect approximately half of our manufacturing to take place in our U.S. and Vietnam facilities. These initiatives reflect the longstanding customer trends, both to nearshore as well as derisk the potential adverse impact of tariff increases and geopolitical tensions. During the third quarter of fiscal 2026, we won new programs in automotive technology, industrial tooling, pest control, and industrial power management. Our improved operating efficiency has also made us more competitive, increasing our sales pipeline, particularly in such steady growth sectors as utilities and data center equipment. Despite the many uncertainties and disruptions in global markets, our strong pipeline of potential new business underscores the continued trend towards onshoring and dual sourcing of contract manufacturing. In light of the significant transitions and streamlining initiatives we've made in the past 2 years, it's worth reviewing our key competitive advantages going forward. The combination of our flexible global footprint and our expansive design capabilities continues to be extremely effective in capturing new business. First, we've enhanced our cost and tariff efficiency and the flexibility of our global manufacturing footprint. We expect that global tariff wars and geopolitical tensions will continue to drive OEMs to reexamine their traditional outsource strategies. Over time, the decision to onshore production is becoming more widely accepted as a smart, long-term strategy. Second, many of our manufacturing program wins are predicated upon Key Tronic's deep and broad design services. And once we have completed the design and ramped it into production, we believe our knowledge of a program-specific design challenges make that business extremely sticky. We anticipate a continued increase in the number and capability of our design engineers in coming quarters. Third, we continue to invest in vertical integration and manufacturing process knowledge, including a wide range of plastic molding, injection blow, gas assist, multishot, as well as PCB assembly, metal forming, painting and coating, complex high-volume automated assembly, and the design, construction, and operation of complicated test equipment. We believe this expertise will increasingly set us apart from our competitors of a similar size. While the global market uncertainties have created some delays to new product launches for us, our suppliers and our customers, we believe geopolitical tensions and heightened concerns about tariffs and supply chains will continue to drive the favorable trend of contract manufacturing returning to North America as well as to our expanding Vietnam facilities. We're expecting revenue growth in the coming quarters from new programs launching in the U.S., Mexico, and Vietnam. Significant improvements in our operating efficiencies are creating a stronger pipeline of potential new business. Over the long term, we remain very encouraged by our cost reductions made over the past 2 years to become more market-competitive, our increasing cash flow generated from operations, enhanced global manufacturing footprint, and the innovations of our design engineering. All these initiatives have increased our potential for profitable growth. This concludes the formal portion of our presentation. Tony and I will now be pleased to answer your questions. Operator: [Operator Instructions] And we will take our first question from Matt Dhane with Tieton Capital Management. Matthew Dhane: I did want to ask, you referenced you had 4 wins in your press release. Just wanted to get a sense of the size of each of those wins, as well as where they're going to be -- where the manufacturing is going to be taking place, and then also expected timing of the ramps of those. Brett Larsen: You bet. Happy to do that, Matt. So I think the first one, that automotive technology, that's about a $3 million to $5 million program that's slated to start in Juarez in fiscal '27. My expectation is we'll probably start ramping that in the second quarter. Next is the industrial tooling. This one is a bit unique. It was a design program that we started here in Spokane. Now they're wanting us to actually start building some low-volume production. So we're actually going to do that in our downstairs facility here in Spokane temporarily while we ramp that. Currently, it has about an order of about $3 million, but we're expecting that to grow. Ramp on that is immediate. Third is pest control. That's a $2.5 million opportunity incremental to some other business of an existing customer down in Juarez, Mexico. And then the last -- fourth is the industrial power management. That's an $8 million to $10 million opportunity that will start towards the end of the calendar quarter, so again, second quarter of fiscal '27 in our Springdale, Arkansas facility. Matthew Dhane: One other question I did have. So obviously, tariffs has been a key conversation point here for a while. You talked about your pipeline building. What role is tariffs playing today in conversations with prospective customers? And yes, just help me understand all that, if you could. Brett Larsen: Yes. There's quite a bit of moving parts -- continue to be moving parts with -- related to tariffs. I think we're well situated now that we have an increased capacity to build product in Vietnam. The fact that USMCA is still in -- still a mitigation opportunity as well in Mexico and those that want to nearshore in the U.S. So I think we're seeing a hesitancy to make a decision or to award us a program. Some of that hesitancy is coming to close, and we're actually seeing the actual awarded opportunities begin to pile up. So I think this hesitancy and uncertainty for so long of awarding a program and elongating that sales cycle now begins to -- I think, people are becoming okay with the fact that there's going to be continued uncertainty, and we're actually seeing stocking levels decrease in certain key new opportunities and legacy customers. So I think it's a change in the market of, 'I'll wait and see what tariffs do,' to now, 'it's a complete, open -- continued changing in and out because of the required response -- or the required stockouts and reducing inventories, they're going to need to make a decision. And so, I'm making that in light of the uncertainty. That's a long-winded answer to, I think we anticipate some wins that we've been waiting for, for quite some time. Operator: [Operator Instructions] And we will take our next question from George Melas with MKH Management. George Melas: Nice to hear a consistent story about increased capability -- in the number and capability of design engineers. Can you elaborate a little bit on that? And is that still very much -- is design complexity very much one of the focus of your sales opportunities? Brett Larsen: Yes. As we spoke before, George, part of our strategy is to continue to grow that design capability. So we're continuing to recruit and hire new design engineers. We have found it incredibly important for us to continue down that path. If you get into a customer relationship where you're providing design capabilities to them, not only is that business very sticky, you're also helping them design the product to be a good fit to your own production equipment and capabilities within your own factory. So we're going to continue down that road. What's kind of fun to see is this is the first design project that we're actually building within our Spokane facility with the engineers themselves. This is a little new to us. We've done this many years back. But my expectation is that this may become a bit more of the norm, as we take over the design responsibility to bring a new product to market. And maybe they use our engineers to put the first series or set of products together. George Melas: That sounds good. Can you also give us a bit of an update on the data processing customer in Mississippi? I think that's a potentially very, very significant project, but I think it was always expected to ramp rather slowly or progressively. Can you update us on that? Brett Larsen: You bet, George. So that customer down in Mississippi continues to be flat quarter-over-quarter, so quarter 2 to quarter 3 is flat. Our hope is that, that will continue to ramp over time. But to date, it's been relatively flat over the last 2 quarters. There's not any real growth that we see in Q4, but maybe in fiscal '27. That's the consign program, I think, that we spoke about at length a couple of quarters ago. But it still continues to be a very good program for us. It's just -- it's been fairly flat last 2 quarters. George Melas: And at what level it is now in terms of what you think it could be? Is it at 1/4 of its potential? Or how would you characterize it compared to what the potential expectation is? Brett Larsen: That's a difficult one to quantify. I think we're probably 50% of what our initial expectation was. But I think this is very market sensitive and based off of where we're at today, again, that's a tough one. I wish I had a crystal ball, George, but we're definitely not where we thought its capacity was, but it's a complete unknown at this point. Anthony Voorhees: And I'd just add to that, George, that this customer has a number of SKUs that we could build. And we've actually built a few different SKUs for them already. So we're ready to take on more when it becomes available to us. Brett Larsen: Yes. The relationship is just very market sensitive. George Melas: And maybe just one clarification. You guys mentioned in your prepared remarks that you can see a return to profitability in the fourth quarter. So basically, it means next quarter. Brett Larsen: Yes. George Melas: What kind of revenue level do you need in order to hit that target? Brett Larsen: Yes, I don't know that we're yet giving guidance. Tony mentioned that there still is quite a bit of uncertainty in some ramps and the things that are going on. So I don't know that we want to quantify our revenue. Our expectation is definitely that there's going to be revenue growth Q4 sequentially from Q3. And we still feel strongly that we'll be in the black bottom line. In future quarters, we'll readdress that. But at this point, I'd rather not give guidance. George Melas: Okay. And then just a quick question. In the last quarter, you mentioned potential savings from China from stopping the -- closing the manufacturing operations there. And you also mentioned $1.5 million of savings related to the reduction in force in Mexico. Is that something that you've started to benefit from that has started to hit the bottom line? Or do we really see that in the fourth quarter or in fiscal '27? Anthony Voorhees: Yes. Thanks, George, for that question. So in China, specifically, we have completed our manufacturing operations there. So now we have a bit additional work to do just to get other materials and equipment out of China that we want to send to one of our other locations or sell it. So we do have a bit of work to do there. We completed that production in April, so just not that long ago. So we should start to see those employees severanced now, and we'll start to see improvements related to the $1.2 million that we mentioned in the script, probably in later this quarter. Brett Larsen: Yes. So I think the full $1.2 million won't be until Q1. But there is some incremental savings in this quarter, Q4, that we will see. Anthony Voorhees: And with regard to the Juarez, Mexico question, we have completed that severance. We are seeing some revenue growth down there in our Mexico operations. So we didn't complete 100% of that severance, as we will need some of those employees as we're seeing some revenue growth there in that facility. Operator: [Operator Instructions] And at this time, we have no further questions. I would now like to turn the call back to Brett Larsen. Brett Larsen: Thank you again for participating in today's conference call. Tony and I look forward to speaking to you again next quarter. Thank you. Operator: This does conclude today's call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Qualys First Quarter 2026 Investor Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Blair King, Investor Relations. Please go ahead. Blair King: Thanks, Michelle. Good afternoon, and welcome to Qualys' First Quarter 2026 Earnings Call. Joining me today to discuss our results, Sumedh Thakar, our President and CEO; and Joo Mi Kim, our CFO. Before we get started, I would like to remind you that our remarks today will include forward-looking statements that generally relate to product capabilities, future events or future financial or operating performance. Actual results may materially differ from these statements and factors that could result -- and factors that could cause results to differ materially are set forth in today's press release in our filings with the SEC, including our latest Form 10-Q and 10-K. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. And as a reminder, the press release, prepared remarks and investor presentation are all available on the Investor Relations section of our website. So with that, I'd like to now turn the call over to Sumedh. Sumedh Thakar: Thanks, Blair, and welcome to our first quarter earnings call. I'm pleased to report we delivered another quarter of strong revenue growth and profitability. With the accelerated progress of new frontier models, discovering vulnerabilities and writing experts autonomously, the number of detections is going to go up significantly while the exploit window is going to shrink dramatically. The need for organizations to know their true risk to effectively prioritize and auto-remediate riskiest vulnerabilities in less than a day has never been greater. This is why we innovated with the ETM enterprise tourist management platform, which implements an AI rock risk operation center so customers can get the risks remediated instead of relying on dashboard tourism with siloed products that increase their exposure. Given our #1 rating in the GigaOM Patch Management radar with over 150 million patches deployed and over 40 million of these delivered autonomously in the last year with a Six Sigma accuracy organizations are turning to Qualys as the trusted solution to help them move from current broken manual remediation processes to high-impact, low-risk autonomous remediation workflow at scale that go beyond patch management. And that's exactly where we are focused. With exploitable vulnerability volumes surging 6.5x and average time to expect collapsing to under a day as adversaries weaponized vulnerabilities before Patches even exists, security teams focus on theoretical exposure are overwhelmed. Just finding more and more vulnerabilities doesn't equal risk. Real risk is determined by whether an adversity can successfully execute and explore path in an organization's live environment. That's why I'm pleased to report that our most recent addition to our agent AI marketplace agent Vail is now generally available, powered by TruConfirm within our ATM solution agent well delivers closed-loop exploit validation and autonomous remediation directly to the rock. Using autonomous exploit validation at scale, we remove the guest work for customers by running safe exploits over the network to confirm whether attackers will succeed in their breach attempts while enabling security and IT teams to focus on the less than 1% of threats actually exploitable in their production environment. In doing so, we have closed the gap between theoretical and actual exposure and believe set a new adoption standard in the industry, while traditional ETM solutions take days to pull scan telemetry from scanning tools and rely on theoretical risk scores ignoring, mitigating security controls, ETM and its agentic AI workforce takes a fundamental different approach. Inside a continuously functioning loop, it detects vulnerabilities, validates exploit, quantifies real risk, automate remediation and revalidate the exploit, optimize and integrated with leading LLM and SLM this end-to-end approach empowers organizations to be laser-focused on prioritizing only exploitable threats for the next logical step, which is autonomous remediation, leveraging agent era and TruRisk eliminate. Underpinning our risk eliminated solution is our new AI-powered batch reliability score, a model trained our own proprietary data set of hundreds of millions of deployed patches, which predict patch induced outages before they happen, giving customers the confidence to deploy with certainty or positive purpose while setting a new standard for predictive operationally aware patch management. With an umbrella of remediation solutions, including matching and other competing controls, with less than 10% rollback rate. The AI native rock accelerates streamlines and demoralizer security outcomes, so transforming from, we think, to know it's being fixed at machine speed. In the context of the newest frontier AI models giving attackers the ability to soon discover diverse -- zero-day vulnerabilities, generate exploits in near real time and develop autonomous attack agents, unlike anything the industry has seen, the feedback to our get it fixed in our approach from many of the CISOs I met at our decent [ Rocco ] EMEA event in London has been very positive. They shared their excitement about the rapid pace of new capabilities we are delivering their deployment agenda and their ability to now autonomously monitor, measure and confidently remediate actual risk in multi-vendor environment in an era where just generating visibility dashboards is increasingly unacceptable. Our industry-leading capabilities are gaining broader recognition among our customers, partners and third-party analysts. Specifically, our total cloud solution was recognized as a leader in CNAPP in the Q1 2026 Forrester Wave report, and subsequently won the 2026 SC Award for the Best Cloud Security Management solution. Both underscore our capabilities in delivering unified visibility with real-time detection and response at run time across hybrid environments. It was also positioned as a leader in 2026 GigaOM report for cloud and entity and title management and following our dual pan awards late last year, our third research unit has again demonstrated its impact with the discovery of Track Armor uncovering critical app armor vulnerabilities that can lead to root-level compromise and container escape across millions of Linux systems worldwide. This, alongside with our recently released research on the broken physics of remediation further demonstrate Qualys' commitment to fortified security operations and raising the bar on adversaries. The net result is that we have distinctly unified CTM exploit validation cyber risk quantification and remediation into a single AI-driven risk fabric that continuously senses alerts reasons and acts across hybrid environments on with these capabilities and growing rock momentum that will soon autonomously trigger ITSM workflows. We remain laser-focused on accelerating ETM adoption throughout our vulnerability management and detection response customer base and positioning Qualys for larger upsell opportunities over time. Turning to our business update. We have established a long history of converting operational challenges into strong competitive advantages demonstrated by customers spending $500,000 or more growing 9% from a year ago to 2021 -- [ 2020 ] months. That's why one of my favorite wins in Q1 was with an existing global 1,500 customer despite strong foundational visibility that teams struggled to operationalize risk reduction across the growing mix of on-prem multi-cloud environment, silo tools fragmented telemetry, a growing population of LLM and millions of vulnerabilities with limited business contacts. This customer recognized the traditional severity-based prioritizing methods were not long -- are no longer sufficient and launched a strategic initiative to unify risk signals across their environment and operationalize the rock. Leveraging AI for security and security for AI, they expanded the Qualys footprint by adopting ETM and total AI in a mid-6-figure annual upsell. By consolidating disparate signals into the Qualys platform, this customer now has a unified orchestration layer that delivers end-to-end visibility across the attack surface, including deep scans on their assets across binaries, open source libraries and dependencies with centralized risk quantification, prioritize remediation workflows and measurable outcomes aligned with business risk tolerance. This win reflects broader ETM momentum as more and more customers turn to Qualys for evidence-based export validation and remediation while benefiting from the efficiency and scale of AI-native -- automation. Partners remain a key pillar for our growth agenda. In addition to a growing list of nearly 2 dozen certified MRO partners beginning to actively launch new services we are seeing momentum build across all geographic theaters with a strong focus on AI and native rock. For example, one of our largest MRO partners is now in the process of bringing the case-ready AI-native rock to market powered by our ETM and automated remediation solutions. Additionally, to our strategic alliances initiatives, we continue to drive deep technology integrations, co-selling opportunities and demand generation programs. to drive innovation in security research through the latest -- models. We have partnered with open AI in their crystal access for cyber program and anthropic in their cyber verification program to advance our vulnerability and threat intelligence and allow customers to ingest these findings into ETM for further detection and remediation. On the cyber insurance side, we are also pleased to announce a new strategic partnership with Converge Insurance, leveraging the quality team solution to help their customers demonstrate strong security hygiene and qualify for meaningful premium reduction, advancing our vision of tying cybersecurity to business outcome for CECL. Further supporting our growth trajectory in Q1, we continue to expand data testing of Flex designed to help customers accelerate and broaden their adoption of the Qualys TTM platform. Based on strong early engagement and positive feedback we're planning to build on this momentum by proactively identifying opportunities to extend [ Keflex ] to select customers and partners with a go-live date planned for later this year. And finally, as the federal government seeks to garnish greater efficiency and replace outdated and costly on-prem deployments from years past with modern cloud-native risk management solutions we are especially excited to host our third annual [ Pedro ] conference in Washington, D.C. towards the end of this month. We have made good progress growing our federal business and advancing our fed ramp high status with large federal agencies, and we continue to believe this market will fuel a new leg of growth for the company over time. In summary, we are pioneering a new category in pre-breach risk management by bringing autonomous exploit validation, risk quantification and zero-day remediation together within a single AI-driven risk fabric that redefines how enterprises operational as cyber risk. Complementing frontier model discover vulnerabilities. Our platform leverages proprietary domain data, real-time telemetry and deep operational context using sensors and agents behind the firewall to continuously discover assets, validate exposures, quantify risks, remediate threats and enforce company-specific policies, which are unavailable in the public domain. This is driven by our 2 decades of processing petrabytes of structured telemetry, combined with industry-leading threat intelligence in a closed-loop system that compounds across thousands of customer environment every day. printer models are powerful and accelerated back path analysis and triage. However, they need to be paired with a highly reliable control plane to consistently enforce accurate policy and compliance outcomes across live hybrid environments. This is where the unique value proposition for Qualys customers live, and it requires deterministic auditable, repeatable and trusted execution with effectively zero tolerance for error with attacks moving and machine speed and increasingly requiring defenses start to learn and respond in real-time closed-loop agents orchestration, driven policy and harness by flexible model choice act as a force multiplier further enabling precise risk quantification, safe remediation and even faster and more doministic outcomes at scale. For Qualys, this means our massive data context, LLM and SLM integration and trusted execution serve as the system of record for pre-beach cyber risk management and translate AI into a packaged Rock automation platform that delivers customers measurable risk reduction, zero-day remediation, government outcomes and immediate ROI. With that, I will turn the call over to Joo Mi to further discuss our first quarter results and outlook for the second quarter and full year 2026. Joo Mi Kim: Thanks, Ned, and good afternoon. Before I start, I'd like to note that except revenues all financial figures are non-GAAP and growth rates are based on comparisons to the prior year period unless stated otherwise. Turning to first quarter results. Revenues grew 10% to $175.6 million. The channel continued to increase its contribution, making up 52% of total revenue compared to 49% a year ago. Revenues from channel partners grew 17%, outpacing direct, which grew 3%. As a result of our strategic emphasis on leveraging our partner ecosystem to drive growth, we expect this trend to continue. IGO, 15% growth outside the U.S. was ahead of our domestic business, which grew 6%. U.S. and international revenue mix was 55% and 45%, respectively. In Q1, as expected, there was no meaningful movement in our net dollar expansion rate, closing the quarter at 104%, and slightly up from 103% last quarter. More importantly, we'd like to turn to a new metric that we plan to disclose going forward on a quarterly basis. net dollar expansion rate of customers with prior year purchase of ATM or CSAM subscriptions. We believe that this metric is currently the best indicator of success of our ATM strategic initiatives. With ATM innovation having stemmed from strong customer demand. We anticipate ATM adoption to drive higher net dollar expansion rate. However, given that ATM adoption is still in its early stages, we have decided to include CSAM customers in this cohort so that the metric has more wait to it. In addition, as a reminder, ATM is essentially an upgrade from CSAM. So we believe that this is an appropriate baseline to track and measure going forward. In Q1, the net dollar expansion rate of ETM CSAM cohort was 107%. As more customers move into this cohort. We hope to see consistent and meaningful improvement to our overall net dollar expansion rate and thereby driving accelerated revenue growth. Moving on to product mix. Our differentiated new products continue to drive growth. First, ATM, CSAM combined made up 11% of total bookings and 14% of new bookings on an LTM basis in Q1, up from last year's 8% and 9%, respectively. Next, past management made up 8% of total bookings and 15% of new bookings on an LTM basis in Q1. This compares to 7% and 16%, respectively, in Q1 of last year. Lastly, total cloud made up 5% of total LTM bookings in Q1, unchanged from a year ago. We believe that these differentiated products, combined with increased contribution to bookings in 2026 and given our opportunity to increase market share and maximize share of wallet. Reflecting our scalable and sustainable business model, adjusted EBITDA for the first quarter of 2026 was $83.3 million, representing a 47% margin, same as last year. Operating expenses in Q1 increased by 8% to $67.5 million, driven by investments in sales and marketing, which grew 17%. With this strong performance, EPS for the first quarter of 2026 was $1.95 per diluted share and our free cash flow was $93.6 million, representing a 53% margin compared to 67% in the prior year. In Q1, we continued to invest the cash we generated from operations back into Qualys including $1.7 million on capital expenditures and $53.9 million to repurchase $505,000 of our outstanding shares. Please commencing our share repurchase program in February of 2018. We've repurchased 11.2 million shares and returned $1.3 billion in cash to shareholders. As of the end of the quarter, we had $306.6 million remaining in our share repurchase program. With that, let us turn to guidance, starting with revenues. For the full year 2026, we now expect revenues to be in the range of $721 million to $727 million, which represents a growth rate of 8% to 9%. This compares to prior guidance of $717 million to $725 million. For the second quarter of 2026, we expect revenues to be in the range of $177.5 million to $179.5 million, representing a growth rate of 8% to 9%. While we believe our approach to pre-breach, cyber risk management provides some installation and this ongoing macro volatility. This guidance continues to see no material change in our net dollar expansion rate. With moderate growth contribution from new business in 2026. Shifting to profitability guidance. For the full year 2026 we expect EBITDA margin to be in the mid-40s, implying mid-teens increase in operating expenses and free cash flow margin in the low 40s. We expect full year EPS to be in the range of 7.44 to 7.65, up from the prior range of [ 7.97 ] to 7.45. For the second quarter of 2026, we expect EPS to be in the range of $1.73 to $1.80. Our planned capital expenditures in 2026 are expected to be in the range of $8 million to $12 million and for the second quarter of 2026 in the range of $1.2 million to $3.2 million. As the impact of the macro economy is still unfolding, we are closely monitoring the business environment and adjusting our priorities accordingly. That said, considering the long-term growth opportunities ahead of us and our industry-leading margins and plan further room for investment. We intend to continue to responsibly align our product and marketing investments to focus on high-impact initiatives -- driving more pipeline, accelerating our partner program and expanding our federal vertical. As a percentage of revenue, we expect to prioritize an increase in investments in sales and marketing with more modest increases in engineering and G&A. With that -- I would be happy to answer any of your questions. Operator: [Operator Instructions]. The first question will come from Patrick Colville with Scotiabank. Patrick Edwin Colville: In your prepared remarks, I mean, I think you did a really good job of conveying why risk quantification, I guess, testing whether an asset exploitable with run time context the ability to kind of patch and revalidate all make Qualys at low risk of AI disruption in the enterprise. But what I want to ask, though, is there's a lot of hype around anthropic Claude, [ Midos ], OpenAI, GPT 5.4, Cyber. Are they leading to more inbounds? And if so, like how will those inbounds and that kind of surge of interest translate into the financial model in 2026? Sumedh Thakar: Yes, that's a great question. And I think our customers who are in this day in and day out, they understand pretty well that this is going to lead to more disclosures of patches and vulnerabilities from multiple vendors that they use. And I think the challenge is going to be more about -- as -- I mean on the positive side, I think these models are helping companies get better with finding these vulnerabilities themselves versus waiting for a tapers to find them, but it also means that they're going to lead to more catches being announced by our multiple vendors that the customers will have to deploy. And I think the challenge is going to be more that once the patches come out, attackers leveraging AI can reverse engineer those patches and find the exploits. And so it really becomes a game of how quickly can you apply the patch that the vendor is giving in a matter of hours and not wait for days and weeks as it happens right now? And -- that's where a lot of the conversations that we have had with our customers, we're seeing a lot of CISOs and customers reaching out to understand how our patch management capability and the remediation capability and exploit validation capability is really going to be helpful for them because they all need to provide an update to their Board in terms of how they are going to fight against the AI-induced attacks that are coming from these models getting better and the response cannot be we are going to do more manual remediation. They need to have a response that anchors themselves in fighting autonomous AI attacks with autonomous remediation. And they see us as a trusted vendor having deployed 150 million patches already and 40 million of those already fully autonomously deployed. And so a lot of those conversations are positive right now. But of course, it's in early stage, and we need to work through to see how they take out of the conversations, how they go back to their boards to their IT teams partnered with the IT team. So happy with the activity, but a little too early right now to talk about how the impact is going to be on the pipeline and outlook. As Joo Mi said, we're not considering any change from where we are right now in terms of the guidance. But we are happy to see the engagement that we are seeing from the inbounds that we're getting from customers trying to understand how basically can respond to this. Patrick Edwin Colville: Very clear. And can I just -- I mean just to touch on that point. So I mean, Joo Mi, you very kindly last quarter provided us a soft guidance for 7% to 8% current billings growth in 2026 is the point you were trying to make in the prepared remarks that remains the case. No change to that level even with the strong 1Q performance and I guess, the positive vibes that Sumedh was just talking to? Joo Mi Kim: Yes, that's correct. I think that if you take a look at our Q1 performance, it was a solid start to the year. We're very pleased with the Q1 outlook as well as what we anticipate for the rest of the year. However, we