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Operator: Good afternoon, and welcome to the Latham Group, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Casey Kotary, Investor Relations representative. Please go ahead. Thank you. This afternoon, we issued our first quarter 2026 earnings press release, which is available on the Investor Relations portion of our website. Casey Kotary: On today's call are Latham Group, Inc.'s President and CEO, Sean Gadd, and CFO, Oliver Gloe. Following their remarks, we will open the call to questions. During this call, Latham Group, Inc. may make certain statements that constitute forward-looking statements, which reflect the company's views with respect to future events and financial performance as of today or the date specified. Actual events and results may differ materially from those contemplated by such forward-looking statements due to risks and other factors that are set forth in the company's Annual Report on Form 10 and subsequent reports filed or furnished with the SEC as well as today's earnings release. Latham Group, Inc. expressly disclaims any obligation to update any forward-looking statements except as required by applicable law. In addition, during today's call, the company will discuss certain non-GAAP financial measures. Reconciliations of the directly comparable GAAP measures to these non-GAAP measures can be found in the slide presentation that is available on our Investor Relations website. I will now turn the call over to Sean Gadd. Sean Gadd: Thank you, Casey, and thank you all for joining us today to review our first quarter results and discuss our business outlook. Our first quarter results represent a good start to 2026. We are especially pleased with our performance given the adverse weather conditions that plagued most of North America. There are several key takeaways from the quarter that are worth noting. First, this was another quarter in which we saw year-on-year sales growth in each of our product lines. Latham Group, Inc.'s category leadership position across our product portfolio and our geographic diversification are key competitive advantages for us. Secondly, we continue to effectively execute our Sand States strategy, showing double-digit sales gains in fiberglass pools in our priority Florida market. We are taking further actions to accelerate our growth in this region. Third, we expanded our margins, benefiting from operating leverage inherent in our business model and from the lean manufacturing and value engineering initiatives that continue to yield very positive results. Oliver will provide additional detail on this later on in the call. And lastly, we are pleased to confirm our 2026 guidance, which anticipates significant sales growth and even stronger growth in adjusted EBITDA within a challenging macro environment, where pool starts will be about flat to last year. Our guidance includes a moderate increase in transportation and commodity costs due to today's high oil prices, which we are mitigating with temporary fuel surcharges. We are closely monitoring the dynamic situation in the Middle East and the potential impacts on costs and consumer demand. Taking a closer look at our first quarter results, in-ground pool sales increased 3.5%, and virtually all of that growth can be attributed to the one-month contribution from the Freedom Pools acquisition. Adverse weather was definitely a factor in our organic performance, keeping organic in-ground pool sales steady year on year. However, April sales trends were in line with our expectations, and we are on track for fiberglass pools to approach 80% of our full-year in-ground pool sales in 2026. The Freedom Pools acquisition we completed on February 26 is integrating as expected. As we have noted, the acquisition expands our presence in Australia and New Zealand, markets where fiberglass pool models have a strong foothold, and broadens our reach into new markets in Western Australia, including Perth, which is the fastest-growing city in the country. We recently spent a week in Australia bringing together the Narellan and Freedom teams. In addition to this transaction being immediately accretive to Latham Group, Inc., giving us a market-leading position in the country, we anticipate achieving considerable revenue synergies from this combination over time, as well as gaining firsthand experience from the direct-to-consumer business model. Cover sales advanced 6% in the first quarter, driven by growth in auto cover demand as consumers increasingly recognize the safety and economic benefits of this excellent product. Our industry-leading auto covers are compatible with all in-ground pool types. In many parts of the U.S., they provide the homeowner with an alternative to fencing while delivering additional cost savings from reduced evaporation and chemical usage. Educational marketing campaigns, including our partnership with Olympic Gold Medalist and pool safety advocate, Bode Miller, and his wife, Morgan, to promote pool safety are surging consumer awareness and increased attachment rates of auto covers to new pool installations. First quarter liner sales were up 9% year on year, reflecting increased demand and buying in advance of the pool season. We continue to gain traction with our Sand States strategy in the first quarter and are moving forward with plans to accelerate our growth in this important region. Many of the investors and analysts who I have met since taking on the CEO role in January have asked me where I see the major growth opportunities ahead for Latham Group, Inc. and what our playbook is for capturing that growth. Let me start by saying that the opportunity is substantial. We do not need to wait for the recovery in the U.S. pool markets to drive growth. There are enough pool starts for us to go and attack the Sand States now, given our relatively low penetration in that region. The key here is that fiberglass is a growing category, and we are the number one player in it in the U.S., and so we are best positioned to gain share. Fiberglass pools are an excellent fit for the Sand States for many of the same reasons that the category is growing nationally: fast and easy installation, lasting durability, low maintenance, and we have an exceptional design range of sizes and options to choose from, many of which are smaller, rectangular-shaped pools with attached spas that are perfect for our target community. Latham Group, Inc. has laid a good foundation for growth in the Sand States. There is definitely increased brand awareness among consumers and dealers in Florida, thanks to several high-profile marketing campaigns paired with local activations. In 2026, we plan to build on that foundation to set the stage for accelerated long-term growth. As you know, I have many years of experience successfully selling against the standard in the building products industry. When I apply that experience to Latham Group, Inc.'s current position in the Sand States, I have identified several actions to capture consumer demand and provide additional value for our dealers. First, we are building out our commercial organization, with the key pillars being sales strategy, sales operations, and sales execution, with responsibilities to design and drive sales plans, product leadership, and sales effectiveness. Our goal is to provide a world-class commercial organization that supports our growth not just in Florida, but across all the Sand States and all of North America. Second, we have introduced a new market development framework and approach at Latham Group, Inc. that I believe will make us even more effective in capturing share. The key element of this framework is segmentation, meaning that we will be very selective with our targeted Sand State markets, determining the specific sections and neighborhoods that offer the greatest opportunity for us. In essence, it is all about neighborhoods. We are looking for neighborhoods with a large number of homes with home values, lot sizes, and household incomes that fall within our parameters. These can be in, adjacent to, or outside of master-planned communities. Third, we will be adding sales resources in the field to make sure we stay close to the consumer throughout the pool-buying process. In this way, we will be able to assist our dealers in converting more leads into sales and gain greater understanding of the consumer journey. We know that consumers are looking for designs that fit their lifestyle. We believe that Latham Group, Inc. has the best range of products to meet those needs. In 2026, we are increasing our investment in branding and marketing in a very targeted way to capture greater consumer awareness. Together with our network of trusted dealers, we are able to fulfill the demand we generate. In support of all this, we are revamping our marketing and advertising campaigns to give homeowners a full understanding of the true benefits of fiberglass, and why it is the right solution for their backyard to enable their dreams of creating wonderful memories to come true. With that, I will turn over the call to Oliver Gloe, our CFO, for a financial review. Oliver Gloe: Thank you, Sean, and good afternoon, everyone. I am pleased to report on what was a solid start to 2026. Please note that all comparisons we discuss today are on a year-over-year basis compared to 2025 unless otherwise noted. Net sales for 2026 Q1 were $117 million, 5% above $111 million in 2025, of which 3% represented organic growth and 2% represented the one-month benefit of the Freedom Pools acquisition we completed in February. Organic growth was led by the continued strength of auto covers and increased demand for our pool liners. By product line, in-ground pool sales were $60 million, up 4% from Q1 2025, with virtually all the year-on-year growth coming from Freedom's fiberglass pool sales. Cover sales were $33 million, up 6%, and liner sales were $24 million, up 9% compared to 2025. We achieved a first quarter gross margin of 32%, reflecting a 220 basis point increase above last year's 30%. This performance is primarily due to volume leverage, along with production efficiencies driven by our lean manufacturing and value engineering initiatives. SG&A expenses increased to $37 million, up 20% from $31 million in 2025. This was largely tied to strategic investments in sales and marketing to accelerate fiberglass adoption, digital transformation initiatives, and acquisition and integration-related costs, which include $2.3 million of performance-based compensatory earnout expenses related to our Coverstar Central acquisition in 2024. Target synergies have been realized for Coverstar Central, and we are pleased with the contribution from the acquisition, which has exceeded our initial expectations. This earnout will total roughly $9 million over the course of the year, with a similar impact in each remaining quarter in 2026. Net loss was $9 million, or $0.07 per diluted share, compared to a net loss of $6 million, or $0.05 per diluted share, for the prior year's first quarter, primarily due to the aforementioned increase in SG&A expenses. First quarter adjusted EBITDA was $12 million, 9% above $11 million in the prior year period, primarily resulting from volume leverage and efficiencies gained through our lean manufacturing and value engineering initiatives. Adjusted EBITDA margin was 10.4%, a 40 basis point expansion compared to last year's first quarter. Turning to the balance sheet, we continue to maintain a strong financial position, ending the first quarter with a cash position of $27 million, in line with our expectations. Net cash used in operating activities was $48 million, reflecting a seasonal increase in working capital needs ahead of peak pool selling season. We ended the quarter with total debt of $311 million and a net debt leverage ratio of 2.8, also in line with our expectations. Capital expenditures were $23 million in Q1 2026, compared to $4 million in the prior year period. The increase is primarily due to the purchase of four key fiberglass manufacturing facilities in Florida, Texas, California, and West Virginia for $18 million, including a $12 million deposit made in 2025 that was settled in Q1 2026. Additionally, we incurred $5 million of CapEx relating to ongoing projects in line with our expectations. As a reminder, we expect CapEx to range between $42 million and $48 million in 2026. This includes $25 million of maintenance CapEx expenditures related to the purchase of the fiberglass manufacturing facilities that I just mentioned, and investments to upgrade our newly acquired Freedom Pools manufacturing facilities. While the beginning of 2026 was affected by adverse weather conditions across North America, we are encouraged that April sales trends have been in line with the historical seasonal ramp. We continue to monitor geopolitical developments and their potential impact on our freight and raw material costs, but we believe we are well positioned to manage effectively through this pool building season. We are pleased by the steady progress we are seeing from our fiberglass awareness and adoption initiatives, highlighted by strong consumer engagement with our branding and marketing campaigns, and continued gains in Florida, our initial Sand State target market. Based on our performance to date and our current visibility into the remaining season, we are pleased to reaffirm our guidance for 2026 revenue growth of 9% and adjusted EBITDA growth of 13% at the midpoint, amid expectations for new U.S. pool starts to be flat with last year. With that, I will turn the call back to Sean for his closing remarks. Sean Gadd: Thanks, Oliver. In summary, we are pleased with our first quarter performance, encouraged by recent order trends, and excited by the growth opportunities we see on the horizon. Latham Group, Inc. is firmly on track to outperform the market for new U.S. pool starts again in 2026, and we intend to take advantage of soft markets to accelerate our Sand States strategy and strengthen our execution. I see tremendous opportunity for Latham Group, Inc. to drive market penetration in the Sand States as well as the rest of North America, Australia, and New Zealand. With that, operator, please open the call to questions. Operator: We will now open the call for questions. If you are using a speakerphone, please pick up your handset before pressing the keys. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ryan James Merkel with William Blair. Please go ahead. Ryan James Merkel: Everyone, appreciate the question. I wanted to start off with the fiberglass backlog and orders as you enter season. How is that looking, and then have you seen trends pick up now that the weather has cleared? Sean Gadd: Yes. Thank you for that question. We are seeing what we would have expected to see coming out of the first quarter. The order file in April looks strong to us, and it looks like it is picking up for the season. We feel good enough that we have reaffirmed guidance. Generally, we are seeing the pickup in orders and feel pretty good about the trend. Ryan James Merkel: Got it. Thanks for that. And then my second question: the fiberglass conversion is key to the story, and you are adding a bunch of resources. What are the biggest tweaks that you are making to the strategy, and then any early results, or is it a little too early? Sean Gadd: We are definitely making some tweaks. It is too early for definitive results. The main thing, as I talked about earlier, is we are segmenting the market a little bit differently than we have in the past. We have criteria now built up where we feel like if a neighborhood fits that criteria, the likelihood of them going to Latham Group, Inc. and then to fiberglass is higher. We like that. We are starting to test that, and if we get those right with the right dealers, we will be able to start building out more and more neighborhoods. We are early, but that is on a good path for us. The second thing we are doing is adding heads, and really I am organizing commercialization into three areas: sales strategy, which is understanding where to play, doing more of the segmentation, becoming a little bit smarter around sales; sales operations, which for me is about converting what we think about the market into real game plans that the sales team can execute and then measuring that team; and then sales execution, to go and execute. We are getting a little bit more organized so that we get the most out of our sales organization across the whole U.S., including the Sand States. Operator: Thank you. Our next question comes from Gregory William Palm with Craig-Hallum Capital Group. Please go ahead. Gregory William Palm: I wanted to piggyback on the first question a little bit since a lot has happened in the last couple of months since we were all on the phone together. It does not sound like the demand environment has changed all that much, relative to what you would have thought a couple months ago. Can you confirm that? And from an input cost side of things, you mentioned freight. I wanted to get your sense on how you are dealing with that and anything else on your radar, whether it be increasing resin prices. Are you seeing any availability shortages of key inputs like that? Anything else that should be on our radar? Sean Gadd: Thanks, Greg. I will start by talking about the market a little bit. We still see the market overall for this year likely to remain flat, so our assumption for that has not changed. But we are seeing some green shoots, and we feel good about that. Our order trend for April looks strong and into May, so we feel good about that. PK data would have indicated some growth starting to occur with cheaper pools. We like that. Pools are getting smaller, so that is good. The volatility is not helping, but I know we have a sound approach, and we will work through that. From a dealer perspective, when we catch up with dealers, they will tell us it is pretty competitive — four or five quotes per job, which is generally up. My take is it is certainly uncertain, but I believe fewer people will be traveling — the price of gas does not help — and so they are staying at home. I think that is the opportunity and what the green shoots are that we are seeing: that people would rather spend time at home and hopefully let us help build a pool. Oliver Gloe: Let me address the second part with regards to the conflict in the Middle East and updates on input costs. We do not see availability to be an issue as of today. Partially that is due to our supply diversification coming out of COVID. We aimed to be multisource and as diversified as possible. But we are seeing headwinds in freight. That comes in two forms. One is transportation — the price at the pump. Especially in the world of fiberglass, we are incurring transportation costs. It is expensive to ship those fiberglass pools across the nation. In terms of mitigation, we have introduced temporary fuel surcharges that we plan to fully mitigate us on transportation costs. I think it is too early to tell what the impact will be on the commodity side. We are exposed to oil derivatives in the world of resins, HDPE, and so forth. It is too early to tell. We are in discussions with suppliers and making the first purchase orders as we speak under slightly higher price levels. We will have to see how the very dynamic situation evolves. But I am confident in the playbook that we have. We applied that playbook during COVID and last year, and we have confidence that the playbook could also work this year as we work through commodities. Gregory William Palm: On some of these initiatives that you talked about — resegmentation, adding sales resources — how do you feel about your current dealer network, and how important of a lever can that be, not just adding new and more dealers, but also leaning into some of your more successful ones? Sean Gadd: Dealers are very important. They are the extension of us as they sit across the kitchen table, and we need them to represent us well. I believe we have the opportunity to get more out of our current network, which is goal number one. In our core markets — Midwest, Northeast, Canada — that is really about account management. We are defining what account management looks like for Latham Group, Inc. and making sure our organization is trained around good account management. I expect to get more out of our current network. Then we will add where we have white space. We will always look for dealers to take on white space if our current dealer network does not get us there. That is part of the strategy. In the Sand States and material conversion, we have a good network of dealers there right now that we will be feeding as we go into these neighborhoods, and they will benefit from referrals and everything else that comes out of those neighborhoods. We feel good about the network in the Sand States, particularly Florida, and our intention will be over time to grow it. Operator: Thanks, Greg. Our next question comes from Timothy Ronald Wojs with Baird. Please go ahead. Timothy Ronald Wojs: Good afternoon. First question on the resegmentation of some of the sales force and things like that. Is the plan that there are incremental investments in terms of dollars going into some of the initiatives, or are you just reallocating what you have? Sean Gadd: A little bit of both. We are definitely going to get ahead a little bit because we need more people on the ground and people thinking about the game plan. That would be additive, but our intention is that SG&A as a percentage of sales should stay the same over the medium and long term. We will continue to fund that as we grow. We will also look at opportunities to trim back on the back side of the business to give us some space to spend on the front side of the business and invest. Timothy Ronald Wojs: And, Oliver, on the price/cost question, is higher resin in the guide, or is it more of a wait-and-see approach? If you do see higher resins, do you have the ability to take cost out or improve efficiencies or pass them on price? Is that the main message? Oliver Gloe: It is probably more the latter. Transportation cost is relatively foreseeable, and that is in the guide. Commodities are too early to tell. Timothy Ronald Wojs: Sounds good. Thank you. Operator: Our next question comes from William Andrew Carter with Stifel. Please go ahead. William Andrew Carter: I wanted to double click to make sure we understand exactly what the pricing is for the year. You are putting in temporary fuel surcharges — can you give a magnitude of how much that is incremental to the old guidance? You are not taking any price increases on products for resins — just want to triple check that. And you said we are well prepared for materials during the season. Is that a comment that everything is good for now and you take a price increase later? Finally, if you have to take a price increase, can you take one mid-season, or does that mess things up? How do those dynamics work around when you have to make a decision on pricing? Oliver Gloe: Perfect. For transportation cost and the temporary surcharge, for the year it is probably worth about 60 basis points. Again, it is very dynamic and volatile, and as the headwinds change, the temporary surcharge can change over time as well — but that is the order of magnitude. For commodities, it is too early to tell. We are just about to start ordering materials that would be subject to a change in pricing. Materials get shipped to our sites, work their way through inventory, and ultimately into the P&L as they are consumed. We have our playbook, and we will react in time if necessary. As a reminder, last year we did a mid-season price increase in June. It is not preferred, but it is not unheard of. Operator: Thanks. Thank you. Scott Stringer: Our next question comes from Scott Stringer with Wolfe Research. Please go ahead. The adverse weather mentioned in Q1 — did that push some sales into the second quarter? The guidance implies some acceleration through the rest of the year, so it would be helpful to know the tailwind from sales being pulled into Q2, if that is the case. Oliver Gloe: I would say the adverse weather really means we had a lot of snow and ice on the ground in January and February. If you think of our annual organic growth of 6%, we certainly did not quite achieve that in Q1 — it was probably half of that — and I would attribute that to weather. If you translate that to shipping days, that equates to about one shipping day in today’s seasonality. I am not reading too much into that. The season is young; Q1 is a comparatively small quarter. Translating our under-proportional organic growth in Q1 vis-à-vis the annual guide into shipping days, it is one day. Another way of saying it: April trends have been as expected. We are seeing the seasonal ramp. Whether we catch up on that one day in Q2 or Q3, nothing we have seen in Q1 and in our ramp in April would make us change our view on 2026 and the guide. Scott Stringer: Got it. And then on visibility into Q2 and Q3 for in-ground pool installs — is that pretty much set, or how much variability is there over the next two quarters? Sean Gadd: For Q2, we are all but set based on our current lead times. We started the quarter really well. For Q3, while we have orders that fall into Q3, it is probably too early to tell, but from what we are hearing in the market and what we are seeing, we remain very confident in what the order file looks like and will continue to hold guidance. Oliver Gloe: If I compare today’s order book versus prior years, there is really nothing that would cause us to think differently about the seasonal pattern vis-à-vis last year — all confirming the guide. Scott Stringer: That is helpful. Thanks for the time, guys. Operator: Our next question comes from Analyst with Barclays. Please go ahead. Analyst: Good afternoon. For my first question, what are the top concerns you are seeing from buyers today? Between rates, economic uncertainty, and the need to step up consumer awareness of fiberglass pools, what is the biggest challenge today? Sean Gadd: The number one thing tied to interest rates is financing — basic financing is difficult to get. Anyone who does not have the cash or a strong FICO score is unable to get financing. We are hearing that a fair bit, similar to last year. Dealers are saying they are having to fight for the sale a little harder than previously. When I mentioned four to five quotes, it is typically two to three quotes, so everyone is fighting for the business. In an environment where things are tough, I actually feel good about fiberglass pools because pools are getting smaller — that fits our trend. Fiberglass pools have low maintenance, so the ongoing cost is lower than alternatives. The expenditure on chemicals and evaporation is lower, especially if you have an auto cover. And the composite pool means there are no ongoing resurfacing expenses. While we see the market as a little tough, we do not see it adversely affecting us relative to last year. Analyst: Got it. In terms of your increased branding and marketing spend, can you walk us through the cadence through the year and its impact on SG&A? And what does this look like — a targeted program for dealers, more salespeople on the ground, or more on ads and marketing? Sean Gadd: It is a bit of both. We are running a national campaign — that lifts all markets, which is great. With the trend of people moving from the Midwest and Northeast into the Sand States, we like that because fiberglass is the standard in those markets, so they know us. The timing for the national campaign is set for the pool season — we started mid-to-late February and are running through July/August. For the neighborhoods, that will be much more tactical — digital marketing, door hangers, localized marketing around homes, and events to inspire the neighborhood. Those are tactical, smaller expenses that we will run city by city, neighborhood by neighborhood. Oliver Gloe: On