don't see any material kind of meaningful change for the full year today. So given that the baseline still remains at 7% to 8% for the current billings for the full year. Operator: And our next question will come from Roger Boyd with UBS. Roger Boyd: Sumedh, it was a strong quarter from a new customer add perspective, and particularly for 1Q, which is typically seasonally a little bit lower. Can you just talk about what's working right from a new logo perspective? And then everything you just kind of mentioned from a patch management remediation standpoint, to what degree is that sort of impacting the new customer conversation, any metrics you can give around attach rate of patch management or TruRisk eliminate would be great. Sumedh Thakar: Yes, great question. And I think we kind of talked about right now where we are with patch management, sort of 8% of LTM overall bookings and 15% of new bookings, right? And I think definitely good execution by the team. Focused execution is key there. If you kind of recall our what we talked about at RSA, and a little bit before that, our focus on agent I agents as we went into last year. I mean, if you look at today, what everybody is talking about is how can we very quickly autonomously remediate things. And this is not accident that we are here right now. We have been delivering capabilities around patching, going beyond patching the exploit validation. And those messages have been resonating with customers. And so I think -- this is leading to better conversations with customers as they look at. We are encouraged with the conversations we are having around ATM. I mean the thing is, look, at the end of the day, risk measurement and risk management is going to be critical because it's the number of patches that you have to deploy, explores as a company cannot just deploy all the patches. And so anchoring it back to risk is very important. So eliminating the right risk and the minimum amount of risk is important and to be able to get there, so you're not matching and fixing everything, creating more risk from an outage then becomes very important because ETM is the one that does the hyper prioritization. And for ETM to be successful, you need high-quality detection capabilities. I think one of the concerns that customers have brought up after these models have come out has been the question of false negatives, right? If you're using Tier 2 scanners, the time it takes to get signatures out and find the findings versus scanner like Qualys, where we are getting signatures of multiple times a day, we are adding capabilities to detect things to reduce the false negative is becoming very important. And I think that -- those conversations are culminating in positive conversations for ETM, which is still early and ETM and eliminate conversations typically they do go hand-in-hand many times. And so I think while it's still early for ETM, we are encouraged by the conversations that we are having at this point. And so again, we have to work to continue the execution. Very happy with how Q1 went. But we're going to continue to work on executing with the opportunity that's in front of us. And like we said, our partners are working with us closely and we look forward to continuing our partners, bringing us additional sort of new logos and working with our existing customers with the MRO services which can get more value for existing customers through our partners to make sure that our upsell also continues to pick up. Patrick Edwin Colville: That's really helpful. And then maybe just a quick 1 for Joo Mi. On Q-Flex, you talked about kind of building out this pipeline and identifying a customer pipeline to extend that procurement model to. Can you just talk about kind of the customers that you see as a good fit for Q-Flex, and any thoughts on when that kind of push could start this year? Joo Mi Kim: Yes. So mostly, Q-Flex is targeted towards our enterprise customers who need that flexibility to potentially cover the forecast that they have anticipated for the full year. So as an example, what they're looking for is -- given that we continuously enhance our products and come out with newer products throughout the year, they want the comfort of having to prepurchase or pre-clinic to a higher amount that they might necessarily think that it's absolutely needed for the year. we've been talking with the select group of customers that have the budget that are willing to pre-commit to a higher credit with Qualys, with the ability to swap out different products and offerings and try out newer solutions throughout the year, we're pleased with the momentum that we have today, and we do plan to go GA with Q-Flex later this year. Sumedh Thakar: And I would quickly activate that this is right now with what is happening is a good example of where a Q-Flex model will be helpful for a customer because we didn't have exploit validation earlier last year. But now that we have that, and we have with us driving more focus on patching Q-Flex customers through the year will have more flexibility in being able to use those credits to suddenly pivot towards patching more because there is a particular event that has come up. and not have to sort of keep going back from a procurement perspective. So like Joo Mi said, exciting early conversations with these large customers, and we look forward to working through with them this year and then kind of getting towards the GA by the end of the year. Operator: And the next question will come from Kingsley Crane with Canaccord. Unknown Analyst: Med, I guess just to start off, I'm kind of curious how important is access to something like Midos preview just for your business at all? And then just in general, talking about the growing marketplace of genetic AI solutions, we've seen a pretty significant jump recently, even with just modeled GPT 4.7. But what is the future of that type of integration with agents for the platform? And like how relevant is inference is a line item for Qualys, if you look like 3 years out? Sumedh Thakar: That's a great question. I think it's less about a particular model and more about the direction that these models are going, right? And so I think for us, it is -- we have been leveraging other open source models as well, and we're excited to now be part of the TAC program from OpenAI, which gives us access to 5.5 cyber, which is an equivalent model for the most parts to Midos as an example and also part of the verification program. And we have -- since we have really been doing a lot of exploit and validity research ourselves, these type of models, whether it be these 2 front end models or other open source models that have been using in my mind, are definitely something that help us do a better job of figuring out exploits that we can safely create for our customer environment. So that the customers can really test the exact scale through the Qualys platform. It also helps us do a much better job at figuring out the right patches or the right mitigations. One of the key things that we have done at Qualys, has really put a lot of research energy into coming up with mitigations that don't need a patch, people whether your patches, but we reverse engineer patches to figure out maybe there are other mitigations that can be leveraged to make sure that these mitigations can help the customer deploy a compensating control on the machine without having to deploy an immediate patch, which is extremely valuable for them. When they only have a few hours to make a decision on mitigating a highly exploitable vulnerability. And that research is definitely what we have been doing, as the models are progressing, these partnerships definitely help us accelerate and cover more and get more options to help our customers go through that. So I see that leveraging these models, either whether it's through research or integrating with them to pull findings from these models, so customers can actually take their core findings and run it through the millions of Qualys agents that they already have installed to find the actual instance of that. or whether it is overall our own Agentic AI solutions, we use different small language models, large language models to optimize the outcomes for whether it's chat, whether it's an AI agent that is taking action, I think that is something that we look forward to continuing to partner with whether it's open source or these frontier models. And I do think that for any solution that is going to be important to make sure that they leverage some form of AI capabilities. It's just that because we uniquely do the exploit validation and patching, we have a very interesting use case for use of these models. Unknown Analyst: That's really helpful. And for Joo Mi, it's great to see the continued efficiency in the business. You've talked about R&D growing a bit more modestly than sales and marketing this year. So a 2% growth year-over-year, is that about what we should expect for the rest of the year? And just like speaking bigger picture in such a dynamic time for the cybersecurity market, I mean what would get you to invest more in that line item? And then I understood that you're already very efficient there operationally. So I can appreciate that. Joo Mi Kim: Yes. Currently, what we're forecasting is OpEx growth in the mid-teens. Sales marketing continued to grow well, up to 15% mark. Last quarter, it grew by 18% year-over-year. This quarter, 17% year-over-year. So with sales and marketing potentially ramping in the second half of the year, rest of it that we've allocated for the R&D for the most part. We do anticipate a significant investment -- we think that could be justified from a return perspective, especially with the AI investments that we continue to make in the business. So given that, we're guiding to mid-40s EBITDA margin, which is implied by mid-teens growth in OpEx. Operator: And the next question will come from Jonathan Ho with William Blair. Jonathan Ho: I just wanted to better understand sort of the breach risk management opportunity, how maybe this changes from prior approaches? And what makes maybe Qualys better positioned than other competitors to offer this solution. Sumedh Thakar: Yes, that's a great question, Jonathan. I think it's not that it changes from the prior approach from a Qualys perspective, we have been building and innovating around the ETM platform and the concept of -- Operations Center, the last couple of years almost in preparation for something like this where we will see significant number of vulnerabilities coming our way, but you cannot fix anything in an operation. And you cannot play a vulnerability -- you're trying to jump from one way over to another. So the idea of creating a risk operation center and elementing that with ETM has been to make sure that we are creating an outcome where things are fixed for the customer in a matter of hours. And I think that's an approach that's different than a CSAM solution, which is waiting for collecting data from different scanners and then creating some reasoning, but then they don't actually do the patching. They pass it off to somebody else to do the patching, which again loses time as an example. And so what I think we are seeing is the opportunity here is having created sort of this end to end. I mean what's interesting is you look at our demo that we did at RSA agent well, Agent well went from finding the vulnerability, validating the exploit, applying a mitigation and then revaluating the exploit that it is fixed in under 15 minutes. I don't know if any CSAM solution can really do that where you get an outcome of something being fixed. And then with ETM, we are focused on the CRQ aspect of it as well, right? Just because the vulnerability and patch count goes up significantly, customers still need to think of this in terms of the business and the budget that they've allocated as how much of a risk to the business do these vulnerabilities carry so that they can make better decisions on prioritization. And that's, again, the other aspect of our ETM solution being integrated now with a cyber insurance company, where if you have a good score on your a good score that demonstrates you are actually doing the right cadence of fixing your vulnerabilities. You can actually get a premium reduction for your cyber insurance, which is a positive thing for your business. And so ETM really has been about taking the businesses modification, the CSAM, the traditional CSAM component but also pairing that with extra validation and remediation giving an end to an outcome. I think what we are seeing now more is the customers who have been interested in this are now feeling like this is the time that they really need to look at this more deeply because of the number of liabilities that are going to come their way. They feel like they're looking at a risk operation center ETM and the ability to maybe some of the resistance that people have had in the past against autonomous remediation or patch management. in the initial conversation that we have had in the last couple of weeks, we're seeing a bit of a change in the way people are thinking about this as given that the threat landscape has changed. So in that sense, it's a positive outcome for us to say that instead of other solutions where somebody else is scanning, somebody else is pulling the data and somebody else is patching the ability to go from detecting, validating, fixing and revalidating under 15 minutes is something that is really desirable. And doing that at -- accuracy is very desirable for our customers. So I think it's more that the platform really was innovated and designed for this. And now we're excited to see sort of these early conversations we are having with customers that are more interested in looking at this now because of the push coming from these front-end models, detecting more vulnerabilities. Jonathan Ho: Excellent. Just 1 quick follow-up. Does Mitas potentially expand the number and types of assets that you would also cover as well as maybe accelerating sort of this adoption of more products on the platform to deal with increased complexity? Sumedh Thakar: Yes. I think these models will be able to find vulnerabilities in any core base, right? And so I think that's where the comprehensive nature of the Qualys sensors, whether it is detecting vulnerabilities on network assets, right, like, let's say, the traditional assets which have agents on laptops and other servers, expanding that into network assets or network-based assets like firewalls and VPN devices or cameras that are on the network or IoT devices. We already covered that. And then of course, we also cover cloud and container security and a lot of these. And so I think what we are going to -- what we are seeing right now is that customer interest in covering as much as possible more natively so that they can get quick scan results and not have to wait for hours to pull these scandals -- if they can do more and more of those natively. So I think given that the threat, whether your server is running on-prem or in a data center or if the server is running as a container in the cloud, the threat from a quick vulnerability exploitation coming your way, is similar the conversations do lead themselves to -- and in a way, the way team is designed, it is designed to pull data from all kinds of different capabilities, whether it's cloud or containers or others. And so there is more willingness from customers to say, today, they are doing dashboard tourism. They have a separate dashboard for cord scanning, a separate dashboard for cloud, a separate dashboard for on-prem separate dashboard for endpoint. If there is a way to operationalize and consolidate all of these different types of assets into more of a unified workflow where agent AI is looking at it and making autonomous decisions by looking at the previous enterprise context and then minimizing and then executing the minimum remediations, that is really where the focus of the customers is. So I think, again, how these conversations proceed will be interesting, but it does lead customers to say I don't have necessarily the time now to go to look at 8 different individual risk management dashboards when it comes to previous bridge management, if there is a way for me to pull different things, normalize all of that and quickly focus on the ones that matter the most and then actually validate with exploits and remediate those. That is the ideal solution. Operator: And our next question is going to come from Rudy Kessinger with D.A. Davidson. Rudy Kessinger: I guess I'm curious just on the ETM sales so far. Are you getting that full $1 uplift on those early sales so far? And then if we think about the 107% net expansion rate with those customers, I feel a little foggy on that you're saying that includes customers who purchased ETM in the past. I guess, does that expansion percentage include the upsell from the purchasing ETM? Or if you could just break down that number a bit further? Joo Mi Kim: Yes. It's a little too early for us to comment on how much of the uplift actually is illustrative dollar uplift is based on more of a list price, the cohort of customers that have subscriptions to ETM is too small today. And so given that, what we decided to do was, the number that we disclosed, 107% that actually includes customers who purchased CSAM or ETM. And so the way that we calculate that number is 1 year ago from today, so Q1 of 2025, which customers had ETM or CSAM subscriptions. We took those customers and then the revenue that they generated in June of 2025. So that would be the denominator, but the same cohort of customers in Q1 of 2026 and looked at the revenue contribution from that group. And so we calculate that percentage, it doesn't just include the ETM or CSAM subscription. It's a total spend spent by those customers. So what we're thinking is our hypothesis is these customers theoretically whether they have CSAM and then eventually later upgrade to ETM because ETM is essentially an upgrade from CSAM or they start to purchase ETM, these Florida customers will help to drive the total net dollar expansion rate eventually because they see the value in it they'll be stickier with us, and then they will -- a higher upsell. So that's part of the reason why we're tracking this metric internally to make sure that. one, we're successfully upgrading CSAM customers to the ETM consumers. And two, is that really generating the type of upsell that we're looking for. Rudy Kessinger: Got it. That's really helpful. I must have misheard it earlier on. And then secondly, how should we what does sales productivity look like? How has that been trending in the last few quarters? And just given the increases in sales and marketing expense outpacing the revenue growth, is there a lot more marketing dollars in there? Or where is that investment going in sales and marketing? Joo Mi Kim: Yes. Majority of the increase in sales and marketing is still driven by headcount. So if you take a look at our headcount growth, it was over 10% for the sales and marketing the ETM side last year. A part of the reason is because we do see a huge upside in the business. And because we are focused on moving the business from direct to indirect, as we work closely with our partners, we have different sales teams, whether it be a sales team focused on direct sales or sales team focused on ETM sales or sales teams that they are really focused on the channel management or relationship there. And so we do anticipate continued growth and continued investment in that team. And so as a result, the productivity is not necessarily the traditional SaaS feel of it, it's not exactly where we think it will be in the future. We're working on it right now. There's room for increase in efficiency. I'm not seeing it there yet, like you pointed out, especially because we do see this is a time for us to invest more versus making sure that we scale that based on the productivity metric that we see today. Operator: And our next question will come from Joseph Gallo with Jefferies. Joseph Gallo: I believe you mentioned that your guidance today reflects NRR kind of stays flat. The ETM NRR is 107% and expected to grow. So how should we think about the potential time line for acceleration of total NRR? And is there any pressures or offsets that we should think through that might keep that number flat over the next couple of quarters? Joo Mi Kim: Yes. Our NRR has been around the 103%, 104% range for the last couple of quarters. And the reason why we're still assuming for the baseline, that to be the case, it's because ETM is still in the early stages. We don't anticipate a significant ramp in terms of the adoption of ETM that will result in the total company and our ROE to be ticking on materially this year. So for this year, our baseline is that taking into consideration the macro factors, geopolitical conditions today, we do see some potential headwinds could be fully offset by the tailwinds that Sumedh had mentioned earlier, with the increase in demand given that our customers are willing to spend more with us increase in cybersecurity risk that we can definitely help to remediate. But with that said, all in all, our guidance assumes baseline case growth more or less in line, definitely from the current billings perspective, revenue, we've increased slightly just because of the beat that we saw in Q1. But overall, nothing has changed from the case that we saw earlier in February. Joseph Gallo: No, that's super helpful. And just as a follow-up. I mean you mentioned kind of geopolitic pensions. I think you made a comment in your opening remarks about closely monitoring the business environment and adjusting priorities accordingly. Is there any way to quantify, I guess, what you're seeing, is that mostly related to the war? Is there anything in terms of customer budgets and they're prioritizing AI spend today and not necessarily cyber. I'm just kind of curious what the actual math was behind some of those comments you made on macro? And if anything has changed over the last 90 days? Joo Mi Kim: Yes. The way we're monitoring the situation is basically stemming from the conversations that we're having from our existing customers as well as new prospects. So when we're discussing potentially coming over to call us as a new customer or increasing their spend with us, whether in quarter cycle or at a quarter cycle. There could be disruptions during that discussion. So as an example, I would say that any announcement from OpenAI or entropic could be a disruption as we're talking through it. It could be a factor. Now that could result in increase in sales from us, but it could increase the sales cycle. And so that's why we're taking a look at the scenario, there will be puts and takes. There will be some gains. There will be some offsetting factors. And that's why we thought that the baseline if you model it , the way we view it today is more or less fall in that range that we had calculated at the beginning of the year. Sumedh Thakar: Yes. So far in terms of budgets, we haven't seen any real changes there from customers or any conversations directly when it comes to cyber, I think it's stayed roughly the same. But as Joo Mi said, just being prudent at sort of what potentially could -- we should look at in the future. Operator: And the next question come from Shrenik Kothari [indiscernible]. Shrenik Kothari: Yes. Thanks -- so in light of the Frontier AI, a cache explosion and now at agent Vail to more broader remediation, you also emphasize the pathways patching which are -- remember, we've been specializing in and talking about in the past. So I know you talked about early customer conversations. Just really appreciate if you would let me point to some anecdote some proof points, how that can -- or it's become a real budgeted sort of operating priorities for customers over and above, typically as the products customers like conceptually, but just what's really changing and anything you can point to and I had a quick follow-up. Sumedh Thakar: Yes. Like I said, I think I gave that example of we had -- we have been having quite a few customer conversations in the last few days, and I had a CEO a very large bank in Canada sort of got on the call and is like to basically look our challenge right now is to get things quickly key scanner right now and how -- who should we partner with for patching. And when I was able to explain to them we already do the eliminate part immediately, he was excited about that so that he would go talk to his board that they're partnering with a solution that is going to help them have the ability as needed to rapidly fix and patch things and not wait for the teams patching solution to take days and weeks to patch things. And so that led to an immediate conversation of starting an immediate POC as an example, right? So again, it's early days. That's an anecdotal example. But we are seeing that pushback or resistance that we had for integrated patching and autonomous patching. In the early conversations is coming with -- like where they are asking, hey, do you have a patchy capability because that's what I need to be able to explain not that I'm finding more and scanning more or I'm taking my scanning and I'm passing it off to some other patching solution, which is taking even longer. So that is an example of a good conversation that we had where our customers quite excited to have the ability to quickly find remediate -- quickly find exploit it verify it, patch it. in a matter of hours and be done so they can show that level of success rather than just finding more things. So that would be an example of just something that happened 2 days ago. Shrenik Kothari: Great. That's super helpful, Sue. And just July, a quick follow-up. Just following up to Joe's question on NRR. And I just wanted to hear your thoughts on what sort of moves the needle for kind of this next leg of growth? I mean it still appears to be guiding off sort of a base case with no real assumed NRR movement, you, of course, have agent Vail and GA, there's better ETM mix, the continued strength in channel, international. So can you help us understand, is it mainly just prudent about the sales cycles as you mentioned, and you still need more proof points on monetization? Or there's also some legacy mix drag, which is playing a role in addition to you accelerating higher value attach or? Joo Mi Kim: Yes. It's based on a historical track record of what we've been able to see. One of the reasons why we thought that this was the best metric that we could share with the investors today is because if you people look at our historical products, whether it be CSAM or otherwise, it does take a bit of time for our newer product to take to our customers. So as an example, CSAM wasn't actually launched in 2021. And if you take a look at the percentage contribution to bookings, ETM plus CSAM, currently make up 11% of bookings on an LTM basis. So you can understand that looking at the CSAM conversion or upgrade to ETF will likely take some time since ETM just went live, and it's been in GA for a little over a year. So given that, we're assuming that this will take time for more of our customers to adopt ETM, and that will translate to increase in spend that's meaningful enough for the total revenue growth. Operator: And the next question will come from Brian Essex with JPMorgan. Brian Essex: I guess maybe one for you, Sumedh, on the back of the increased capabilities of foundation models in the security space, and thinking about where you're seeing vulnerabilities across the spectrum where you have operating systems, infrastructure, both package as well as custom applications and then OT environments. The spectrum of flexibility, if you will, across those different types of areas is -- can be materially -- particularly for hardware, some of it can't be patch it might have to be replaced, custom apps that have to be maybe need to be refactored. From your experience and what you're seeing from the foundation model companies, where is their expertise best placed for vulnerability discovery and potential exploitation? And how does that change the risk profile of your customers and how they may utilize your platform to mitigate those risks? Sumedh Thakar: Yes. Great question. I think helping software developers find more vulnerabilities in their code is definitely one of the key things there that these models bring and which will definitely lead to more disclosure. But in theory, right, you could say that, well, if all software developers are able to find these vulnerabilities using the models, then you kind of don't necessarily have a 0-day problem because all these software developers who find them the code themselves before the attackers do and they will create patches, right? And then customers just have to focus on applying those patches. I think the other capability, the frontier models are doing well is the ability to change low-level vulnerability exploits that maybe have a lower CVSS score and the customer might not have fixed those in the past because their score was low, but being able to chain a few of those to create an exploit. And that's where the advantage of the TruRisk platform is very solid because our true risk scoring, and we have demonstrated this multiple times that we are actually scoring low-level CVS vulnerabilities as very high, about 40 days before they get added into CSAM as an example. So having the customers have that intelligence that we are bringing and to the environment to say, look, this is a low-level vulnerability, but it is prone to be used in an attack and making sure that, that is mitigated becomes important. Now the third piece of what you mentioned is, I think it's perfectly fine to say that I'm not going to patch this because my risk is low. And that's a very individual organization level conversation that needs to happen, which, again, with ETM in the tourist platform, we are helping customers understand the context in their environment, understand the exploitability and make the determination that maybe it's perfectly valid to say we're not going to pass this because we have mitigating controls in place. And that's where we were, again, ahead of the curve when a couple of years ago, we introduced the concept of patch list patching is the ability to deploy mitigations for some of these environments where, yes, you cannot necessarily patch an OT asset immediately like you would normally do, but maybe -- or even the regular assets with operating systems and packages but providing them a way to say, look, I think if you just delete this old DLL, which our agent can do for you. Deleting a DLL or making a change to a registry key or something simple like that can actually prevent exploit from running in that particular environment. And so that is the third piece of it, which is perfectly valid with ETM to say a lot less than 1% of the vulnerabilities that are actually exploitable in your environment. And then these are the ones we don't need to fix because we validate it, they're not exportable, but then to also be able to say we actually have a way to mitigate this with a compensating control without deploying a patch makes it very interesting. In fact, one of the popular ones with our customers is we provide them the ability to see that the package that has the vulnerability is actually not being used on an asset for the last 18 months. So on installed is actually a better option than trying to patch it. So it's -- that's why I call it the eliminated buffet, which gives customers multiple different choices because that's the goal is not a patch. The goal is to remediate and eliminate the risk. That's why the TruRisk eliminate with prioritization validation becomes so important. Brian Essex: Great. That's super helpful. And maybe if I could squeeze one in for Joo Mi on Q-Flex. It sounds like that the program is targeted at large enterprise customers are already spending a meaningful amount on the platform. But are you -- is there any potential for existing customers who may be ripe for migration to ETM where you could actually accelerate that migration by offering them Q-Flex as well? Joo Mi Kim: There is. And so we are working with customers today. So we are working with a solid group of customers to -- so that they have an option of adopting Q-Flex today. And so it's not stopping. It's just that we are planning to go broadly GA with it by the end of the year. So we think that there is definitely a potential where that could help us to drive growth. Sumedh Thakar: And we do have those conversations with customers who are looking to do ATM. We start the conversation with Q-Flex, which is well received, especially given this environment where so many new capabilities are coming, things are changing fast and they need the flexibility, even if you're not the largest enterprise you still need the flexibility to be able to move things around pretty quickly. And in fact, enterprises that don't necessarily have a cyber budget that is the size of the GDP for a small country actually have the most value in many times from being able to do these kind of automations and say like, I don't need to fix all these things because I've validated they're not relevant in my environment, no matter what different your model says. Brian Essex: Right. Makes a lot of sense. Operator: This is all the time that we have for questions. We want to thank you for your participation. This will conclude today's conference call, and have a good evening.
Operator: Welcome to the MPC First Quarter 2026 Earnings Call. My name is Julie, 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 call over to Kristina Kazarian. Kristina, you may begin. Kristina Kazarian: Welcome to Marathon Petroleum Corporation's First Quarter 2026 Earnings Conference Call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investor tab. Joining me on the call today are Maryann Mannen, CEO; Maria Khoury, CFO; and other members of the executive team. We invite you to read the safe harbor statements on Slide 2. We will be making forward-looking statements today. Actual results may differ. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. With that, I will turn the call over to Maryann. Maryann Mannen: Good morning. Our first quarter results demonstrated the impact of our strategy, the capability of our integrated system. Operationally, we delivered. Our refineries ran at 89% utilization with nearly 100% capture. This was our strongest first quarter on process safety as well as our lowest level of unplanned downtime this decade, all while completing approximately 40% of our full year planned maintenance activity. Given the constructive macro backdrop for the remainder of 2026, we proactively made decisions to enhance operational readiness. As a result, we are well positioned to respond to the strong level of demand we are seeing across the system. Late in the first quarter, geopolitical events tightened global markets, disrupted trade flows, and drove global cracks higher. While estimates vary, we believe approximately 6 million barrels per day, representing close to 6% of global refined products capacity has come offline during the conflict in the Middle East. And the time line for return of supply remains dependent on the extent of any damage to facilities and resumption of crude flows to those refineries. Against that backdrop, domestic demand for gasoline, diesel and jet fuel remained strong with exports providing incremental upside. We are largely insulated from global crude supply disruptions given our crude sourcing comes mainly from the United States and Canada. Combined with the depth and sophistication of our highly integrated value chains, we are well positioned to optimize through volatility. This market environment underscores the strength of our refining system, and it showed in our financial results this quarter. We invested nearly $330 million in our Refining and Marketing business this quarter with near-term projects focused on increasing jet optionality. High expected returns, clear line of sight and disciplined deployment, we are directing capital towards advantage assets with visible demand pool and a clearly defined path to monetization. Approximately 25% of our 2026 refining value-enhancing capital is directed to our Garyville refinery. In March, we brought more than 30,000 barrels per day of incremental jet production capacity online at our Garyville refinery. This investment strengthens one of the most competitive refining assets in the world and positions us to meet growing global jet demand. As we move into the second quarter, our El Paso yield improvement investment is expected to enhance the refinery's ability to produce specialty gasolines for the El Paso, Phoenix and Mexico markets, reinforcing its geographic advantage and its competitive position. Our Robinson Jet flexibility investment is expected to come online in the third quarter, enabling approximately 10,000 barrels per day of incremental jet fuel production and helping to address growing regional demand. Taken together, these investments strengthen our competitive position and support our commitment to peer-leading profitability across the regions where we operate. Over the past 2 years, we have meaningfully expanded our international LPG trading footprint, executing delivered business across Europe, Latin America and Asia. Building on that momentum, through an agreement with our South Korean customer, E1, we have secured long-term delivered demand for up to 40% of the volumes MPC will purchase from MPLX's new Gulf Coast fractionation facilities, which are adjacent to MPC's Galveston Bay refinery. Construction of MPLX fractionators as well as the JV export facility progress on time and on budget and are expected to enter service in 2028 and 2029. 2026 is a year of both execution and growth for MPLX. The business is investing over $2.4 billion with multiple investments anticipated to transition from construction to cash generation in the second half of the year. Approximately 90% of that growth capital is focused on natural gas and NGL opportunities. Against a backdrop of ongoing geopolitical uncertainty, global demand for secure and reliable energy continues to grow with international customers increasingly turning to the United States as a preferred supplier. U.S. natural gas and NGLs offer a compelling combination of supply abundance and demand visibility driven by LNG exports, power generation and industrial growth, supporting disciplined infrastructure investment. In the Permian, Secretariat I processing plant has entered service and is expected to ramp steadily over the next 9 to 12 months, increasing regional system processing capacity to 1.4 billion cubic feet per day. Building on that progress, MPLX's sour gas trading expansion, Titan remains firmly on schedule with expectations to exit 2026 with more than 400 million cubic feet per day of treating capacity. In the Northeast, Harmon Creek III remains on track for startup in the third quarter bringing regional system processing capacity to 8.1 billion cubic feet per day. Collectively, these investments provide a clear path to distribution growth, strengthen cash flow durability for MPC and demonstrate our leadership in capital returns. In the first quarter, we returned over $1 billion to shareholders. And today, we announced an additional $5 billion share repurchase authorization, reinforcing our commitment to delivering industry-leading returns through cycle. We will execute safely, invest strategically and generate significant cash, all at the same time. With that, I'll turn it over to Maria to walk through our financial performance. Maria Khoury: Thank you, Maryann. Our first quarter highlights reflect execution and discipline across the business. We delivered adjusted earnings per share of $1.65 and adjusted EBITDA of $2.8 billion. Refining & Marketing segment, adjusted EBITDA per barrel was $5.37. Cash flow from operations, excluding working capital changes, was $1.7 billion. And consistent with our capital allocation framework will return over $1 billion to shareholders, inclusive of $750 million of share repurchases. Overall, our first quarter illustrated the strength of our financial position and our ability to manage through market dislocations and honor our commitment to shareholder returns with a payout ratio of 62%. The next slide shows the year-over-year change in adjusted EBITDA from first quarter 2025 to first quarter 2026. It then connects EBITDA to net income providing clarity on key items, including depreciation and amortization, interest and taxes. Adjusted EBITDA was higher year-over-year by nearly $800 million, primarily driven by our Refining and Marketing segment. Refining turnaround costs totaled $530 million in the first quarter. We safely completed roughly 40% of our full year activity. Our full year outlook remains unchanged at $1.35 billion. Our earnings power continues to translate from operational performance into financial results, and we remain focused on what we can control through operations excellence and commercial execution. Moving to our segment results, slide 7 provides an overview of our Refining & Marketing segment, where R&M first quarter adjusted EBITDA was approximately $1.4 billion. We capitalized on a strong refining margin environment while safely executing planned maintenance. Our refineries ran at 89% utilization with total throughput of nearly 3 million barrels per day. Regionally, our utilization was 89% in the Gulf Coast, 88% in the Mid-Con, 92% in the West Coast region. Strong domestic and international demand drove increased Gulf Coast margins, resulting in an incremental $596 million of adjusted EBITDA. In the Mid-Con, increased margins were offset by lower volumes as well as costs that occurred during our planned maintenance activity, resulting in an adjusted EBITDA decline year-over-year. On the West Coast, we delivered an incremental $460 million of adjusted EBITDA as we capitalize on a strong market environment and had minimal plant turnaround activity. This quarter, our Los Angeles refinery run with the benefit of the completed investments on utility systems, improving reliability and efficiency. These improvements are expected to strengthen the sustainability of our refinery position is to be one of the most competitive players in the region. In an environment where market conditions can shift quickly a strong planning and tight operational control matters, and our teams deliver. Importantly, we are not just optimizing for the quarter. We're focused on sustaining performance through reliability, discipline spending and continuous improvement across our refineries. That's how we protect margins and position the business to perform across cycles. Turning to Slide 8. First quarter capture was 99%. Executing on our commercial strategy and integrated logistics gives us the ability to respond dynamically adjusting geos, optimizing feedstocks and placing products into the highest value markets. Favorable distillate margins were a key tailwind to capture performance. We maximize diesel and jet production to align with the market demand. As Maryann mentioned, our jet production capabilities will further expand with the Robinson Jet flexibility investment expected to come online in the third quarter. was also impacted by market-driven headwinds, primarily secondary products and derivatives used to manage price volatility. Our flexibility is a meaningful advantage, and we remain confident in the durability of the remaining -- the Refining & Marketing segment. Slide 9 shows our Midstream segment performance for the quarter. Segment adjusted EBITDA decreased $122 million compared to the first quarter of 2025. The decrease was primarily driven by derivative losses, the absence of a nonrecurring benefit in the first quarter of 2025 and the divestiture of non-core gathering and processing assets. MPLX continues to execute its value chain growth strategy and remains a source of durable cash flow for NPC. Now moving to our renewable diesel segment performance for the quarter on Slide 10. Results were uplifted by a stronger margin environment and recognition of clean fuel production tax credits from 45 regulatory guidance. As planned, we completed a successful turnaround at Martinez. We will continue to optimize our renewable facilities, leveraging logistics and pretreatment capabilities. Slide 11 presents the elements of change in our consolidated cash position for the first quarter, underscoring the contributions from both refining and midstream and reinforcing the strength of our business model. Operating cash flow excluding changes in working capital, was $1.7 billion. Working capital was at $573 million use of cash for the quarter, primarily driven by inventory build lower throughput partially offset by higher crude pricing. During the quarter, we returned over $1 billion of capital to shareholders, executing our capital allocation priorities. At the end of the quarter, MPC had roughly $2.2 billion of consolidated cash, including MPC's cash of $645 million and MPLX cash of over $1.5 billion. In this dynamic environment, we continue to generate substantial cash that supports reinvestment in the business and returns to shareholders, central to how we create value over the long term. Now turning to guidance on Slide 12. We provide our second quarter outlook for the Refining & Marketing segment. Our focus is to execute growing safely and reliably, managing costs, staying responsive to market conditions. With that, let me pass it back to Maryann. Maryann Mannen: Thank you, Maria. Safety and reliability are foundational to everything we do. They are ingrained in our decision-making and underpin the performance of our assets across the system. We are constructive on the outlook for U.S. refining and midstream. Structural advantages continue to support strong fundamentals and durable returns. We strive for excellence every day by leveraging our planning, commercial and operational capabilities to optimize our fully integrated value chains. This approach allows us to remain competitive, resilient through cycles and positioned to deliver peer-leading profitability in each region where we operate. A key differentiator for us is MPLX, which continues to enhance MPC's value creation opportunities. MPLX's advantage natural gas and NGL footprint combined with disciplined growth, strengthens our through-cycle cash flow profile and reinforces the integrated strength of our enterprise. MPLX expects to deliver 12.5% distribution growth for the next 2 years, underpinned by mid-single-digit adjusted EBITDA growth. This performance provides growing cash flow uplift to MPC and further supports our ability to deliver industry-leading capital returns. Confidence in the durability of our cash generation profile is reflected in our actions. In addition to returning significant capital this quarter, we announced an incremental $5 billion share repurchase authorization, reinforcing our commitment to lead the industry and capital returns through cycle. I'm confident in our ability to deliver improving results through our planning, commercial and operational capabilities. With that, I'll turn the call back to Kristina. Kristina Kazarian: Thanks, Maryann. As we open the call for your questions, as a courtesy to all participants, we ask that you limit yourself to one question and a follow-up. If time permits, we will reprompt for additional questions. We'll now open the questions. Operator? . Operator: [Operator Instructions] Our first question comes from Neil Mehta with Goldman Sachs. Neil Mehta: I just want to start off on Slide 12, the second quarter outlook. And Maryann, the utilization guide looked very good here at 94%, but maybe you can unpack the numbers a little bit more, give a sense of your plans for each of the regions. And to the extent uptime is surprising to the upside here, anything underneath the hood that would give us some sense of -- give us more confidence and reliability. Maryann Mannen: Yes. Thank you, Neil. So for our second quarter guidance, you're right. As you can see, we are planning for utilization at about 94% that comes off of a really strong turnaround in the first quarter. I mentioned in my comments that we pulled forward some of our turnarounds so that we've actually completed roughly 40% in the first quarter. And we did that because, obviously, we had a good view on what we saw the macro to be. And I'm sure we'll talk more about that here going forward. We didn't change scope. This is not a reduction of scope at all. This was just our intent to bring that cost forward so that we are prepared as we are running strong in the second quarter, given the demand that we're seeing. Also, you hear me talk about planning and commercial execution as well. We have been, as you know, for a long period of time, really leaning in on our commercial performance. The team is really optimizing on ensuring that we're expanding the crack in the quarter. And then more importantly, that we are developing sustainable changes through our organizational effectiveness through our technology use and the commercial planning opportunities that we have as well, trading also. And you'll see that come through. If you look at the quarterly performance first quarter, our capture would have exceeded 100%. And had it not been for as Maria mentioned in her comments, the timing impact of derivatives, all expected to unwind as we think about through the second quarter as that physical comes. And then frankly, given the volatility in the market from the commodity, we had headwinds coming on the secondary. So -- and then from a regional perspective, you see planning around our U.S. Gulf Coast clearly, export opportunities there continue to be strong. We can lean in on that as well. We made some changes in Garyville on expanding our jet flexibility there having yield capability around distillates and obviously having GBR running well. And then on the West Coast, obviously, when you look at the environment there, you look at our positioning, you look at the challenges being caused in the region as a result of lack of flows into the state from the Iran conflict. You can see, as you look at our regional performance that we should be able to lean in very strong there. So hopefully, that gives you a sense. We're really looking at our execution being sustainable. I mentioned in my comments that we had the lowest unplanned downtime in the first quarter along with outstanding safety and recognize Mike and the rest of the refining team there. It has been a core objective of this organization, and they truly delivered this quarter, and I think you can expect to see that sustainable through the year. Let me pause there, Neil, and see if I've got it your questions. Neil Mehta: No, you got it the question, Maryann, and that kind of brings us to the follow-up, which is what do you do with the cash. And if I think about some of the comments that you made on the last quarterly call, you said you did $4.5 billion of return of capital last year, 2025, and current market conditions, you think you could be higher this year. This first quarter, you did about $1 billion I guess the math would imply an acceleration of return of capital through the balance of the year. But any of your perspective on the cadence at the forward curve would be great. Maryann Mannen: Yes. Sure, Neil. I would say, look, we have no change to our capital allocation priorities. I mentioned we look at the strength of the MPLX growth and the distribution that it provides to MPC. This covers the $1.5 billion that we've committed to capital on the MPC side and our growing dividend. So it gives us the ability to truly lead in return of capital, you see the strength of that second quarter. My guess is your view on the long term is pretty consistent with ours. We should be able to generate cash flows as a result of this market, and we would continue to see return of capital via share buyback is -- as the vehicle to return capital to our shareholders. Operator: Our next question comes from Manav Gupta with UBS. Manav Gupta: I'm actually trying to get a little bit of handle on elevated earnings for the near term or medium term. And the two aspects I'm looking at is, one, is global refining macro, as you mentioned, a lot of capacity still offline. And eventually, even when it does come online, storage of products globally is depleted. So my hope is that cracks will be elevated for a longer period. But the other thing I also wanted to talk to you a bit about is there's a bear thesis which is floated around that as the refining crack tends to spike. There's a proportionate drop in capture. Now when I look at your 1Q results, your beat would not have been possible if March capture was not strong. So can you talk a little bit about a refining macro among the cracks? And then capturing as it capturing the higher track as it relates to your system? If you could talk a little bit about those two things. Maryann Mannen: Yes, Manav, thank you for the question. So maybe just our refining macro to begin with. So as you know, we've been saying, we've been very constructive, the refining macro for a longer period of time. When you look at demand that we see over the decade continues to be strong. When we look at supply, particularly past 2026. We think there's a true balance there. Actually, demand will ultimately outpace supply, a bit of supply coming online, as you know, some of that actually in the pet chem space. So even heading into -- before the Iran conflict, of course, we've been extremely constructive over the refining macro for the long term. then you add the impact of the Iran conflict to that. As I mentioned, obviously, estimates vary at least 6 million barrels off-line Middle East, China and then there's another 1 million Russia. I think you said it in your question to me. It will take time even if the straits were to be open rather immediately for global flows to normalize. I think this gives U.S. refineries in particularly MPC, an advantage. One, as we've mentioned, we are leaning in particularly on our export capabilities, and I'll pass it to Rick here in a moment and share a little bit more about that, we'll flex there when those economics are there, but we've been building capabilities there for a period of time. we source the majority of our crude, U.S. and Canada. So we're largely insulated. So as you can see from our guidance for the second quarter and frankly, we have confidence as we look throughout the year, we remain extremely constructive given the macro backdrop, long-term supply/demand and then most importantly, our commercial planning and operational excellence to be able to optimize in these crack environments. So let me pass it to Rick and he can give you more color. Rick Hessling: Yes. Manav, just a few comments. When we look at this unprecedented situation and scenario we're in, you're seeing extreme volatility. And I really want to make that point because that leads to incredible capture generation if and when we execute, and I think you're going to -- you've seen here in 1Q and you'll see going forward, our team is extremely energized in this environment and our ability to expand the crack was quite evident. And I think you'll continue to see that going forward. So just a few examples to give you and things I want to leave you with mainly by products. So if I start with crude, think of the theme on crude that we are utilizing our inland connectivity to buy advantaged barrels versus high-priced waterborne barrels that are being bid up throughout the world. So those who have access to inland barrels are the big winner in these events, such as the one we're in. We more than doubled our U.S. Gulf Coast Canadian volumes in response to the rising premiums on the U.S. Gulf Coast that we've seen. And April actually is going to be a record volume of Canadian volumes for us system-wide. We've never hit volumes like we've seen now. And as you know, the differentials are quite attractive. So it's a double win for us. But then as you maybe move a little bit more into the heartland of where we're at, we've increased Bakken volumes in the Mid-Con and we're actually taking Bakken to the Pacific Northwest, which is backing out higher-cost waterborne barrels. And then even a little closer home here to Finley, Ohio, when you look at what's in our backyard with the Utica Marcellus, we are blessed to have condensate right in our backyard, and we are running record amounts of local crudes at Canton and Catlettsburg. In addition, Manav, we purchased 5 Advantage Ven cargoes in 1Q. And the Ven cargoes are getting a lot of press. And what I would leave you with there is we would have bought more but we had better alternatives leaning into heavy Canadian. So we didn't have the need to buy any more than 5 cargoes of vents crude. But I will say the Vans crude being on the market, Manav, is quite a tailwind for us because it's putting pressure on other grades. And then on the crude side, I'll leave you with, lastly, you've probably seen in print that we've purchased approximately 10 million barrels of advantaged SPR crude directly from the DOE, taking out the middleman, we're we are advantageously working with the DOE to run those barrels in 2Q. And we're hopeful we may even get some barrels to run in with the bid -- SPR bid that came out yesterday. Moving on to products. I'll leave you with really a couple of comments that are in line with what Maryann previously mentioned. We're MAX diesel, as you would guess, and Jet across our system. And boy, the Garyville project came online at the absolute perfect time for us. And it's really a classic example of our strategic capital deployment to enhance our yields and our competitiveness to create capture tailwinds. Jet was a big story for us. As you know, we're large producers of Jet, not only on the Gulf Coast, Mid-Con, but especially in L.A. Manav, where you see the ULSD to jet differentials blow out. Then when you look at the Jones Act waiver, we leaned into that in a big way as well. We took jet from the Gulf Coast to Alaska. We took alkylate from the Gulf Coast to L.A. and we had various Jones Act waiver moves around L.A. and PNW amongst many other moves. And Maryann, I guess, said and mentioned exports in her prepared remarks. So I'll touch on that a bit as well. We really were creative and made some unique movements on the export glass of trade this past quarter. We moved ULSD from LAR to Australia. First time ever we've done that. I give the team huge kudos on creativity and capturing a market opportunity, and we moved naphtha to Asia, first time we've done that. So from a jet export gas, diesel export opportunity, we continue to see strong markets, I would say, especially Manav in Europe and in Latin America. So I guess, moving forward, if I were to kind of say what should you look for in 2Q, I think the tailwinds are going to be butane blending with the RVP waivers. Certainly, the JET ULSD spreads that we're seeing. We continue to expect those to persist. As Maryann and Maria have mentioned, we are ready to run in 2Q, and we postured this quite well going into driving season. And now with the conflict remaining, we continue to be in a great spot to capture margin. And then we have incredible optionality on our crude diet with our Mid-Con avails. And then the SPR barrels will be a nice shot in the arm for us as well. And then lastly, Manav, maybe from a headwinds perspective, we're going to watch backwardation very closely. Obviously, it is extremely steep. So we're keeping a very close eye on our inventories, making sure we don't have any more than we need. But I think what you've seen, Manav, there is the prompt month keeps rolling up and rolling up. So we do expect that to continue to happen as long as the conflict persists. And then certainly, we're going to keep our eye on the secondary products market with how cracks move and how WTI and Brent moved. So hopefully, that gives you some color, Manav, maybe the more color than we had given you in the past, but I really felt like it was appropriate for me to lean into it this quarter because our commercial team really responded well. Manav Gupta: This is a very detailed response. I'll be quick with my follow-up. First, thank you for providing adjusted EBITDA per barrel by region. So if you could talk a little bit about those additional disclosures you provided. But as I understand, some part of the management compensation is also linked to these. So you're trying to be top in terms of EBITDA per barrel, but now you're taking it a step further where you want to be top -- in the top end of the range for each specific region. So can you talk a little bit about that? Maryann Mannen: Yes, of course, Manav. Thank you. So you're absolutely right. We wanted to provide incremental visibility to our regional performance. As you know, for a while, we've been saying that we continue as an objective to have as a target for us to be the most competitive in every region where we operate. And you're absolutely right. Our executive compensation, the annual cash bonus element of that. It's a portion of that, about 20% actually is focused on the delivery of being the most competitive in every region where we operate. So we think this covers cost competitiveness. So as Mike and his team are making decisions about turnaround and making decisions about OpEx, that played through in our EBITDA per barrel. Similarly, as we think about capital allocation, I mentioned, right, we need to have returns of 25% in order to put capital to work on the refining side. Projects like Robinson Jet, Garyville Jet, the DHT all of those decisions should be yielding incremental returns and improving EBITDA per barrel. So we think this gives you the visibility that you need to see the performance in each of those regions, and have the ability to assess our planning, commercial and operational excellence as it plays through in our EBITDA. I hope that helps. Operator: Our next question comes from Sam Margolin with Wells Fargo. Sam Margolin: So this might be an elaboration on the last answer, but -- your refining capital is directed to all these optimization projects and yield enhancements. And so I wonder if there's any commercial constraints that come with the yield benefits. And it doesn't sound like there are based on the last answer, but maybe just to hammer the point home. And if so, how does MPLX potentially address those in the context of -- it seems like MPLX has an imperative to invest in the gas value chain. So I guess, to sum it all up, competition for capital across logistics with the backdrop of all these yield benefits coming to the refinery level? Maryann Mannen: Yes. Thanks, Sam. So maybe two parts to my answer for you. Let me focus first on MPLX. You're absolutely correct. Our capital program is targeted as you well know, toward nat gas and NGL. It's roughly 90% of the spend in 2026. And had a similar allocation in 2025 as we invested in the Titan North Wind processing treatment as we are progressing our 2 fractionation and U.S. Gulf Coast export dock. So we'll continue to allocate capital that meet our strategic objectives, and optimize our ability to deliver mid-teens returns and again, continue to support our mid-single-digit growth. As we move to the refining side, our target there, as I mentioned in the past, we're looking at returns in about 25%. We want yield optimization we want cost reduction. We want to continue to focus on those assets that are delivering the best profitability over the long term. You often hear us say our asset portfolio for the short term in our asset portfolio for the long term. These projects have high hurdles. But as you can see, when we put these to work, you look at Garyville, 30,000 incremental barrels a day of Jet. And then again, we got another one coming online in Robinson. And this has flexibility as well so that if we were to see changes in the Jet pattern, we can revert back to other distillates. And we think these projects give us outstanding capabilities. So again, both of these businesses, both MPLX and MPC have very specific mandates strategic focus, financial hurdles for which they need to allocate capital. I hope that helps. Sam Margolin: Yes, it does. And then this is a follow-up within kind of this gas theme. These gas exposure is very thematic. As you know, there's end market growth across the natural gas value chain in every category. And so the question is whether would ever want to participate in those end markets and leverage MPLX's growing exposure into that vertical? Maryann Mannen: Yes, Sam, it's interesting. Let me give you some thoughts, and then I'll pass it to Rick to give you some incremental color. You hear us often talk about this concept of value chain. When you look at our refining side as a house, so to speak, right? We have a natural short, so to speak, or assets, demand, natural gas every single data to operate. And then you look at the flip side of that on MPLX and you look at our exposure, we're processing, touching, if you will, over 10% of U.S. natural gas every single day and expanding that footprint. Rick and his team have a nat gas organization now, and we're looking how to optimize that focus on the U.S. Gulf Coast project that we're talking about. As you know, we've said MPC and MPLX will have a contract, meaning MPC will take all of the product from that -- those two fractionators. And then Rick and his team then takes a marketing of that, as I mentioned in my prepared remarks, right, we just concluded a potential contract here for 40% of our demand with E1. So we see this opportunity growing. I'm going to pass it to Rick and he can give you a little more color on how we're thinking through that. Rick Hessling: Yes, Sam, I think Maryann said it very well. Think of on the R&M side, we have a massive nat gas short. And so as you know, with the substantial footprint, we have through MPLX with our pipeline commitments and the equity they have in pipelines, that is absolutely complementary to our U.S. Gulf Coast refineries, especially. So -- we look to parlay those positions into advantageous nat gas for our refineries, especially along the U.S. Gulf Coast. And then I'll just give you another little nugget. On the power side, we have several cogens across our footprint that we participate in those markets commercially. And they supply us certainly with power for our refining assets. And so there are opportunities and synergies there that we're really pressing into. So a lot of opportunity in this space, Sam. Operator: Our next question comes from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: Maryann, I think we've got a very thorough answer on capture, but it's never enough, sorry. I wonder if I could just ask a really simple characterization question. You guys have run -- you've got a target of 100% capture your trading businesses, obviously had a big impact, especially in this kind of market. But there's a lot of moving parts. And particularly on secondary products and you already talked about physical crude markets and how you're swinging your portfolio. My simple question is this, if we look forward at the extraordinary indicator margins and acknowledge there's going to be some offsets. Do you believe you can sustain your 100% target in this extraordinary environment? That's my first question. My second question is really more -- I understand your comments about the macro and all the rest of it. I think none of us expected the situation we have currently. My question is, do you see this as a windfall as we secure currently. In which case, how does that inform the pacing or the decisions you make on Neil's question about cash returns. My point is simply this. couple of weeks ago, the Foreign Minister of Iran turnaround at the straightness reopened. Oil prices fell $17 that day and everything got hit pretty hard. I think missed time buybacks at this point in the cycle. The risk is a lot of that windfall cash flow goes away with a decline in the share price. So my question is how does that factor into your thinking? The first one capture and the second on the pacing of your cash returns. Maryann Mannen: Yes. Of course, Doug, sure. So on capture, first and foremost, we have been working on our commercial performance for a