the increase and cadence, over the foreseeable future, SG&A as a percent of sales will be flat. It was 22.5% last year; we expect a similar amount this year. The majority is spent as-you-go in the sales organization and marketing. There is a little bit of digital transformation and also inflation on core G&A. Additionally, we have about $3 million of SG&A from Freedom. I would like to remind you that in addition, we have the earnout expenses for Coverstar Central — about $9 million — tied to 2026, so it will not recur in 2027; it did not occur in 2025. With regards to cadence, it is roughly the same as usual. Q1 and Q2 are a little bit heavier because we are running our national TV campaign earlier and longer in 2026 versus 2025. Operator: Our next question comes from Charles Perron in for Susan Maklari with Goldman Sachs. Please go ahead. Charles Perron: First, I would like to shift gears and talk about auto covers and the opportunities you see in this market. Considering the changing macro dynamics, is there any impact you are seeing in terms of adoption, and any efforts you can undertake to further expand penetration over the coming years? Sean Gadd: We are not seeing a decrease in adoption. We had a pretty good quarter in auto covers and covers in general. We had very large growth last year; we expect it to grow this year and in the coming years as well. It is really about awareness. The reality is most people still do not know that auto covers are available. Auto covers can fit on every pool, so the market is very large for us. We have our value-added resellers set up to take advantage of that. We are also getting our licensed sales organization focused around that product, and it is still early. We see that as more upside as we go. It is a good product; it does what it needs to do; consumers who have it love it, and we just need to continue to drive awareness. We do not see that trend changing. Charles Perron: And on input costs and inflation, should we see more unfavorable dynamics, can you further lean on lean manufacturing and value engineering initiatives to protect margins? Oliver Gloe: Lean and value engineering continue to be key contributors to our P&L. The contribution is about $2.0–$2.5 million per quarter. In Q1, it was $2.0 million — Q1 is a light quarter and value engineering programs move with volume. As programs mature, you see the tailwind becoming part of our DNA — how we lead our plants and factories — as part of the everyday cadence. You will see a lot more programs, maybe not all of the same magnitude, because the low-hanging fruit in lean manufacturing has been largely addressed. In value engineering, we are in the beginning of the journey; there are still some low-hanging fruits our team is pursuing. Both initiatives are under full steam and in Q1 delivered what we expected, with no change in our thoughts for the rest of the year. Operator: Our next question comes from Sean Callan with Bank of America. Please go ahead. Sean Callan: Hi, thank you for taking my question. First, the double-digit growth in Florida was quite impressive. What do you think has led to the success in Florida versus the other Sand States, and what lessons can you take from Florida to apply to the other Sand States? And then one cleanup question on the surcharges — are you aiming to offset the higher transportation cost on a dollar basis or a margin basis? Sean Gadd: Florida is our largest focus of all the Sand States. We are set up quite well from a sales headcount perspective. We have worked on dealers for the last eighteen months, so we have dealers that are really the right partners to help fulfill the demand we are creating. We have been running a marketing campaign for eighteen months, so we are seeing the flow of that. We have a strong value proposition relative to concrete, and we are getting deeper into the market and communicating it better. We feel that if a homeowner understands the benefits of fiberglass over concrete, there is a high chance they go with fiberglass. We are still early in the adoption curve. Our mission is to drive awareness and connect that awareness to our dealers’ positioning at the kitchen table. While we are pleased with the numbers, we intend to accelerate from here, and we are still working off relatively small numbers in Florida. Oliver Gloe: On the surcharges, we are aiming to offset transportation cost on a dollar basis. The headwind we incur is being passed on with temporary surcharges. Operator: Our next question comes from William Andrew Carter with Stifel. Please go ahead. William Andrew Carter: Hey, thanks. I wanted to double click and make sure on that incentive cost — you are not backing that out. So if you were to put that back in, the incremental here is still $28–$38 million in investment year? I just want to understand that. No — sorry, the earnout around Coverstar. My fault. Oliver Gloe: The earnout is included in SG&A and will be sitting on top of roughly 22.5% of revenue as it is an expense tied to an acquisition. For EBITDA purposes, it is backed out. William Andrew Carter: Okay, so it is not excluded — it is within guidance, that expense. Just double checking. Oliver Gloe: Correct. It is an add-back to EBITDA, and it is in the ceiling. William Andrew Carter: My fault. Sorry about that. Thank you. Operator: This concludes our question and answer session. I would like to turn the call back over to management for closing remarks. Sean Gadd: Thank you very much. I want to thank everybody for joining the call. We felt like we had a strong quarter — mildly impacted by weather — but the momentum is there. April looks strong, and we feel confident about our guide. With that, I want to conclude the call. I look forward to seeing you over the coming weeks and months at different events, and again, thank you for attending. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to IPG Photonics' First Quarter 2026 Conference Call. Today's call is being recorded and webcast. At this time, I'd like to turn the call over to Eugene Fedotoff, IPG's Senior Director, Investor Relations for introductions. Please go ahead with your conference. Eugene Fedotoff: Thank you, and good morning, everyone. With me today is IPG Photonics CEO, Dr. Mark Gitin, and Senior Vice President and CFO, Tim Mammen. On today's call, Mark will provide a summary of our first quarter results as well as the overall demand environment and then walk you through the progress we are making on our long-term strategy. After that, he will turn it over to Tim to provide financial details. Let me remind you that statements made during this call that discuss our expectations or predictions of the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties are detailed in our Form 10-K for period ended December 31, 2025, and our reports on file with the Securities and Exchange Commission. Any forward-looking statements made on this call are the company's expectations or predictions as of today, May 5, 2026 only, and the company assumes no obligations to publicly release any updates or revisions to any such statements. During this call, we will be referencing certain non-GAAP measures. For more information on how we define these non-GAAP measures and the reconciliation of such measures is the most directly comparable GAAP measures as well as additional details on reported results, please refer to the earnings press release, earnings call presentation and the financial data were posted on our Investor Relations website. We will also post these prepared remarks on our website after this call. With that, I'll now turn the call over to Mark. Mark Gitin: Thanks, Eugene. Good morning, everyone. First quarter revenue exceeded our expectations, increasing 17% year-over-year. We continue to see improved demand for our laser solutions, particularly in battery manufacturing and medical applications, which drove our strong performance in the quarter. We maintained a disciplined focus on our growth initiatives across all of our markets, delivering solid first quarter results and building momentum for future growth. Before looking more closely at our first quarter sales performance, I would like to highlight our updated revenue reporting framework, which better aligns with our strategic growth initiatives, making it easier to understand and track our progress. It also provides a clear separation between our industrial and nonindustrial revenue streams, giving better visibility into our focus areas and splitting the business into 2 distinct buckets, with unique performance and growth profiles. This reporting combines applications into 2 categories: Industrial Solutions and Advanced Solutions. Today, most of our business is in industrial solutions where we are building on our strong foundation, expanding our addressable market by displacing incumbent technologies and enhancing our value proposition by offering differentiated system and subsystem solutions. This includes applications such as cutting, welding, cleaning and additive manufacturing and other industrial offerings. In the first quarter, Industrial Solutions revenue accounted for 86% of total sales increasing 21% year-over-year as our design wins took hold and general industrial demand improved, welding, cutting, marking and cleaning applications drove higher revenue. Welding and cutting, our 2 largest applications posted double-digit growth benefiting from solid demand and new orders from battery manufacturing. Sequentially, Industrial Solutions revenue was relatively flat and outperform typical seasonality driven by business wins in cutting and additive manufacturing. In Advanced Solutions, which is another important driver of our future growth. We are applying our laser technologies and applications expertise, solving challenging problems for customers. Advanced Solutions serves markets such as medical, defense, micromachining, semiconductor manufacturing and others that present strong growth opportunities and collectively represent a $5 billion TAM. We've already established a solid presence in these markets and are excited about the opportunities that lie ahead. Advanced Solutions represented 14% of our revenue in the first quarter and declined modestly year-over-year. Revenue growth in medical and semiconductor applications was offset by lower micromachining sales due to cyclical demand in solar cell manufacturing. Sequentially, revenue declined due to lower medical sales following an exceptionally strong fourth quarter of 2025. We were particularly encouraged by increased sales in semiconductor applications as we gain traction with large equipment manufacturers. Total bookings were strong in the quarter with book-to-bill firmly above 1 for the second consecutive quarter. This gives us confidence in our outlook it points to robust demand for our solutions despite elevated levels of macroeconomic uncertainty. We see the strong demand to remain focused on executing our key growth initiatives across Industrial Solutions and advanced solutions, building upon our strong foundation and industrial innovation, expanding our leadership in laser technology into new high-growth applications such as medical, micromachining and defense. While our initiatives target a wide range of opportunities, our path to success is consistent, leveraging differentiated laser technology and deep applications expertise to deliver clear performance advantages that incumbent approaches cannot match. Together, these initiatives represent compelling opportunities to meaningfully expand our addressable market and support sustained long-term growth. In Industrial Solutions, welding revenue is growing, driven by our advanced capabilities for battery manufacturing across both electric vehicles and stationary storage applications. Global stationary storage deployment is growing rapidly to support data center energy requirements and is gaining increasing share of battery manufacturing. These batteries use larger cells with thicker bus bars, requiring higher power lasers, process monitoring. This aligns directly with our strengths. Our unique combination of adjustable mode beam lasers, advanced beam delivery and real-time process monitoring ensures well quality and sets us apart from the competition. Beyond lasers and subsystems, we continue to make meaningful progress in our systems business, which posted another strong quarter. We're moving up the value chain by integrating our fiber lasers into differentiated complete systems which, together with our applications expertise enables us to tackle complex problems that incumbent technologies cannot address. This approach allows us to deepen our partnerships with customers across a wide range of markets from welding to cleaning. Turning to Advanced Solutions. We continue to make progress with our growth strategy by targeting opportunities across defense, medical and micromachining applications. In February, we announced that Lockheed Martin placed a $10 million follow-on order for Crossbow our scalable, cost-effective, high-energy laser defense system for countering Group 1 and Group 2 drone threats. Shipments for that order are expected to begin in the second quarter. We also showcased Crossbow at the 2026 AUSA Global Force Symposium in Huntsville, Alabama, where we engage with defense industry leaders on how our solutions can address escalating drone threats at a significantly improved cost exchange ratio. Crossbow continues to generate interest from potential customers we're gaining traction on converting that interest into orders. In Medical, revenue grew significantly year-over-year driven by sales to a new customer as our solutions continue to deliver clinically meaningful outcomes. We are advancing our innovation road map and expect several new product approvals and introductions in 2026 and in 2027. We have a very strong backlog for 2026, giving us excellent visibility into full year revenue that points to another good year in medical. In semiconductor, revenue grew this quarter as we ramped up new lithography, metrology and inspection business with large semiconductor equipment manufacturers. This market is being driven by the accelerating adoption of AI, which is fueling demand for GPUs and high-bandwidth memory chips. We continue to advance our product development and are working closely with customers on design and opportunities, supported by the clear performance advantages of our solutions. Our strategic progress is enabled by the organizational changes and investments we have made. We have streamlined operations, strengthened decision-making and accelerated product development, translating into better performance and greater consistency across the business. While our entrepreneurial and innovative spirit remains at the heart of IPG, we are building the operating discipline required to scale these capabilities effectively. In summary, our team delivered another over-year growth. Customer demand for our differentiated laser solutions continue to strengthen across our markets. We are making meaningful progress on our strategic objectives, outperforming the market and creating lasting value for our customers and our shareholders. With that, I will now turn the call over to Tim. Timothy P.V. Mammen: Thank you, Mark, and good morning, everyone. My comments will generally follow the earnings call presentation which is available on our Investor Relations website. I will start with revenue trends by application on Slide 5. Industrial Solutions revenue increased 21% year-over-year in Q1 and driven by growth in welding, cutting, cleaning and marking. This was partially offset by lower revenue in additive manufacturing. On a sequential basis, revenue was basically flat, down 1% and as lower revenue in welding and additive manufacturing was largely offset by growth in cutting and marking. Cleaning revenue is flat. Advanced Solutions revenue decreased 5% compared with last year as growth in medical and semiconductor was offset by lower revenue in defense and micromachining. Revenue is down 13% quarter-over-quarter on lower medical sales from a very strong fourth quarter. Micromachining, semiconductor and scientific revenue all improved sequentially. Sales of our emerging growth products continued to increase and accounted for 53% of total revenue in the first quarter, consistent with the prior quarter. Following our annual review, we made a slight adjustment to the product list. Many of these products are benefiting from growth in battery manufacturing and the medical market. Moving to revenue performance by region on Slide 6. North American revenue increased 27% compared with last year, driven by growth in welding, cutting, additive manufacturing and medical applications. Sequentially, revenue was down 4% due to declines in Cleaning and Medical, partially offset by strength in welding, cutting, additive manufacturing and micro machining. European sales were up 4% year-over-year, driven by cutting and down 13% sequentially versus a strong fourth quarter due to lower sales in welding, cleaning and additive manufacturing. Revenue in Asia improved 14% year-over-year driven by strong demand in welding, cutting, marking and cleaning applications, which primarily benefited from capacity additions for battery manufacturing. Revenue is flat quarter-over-quarter. Moving to the financial performance review on Slide 7. Total revenue was $265 million, up 17% year-over-year, marking our second consecutive quarter of double-digit sales growth. Foreign currency benefited revenue by approximately 4% this quarter compared to the same period in the prior year. GAAP gross margin was 37.5%, and adjusted gross margin was 37.8%. Adjusted gross margin came in close to the midpoint of our guidance range and improved sequentially. Gross margins benefited year-over-year from lower inventory provisions due to improved inventory management. While product margins have been stable over the last few quarters, we did experience headwinds from tariffs compared to the first quarter of 2025. We continue to target improvement in product margins based on pricing and cost reduction initiatives that are starting to take hold. Underabsorbed expenses continue to run at a higher level than we are targeting in the medium term. And we have specific initiatives underway to improve our operational efficiency. We expect the impact from tariffs to persist in 2026 and continue to work on ways to offset their impact, including cost reduction and pricing initiatives. Total GAAP operating expenses were $107 million. This includes a $13.5 million payment and license related to an agreement with TRUMPF Laser System technique, settling all parts of litigation between us worldwide. The license will have an immaterial impact on our future results. Excluding the settlement payment, litigation expenses, amortization of intangibles and other acquisition-related expenses, adjusted operating expenses were approximately $91 million, as we continue to invest in our strategic initiatives to drive future growth. GAAP operating loss in the quarter was $8 million, and GAAP net income was $2 million or $0.04 per diluted share. Excluding onetime items, FX and amortization, adjusted operating income was $9 million, and adjusted net income was $13 million, with adjusted earnings per diluted share of $0.29. Adjusted EBITDA was $35 million. Both adjusted EPS and adjusted EBITDA came in above the midpoints of our guidance ranges. Moving to a summary of our balance sheet and cash flow on Slide 8. We ended the quarter with $813 million in cash, cash equivalents and short-term investments. We had $71 million in long-term investments and no debt. Cash used in operations was $5 million. The first quarter is typically weaker for cash generation, as it is impacted by annual bonus payments. During the first quarter, we spent $16 million on capital expenditures, below the expected run rate given our CapEx budget of $90 million to $100 million this year due to the timing of investments in our major fiber manufacturing facility in Germany. Excluding the German investment, underlying CapEx is running at about 5% of revenue and we expect to maintain this level going forward. Moving to our outlook on Slide 9. Orders remained strong with book-to-bill staying firmly about. For the second quarter of 2026, we expect revenue of $260 million to $290 million, and we expect adjusted gross margin between 37% and and 40%, including an ongoing impact from tariffs of about 150 basis points. We estimate adjusted operating expenses in the range of $92 million to $95 million in the second quarter and anticipate that these expenses will increase moderately during the year to support opportunities to further accelerate our key growth initiatives. For the second quarter, we expect to deliver adjusted earnings per diluted share in the range of $0.25 to $0.55 and with approximately 43 million diluted common shares outstanding. Our adjusted EBITDA is expected to be between $32 million and $48 million. In summary, we are pleased with our first quarter results with both bookings and revenue moving in the right direction. The underlying strength of the business is good to see, but we'd like to remind you that we do face tougher comparisons in the second half of 2026 relative to a strong second half in 2025. Although first quarter gross margin was a little light given the level of revenue, we continue to strive for margin increases through cost reductions, pricing initiatives and reducing underabsorbed costs. While we are monitoring freight costs that may be influenced by geopolitical developments in the Middle East, our direct exposure to petrochemicals and energy markets is limited and our vertical integration provides resilience against potential adverse impacts arising from conflicts in the region. I will now turn the call back over to Mark. Mark Gitin: Thanks, Jim. As Tim said, we are pleased with the strong start to the year, reflecting robust demand for our solutions despite elevated macroeconomic uncertainty. While we are closely monitoring current geopolitical events and have yet to see an impact on demand for our solutions, we remain cautiously optimistic in our outlook. We focus on what we can control executing on our growth strategy, supported by operational excellence and an innovation engine that continues to unlock significant areas of incremental opportunity. This foundation gives us confidence in our ability to achieve above market growth and deliver lasting value for our customers and shareholders. With that, we will be happy to take your questions. Operator: [Operator Instructions]. Our first question comes from Ruben Roy with Stifel. Ruben Roy: Tim, I guess I'll start with one of your last comments on the margin structure. And maybe if we just think about sort of medium to longer term, you've sort of talked about mid-40s as a structural area that the business can run from a longer-term perspective. And if you think about the tariff regime, higher input costs, sort of the puts and takes on product improvements, et cetera. I'm just wondering if you still think that mid-40s target is valid on a multiyear basis? Or has the structural feeling moved around at all based on what you're seeing at this point? Timothy P.V. Mammen: In general, that's a target we're still striving to get to. We are starting to see some of the cost reduction initiatives and some of the pricing that we talked about last year paid through. The other critical aspect of that, Ruben, is really balancing the fixed cost manufacturing structure with the total level of capitalized absorbed costs so that we can get absorption down as a percentage of sales, and we've certainly got room to drive overall gross margins up. I think relative to the mid-40s when we gave that guidance, the only real headwind at the moment is the tariffs impacting that by 150 basis points or so. But that tariff regime is obviously pretty fluid right now. And I think, overall, for Q2, the guidance at the top end of the range reflect some of that momentum on gross margin that we want to continue to drive forward with. Ruben Roy: Right. Okay. That's helpful. And then I guess a higher-level question for Mark. I get the new framework here with Industrial Solutions and Advanced Solutions, I think that makes strategic sense the way you've been sort of managing the business and looking at the business. So glad to see that. Maybe, Mark, if you could maybe talk through in a little more detail some of the drivers across some of the businesses that you discussed in your prepared remarks. As you think about Q2 and maybe the rest of the year, that would be helpful, given that you're bringing this out differently. So I mean, -- if we think about some of the moving parts in medical, for instance, which you've been pretty excited about, it sounds like there is a little bit of a sequential decline with unevenness and customer ordering. Is that a scheduling dynamic? Is that related to product timing? And maybe if you could talk about some of the other bigger parts of the business, cutting and welding and how you're seeing sort of backlog against those big pieces of the business playing out now? And sort of do you have any extended visibility, that would be helpful for us. Mark Gitin: Yes, absolutely. Good to talk to you, Ruben. So first of all, we continue and we expect to see continued growth in both of the areas, both Industrial Solutions and Advanced Solutions. And of course, we saw overall the business strongly quarter -- year-over-year, we saw a 17% growth. We saw that across a wide range of areas in both the -- in both the industrial as well as the advanced. If we look at the particular areas in industrial, we saw growth and continue to see growth in in Welding, specifically in the battery area. We've seen good growth actually in cutting as we also start to start to impact some of the plasma cutting area with our new RAC integrated lasers at very high powers, with new cutting heads. We're also making good progress in additive manufacturing and cleaning all of that Industrial Solutions area. And then as we look at the areas of advanced -- we've seen year-over-year strong medical. We've also seen growth in semiconductor, an area that we're starting to make impact on, as I mentioned in the call, in some of the areas of inspection, metrology, lithography areas. And then you specifically asked about the quarter-on-quarter about on medical. We just had a very strong quarter in medical -- we have a strong backlog in Medical in the year 2026. So we continue to expect to see growth in that specific area as well. Ruben Roy: Got it. Mark, if I could just sneak in one follow-up question. Congrats on the Lockheed Martin follow-up order. Can you just help me think about the revenue recognition profile on that cross program? Is this sort of spread over multiple quarters, I would assume it would be. And it sounds like you're going to be shipping for revenue in Q2. So is that starting this quarter for sort of the initial orders that you had -- or does that just reference the follow-on order and you've been shipping for revenue. Maybe you could just help us frame the scale production ramp for that program that I all had. Mark Gitin: Yes, sure. Sure. No, we're making great progress in Crossbow -- as we've talked about, obviously, we launched that at the end of last year. We brought that to a number of key shows -- we have a very strong pipeline. Lockheed was a first mover in that area. And yes, we did ship initial systems to them. So they have done a considerable amount of work with that. And then we got the $10 million follow-on order. And yes, we are beginning to ship that here in Q2, and that will be delivered over multiple quarters. And I can tell you that we have great interest from a number of key customers that we're working through the funnel, very excited about it. The they're really understanding the benefit of the IPG system. The Crossbows, as we mentioned in the past, this is based upon our high-power single-mode lasers, which IPG is the strongest at. We've demonstrated and shown lasers up to 8 kilowatts single mode, which is tremendous, and we have we're making very, very good progress with customers as we launch this forward. Operator: [Operator Instructions]. Our next question comes from James Ricchiuti with Needham & Company. James Ricchiuti: Something to get maybe some additional color on the booking strength that you saw, whether there's much variability by geography perhaps in the 2 business categories that you're now presenting to us. Mark Gitin: Yes. Jim, I'm happy to talk about it. I can talk about it for you regionally. We're not breaking it out by the 2 areas for bookings. But in the regional standpoint, we were very strong in North America and Asia, especially in China and Japan. Europe was a bit more stable. James Ricchiuti: Okay. And Mark, just on the strength in China. I wanted to -- it looks like you had a pretty good quarter in China, yet there seems to be a couple of moving pieces in China. I think Tim alluded to Ablative being a little weaker, but is the strength that you saw year-over-year or you're seeing in China, is that coming from the battery side of the business? Mark Gitin: So Jim, we're actually seeing strength across the board. Sometimes there's a little bit of movement quarter-to-quarter, but we've been quite strong in welding, especially in the battery area because we have very strong differentiation there, as you know, with our adjustable beam lasers, combined with the combined with the scanning and beam delivery as well as the process monitoring that we have. And that's very critical in that battery area, we're seeing significant growth and that's not just EV, but actually the bigger grower right now or a similar grower is actually the stationary storage for for the data center work. And those take the thicker bus bars because they are higher capacity batteries and that really zeros in on our solution. So that area of battery plus the additive and there are some areas of micromachining also where we're strongly differentiated in China, and we've seen some of that growth. And actually, when I talk about the battery, I can tell you also that, that's happening, we're seeing some of that globally. In fact, in the U.S., we're actually seeing some of the battery factories convert from EV to stationary storage, which is good for us as well. James Ricchiuti: Got it. And maybe a related strong growth in systems the last couple of quarters. And I know there are a couple of moving pieces in that as well. Anything in particular stand out? Mark Gitin: We've had some -- yes, thanks for the question. We've seen strong growth in cleaning is one of the key areas, the whole area of systems is a strength for us now because, again, it combines the laser capability plus the applications capability that we have and the ability to deliver that in subsystems and systems and really deliver a solution and cleaning is 1 of those key areas, and we're bringing out some new products in that area as well. So excited about the growth in systems. James Ricchiuti: Got it. And just one final quick one for Tim. Tim, any way to think about OpEx as we look out to the back half of the year? Any major changes that we would assume. Timothy P.V. Mammen: Yes. We sort of got maybe a moderate pickup in OpEx in the second half of the year with continued investments in the organizations and really driving these growth initiatives forward. But pretty moderate from where we are today. We know we need to we know cognizance of having invested significantly in OpEx to get the company turned around and we need to manage that cost base as we go forward and ensure getting the growth coupled with those investments. Operator: [Operator Instructions]. There are no further questions at this time. I'd like to turn the call back over to Eugene Fedotoff for closing comments. Eugene Fedotoff: Okay. Thank you for joining us this morning and for your continued interest in IPG. We will be participating in several investor events this quarter. And I'm looking forward to speaking with you again soon. Have a great day, everyone. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Greetings, and welcome to the Eve Holding, Inc. First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lucio Aldworth, Head of Investor Relations. Thank you. You may begin. Lucio Aldworth: Thank you, operator. Good morning, everyone. This is Lucio Aldworth, the Director of Investor Relations at Eve, and I wanted to welcome everyone to our first quarter 2026 earnings conference call. Our CEO, Johann Bordais; and CFO, Eduardo Couto, are joining me on the call today. After their prepared remarks, we will open the call for questions. At that point, Luiz Valentini, our Chief Technology Officer, will also join in to address some more technical questions. We have a deck with a few slides and additional pictures that showcase our achievements in the quarter, including, of course, the more recent stages of the test flights of our full-scale prototype. The deck is available on our site at ir.eveairmobility.com. So please feel free to download it and follow along. And in fact, we just published on our website today a video of one of the more recent flights that features some more complex on-air maneuvers. You might want to check that out as well. Let me first mention that today's conference call includes statements about events or circumstances that have not yet occurred. These are primarily based on our current expectations and projections regarding future events and financial trends that will affect our business and future economic performance. These forward-looking statements are based on current expectations and involve risks and uncertainties that could cause financial results to differ substantially from those expressed or implied in this conference call. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or other factors. For a more detailed list of these risks and uncertainties, please refer to our SEC filings, which are available on our website. Now I'll turn it over to our CEO, Johann Bordais. Johann? Johann Christian Jean Bordais: Thank you, Lucio. Good morning, everyone, and welcome to the first quarter 2026 conference call. This quarter was especially significant. As many of you know, we achieved the inaugural flight of our engineering prototype last December after a thorough development and a series of breaks and ground tests. This major milestone validated not only our building block concept by extensively testing every part, but also the integration of critical systems such as fly-by-wire and fixed-pitch lifter rotors. The successful first flight launched an intensive flight test campaign. Our prototype completed 59 flights and logged nearly 2.5 hours in the air with multiple days of 2 flights and the completion of all planned hover phase objectives. Moving to Slide 3. More than quantity, our flight campaign has also excelled in quality. Every flight is planned to test and validate specific aircraft component or flight metrics. In total, our engineers have already validated 130 different performance points. The prototype has reached 215 feet above the ground and now moving forward at 30 knots. As an example of the envelope expansion, our first flight in December was stationary with the aircraft climbing to 40 feet. Besides flying more frequently, longer, higher and faster since the first flight, we have also introduced multiple on-air maneuvers to the protocols. We use a building block approach in both design and flight testing, which means we break complex systems into smaller parts, test each unit until it reaches the needed maturity and then build in on this component. Each test validates specific points and allows progression to next level, more complex phases of the campaign. As such, the aircraft has tested and validated the Autoland feature fully controlled by the fly-by-wire system. We have also performed difficult maneuvers in all 4 axis with consistent behavior, allowing continuous envelope expansion. On Slide 4, the flight campaign has delivered meaningful knowledge gain to date. Most importantly, we confirmed that our predictive models are reliable and precise, enabling safe and confident campaign advancement. Ground effect behaved somewhat differently, but loads remain within expectations. These common small deviation help us further refine and improve our engineering models. We have better-than-expected results for motor thrust and battery performance with noise and vibration meeting our expectations. The key takeaway is that we remain on track for further envelope expansion and more complex flights. Speaking of which, Slide 5 shows the next steps in the engineering prototype test campaign for this year. The flights up to now have been in hover mode up to 30 knots and all were completed successfully on schedule with approximately 60 flight. During the remainder of the second quarter, we will upload a refined flight computer software and perform final ground test on the pusher and actuators. This will ensure that they are fully integrated with all the other aircraft systems in preparation to initiate transition flight. Besides software upgrades, we will also perform mandatory structural ground tests and lay-up activities that are required for the transition phase and that will last few weeks. This is critical opportunity that will help us validate methods, setup instrumentation and test techniques to continue advancing. In a nutshell, this structural and software upload phase is an investment in the maturity, safety and predictability of the coming transition and certification path. The transition phase will also be gradual. We will start with a partial transition, progressively increasing speed. The lifters will be engaged and to provide the aircraft with the necessary vertical support. At the end of this phase, we plan to accelerate the aircraft to a full transition speed above 85 knots. At this point, the entire lift of the aircraft will be provided by the wing, meaning the aircraft will be wing-borne flight with lifters motors off. This is the aircraft ultimate mission. Take off vertically, transition to wing-borne flight and then transition back to vertical flight for landing procedures. After transition testing, we will introduce controlled failures such as motor shutdown to observe system reaction and refine the safety procedures and the pilot's protocols. Meanwhile, we are concluding the critical design review with our suppliers for each component that will be featured in our coming performing prototypes. This will allow us to release drawings and continue manufacturing components within the required specs to start testing our conforming vehicle in 2027. We continue to mature our flight test campaign, advance our engineering prototype this year while gaining greater visibility into the certification plans for our conforming vehicles. This suggests that certification and entering the service are more likely in 2028 as we will need to fly our conforming vehicles for 12 months to complete all necessary certification tests. It is important to mention that this greater visibility gives us more confidence in the new schedule and lowers its risk. The new time line is also important to incorporate knowledge gained from the engineering prototype to the conforming prototype and guaranteeing the maturity and performance level of our Eve-100 eVTOL, especially for range, noise, reliability, payload and lower operating cost. We are now confident that we can deliver an aircraft that is very competitive and well designed for urban air mobility missions. In parallel, on Slide 6, we continue to engage with authorities worldwide to advance certification for our eVTOL. We have recently performed the demonstration at the Gaviao Peixoto Embraer facility in Brazil for several Brazilian authorities, including the President of Brazil. We also met with both Brazil ANAC and the U.S. FAA certification authorities at our Melbourne, Florida office to continue discussing our certification time line. We also met with Japan JCAB and ANAC to strengthen cooperation between the 2 agencies. Lastly, we formally applied for our eVTOL type certificate with EASA. Moving on to Slide 7. We attended VERTICON in Atlanta, the world's largest helicopter conference. Our goal was to raise awareness to our eVTOL amongst helicopter operators. We believe that these operators will be very early adopter and see an attractive short-term commercial opportunity with them. Slide 8 shows our total preorder backlog with approximately 2,700 aircraft valued at about USD 13.5 billion at list price. Out of the 27 customers, we also have LOIs with 14 different customers for our eVTOL aftermarket services and support as well as 21 different potential customers for our air traffic management solution called Vector. Now I will hand over to our CFO, Edu, for the 2026 first quarter financial review. Eduardo Couto: Thanks, Johann. Eve ended first quarter 2026 with a record cash position of $441 million and total liquidity of $578 million, including about $136 million in undrawn credit from the Brazilian Development Bank. This is our highest cash level since the IPO, driven by a new 5-year $150 million loan raised in January. This added liquidity should support operations through 2028 without new funding. We're also working with Embraer to find new synergies to reduce our cash burn from 2026 to 2028. Our initial review indicates that we can achieve $100 million to $150 million in incremental synergies in the next 3 years, likely reducing cash usage and extending our cash runway. We already started to implement these actions. Our 2026 expected cash burn remains at $225 million to $275 million, excluding the new potential synergies under implementation. Now moving to Slide 10, just to highlight some of our numbers. Eve invested $59 million in R&D during the first quarter '26, mainly for eVTOL development. SG&A expenses totaled $7 million for the quarter. Including R&D and SG&A, Eve's net loss for first quarter 2026 was $69 million. Finally, as mentioned previously, we ended the quarter with $441 million in cash and $578 million in total liquidity. Cash consumption in the first quarter was $69 million, but this figure includes approximately $11 million in service expect to have been paid in the fourth quarter of 2025. Excluding this additional payment in the first quarter '26, our cash consumption was $57 million and in line with the low end of our guidance. With that, we conclude our remarks, and I would like to open the call for questions. Operator, please proceed. Operator: [Operator Instructions] The first question is from Savi Syth from Raymond James. Savanthi Syth: Maybe, Edu, first, just on the synergies, could you provide a little bit of color on kind of what type of actions those are? And just to make sure that the $100 million to $150 million you're targeting over a 3-year period, is that coming off of a base of like roughly $250 million per year over the next few years? Is that how we should think? Eduardo Couto: Yes, you're correct. We did a big workshop in Brazil a couple of weeks ago. There was more than 200 people involved on that from Eve and Embraer side. We basically explored, I would say, 4 main areas. We explored the Eve structure, right? We have a lot of costs at Eve. We also explored all the service that Embraer provides to us. A third pocket was suppliers, right, and all activities we do with third-party suppliers. And the fourth one was industrialization. So after doing this deep workshop, we were able to initially identify this $100 million to $150 million that we expected to capture between 2026 to 2028. That would be a reduction, right, on the expected cash burn that we were planning for the next 3 years. And you're right, we believe these actions will help us to reduce the forecasted cash flow to the years ahead -- cash burn to the years ahead. Savanthi Syth: That's helpful. And maybe if Valentini is there, just on the means of compliance, I know last kind of earnings call, you talked about working on 2 fronts. Just wondering if there's any kind of update on that. And just related to that, you noted that some suppliers have kind of already initiated performance certification rehearsal test. Just wondering if you could elaborate a little bit more on that. Luiz Valentini: Sure. Savi, this is Luiz Valentini. So we continue to work with ANAC and also with the FAA on the discussion on the means of compliance. I think we've had good progress recently. We've had all of the means of compliance proposed to ANAC. They are inside the certification plans we call. But basically, we've been discussing them one by one, and we have all of them proposed. We believe that we are at around 90% of the means of compliance agreed, which puts us, we believe, in a good position, like you said, to start working on detail, the design of the test campaigns in order to show compliance with requirements. We also were able to find a good agreement on the noise certification requirement, which is not part of the certification basis, but is an important part of the certification and operation of the vehicle. So we believe that it's still on par with the development of the vehicle itself. With respect to other authorities, we've also been engaging with the FAA, as we communicated previously, but most of the alignment work on the means of compliance is done directly with ANAC being the primary certification authority. Operator: The next question is from Andres Sheppard from Cantor Fitzgerald. Andres Sheppard-Slinger: Congrats on the quarter. I wanted to touch on the flight campaign for a minute. So just to make sure I have it right, so we're targeting first full transition flight in Q3. So I guess, what -- just remind us what are the milestones leading up to it? And how confident are we in that milestone in Q3? Luiz Valentini: This is Luiz Valentini. So we've been flying quite a bit, as we've shown, all of the flights in the hover flight phase. So we've been pretty excited not only with the pace of the campaign, but also with the results that are coming out that makes us confident in moving forward with the tests, right? The next few weeks we'll be focused on testing some of the integration of the systems in the ground. So we've been planning shifting from a period of many flights to now a period of tests on the ground. And that, again, we will focus on making sure that the flight control surfaces work well with the flight control laws connected with the pusher. And so the lifters, of course, all of that connected. We also will have more tests in the ground that focused on the structure on the airframe of the vehicle to make sure that the vehicle is ready for the larger envelope of flight that we will start from the Q2 to Q3. Of course, there is a lot to be learned as we move on to this new transition flight phase. So like I said, we are confident and we're excited on the way that the vehicle has been showing itself with respect as it compared to our expectations. But there is a lot to be found out still on this expansion and as we move forward. So we are planning this preparation phase very carefully to increase the chances of doing the transition. And again, that's very important, not only for the transition itself, but on the way that it brings knowledge for us to increase the maturity of the Eve-100 design as we progress to building the certification prototypes and moving to the certification flight test campaign. Andres Sheppard-Slinger: Got it. Wonderful. I really appreciate all that context. Very helpful. And maybe just one quick follow-up. Just on the backlog, can you remind us kind of the strategy for this year? Is the plan to continue to increase the backlog or are we happy with the number and that will be more about converting those LOIs? Just kind of curious how you're thinking about it for this year. Johann Christian Jean Bordais: Yes. Thanks, Andres. Johann speaking. When it comes to the backlog, we still have the strongest preorder book with 2,700 aircraft at this stage. We understand the number of LOI and the spread of our customers and the customer profile is what we need. Really, it's a variety of first mile, last mile operation. It's also sightseeing. It's also organ transportation, different type of mission, which I think it's the right balance in different parts of the world, where it's Australia, it's Japan, it's Brazil, obviously, and the United States. So we're very comfortable with our portfolio right now. We demonstrated that we have the right solution because we're very preoccupied based on our strong experience of Embraer, how is the operation will be. So that's something that we work hard also to make sure that we have the ecosystem ready. And this is what has driven this big order book, let's say, right? And the strategy for -- since last year and this year is to engage the customers so they can go for firm contracts, so then they can also engage with their local authority together with Eve, but also the stakeholders and prepare the Internet service, right? Certification is really the starting line. And the game will be on when they're going to be operating -- we'll be delivering -- certifying and delivering those aircraft and then they'll be able to operate with the lowest operating cost with the highest utilization, and this is how we're going to be starting the urban air mobility. So first will be Revo and then AirX as we announced this year at the Singapore Air Show in Japan, but then we're working with other customers in Brazil, but also in the United States. Operator: The next question is from Sheila Kahyaoglu from Jefferies. Unknown Analyst: This is Kira on for Sheila. And I appreciate the added color on the flight test progress. You mentioned greater engagement with suppliers with the pickup in R&D. Could you maybe walk us through how conversations with suppliers have developed since flight test began? And how work is progressing on the supplier side at this point in the campaign? Luiz Valentini: Sheila, this is Luiz Valentini. So what we've been doing with the suppliers is making sure that we have the parts and their systems in the most optimized way for the vehicle to meet its product requirements, right? So the flight test campaign helps us to gather data on the vehicle behavior and flight, on the behavior of the systems, for example. So one example, how the temperature of the battery behaves during flights, right? So with that, we can go back to the supplier and use this information to make sure that what they are developing will lead the Eve-100 to meet its product goals. So the way that the interaction is going now is to make sure that, again, their products will lead us to reach our targets and the flight test data helps us to bring more clarity and more confidence on the data that we are exchanging with them. So based on this, we are moving forward to finalizing their design of the systems, and again, making sure that it all integrates in a way that will satisfy the Eve-100 goals. And once we are done with that, then we can go ahead and release the drawings for the manufacturing and then manufacture the production prototypes. So that's how the -- let's say, the connection is with the flight test campaign and what we expect to do once we're past this phase. Operator: The next question is from Andre Madrid from BTIG. Andre Madrid: I wanted to ask a bit more about the binding orders. At the end of the year, could you maybe just point to what dollar figure would be binding orders have to be for you to call it really a successful year? How many of what's in backlog right now would you have to convert the binding to? Johann Christian Jean Bordais: Thanks, Andre. Yes, the binding orders, we have 2 right now. The first one is Revo with 50 aircraft -- up to 50 aircraft firm. And we also have AirX, right? Same type of operation for both customers. As you can also see, like it's a $500 million under a binding agreement right now. There are some PDPs actually associated to it. There is some milestone associated to also the product development. And this is how we've been setting up the whole deal. Now we need to move the right time. As you understand, since it's going to be a high utilization aircraft and based also on the safety level standard and of commercial aviation, this is what we are doing strong from our experience, there are some commitment that they expect from the vehicle. And as we move the testing campaign and the conforming prototype also certification, then we'll define a bit better with the customers how it's going to work and how the operation will be. Andre Madrid: Got it. Got it. And if I could follow-up on that, you mentioned the PDPs. I know you guys don't usually guide this, but is there any more color as you could point to as to the cadence of that flowing in? Eduardo Couto: Yes, it's Edu here. In terms of down payments, right, as we signed the binding agreements, we already received an initial down payment. And we expect that those down payments will continue 18, 12, 6 months prior to the delivery. And in total, we're anticipating we can receive up to 30% or 40% of the total value of the vehicle before the delivery and then receive the balance at the delivery. Johann Christian Jean Bordais: Very similar to what the industry practice is used to between the commercial aviation or executive aviation. Operator: The next question is from Austin Moeller from Canaccord Genuity. Austin Moeller: Just my first question on Vector. Is that being actively evaluated by ANAC for approval? And can that be integrated immediately into Brazil's national airspace system once your aircraft are delivered to customers for the first time? Johann Christian Jean Bordais: Yes. Thank you, Austin, for your question. Yes, Vector is definitely part of the ecosystem and the solution that we're providing for our customers. Obviously, it comes with module just like for the air traffic management, and we can start today the Urban Air Mobility operation using the current air traffic management system in place. The idea is as we're going to be scaling up, then we will need to have a really robust solution eventually. And when we say we, it's not necessarily Eve, we're talking about the aerospace industry. It's going to be -- we're talking about thousands, hundreds and thousands of vehicles, whether it's drone, whether low altitude space, airspace. So that's something. It's a journey. It goes along with the scale of the UAM. And the first module is really focused on how to manage your vertiport, right, or helipad still because our strategy is to start today. As a matter of fact, we delivered the first module to Revo, and they already tested it at the Grand Prix of Sao Paulo end of last year, and it was successful. And then we're going to go at the fleet level. And then we'll go for a certifiable software together with ANAC and DECEA, as a matter of fact, who takes care of the flying of the air traffic management in Brazil, right? Our experience on Vector, we have a strong DNA and a strong right to play as I'd like to remind everyone that the software company that actually developed the air traffic management that is used in Brazil to control the whole air space in Brazil is actually coming from Atech. It's a fully owned company from Embraer, and we're developing Vector together with them. Austin Moeller: Okay. And if we think about the production schedule for the certification prototypes, I understand there will be one finished by the end of the year. But how should we think about the cadence of how many will be produced between now and 2028? Johann Christian Jean Bordais: So I think as you say, we'll finish the prototype, no, we'll start assembling the prototype and then we'll finish up probably the first semester next year, and then we're looking at the first flight, which I think is a very important milestone for conforming prototype certification. It's the first flight with the pilot on board. And so we're looking at mid next year for the -- early second semester for the first flight of that prototype. And then we will be producing and delivering more or less once every -- once a month afterwards up to 6 prototypes. Operator: The next question is from Marcelo Motta from JPMorgan. Marcelo Motta: Just 2 follow-ups here. The first one, when we look at the release in the fourth quarter, you were talking about like a $21 million deferral payment to Embraer. And this quarter, this was converting to $11 million. So just wondering if this $10 million difference is for next quarter or if there was some readjustment on the amount? And the second question is regarding the test campaign. You mentioned to try to get to 300 testing flights this year. Just wondering if this is still the level or what are you expecting in terms of maybe number of testing or hours in there, whatever you can share with us? Eduardo Couto: Motta, how are you? Edu here. In terms of the accounts payable, you're correct, right? We closed last year with $21 million that were supposed to be paid in fourth quarter. We paid $11 million -- actually, we paid the whole $21 million. But then on the invoices of the first quarter, there was $10 million that slipped to the right. So we pretty much recovered more than half of what was a carryover from last year. But your math is correct. Luiz Valentini: Motta, this is Luiz Valentini. With respect to the number of flights, yes, we are still considering the 300 flights as a reference for the test campaign of the engineering prototype. Of course, this is flexible as we may decide to test more things. So maybe we have modifications on the vehicle, for example, we want to test, for example, different propellers or different lifters, things like that. So the vehicle allows us to do that. So there's a lot of flexibility on the campaign. But the 300 flights we are considering that is the number of flights that allows us to bring the knowledge that we need for the development of the Eve-100 and also to progress with the expansion of the envelope, as we have mentioned. So we believe that with that campaign, we can demonstrate the vehicle and its characteristics and also we can bring the knowledge to the development of the Eve-100 in time as we've been mentioning for the production of the production prototypes -- for the manufacturing of the production prototypes, right? But keep in mind that this number is a reference and we may change it as we progress with the test campaign and decide to test more things if we'd like to. Operator: The next question is from Amit Dayal from H.C. Wainwright. Amit Dayal: Just going back to the Embraer synergies, does this -- can you clarify whether this includes technology or personnel? Like where are these synergies coming from? If you could just maybe clarify that. Eduardo Couto: Yes. No, that's a good question, Amit. It's a broad range, right? We are looking at a bunch of different things, but we're looking at how we can use existing assets better, existing facilities, how we can allocate the work between the different teams in a more efficient way. So there are different -- also getting into more details of the flight test campaign, the CapEx and OpEx associated with all of that. It was a very big work. As I mentioned, there was more than 200 people involved. It came with hundreds of actions, and we are starting to implement that. That's the beauty, right, of being part of a big group as Embraer, when you start to look things in more details and we bring everybody together, you are able to identify gains and synergies that you're not seeing before. So that's pretty much what we're doing. We mapped this $100 million to $150 million to incorporate -- to capture, right, in 3 years, and we are now moving forward with the plan. Amit Dayal: Okay. Just a follow-up on that, Edu. Will this impact more on the SG&A side or more on the R&D side, do you think, the cost synergies? Eduardo Couto: It's both. There are synergies in terms of being more efficient in the way that we are going to be assembling the vehicles, in the way that we are doing the development, being more efficient on the general expenses, more efficient with third-party consultants, right, third-party service. There's a lot of things. I would say, it includes both pockets, R&D and SG&A, right, general expenses. And as I mentioned, also industrialization, right, how we can be more efficient, not only assembling the conforming prototypes that are coming, but also on the production going forward. So there are different areas, pockets, and it includes both. Amit Dayal: Okay. Some CapEx is what it looks like? Eduardo Couto: Yes, that's correct. Johann Christian Jean Bordais: Yes. No, it's -- I like the question, and it's something -- it's important to understand that within Embraer and Eve is born as such is about the lean philosophy. And this is something that is dear to Embraer. This is a program that was implemented back in 2007. Now I think it really has to do with -- it's in the blood of all of the Embraer employees, but also the Evers is looking for being lean and looking at every efficiency that we can bring. So we do it through a whole philosophy, which is called the Kaizens and then we go through -- and that's something we do all the time. And I spent 25 years at Embraer, and then we've done it over the last 20 years. And it's just amazing how you keep improving and you keep working on your efficiency at all time. And this is one of the benefits that also Eve is getting from being part of the group of Embraer. Amit Dayal: Yes. It looks definitely like a little bit of a competitive edge you guys have versus some of the other players. Just one last one for me. On the cost of the aircraft side, right, roughly it's translating around $5 million per aircraft right now with the numbers you shared. Have any inflationary factors been built into this given sort of these trends all over the world where prices have been rising? Just wondering -- curious about like how this may sort of end up in the next few years in terms of pricing per aircraft? Eduardo Couto: Yes. I can start here, Johann, but feel free to chime in. Yes, the list price is $5 million, right? We -- as we are progressing on the development of our vehicle, right, we're gaining not only confidence on the specs of the vehicle, right, in terms of range, noise, payload and everything. But we are also getting more visibility on the COGS of the vehicle. We believe our vehicle, given the simplicity, right, and the design, the lift plus cruise design and the focus on the urban missions, we believe our vehicle is going to be extremely competitive in terms of COGS. We have been working also with our suppliers, right, of the critical components to make sure that our COGS stay within the range that will allow us to sell the vehicle at the $5 million list price and be highly profitable. Things are going in this direction. And -- but we are the whole time challenging not only internally ourselves, but our suppliers to make sure we have a lower cost vehicle and how we can leverage, right, the supply chain of Embraer and the supply chain that our big suppliers also have to have a competitive vehicle. Johann Christian Jean Bordais: Nice. Thanks, Edu. Yes. This is something how we build our program. We have the major systems covered by the suppliers. And this is also what we worked on from very beginning. I mean those contracts are lifetime contracts. So we don't look only just to develop the prototype or the production, but also make sure that the operation is covered to guarantee to our customers that they have a competitive aircraft. So we do have also on those long-term and lifetime life cycle aircraft -- contracts, sorry, the inflation also formulas that allows us to control all this and including the aftermarket. So this is something that we have a good visibility. We brought Embraer also experience. And then we're comfortable with what we have in our $5 million vehicle. Operator: There are no further questions at this time. I would like to turn the floor back over to Lucio Aldworth for closing comments. Lucio Aldworth: Great. Thank you, Sashi, and everyone who joined the call today. As you can see, we accomplished several important milestones this past quarter. There is much more to come, and our upcoming achievements will be more visible to the investment community from now on. So it's going to be a very exciting next few months for Eve as a whole. We're going to keep you updated on our progress over the next few quarters, and we do look forward to meeting you in the upcoming events we're going to attend. If you have any questions, as always, please feel free to reach out. Thank you, and have a good day. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good afternoon, everyone, and welcome to the webcast of Alphatec Holdings, Inc.'s First Quarter Financial Results. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. During this call, you may hear the company refer to non-GAAP or adjusted measures. Reconciliation of these measures to U.S. GAAP can be found in the supplemental financial tables included in today's press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. Sell-side analysts planning to ask a question must be registered through the dedicated analyst link included in today's materials. If you have not yet registered, please do so now to be included in the Q&A queue. Leading today's call will be Alphatec Holdings, Inc.'s Chairman and CEO, Patrick S. Miles, and CFO, J. Todd Koning. I will now turn the call over to Patrick S. Miles. Patrick S. Miles: Thanks, Paige. Appreciate it. Welcome to the Q1 2026 financial results call from Alphatec Holdings, Inc. There will be some forward-looking statements, so please review at your leisure. With that, let me start simple. The business is working and it is scaling. We did $192 million in Q1, which was short of our internal expectation, primarily due to a shortfall in EOS sales performance. Surgical revenue was up 17%, mostly in line with consensus. What matters most is what is fueling that growth. Cases up 21%, surgeons up 23%. That is not only a utilization story, it is an adoption story. We are adding surgeons, they are doing more with us. We have created a durable growth model. EOS revenue was $14 million for the quarter. As stated, this was short of our quarterly goal, and we have taken steps to bolster the team in sales, downstream marketing, and EOS support. However, the important thing we are seeing is EOS Insight is evolving into more than a product; look, a platform. Growth and adoption of our EOS Insight platform is creating significant momentum. EOS has enabled us to gain access to prestigious institutions; a hunting license within those institutions is increasingly paying off for us. We generated $21 million of EBITDA and, yes, used $11 million of cash, but that was a function of timing and intent. We are leaning into and investing in what is working. When you step back, Alphatec Holdings, Inc. has become a compounding engine. More surgeons, more cases, and more platform pull-through. We are still just at the beginning of what we know we can do. With that, I will turn it over to Todd. J. Todd Koning: Well, thank you, Pat, and good afternoon, everyone. I will start with first quarter 2026 revenue. Total revenue was $192 million, up 14% year over year, with surgical revenue of $178 million growing 17%. Sequentially, surgical revenue declined 6%, which was more pronounced than we have historically seen, primarily due to lower revenue-per-procedure contribution. Our strong year-over-year growth continues to be driven by the core elements of our model, which are 21% procedural volume growth, driven by 23% growth in new surgeon users, and continued revenue-per-procedure expansion within our individual procedures. The consistent trends in net new surgeon additions and strong case volume, both above 20% again this quarter, speak to the ongoing momentum and durability in our surgical business. Revenue per case declined approximately 3% year over year, driven primarily by mix impacts. In the U.S., we saw a higher mix of cervical procedures, which have a lower average revenue per case. In addition, our strong international growth contributed mix pressure, and finally, our overall biologics attachment rate was lower than expected. Importantly and consistent with prior periods, we are seeing strength in core individual procedural ASPs for lateral, ALIF, and cervical, which were up 2%, 4%, and 8%, respectively, year over year. Turning to EOS, revenue was $14 million, down $3 million year over year, as the number of system deliveries were lower than the prior-year period, resulting in lower revenue recognition for the quarter. These results were below our expectations for the quarter, and we have taken steps to address this by strengthening our sales team and downstream marketing function. The installed base of global EOS units increased by 7% year over year. In the U.S., the EOS Edge installed base is a prerequisite for EOS Insight adoption; Edge installed base grew 39% year over year, and the amount of EOS Insight accounts more than doubled. We continue to see strong utilization trends in these EOS Edge accounts and increasing evidence of implant pull-through following EOS Insight adoption. Implant volumes at EOS Insight accounts are increasing meaningfully post go-live, reinforcing the long-term strategic and financial value of the platform. Turning to the P&L, gross margin for the quarter was 71.6%, representing over 120 basis points of improvement year over year. This expansion was driven by continued asset efficiency improvements and temporary mix benefit from lower-than-expected EOS revenue. Operating expenses grew approximately 6% year over year, well below the revenue growth, reflecting continued operating leverage in the business and disciplined management of expenses. First quarter non-GAAP R&D was $14 million, or 7% of revenue, up slightly year over year as we continue to invest in innovation and launch new procedural solutions. Non-GAAP SG&A was $118 million, which grew 6% and was 62% of revenue, improving by 420 basis points year over year, primarily driven by improvements in our variable selling costs and slower depreciation growth. As a result of continued top-line revenue growth and disciplined management of expenses, we continued to see margin expansion and profitability improvements. Adjusted EBITDA was $21 million in the first quarter, representing 11% of revenue and growing 97% year over year. Importantly, we delivered 45% drop-through on incremental revenue, demonstrating the scalability of the business model. Overall, we continue to see meaningful operating leverage, consistent margin expansion, and improving profitability aligned with our long-term plan. Turning now to the balance sheet. We ended the quarter with approximately $140 million in cash. Free cash used for the quarter was approximately $11 million, at the favorable end of our expected range. Our cash flow profile continues to reflect positive operating cash flow, with operating cash flow generating cash for the fourth consecutive quarter while continuing to invest in instruments and inventory to support growth. Notably, we invested approximately $33 million in inventory and instruments this past quarter to support the demand we are seeing from our 20% plus growth in surgeon adoption and the corresponding growth in our sales team. Our consistent profitable growth, strong cash generation, and increasingly attractive EBITDA profile, now exceeding $100 million on a trailing twelve-month basis, have positioned us to mature our capital structure. As a result of our strong operating performance and continued progression to a more scaled and profitable financial profile, we announced today we recently entered into a new Term Loan A and revolving credit facility led by JPMorgan and TD Cowen. This new bank facility, which replaces our previous term loan and asset-backed revolver, simplifies our capital structure, extends maturities to 2031, and reduces interest expense by more than $6 million annually. We estimate this new facility will save the company as much as $35 million in interest over the life of the facility. At close, the new loan has a rate of SOFR plus 275 basis points. The new facility matures in May 2031. We are very pleased with the bank syndicate we partnered with in this new facility. This transaction reflects the continued maturation of the business and the continued improvement of our capital structure and credit profile. Turning to the revenue outlook. We now expect total revenue for full year 2026 of approximately $882 million, representing 15% growth year over year. This includes surgical revenue of approximately $805 million, unchanged from our prior guidance, representing 17% growth, or a $118 million increase year over year. We expect surgical case volume growth in the high teens and average revenue per case to be flat for the full year. We now expect EOS revenue of approximately $77 million, reflecting updated expectations for our EOS business. We take guidance very seriously, and this update reflects our current outlook and a clear, realistic view of near-term performance while reinforcing our confidence in the long-term opportunity. Importantly, we are maintaining our surgical revenue, reflecting continued confidence in the underlying demand and growth drivers of the business. To recap our financial outlook, we expect revenue to grow 15% to $882 million for the full year. We continue to expect adjusted EBITDA of approximately $134 million even with the reduced revenue expectations, which reflects the confidence we have in our profitability progression. This is a 15% margin, representing approximately 35% drop-through on the incremental revenue dollar year over year. For free cash flow, we continue to expect at least $20 million in free cash flow for the full year, with second quarter expectations for free cash flow to approximate zero. We recognize that adjusting our guidance is a significant decision, and we believe that the updated guidance appropriately reflects our current outlook as we remain laser focused on delivering the profitable sales growth implied in our 2026 guide. To put our first quarter financial performance in perspective, we drove 14% overall revenue growth and 17% surgical revenue growth at an annualized scale of approximately $800 million, with strong operating leverage translating into significant profitability expansion, while making material improvements to our balance sheet. While the quarter did not live up to our growth expectations, we are confident in our ability to continue to grow at multiples of the market, translating that into profitability and cash flow. With that, I will turn the call back to Pat. Patrick S. Miles: Thanks, Todd. Our strategy has not changed because we know it works. Start with clinical distinction. If it does not matter in the OR, it does not matter. If it makes surgery better in the OR, it matters to us greatly. This is how we have built the best procedural approaches in our industry. Second is surgeon adoption. Do not sell products. We develop approaches that improve surgery, elevate workflows, and build trust. We know this philosophy is effective because our surgeon demand remains very high. Third is the sales engine. We are continually assembling and improving upon a sales force that is disciplined, aligned, energized, and built to scale. Put that together, and it is very straightforward. Do something clinically meaningful, surgeons adopt, and we scale it. We are not focused on widgets or, as we like to say, the currency of our business. We assemble procedures from the ground up. Everything you see here is designed to work together. That is what has driven and will continue to drive our model. Do not sell one thing, be it a screw, a plate, implant, or a rod. We offer procedural approaches that make surgery better. And better procedures over time lead to expanded indications, greater complexity, and increased revenue. While we call that a convoyed sales effect, it is really just a result of designing procedures the right way leading to better patient outcomes. We start in lateral for a reason, because it is where we have the greatest collection of know-how and where we most distinguish. The surgery works. It is reproducible, efficient, and surgeons feel comfortable with it very quickly. I was in a case last Friday, L4-5 spondy. Fifteen minutes in, disk height was restored, and under an hour, the case was done with minimal blood loss and morbidity. That same case used to take four hours and was a very different experience—far less reproducible for the surgeon, far less predictable for the patient. PTP has profoundly improved surgery, for both surgeon and patient. That is what creates confidence. And once surgeons experience reproducible success in lateral, they do not stay with just that procedure. They expand their utility into cervical, TLIF, posterior fixation—across the board. Our growth is not dependent on just adding incremental surgeons; it is expanding indications for procedures they adopt and moving them to other approaches, which is what happens after they trust you. That is what the model is really about, and that is how it compounds. EOS continues to be a big deal for us. And while installation timing was a challenge in the quarter, the EOS experience is playing out exactly as we expected. First, EOS Edge gets us in the door with leading institutions that were hard to impossible for us to access previously—places like Duke, NYU, HSS, Northwestern, University of Virginia, University of Maryland, just to name a few. EOS becomes part of the workflow: pre-surgical planning, intraoperative reconciliation, and follow-up. It starts driving the case volume—Insight, patient-specific rods, alignment—and over time, it builds something more valuable than any one product. It is data generation. That is the moat. We are already seeing EOS impact—about 30% revenue lift per surgeon after Insight adoption. So EOS is not just additive; it is multiplicative. What is happening with Insight right now is important. We are moving from imaging to intelligence—3D alignment, patient-specific planning—starting to predict outcomes, not just react to them. And every case makes the system better. That is how this compounds. We are creating a true structured data advantage. At the core of this is our ability to take EOS imaging and convert it into quantitative, actionable intelligence. It is becoming smarter, more predictive, and more embedded into clinical decision-making. That is how you build clinical distinction. This is where owning the image and translating it into data matters. Valence is early, but it is doing exactly what we need it to do. It fits seamlessly into the surgical workflow, does not get in the way. The footprint is very small, actually makes the case cleaner. And that is everything. If it disrupts the surgeon's workflow, it does not get used. We are seeing strong utility, positive surgeon feedback, and real usage. And the same pattern we have seen before: it works, surgeons trust it, it grows. How this is playing out. Japan looks very familiar—in a good way. We are leading with lateral, building early confidence, and seeing surgeons engage. I have seen it firsthand. I was in the OR a couple of weeks ago, and the surgery was methodical, predictable, and reproducible. This is the same pattern. They adopt, they do more, they expand. It is early, but it is exactly what we wanted to see. In closing, when I think about Alphatec Holdings, Inc., it is pretty straightforward. We are focused 100% in spine. We built real leadership in lateral. We are doing the same thing in deformity with EOS. We put the infrastructure in place to scale. Most importantly, we are growing and becoming more profitable at the same time. We have established a system and ecosystem that builds upon itself. Last point: why people are coming here—surgeons and reps—because we care about what they care about. No push widgets. We give them procedures, and increasingly information, that improves predictability and patient outcomes. That drives surgeon interest and adoption, leading to more cases. That in turn attracts sales agents and builds careers. And that is why Alphatec Holdings, Inc. is the preferred destination in spine. We will now open the call for questions. Operator: As a reminder, sell-side analysts planning to ask a question must be registered through the dedicated analyst link included in today's materials. If you have not yet registered, please do so now to be included in the Q&A queue. If you would like to ask a question, please follow the instructions from your conferencing system. To withdraw your question, press 1 again. We will now open the floor for questions. In consideration of others, please limit yourself to one question. Our first question comes from the line of Mathew Blackman with TD Cowen. Your line is open. Please go ahead. Mathew Blackman: Thank you. In the context of the 2027 LRP, do you feel confident reaffirming the $1 billion revenue target? Consensus is about 4% to 5% higher than that. Given how Q1 shook out and the new 2026 guide, there is a big step-up implied to get to 2027, particularly versus consensus. Your level of comfort today with that 2027 LRP revenue number and any comment on where consensus sits would be helpful. Thank you. J. Todd Koning: Matt, given the fact that we have adjusted our guidance to reflect current expectations around EOS, I would tell you the guide on EOS reflects very near-term execution issues that we believe we have addressed through adding incremental sales talent and downstream marketing resources. We fundamentally believe that addresses the issues. Our guidance suggests we expect to exit this year more in line with what our original guide assumed, and therefore we believe we are on track to accomplish the goals we laid out in the context of our long-range plan. Operator: Our next question comes from the line of Analyst with JPMorgan. Your line is open. Please go ahead. Analyst: Thanks for the question. On the trajectory and specifically the pricing per case headwind you saw this quarter, volumes picked back up to 20% plus, but it sounds like the price-per-case headwind could stick around as cervical and some faster-growing businesses continue to put pressure on that. Is that the right way to think about it—continued revenue-per-case headwinds offset by volume growth this year? And then a follow-up on your ability to reiterate adjusted EBITDA given potential needs to invest in EOS Insight—how do you balance potential increased investment and driving revenue growth? J. Todd Koning: Yes, that understanding is correct. Our guidance implies high-teens volume growth with flattish revenue per procedure for the year. The decline this quarter was largely mix—strong cervical procedures, which have a lower revenue-per-procedure contribution, and strong international performance, which also has a lower revenue-per-procedure profile. Third, we had lower biologics attachment. We believe upcoming product launches and improved execution will help there. As you model the balance of the year, we are thinking flat revenue per procedure year over year. Patrick S. Miles: I would just add, where we make investments, we get a response. In lateral, ASP grew as intended. While mix impacted the overall average, where we are distinguishing ourselves, we are prospering. J. Todd Koning: That is a good point. As noted, lateral grew 2% revenue per procedure, ALIF 4%, and cervical 8% year over year. We have made significant investments in those areas. Patrick S. Miles: On EBITDA versus investment needs, the infrastructure is in place. With 39% year-over-year growth in the EOS Edge base, the opportunity to exploit that base is very evident. The challenge has been installation timing and construction-related buildouts that make installations choppy, and revenue recognition reflects installations. I