period of time. And the objective for the commercial team, as you know, in any quarter is really to expand the crack regardless of the market that we're given. So every quarter, the macro, they are diligently working to expand that crack and address all issues in the prompt. At the same time, the commercial team is working on sustainable changes for the long term, right? To your point, can we continue to say, capture should be improving period-over-period. Organizational changes, Rick has talked about those in the past or access to markets outside of the U.S., so that we've got, if you will, round-the-clock coverage. We're using other digital and other technology capabilities. We've got a planning organization now that is critical to identifying where those opportunities exist in the organization so that both commercial and Mike's team operationally can execute those and deliver the incremental value. So creating sustainable as well. But if we look at just the first quarter alone, our capture would have been in excess of 100% this quarter, if not for two things that you mentioned. One, secondaries; and two, the impact of derivatives. And you know secondary is not necessarily something that we've got complete control over. As that commodity volatility moves rapidly up or down, our ability to capture or hold pricing on the way down or respond to pricing on a rapid rise is a challenge, and we saw headwinds this quarter coming from that secondary market. Derivatives. Derivatives are a normal and ordinary course through our risk lens. We use hedges to protect a certain portion of our inventory, and that's a normal ordinary course and frankly, this quarter was absolutely no different. What was different was the volatility in the commodity. And so the timing of that, meaning when that physical barrel was actually received be it first quarter or second quarter also had a headwind. Now that will unwind in the second quarter, but that had an impact on our capture headwinds in the quarter. So I guess to try to answer your question, there are things that we cannot control, as you well know, and that volatility will create variability. We even try to look at tight correlations for -- so that we can actually do some projections ourselves. But the things that we can control the quarterly addressing the prompt market and responding and the long-term sustainability, we believe we have more opportunity to deliver incremental performance on an EBITDA per barrel across our regions, Doug. I hope that answers the question. Douglas George Blyth Leggate: Yes, it's very clear. And maybe on the windfall question, allocation of cash. Maryann Mannen: Yes, certainly. So on the windfall question. As you know, our capital allocation hasn't changed. We continue to believe that MPLX supporting our capital plan and covering the distribution gives us the ability to lead in capital returns. That should not change. Obviously, as the volatility persists. We will watch our balance sheet. We will be very disciplined in the manner in which we allocate capital, both through our capital return as well as across the system when we're thinking about projects, et cetera. But overall, our return of capital, if you will, philosophy hasn't changed. Douglas George Blyth Leggate: I think that's clear. Maybe just to clarify, would you pace the share buyback? Or is it ratable? Maryann Mannen: We try to do our very best across the system to make the best decisions that we can and be as disciplined as we can when we are returning capital, Doug. Operator: Our next question comes from Theresa Chen with Barclays. Unknown Analyst: Given the upside volatility in slot prices that we've seen, I would love to get an update on your demand observations and outlook across the products within your footprint. Are there any regions or areas that you're seeing any resistance as far as demand goes, any areas where we're testing that point of inflection for demand elasticity? Rick Hessling: Theresa, it's Rick. So I would say resilient is the word I would leave you with. We continue to see resilient demand for both gas and diesel across Mid-Con, Gulf Coast and the West Coast. And one ironic piece is even when you look at the differing prices throughout the United States, -- on the West Coast, we've actually seen a small increase in our wholesale class of trade with other players exiting that market. So -- we've seen the benefit of that, and we're seeing new markets for exports, such as diesel to Australia, as I mentioned earlier. And then I would say from a Jet perspective, we are not seeing any decline in the jet demand. We see strong jet demand in L.A., Gulf Coast and Mid-Con Chicago area. So across the board, we're not seeing any impacts yet, Theresa. Unknown Analyst: And turning to the LPG export project. Great to see the commercialization progress there in terms of getting third-party offtake for that facility. I'm curious as far as your plans for the remaining 60%, is the strategy or plan that you will farm that out to an off-taker to like a consumer on the other end? Or are you planning to keep a certain portion of that capacity for your own marketing purposes? And beyond the initial 200,000 barrels per day, given the call on U.S. resources and export infrastructure in general at large and this growing stores of volumes from a supply push perspective from the producing basins. What are your thoughts on incremental phases of expansion on that facility? Rick Hessling: Yes. So maybe I'll start with that, Theresa. So when you look at our strategy to continue to move LPG through our docs E1, as Maryann stated in her opening remarks, that's just the start. So that's a delivered barrel that will go to South Korea. We are looking at other Asian and other Asian and European markets, African markets. And so our ultimate plan is to contract up a significant portion more of those barrels before the project goes live in 2028 with Frac 1. So you'll see us lock down more volumes. We're leaning into both the delivered and FOB option. And you've heard me say this a lot over the years. We're going to look to what we believe is the best economic signal. Right now, we believe that's delivered with our expertise and with the VLGCs that we have on time charter and those that we will procure. So I would say it will be a combination of FOB, Delivered and then we'll leave some to the spot market just to make sure we're able to take advantage of volatile markets when those fracs come online, which we expect to be in our favor with the Qatar LNG facility going down as well as the other projects around the world being delayed, we believe the timing of our asset coming online couldn't be better. Maryann Mannen: And Theresa, it's Maryann. To the first part of your question, maybe just around the potential beyond that. When we announced this project, we did say that we saw this as a growth platform. We've been saying Frac 1 and Frac 2. So one that comes online in '28 and 2029, we've got a high degree of confidence, right, that both of those fracs will be full. We'll continue to evaluate that opportunity. But certainly, this is a growth platform for us. Operator: Our next question comes from Jason Gabelman with TD Cowen. Jason Gabelman: I wanted to start on what you're seeing kind of in the inland markets and West Coast and kind of we've seen a bit of inverse performance there in land was, I'd say, weaker than normal seasonality in 1Q. What do you think drove that? And do you see that kind of reversing back to normal seasonality as we move to 2Q and then kind of the inverse of the West Coast, which was very strong for 1Q, but has been volatile since 2Q started? Rick Hessling: Yes. Jason, it's Rick. So I will start with the Mid-Con and tell you in Q1, the Mid-Con was really performed exactly how we thought it would perform, and that's in line with seasonal trends. It was a tough Jan and Fab, but that's not to be unexpected. As we leaned into March, though, we saw the Mid-Con start to widen out. And as we look at the Mid-Con today, it is absolutely the best market we have right now within our system. We're seeing extreme tightness on gas and diesel inventories. EIA stats went from length on inventory in Jan and Feb to abnormally low levels now. And really, what's causing this is you have some turnaround us included at locations such as Robinson. But really what's driving this, Jason, is we're seeing good demand and you're seeing a lot of unplanned maintenance in the region. So the marker as we look today is very strong because of the supply/demand any qualities that exist in the market. And I would also say that everyone in max diesel mode, as you well know, to meet the demand signal, and we're seeing strong ag demand, which is positive. But that has led to tightness now on gas inventories as we head into driving season. So we feel very good about where we're at from a Mid-Con perspective and where we're headed as we enter into driving season. On the West Coast, I will tell you, you signaled a bit that it's fallen off a bit, but it has, but it's still at very robust cracks and we believe that will continue to persist because the West Coast is structurally short. As you know, from a refining perspective, and the volumes coming over from Asia, the import volumes coming over from Asia have been significantly reduced due to all of the refining issues that Maryann mentioned in her prepared remarks. So we continue to feel very confident that the West Coast will stay in a good ZIP code area that it is generally in at this 10 seconds as well. Jason Gabelman: Got it. That's a color. My follow-up is on the intercompany contracts between and MPLX. And I think over the next couple of years, you'll see a number of those contracts come up for renewal. Should we expect those contracts to get renewed at kind of similar terms as what they're currently at? And can you just talk through the process that you go through in renewing those contracts. And if I could just sneak one last one in for any voting of doubt, can you provide the derivative impact that you've alluded to a few times that you've incurred for 1Q? Maryann Mannen: Yes. Sure, Jason. It's Maryann. And then I'll pass it to Maria to give you the specifics on the derivatives in the quarter. On the MPLX MPC contracts, absolutely, you should expect us to renew those contracts. We typically, as we get within an 18-month period, we'll get those renewed. But we have all intentions of those contracts being renewed. As you know, the relationship between MPC and MPLX continues to be extremely important. When we look at the strategic focus of both of those organizations and, if you will, the inextricable relationship, so to speak, that we have and the ability, frankly, for us to use that overall, integrated system, it's critically important. So yes, you should expect that those contracts will get renewed. And then on the derivative side, I'll pass it to Maria in a moment, but let me just comment again. Our derivative program in the first quarter is no different than any quarter that we have ever executed. We use derivatives to cover a portion of those inventories to protect physical -- protect the price, obviously, the challenge in this quarter is just the extreme volatility of the commodity. I mean you can even go back and look at the crisis when Russia-Ukraine war, we would have seen similar except the change in volatility or the change in the commodity wasn't as severe. A portion of that physical came through in the first quarter and then the balance of that -- are largely balance of that, we would expect to unwind. Let me pass it to Maria. She can give you a little more color. Maria Khoury: Jason, so from a derivative perspective, in the first quarter, we had about $500 million of unrealized losses. And if you think about midstream was about $63 million. and then the impact on margin calls to working capital was about $340 million overall use of cash. Operator: Our next question comes from Joe Laetsch with Morgan Stanley. Joseph Laetsch: So I wanted to start on the renewable fuel -- so want to start on the renewable fuel side, with the rallying bins, I suspect we'll see results continue to improve in that business. Can you just talk about how you're thinking about the path for D4 RINs and margins broadly here in the outlook for the release segment? I know it's a smaller piece of the business, but it could flip to a tailwind here. Maryann Mannen: Yes, I'm going to have Maria give you that color, Joe. Thanks. Maria Khoury: Thanks, Joe. As you noted, the macro environment is improving with the higher rents and also higher diesel values. But most importantly for us, it's really focusing on what we control. You just saw that we completed our first major turnaround in the Martinez facility in the first quarter. And we are ready to run here in the second quarter, and we are looking to have utilization levels in the second quarter of low 90%. So that's really where we are going to anchor ourselves for performing in the second quarter in this environment. Joseph Laetsch: That's helpful. And then I wanted to follow up on some of the opening comments on refining and utilization in particular. First quarter came in 89% above the 85% guidance level. Can you just talk to some of the drivers of the performance during the quarter? Was that more efficient turnarounds or higher uptime when the assets were running? I think you also mentioned Lowes unplanned downtime, which is probably a factor here as well. Maryann Mannen: Yes, Joe, of course, and thank you. I think you did a nice job of answering the question. Our loss capacity, if you will, or unplanned downtime was at our lowest in a long period of time, and that clearly had a benefit over our operations. I'm actually going to ask Mike to give you a little bit more color. He and his refining team have been working diligently on operational effectiveness and excellence and ensuring their reliability. And I'd like to have him give you a little bit more color on what happened in the quarter. Unknown Executive: Sure. Thanks, Maryann. The biggest thing that we've been working on from a utilization standpoint or reliability and obviously reducing our is primarily of reliability projects. We had talked about some that we had pulled forward into the first quarter. In addition to that, we have a continued reliability focus program along with human reliability and upskilling our operations and the main focus for us around utilization has also been targeting just the basic operation steps, making sure we are the best operator. That has really -- the first quarter has been our primary, I guess, changes that we're making. But in the second quarter, we're just continuing on with that as we go through the additional growth projects that we have in our reliability projects, and that's really been target -- the biggest target for our utilization numbers. Kristina Kazarian: There are no other questions. Thank you for your interest in Marathon Petroleum Corporation today. Should you have more questions or want clarification on topics discussed this morning, please contact us, and our team will be available to take your calls. Thank you for joining us. Operator: Thank you for your participation. Participants, you may disconnect at this time.
Operator: Good day, and welcome to the MSA Safety First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Larry De Maria. Please go ahead. Lawrence De Maria: Thank you. Good morning, and welcome to MSA Safety's First Quarter 2026 Earnings Conference Call. This is Larry De Maria, Executive Director of Investor Relations. I'm joined by Steve Blanco, President and CEO; Julie Beck, Senior Vice President and CFO; and Gustavo Lopez, Vice President, Product Strategy and Development. During today's call, we will discuss MSA's first quarter 2026 financial results and provide an update on our full year 2026 outlook. Before we begin, I'd like to remind everyone that the matters discussed today during this call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, all projections and anticipated levels of future performance. Forward-looking statements involve a number of risks, uncertainties and other factors that may cause our results to differ materially from those discussed today. These risks, uncertainties and other factors are detailed in our SEC filings. MSA Safety undertakes no duty to publicly update any forward-looking statements made on this call, except as required by law. We've included certain non-GAAP financial measures as part of our discussion this morning. These non-GAAP reconciliations are available in the appendix of today's presentation. The presentation and press release are available on our Investor Relations website at investors.msasafety.com. Moving on to today's agenda. Steve will first provide an update on the business. Julie will then review our first quarter 2026 financial performance and 2026 outlook. Steve will then provide closing remarks. He will then open the call for your questions. With that, I'll turn the call over to Steve Blanco. Steve? Steven Blanco: Thanks, Larry, and good morning, everyone. Again, we appreciate your continued interest in MSA Safety. I'd like to start with a brief comment on the conflict in the Middle East, which I'll discuss in more detail in a few minutes. While the situation remains volatile, our top priority is the health and safety of our associates in the region. We have an outstanding team, and I'm pleased to report that our employees are safe, and we remain close to our customers to ensure their safety needs. We'll continue to prioritize our team's safety while serving our customers and managing the inherent business risks. I'm on Slide 6. The team achieved a solid start to the year as we continue to execute and deliver on the commitments outlined in our Accelerate strategy. Our first quarter results included consolidated reported sales growth of 10% with a 3% organic increase and adjusted earnings per share of $1.99, up 18% from last year. Organic sales performance in the quarter was driven by high single-digit performance in the Americas, which was partially offset by a decline in the International segment. Geographically, we saw strong growth in North and Latin America and weakness across our European and Middle Eastern markets. Our results reflect the resilience of our diversified business despite the lower growth environment in Europe and the potential impact due to the Middle East conflict. Looking at sales by product category, organic sales in Detection were consistent with the prior year as double-digit growth in portable gas detection was offset by double-digit declines in fixed monitoring solutions in International. This decline reflects the impact of softer European and Middle Eastern markets. The M&C TechGroup acquisition contributed $15 million to the quarter. Organic sales in fire service increased 3% year-over-year, driven by strength in the Americas. As we expected, SCBA sales partially benefited from AFG funding related to the U.S. government shutdown in late 2025. Organic sales of industrial PPE were up 7% on continued momentum in fall protection and growth in industrial head protection, reflecting healthy performance in our short-cycle businesses and nice momentum in our new H2 hard hat. In international, growth in protective ballistic helmets provided additional tailwinds. Organic orders were also healthy and in line with normal seasonality and book-to-bill was above 1. We're pleased to see the reopening of the Department of Homeland Security, which should further enable fire departments to access the AFG grants that were approved in 2025. Strength was notable in our industrial PPE business, supporting broad-based strength across our short-cycle businesses. Moving to Slide 7. We continue to execute our Accelerate strategy to drive value for our stakeholders and serve our mission. We're encouraged by the solid start to the year, especially given the challenging operating environment in certain areas of the world. The business demonstrated resilience through top line growth and margin expansion with Americas strength outpacing international results. We also achieved positive price/cost in the first quarter. I'd now like to provide some context on the impact of the conflict in the Middle East. While we've not seen any meaningful business cancellations in the short term, it's been affecting customer order and delivery patterns in the region. While the Middle East is a long-term growth market for the MSA, for reference, sales represent about mid-single-digit percentages for our overall business. Now let's pivot to discuss a few strategic highlights from the start of 2026. We continue to innovate and bring industry-leading products and solutions to market. We began shipping our newly launched ALTAIR io 6 portable gas detector, which joins the io 4 for expanding our MSA+ connected ecosystem. The io 6 is a long-term growth opportunity for the business. We continue to see strong demand for both traditional and connected portable offerings. We also announced the launch of the Bacharach X30 and X50 refrigerant monitoring solutions. These fixed gas detectors were designed to help customers comply with regulations around refrigerant gas monitoring and leak detection. The launch of these new solutions expand upon our end-to-end refrigerant management and monitoring offerings in the HVAC-R market. From a financial perspective, we announced a new $500 million share repurchase authorization in February, which we began to execute on in the first quarter. This authorization reflects our commitment to our disciplined and balanced capital allocation strategy. Finally, I recently attended the Fire Department Instructors Conference, FDIC, in Indianapolis, where it was my pleasure to interact with our customers, channel partners and the MSA Fire Service team. It was inspiring to showcase MSA's extensive solutions for the fire service and our commitment to continued innovation through the connected firefighter platform of the future. Along with our Globe apparel business and Cairns Protective helmets, we once again demonstrated the strength of our market-leading head-to-toe fire service solutions. Industry feedback was excellent. Moving to Slide 8. I'm pleased to share that we've signed a definitive agreement to acquire Autronica Fire & Security in a transaction valued of $555 million. We expect the deal to close in the third quarter. Autronica is a leader in fire and gas detection systems and is highly complementary to our existing fixed detection portfolio. The acquisition is well aligned with MSA's mission and Accelerate strategy, including our financial and strategic M&A objectives. With a history of mid-single-digit plus sales growth, the company generated 2025 sales of approximately $160 million and adjusted EBITDA margins of about 20%. Through numerous synergy opportunities, we expect to increase adjusted EBITDA margin to meet or exceed the corporate average over the next several years. From a balance sheet perspective, the transaction implies pro forma net leverage of approximately 2x at close, well within our target range. We expect to finance the acquisition through a combination of cash on hand and our revolving credit facility. And we remain well positioned to invest in our business and delever post close while maintaining a healthy M&A pipeline. Strategically, this business is a great fit with our existing fixed detection platform. It is accretive to growth and enhances MSA's ability to participate earlier in project design to deliver more integrated fixed gas and flame detection solutions. It also expands our addressable market by $3 billion and is similar to our existing detection business from a customer, technology, distribution and regulatory perspective. Moving to Slide 9. Autronica is a leader in mission-critical gas and flame detection technologies used across diverse end markets, including critical infrastructure, energy and marine. Headquartered in Trondheim, Norway, the company was founded in 1957 and is known for its technology leadership and growth mindset, deep customer intimacy and a large installed base, underpinned by a mission of safety. These attributes align closely with MSA's culture and our strategy. Autronica serves markets around the world with a strong footprint across the Nordic countries and the rest of Europe with other businesses across the globe. And it complements and strengthens our global footprint with its world-class brands. And like M&C, we expect to enable growth in markets where MSA is stronger, most notably in the Americas by leveraging distribution and relationships. I look forward to welcoming the Autronica team to the MSA family upon closing the deal sometime in the third quarter. With that, I'd like to turn the call over to Julie to walk us through the financial results for the first quarter in more detail and our 2026 outlook. Julie Beck: Thank you, Steve, and good morning, everyone. We appreciate you joining the call this morning. Starting on Slide 11 with the quarterly financial highlights. First quarter sales were $464 million, an increase of 10% on a reported basis over the prior year. Sales were up 3% on an organic basis, while currency translation was a 4% tailwind, and M&C added 3% to overall growth. The foreign exchange benefit was primarily related to the euro, Mexican peso and Brazilian real. As expected, GAAP gross margins improved, rising to 47.4%, an increase of 50 basis points sequentially and 150 basis points over the prior year. Year-over-year gross margin reflects strong operational performance from our team, including strategic pricing, productivity, as well as positive mix and favorable transactional foreign exchange, which offset pressures from tariffs and inflation. On an adjusted basis, gross margin increased 170 basis points year-over-year to 48.1%. GAAP operating margin was 20.1%, a 160 basis point increase driven by the gross margin expansion. Adjusted operating margin was 21.8%, up 100 basis points over last year, with an adjusted incremental operating margin of 32% within our annual target range. We continue to invest in our innovative safety products and solutions with R&D expenses of $16 million in the quarter. SG&A increased from the prior year due to the addition of M&C as well as foreign exchange. Quarterly GAAP net income increased 20% to $71 million from the prior year, while diluted earnings per share increased 21% to $1.83. Revenue growth and margin expansion were primary drivers of earnings per share growth with incremental benefits from foreign exchange, M&C, share repurchases and a lower year-over-year effective tax rate. On an adjusted basis, diluted earnings per share were $1.99, up 18% from last year. Now I'd like to review our segment performance. In our Americas segment, sales increased 11% year-over-year on a reported basis, 7% of that was organic. We delivered broad-based organic growth across our product categories with high single-digit contributions from fire service and detection, along with mid-single-digit performance in Industrial PPE. M&C contributed 2 points to total growth and currency translation added a 2% tailwind. The adjusted operating margin was 30.2%, a 340 basis point increase compared to the previous year. The margin improvement was primarily due to strong execution from the team, including strategic pricing, productivity, favorable transactional foreign exchange and positive mix. In our International segment, sales increased by 8% year-over-year on a reported basis with an 8% contribution from M&C and a 7% tailwind from foreign exchange. Organic sales declined 7% on a double-digit contraction in detection and fire service, partially offset by double-digit growth in Industrial PPE. Organic growth headwinds, especially in detection, were primarily attributable to softer economic conditions in Europe and headwinds associated with the Middle East conflict. Fire service was temporarily unfavorably impacted by order timing. Growth in industrial PPE was primarily due to strength in fall protection and protective ballistic helmets. Adjusted operating margin was 10.5%, 410 basis points below last year. Margin contraction was mainly due to inflation, tariff pressures and lower volumes, partially offset by strategic pricing and favorable transactional foreign exchange. Now turning to Slide 12. We generated free cash flow of $65 million, which was 91% of earnings, marking a 28% increase in free cash flow generation compared to a year ago. Free cash flow was strong relative to normal first quarter seasonality, driven primarily by the year-over-year increase in net income. Returning capital to our shareholders is an important part of our disciplined capital allocation. We returned $71 million to shareholders via $50 million of share repurchases, fully offsetting expected dilution for the year and $21 million of dividends. Capital expenditures returned to a more normalized level of $11 million. In addition to repurchasing shares, we also announced the authorization of a new $500 million share repurchase program in February, our largest ever. The program replaces the previous $200 million program authorized in 2024. There is no set termination date and $475 million remains under the new program as of quarter end, with half of our repurchases in the first quarter under the prior authorization. Yesterday, we also announced our 56th consecutive annual dividend increase. We ended the quarter with net leverage of 0.9x and a weighted average interest rate of 3.8%, both consistent with fourth quarter levels. Our strong balance sheet and ample liquidity of $1.2 billion at quarter end continue to provide significant strategic capital allocation optionality within the framework of our Accelerate strategy. As Steve discussed with the acquisition of Autronica, we are actively deploying capital as part of our M&A strategy. We expect our pro forma weighted average interest rate post-acquisition to be approximately 4.5%. We expect the $555 million acquisition to add approximately 1 turn of net leverage and be accretive to adjusted earnings per share in year 1. Following the transaction, we expect net leverage to be approximately 2x. With Autronica, our 2025 pro forma detection revenues increased to approximately 45% of our total sales mix. The acquisition adds scale to our European business and is accretive to our international adjusted EBITDA margin. We expect to begin realizing the benefits of the synergies in the second half of the first year of ownership with a full run rate value to be realized over the next 3 years. Let's turn to our 2026 outlook on Slide 13. Our outlook does not reflect any impact from the Autronica acquisition. Given the solid start to the year and the overall health of our business, we are reaffirming our mid-single-digit organic sales growth outlook for 2026. Broadly speaking, our full year assumptions remain unchanged from the outlook we provided in February. However, we do recognize and are proactively managing the potential challenges posed by the volatile tariff, geopolitical and macroeconomic landscape. While we are encouraged by the reopening of the Department of Homeland Security, we are mindful that AFG grants previously awarded to our fire service customers were suspended during the shutdown and may face continued short-term delays as DHS reopens. That being said, our outlook assumes continued strength in our Americas segment and an improvement in our international results from the first quarter. Our outlook is supported by a mid-single-digit year-over-year order increase and a double-digit backlog increase sequentially in our International segment. For modeling purposes, below-the-line items also remain unchanged from our previous outlook. In conclusion, although the macro and geopolitical environment backdrop remains fluid and continues to shape a dynamic operating environment, we executed well to begin the year and remain laser-focused on delivering our traditional growth algorithm, including mid-single-digit organic sales growth in 2026, consistent with our Accelerate strategy. With that, I'd like to pass it back to Steve. Steven Blanco: Thank you, Julie. I'm on Slide 15. To close, I'm proud of our team's execution to begin the year and thank all of our associates for their continued commitment to serving our customers. With that, I'll turn the call back over to the operator for Q&A. Operator: [Operator Instructions] And the first question will come from Tomo Sano with JPMorgan. Tomohiko Sano: Congrats on the quarter. Steven Blanco: Thanks, Tomo. Tomohiko Sano: And could you talk about the guidance regarding the mid-single-digit organic growth? For the remainder of the year, do you expect the strong momentum in the Americas to continue? Or will the recovery in international be necessary to achieve your full year guidance, please? Steven Blanco: Yes. Thanks for the question. I think you'll see both of those businesses perform. If you think of international, as Julie said in the prepared remarks, the fire service piece was really planned given tender timing. The major market activity in the pipeline comes in the second half of the year. Certainly, the detection with what's going on in the Middle East and Europe was challenged. But even that, you look at the Middle East, our incoming business is higher through April this year than last year. It's just a matter of us getting that invoiced. So we expect that to turn. And by and large, we're expecting a nice recovery in the international markets while we continue to see Americas perform. So I think it's going to be broad-based across the business and the incoming supports that to date. Tomohiko Sano: And then just one follow-up on the acquisitions of Autronica. How do you assess the cultural fit between MSA and Autronica? And what measures are you taking to ensure successful integrations, both operationally and culturally, please? Steven Blanco: Yes. Thanks for the question. So that's critically important to us. If we look back even last year, we -- as we got close to some opportunities, culture was so important to us. It's not just about looking at the business growth. It's really about how do we fit for the long term because this is a long term -- we like to use the term New Member Of The Family, and how they integrate culturally is just as important as how the business looks. We feel really good. The team was just super stoked about what we saw there, the leadership there, their engagement and their focus on safety, Tomo, it's really nice. I would also add, if you think about how we look at the synergies here and we look at the forward multiple, we're looking at that, that's cost only. But most of our upside, which we haven't modeled in that, frankly, is what we see in the revenue side. So long term, we expect this business to grow, help MSA grow, and we expect it to be a nice fit. And if you look back as you talk about our success or how effectively -- confidence, I guess, in effective execution, we've done a really nice job with M&C, which obviously, we've done nice on some acquisitions previous to that. But I think the business system really comes alive with these acquisitions. And we saw that with M&C, we'll see that with Autronica. Operator: The next question will come from Quinn Fredrickson with Baird. Quinn Fredrickson: First, just on fire service. Any way to quantify how much recapture the deferred fourth quarter sales you saw this quarter? Just wondering how much of that $20 million recapture opportunity remains? And then perhaps any color you can give us on the near-term outlook as well since you mentioned some order timing influences from the DHS shutdown? Steven Blanco: Yes, sure. So again, thanks for the question. But if we look at fire, it was solid. We only realized roughly 1/3 of the AFG-related delayed orders coming through. So that implies a little over 2/3 are left. And that expected timing, we had hoped kind of the first half, we expect some in the second quarter. But certainly, with the government shutdown, that has put some pressure on them getting access to their grants. Probably plays out in late the second quarter into the third quarter at this point. So you'll see, I think, that 2/3 kind of play out in those 2 quarters. That's how we're seeing it right now. Quinn Fredrickson: Okay. Julie, one for you. I think you mentioned being positive price/cost in the quarter. Just any way to quantify? And then for the year overall, do you now anticipate being price/cost positive? Julie Beck: We're on track. We talked about sequential margin improvement, which we saw, and we continue to expect margins to improve. We reaffirm our 30% incrementals and I think it's going to be a nice year for us. Operator: The next question will come from Steve Volkmann with Jefferies. Unknown Analyst: This is James on for Steve. I wanted to touch on the acquisition. You talked about there is a potential for revenue synergy, which is not baked in. But can you kind of just talk about the mechanism there? And on the cost synergy, what's the kind of timing of realization after close? Steven Blanco: I'll let Julie jump into the cost. I mean it's a multiyear plan. But I think when you think of the acquisition broadly, it really helps us. It expands our capability to participate earlier in designs. You think about the engineering design work that goes on very early that fire detection is integral for, that's key in our view. It's a business that's highly engineered and they really are in a highly regulated business, not dissimilar to us, but they have a solution for complex applications with their product portfolio. So I think for us, it's the ability to participate in markets where we're strong and they're not. So we can take those solution sets and expand that into those markets. That's part of that addressable market we talked about. If you think about a couple of markets we have real strength, one in the Americas, where they don't. I mean they just don't have that coverage there. They want to, and we're going to help them do that. And the Middle East, which they're starting to grow in, we're very strong in those. And that's representative of over 2/3 of that addressable market growth we talked about. So you think their solution set, you combine that with ours, you now have the full suite that our end customers really look for, and we can get earlier access when they're really designing out based on the regulatory requirements, they're designing out that platform for fire and gas detection. We think that's going to be a real big win here. Julie Beck: And just a follow-up on the cost synergies. Just we see those starting maybe in the second half of the first year of ownership, and we expect to fully realize them all within about 3 years. They consist of various things, typical operational and supply chain items, maybe a little bit of back office but it's those types of things, and we're just really excited about the potential and margin expansions going forward. Unknown Analyst: Great. And I guess I wanted to touch on the international detection here. Again, kind of -- I mean, organic sales came in weaker and you talked about like the weakness in Middle East and Europe. So like what's embedded in guidance? Like when do you think those will normalize? And kind of what gives you confidence that they will normalize kind of going forward? And I think also there was kind of onetime like large detection orders in Latin America that gave a tough comp. So can you also size that like for us so that we can kind of think about like the impact by components? Steven Blanco: Certainly. So last year, we did have -- we had a couple of points of what would have been 2026 growth, which we executed in '25 based on the customer funding availability. And so they pulled that forward. So it is certainly a tough comp there because that gave us, I think, 12% growth overall. But when you look at '26 as we are in now, we still expect nice growth overall. The first quarter with what's happened with the conflict and really some of the related pausing that we saw in Europe certainly put a bit of a crimp for a quarter. But as I noted, we're seeing some nice incoming and the pipeline is really strong. What's happened is you've seen a delay and slowdown in project business. So the project awards have really slowed. So that's affected certainly the Middle East, but also Europe. And even though Asia Pacific performed well in the first quarter, their detection business was affected to some degree because of those projects. What I would say is the Middle East adds uncertainty, certainly, and we know that. And most importantly, I would note that for our employees and customers and all there, our thoughts and prayers are with them. But our expectations is if we get past this by midyear, we have pretty good line of sight for the year and confidence with where we're at. Julie Beck: And just to add just a point of clarification, the large order that Steve was referring to is in the Americas segment, not in the International segment. Steven Blanco: Yes, right, the Latin America. Operator: [Operator Instructions] The next question will come from Brian Brophy with Stifel. Brian Brophy: Just following up on the Middle East discussion. I guess we've heard anecdotally about some damaged equipment over there in need of a replacement. Are you guys having conversations with customers on the topic -- on this topic at this point? And how should we be thinking about this potentially translating into a tailwind for your business at some point in the future? Steven Blanco: Yes. Thanks for the question. Well, I think, broadly speaking, it has been difficult for our end customers to operate on a normal condition. with what you talked about. And certainly, that damage is part of it and just the normal operation. We've seen the day-to-day business and replacement component business in the Middle East really slowed down in the first quarter, which is indicative of what you just talked about. We are certainly staying close to the customers and ensuring that we are ready and able to support them as they come back up to speed. And obviously, they're already trying to figure out how to do that. And that's part of what we hope to see some of that. There might be some tailwinds in the second half of the year as we try to support that, and we'll be prepared for that. At this stage, that's an added piece to the business. But at this stage, I would say it would be upside. Brian Brophy: Yes. That's helpful. And then just wanted to ask about gross margins. Obviously, some nice improvement from the first quarter a year ago. I guess I'm curious how much -- yes, how much of the benefit was transactional FX related? Was this really more just a price/cost tailwind? And just any updated thoughts on how you're thinking about gross margins this year? Julie Beck: Yes. Thanks for the question. Yes, I would say that the gross margin expansion is really a bulk of it comes from price/cost but we also saw some nice productivity and some nice initiatives from our ops folks contributing as well. And the FX piece is a smaller portion of the total pie. It really was operational primarily. Steven Blanco: Yes, Brian, if you remember, what we talked about last year is that we were going to manage these inputs and combine our productivity with the appropriate strategic pricing to help manage our customers' needs and impacts with the value. And that's exactly what the team has done. So getting those efficiencies and productivity flow through along with the pricing actions have resulted in what we had expected and certainly where we're at. Julie Beck: Yes. And we're on track for those 30% incrementals and gross margins in that 47%, 48% range for the year, just to follow up. Operator: The next question will come from Jeff Van Sinderen with B. Riley FBR. Jeff Van Sinderen: Let me add my congratulations on the Autronica acquisition. It sounds great and I understand it's a multiyear plan. Just wanted to clarify, should we anticipate that it would be dilutive to consolidated EBITDA margins in the first few quarters? Or how should we think about that? Julie Beck: Yes, slightly. Yes. Yes. Their margins are -- we disclosed it approximately 20% EBITDA margins, slightly under but they will improve over time, and we'll have gross margin expansion there as well. Jeff Van Sinderen: Okay. And then just thinking about that, do you think we're looking at -- I realize there's a lot of inputs there, but do you think we're looking at something that's like a few hundred basis points or because there's a pretty sizable gap between the 20% and where you guys are running. I'm just wondering sort of order of magnitude we should anticipate? Julie Beck: Not terribly much, point or something like that, 50 basis points, not a huge impact. Jeff Van Sinderen: Okay. That's helpful. Terrific. And then just, I guess, kind of looking at the supply chain, I know there's disruption, there are certain supply chain things that are a challenge for some folks. Just wondering kind of considering the geopolitical backdrop and so forth, and where there are some constraints out there, are you guys seeing any of that, anything that's challenging that you're watching for supply chain? Steven Blanco: We certainly are. And I would say that, that's likely to continue. We've actually -- in some of our inventory positions, we've added on an electronic basis to protect ourselves. Supply chain hasn't -- I don't think we've had any normalization of supply chain since COVID. But we have seen some. We haven't seen it to have a material impact on the business. I mean we've had costs that we're watching and managing from a logistics perspective, especially with what's going on in the Middle East, which may necessitate some pricing actions, but we're watching that closely. Julie Beck: The other thing that we would have an impact on is resins, just to add to that, that we're watching those as well. Operator: Showing no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Larry De Maria for any closing remarks. Lawrence De Maria: Thank you. We appreciate you joining the call this morning and for your continued interest in MSA Safety. If you missed the portion of today's call, an audio replay will be made available later today on our Investor Relations website and will be available for the next 90 days. We look forward to updating you on our continued progress again next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day and welcome to Flywire's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. I would now like to turn the call over to Masha Kahn, Investor Relations. Please go ahead. Maria Kahn: Thank you, and good afternoon. With us today are Mike Massaro, Chief Executive Officer; Rob Orgel, President and Chief Operating Officer; and Cosmin Pitigoi, Chief Financial Officer. Our first quarter 2026 earnings press release, supplemental presentation and when filed, Form 10-Q are available at ir.flywire.com. Today's call is being recorded and will be available for replay on our website. During the call, we'll be discussing certain forward-looking information. Actual results could differ materially from those contemplated by these statements. In addition, unless otherwise indicated, all financial measures discussed on this conference call are non-GAAP financial measures. Please refer to our press release and SEC filings for more information on the risks related to forward-looking statements and the required reconciliations of non-GAAP financial measures. With that, I'll turn the call over to Mike. Michael Massaro: Thank you, Masha, and thanks to everyone for joining us here today. It was a great quarter with significant growth and a beat on both the top and bottom line, with broad-based outperformance across education, travel, healthcare and B2B. We are building for scale while driving efficiencies into our operations. Our product and tech organization continues to generate high-quality, high-value, differentiated products and services. And our go-to-market teams continue to sign meaningful enterprise deals, while also landing and expanding across our global client base. We are executing against our multiyear strategy to deliver $1 billion in revenue with impressive financial metrics, and I want to spend a moment on why those metrics keep improving. We go where others are unable or unwilling to go. Most companies are built for simplicity, ours is built for complexity. Multicurrency, multi-method, multi-rail, deeply integrated, sector-specific payments and software at scale. This is what Flywire is built for. Every new payment method, every new regulatory layer, every new integration only strengthens our differentiated position. The harder the workflow, the fewer companies can follow, and that is exactly where we specialize. This is what defines our moat. We have proven the thesis and the execution continues to improve. We are signing larger clients, growing volumes and product attach rates within existing relationships. Our momentum is yet another proof point. When clients stay, expand and refer others to Flywire, the market is telling you clearly our model works. And the total addressable market continues to expand. 3 years ago, Flywire is primarily a cross-border payments provider. Today, we serve the full suite of domestic and international payment flows across major geographies. And in education alone, that expansion has grown our addressable market, roughly tenfold. Many of our existing clients are still cross-border only, moving them towards processing 100% of their payment volume through Flywire is a growth engine that lives within our installed base, independent of macro conditions. Let me walk you through 4 priorities, each designed to build long-term value. First, optimizing and strengthening the core platform. The most important thing to understand about our platform is that it gets more efficient as it scales. As payment volume grows, our routing intelligence improves, banking relationships deepen, cost per transaction declines. This is not static infrastructure. It is a network that becomes more valuable with every new corridor, every new client, and every new additional dollar of volume we process. To put that in concrete terms, our payment platform today moves well over $30 billion per year, adds value to clients in more than 50 countries and accepts payments from 240 countries and territories. That scale funds better banking relationships, better routing economics and better localized experiences than a smaller platform can replicate. More volume improves the network, a better network attracts more clients, more clients deepen the integrations and deeper integrations make us harder to displace. And every capability we build, whether in education, travel, B2B or healthcare, becomes part of our shared platform designed to compound across every vertical. Our second priority is accelerating our revenue flywheel. We are seeing clear acceleration across our go-to-market motion. We are seeing bigger deals, more enterprise wins and time to signature is decreasing. Across every vertical, clients get more. More conversion, more AR visibility, more staff time on high-value work and less of everything that slows them down. Fewer payment failures, less reconciliation burden, less bad debt, less inbound questions. That ROI is what drives retention and retention drives expansion. Our land and expand strategy drives gross profit growth and paired with very low revenue churn across education and travel, it reflects a platform that once adopted, becomes foundational infrastructure for our clients. Our third priority is innovating to deepen our ownership of critical workflows. What keeps clients with us is not just the payment, it is everything Flywire does around it, the software, the workflow, the visibility, the operational efficiency. We are continuously expanding our software platform to reduce operational burden and strengthen revenue management for our clients. This quarter in education alone, we enhanced our solution capabilities to better automate student communications, improve due date visibility and scaled our U.S. loan disbursements for U.K. institutions. Similar innovation is happening across every vertical, in healthcare, travel, B2B, we are removing the complex workflows that our clients have managed manually for years. Clients trust Flywire with their most critical workflows and look to us to deliver new products, features, and payment methods. One of our key moats is the network of integrations, compliance infrastructure and operational connections around the transactions, embedded into ERP systems, bank networks and systems of record in ways that are genuinely hard to displace. As payment complexity increases, our relevance grows because clients do not want to solve orchestration, reconciliation and compliance themselves, they want a trusted platform that absorbs that and streamlines operations for them. That is exactly what Flywire does. And our fourth and last priority, AI is an enabler for Flywire, not a threat. AI increases the value of whoever owns the workflow and the data. At Flywire, we own both. Generic AI solutions do not have our transactional data across education, healthcare, travel and B2B. They cannot replicate our deep ERP integrations and our regulatory licensing or the years of client-specific behavior data that underpin what we do. So as AI becomes more powerful as a category, we believe our position becomes more valuable to our clients, not less. We are also already seeing internal AI benefits emerge in our cost structure, and the opportunity ahead is significant. We've seen approximately 40% of customer inquiries auto-resolved without human intervention, with 30% reduction in support handling time and cost per contact. We are also seeing faster onboarding, thanks to AI-assisted implementations and increased throughput without a linear increase to head count. Across the business, the impact is broad. Engineering teams shipping code faster, product teams innovating more quickly and incorporating client feedback more rapidly. And a finance team automating routine analysis so they can focus on higher judgment work. These improvements are already happening even while we continue our enterprise-wide digital transformation. Rearchitecting not just our underlying operating systems and data, but also our organization, processes, and ways of working end to end with an agentic AI future in mind. The winners in an AI-driven world will be platforms that own the workflow, the data and the client relationships, delivering results and doing so more efficiently than ever. That is the future of Flywire. So let me leave you with what defines Flywire. We run toward complexity. We operate a network of global and local payment methods, coupled with regulatory expertise all around the world. We manage the deep software integrations that most payment companies cannot build and most software companies cannot operate. We have built the capability, the team and the infrastructure to go exactly where others cannot or will not follow. We focus on underserved large industries, education, travel, healthcare and B2B, which have massive addressable markets with long-term structural growth tailwinds. These are not cyclical bets. They are durable expanding opportunities and Flywire is built to capture them at scale. And we deliver innovative technology paired with exceptional client service, removing complexity for our clients so they can focus on their mission while fundamentally improving how they get paid. Flywire is uniquely positioned to do this, our industry-leading software, our global payments platform and our FlyMates, genuine experts in the industries we serve, who execute every day to deliver real outcomes for our clients. That combination is rare. It is hard to replicate. It is what gives us confidence in where Flywire is headed. Rob will now take you through the further evidence of what I've described, the wins, the go-lives and the client outcomes that are compounding into durable growth. Rob? Rob Orgel: Thanks, Mike. The pattern across our business is consistent. We go where payment workflows are fragmented and operationally intensive. We embed deeply and we expand as clients consolidate more of their financial operations onto our platform. Let me walk you through 3 themes that define Q1: strategic vendor consolidation of these workflows, geographic diversification beyond traditional markets and accelerated software-led monetization across travel, B2B and beyond. Let me start with vendor consolidation. Clients are choosing to consolidate fragmented financial workflows onto a single trusted platform. We are leveraging this dynamic across our verticals and the reason we win is that we are the only platform that can handle all the complex workflows they need. As an example, Cornell University has committed to a long-term agreement for our full student financial software suite. Cornell is a large institution, tens of thousands of students, significant international enrollment, multiple funding sources, including sponsor billing and loan disbursements and a collections operation that touches separate debt types simultaneously. They are consolidating their billing, payments, payment plans, refunds and collection processes onto a unified global platform that only Flywire can provide. This reduces the complexity and cost of managing multiple fragmented vendors while giving Cornell a simpler, more automated and uniform view of their student financial activity. In the U.K., our SFS is delivering measurable results at institutions facing similar operational challenges. Kingston University reduced manual financial suspensions by over 30% this quarter through automated workflow management. We signed 3 additional U.K. SFS clients this quarter, all attracted by our ability to manage their unique operational needs. Separately, The University of Edinburgh, one of our largest U.K. cross-border clients, achieved approximately GBP 1 million in savings in under a year by consolidating their international tuition flows and doing reconciliation via our platform. In healthcare, we expanded with Endeavor Health, where we are now managing their pre-service, point of service, and post-service patient payments, deeply integrated with Epic across this multisystem organization. Endeavor operates across multiple hospitals and care sites, each with its own billing environment and requiring us to support a high degree of specialized workflows. Our certified integrations with Epic, Cerner and Oracle, combined with our regulatorily compliant vertical software workflows are barriers that keep most payment providers out of this market. The second thing we are seeing clearly reaffirmed in 2026 is the demand for our solutions is truly global. Using education as an example, our solutions are proving themselves outside of our traditional big 4 markets, being the U.S., the U.K., Canada and Australia. Education revenue outside those markets grew over 40% year-over-year in Q1 and more than 60% of new education clients signed were from outside the Big 4. In Europe, we are seeing momentum in Germany, Spain, Italy and other markets as international students continue to diversify destination markets. These are not simple markets to operate in. Each requires navigating local requirements, including integrations, translations, reconciliation requirements and payments infrastructure. Institutions need a platform that can absorb that layered complexity and that is what we provide. In Asia, we are seeing the same strong demand. This quarter, we went live with a top global university in Singapore and now have the majority of the country's universities using Flywire. Singaporean institutions are managing multiple currencies, regional payment rails and local compliance requirements on top of international tuition flows. Having the majority of this market using our platform also creates compounding network effects, that shared corridor economics, deeper regional banking relationships and routing intelligence that improves with every additional dollar of volume we process there. We see lots of needs in Singapore and many other markets that are addressed by our software capabilities. Wrapping up my comments on why we win in global education. In Canada, where the broader market remains under pressure, our revenue has turned positive as we continue to expand our installed base and win competitive RFPs. This quarter, for example, we started processing payments for University of Calgary, a major Canadian University with over 30,000 students, and we see continued opportunity to take share in that market. Finally, our software-led approach has been a key catalyst for capturing and monetizing payment volume. In travel, our hospitality solutions, formerly branded, Sertifi, are continuing to grow well. Payment attachment is increasing and more volume is routing through Flywire as we replace legacy gateway processors with our solution. The complexity these clients face is specific to high-value hospitality, contracts involving multiple signatories, card-not-present fraud prevention, multicurrency deposits, refund and charge-back management across jurisdictions and reconciliation against property management systems. All workflows a generic payment gateway was never designed to handle. Unlike a gateway, we sit inside the contract workflow itself. Our sign and pay capability collapses the contract and payment into one moment. The client signs, the payment is captured, the booking is confirmed. For operators running high-value cross-border transactions, that reduces charge-back exposure at the point of transaction. A level of workflow ownership no generalist processor can replicate. We estimate there is still an additional $2.5 billion of payment volume within our existing U.S. hospitality clients alone that we can capture. And we are investing also in an international rollout this year as we see the same fragmented workflows exist in other major travel and hospitality markets. In luxury and experiential travel, Q1 was our second largest quarter for ARR signings with 15 deals over $100,000. Carr Golf and Travelling The Fairways, both left large horizontal processors for Flywire, drawn by operational efficiencies and the ability to replace a separate invoicing tool with a single workflow. The reason we win in luxury travel has not changed, competitive rates, automated reconciliation and a level of service generalist processors cannot match. Software-led monetization is also working well in our B2B business. Studycast, a cloud-based imaging workflow platform for healthcare came to us with unique invoicing scenarios across multiple markets. They were seeking to improve low cash flow visibility and improve an entirely manual AR process. We are giving them invoicing, payments and global settlement in one workflow, that means automated reconciliation, faster collections and better working capital visibility. CMC and Lula Life, 2 other clients that went live this quarter, are variations of the same story. Complex billing and operations that are perfectly suited for Flywire. Across every vertical, the logic is the same. We go where others are unwilling or unable to go. We embed deeply and our platform becomes critical infrastructure once deployed. Cosmin will show you what it looks like in the numbers. And with that, I'll turn it over to Cosmin. Cosmin Pitigoi: Thanks, Rob. I'll detail our financial performance for Q1 2026, discuss our margin dynamics and provide our updated full year outlook. Q1 performance strength was broad-based and results exceeded expectations. Total revenue reached $184 million, up 43% on a spot basis and 37% FX-neutral growth, including 7 points in organic contribution from Sertifi. Almost half of the 9-point outperformance versus the midpoint on an FX-neutral basis was driven by a strong January education peak in some of our core markets, with the remaining beat coming from strength in our travel segment, specifically hospitality, in particular, Sertifi payments. In addition, we continued seeing stronger-than-expected payment processing volumes from Cleveland Clinic and invoice migration, which had approximately a mid-single-digit tailwind in Q1 and expect to be of similar magnitude in Q2. Transaction revenue was $155 million, up 43% year-over-year. This was driven by a 45% growth in transaction payment volume with continued contribution from education, both cross-border and domestic as well as travel. As a reminder, quarter-to-quarter blended yields can vary with mix, especially as domestic payments ramp up. Higher domestic volumes and greater credit card penetration carry different economics than cross-border flows. On a like-for-like basis, pricing remains stable and competitive behavior continues to be disciplined. Our spreads reflect the value we deliver, compliance, reconciliation, ERP integrations and enterprise-grade infrastructure, not commodity payment processing. Platform and other revenues were $29 million, up 40% year-over-year, primarily driven by growth in hospitality. Adjusted gross profit reached $110.5 million increasing 34% year-over-year at spot, including 3 tailwinds. Approximately 8 points inorganic contribution from Sertifi, a mid-single-digit points from FX translation and a high single-digit benefit from stronger education performance in January. Importantly, this 34% gross profit dollar growth is successfully converting into adjusted EBITDA margin expansion, demonstrating real operating leverage. Adjusted EBITDA was $39 million, resulting in a 21.4% margin expanding at 452 bps year-over-year, which was above the upper end of our guide. The strength in adjusted EBITDA reflects gross profit growth and continued operating leverage across every expense category as our non-GAAP operating expenses grew at a meaningfully slower rate than gross profit. Our adjusted gross margin of 60.1% was down by approximately 400 basis points. Margin dynamics are driven by 3 factors: mix, FX and temporary large payment processing ramps, not competitive pressure. This quarter, the margin change was primarily driven by approximately 250 basis points from the mixed contribution of higher Cleveland Clinic and B2B invoice client payment revenues that began ramping in the second half of 2025. The balance of the margin change was due to continued vertical mix shifts. FX on settlement impact in Q1 was minimal on an absolute basis. But we did benefit from a favorable year-over-year comparison given the headwind we experienced in Q1 2025. Excluding the ramp activity, gross margin dynamics would be within our expected range. We emphasize that these ramp dynamics are temporary and will be largely complete by the end of 2026. In Q1, we delivered GAAP net income of more than $12 million. It is a direct result of the operating leverage we have been building into this business, and we remain on track to grow GAAP net income by approximately 3 to 4x on a full year basis. Turning to capital allocation. Our balance sheet remains strong with approximately $215 million in corporate cash, giving us significant financial flexibility while continuing to invest in the business. Today, we're announcing an accelerated share repurchase program of up to $50 million under our existing share repurchase authorization, the single largest capital return action in Flywire's history as a public company. The ASR program reflects our conviction in the intrinsic value of the business and our view that the current share price represents a compelling opportunity. This is not a change in our growth investment philosophy. We're acting on market dislocation. The company intends to fund the ASR with available cash on hand. The ultimate amount and timing of repurchases will be informed by prevailing market conditions and price levels ensuring alignment with our return thresholds and broader capital allocation priorities, including continued investment in organic growth and selective M&A. Since launching the repurchase program, we have now deployed $128 million in total share buybacks, which represents the majority of free cash flow over that time period. A track record of consistent execution, not episodic activity. Moving to guidance. We are raising both revenue and EBITDA guidance for the full year 2026. We now expect 18% to 24% FX-neutral revenue growth with approximately 3 to 4 points from payment processing ramps in B2B and healthcare, mostly benefiting the first half of the year. And roughly 1.5 points of inorganic contribution as we lap Sertifi. Adjusted gross profit is expected to grow just above the mid-teens year-over-year at spot. We expect approximately 175 to 375 basis points of full year EBITDA margin expansion, reaching approximately 22.8% at the midpoint. Stock-based compensation remains targeted at approximately 10% of revenue, while we continue managing growth and net dilution in a disciplined manner. And anticipates free cash flow conversion of 70% to 75% of adjusted EBITDA. Our Q1 outperformance flows through to upgraded full year 2026 guidance. Before I walk through the details, I want to flag one shaping dynamic. Second half revenue growth is expected to decelerate relative to the first half, not because of any change in the underlying business, but because we are anniversarying the Cleveland Clinic and invoice payment volume ramps from the second half of 2025. Gross profit growth is less affected given the margin profile of that revenue. On macro, we are not changing our underlying assumptions. While Q1 benefited from a strong January education peak and favorable timing that we view as nonrecurring, we continue to expect performance to normalize over the remainder of the year as we remain prudent and data dependent. For Q2 2026, we expect FX-neutral revenue growth of 18% to 24%. As we indicated last quarter, growth will moderate from Q1 as Sertifi laps out. But underlying organic momentum remains solid. At current spot rates, we anticipate 1 point of FX tailwinds. Gross profit dollar growth is expected in the mid-teens range at spot rate including low single-digit estimated benefit from FX on settlement year-over-year dynamics. Adjusted EBITDA margin is expected to expand by approximately 75 basis points year-over-year at the midpoint of our guidance. Following a very strong Q1 margin expansion, the Q2 expansion is modestly below our typical annual expansion rate, reflecting 2 dynamics. First, we're lapping the restructuring actions we took the first quarter of 2025, which created a more favorable cost base than the prior year period in Q2. And second, we're making deliberate investments in domestic expansion growth, data and AI infrastructure alongside scaling Sertifi beyond the historically U.S.