do not see a new investment requirement to grow. We are growing about 30% per surgeon in accounts that have EOS. The thesis is intact. I am thrilled with the demand profile where systems and EOS Insight are installed. This is quarter-by-quarter lumpiness in a long-term execution story, and I am totally thrilled about the EOS business in general—irritated by lumpiness, but no new investment profile required. Operator: Our next question comes from the line of Matthew Stephan Miksic with Barclays. Your line is open. Please go ahead. Matthew Stephan Miksic: Thanks. On surgical, results came in a bit lighter than expected. Was there any phasing in Q1—new territories catching up, difficult comps, regional impacts, weather—that impacted results? And any color on sequential performance from here to reach the full-year number? Patrick S. Miles: The most comforting part is that momentum where we most distinguish continues to be profoundly robust. Surgeon additions up over 20% speaks to a business in demand. It was kind of a goofy quarter. We are seeing strength right out of the gate in Q2. This is quarter-by-quarter lumpiness. J. Todd Koning: To add specifics, there was weather in late January—FedEx was restrained for almost an entire week, and the Northeast had two storms. There is weather every year, but there was likely more this year than normal. We also exited March a bit softer than expected, largely due to less growth in traditional posterior open procedures and lower biologics attachment. The good news is a sequential improvement in April, which gives us confidence into Q2 and the typical Q1-to-Q2 seasonality. Structurally, deformity season starts in late May into June, which should help. We have invested in sets and inventory to support increased demand. We hang our hat on strong surgeon adoption and volumetric components of the business. Matthew Stephan Miksic: One follow-up. Instrument investment is up year over year and faster than doctor growth. Is that a leading indicator, and what does it suggest for coming quarters? Patrick S. Miles: The volume of people adopting our lateral portfolio is growing quickly. The frustrating part is that conventional short-segment open surgery, where we are not profoundly different, seems flat, and biologics impact was not great. TheraDaptive cannot come fast enough. The procedural strategy is well adopted, EOS is working as planned, and we clearly distinguish in lateral. Where we are not different, we do not outperform. J. Todd Koning: I would add the continuing growing contribution from international, both as a surgeon adoption story and a revenue contributor, as we grow through the year. Operator: Our next question comes from the line of Analyst with Piper Sandler. Your line is open. Please go ahead. Analyst: Good afternoon. On the cadence for the rest of the year for EOS, it sounds like most of the work is done—realigning the sales team, new reps, additional marketing resources. It will take time for new reps to ramp. When do you anticipate the EOS franchise getting back on track? J. Todd Koning: Our expectation is that EOS contributes in a more full way in the second half. We think overall growth in Q2 should be similar to Q1 at about 14%, and our guide implies approximately 17% overall revenue growth in the second half as EOS contributes more meaningfully. Patrick S. Miles: The cadence of adding surgical sales reps has been totally consistent, with talent coming from all players. That has not slowed. The focal frustration is around EOS placements. We must continue to improve as a capital equipment provider. Missing by a few units can impact a quarter’s revenue, but it does not impede belief in the field. Once in place, utility expands. Operator: Our next question comes from the line of David Joshua Saxon with Needham. Your line is open. Please go ahead. David Joshua Saxon: Great. First, to clarify, when you said “14” for the second quarter, was that $14 million for EOS or 14% overall growth? And then my question: on revenue per case in guidance, what is embedded for U.S. case mix and biologics attachment? If cervical remains strong and biologics does not change, what is the risk to flat revenue per case? J. Todd Koning: The “14” comment referred to 14% overall growth. On revenue per case, we expect continued strong cervical contribution to the overall business, as we have seen. We saw about a 38% biologics attachment rate; we would expect that to go up a couple of points, driven by greater salesforce execution and entering deformity season, where cases tend to be longer constructs with higher biologics utilization. That is how we constructed the revenue-per-procedure math for the balance of the year. Operator: Our next question comes from the line of Caitlin Roberts with Canaccord Genuity. Your line is open. Please go ahead. Caitlin Roberts: Turning back to EOS, you noted the weakness was execution-related. Any more color on that specifically and whether any of the weakness related to capital environment or facility appetite? Do those hurdles translate into Valence and Navigation? Patrick S. Miles: EOS issues do not bleed into Valence. One challenge with EOS has always been structural buildout—the construction required due to unit size. More EOS units that require more buildout lowers predictability of installation timing, and revenue recognition follows installation. We are improving on sales, downstream marketing, and support, especially aligning on installation timing. Those challenges are execution-related and have nothing to do with Valence. On capital appetite generally, it is tough to read across. We are irritated over lack of execution—committed to a number of units and did not fulfill. The demand profile is phenomenal and the thesis is great; construction and installation are the issues. This is an execution flaw, not a thesis issue. Operator: Our next question comes from the line of Analyst with Stifel. Your line is open. Please go ahead. Analyst: Thanks. On the 2026 surgical outlook, surgical was up 17% in the quarter, full-year guidance is also 17%. Comps get more difficult, March was below expectations, April came back. What gives you confidence maintaining the surgical outlook when you decelerated again in Q1 and guidance implies reacceleration? Are there incremental drivers? Patrick S. Miles: Confidence comes from the demand profile around procedures that most distinguish us and the volume of surgeons continuing to join. Historical growth in surgeon count and their utilization gives us confidence. Looking at the mix, what we were losing was more conventional stuff. Q2 and Q3 are the conventional “fest,” with more long reconstruction. EOS impact gives us confidence. So even as comps get harder, when the procedural mix and surgeon additions are as expected, we feel very good. J. Todd Koning: Fair question. March was not as good as expected, but April rebounded and gives us a good platform into Q2. Deformity season is a structural step-up from Q1 to Q2. We have invested in small stature sets and patient positioners to fulfill that demand in Q2 and Q3. We expect to drive increased biologics attachment through focused sales execution. International contribution continues to improve. For all these reasons, we believe the path from Q1 to Q2 and onward is intact. Total surgeon adoption at 20% plus remains a great leading indicator. Operator: Our next question comes from the line of Analyst with Wells Fargo. Your line is open. Please go ahead. Analyst: Thanks. On Valence, would you discuss placements to date and what early pull-through numbers look like? Patrick S. Miles: We are not going to speak to specific numbers. This year is about maximizing experience and ensuring the product is perfect. It is doing everything we expected. There is an in-field camera that is hugely elegant, letting the surgeon control room elements. It is not a huge piece of capital. It has been utilized mostly in PTP and is trending above the targets we provided for the year. We are bullish on the clinical impact and the seamless workflow. Integrating best-in-class neurophysiology with an elegant, effective workflow will increase PTP users. It is going as planned. Operator: Our next question comes from the line of Analyst with Freedom Capital Markets. Your line is open. Please go ahead. Analyst: Good afternoon. Two questions. First, revenue per procedure appears down approximately 4% year over year, perhaps the first down year since at least 2021. What are the key drivers in 2026 and in the out years? Second, in 2025, growth in surgeon users was in line with procedure growth, implying procedures per surgeon around flat. Where are you today in terms of penetration with active U.S. spine surgeons, and how should we think about breadth versus depth going forward? J. Todd Koning: On revenue per procedure, the drivers this quarter were mix—strong growth in cervical, which carries a lower revenue-per-procedure profile, and strong performance outside the U.S., which also has a lower revenue-per-procedure profile—plus lower biologics attachment. Importantly, when you look at our anterior column, lateral revenue per procedure grew 2%, ALIF 4%, and cervical 8%. Our ability to capture revenue opportunity in a procedure continues to expand, which supports the investment thesis. On penetration and utilization, we saw another strong quarter of surgeon adoption. If you go back to 2022, we have seen average utilization per surgeon in the U.S. grow about 3% a year. That average is pulled down by strong waves of new adopters. We continue to feel good about that, and strong demand from new surgeons has historically translated into procedural adoption. We expect that to continue throughout the year. Analyst: Where your EOS Insight platform serves as a door knocker and a driver for surgeon pull-through, does that case still hold? And does it make sense to rethink some of the hardware monetization model? Patrick S. Miles: Sean, it does not make me think we should rethink anything; it makes me enthusiastic about what we are doing. Imagine from where we have come—Alphatec Holdings, Inc. getting access to institutions like HSS, NYU, Duke, Northwestern, University of Virginia, University of Maryland. It is unbelievable access that EOS has given us. Probably the thing I am most disappointed in myself about is enabling you to understand the uniqueness of this informatics tool. There is nobody in the business with a tool that provides a preoperative image, a plan integrated into the intraoperative experience, and then a postoperative evaluation—it is all the same image. That provides a structured dataset. Your ability to translate a structured dataset is unlike anything anybody else has, and it is all automated. The nemesis of spine surgery historically has been a lack of data. Having a structured dataset that automatically fuels information into a depot we can translate to mitigate variables is transformative. We have talked about revision rates in spine and how mitigating variables is the route to greater predictability. Missing a few installations and suggesting we rethink the thesis is not even a consideration. At the American Association of Neurological Surgeons, the big players are Medtronic, Globus, and ourselves; the most promising player is Alphatec Holdings, Inc. Translating this tool—five years from now it will be the father, son, deed. Any inference that there is any blinking on the thesis is misdirected. We are committed to this at the size of Texas. Missing a few EOS construction timelines and having people question us is, frankly, [inaudible]. Appreciate the question. Operator: We have reached the end of the question and answer session. I will now hand the call back to Patrick S. Miles for closing remarks. Patrick S. Miles: Just a quick comment. I want to thank everybody for dialing in. I have never been more bullish and enthusiastic about the build of Alphatec Holdings, Inc. I am thrilled about the volume of people coming here from competitive companies to support the effort. Our best days are in front of us. The strategic thesis is the right one. We are going to be the data source in this business. I want to share my enthusiasm for where we are and look forward to discussions as the year progresses because we will continue to prosper as we have for the last eight years. Thanks very much for your interest and we look forward to more. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, and welcome to the MasterBrand, Inc. First Quarter 2026 Earnings Conference Call. During the company's prepared remarks, all participants will be in a listen-only mode. Following management's closing remarks, callers are invited to participate in a question and answer session. Please note that this conference call is being recorded. I would now like to turn the call over to Henry Harrison, Senior Director of Corporate Financial Planning and Analysis. Henry Harrison: Thank you, and good afternoon. We appreciate you joining us for today's call. With me on the call today are R. David Banyard, President and Chief Executive Officer of MasterBrand, Inc., and Andrea H. Simon, Executive Vice President and Chief Financial Officer. We issued a press release earlier this afternoon disclosing our first quarter 2026 financial results. This document is available on the Investors section of our website at masterframe.com. I would like to remind you that this call will include forward-looking statements, neither our prepared remarks nor the associated question and answer session. These forward-looking statements are based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. Additional information regarding these factors appears in the section entitled Forward-Looking Statements in the press release we issued today. More information about risks can be found in our filings with the Securities and Exchange Commission, including under the heading Risk Factors in our full year 2025 Form 10-K and updated as necessary in our subsequent 2026 Form 10-Q, which are available at sec.gov and at masterbrand.com. The forward-looking statements in this call speak only as of today, and the company does not undertake any obligation to update or revise any of these statements except as required by law. Today's discussion includes certain non-GAAP financial measures. Please refer to the reconciliation tables in the press release issued earlier this afternoon. They are also available at sec.gov and at masterbrand.com. Our prepared remarks today will include a business update from R. David Banyard, followed by a discussion of our first quarter 2026 financial results from Andrea H. Simon, along with our second quarter 2026 financial outlook. Finally, Dave will make some closing remarks before we host a question and answer session. With that, I will now turn the call over to R. David Banyard. R. David Banyard: Our first quarter results reflect the disciplined execution of our near-term priorities against a challenging backdrop. Despite persistent demand softness and ongoing macroeconomic uncertainty, we delivered net sales and adjusted EBITDA in line with our expectations. We continue to advance our tariff mitigation efforts, fully executed our previously announced $30 million cost actions, and remain focused on the actions within our control as we navigate near-term headwinds and position MasterBrand, Inc. to emerge stronger when the market recovers. In the first quarter, we generated net sales of $618 million, a 6.4% decrease compared to the same period last year. Our performance reflected a mid-single-digit year-over-year market decline and a slower pace of housing completions, partially offset by the continued flow-through of previously implemented pricing actions. Adjusted EBITDA for the quarter was $28 million compared to $67 million in the prior-year period, and adjusted EBITDA margin was 4.5%. The lower margin was primarily driven by lower volume and the related unfavorable fixed cost leverage, as well as unfavorable product mix across channels, as consumers continue to shift toward value products and forego features in made-to-order categories. At current volume levels, these mix dynamics carry an outsized impact on margins, as reduced fixed cost absorption amplifies the effect of even modest product mix shifts. Compounding these pressures, weather-related disruptions during the quarter resulted in more down days than typical across certain facilities, driving unplanned production downtime that created additional drag on our fixed cost absorption. These headwinds were partially offset by previously announced pricing actions, operational tariff mitigation efforts that progressed ahead of schedule, and savings from our ongoing cost reduction initiatives. As is typical for our first quarter, free cash flow reflected seasonal working capital outflows. This, in combination with our net loss position, resulted in free cash outflow of $146 million compared to a $41 million outflow in the same period last year. Looking ahead, we expect these dynamics to normalize as we move through the year, and we continue to expect free cash flow for the full year to exceed net income. Turning to our end markets, demand remained pressured through the first quarter as affordability concerns, elevated interest rates, and cautious consumer sentiment continued to constrain activity across both new construction and repair and remodel markets. The ongoing conflict in the Middle East introduced an additional headwind to consumer confidence late in the quarter and further contributed to broader market volatility. In new construction, U.S. single-family new construction was down mid- to high-single digits in the quarter, as weak consumer sentiment and elevated mortgage rates continued to weigh on buyer activity. To stimulate sales, builders sustained elevated incentive and rate buy-down programs. The market also continued to work through a reset in the spec and quick-move-in inventory cycle, with completed spec inventory down meaningfully year over year. Adding to these headwinds, housing starts outpaced completions on a seasonally adjusted basis for the first time since 2024. This dynamic creates an outsized near-term impact on our business, as cabinets are typically purchased later in the construction cycle closer to completion. Against this backdrop, MasterBrand, Inc.'s results largely track broader market trends while outperforming on a completions basis. Looking ahead, we expect new construction demand to remain under pressure as mortgage rates stay elevated and affordability challenges persist. In repair and remodel, demand remained soft through the first quarter, as low existing home turnover and weak consumer confidence continued to suppress larger discretionary remodel activity. Consumer sentiment toward large household purchases fell to 40-year lows during the quarter, and while rising home prices have supported homeowner equity, this has not yet translated into meaningful remodel spending. Housing turnover remains structurally constrained as well, driven in part by the significant share of homeowners locked into sub-4% mortgages, limiting the remodel activity that typically accompanies a home sale. Where there is remodel activity, we continue to observe trade-down behavior across our portfolio, with consumers gravitating toward lower-priced options. Reflecting this environment, our R&R business declined mid-single digits, consistent with the broader market. Looking ahead, we expect consumer sentiment to remain the primary driver of R&R demand, and affordability constraints and low housing turnover to remain the primary headwinds. In Canada, first-quarter conditions remained challenging, mirroring the trends in the U.S. Our Canadian business declined low single digits, consistent with the broader market. With the Bank of Canada holding rates steady, we expect these dynamics to continue weighing on the market through 2026. Stepping back, we continue to view 2026 as a transitional year, with end-market demand softness persisting across both new construction and repair and remodel. Affordability pressures, low consumer confidence, and the complex and evolving trade environment remain primary headwinds. The Federal Reserve is expected to hold rates steady through 2026 amid persistent inflation concerns, limiting the rate relief that would foster a meaningful improvement in housing activity. Additionally, the ongoing conflict in the Middle East introduces further layers of consumer uncertainty and outlook volatility that are difficult to size at this stage. While the near-term outlook remains challenging, we remain confident in the underlying long-term fundamentals that we believe will ultimately drive a recovery across our end markets. The approximately 3 million homes underbuilt, the millennial generation entering prime home-buying years, an aging housing stock primed for remodel activity, and rising home equity levels all support our expectation that pent-up demand remains intact. We continue to manage the business responsibly through this period, and while we do not expect the market to begin to recover until 2027, we are focused on ensuring MasterBrand, Inc. is well positioned to capitalize when conditions do improve. Turning to the trade environment, since our last call, the trade landscape has continued to evolve. Following the Supreme Court's ruling that invalidated tariffs imposed under the International Emergency Economic Powers Act, a 10% global tariff was implemented, which effectively returns us to a similar tariff environment as under the reciprocal tariff regime. This tariff is time-limited and is set to expire in late July, at which point we anticipate further changes to the tariff landscape. While wood and wood product tariffs remain the primary driver of our overall tariff exposure, tariffs continue to stack across categories, and the broader environment remains highly volatile and fluid. We are actively monitoring further developments and remain prepared to adjust our mitigation strategy as the landscape continues to evolve. In the first quarter, gross tariff costs were approximately $25 million, and I am pleased to share that our teams executed exceptionally well against these headwinds, delivering mitigation efforts that exceeded our expectations for the quarter. This outperformance was driven primarily by the speed and effectiveness of our supply chain actions, including sourcing flexibility initiatives and supplier engagement efforts that progressed ahead of schedule. While supply chain actions were the primary driver of our first-quarter mitigation performance, pricing remains an important and necessary component of our overall mitigation strategy, and we will continue to lean on both levers as we move through the year. We continue to monitor the potential indirect impact of tariffs on consumer demand and housing affordability, which remain inherently difficult to size. Operationally, our teams navigated a challenging first quarter, managing through demand volatility while working to maintain service levels across our network. We took further actions to align our cost structure with current demand conditions, including targeted line and shift adjustments and workforce actions across our manufacturing network, as well as a facility closure consistent with our ongoing Supreme integration efforts. On the Supreme integration, we remain on track to achieve our target of $28 million in annual run-rate cost synergies by year three post-close. We continue to identify additional opportunities to expand the benefits of the merger over time as end markets recover. During the first quarter, we also fully executed our broader $30 million cost savings initiative, with benefits expected to phase in over the remainder of the year. Our continuous improvement efforts delivered strong results in the quarter, with notable contributions across our manufacturing network and standout performance from several of our key facilities. Our teams continue to make progress on core efficiency gains using daily management practices, standard work processes, and operating discipline. These efforts contributed meaningfully to our financial performance in the quarter, offsetting material, personnel, and utility inflation. We are encouraged by the impact of our continuous improvement system, and we remain confident in its ability to drive further gains throughout the year. Turning to our pending merger with American Woodmark, our teams continue to make meaningful progress on integration planning and readiness, ensuring we are well positioned to move quickly and capture value following close while maintaining the customer service levels and operational continuity our customers expect. We continue to expect approximately $90 million in annual run-rate cost synergies by the end of year three post-close, based on the assumptions underlying our analysis at the time of announcement. Following close, we plan to assess these estimates in the context of the current operating environment and provide updated guidance as appropriate. We remain confident in the strategic and financial merits of the merger and are progressing through the regulatory review process. As disclosed in our 8-Ks filed on April 22, we now expect the transaction to close in 2026. Finally, turning to capital allocation, we remain disciplined in our approach to capital deployment, prioritizing investments that support our operational execution, integration activities, and long-term value creation. Capital expenditures in the quarter were in line with our expectations, and our balance sheet and liquidity position remained healthy. We expect our leverage ratio to remain elevated in the near term, primarily reflecting lower trailing twelve-month adjusted EBITDA and the current demand environment. Andrea H. Simon will provide additional details in her remarks. In closing, the first quarter unfolded largely as we expected: a challenging environment defined by persistent demand softness, a complex trade landscape, and cautious consumer sentiment. While these conditions are not without difficulty, I am proud of the way our teams have responded—executing our mitigation strategy ahead of schedule, advancing our cost savings initiatives, and maintaining focus on the operational and strategic priorities that will position MasterBrand, Inc. for the recovery ahead. With a clear line of sight to the long-term drivers of demand across our end markets, we remain confident the actions we are taking today are building a stronger, more resilient MasterBrand, Inc. I will now turn the call over to Andrea H. Simon for a detailed review of our financial results and outlook. Andrea H. Simon: Thanks, Dave, and good afternoon, everyone. I will start with a review of our first quarter financial results. Then I will share more details on our guidance for 2026 and provide some thoughts on the full year. As a reminder, we provide formal guidance on a quarterly basis. Any commentary we make about the full year reflects our current expectations and assumptions and is directional in nature rather than formal guidance. Now turning to our first quarter results, net sales were $618 million, a 6.4% decrease compared to $660.3 million in the same period last year, reflecting continued softness across our addressable market and a slower pace of housing completions. Anticipated flow-through of prior pricing was outweighed by unfavorable channel and product mix. Gross profit was $156.6 million compared to $202.2 million in the same period last year. Gross profit margin was 25.3%, down 530 basis points year over year, primarily reflecting lower volume and the related unfavorable fixed cost leverage and unfavorable product mix. Material, personnel, fuel, and utility inflation combined with the impact of tariffs contributed to overall margin pressure. These headwinds were partially offset by continuous improvement initiatives and targeted tariff mitigation actions. As Dave mentioned, gross tariff exposure in the quarter was approximately $25 million. Our mitigation