-focused business into a global platform as part of our broader hospitality strategy, all high conviction long-term priorities. Note that Q2 is our seasonally lowest revenue and EBITDA quarter with margin expansion weighted to the back half of the year as revenue scales seasonally. In closing, Q1 demonstrates the durability of our diversified platform, the scalability of our operating model and our continued commitment to disciplined capital allocation. As Mike described, we are actively embedding AI and automation across our operations. We structured AI governance at the executive level to accelerate adoption and rigor. Having spent 2 decades believing in the power of data architecture and machine learning to empower people, today, that conviction is being supercharged by AI agents that are profoundly enhancing our human capabilities across the business. One of the core principles of the enterprise-wide digital transformation program is the concept of democratizing certified data, making accurate structured data available to everyone across the organization, both our people and AI agents working side by side. We are actively investing in the capabilities our teams need to thrive in an AI-augmented environment, and we are being equally deliberate about aligning our organizational structure. The goal is an organization that is faster, more scalable and structurally better suited to the next phase of Flywire's growth. We're redesigning how work gets done from the ground up, not layering new tools on to old workflows. This is the hardest part of any transformation and where the greatest long-term efficiency and scalability gains will be realized. In sales and marketing, this will enable us to match the right product to the right client with greater precision and less resource strain and our sales reps to become even more productive with more revenue per rep and shorter sales cycles. In R&D and product, it enables us to iterate and innovate faster for our clients. And in G&A, we see the longest runway ahead. We're rearchitecting these functions from the ground up to be agent-ready and we expect the productivity gains to be meaningful as that infrastructure matures. As gross profit continues to grow faster than OpEx over time, the operating leverage is driving our EBITDA margin expansion, and we expect to continue as growth and profitability reinforce each other. By normalizing our foundation, embedding AI natively and rearchitecting our systems and how we operate, we are structurally lowering the cost of scale while expanding our capacity to grow. Q1 is evidence. The model is already working, and our digital transformation is how we make it more durable at scale. I'll now turn it back to the operator for questions. Operator? Operator: [Operator Instructions] Our first question comes from Ken Suchoski with Autonomous Research. Kenneth Suchoski: Really good results here. I just wanted to dig into the success in the non-Big 4 education markets. I think I heard 40% revenue growth, 60% of new clients coming from these markets. So are these just less penetrated? Are you taking more share? Or maybe it's a smaller base, but any additional detail there would be great. Rob Orgel: Ken, it's Rob here, and I'm happy to take this one. You're right, we called out the success in the non-Big 4 markets. And really, it's the product of our strategy and our capabilities combined with a lot of market opportunity out there. So if you think about what we can bring to those markets, right, it's the distinctive software capabilities, all of the global payment network, the solution tailored for the industry. And in those markets, they don't tend to have somebody who looks like us can do the kinds of things we do. And so take that, combine it with a team that's local, a customer service capability that's local and suits them, and we really have a distinctively strong capability. I'd remind you that for even more of those places, we've expanded this capability. It's not just cross-border, it's domestic plus cross-border in a lot of the major markets. And so it's a set of markets that we're really excited about, especially as students overall diversify their destinations. Kenneth Suchoski: Okay. Great. That's really helpful. And then maybe just on Sertifi, I think you talked about scaling that business sort of outside the U.S. and taking that global. Maybe just give us an update there. What are the actions you're taking? I mean, which markets you're looking to prioritize and what the road map is there. Michael Massaro: Ken, this is Mike. So on the hospitality business, I mean, I think the synergies still are very clear as they were at the time of deal, right, which is monetize more payment volume that sits next to the hospitality software that Sertifi had and prepare the platform and take it global to hospitality clients all over the world. And so that second one is on track. A lot of great work done by the tech teams to kind of integrate travel capabilities from the core Flywire travel business as well as the hospitality side. And that team is being built out and super excited to continue that international expansion. Specifically, probably think of us as going to Europe, it's a big area for us, obviously, with our existing travel business in Southeast Asia, in particular, being our kind of 2 geographies that we'd expect most of that growth to be coming from in the short term, but it is a multiyear strategy. Operator: Our next question comes from Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: Great results. Thinking about the second quarter margin variance, I know you talked about there a little bit, but I'm just curious, is that mostly discretionary on your part from an investing standpoint? What would drive you to go ahead and invest more? I'm sure that would translate into a pretty fast return if you did that. So I'm just trying to better understand the puts and takes around where you might land and what would drive that? Cosmin Pitigoi: Yes. Thanks, Tien-Tsin. This is Cosmin. So following a very strong Q1, even in Q2, we were investing obviously modestly around some of the high conviction areas that we've seen. But as you've seen us for the rest of the year, we're expecting to see margins expand even more so and raise the full year outlook. And so feel good about the investments and the return of those. And so -- and plus, I would remind you just from last year, we're lapping some of those one-offs. But in general, Q2 is pretty small. So on a very small base, overall, as you saw in my prepared remarks, in terms of the EBITDA number there. Tien-Tsin Huang: Got it. No, that makes sense. And then Mike and Rob, you both talked about enterprise wins and competing for larger deals. I know you're comping out Cleveland Clinic. Just in general, do you feel like there's some, I don't want to call them gorillas, but just larger deals like that in the pipeline that you're seeing, maybe that's a little bit different than maybe this time last year. Rob Orgel: So we're overall really pleased with the quality of pipeline growth. We're pleased with the size of deals. We called out the deal size growth here in Q1. Want to be careful making reference to clients like Cleveland Clinic and so on, like that's obviously -- I know exactly what animal you just referenced, but it's a very, very big animal. And so we don't sort of call that out as being the norm. But overall, we're very happy with the quality of pipeline, and we're pursuing a lot of great accounts. Operator: Our next question comes from Dan Perlin with RBC Capital Markets. Daniel Perlin: Again, great results. Mike, I just want to go back to the original topics you're going to run through and the one that kind of stood out again is kind of vendor consolidation becoming more of a, I think, a consistent theme. I think you always thought that was going to be kind of the case, but it does feel like it's picked up some, I guess, velocity here over the past several quarters. And I'm wondering, is that a function of your go-to-market motion? Is it like the density in market and people are increasingly recognizing your capabilities, I guess, holistically. I'm just trying to get a sense of where that might help in itself going forward. Michael Massaro: Sure, Dan. Yes. I think it's a combination of things, I think, obviously, we sit in an area where we're dealing with lots of complexity. We're offloading that for our customers. And when you do that, they trust you to do more. And so I would say the more problems we solve, the more they come to us looking for other opportunities to leverage Flywire technology. I think that's probably the first one. The other thing I would just say is in this age of AI, right, a lot of people talk about kind of disruption from AI, but like if you innovate, if you deliver value, leveraging this technology, customers see that value. They want to work with you more. And I think for us, our teams are moving faster. They're delivering better results. They're delivering great client experiences. When their payers have challenges, we're there to help. And I think all those things are just driving people to realize all the potential they have to work more with Flywire, and I think that's what you're likely to see, right? We're sitting there with the regulated infrastructure to process complex payments and we have industry-leading software, and we have an amazing team. And I think that combination is really powerful and hard to beat. Daniel Perlin: Yes. Totally makes sense. Just a quick one on travel. Understanding that you guys obviously tilt more towards affluent travelers. But have you seen any evidence that higher oil prices or jet fuel or any of those things are putting any kind of organic crimp. I mean, obviously, there's kind of some noncyclical overlays just given the pace of wins that you guys have in that business that would mask it. But like if you thought about it on a same-store basis, are you seeing anything creep in yet? Michael Massaro: Yes. So this is Mike again. I haven't seen anything creep in. Obviously, Q1 was good, as Cosmin mentioned in travel. I would say, I'd just point obviously something that causes us to continue to be prudent in how we talk about the year. It's early in the year. You started to hear a little bit of disruption around oil availability for airplane travel. It's something we're watching closely. Haven't seen any impacts yet. Again, you're exactly right. We're dealing typically with a luxury traveler. And if they've kind of committed to this once in a lifetime or big trip a year, if something changes in their logistics, they're probably going to figure out how to go a little earlier or adjust around some of those changes. And so that's our expectation. Our clients haven't seen any hit yet. But obviously the world is quite dynamic and we continue to be prudent in how we talk about the year. Operator: Our next question comes from Chris Kennedy with William Blair. Cristopher Kennedy: Cosmin, thanks for the comments on the data platform initiative. Is there a way to think about kind of where we are in that journey and when most of the benefits that you talked about will be fully realized? Cosmin Pitigoi: Chris, thanks for the question. And certainly, as you can probably tell, a very exciting and passionate kind of area for me. So we're sort of, I would say, we're past the early innings. We're certainly deepened already in sort of the architecture and systems integration side. And we have a very ambitious -- one of the reasons you see G&A, that area kind of investments. This is where we're putting a lot of investments there. So already kind of lost to the races and expect as you get into next year, a lot of that platform around the data and the systems architecture and the capabilities will be built out, but we're actually seeing some early results even now we're doing some work around how we manage vendors internally, how we manage a lot of our processes. So you're seeing some of that already play out. But I would say exiting this year into next year, you'll see a lot more. And I think with the launch of some of the new tools certainly Claude, as many of us here are using that on a daily, hourly basis. The sort of acceleration and amplification of the impact of what we're putting in place, we're even more excited about it. So certainly look forward to that. Cristopher Kennedy: Great. And then it was great to see the Penn State win. Can you just talk about kind of the traction or the momentum that you guys have for SFS in the U.S.? Rob Orgel: Yes, I can take that. This is Rob. As you called out, we announced the go-live for Penn State. Just recently, we announced Cornell today, along with Flagler. We've announced a number of other wins over recent quarters here in the U.S. And I think there's a bunch of things going on that are helping us build this momentum, right? So there is this theme of vendor consolidation that is strong, and I referenced there's a strong push for modernization that's happening inside our client base, particularly inside U.S. EDU. And I think the third thing that's happening that I'd call out is sort of our reference base of clients is growing. So sort of our reputation and our standing in the segment continues to improve as the premier provider of SFS and domestic type capabilities. That along with the skill of our team is all what's driving our momentum. Operator: Our next question comes from Michael Infante with Morgan Stanley. Michael Infante: Can you just break down what you're seeing with respect to payer retention at schools that are only using cross-border payments versus schools that have adopted domestic payments and SFS? Are you beginning to see evidence that SFS is improving payer retention just given the traction that you guys are seeing on the net new side? Michael Massaro: Yes. So this is Mike, and I'll let Cosmin make some comments, too, about the different cohorts of users as well, but I'll let him jump in on later. But I would just say, in general, remember, when you get SFS, you get all the volume, right? You're getting all the tuition dollars, whether they're coming in, be a cross-border, whether they're coming in domestically. And so for us the core strategy is to own that student account portal. And if you own that student account portal, you get full utilization. And so obviously, as you're dealing with just a cross-border solution, you're getting a percentage of that, Cosmin's spoken in the past about what that is. I'll let him comment. Cosmin Pitigoi: Yes. So if you look -- because one of the questions we always get is around the U.S. in particular. So in the U.S., you can think of the U.S. revenues, for example, last year, about 1/3 each, 1/3 is first year, 1/3 is first years of international, about 1/3 that are sort of every other cohort, if you will, international and another 1/3 is domestic. So that 1/3 of first year and existing cohort of international students, we see, as Mike said, the continued retention from that comes from a few different sources. One, we talk about the domestic expansion. So the more SFS, domestic full suite we have, the better that retention gets. Second, we obviously can improve user experience and as we work on that. So that is also the second thing. And then third is all of our banking partnerships in those source markets help us to improve that retention. Now we don't have a lot of that necessarily baked into guidance. We're taking a prudent approach with that. But we're seeing good trends around retention and overall, feel good about the mix of the different cohorts over time, even with, again, I'm sure the pressure on that first year part of it. Michael Infante: That's helpful. And then maybe just on the macro side of the equation, obviously, you saw the reiterated assumptions on some of the visa trends. Can you just sort of level set with us in terms of what you're seeing by market? It looks like the U.S. and Australia broadly tracking with those expectations, maybe the U.K. and Canada, a little bit soft. Just what are you sort of seeing with respect to things like deposit trends and your conversations with schools and agents? Cosmin Pitigoi: Yes, I can start. So yes, our macro assumptions haven't changed. So for the U.S., while even last year, we didn't see much above sort of 20% as you're getting to the mid part of the year into September. For U.S., we've assumed visa is down 30%, which is quite prudent as we look into it. Look, we've looked at some of our data. And if you look at some of the application data, it's down sort of in the high single digits as we've mentioned before. So not yet, and again, you saw the performance in Q1 quite strong, but we're not counting on that for the rest of the year. We're taking a prudent approach as we think about the Q3 peak. So that's in the U.S. And certainly, lots of headlines, lots of headlines everywhere technically, but we've taken a pretty prudent approach across the board. Canada, again, coming off several years of being down almost 60%, we've assumed down 10%. Again, lots of headlines there, too, but so far, we feel pretty good about our path to basically continuing to -- now that market actually growing again for us, which is great to see, and again, driven by a lot of our new client wins. And then U.K., Australia, roughly flat visas, again, some headlines there, but overall, both of those markets are growing faster than the visa trends, which is kind of what we normally watch for. So hopefully, that's helpful. Operator: Our next question comes from Jeff Cantwell with Seaport Research. Jeffrey Cantwell: I apologize if I missed this earlier. I want to see if you could elaborate maybe a little bit more on RLAS growth which grew faster than your TPV growth this quarter, that was by over 600 basis points. What are you seeing in terms of the underlying strength in RLAS analyst growth across your 4 businesses that are the biggest drivers of that? And could you maybe help us understand on your outlook for the remainder of the year? How durable is that spread between RLAS growth and volume growth? Or what are the main things to be thinking about? Cosmin Pitigoi: Jeff, thanks for the question. Yes. So in general, when we look at the spreads, still pretty stable overall, as you saw in my prepared remarks, Q1 was a slight jump, but as you've seen in the past, there's volatility from one quarter to another in that number. But overall, we feel pretty good about the -- it is not necessarily an impact of pricing, for competitive pricing specifically, but really it's a mix effect. So overall, spreads are pretty stable and feel good where we -- as we look ahead for the rest of the year. Jeffrey Cantwell: Great. Okay. And then if I could just squeeze in a quick follow-up. On AI, I'm curious if you guys are thinking about that as an OpEx opportunity as well. We're seeing some of the payments companies, payment/software companies start to rationalize some of their OpEx lines in the spirit of we are finding efficiencies on the AI side of things. I'm just curious what your thoughts are there? And maybe if you're seeing some opportunities as you think out over the next, call it, a year or 2 years and so forth. Michael Massaro: Jeff, it's Mike. So I think there's huge opportunity for us internally and externally. So if you look at internally, imagine, we've all various teams inside Flywire leveraging it, whether it's product designs faster, whether it's development faster, whether it's -- we have some great stats on the call around customer support in ways we're leveraging it. So I think every company has to be looking at a world in which they're going to become more efficient. They're going to be able to do more with less as they grow their business over the next couple of years and that's how we're thinking about it here at Flywire. So I'd say we're definitely thinking about it. I share Cosmin's excitement about the data and the transformation efforts we have at the system layer and being able to do that at a time when so much is emerging around AI, it's really -- it's a lot of fun running a company when you have all those different tools at your disposal. Operator: Our next question comes from Nate Svensson with Deutsche Bank. Christopher Svensson: I want to follow up on a couple of questions that have been asked earlier. First on SFS, obviously, nice to see all the new wins. I was hoping you could remind us on how long it takes for the SFS deals to ramp once you sign them. I think the typical SFS contract is something like a low single-digit million revenue contributor on an annual basis. Maybe that old commentary was U.K. specific. So you can correct me if I'm wrong there. But really just wondering how long it takes for these wins from 1Q to ramp and then fully flow through to the P&L for the year. Rob Orgel: Nate, it's Rob here. So from the time of a client go live, we would expect that ramp to essentially initiate right away, but to get to the full maturity, what we would call the target ARR in the way we look at these things, you'd expect that to take you well into the second year, right? You've kind of got the adoption and learning cycle that comes with the payment plans. You've got the full rollout of all the other capabilities that may follow the initial launch. So that's the -- that's kind of the range of time frame that we'd be focused on for achieving the significant majority of that would be the target ARR. Christopher Svensson: Got it. Helpful. And then I did want to ask for a little more color on the January education outperformance. I think you had called out that it was some of your key markets. So I assume that's Big 4, but I was hoping for a little more specifics there. I know Canada returned to growth in 1Q, but I don't know if that was a driver of the outperformance relative to expectation or if there was better performance in some of the other markets, U.S., U.K., Australia that caused you to call out January specifically? Cosmin Pitigoi: Yes. It's your latter. So it's actually -- it's U.S. and U.K. with a bit of Australia. We saw sort of strong from a destination market. And then -- and we saw that coming from across our main corridors that we usually see. We also saw some strong domestic performance within the U.K. where we continue seeing strong growth. So those are the markets, U.S., U.K., Australia with, again, kind of our main corridors and as far as the outperformance and a bit of the domestic performance in the U.K. And again, that's why we're also just being prudent. We're not flowing that through into the rest of the year, but feel good that we had that strong start to the year. Operator: Our next question comes from Charles Nabhan with Stephens. Charles Nabhan: Congrats on the result. Good to see another strong quarter of bookings activity. I was hoping you could comment on the composition of those bookings as well as whether you're seeing any changes in the size of the new clients that you're bringing in? Michael Massaro: This is Mike. So we're actually seeing a whole bunch of positive trends. So we even time to signature being faster, but deal size being up and the number also being up from prior quarters. So again, back to that kind of 200 range that we had talked about in previous quarters. So we feel good about all those metrics. Again, I think, Rob mentioned a little bit earlier, just some of the reasons. Again, I think it's great execution by our go-to-market teams. I think you're seeing us continue to kind of cross-sell exceptionally well with that land and expand strategy, and I think that's what's driving it. Charles Nabhan: And as a follow-up, you've announced a number of new integrations over the -- in partnerships over the past few quarters. And it sounds like you have the key ones in place like Ellucian and Oracle, Workday. But Curious as we think about the medium- to long-term outlook of the business, how much opportunity is there to expand business through new integrations. If you could give us a sense for how we should think about that portion of the TAM, that would be helpful. Rob Orgel: Yes. This is Rob. I can jump on that one. So there's really 2 dimensions that get us excited about the partnership piece. So first is having coverage across the key partners that really matter in our verticals. And so the most recent one that we announced was the partnership with Workday, which we are indeed very excited about. But that builds on successful capabilities we have across the other major systems in education namely Ellucian and PeopleSoft for Oracle or the Oracle Suite but know that we have partnerships in a whole bunch of other parts of the world that are relevant for the work that we do there. And so we take a lot of pride in the work that's done by that integrations team and it's what helps make it possible for us to do things all around the world. Operator: Our next question comes from Madison Suhr with Raymond James. Madison Suhr: I wanted to start on the payment processing ramps. So you raised the expected contribution from 2% to 3% to 4% for the year. Just how much of that increase was driven by existing signings that you already have in place that are maybe going live more quickly or seeing greater volume than you initially thought versus how much of that incremental 150 basis points was driven by new customer signings throughout the quarter? Cosmin Pitigoi: Madison, thank you. Yes, it is all the existing signings and it's really the Cleveland Clinic. And some of the B2B invoice migration that we talked about -- so as those existing ramps. Just obviously, you saw a much stronger Q1 performance from those coming through and we expect that to continue into Q2 and then you sort of lap it as you get into the second half, but it's existing clients. Madison Suhr: Okay. Got it. And then just a follow-up here on incremental margins. So it looks like the updated guide implies like a low to mid-30% incremental for the year. I understand that there's some investments in 2Q, but it does seem like the second half will need to step up even from 1Q levels. So Cosmin, maybe can you just help bridge what gives you the confidence that incremental margin should accelerate in the second half? Cosmin Pitigoi: Yes. Thank you. Yes, partially, it's a dynamic of lapping last year. So we had a number of investments even in the second half of last year. And so we're lapping that. So that's why we feel good that we're going to see that acceleration into the second half and also just on the investments start to pay off. So I feel good about the sort of mid-30s for the year with higher kind of leaning into second half. And then 24% to 25% EBITDA margins into next year certainly look like well within our sights then as we exit this year with that kind of strength. Operator: Our next question comes from Patrick Ennis with UBS. Patrick Ennis: So on Cleveland Clinic, I know you talked about maybe some higher margin revenue coming online in Q2. Just wanted to confirm that's still the case and should be supportive of gross margins, all else equal. Rob Orgel: This is Rob. I can jump in there. You said that exactly right. So as we called out earlier in the explanation for the rollout plan for Cleveland Clinic, we went with the payment processing first and the software piece is what comes next. Still on track for Q2 launch. And just as you say, that improves the margin of the overall Cleveland Clinic opportunity. Patrick Ennis: Okay. Awesome. And then just on the hospitality business, I mean, impressive TPV growth there. Could you talk about maybe the success you're having in cross-selling payments into Sertifi clients? And then maybe just talk more generically about what the net take rate looks like there compared to kind of maybe some of the more non-cross-border-related volume you have, so domestic education, B2B, healthcare payment processing? Michael Massaro: Yes. So this is Mike. I guess what I'll say is that was a core thesis when we acquired the Sertifi hospitality business, and I think the team is doing a great job executing, right? We knew that there was a lot of volume that was kind of going through that workflow in that software. And we knew with our kind of focus on our network, we could monetize more of that volume. And so the team is doing a great job doing it. Plenty of room to go on that. It's a multiyear synergy that we've always talked about. And I would say you can think about that monetization as mostly being domestic. Remember, 20,000 hotel locations in the United States were the primary customer set of that. And as we go international, you can expect some of that to be a little more cross-border there. The U.S. volume does have some ACH and some card, but I think you can think about it kind of as domestic volume monetization initially with international expansion and expected more foreign exchange impacts potentially as we go international with that product. Operator: Thank you. That's all the time we have for questions. This does conclude the question-and-answer session. You may now disconnect. Everyone, enjoy the rest of your day.