efforts performed better than we initially anticipated, driven by the timing and effectiveness of operational actions taken across the business—a reflection of the strong execution from our teams. While we are pleased with this progress, tariff costs continue to flow through the business, and we have more work to do, particularly as pricing actions remain a necessary and important component of our go-forward mitigation strategy. The more pronounced headwinds in the quarter came from product mix and continued trade-down activity across certain categories versus historical norms, which reflect broader market conditions. Taken together, these factors have created a challenging operating environment, but we believe we are managing through it thoughtfully. SG&A expenses totaled $155.9 million in the first quarter compared to $154 million in the same period last year, with a year-over-year increase primarily driven by acquisition-related costs associated with our pending merger with American Woodmark and higher outbound freight expenses reflecting rising fuel costs. Importantly, excluding acquisition-related costs, SG&A decreased year over year. As Dave mentioned, we took a number of structural SG&A cost reduction actions during the quarter. While it takes time for the impact of these measures to fully flow through our results, we expect our SG&A-to-net sales ratio, excluding deal and restructuring costs, to improve in 2026 as these benefits phase in. Interest expense declined to $18.4 million from $19.4 million in the same period last year as we continued to pay down our debt over the last twelve months. Net loss was $15.4 million in the first quarter compared to net income of $13.3 million in the same period last year. Net income margin was negative 2.5% compared to positive 2% in the prior year, reflecting lower gross profit and higher deal-related SG&A expenses, partially offset by the initial benefits of cost actions taken in the quarter. Adjusted EBITDA was $28 million compared to $67.1 million in the prior-year period. Adjusted EBITDA margin was 4.5%, a decline of 570 basis points year over year, primarily due to lower gross margins, partially offset by reduced SG&A expenses, excluding deal-related costs, reflecting the cost actions implemented during the quarter. Diluted loss per share was $0.12 in the first quarter based on 127.5 million diluted shares outstanding. This compares to earnings per share of $0.10 in 2025, which was based on 130.7 million diluted shares outstanding. Adjusted diluted earnings per share were $0.60 in the current quarter compared to adjusted earnings per share of $0.18 in the prior-year period. Turning to the balance sheet, we ended the quarter with $138.4 million of cash on hand and $332.3 million of liquidity available under our revolving credit facility. Net debt at the end of the first quarter was $946.5 million, resulting in a net debt to adjusted EBITDA leverage ratio of 3.7 times. While net debt remained approximately flat year over year, our leverage ratio reflects the impact of lower trailing twelve-month adjusted EBITDA in this challenging demand environment. During the quarter, we proactively amended our existing credit agreement to provide additional flexibility related to our leverage and interest coverage covenants as we navigate the current environment and work toward the planned closing of the American Woodmark transaction. We continue to prioritize debt reduction with available cash, consistent with our track record. Net cash used in operating activities was $133 million for 2026 compared to $31.4 million in 2025, driven by lower net income, less favorable movements in working capital, and an increase in our income tax receivable. Capital expenditures for the first quarter were $13.2 million compared to $9.8 million in 2025, in line with our expectations. As is typical for our first quarter, free cash flow reflected seasonal working capital outflows of $146.2 million compared to outflows of $41.2 million in the same period last year. The year-over-year variance was primarily driven by lower net income, less favorable working capital movements due to timing, and an increase in our income tax receivable. We did not repurchase any shares during the quarter. Our merger agreement with American Woodmark restricts share repurchase activity until the transaction closes. Turning to our outlook, our second-quarter outlook reflects the current uncertainty of the demand environment driven by ongoing affordability concerns, recent geopolitical tensions, and the uncertain trade environment. The outlook incorporates tariffs currently in effect but does not reflect potential implications from other proposed or future trade policy changes. Further, our outlook does not reflect any anticipated financial benefits from the pending merger with American Woodmark, nor does it include expected transaction or integration-related costs. For the second quarter, our end markets are expected to be down mid- to high-single digits year over year. Despite the market backdrop, we expect a meaningful sequential performance improvement in net sales versus the first quarter, driven by several factors that give us confidence in the outlook. Net sales are expected to benefit from normal seasonal volume uplift coupled with an anticipated modest improvement in product mix, in addition to the further flow-through from previously implemented pricing actions, including tariff-related pricing. Taken together, these dynamics are expected to position us broadly in line with our end markets on a year-over-year basis in the second quarter. Against that backdrop, we expect second-quarter 2026 net sales to be down mid- to high-single digits versus the prior year. As I mentioned, to help manage near-term pressure on profitability, we took decisive action on our $30 million cost reduction to align our cost structure with current demand levels. We completed key implementation steps in the first quarter and expect the full benefit will phase in over the course of 2026. We believe these steps, in combination with our tariff mitigation strategy, will help offset margin pressures, preserve liquidity, and position MasterBrand, Inc. to remain resilient through this period of elevated uncertainty. Given these considerations, we expect second-quarter adjusted EBITDA to be in the range of $51 million to $61 million, representing an adjusted EBITDA margin of 7.8% to 8.8%. We expect second-quarter adjusted diluted earnings per share of $0.03 to $0.13. The wider adjusted diluted earnings per share guidance range for the second quarter reflects a higher-than-normal degree of uncertainty due to potential variability in the effective tax rate. Against low pretax income, the impact of non-deal-related expenses relating to the pending merger with American Woodmark, as well as other potential discrete tax items, is amplified. As a result, the actual effective tax rate and the adjusted diluted earnings per share may differ materially from the guidance provided. Looking at the full year, we continue to expect our addressable market in 2026 to be down mid-single digits year over year with continued variability across end markets. We continue to expect decremental margins to remain elevated through 2026, driven by year-over-year volume declines, mix, and the timing of tariff mitigation. We anticipate that our decrementals will improve in the second half of the year as our tariff mitigation and cost rationalization actions phase in further. For the full year, we also continue to expect interest expense to be flat to down as we continue to pay down our outstanding debt. Our effective tax rate is expected to be elevated and variable relative to the prior year, primarily reflecting the previously mentioned impact of non-deductible deal-related expenses relating to the pending merger with American Woodmark. Additionally, we continue to expect free cash flow for 2026 to be in excess of net income for the year. Finally, despite recent changes and based on the trade policies currently in effect, we continue to estimate our unmitigated gross tariff exposure for the full year at approximately 5% to 6% of 2026 net sales. Additionally, we continue to expect to offset 100% of tariff dollar costs on a run-rate basis exiting 2026 through our mitigation efforts, which will take time to fully materialize. We will continue to monitor the evolving trade environment while executing our comprehensive mitigation strategy and providing quarterly updates as conditions evolve. In closing, while near-term conditions remain challenging—the industry continues to navigate an extended period of softer demand and a complicated tariff environment—we are managing the business with discipline and purpose. We are executing against our cost reduction and mitigation initiatives, maintaining financial flexibility, and making meaningful progress on the integration planning work that is designed to allow us to move quickly following the close of the pending American Woodmark transaction. These are the right priorities for this moment, and we believe the actions we are taking today are building a more resilient and capable MasterBrand, Inc. Now I would like to turn the call back to Dave. R. David Banyard: Thanks, Andy. While the first quarter brought its share of challenges, our confidence in the long-term outlook for our business remains unchanged. Affordability pressures, cautious consumer sentiment, and volatility in the trade environment are shaping near-term outcomes, but they do not change the underlying demand drivers that we believe will fuel a meaningful recovery. Over time, we expect macroeconomic and trade conditions to normalize and demand to recover, with the broader market beginning to improve in 2027. What we are navigating today is a direct reflection of the current market environment, not of our operating model or the underlying strength of the business. Our priorities are clear, and our strategy is built for exactly these kinds of cycles—designed to carry us through periods of uncertainty and position us to win when conditions improve. We are executing our mitigation strategies, progressing toward the close of our pending merger with American Woodmark, and managing the business with the discipline and accountability that defines the MasterBrand, Inc. way. With our strong portfolio, resilient operating model, and a team that has demonstrated its ability to execute through adversity, we believe we are well positioned to capitalize on the eventual market recovery and deliver long-term value for our shareholders. We will now open the call for questions. Operator: We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue before pressing the star keys. Our first question is from McClaran Thomas Hayes with Zelman & Associates. Please proceed with your question. McClaran Thomas Hayes: Hey, good evening, guys. It looks like your outlook for the market in the second quarter is similar to the environment you saw in the first quarter—down mid- to high-single digits. But rates are a bit higher; it seems like there is more uncertainty now than there was a few months ago. Does that kind of market outlook tell us that, at this point, you have not necessarily seen any impact to your consumer, whether that is in order trends or foot traffic patterns? And then on pricing, can you help give us some more detail on how pricing trended in the first quarter relative to the fourth quarter? Did it accelerate or stay in a similar range? Also, do you anticipate needing additional pricing, given some of the cost inflation we have seen over the past few months that I imagine might be impacting paints and stains, at a minimum, in your business? R. David Banyard: I think our outlook is a little bit tilted down. We were saying mid- to high-single digits down; it is more of a weight on new construction than R&R. R&R is down, so it is hard to tell over a long period of time how far down is down, but it feels steady in this current mode. New construction has been very choppy. The March starts number was a little higher than we expected, which is good, but that market with the reset they are doing of eliminating spec homes makes our business a bit more choppy. We are going into it with that in mind, and the spring selling season has generally shaped up how we thought it would. It is reflected in our Q1. In terms of a material difference in behavior over the last month or two, we have not necessarily seen that. It is not getting better; it is just moving the way it was prior to that. On pricing, the bigger impact is directly on fuel and logistics, but there is pressure in a number of different spots. We have been executing on our plan for pricing throughout the year. As we have highlighted plenty of times in the past, it takes time for that price to get into the market, so we are continuing to execute on that. We are looking at other options with fuel. Obviously, that is the one that everybody sees every day, and it has come up significantly over the past month. We are continuing to look at that and using the mechanisms that we have—the typical mechanism you would have for something like that that is near-term volatile—and we will monitor how that plays out over the coming months with the situation in the Middle East. Operator: Our next question is from Garik Shmois with Loop Capital Markets. Please proceed with your question. Garik Shmois: Hi, thanks. Wondering if you could speak to your view on product mix improving as you go into the second quarter. I would love to get a little bit more color on that. And then my follow-up is on incremental margins. You mentioned they are expected to improve in the second half of the year. Should we think about incrementals improving related to a sequential improvement quarter on quarter in the second half of the year, or should we think about incrementals on a year-on-year basis? Any more detail on what kind of level of improvement on incrementals is possible? R. David Banyard: We are continuing to see the general trade-down behavior. When you go into the spring selling season with more volume, you tend to see a slightly better mix in all channels. That is what is driving that. Generally speaking, the overall market, on a year-over-year basis, will continue to be in a trade-down mode, which again offsets any benefit that we are getting from price to some extent. Price/mix has been a challenge for us, and we are working on how to upsell more. Some of those efforts we are going to see in the second quarter, but the consumer is under pressure, and you have to meet them where they are. With higher volume, we tend to see a slightly better mix, and that is what we are anticipating. On incrementals, we are not really giving full-year guidance at the moment, Garik, but when we talk about improvement, we are talking year over year. You are seeing sequential improvement from Q1 to Q2, which is normal seasonality. Volume is the issue we have. When you go from lower volume in Q1 into higher volume in Q2, you see pretty good flow-through, and that is the challenge we face on a year-over-year basis throughout the year. Because of the mitigation on tariffs as we go through the year, we will see better decrementals. We see the market being down for the full year, so I would anticipate revenue to be down through the year, but we expect those decrementals on a year-over-year basis, quarter by quarter, to improve. Operator: If you would like to ask a question, please press 1 on your telephone keypad. Our next question is from Steven Ramsey with Thompson Research Group. Please proceed with your question. Steven Ramsey: Hi, good evening. Thanks for taking my questions. I wanted to hear a bit more on the pricing actions that you are taking in response to tariffs and rising fuel costs. First, do you feel like the pricing that you are taking and that you are seeing from competitors is near parity with one another, or is anyone using this time to maybe take less price to gain some share? And then, connected to this, on price actions on fuel, you have not taken any so far, so just to clarify, the margin guide for the second quarter does not include that you might take actions for rising fuel costs. Okay. That is helpful. And then on the gross tariff cost—$25 million in the first quarter, about 4% of sales and a little bit lower than the full-year outlook for the gross tariff cost as a percentage of sales—do you expect that you get into that 5% to 6% zone in the second quarter and it sustains? I know there are a lot of moving parts, but it is definitely good to see a little bit better to start the year. R. David Banyard: I will answer the last part first, and that is incorrect—we have taken some action already on rising fuel costs. For competitive reasons, I would rather not go into the details of how we do that, but suffice to say, we have short-term mechanisms that we use for volatile commodity inputs like fuel. In terms of the market, it is a very competitive market. You have to meet the consumer where they are, and that involves a number of different aspects of what you are trying to bring to the consumer. That is why you see a lot of trade-down in our mix, because we have a lot of different alternatives we can bring to the consumer and customer. It is more competitive now than it has been. The market is still very fragmented, and we are leaning into that, but we also understand the cost burden that we are facing, so it is a dual approach. On gross tariff cost, it is a combination of things. Part of mitigating tariffs is coming up with ways to not have to pay them, and that is part of it. The mix of our portfolio is pretty broad, and there are different impacts from tariffs. I would not necessarily look at the first-quarter percentage as the run rate moving forward; it is why we reiterated that it is 5% to 6%, because that is what we think it will be. Also, the tariffs have changed slightly. We want to make sure the changes are understood to not be material in terms of the different impact to our P&L. Lower volume in Q1 also yields a lower dollar tariff number as part of that. Operator: This now concludes our question and answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.
Operator: Welcome to GlobalFoundries First Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Eric Chow, Head of Investor Relations. Please go ahead, sir. Eric Chow: Thank you, operator. Good morning, everyone, and welcome to GlobalFoundries' First Quarter 2026 Earnings Call. On the call with me today are Tim Breen, CEO; and Sam Franklin, CFO. A short while ago, we released GF's first quarter 2026 financial results which are available on our website at investors.gf.com, along with today's accompanying slide presentation. This call is being recorded, and a replay will be made available on our Investor Relations web page. During this call, we will present both IFRS and non-IFRS financial measures. The most directly comparable IFRS measures and reconciliations for non-IFRS measures are made available in today's press release and accompanying slides. Please note that these financial results are unaudited and subject to change. Certain statements on today's call may be deemed to be forward-looking statements. Such statements can be identified by the terms such as believe, expect, intend, anticipate and may or by the use of the future dense. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as risks and uncertainties described in our SEC filings, including in sections under the caption Risk Factors in our annual report on Form 20-F and in any current reports on Form 6-K furnished with the SEC. In terms of upcoming events, we look forward to hosting our Investor Day this Thursday, May 7, with live public webcast beginning at 9:00 a.m. Eastern Time. During the event, our leadership team will provide updates on GF's strategy, growth initiatives and long-term outlook, followed by a Q&A session. We will also be participating in fireside chats at the JPMorgan Global Technology, Media and Communications Conference in Boston on May 19 and the TD Cowen Technology, Media and Telecom Conference in New York City on May 27. We will begin today's call with Tim providing a summary update on the business environment, technologies and end markets. Followed by Sam, who will provide details on our first quarter results and second quarter guidance. We will then open the call for questions with Tim and Sam. We request that you please limit your question to one with one follow-up. I'll now turn the call over to Tim. Timothy Breen: Thank you, Eric, and welcome, everyone, to our first quarter 2026 earnings call. GF delivered a strong first quarter with all of our non-IFRS profitability metrics at or above the high end of their respective guidance ranges. This was the result of excellent execution by the team with a focus on delivering for our customers. These results demonstrate a strong step forward in our multiyear journey to enhance the quality of our revenue composition, improve our structural cost position and achieve efficient scale across our world-class fabs. We have made meaningful traction in secular growth end markets, where our differentiated technology drives share growth and [indiscernible] value creation. The first quarter continued to demonstrate proof points of this transformation. We delivered strong double-digit percentage growth in both automotive and comms infrastructure and data center. I'm proud of our team's accomplishments this quarter. We continue to execute to our proven 3-pillar strategy: to innovate and deliver a unique technology road map; to deepen our engagement throughout our customers' design cycles and to scale our diverse and fungible global footprint. Let me now update you on our progress on each. First, our unique and innovative technology road map. There is no better proof of our technology innovation that with our industry leadership in optical networking, which includes both our silicon sonics and silicon germanium capabilities. With the advent of optical for scale across scale out and scale up networks, the market is moving to adopt our solutions for pluggable, near and co-packaged optics. With process technology leadership, in-house design, assembly, test and packaging ecosystems, all supported with high-volume manufacturing in our advanced 300-millimeter fab footprint, including here in the U.S., we believe no other company has our suite photonics offerings at scale. Beyond silicon photonics, we also believe we have robust growth and opportunity within our silicon germanium solutions in the AI data center. SiGe by CMOS, or just SiGe, is another great example of GF's preparation and foresight meeting a strong positive inflection point in the market. Our SiGe technology is a critical enabler for data center networks where [indiscernible] amplifiers, TIAs and drivers using GF's solutions support the conversion between high-speed electrical and optical signals. GF SiGe has industry-leading FT and S-MAX performance. This means faster, cleaner signal amplification, more headroom and lower data loss across the system. TIAs and drivers are required on virtually every data center connection, and industry forecasts are anticipating significant unit growth in the coming years. Correspondingly, we are seeing very strong customer demand for our SiGe solutions with capacity at our Vermont fab oversubscribed through well into 2027. As these city offerings are meaningfully margin accretive to our overall business, we are expanding SiGe capacity to meet accelerating customer demand. We expect GF SiGe opportunity to be a substantial driver of high-quality long-term revenue growth that complements [indiscernible] to form a comprehensive optical networking portfolio. Another notable proof point of GF leadership was announced at the Optical Fiber Communications conference, OFC, in March. At OFC, [indiscernible] members of the Optical Compute Interconnect Multi-Source Agreement, or OCI MSA, including AMD, Broadcom, NVIDIA, Meta, Microsoft and OpenAI, established the CPO industry standard for scale-up networks that perfectly aligns with the capabilities GF has spent years developing. This was no accident. Thanks to our proven development and leadership in Dense Wavelength Division Multiplexing, or DWDM, GFNR partners provided industry proof points, laying confidence to the OCI founders to define this high standard. As a result, just a month after the OCI standard was announced, year-to-date, GF announced its complete optical module solution for NPO and CPO, known as scale or silicon photonics co-packaged advanced light engine. This is not just the industry's first OCI MSA capable platform, the technical specs exceed the MSA requirements, supporting our customers' road maps for multiple generations. For example, scale fiber coupling is natively broadband, which enables it to excel at minimizing insertion loss, a key differentiator for CPO. Our years of development, including partnering with our customers to design scale from the ground up, feedback so far has been excellent. In the first quarter, we saw new tape-outs in Multi New York for a pair of CPO design wins that support the new optical compute interconnect OCI standard for scaled networks. We are excited to share more details on scale and other developments at our Investor Day on May 7. also, at OFC in March, GF made several announcements in conjunction with partners that showcased our robust silicon photonics offerings. Notable highlights included the following: Senco and GF demonstrated a wafer-level detachable fiber interface solution for CPO, a critical breakthrough that enables [indiscernible] connectivity to be attached and detached through the entire [indiscernible] development process for precise and repeatable testing. Together with Corning and EXFO, GF showcased a complete ecosystem of CPO technology, which combined attachable fiber connectivity and automated die-level testing with high-volume silicon photonics manufacturing. Finally, we announced a strategic partnership with Siltech to mass produce 200 gig per lane receiver photonic ICs for pluggable optical transceivers using our process technology. All of these recent developments represent a growing body of proof points for the value our innovative technology road map provides. Let me now discuss our second key strategic pillar and provide an update on our customer partnerships and commercial engagements. Thanks to our robust product portfolio and deep partnerships with customers, we continue to accelerate our design win momentum. In the first quarter, we saw a 50% increase in design wins compared to the same period a year ago, with excellent representation across all 4 major end markets. Not only does this build on the record design win year in 2025, it is another leading indicator of our tape-out for revenue momentum in the years to come. Notable commercial engagements in the quarter included the following highlights. GF and Renesas announced a multibillion-dollar strategic partnership that expands [indiscernible] to GF technologies, including FDX, BCD and feature is CMOS with integrated nonvolatile memory. These platforms will support SoCs, power devices and MCUs for applications such as data center power, advanced driver assistance systems and secure industrial IoT connectivity. Tape-outs under the broadened collaboration are already underway, and we believe this partnership will contribute meaningfully to continued outperformance and ramp of our data center business over time. In automotive, we are particularly encouraged by the strong customer momentum around our new Auto Grade 1 embedded MRAM capability on FDX. This technology offers industry-leading 100 megahertz class access times for code execution directly from MRAM, combined with ultra-low power operation and proven insurance and reliability up to 150 degrees C. Our lead customers have taped-out with this feature. And as highlighted in our recent announcement, we are seeing growing engagement and traction with Tier 1, such as