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: Greetings, and welcome to the AMD First Quarter 2026 Conference Call. [Operator Instructions] And please note that this conference is being recorded. I will now turn the conference over to Matt Ramsay, Vice President of Financial Strategy and IR. Thank you, Matt. You may begin. Matthew Ramsay: Thank you, and welcome to AMD's First Quarter 2026 Financial Results Conference Call. By now, you should have had the opportunity to review a copy of our earnings press release and the accompanying slides. If you have not had a chance to review these materials, they can be found on the Investor Relations page of amd.com. We will refer primarily to non-GAAP financial measures during today's call. The full non-GAAP to GAAP reconciliations are available in today's press release and slides posted on our website. Participants on today's conference call are Dr. Lisa Su, our Chair and CEO; and Jean Hu, Executive Vice President, CFO and Treasurer. This is a live call and will be replayed via webcast on our website. Before we begin the call, I would like to note that Jean Hu will present at the Bank of America Global TMT Conference on Tuesday, June 2 in San Francisco. Today's discussion contains forward-looking statements based on current beliefs, assumptions and expectations, speak only as of today and as such, involve risks and uncertainties that could cause actual results to differ materially from our current expectations. Please refer to our cautionary statement in our press release for more information on factors that could cause actual results to differ materially. With that, I will hand the call over to Lisa. Lisa Su: Thank you, Matt, and good afternoon to all those listening in today. We delivered an outstanding start to the year driven by accelerating demand for AI infrastructure across our portfolio. Growth was broad-based with every segment increasing year-over-year, led by 57% data center revenue growth. First quarter revenue increased 38% year-over-year to $10.3 billion, earnings grew more than 40%, and free cash flow more than tripled to a record $2.6 billion, driven by significantly higher sales of EPYC CPUs, Instinct GPUs and Ryzen processors. These results mark a clear inflection in our growth trajectory and a structural shift in our business. Data center is now the primary driver of our revenue and earnings growth. And as AI adoption scales, demand is increasing, not only for accelerators, but also for the high-performance CPUs that power and orchestrate those workloads. Turning to our segments. Data Center revenue increased 57% year-over-year to a record $5.8 billion, led by strong demand for our EPYC CPUs and Instinct GPUs. In Server, we delivered our fourth consecutive quarter of record server CPU revenue. Revenue increased more than 50% year-over-year with sales to both Cloud and Enterprise customers each growing more than 50%. Share gains accelerated year-over-year, reflecting the ramp of fifth-gen EPYC Turin CPUs and continued strength of fourth-gen EPYC processors across a wide range of workloads. In Cloud, AI was the primary driver of growth in the quarter as every major cloud provider expanded their EPYC footprint to support a broad range of AI workloads from general purpose compute and data processing to head nodes for accelerators and emerging Agentic applications. EPYC-powered cloud instances increased nearly 50% year-over-year to more than 1,600 with instances optimized for virtually every enterprise workload and expanded availability across the largest global cloud providers. In Enterprise, demand accelerated with record revenue and record sell-through in the quarter. We expanded our customer base with new wins across financial services, health care, industrial and digital infrastructure companies, while also building momentum with mid-market and SMB customers. We are well positioned to continue gaining share as more enterprises standardize on EPYC across on-prem and hybrid environments based on our leadership performance and TCO. Looking ahead, our sixth-gen EPYC Venice processor built on our Zen 6 architecture and 2-nanometer process technology is designed to extend our leadership across cloud, enterprise and AI workloads. The Venice family spans a broad set of CPUs optimized for throughput, performance per watt and performance per dollar, including Verano, our first EPYC CPU purpose built for AI infrastructure. Across the portfolio, Venice widens our competitive advantage, delivering substantially higher performance per socket and per watt versus competitive x86 offerings and more than 2x throughput per socket versus leading ARM-based AI solutions. Customer demand is very strong with more customers validating and ramping platforms at this stage than with any prior EPYC generation, and we remain on track to launch Venice later this year. Looking more broadly, we are seeing a meaningful acceleration in customer demand driven by the rapid scaling of AI workloads across both Cloud and Enterprise. Inferencing and Agentic AI are increasing the need for server CPU compute as these workloads require additional CPU processing for orchestration, data movement and parallel execution in addition to serving as the head nodes for GPUs and accelerators. As a result, we are seeing both stronger near-term demand and deeper engagement with customers on long-term capacity planning. At our Financial Analyst Day in November, we outlined the server CPU market growing at approximately 18% annually over the next 3 to 5 years. Based on the demand signals we are seeing today and the structural increase in CPU compute requirements driven by Agentic AI, we now expect the server CPU TAM to grow at greater than 35% annually, reaching over $120 billion by 2030. In response to this demand, we are working closely with our supply chain partners to meaningfully increase our wafer and back-end capacities to support this growth. As a result, we now expect server CPU revenue to grow by more than 70% year-over-year in the second quarter, with robust growth continuing through the second half of 2026 and into 2027 as we ramp our next-generation EPYC processors. Now turning to our Data Center AI business. Revenue grew by a significant double-digit percentage year-over-year as adoption of Instinct accelerates across cloud, enterprise, sovereign and supercomputing customers. We're seeing strong momentum as customers move from pilots to large-scale production deployments, particularly in inference where our leadership memory capacity and bandwidth are key advantages. This momentum is driving deeper, long-term customer engagements, including large-scale multi-generation deployments. A key example is our expanded strategic partnership with Meta to deploy up to 6 gigawatts of AMD Instinct GPUs spanning several product generations. Our agreement includes a custom GPU accelerator based on our MI450 architecture, co-designed to support Meta's next-generation AI workloads. Shipments are on track to begin in the second half of the year, leveraging our Helios rack-scale architecture, which integrates Instinct GPUs with EPYC Venice CPUs to deliver fully optimized high-performance AI infrastructure. Together with our previously announced OpenAI partnership, these engagements position AMD as a core partner to the world's largest AI infrastructure builders with deep co-engineering relationships and multiyear visibility into large-scale deployments. More broadly, Instinct adoption continues to expand across AI native and enterprise customers for both training and inference workloads. Existing partners are expanding Instinct across a broader set of workloads, while a growing number of new partners are deploying production AI workloads on Instinct, highlighting the maturity of our hardware and software stack. On the software front, we continue to make strong progress with ROCm, improving performance, scalability and enabling customers to reach production faster. In our latest MLPerf results, MI355X delivered strong competitive performance across the full suite with leadership results in multiple categories. We also expanded day 0 support for the leading open models, including the latest Google Gemma 4 family, Qwen, Kimi and others, enabling customers to deploy new models quickly with optimized performance. To build on this momentum, we have significantly accelerated our ROCm development cadence through increased software investments and agent-based coding workflows, enabling faster performance improvements and more rapid deployment of new capabilities. Looking ahead, customer pull for Helios is very strong, driven by our leadership performance, memory bandwidth and scale out capacity. Helios development is progressing well with strong execution across silicon software and systems as we advance through key milestones. We have begun sampling MI450 series GPUs to lead customers and remain on track to ramp Helios production shipments in the second half of the year. As we approach production, demand for MI450 series GPUs continues to strengthen, with lead customer forecasts now exceeding our initial plans and a growing number of new customers engaging on large-scale deployments, including additional multi-gigawatt opportunities. With this expanded visibility, we have strong and increasing confidence in our ability to deliver tens of billions of dollars in annual Data Center AI revenue in 2027 and to exceed our long-term growth target of greater than 80% in the coming years. I look forward to sharing more on our next-generation Instinct GPUs, EPYC processors, Helios rack-scale platform and our growing customer engagements at our Advancing AI event in July. Turning to Client and Gaming. Segment revenue increased 23% year-over-year to $3.6 billion. In client, revenue grew 26% year-over-year to $2.9 billion, led by strong sales of our latest Ryzen processors and continued share gains across consumer and commercial markets. In desktop, we strengthened our Ryzen lineup, including our latest X3D processors that deliver leadership performance across gaming, content creation and professional workloads. We also introduced the Ryzen AI 400 series and Ryzen AI Pro 400 series desktop CPUs, expanding our AI PC offerings across both consumer and commercial systems. In Mobile, we delivered strong growth driven by a richer product mix as Ryzen 400 mobile PC shipments ramped and commercial adoption increased. Commercial was a key highlight in the quarter with sell-through of Ryzen Pro PCs increasing more than 50% year-over-year as Dell, HP and Lenovo broadened their AMD offerings. We also closed new enterprise wins across large technology, financial services, health care and aerospace customers. Looking ahead, we expect demand for our Ryzen CPUs to remain solid in the second quarter. However, we are planning for second half PC shipments to be lower due to higher memory and component costs. Against this backdrop, we still expect our client revenue to grow year-over-year and outperform the market, driven by the strength of our Ryzen portfolio and expanding commercial adoption. In Gaming, revenue increased 11% year-over-year to $720 million. Semi-custom revenue declined year-over-year as expected at this stage of the console cycle, while engagements with customers on next-generation platforms remain strong. In graphics, revenue increased year-over-year led by demand for our latest generation Radeon 9000 series GPUs. We also strengthened our Radeon portfolio with updates to our FSR software that improved performance and digital quality across a broad set of gaming workloads. Similar to the PC market, we believe that second half demand in gaming will be impacted by higher memory and component costs, and we are planning the business accordingly. Turning to our Embedded segment. Revenue increased 6% year-over-year to $873 million, driven by strength in test, measurement and emulation, aerospace and defense and communications as well as increased adoption of our embedded x86 products. Design win momentum grew by a double-digit percentage year-over-year with billions of dollars in new wins across markets, reflecting the continued expansion of our Embedded business from a primarily FPGA-focused portfolio to a broader set of adaptive embedded x86 and semi-custom solutions significantly expanding our TAM. Our semi-custom engagements also expanded in the quarter as data center, communications and other embedded customers leverage our broad IP portfolio and high-performance expertise to build differentiated solutions. In summary, our first quarter results mark a clear step-up in our growth trajectory with accelerating momentum across the business. Our client business continues to outperform the market, driven by Ryzen adoption and share gains, while in Embedded design win momentum and demand are strengthening across our expanded adaptive and x86 portfolio. At the same time, our Data Center business is inflecting with strong demand for both EPYC and Instinct products significant growth. While we are still in the early stages of the AI infrastructure cycle, the pace and scale of deployments we are seeing today reinforce both the magnitude and durability of the opportunity ahead. As inferencing and Agentic AI deployment scale, they are fundamentally increasing compute requirements, driving both larger scale accelerator deployments and significantly more CPU compute. AMD is uniquely positioned to lead in this next phase of AI with leadership products across high-performance service CPUs and AI accelerators and the ability to optimize them together as fully-integrated rack-scale solution. We have a world-class supply chain and are making significant investments to expand capacity and execute at scale. With the momentum we are seeing across the business and the expanding market opportunity, we see a clear path to exceed our long-term financial targets, including delivering more than $20 in EPS over the strategic time frame. Now I will turn the call over to Jean to provide additional color on our first quarter results. Jean? Jean Hu: Thank you, Lisa, and good afternoon, everyone. I'll start with a review of our first quarter financial results and then provide our current outlook for the second quarter of fiscal 2026. We are pleased with our outstanding first quarter results delivering accelerated revenue growth and earnings expansion driven by strong execution and operating leverage. First quarter revenue was $10.3 billion, exceeding the high end of our guidance, growing 38% year-over-year, driven by strong growth in the Data Center and Client and Gaming segments and the return to growth in the Embedded segment. Revenue was flat sequentially with continued growth in the Data Center segment, offset by seasonality in the Client and the Gaming segment and the Embedded segment. Gross margin was 55%, up 170 basis points versus a year ago, driven by a favorable product mix, including a higher data center revenue contribution. Operating expenses were $3.1 billion, an increase of 42% year-over-year as we continue to invest in R&D to support our AI roadmap and the long-term growth opportunities and go-to-market activities. As the business scales, operating income grew faster than topline revenue. Operating income was $2.5 billion, representing a 25% operating margin. Taxes, interest and other result in a net expense of approximately $275 million. For the quarter, diluted earnings per share was $1.37, up 43% year-over-year, underscoring the significant operating leverage in our model as we scale. Now turning to our reportable segment starting with the data center segment. Revenue was a record $5.8 billion, up 57% year-over-year and 7% sequentially, driven by strong demand for EPYC processors and the continued ramp of Instinct GPUs. Data Center segment operating income was $1.6 billion or 28% of revenue compared to $932 million or 25% a year ago. Client and Gaming segment revenue was $3.6 billion, up 23% year-over-year. On a sequential basis, revenue was down 9%, consistent with seasonality. The client business revenue was $2.9 billion, up 26% year-over-year, driven by strong demand for our latest Ryzen processors, favorable product mix and continued share gains across consumer and commercial markets. Sequentially, client revenue was down 7% due to seasonality. The Gaming business revenue was $720 million, up 11% year-over-year, primarily driven by higher demand for Radeon GPUs, partially offset by lower semi customer (sic) [ custom ] revenue. Sequentially, gaming revenue was down 15%, consistent with our expectations. In addition, as Lisa mentioned earlier, we expect second half demand in gaming to be impacted by higher memory and component costs. We now expect second half gaming revenue to decline more than 20% compared to the first half. Client and Gaming segment operating income was $575 million or 16% of revenue compared to $496 million or 17% a year ago. Embedded segment revenue was $873 million, up 6% year-over-year as demand strengthened across several end markets. Sequentially, Embedded revenue was seasonally down 8%. Embedded segment operating income was $338 million or 39% of revenue compared to $328 million or 40% a year ago. Turning to the balance sheet and the cash flow. During the quarter, we generated $3 billion in cash from continuing operations and a record $2.6 billion in free cash flow or 25% of revenue, demonstrating the cash-generating power of our business model. Inventory was roughly flat at $8 billion. At the end of the quarter, cash, cash equivalents and short-term investment was $12.3 billion. In the quarter, we repurchased 1.1 million shares and returned $221 million to shareholders. We ended the quarter with $9.2 billion authorization remaining under our share repurchase program. Now turning to our second quarter 2026 outlook. We expect revenue to be approximately $11.2 billion, plus or minus $300 million. At the middle of our guidance, revenue is expected to be up 46% year-over-year driven by a very strong growth in our Data Center segment, growth in our Client and Gaming segment and a double-digit growth in our Embedded segment. Sequentially, we expect revenue to be up approximately 9% driven by double-digit growth in both our Data Center and the Embedded segments and modest growth in our Client and Gaming segment. In addition, we expect second quarter non-GAAP gross margin to be approximately 56%, non-GAAP operating expenses to be approximately $3.3 billion, non-GAAP other income and expense to be a gain of approximately $60 million. Non-GAAP effective tax rate to be 13%, and the diluted share count is expected to be approximately 1.66 billion shares. In closing, the first quarter of 2026 was an outstanding quarter for AMD, reflecting strong momentum across the business with accelerated revenue and earnings expansion. We are very well positioned to build on the momentum as we scale our Data Center business, expand margins, drive continued earnings growth and the long-term shareholder value creation. With that, I'll turn it back to Matt for the Q&A session. Matthew Ramsay: Thank you, Jean. Operator, we're ready to start the Q&A session now. [Operator Instructions] Operator: [Operator Instructions] The first question comes from the line of Joshua Buchalter with TD Cowen. Joshua Buchalter: Congrats on the results. Actually, I'm going to start with CPUs, which hasn't happened in a bit. It hasn't been that long since you announced the $60 billion server CPU TAM for 2030 at the Analyst Day, and it's very quickly doubled. Agentic AI has obviously gotten a lot of attention in recent months, but it would be helpful to hear your thoughts on how this TAM is inflecting and changing so meaningfully in such a short amount of time. And maybe you could also speak to your confidence in hitting that greater than 50% share target from the Analyst Day as your x86 competitor seems to be improving its supply and also there seems to be more momentum on the merchant and custom ARM CPU side. Lisa Su: Yes. Sure, Josh. Thanks for the question. So first of all, back to the -- when we think about CPU TAM, I mean we've always said that CPUs are very critical part of data center infrastructure, and that's been where we've invested. And we saw the first signs of, let's call it, AI demand really pulling CPU demand last year, and that was the reason we updated the TAM to, let's call it, the 18% CAGR or approximately $60 billion. And what we've seen is all of the things that we believed in terms of Agentic AI and inferencing and all the CPU compute that is required, is just happening, and it's happening at a much faster pace. So over the last, let's call it, the last few months, as we've talked to our customers and we've seen how AI adoption is really unfolding, we're seeing significant more CPU demand from really every major cloud provider as well as enterprise customers. And the way that comes across is as AI adoption scales, you need more inferencing. As inferencing scales and you do more -- you have more agents and Agentic AI, they all require CPUs for all of the orchestration and the data processing and these other tasks. So with that, we've looked at it both bottoms up in terms of talking to customers and having them give us longer-term forecasts as well as just doing some clear workload analysis. And yes, I mean, it's a very exciting TAM. I think it's exciting to see CPUs growing greater than 35% to over $120 billion. And then when you think about AMD in the context of that, I mean, CPUs are critical for so many tasks that you are seeing a lot more discussion about CPUs in the market. But we actually view it in 3 categories, right? There's general purpose compute. There's the head nodes that really support the AI accelerators. And then there are CPUs just for all of the Agentic AI work. And to do all of this, our belief is you need a broad portfolio of CPUs, and that's really what we have been focused on is building not just one type, but really broader in terms of throughput optimized, power optimized, cost optimized, AI infrastructure optimized as we've done in the Venice family. So when you put all that together, we're very excited about the larger TAM, and we're also very happy with the traction that we're getting. We're clearly feeling like we're seeing significant share gain as we're going into our Turin portfolio that has ramped very nicely. Venice is extremely well positioned, and we're working with customers right now on -- beyond Venice and what we're doing in those architectures. So we feel really good about the market as well as our opportunity to grow to greater than 50% share of that market. Joshua Buchalter: I wanted to ask about the Instinct side. So in the press release, you mentioned that MI450 and Helios engagements are strengthening with customer forecast exceeding the expectations and the pipeline growing. You certainly have the big public OpenAI and Meta deals. Was this comment referring to those engagements upsizing versus the announced initial deployments? Or was it other customers and maybe the increase on the MI450 timeline? Or is it MI500 and beyond? Lisa Su: Sure, Josh. So we are very excited about MI450 and Helios. We're seeing significant customer interest in those products as well. So we have certainly talked about our large partnerships with OpenAI and Meta, and those are going really well. We appreciate the deep co-engineering that is going on there. When we look at the totality of, let's call it, based on our current visibility, how those forecasts are coming in with all of our customers, we're actually seeing it above our initial plans that we had planned for 2027. And I think the encouraging thing is we're seeing a breadth of customers who are now very interested in deploying at significant scale MI450 series. And those are for both training and inference workloads, although the largest deployments are for inference. And based on all of that and the scale of new customer interest, we see a path to really get to exceed our original targets of greater than 80% CAGR. And these are really 2027 time frame. Obviously, when we talk to customers, we're talking to them about MI355. There's a lot of good traction we're seeing there. MI450 and Helios, I think for significant large-scale deployments, and then many customers are also very engaged with us on the MI500 series and all of the opportunities there. So we feel like very, very good progress. And the key is that we're continuing to broaden and widen the scope of both customers as well as workloads. Operator: And the next question comes from the line of Thomas O'Malley with Barclays. Thomas O'Malley: Lisa, if I get your numbers correct here in the March quarter, it sounds like the server processor side of the CPU side grew over 50%. If you take it just at the word, it looks like maybe the data center GPU side actually grew in Q1. So I was curious around the cadence of this year kind of previously, you had talked about really a back half weighted and then kind of more so Q4 weighted year. Could you talk about if that's changed at all? And then the second part of the question is, as you go into 2027, clearly, you're pointing out a lot of upside from the larger customers and then kind of the ecosystem around them with new customers as well. But when you look at supply, that's a major issue in the ecosystem today, could you talk about where you're concerned on supply, if you are? And then any gating factors as you look into next year, whether that be power, data center build-outs, et cetera? Or do you feel really good about the ability to grow? Lisa Su: Yes. Okay. A lot of pieces of that question, Tom. So let me try to get through it. So first of all, on the Data Center segment in Q1, the Server business was greater than 50% year-over-year as we said in the prepared remarks. The Data Center AI was actually down modestly because of the China transition. We had more China revenue -- I'm sorry, sequentially more China revenue in Q4, and it was less in Q1. But as we go forward, I think we see strong growth in both segments. So we guided data center Q2, up sequentially double digits, and that's double digits in both Server as well as Data Center AI. And progression as we go forward. So first, on the server CPU side, we talked about growing to over 70% year-over-year in Q2, and that continuing into the second half of the year. And on the Data Center AI side, we will be ramping Helios in the second half of the year, so let's call it, starting with initial volume in Q3 with a significant ramp in Q4 and then continuing to ramp in Q1. So that's kind of a little bit of progression. And then to your questions about customers and supply, I think I answered, Josh, the customer question. I think we have very good visibility now into the deployments that are on track for 2027. And when I say good visibility, it's visibility down to which data centers are the GPU is going to be installed in. And so that's necessary just given all of the constraints out there. We feel that there is tightness in the supply chain, there's certainly tightness in sort of data center build-outs, but we are confident in our ability to supply to the levels of growth that we're talking about and to exceed the levels of growth that we're talking about. And we're also working very closely with our customers and our partners to ensure that we have good visibility to Data Center power. And there is much more power that's coming online in 2027. And so with all those things in mind, I think, again, lots of things to manage. It's a complex ramp, but we're very pleased with the progress on the ramp. Matthew Ramsay: All right, Tom, I think you shotgun approached the multiple questions there. So operator, maybe we can go on to the next caller, please. Thank you. Operator: The next question comes from the line of Ross Seymore with Deutsche Bank. Ross Seymore: The first one is just on the EPYC competition. Lisa, you went through some of the statistics of you versus x86 and you versus ARM, but I wanted to dive a little bit deeper into that. How do you see AMD truly differentiating, especially when you're signing -- well, you see some of your competition signing up the same customers from the ARM side and the x86 competition having more supply. So I just wanted to see if you could dig a little bit deeper into how you think the market share is going to trend over time? Lisa Su: Ross, look, we're very engaged with every major hyperscaler and in terms of understanding their needs on the CPU side. I think we have very much wanted to, let's call it, optimize our CPU roadmap for the various workloads. I think we were early to call this AI component of CPUs. And so we've been actually optimizing very closely with those customers. The way to think about this, Ross, is that you're going to need a broad portfolio of CPUs, like not all CPUs are the same. Frankly, you're going to need different CPUs for whether you're talking about general purpose operations or you're talking about head nodes or you're talking about Agentic AI tasks, they're going to be optimized differently. And we thought through that, and we are absolutely optimizing across the various workloads. So from a competitive standpoint, we feel very good about where things are. And from a deep relationship with the customer set, I think we feel very good about that. So from our current standpoint, I think the depth of our roadmap just expands as we go forward. And you shouldn't think about it as people are going to do one or the other. I think you're going to see people actually use x86 and ARM for many of the large hyperscalers. And even for those who are developing their own, they're still buying lots of CPUs in the merchant market for the reason that I just stated, which is unique different CPUs for the different types of workloads, and there's very high demand at the moment. Ross Seymore: I guess for my follow-up, maybe more for Jean on the gross margin side of things. It's nice to see the gross margin popping up in the second quarter guide. But I just wanted to get some trends longer term, maybe not specific numbers, but how should we think about when Helios and the Instinct side really ramps in the fourth quarter and more so next year. I could see some offsets with that carrying a below corporate average gross margin, but then everything that Lisa talked about with the EPYC side of things being significantly stronger might be more of an offset than it was in the past. So just walk us through the puts and takes of that and maybe directionally where you think gross margin goes over the next year or 2? Jean Hu: Yes, Ross, thanks for the question. We are very pleased with how our gross margin is trending. It came in really strong in Q1. And also, as you mentioned, we guided Q2 higher at 56%. I think as we think about the second half quarter-over-quarter, as you know, there are some puts and takes, right? I would just say, from a tailwind perspective, we actually have multiple tailwinds really are going to help our gross margin. First is the server CPU. Lisa talked about the server CPU expected to grow more than 70% in Q2 and continue to be really strong in second half. That really helps our gross margin. Secondly, in the second half for Gaming actually is going to come down, and our Client business actually continued to go up the stack. So from a Client and Gaming segment, the gross margin actually is going to be also very helpful. Embedded actually is very accretive to our gross margin. Its momentum actually is continuing in the second half. So we are really pleased with all the tailwinds we have. On the other side, MI450 will start to ramp in Q3 and then ramp significantly in Q4. That is below corporate average. So that will have different puts and takes in Q4 in the gross margin side. But when we sit here, when we look at all the positive trends we have to really offset some of the gross margin dilution from MI450 side, we actually feel really good about the setup of the gross margin for 2026. And into next year, I think some of the tailwinds I talked about that will actually continue. That's why we feel confident about continue to drive the gross margin. We actually, during our financial Analyst Day, we outlined the long-term gross margin in the range of 55% to 58%. We think for the first year, we are making good progress there. Operator: And the next question comes from the line of Timothy Arcuri with UBS. Timothy Arcuri: I wanted to ask about units versus ASP for server CPU. If I look at the June guidance, it sort of implies up 25% to 30% for server CPU. And Lisa, you had mentioned second half of the year. It sort of implies that server CPU could grow like 70%, maybe a little more this year. And so I guess my question is, how much of that growth either in June or for the year, is like units versus pricing? Is the -- are these price increases sort of mostly captured in June? Or is that also helping in the back half of the year? Lisa Su: Yes. Tim, the way I would say it is, maybe let me bring you back to Q1 for a moment. So if you look at our significant growth in the server business, it was actually -- although we were up on a year-over-year basis for both ASPs and units, it was actually much more unit driven. So we are shipping more CPUs across not just the high-end Turin family, but we're actually shipping a lot of Genoa sort of the Zen 4 family as well. As we go forward for Q2 and into the second half, we are guiding for a significant amount of growth. I think there's a little bit of ASP in there, but the way we're thinking about pricing, to be fair, is we are in a range where the supply chain is tight. And so there are some inflationary pressures. Costs have gone up a bit, and we are sharing some of that with our customers. But we are also being very thoughtful in -- look, this is -- we're playing out for the long term, and that means that we are -- our goal is to ship more units and a lot more units. And so from that standpoint, you should imagine that the majority of the growth is unit driven, and the ASPs are just really to help cover some of the inflationary pressures. Jean Hu: And just to add to what Lisa said, our ASP is increasing because of the mix where actually each new generation, the core counts, those are increasing, that actually drives the ASP up. Timothy Arcuri: And then I guess, Lisa also, so there's a lot of new architectures that are being used from multi-tenancy all the way to low latency. And your competitor has talked about the low latency part of the market being 20% plus and they, of course, added to their portfolio there. Can you talk about how you see that part of the market? I mean, obviously, you have enough business now you don't need to worry about that probably for now. But can you talk about that? Lisa Su: Yes, sure. So look, I think what we're seeing is what we expected in the sense that as you go -- as the AI adoption continues and the volumes continue to go up and the overall market goes up, you are going to see, let's call it, different compute architecture is being used because you want to get more cost optimization from that. So we expect that even in that situation, obviously, the vast majority of the TAM is still going to be, let's call it, data center GPUs as the primary accelerator. But you may choose to do optimization around inference, around low latency, around certain parts of the stack, whether it's decode versus prefill, I think that's very natural. The way we look at it is we're developing a full compute portfolio. So that's CPUs, that's GPUs, that's the ability to connect to all accelerators as well as the ability to do customization for certain customers, and we've also talked about our semi-custom capabilities. And with all of those sort of compute capabilities in our tool chest, I think we will be able to address, very effectively, a large portion of this market, including the low latency portion of the market. So from our standpoint, this is kind of a natural evolution. Now how fast it goes depends a bit on the technology in terms of what share of the TAM these things become, but we should expect that there will be different variants, and we're well prepared to address those different variants. Operator: And the next question comes from the line of Vivek Arya with Bank of America. Vivek Arya: Lisa, do you think Agentic CPU growth is incremental? Or is it coming at the expense of GPUs conceptually? So if you're raising server CPU TAM, are you also implicitly kind of raising AI TAM? So just I'm interested in your perspective on what did you think server CPU was as a percentage of AI TAM before? And what is it now with this $120 billion number? Lisa Su: Sure, Vivek. So the way we're thinking about is it's largely additive to the TAM. So you should think about we need all of the accelerators to run these foundational models, and then as these agents do work, they spawn more CPU tasks. So I would say largely incremental. The key is to make sure -- what we're seeing is in these deployments, the key is to make sure the ratio of CPUs to