Bosch, as this technology moves towards production. This underscores the differentiated value of our SDX platform as automotive customers transition to a next generation of software-defined real-time systems. In our smart mobile devices end market, we continue to secure additional design wins in the quarter that expand our reach into new applications and emerging form factors that benefit from the features we offer such as low power, rate of reliability and superior RF performance. For example, in the first quarter, we secured 2 new design wins on our SDX platform for micro LED back planes used in smart glasses, a fast-growing market is starting to gain adoption. In the realm of robotics and typical AI, in March, GF announced a partnership with Inova Semiconductors to deliver our robotics control reference platform that combines MIPS open risk 5 compute and mixed-signal technologies with Inova's high-speed communication links. This physical AI reference platform will simplify robot design, reduce bond costs and accelerate time to market, enabling next-gen humanoid and advanced robotics. Finally, for optical networking reported within our comms infrastructure and data center end market, we have substantial forward momentum in both customer wins and pipeline. In the first quarter, we executed additional tape-outs for silicon photonics that reinforce our confidence that we are on track to roughly double our silicon photonics revenue in '26 and to achieve greater than $1 billion silicon photonics revenue run rate exiting 2028. GF is now designed in at 3 of the top 4 pluggable optical transceiver companies. Customers continue to provide excellent feedback on our suite of pluggable offerings that enable 1.60 solutions as well as a road map to 3.2T and beyond. With our proven record of high body manufacturing at scale, we believe we can sustain a strong growth trajectory in this area for years to come. Now let me address our third strategic pillar, the value and importance of GF's unique diversified manufacturing footprint. Recent world events have only reinforced the reality that faces business and government leaders around the globe. Concentrated supply chains are now subject to previously unimagined risks. The [indiscernible] lies in diversification flexibility and security. All 3 areas that GF is uniquely positioned to provide our customers. In a fragmented geopolitical environment, our 3 continent manufacturing footprint across the U.S., Germany and Singapore is a tremendously valuable asset for our customers. In particular, we have invested for years to cross-qualify fungible capacity across our fab network, meaning a customer who only design with GF once and gain the flexibility to manufacture out of 3 continents. Our one-of-a-kind footprint provides supply chain resilience, closer proximity to end demand and greater nimbleness to shift supply quickly as market demand changes. For many of our customers, geographic flexibility is no longer a nice to have, it is a requirement. As a result, we continue to see a meaningful increase in customer engagements and design win activity specifically linked to onshoring. For example, last month, Apple announced a joint collaboration with [indiscernible] Logic and GF to bring new process technologies to our Multi New York fab. This marks the first U.S. availability of the silicon platform that supports clinical functions in upcoming Apple devices, including next-generation components used in face ID systems. GF is proud to be a founding partner in Apple's American manufacturing program. We see this as another step in a growing partnership and just one notable example of our onshoring value proposition. We are not just partnering with customers to onshore semiconductor supply. We are also working closely with the governments of the U.S., Germany and Singapore. In the U.S. in particular, support frameworks such as chips grants and investment tax credits are an important element to our long-term strategic road map, and we continue to deepen our partnership with the U.S. government both for capacity growth as well as innovation and technology onshoring. In summary, I'm deeply proud of our team's execution in this quarter, which advanced GF across all 3 strategic pillars. With our deep and differentiated technology portfolio, we are reaping the benefits of years of innovation. With our customer-first approach and design enablement capabilities, we remain the partner of choice. With our unique and diversified scaled manufacturing footprint, we are empowering the global onshoring megatrend. All of these place GF at the heart of the industry transformations to come. I'll now pass the call over to Sam for a deeper dive on first quarter 2026 financials. Sam Franklin: Thank you, Tim. For the remainder of the call, including guidance other than revenue cash flow and net interest income, I will reference non-IFRS metrics. GF delivered strong results in the first quarter, with revenue in the high end of the guidance range and gross margin and operating margin well above the high end of the ranges. In particular, our gross margin achieved the first quarter record and grew over 500 basis points year-over-year, representing the biggest expansion in 3 years. This is testament to our team's execution and relentless focus on the structural levers driving GF sustained improvement in profitability, and we believe we're only in the early stages of this margin expansion opportunity. Before I go deeper into the financials, I'd like to take a moment to update you on some terminology changes to our revenue categorization. The acquisition of MIPS, closed in August 2025, as well as the announced acquisition of the Synopsys ARC, our key business, which we expect to close towards the end of the first half of 2026, are both helping to transform GF into a holistic technology solutions provider. As a result, we believe that non-wafer revenue no longer captures the broader reach of our customer offerings, which we expect to include an increasing proportion of revenue from IP, licensing and software over time. Similarly, wafer revenue is evolving to capture our expanding manufacturing capabilities in custom silicon and advanced packaging, which we look forward to covering in more detail at our Investor Day on May 7. As a result, revenue previously referred to as wafer revenue will now be categorized as revenue from manufacturing services, and non-wafer revenue will now be categorized as revenue from technology services. We believe these categories better reflect the depth and breadth of our business model today and going forward. Now on to the results. We delivered first quarter revenue of $1.634 billion, down 11% sequentially and up 3.1% year-over-year. We shipped approximately 579 300-millimeter equivalent wafers in the quarter, down 6% sequentially and up 7% from the prior year period. Revenue from manufacturing services accounted for approximately 87% of total revenue. Revenue from Technology Services, which includes revenue from IP, licensing, software, reticles, nonrecurring engineering, expedite fees and other items, accounted for approximately 13% of total revenue for the first quarter. Revenue upside in the quarter for Technology Services was driven by increased mask and reticles as we ramp customer tape-outs as well as consistent momentum from within IP licensing and software as we integrate the acquisition of MIPS. As the momentum and engagements with customers grow, we expect MIPS to contribute a greater proportion of our technology services revenue going forward at an accretive gross margin to our corporate objectives. All of these factors considered, we expect revenue from Technology Services to comprise a greater proportion of our total 2026 revenue, closer to the high end of our original 10% to 12% range. Our early traction here adds to our belief that the Technology Services portion of our business will be an important long-term driver of durable, high-quality, high-margin growth. Let me now provide an update on our revenue and outlook by end markets. Communications infrastructure and data center represented approximately 14% of first quarter total revenue and increased 2% sequentially and 32% year-over-year. This marked the sixth consecutive quarter of double-digit percentage year-over-year growth for communications infrastructure and data center. Within this end market, silicon photonics drove robust growth in the first quarter and remains on track to roughly double in 2026 compared to 2025. In line with our expectations, we saw a healthy revenue contribution from Advanced Micro Foundry, which GF acquired in November of last year. The integration is progressing well as we expand our photonics capabilities at the Jeff Science Park. Combining GF's significant scale in Singapore with AMF's complementary customer base and pluggable photonics solutions for scale across networks has expanded our customer momentum in this rapidly growing market. This acquisition is already gross margin accretive to GF, and we expect to realize even greater growth and profitability tailwinds in the coming years. For these reasons, we now expect to achieve high 30s percent year-over-year revenue growth in our communications infrastructure and data center end market in 2026, up from our expectations a quarter ago of approximately 30% year-over-year growth. Automotive represented approximately 23% of first quarter total revenue. Automotive revenue decreased 11% sequentially off a strong fourth quarter and increased 24% year-over-year. In addition to our strong customer share in automotive microcontrollers, we are in the early stage of revenue ramps as a result of our accumulated design wins in smart sensors and networking as well as vehicle infrastructure. We are continuing to diversify our offerings to the automotive end market by ramping newly secured sockets in applications such as camera, ethernet, radar and power. It is our differentiated technology and disciplined execution that we believe is enabling GF to capture the growing automotive semiconductor content opportunity and outperform peers in this end market. As a result, we expect Automotive revenue to deliver low double-digit growth in 2026. Its sixth consecutive year of double-digit percentage growth. Smart mobile devices represented approximately 34% of first quarter total revenue and declined 15% sequentially and 5% from the prior year period. Current industry forecasts for overall smartphone units in 2026 indicate a low double-digit percentage year-over-year decline. With approximately 2/3 of our revenue in this end market driven by premium handsets, we expect to see a more contained impact from memory pricing dynamics compared to the broader industry. As such, we expect revenue from smart mobile devices in 2026 to slightly outperform the overall smartphone market, with an expected decline in the high single-digits percentage. Beyond the near-term dynamics, we expect smart mobile devices to gradually benefit from the growth of new AI-powered form factors, such as smart glasses, hearables and wearables where we have nascent growing traction and design wins with our customers. Finally, home and industrial IoT represented approximately 16% of first quarter total revenue and decreased 16% sequentially and 22% year-over-year. The decline in revenue from this end market in the first quarter was principally driven by the timing of certain customer shipments, a temporary impact, which we expect to reverse in the second quarter. Importantly, we continue to expect 2026 to be a growth year for IoT, driven by the normalization of core industrial customer inventory as well as the production ramp of new applications in the second half of 2026, which we believe should contribute to a healthy growth of mid-single-digit percentage year-over-year. Beyond 2026, we expect this end market to be one of the primary beneficiaries of the burgeoning physical AI revolution and serviceable addressable market expansion, where our technology platforms and solutions are well suited to enable devices to sense, think, act and communicate. In summary, we believe GF's strong secular growth drivers, including meaningful upside from our recent acquisitions will help offset smart mobile devices in 2026. As continued growth across the other end markets we serve, expand as a percentage of revenue. These strategic actions are also intended to accelerate our targeted mix shift towards margin accretive high-value growth markets and applications. We believe the result over time will be a more durable, more resilient, more profitable business. In the first quarter, we delivered gross profit of $474 million, which translates into approximately 29% gross margin, above the high end of the guidance range and up 510 basis points year-over-year. First quarter saw the largest year-over-year expansion of gross margin in over 3 years. R&D for the quarter was $114 million, and SG&A was $89 million. Total operating expenses of $203 million, were up 4% quarter-over-quarter and represented approximately 12% of total revenue. We delivered operating profit of $271 million for the quarter and an operating margin of 16.6%, above the high end of our guided range and up 320 basis points from the prior year period. First quarter net interest income, net of other expenses, was $5 million, and we incurred tax expense of $49 million in the quarter. We delivered first quarter net income of approximately $227 million, an increase of approximately $38 million from the prior year period. Diluted earnings of $0.40 per share was at the high end of the guidance range based on a free diluted share count of approximately 561 million shares. Let me now provide some key cash flow and balance sheet metrics. Cash flow from operations for the first quarter was $542 million. First quarter CapEx net of proceeds from government grants was $309 million, or roughly 19% of revenue. Adjusted free cash flow for the quarter was $233 million, which represented an adjusted free cash flow margin of approximately 14% in the quarter. This outcome was principally driven by favorable working capital movements in the first quarter, which we expect to reverse in the second quarter. At the end of the first quarter, our combined total of cash, cash equivalents and marketable securities, stood at approximately $3.8 billion. Our total debt was $1.1 billion, and we also have a $1 billion revolving credit facility, which remains undrawn. In the first quarter of 2026, we repurchased $400 million of shares of the $500 million share repurchase authorization approved by our Board of Directors, approximately $100 million remains, and we remain flexible with the deployment of the remaining authorized amount. Capital allocation, planning and decisions remain tightly linked to visibility, returns and balance sheet resilience. As we move through 2026, our focus remains consistent, disciplined capacity investments structurally improving margins and cash generation aligned with returns. We will continue to drive momentum in areas that we can control and deliberate in how we allocate capital. Next, let me provide you with our outlook for the second quarter of 2026. We expect total GF revenue to be $1.76 billion, plus or minus $25 million. We expect gross margin to be approximately 28.5%, plus or minus 100 basis points, which at the midpoint reflects over 300 basis points of year-over-year gross margin expansion. Excluding share-based compensation, we expect total operating expenses to be $225 million, plus or minus $10 million. We are ramping R&D programs in the second half of 2026 to strengthen our technology differentiation and accelerate our road map in secular growth areas, such as custom silicon, silicon photonics and advanced packaging. Taking into account these investments into R&D and the expected close of the Synopsys ARC IP business acquisition towards the end of the first half of 2026, we expect to maintain a similar quarterly operating expense run rate in the second half of 2026, as indicated in our second quarter guidance. We expect operating margin to be in the range of 15.7%, plus or minus 180 basis points. At the midpoint of our guidance, we expect share-based compensation to be approximately $71 million, of which roughly $19 million is related to cost of goods sold. We expect net interest and other for the quarter to be between negative $6 million and $2 million and income tax expense to be between $28 million and $48 million. Based on the tax environments across the jurisdictions we operate in, we continue to expect an effective tax rate in the high teens percentage range for the full year of 2026. Based on a fully diluted share count of approximately 555 million shares, we expect diluted earnings per share for the first quarter to be $0.43, plus or minus $0.05. Given the timing of tool delivery windows in order to meet forecast customer demand in critical growth corridors as well as the timing of government grants, we expect net CapEx to increase in the second quarter. For the full year 2026, we continue to expect non-IFRS net CapEx to be in the range of 15% to 20% of revenue. Our CapEx strategy continues to align the sizing and timing of our investments with customer demand while scaling our footprint efficiently. Over the last few years, we have seen notable increases in customer demand for incremental capacity in high-growth technology corridors such as silicon photonics, FDX and high-performance SiGe. In order to unlock sustainable accretive revenue growth, we are expanding capacity in these areas to support the strong demand signals from our customers. Critically, these targeted CapEx investments are supported by robust partnerships with both customers and governments. As a result, we expect that the next wave of capacity investments will be accompanied by customer prepayments in addition to meaningful government grant and tax incentive frameworks in all of the geographies we serve. Even with greater investment in enabling capacity in these key growth technology corridors, we continue to expect adjusted free cash flow margin of approximately 10% for the full year 2026 with a skew towards the second half. In summary, I'm grateful for our team's excellent execution this quarter and the strong progress we are making towards our long-term strategic objectives, which are reflected in our financial performance. We believe GF is at a definitive inflection point where years of preparation have positioned us well to capitalize on the secular megatrends defining our industry, and we very much look forward to sharing more details with you all at our Investor Day on May 7. With that, let's open the call to Q&A. Operator? Operator: [Operator Instructions] Our first question comes from the line of Harlan Sur from JPMorgan. Harlan Sur: Congrats on the solid quarterly execution. Industry demand trends, even over the past 90 days, have accelerated, especially in areas like AI and data center where cloud and hyperscale spending continues strong. In non-AI segments, we're seeing this broad cyclical recovery profile. And then on the supply side, advanced all manufacturers are actually cutting their specialty mature capacity. And your competitors in specialty and differentiated are signaling wafer pricing increases starting in the second half of this year. I know the team had previously talked about a stable pricing environment this year. But just given the tight supply outlook, continued focus on supply chain resiliency, as you guys had outlined, how should we think about your pricing profile as you move to the second half and for the full year? . Timothy Breen: Yes. Thank you for the question, Harlan. I think the way you can think about it is differently for different parts of the portfolio. Obviously, there's a part of our portfolio that prices on a very long-term basis. That's been stable for several years now and continues to be stable going forward. There is a component, a smaller component of the portfolio, the prices over a more short-term dynamic. And exactly, as you said, both the supply and demand dynamics there are more favorable from a pricing perspective. And consistent with peers, consistent with even many of our customers, we will implement price adjustments on that part of the portfolio. You can imagine those kicking in towards the back end of 2026 and obviously flowing into 2027. I'll also add that for part of our portfolio where we are, capacity constrained, where demand is stronger, we're also having conversations with customers, not just about pricing but also about advanced payments to secure capacity as we accelerate our CapEx investments in those tight corridors such as FDX, silicon photonics, high-performance silicon germanium. Those customer discussions are very constructive. Harlan Sur: Appreciate that. And gross margins came in 200 basis points better than guidance. MIPS was such a factor, right, your higher gross margin segments like CID, auto, technology services did better on a sequential basis. And for the last question, on industry supply tightness, it looks like the team potentially also benefited from sustained or increasing utilization. But maybe you could just help us understand puts and takes around gross margins Q1, during Q2? And then given the better demand mix, pricing outlook, how should we think about gross margin trajectory as you move through the second half of the year? Could we see the team, as we end the year, closer to the 33%, 35% range? Sam Franklin: Harlan, it's Sam here. I'll provide you a little bit of color there. Obviously, we're very encouraged by where we're seeing the structural improvements within our gross margin profile, and this has been a trend which has been continuing for last couple of quarters now. Obviously, if you look at things from a year-over-year basis, roughly 3% of revenue growth but 510 basis points of gross margin. And so this is something we've been positioning for several years. These types of structural levers don't happen overnight, and they really focus across several areas in the business, namely productivity cost continuing, as Tim said, to optimize our footprint from a technology point of view. And mix obviously really matters as well. If I touch specifically on the first quarter and bridge you a little bit from last year. The single biggest driver there was mix and mix falls into 2 categories. It's the mix as it relates to our manufacturing services, and it's the mix as it relates to our technology services. And you called it out in part of your question, which is the relative strength of the growth that we've seen within those rich mix environments from, say, for example, a communications infrastructure and data center point of view, which generally falls through at a very high margin relative to our corporate objectives. And the same is true for the likes of automotive. So that's a contribution from manufacturing services, high rich mix has been important. And I'd say as well, from a revenue from technology services perspective, that's continued to trend actually in the first quarter, above the high end of the range, that we indicated. We expect it to be at around 12%. We ended up coming in at 13% of revenue. And part of that is related to the increased contribution we're seeing from the likes of mix and our capabilities in that arena. But I'd say that was factored into our guidance. We did see some stronger mask and [indiscernible] related revenue within technology services in the first quarter as well. And particularly in the aerospace and defense sector as well, and that falls through at a relatively attractive margin as well. So we're quite encouraged from that perspective. I'd say the other dynamic outside of mix is really from a cost perspective. And the teams have been focusing maniacally on driving cost and productivity improvements. actually, as it relates to the 200 basis points that you referenced in the quarter, about 1 point of that came through cost synergies that we've been driving from our acquisition of Advanced Micro Foundry in Singapore. So that came in certainly more favorable from the perspective of where we were at about 90 days ago. So you take that combination of richer mix, technology services, favorability from the acquisition when we made [indiscernible], that kind of bridges you to that 200 basis points of outperformance we had relative to the midpoint of our guidance. I think if I fast forward a little bit to take you into where we're looking at the guidance from the second quarter perspective and how we think about things for the remainder of the year, look, I'd like to focus a little bit on the year-over-year story here because I think it really matters in terms of that structural evolution that we're seeing. At the midpoint of our guidance range, that implies about 330 basis points of year-over-year margin growth. But if you take the revenue we delivered in the second quarter of last year, $1.688 billion, we delivered gross profit of about $425 million in the second quarter of last year. And then you compare that through to midpoint of our revenue guide for the second quarter at $1.76 billion and you take that 28.5% midpoint of the range, that implies about $500 million of gross profit delta, which actually corresponds almost fully to the revenue delta. So what you're seeing is a very meaningful pull-through from that increase in revenue relative to the year-over-year margin story there as well. Now just on a couple of the -- if you like, the pace as it relates to second quarter and how we're thinking about some of the rest of the year. Look, it would be remiss of us not to be thinking around how the conflict in the Middle East impact supply chain and how we proactively drive our supply chain planning decisions around that. And we've taken some very proactive steps in the first quarter to make sure that we're shoring up our supplies of key gas and cans like helium, hydrogen, sulfur. So making sure we have that supply chain security is key. Obviously, that comes with some incremental costs that we forecasted at the beginning of the year prior to this conflict. So expectation is that, that probably has about a 0.5 point of margin impact for each quarter as we go through the rest of 2026. But all said and done, we're quite pleased with the continued year-over-year margin trajectory that we're seeing. Operator: And our next question comes from the line of Vivek Arya from Bank of America. Vivek Arya: For the first one, I'm curious, how are you benchmarking your growth in comms infrastructure and data center? Because when I look at a lot of your analog peers or some of the optical customers or AI in general, they're all growing anywhere between 50% to 100%. So high 30% growth is impressive, but how do you know whether you are gaining or losing share relative to the growth rate? Like, are those growth rates representative of what the industry is growing? Or am I comparing Apples store in this year? . Timothy Breen: Yes. Thanks for the question, Vivek. I'd say the following. Remember, our CID market considered 3 kind of big drivers. Silicon photonics, we've talked about already approximately doubling year-on-year. We think that is definitely growing in line with the industry. Trends and the rollouts, and we even see further acceleration to follow as we launch new products like Gale that we announced earlier this week. Our high-performance silicon germanium equally exhibiting very, very strong year-on-year growth [indiscernible] networking we're seeing a very good story. Also in the CID mix, and that continues to grow very sort of solidly as we see rollout of more [indiscernible] capacity and the scale of terminals. So we look at it on a kind of end market, submarket basis. And in those cases, we don't see share loss. In fact, we see a share gain in many of those cases. Sam Franklin: Do you have a follow-up, Vivek?. Vivek Arya: Yes. Second question is kind of another follow-up on pricing and revenue per wafer. So when the year started, what did you assume