GPUs are the right ratio. So if you're installing a gigawatt of compute, the ratio -- there's a percentage of CPU as part of that gigawatt will increase. Some of the conversation in the industry has been about CPU to GPU ratios. And it's very hard to call exactly, but we certainly see the movement towards where in the past, the CPU to GPU ratio was primarily just as a host node in like a 1:4 or 1:8 configuration node, now changing and getting closer to a 1:1 configuration or even -- you can even imagine if you get lots and lots of agents that you could have more CPUs and GPUs. So -- but all in all, to answer your question, I think it's largely additive to the TAM. And the key is that everyone is now planning and thinking about CPUs at the same time that they're thinking about their accelerator deployments, which is a good thing. Vivek Arya: All right. And from my follow-up, Lisa, we continue to see memory prices go up. I imagine that is both kind of a cost inflation for you but perhaps an opportunity to take price as well. I'm curious, how is that dynamic playing out for AMD? And especially for your customers because a greater part of their CapEx increase is really kind of this memory inflation tax, right, that they have to pay. So how is this dynamic playing out for you and for your customers? And the part that I'm really interested in is that have you secured enough supply versus your other larger competitor who has disclosed a lot of prepayments and other things? So just how is this memory inflation dynamic playing out? And are you kind of adequately supplied from that perspective? Lisa Su: Sure. So Vivek, let me answer the second one first. I think from a supply standpoint, we are very happy with our partnerships with the memory vendors, and we have secured enough supply to certainly meet and exceed our targets. So it is a tight memory environment. Let me be clear. But I think we are very deep partnerships with the memory providers. And then back to your comments on the inflationary pressures. I mean, look, this is something that everyone in the industry is working with in the time of tight supply, we are seeing some cost increases on the memory side. I think we are all working through that. The way we're seeing it unfold in the market is actually on the Data Center side, because of the, let's call it, the demand for AI compute, I mean people are largely focused on supply and ensuring that the supply assurance is there. The corollary of that, the larger impact that we're watching is the impact on the consumer markets. And as we said in the prepared remarks, we are expecting that there could be some demand -- sort of the demand impact as a result of the memory price increases on things like the PC business in the second half of the year as well as the Gaming business. So we're taking that into account in our overall model. And we continue to work closely with the memory providers as well as our customers to ensure that every time we ship a CPU or GPU, then it's paired with the memory on the other side so that we don't have compute that is not being deployed. Operator: And the next question comes from the line of Aaron Rakers with Wells Fargo. Aaron Rakers: Congrats on the results. I want to stick on the topic of CPU to GPU. And as we think about the chart that you had outlined at the Analyst Day, there was obviously broken out between traditional CPUs and then the AI bucket on top of that. Obviously, I think the new forecast has a lot to do with the AI CPU expansion. I'm just curious, when you're doing a CPU in an AI workload, is there structurally a different level of ASP tied to that kind of CPU optimized for AI relative to a general purpose server CPU? Any kind of color or help on that would be useful. Lisa Su: Sure, Aaron. So let me start with the broader question. The broader question regarding -- the way we think about the CPU TAM is, again, think about it as 3 categories. So there is a traditional CPUs, let's call it, general purpose CPU TAM that is increasing, but let's call it, increasing at low rate, maybe, let's call it, low double digits, then you have your AI head node, which is connecting to accelerators, which is also growing, but it's smaller. And then the largest piece of the growth is this Agentic AI piece, which we think is really stemming from all of the Agentic processes. I don't have a number that I can tell you in terms of relative ASPs because it really depends on the workload that is being run. And what we see going forward is as core counts increase, obviously, we will see ASP increase. And that's the direction that we're going in as we go forward. But the main point is -- the largest portion of this is the Agentic AI, the CPUs that are serving these Agentic AI workloads in terms of the TAM increase. Aaron Rakers: And as a quick follow up, I'm curious, how do you characterize the competitive landscape as we see some of the ARM introductions in the market. Just curious of your views on the competitive landscape and server CPU. Lisa Su: Yes. Aaron, the best way to think about the server CPU landscape is, again, number one, everyone is talking about CPUs. So that tells you how critical they are for the AI infrastructure. And I think that's a good thing. We feel like we're very well positioned. No question, ARM is good architecture. It has a place in the Data Center market. We view it as more point products relative to a portfolio, where, from an AMD standpoint, we've built this broad portfolio of CPUs, going forward, what you're going to need for all of these different workloads. And we have, in the Venice time frame, added an AI-optimized CPU with the Verano in addition to our throughput optimized and sort of cost optimized point. So from that standpoint, I think we're very competitive. We're continuing to innovate on architecture. We're continuing to innovate on both advanced packaging as well as all of the architectural pieces. So we feel very well positioned going forward. And the key is the TAM is much, much larger than anybody thought. And so there's a lot of opportunity for different products to be successful in this area. Operator: And the next question comes from the line of C.J. Muse with Cantor Fitzgerald. Christopher Muse: I guess first question, I was hoping to speak a bit more about client for all of calendar '26. You talked about growth -- expected growth, but would love to hear your thoughts around seasonality in the second half. And I'm assuming that you are repurposing certain logic tiles from clients over to the Data Center and would love to kind of better understand what the implications are for ASPs on the client side looking into the second half. Lisa Su: Sure. So C.J. I think the client business has performed really well for us. I think if we look at Q1, it actually was a little bit stronger than what we expected. We are seeing some mix shift in the client business. The mix that we're seeing is the M&C or the Notebook business is actually growing, especially the premium portion. We're making very good progress in the commercial PC arena with our AI PCs. We did see desktops a little bit softer just given desktop is a more consumer-focused market. And so in that market, it's more impacted by some of the memory pricing and the component price increases. When we look at the full year, our commentary is we are planning for some demand impact in the second half due to the memory pricing. But even in that environment, what we're focused on is ensuring that we continue to make good progress on the Commercial business and continuing to focus on the premium segments of the market. So we believe that we will continue to grow on a year-over-year basis for the Client business compared to last year. And as it relates to ASPs, again, it's a little bit of puts and takes between Notebook and Desktop. But overall, I think we're feeling good about our opportunity to outperform the market and clients going forward. Does that answer? Christopher Muse: That was perfect. And then I guess a question on Instinct gross margins. With compute essentially sold out and obviously, you're building a business, so one has to be, I guess, conservative on that front. But I would think outside of kind of passing through HBM that given the very tight wafer environment that this would be a place where you could look to drive your Instinct margins closer to your corporate average? How are you thinking about that either today or in the coming 1, 2, 3 years? Jean Hu: C.J. at this stage, we really focus on driving the topline revenue growth on our Instinct family of product. I think on the gross margin side, you're absolutely right, it's really -- the demand for compute is tremendous. We actually are very strategic in how we think about the -- how we work with the customers. And of course, the different customers also have a different gross margin. I think, over time, once we start to ramp our revenue, we'll have a lot of opportunities to improve gross margin, both on the ASP side, but also, more importantly, on the cost side when we scale our business. Operator: And the next question comes from the line of Stacy Rasgon with Bernstein Research. Stacy Rasgon: For the first one, I just wanted to make sure I have the near-term AI GPU trajectory correct. So I know you said it was down sequentially in Q1 because of China. You had like $390 million of China revenue in Q4. So the AI business in Q1 actually grow sequentially ex China because it doesn't feel like it, given the server outlook? And then I look at what's maybe suggested for Q2, are you thinking GPUs and servers kind of grow similar rate sequentially because it would probably put GPUs in Q2 below the overall revenue in Q4, which seems low to me. I'm just trying to tie all that out. Could you help me with that, please? Jean Hu: Yes. So I think, Stacy, I appreciate the question. I think if you look at Q1, we did mention Data Center AI was down modest pace sequentially, primarily due to lower China revenue in the quarter. I think on your second question regarding Q2, you're right, both Data Center AI and the server will grow double digit in Q2. Stacy Rasgon: Yes. But you didn't answer my question. In Q1, did it grow sequentially ex the China step down, I guess, is what I'm asking. Jean Hu: The China, for our business, in Q1, it's not material. So I think I will repeat what I just said. Yes, the revenue -- the China revenue in Q1 is not material. Stacy Rasgon: Okay. Okay. So you don't want to -- okay. Second question, OpEx [indiscernible] for spending -- but it sort of continues to blow past the targets. You kind of give an OpEx guide and then it blows through it and then you guide higher. So again, I'm not bothered by this. I'm just wondering why is the OpEx been so hard to forecast? And how should we be thinking about OpEx through the rest of the year given the revenue growth? Jean Hu: Yes. Thanks, Stacy, for that question. I think the most important thing is given the tremendous market opportunities we have, we actually are investing aggressively. If you look at the past several quarters, we're really leaning in, in investing, but all the AI investments are driving the revenue momentum. So if you look at the Q1, revenue was 38% up, then Q2, we guided 46% up. The investments are driving the revenue momentum. Some of the OpEx increase, of course, is tied to the revenue. When you look at our beat on the revenue side versus our guidance, we did beat on the revenue side, right? So that impacted a little bit. But also, at the same time, we have a lot of customer engagement with our Data Center AI business, we do continue to make sure we have the resource to support our different customers. Matthew Ramsay: Thank you very much. Operator, I think we have time for one more caller on the call. Thank you. Operator: Our final question comes from the line of Blayne Curtis with Jefferies. Blayne Curtis: Lisa, I just want to go back to the supply side. There was a lot of story about your competitor restarting 7-nanometer. I'm just kind of curious as you look at that landscape which is quite robust through the end of the decade, do you think that the older products will stay around longer? And is there a way to think about the implications for gross margin in such a strong market. Is that actually a negative? Lisa Su: Actually, Blayne, I don't think we see the older products hanging around longer. In our case, I think it might be company-specific stuff. In our case, we actually see -- first of all, Turin is very strong. We actually crossed over 50% of our revenue being Turin this quarter. Genoa is very strong. We're still shipping some Milan, but I would say that's come down over time. So in general, people want to use the newer products because they're just more efficient in every aspect from performance, from cost structure, from a power standpoint. So that's what we're seeing. By the way, I should also mention, in addition to what we're seeing in the cloud segment of server, we're seeing really nice strong pickup in enterprise. And there as well, we're seeing our newer products do very well. So from our standpoint, it is all about ensuring that we ship what the customer needs. And in this case, it typically is our newer products, and we expect that to continue. As we transition into Venice later this year, we will expect Turin and Genoa to continue shipping, but there's a lot of goodness in going to the new products. And on the supply chain side, I know there's been a lot of discussion about how tight the supply chain is. The supply chain is tight. I would definitely say that. But I also think this is an area where we excel. We have very deep relationships across the supply chain on the wafer side, on the back end capacity side. And we are seeing meaningful improvements in that. And as our customers come to us with more demand, we are getting more supply. And the good thing about this is we're now talking about '27 CPU demand, we're talking about '28 CPU demand. And so that allows us to just plan much better as we go forward. Blayne Curtis: And then just a quick one for Jean. I'm just curious to follow up on Stacy's question on OpEx. I guess I was a little surprised that SG&A is kind of outpacing R&D. I was just kind of curious, is that start-up costs, because in a strong market, you wouldn't think you would have to discount or have a big sales effort. So I'm just kind of curious for the year, how you think about R&D growth versus SG&A? Jean Hu: I think for the year, you should expect us to grow R&D much faster than SG&A. I think in the past few quarters, we have been really building our go-to-market machine, and we have been investing more in sales and marketing side. But going forward, you should expect the year-over-year growth R&D will grow faster than SG&A growth. Lisa Su: Yes. And if I just add to that, Blayne, the places that we invest -- Jean is absolutely right. We're investing in R&D ahead of sales and marketing. But the places that we're investing in sales and marketing are paying off. So the investments are going into enterprise servers. They're going into commercial PCs. They're going into mid-market, small and medium business. These are places where AMD traditionally didn't invest, but now that we have a much broader portfolio, both on the server CPU and on the commercial PC side, it makes sense for us to invest because that's sort of the very best part of those markets. Matthew Ramsay: All right. Thank you very much, everybody, for joining and your interest in AMD. John, you can go ahead and close the call now. Thanks. Operator: Thank you. And ladies and gentlemen, that does conclude the question-and-answer session, and that also concludes today's teleconference. We thank you for your participation. Please disconnect your lines, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to Avista Corporation Q1 2026 Earnings Conference Call. At this time, all participants are in 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 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, Stacey Walters. Please go ahead. Stacey Walters: Thank you, and good morning. Thank you all for joining us for Avista Corporation’s first quarter 2026 earnings conference call. Our earnings and first quarter Form 10-Q were released pre-market this morning. You can find both documents and this presentation on our website. Joining me today are Avista Corporation President and CEO, Heather Lynn Rosentrater, and Senior Vice President, CFO, Treasurer, and Regulatory Affairs, Kevin J. Christie. We will be making forward-looking statements during this call. These involve assumptions, risks, and uncertainties which are subject to change. Various factors could cause actual results to differ materially from the expectations we discuss in today’s call. Please refer to our Form 10-K for 2025 and our Form 10-Q for 2026 for a full discussion of these risk factors. Both are available on our website. On this call, we will also discuss non-GAAP utility earnings. Our first quarter earnings presentation is posted on our website and includes definitions and reconciliations for all non-GAAP disclosures, including non-GAAP utility earnings. Our non-GAAP utility earnings are comprised of results from our Avista Utilities and AEL&P segments. The unrealized gains and losses that have historically made up the majority of our non-regulated other business earnings can be significant, but they are difficult to predict and outside management’s control. Discussion of non-GAAP utility results and earnings guidance reflects management’s focus on the core utility business. And now, let me turn it over to Kevin for a recap of the financial results presented in today’s press release. Kevin J. Christie: Thank you, Stacey. Our consolidated first quarter 2026 earnings were $1.11 per diluted share compared to $0.98 in 2025. Our first quarter 2026 non-GAAP utility earnings were $1.10 per diluted share compared to $1.10 per diluted share in 2025. Now I will turn the call over to Heather. Heather Lynn Rosentrater: Thank you, Stacey. It is hard to believe the first quarter is already behind us. The year began with real momentum and the pace of activity across our business has only accelerated. In a short amount of time, we have taken meaningful steps to strengthen reliability and resilience, move forward with our growth opportunities, and continue delivering value for our customers and shareholders. We continue to advance important grid hardening work, pursue load growth opportunities, and support resource adequacy for our customers into the future, all of which contribute to the long-term strength of our utility. Our ongoing investment in grid hardening and resilience, including vegetation management, is helping to prevent outages that can occur periodically during inclement weather. Although much of the work is driven by our wildfire mitigation program, we have experienced benefits resulting from these efforts through enhanced system resilience and storm response preparedness year-round. We found that the predictive tools we developed to monitor wildfire weather conditions also help us better anticipate other weather-related outage risks. That means we can stage crews and materials earlier and, when appropriate, alert potentially affected customers so they can prepare before outages occur. The work we are doing to build a more wildfire-resilient system also benefits us day-to-day in smoother operations and results in better outcomes for our customers and the communities we serve. And we saw directly how being better prepared through predictive tools and material pre-staging enables faster restoration work just a couple of months ago. In March, nearly 60 thousand customers were impacted by outages from high winds, and I commend each of the employees and partners who joined us in the restoration efforts, replacing poles, reconnecting lines, and rebuilding infrastructure to successfully restore power to all customers. I am happy to say that our grid hardening and resilience efforts improved the overall response to the storm. Related to the work underway to advance our growth opportunities, we remain optimistic about the opportunities ahead. We are planning for the growth identified in our most recent integrated resource plan and potential new large load customer growth in a way that supports customer affordability, system reliability, and compliance with clean energy requirements. A key part of this work is strategic resource planning—making sure we add the right mix of resources at the right time and in the most cost-effective way so we can meet reliability and clean energy requirements without taking on unnecessary expense. Negotiations continue with one of the prospective data center developer customers looking to locate in our service territory, with a projected incremental load of up to 500 megawatts. Ensuring appropriate protections for our current customers is a key element of our negotiations, as we expect the new large load customer to return a significant contribution to support affordability for our existing customers. We are currently targeting a signed memorandum of understanding with this new customer by May 31. In addition to negotiation discussions with the potential data center developer, we continue to discuss these opportunities with community leaders and other stakeholders. We are also engaging with policymakers and the Washington Commission regarding data centers to advocate for policies that ensure appropriate allocation of costs and benefits associated with the integration of these large loads. To support resource adequacy for our customers into the future, resource planning is a crucial task. As we work with potential new large load customers, we also continue to work toward final contracts with the projects selected from our recent request for proposals, including the build-transfer for a battery energy storage project included in our base capital plan and targeted to come online in 2028. At Avista Corporation, several related processes together inform our decision-making about these future resources as we consider the timing of integrating potential new large loads. Work has already begun on our 2027 electric integrated resource plan, or IRP. We have made progress with key data points for the IRP, like our clean energy implementation plan, which was recently updated and approved by the Washington Commission. Long-term affordability is central to our planning practice as we evaluate the resource needs into the future. Overall, I am optimistic about the opportunities ahead. I will now turn the call to Kevin for additional discussion of earnings. Kevin J. Christie: Thank you, Heather, and good morning, everyone. Our focus on delivering results at the utility is fundamental to our success. Our performance this quarter reflects the continued commitment of our teams to disciplined cost management. We began the year with solid execution across the business, and we are well positioned as we move forward. Alongside our other initiatives, regulatory outcomes are key to our progress. The first settlement conference for our Washington GRC takes place on the 22nd of this month, and we will continue to work through the regulatory process if no satisfactory settlement is reached. We continue to invest in our utility infrastructure to support customer growth and maintain safe and reliable service. Based on updates to project costs, we now expect capital expenditures at Avista Utilities of $615 million in 2026. We expect capital expenditures from 2026 through 2030 of $3.4 billion. We continue to estimate potential capital investment of up to $350 million associated with integrating a new large load customer that would be incremental to the $3.4 billion five-year capital plan. Integrating that investment in our five-year projection would result in a rate base growth of 8%. Our base capital plan also does not include incremental transmission, like regional grid expansion, and any large load customer additions beyond the customer previously mentioned. Turning to liquidity, we expect to issue $230 million of long-term debt and up to $90 million of common stock in 2026, which includes $14 million issued in the first quarter. This morning, we are affirming our non-GAAP utility earnings guidance with a range of $2.52 to $2.72 per diluted share for 2026. Our guidance includes an expected negative impact from the Energy Recovery Mechanism, or ERM, of $0.10 in a 90% customer, 10% company sharing band. Our current hydro forecast shows above-normal levels of generation for the year. We do not expect a material change to our position. The ERM resulted in $0.01 expense in the first quarter, and we expect to recognize the remaining $0.09 spread evenly in the second and third quarters. Expected long-term equity at Avista Utilities is approximately 9%, excluding the impact from the ERM. This reflects expected regulatory lag of 0.6%. Over the long term, we continue to expect that our earnings will grow 4% to 6% from the midpoint of our 2025 earnings guidance. Our first quarter results are a strong start to delivering on our commitment to financial strength. Heather and I are excited to build on this strength as we look ahead. We will now open the call for questions. Operator: Thank you. At this time, we will conduct the question-and-answer session. 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 first question comes from Shar Pourreza from Wells Fargo Securities. Your line is now open. Whitney Wutalama: Good morning, team. This is Whitney on for Shar. On the electric margin, how should we think about electric utility margin from here now that the quarter has lapsed the Colstrip-related revenue effect? Does 1Q represent a cleaner baseline for the rest of 2026, or are there still a few unusual comparison items that we should keep in mind? Kevin J. Christie: Thank you, Whitney. Good question. We would consider the first quarter a more clean quarter as we go forward, but we will have to go through the whole year as we compare quarter after quarter from 2025, which had Colstrip in it for the entire year, and, of course, 2026 will not. But I think the first quarter of the year is a pretty good representation. Whitney Wutalama: Thank you, Kevin. And then on the regulatory side in Oregon, just in relation to the Fair Act transition and as Oregon moves towards the multiyear rate plan, what is the most important element in these discussions that you need to preserve during the transition? Is it the ability to file in late 2027 for 2028 rates, continued access to interim recovery tools, or some form of indexing to avoid a larger first-year catch-up? Kevin J. Christie: That is another good question, and it is hard to prioritize the three—they are all very important. If we are going to need to stay out longer while we are working through the proceeding, we, of course, would need some interim rate relief as we continue to make capital investments. And then as we look forward, we have had a lot of success with multi-years in other states like Idaho and Washington. To have a quality multiyear with a strong first-year starting point is also equally important as we look forward, and then, of course, earning a fair return for our shareholders. Whitney Wutalama: That sounds good. Thank you, Kevin and Heather. Operator: Thank you. One moment for our next question. Our next question comes from Michael Logan from Barclays. Your line is now open. Michael Logan: Hi. Thanks for taking my questions. Regarding the large load customer that put down a deposit, how are you feeling about reaching an MOU, or when can we expect that? I think you said 90 days or so on your last earnings call. And then subsequent to that, how long would the process take to reach an ESA and potentially formally enter your capital program? Heather Lynn Rosentrater: Great question, thank you. We shared that we are working towards a May 31 date for an MOU, and so the next-step timeline would be identified through that agreement. I do not think we have a clear understanding of what that next step will be, but we are looking towards that May 31 date. Michael Logan: Thank you. And then you highlighted previously 1.7 gigawatts remaining in your queue of potential large load customers. How are you feeling about that pipeline? Is there an update to that number? Heather Lynn Rosentrater: We do continue to vet those opportunities, and we are at about 1.1 gigawatts now in the queue. As we continue to work with these customers, we have higher confidence in what may come to be. We are excited about the opportunities that are still out there—specifically the one customer, but there are others as well that we are working. We are continuing to plan to be able to go out and have curated opportunities for customers once we have a better understanding of the best geographic locations that have available capacity, and we do have some of those areas on our system. We are also looking to be more proactive. Michael Logan: Lastly for me, regarding the Washington rate case later this month, how are you feeling about the prospects of reaching a settlement, or given that it is your first four-year plan filing in the state, do you expect it to be fully litigated? Kevin J. Christie: Michael, thanks for the questions. With regard to the Washington GRC, we are deep in the discovery process, which helps the parties formulate their positions as we enter into settlement, and, of course, we are prepping for settlement. I would like to think there is an opportunity for us to settle at least some, if not all, of the case. That being said, as you highlight, this is the first four-year that any utility, as far as we know, has filed in the state of Washington, and so there are a number of issues to work through. From a party perspective that might engage in settlement, it is hard to say how constructive or how well we can come together, given that they are going to view risks in a certain way and we are going to view risks in a certain way. I cannot give you a probability of settlement, but I think everybody is going to give it a shot. Michael Logan: Great. Thank you for taking my question. Kevin J. Christie: 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 Julien Dumoulin-Smith from Jefferies. Brian J. Russo: Hi. It is Brian on for Julien. Good morning. Just to follow up on the four-year multiyear rate plan in Washington, remind us of your confidence or ability to manage within the revenue requirements and the return requirements over the four-year period, albeit with an off-ramp up to two years, especially given the geopolitical backdrop, fuel, inflation, etc. How can you de-risk this plan, if at all, relative to what has been filed? Kevin J. Christie: Thanks, Brian, for the question. I will start with the off-ramp that you referred to. We have the ability after the first year to file a replacement for years three and four, given the 11-month process, and that would occur if some form of inflation or additional investments beyond what is built into the case materialize. We have been very successful over the last several years adding deferral mechanisms that help to hedge some of our risk. In this particular case, we have a new mechanism that we are requesting around employee benefits—that is one of the remaining more volatile, harder-to-control items for us. If we were to have success with building that mechanism in, and with the other mechanisms that we have in place, we should be in pretty good shape. Of course, that is barring some kind of extreme inflationary activity—in that case, we would use the mechanism where we refile if that were to occur. We feel like we are in a good position to manage the risk that we might see materialize. The company is very focused on managing our costs, and we see some opportunities as we look forward. All of those things combined make us optimistic. Brian J. Russo: Understanding that you are reporting the non-GAAP utility EPS going forward, I noticed in other businesses there really were not any non-cash mark-to-market gains this quarter. Is there any insight there relative to what we are seeing in the broader market? And any additional thoughts on monetizing any of the investments that are more liquid than others? Kevin J. Christie: It is nice to see that things have leveled off, or appear to have leveled off, a bit from about a year ago, and we think with that calming we would see minor adjustments overall. You are referring to the bioscience company when you talk about monetization. To the extent we are excited about the opportunity there, it is a noncore investment, and we would exit at the point in time that makes sense. If there was value created through that exit, then that would help us with our overall equity needs, and hopefully we would be issuing low or no equity for a period of time, which would help boost our overall earnings. Brian J. Russo: You mentioned regional transmission opportunities possibly that would be upside to the CapEx. Can you discuss those some more? Understanding North Plains Connector would likely be post-2030, I am trying to get a sense of whether there is incremental upside to the CapEx relative to that $350 million that you highlighted. Heather Lynn Rosentrater: I am happy to cover this one, Brian. As you mentioned, the North Plains Connector, which we have talked a lot about, likely has opportunities beyond the five-year capital budget, but we are continuing to work with peers and other regional organizations to identify other opportunities for transmission investment that might make sense for us and our customers. There are a lot of reports acknowledging the need for more transmission in our region. We feel that we are geographically blessed—we are in between where a lot of the load growth is and where a lot of the new resources are. We do see potential opportunities in the future for additional investment there and we will continue to participate in those activities. Operator: I am showing no further questions at this time. I would like to turn it back to Stacey Walters for closing remarks. Stacey Walters: Thank you all for joining us today and for your interest in Avista Corporation. We hope you have a great day. Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.