for the pricing environment? And what is it now? And then I know I'm focusing on just one metric, but revenue per wafer that continues to decline. And I imagine that's probably because of mix or other factors. But I would just appreciate your perspective on how are you thinking about industry pricing now versus before? And is your revenue per wafer, what does it -- what should it indicate to us because it has continued to decline. Sam Franklin: Sure, Vivek, I'll take that. And obviously, Tim gave a little bit of color as part of the last question in terms of how we see the broader pricing environment, particularly in the context of some of those supply/demand constraints that we've seen. Look, I'd say one important point to remember around how we think about pricing is that within wafer pricing, we also have what used to be the underutilization payments that flowed through associated with some of those long-term agreements. That is largely in the rearview mirror. And in fact, we were still getting some of those in the first quarter of 2025. And so when you think about it from a year-over-year comparison basis, there is a little bit of fallout from that ASP perspective. The important point, and you touched on mix, which is the right way to think about it, but the way we think about pricing is really the contribution from a margin perspective. And at the start of the year, we viewed the broader pricing environment is certainly more constructive than it was in 2025. And actually, as we've gone through first quarter, particularly where we see space constraints on some of our core technology corridors, we remain [indiscernible] view that it is not only constructive in some of those, but favorable tailwinds in some of those technology corridors. So from a year-over-year comparison basis and going forward, I would say that the key focus is really around the margin structure that we're seeing pull through rather than just the stand-alone pricing. I hope that helps. Operator: Our next question comes from the line of C.J. Muse from Cantor Fitzgerald. Christopher Muse: I guess first question was to focus on technology services. Obviously, you're rebranding changes in mix. Would love to hear how we should think about the growth trajectory here beyond calendar '26. Is there a framework that we should be thinking about, particularly as Synopsys ARC closes at the end of Q in the first half of 2026 and your expectations around MIPS and other contributors? Timothy Breen: Yes. Thank you, C.J. Maybe I'll start with just kind of winding back on why we've made this [indiscernible] change, and it really reflects the evolution of our strategy. So we renamed wafer revenue to manufacturing services, and that's because more and more of our end products we delivered in different form factors. And if you take our announcement earlier this week on the optical engine, that's much more than wafer. That's an integrated module. And we'll see more and more of that across our portfolio. So it felt more appropriate to describe that as manufacturing services. In the technology services bucket, which you asked about, that's also growing. What that used to represent is really just a complement to the wafer revenue, the mass, the reticles, the NRE that went along with it. But with some of the acquisitions we've made, we increasingly see areas like IP, software in some of that customization and value-add services that really enable us to work more deeply with our customers. I'll let Sam talk about how that range will trend over time. Obviously, we see increased growth based on the acquisitions that we've made. Sam Franklin: Sure. Thanks, Tim. And C.J., we're definitely going to dive more into this as part of the day when we get together on Thursday. So I won't review too much. But to Tim's point, putting all of that together in terms of the composition of revenue from technology services, you'll recall that we used to guide that to the neighborhood of sort of 8% to 10%, we were typically around that 10% midpoint. And as we've seen this evolution and the increase in complementary services within our technology service, our expectation is that our trends will go to the high end of the 10% to 12% range that we indicated at the start of this year. And obviously, we're in the early innings of integrating MIPS, and we haven't yet reach close on the Synopsys ARC IP business. But again, as we ramp those over time and as we create more offerings for our customers, in the IP, the software, the custom silicon solutions, we'd expect that to drive incremental growth over time. Christopher Muse: Very helpful. And I guess as a follow-up, I wanted to focus on silicon photonics. You announced a new platform. You gave a pretty robust outlook exiting calendar, expected, I think revenues to double to $400 million here in calendar '26. Would love to get a sense of how you see kind of the product mix evolving over time. My sense is the lion's share of the revenues today are pluggables, but we'd love to get an understanding of how you see that pattern of changing as we go into '27 and '28. Timothy Breen: Yes. Thank you, C.J. No. I mean I think the broader picture is you're seeing extremely strong adoption of optical across the industry. We hear stats like by 2030, 70% of networking ports in the data center will be optical, and that reflects the complexity of compute and the sheer amount of data that AI workloads require. So I think the optical momentum is clearly building. I think there will continue to be a good discussion about the form factors. Pluggables are in high demand today, growing fast and also evolving with new features and new data rates with 1.6T going into the market today and 3.2 and others on the road map, including for us. I think the evolution to near and co-packaged optics is still very much, if anything, accelerating, and we've heard at OFC this year, many companies come out with their plans, and also this adoption of industry standards indicates ways that the industry can coalesce around a number of kind of more typical approaches to make those products consistent and accelerate the adoption. We've always been of a view that sort of co-package [indiscernible] story. I think that remains the case. What we have said is that we are already seeing tape-outs of products that are intended for co-package and near package optic use, and that's already happening today. So I think that confidence level on that rollout is definitely increasing. Operator: And our next question comes from the line of Krish Sankar from TD Cowen. Sreekrishnan Sankarnarayanan: Congrats on the strong results. Tim, just to stay on the topic of silicon photonics, is there a way you can compare and contrast your scale optical solution with TSMC scoop or [indiscernible] semis offerings? Any color on the nanometer nodes of the logic or optical photonics advanced packaging, et cetera, it would be helpful. Timothy Breen: Thanks for the question, Krish. And we're going to go into a lot more detail on this week on Thursday at our Investor Day. I think it merits not just a longer discussion, but also some slides to make it a bit more visual as well. I mean we've been working on co-packaged optics for more than 10 years. And a lot of what we announced this week is based on technologies that we've developed at the wafer level, but also around advanced packaging, things like hybrid bonding, TSVs, also some of the announcements we made about the ability to have fiber attached that is able to deliver low insertion loss light into the chip, while still maintaining maintainability of those devices so you can service them. All of these are some of the innovations we've worked on, and you'll find a lot of them written about in that OCI MSA. So we think we have an industry-leading solution. It benchmarks very well to competition. But more broadly, this is a fast-growing market and destined to be very large. And so of course, there will be multiple solutions in the market. I think we're very confident in our ability to be amongst those leaders for the foreseeable future. Sreekrishnan Sankarnarayanan: Very helpful, Tim. And then just a quick follow-up. Maybe you'll talk about this more on Thursday as well. On the MIPS IP strategy, how to think about it, given the risk [indiscernible] processor IP, custom silicon software angles. And I remember in the past, you mentioned that MIPS's technology service revenue could be a $100 million plus business this year. Is that still the [indiscernible] to think about? . Timothy Breen: Yes. So look, we've mentioned this before a little bit, but just to comment on it. We're seeing very, very good customer feedback to MIPS and even more positive feedback when we announced Synopsys ARC transaction, which, as Sam mentioned, is set to close within the first half. I think the reason is that customers love the idea of a company with GF scale, with GF, kind of, reliability through the cycle, providing that IP. And I think with the increased adoption of risk 5, especially in those real-world workloads, right, think automotive, think AI at the edge, think about things like radar that require different kind of process technologies. There's a real market need for risk file. I think what also customers are appreciating is the ability for us to engage earlier in that design cycle. And so we can talk about their optimization of their products. We can give them software tools to simulate those early on well before we're talking about manufacturing decisions. But obviously, it's also enabling us to have a deeper conversation and increase our chances of being that partner of choice when we get to the manufacturing. So that's highly synergetic, and it's changing the nature of the conversations with customers. And I think the last piece that's worth calling out is having internally these capabilities also gives us a chance to, if you like, taste our own cooking, and push our process technologies further, not just today but also a longer-term road map because we're able to -- with short learning loops, basically push the limits of what we can do in our process technologies for those key applications. So I'm very, very bullish, not just about the financial trajectory of these acquisitions but also on the strategic back. I'll let Sam comment about where we are for the year. Sam Franklin: Sure. Thanks, Tim. And Krish, to the second part of your question in terms of how we think about the revenue contribution from MIPS in 2026, but we provided some guidance actually at the start of this year and also at the end of last year when we did our Physical AI webinar, that we expected about $50 million to $100 million revenue contribution associated with MIPS in 2026. That range still holds. But what I would say is that we feel like the momentum with customers, as Tim said, is progressing very well. The bookings are progressing very well. We're sort of trending towards above the midpoint of that range that we indicated at the start of this year. And obviously, that's before we factor in the timing of the close associated with the Synopsys ARC IP business. That will come later, and we'll probably be able to give a bit more color on the contribution from that perspective when we get to our next earnings call. Operator: And our next question comes from the line of Matthew Bryson from Wedbush Securities. Matthew Bryson: For the comms and data center side of things, you've highlighted solid opportunities in silicon photonic, but can you talk a bit more specifically around whether there were any specific factors that drove the upside versus your prior guide? Timothy Breen: Yes. Thanks, Matt. Look, I think it's incremental across the board. We're seeing, for sure, the [indiscernible] optical networking picking up. I think there's a lot of momentum behind that adoption. As we mentioned earlier, pulling through to pluggable optical transceivers. If I could show you an X-ray of pluggable optical transceiver, you'd find in it. High-performance silicon tonics, you'd also find some of that high-performance SiGe content that we talked about. So those 2, I think, are the contributors to the increased confidence in the revenue trajectory within that end market. The other parts remain solid and growing well like SATCOM, but I think the optical piece is the one that we'd call out. Matthew Bryson: Awesome. And just a follow-up on that. Higher growth in the segment, I mean, it seems to be favorable for margins, but beyond the higher costs you've outlined tied to the geopolitical events, are there any potential offsets we should maybe think about, like additional CapEx to support the quarters that are tight, or is the shift to mix largely just an unmitigated positive for gross margins? Sam Franklin: Yes. Look, I'd probably break that down, Matt, into sort of the near-term horizon and longer term, and we'll obviously get to some of the longer term when we get together on Thursday. But the expectation from a CapEx point of view at the beginning of this year was that we'd be in the ZIP code of 15% to 20% net CapEx to revenue. That already contemplated some of the increasing demand that we've been seeing come through on the likes of high performant SiGe, photonis, FDX. And so we'd already sized our overall CapEx envelope at the start of this year to really factor some of that in. Now I would say one other point, which I mentioned earlier from a margin point of view, we have seen strong cost synergies come through with the acquisition and continued integration of AMS, that is proving to be a good business, not just accretive from a margin point of view, but growing our offering to customers within the photonics space. And so you're right to call out some of that cost headwind, but we've generally felt that we can see some offsets from that associated with the mix dynamics. And look, our target for the full year is still to exit 2026 at or above a 30% gross margin. Matthew Bryson: Congrats on the strong results. Timothy Breen: Thank you, Matt. Give me a second. I'll can add on the CapEx side. I think as you're seeing, our principles of where we think our CapEx are very much linked to where we see strong conviction in customer demand in those corridors that are oversubscribed today. But you should think about that CapEx, the ROI is very strong because we're adding tools to existing footprints and able to bring capacity on very quickly. And by the way, we do that in sites where we have in place strong government support frameworks and especially for these technologies, there's a lot of government support to build out capacity in the U.S. and around the world. And so even though that CapEx comes through at a significantly lower kind of net fall through once you consider those government partnerships as well. Operator: And our final question for today comes from the line of Ross Seymore from Deutsche Bank. Ross Seymore: One near-term one then one longer term. On the near-term side of things, you guys were helpful for the full year on the revenues by segment. And I think you mentioned that the home IoT is likely to rebound in the second quarter. Any other kind of even directional guidance for the subsegments between the manufacturing and the technology services by end market for 2Q? Sam Franklin: Yes. Look, I'd probably, Ross, draw your attention to start with in terms of how we're seeing this evolution from revenue composition and a diversification point of view because that kind of becomes a little bit of the layup as to how we see the opportunities, not just in the second quarter, but as we go through the year, from an end market point of view. And look, it's an important point to note that in the first quarter, the contribution of revenue from all of the end markets and technology services outside of smart mobile devices that came in at the highest level that we've had as a company, roughly 2/3 of our total revenue. So that gradual mix shift just from a technology point of view, but from an end market point of view has been several years in the making, and we're really seeing that come through in the first quarter, and our expectation is that continues through the rest of this year. So as it relates to the specific quarter-on-quarter dynamics, I'd say that we do continue to expect good year-over-year momentum as it relates to comms infra data center, automotive. As I said, IoT should reverse some of those dynamics we saw in Q1. And then the general offset that, which we touched on in the prepared remarks in the Q&A is really around smart mobile devices, where -- from 90 days ago, we're seeing more kind of high single-digit decline year-over-year. But putting it all together, we think that those declines are offset by the momentum we're seeing in the other end markets. Ross Seymore: Perfect. And I guess my one longer-term question is a perfect segue from what you just said on smart mobile devices. I realize what that end market is doing, and it's nice to see you guys outperforming it relatively speaking. How do you see the performance of GlobalFoundries in that business relative to the market over time? Can you increase that delta so you outperformed by more? Or is it just is what it is, and that might be a kind of year-over-year headwind more structurally going forward as an overall segment? Timothy Breen: Yes. And Ross, we'll share significantly more on that this firstly because obviously, the objective is that is to go a bit further out in time. I think you're seeing some tailwinds when it comes to content growth within the handset. You're also seeing new form factors that bring content. Let me give an example, like smart glasses. I'm a personal strong believer that, that form factor we'll see the light of day and will grow and will become a common place. And that requires new technologies, things like back lane for display micro LEDs things that we've been working on with partners for some time. So I think there are some tailwinds. We'll say more about the overall end market on Thursday. But I think it's too early to count out that category as a drive for the future. Operator: Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Eric Chow for any further remarks. Eric Chow: Great. Thank you, Jonathan. Thanks, everyone, for joining today. We're very excited to see you at our Investor Day on May 7. We will also be at JPMorgan Conference on May 19 and the Cowen conference on May 27. Thanks, everyone, for joining. I appreciate your interest in the company. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the DuPont First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Ann Giancristoforo, VP of Investor Relations. You may begin. Ann Giancristoforo: Good morning, and thank you for joining us for DuPont's First Quarter 2026 Financial Results Conference Call. Joining me today are Lori Koch, Chief Executive Officer; and Antonella Franzen, Chief Financial Officer. We have prepared slides to supplement our remarks, which are posted on DuPont's website under the Investor Relations tab and through the webcast link. Please read the forward-looking statement disclaimer contained in the slides. During this call, we will make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K, as updated by our current and periodic reports, includes detailed discussions of principal risks and uncertainties which may cause such differences. Unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items. We will also refer to other non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials and has been posted to DuPont's Investor Relations website. I'll now turn the call over to Lori, who will begin on Slide 3. Lori Koch: Good morning, and thanks, everyone, for joining our call. Earlier today, we reported our first quarter financial results, which exceeded our previously communicated guidance. Through disciplined commercial and operational execution, we delivered organic sales growth of 2%, 130 basis points of pro forma margin expansion and double-digit adjusted EPS growth. Free cash flow generation and conversion were solid in the quarter. As a result of our first quarter performance, along with price increases due to the Middle East conflict, we are raising our full year 2026 financial guidance. Antonella will provide further details shortly. We also announced that we expect to launch a $275 million accelerated share repurchase under our existing program. A clear example of how we continue to advance our strategic priority of driving disciplined capital allocation by returning cash to shareholders. On the next slide, I will cover the progress we are making on driving growth and continuous improvement. We completed the previously announced divestiture of the Aramids business on April 1. We are confident in [indiscernible] ability to continue to drive growth and opportunity for the employees and customers of the combined businesses. We also recently issued our 2026 sustainability report and announced our new 2035 sustainability goals. The progress we made in 2025 highlights the power of our innovation engine, creating sustainably advanced solutions that help our customers succeed. We continue to reduce our environmental footprint and increase the use of renewable energy sources across our operations while maintaining a strong focus on execution and discipline. Safety and culture continue to differentiate DuPont with record safety performance and high employee engagement reinforcing the connection between what we do every day and the value we create for our customers. Our 2035 goals reinforce our commitment to delivering value by embedding sustainability directly into our business strategy. These goals focus on 3 impact areas. Sustainable innovation, resilient operations and people, partners and communities. They are designed to drive growth through innovation, operational excellence and accountability across our value chain while also advancing progress in areas such as climate action, circularity, safety and responsible sourcing. Moving to Slide 4. We continue to advance our strategic priorities and are seeing direct impacts from the implementation of our business system. We strengthened our performance-based culture with a clear emphasis on growth and continuous improvement, reinforced by the launch of our refreshed core value. This is enabling greater consistency across the businesses as we drive excellence in innovation, commercial execution and operations. Starting with innovation. It remains at the core of our value proposition. Our 2025 [ Vitality ] Index was 35% above the benchmark we previously outlined reflecting the strength and relevance of our product portfolio. During the quarter, we delivered a steady cadence of new product introductions and customer wins across health care, water and diversified industrial end markets. Recent launches include upgraded FILMTEC nanofiltration elements designed to help municipalities and drinking water utilities produce high-quality water with lower energy consumption and reduced operating costs. These innovations are being enabled not only by strong R&D execution but also by continuing investments in digital and AI capabilities. Last week, we announced that we are collaborating with [indiscernible] an AI-driven platform for end-to-end product and application development, focused on accelerating development, improving cycle times and sharpening how we translate ideas into differentiated solutions for customers. This collaboration streamlines and accelerates the work we have been doing on connected lab infrastructure and digital innovation. From a commercial standpoint, we are making steady progress in demand generation and pipeline discipline. Across the businesses, we are advancing targeted sales leads that bring together our technologies and application expertise to address specific end markets where we see attractive growth and differentiated value. We continue to standardize how opportunities are identified, reviewed and advanced, supported by a clear cadence, better data quality and stronger collaboration between commercial, technical and operations team. These efforts are driving better visibility, improved conversion and stronger alignment between our commercial team and customers' highest value needs, improving the quality and durability of our pipeline. On operational excellence, our teams remain intensely focused on the fundamentals. Safety, quality, delivery, inventory and productivity. During the quarter, we delivered meaningful improvements in asset reliability and equipment effectiveness across our key facilities, which supported better on-time delivery and stronger operational throughput. At the same time, we continue to drive productivity through focused maintenance and reliability initiatives, main execution and Kaizen activity across our sites. I am personally excited as we recently kicked off our annual CEO Kaizen event, in which myself and the executive leadership team will each participate in events focus on strengthening our value creation processes across the company. We are also advancing how we operate by pairing process discipline with digital and AI capabilities. Over the last several quarters, we have expanded the use of data-enabled tools to improve maintenance, planning, accelerate defect detection and optimize asset performance. These capabilities are allowing our teams to convert operational data into actionable insights faster, improving reliability, reducing variability and reinforcing safe operations, all while delivering cost and productivity benefits. Importantly, this operational rigor positions us well as we navigate a dynamic external environment. While we are mindful of potential macro and geopolitical headwinds, our focus on productivity, automation, and structural improvement is creating resilience in the businesses. We are building a strong pipeline of Kaizen events and improvement projects for the balance of the year aimed at sustaining momentum in growth and productivity. Our first quarter results demonstrate that we are off to a great start. Our April sales were in line with our expectations, and we continue to see strong order growth trends across the majority of our businesses. Our teams continue to focus on driving growth and operational discipline and our strategic priorities position us well for long-term value creation. With that, I'll now turn the call over to Antonella to cover the financials and outlook in more detail. Antonella Franzen: Thanks, Lori, and good morning, everyone. The first quarter marked a strong operational start to the year, with results exceeding our financial guidance. Favorable top line mix and effective productivity actions drove strong operating EBITDA performance and meaningful margin expansion in the quarter. Throughout today's call, I will provide comments on our results against our prior year reported financials, as well as on a pro forma basis, which adjusts for our post-separation corporate costs, interest expense and income tax rate. This is consistent with the methodology and financial metrics that we provided at our 2025 Investor Day. Beginning with our first quarter financial highlights on Slide 5. Net sales of $1.7 billion were up 4% versus the year ago period on 2% organic sales growth and a 2% benefit from currency. Organic sales growth was led by strength in health care and aerospace, partially offset by continued softness in construction markets and logistics disruptions due to the conflict in the Middle East. These disruptions primarily impacted sales in our water business in the quarter. From a segment view, during the quarter, organic sales grew 3% in Health Care & Water Technologies with organic sales growth about flat in Diversified Industrials. First quarter operating EBITDA of $414 million increased 15% versus the year ago period on organic sales growth, favorable mix and productivity. This resulted in operating EBITDA margin of 24.6% in the quarter, an increase of 230 basis points year-over-year. On a pro forma basis, operating EBITDA increased 10%, with margins expanding 130 basis points year-over-year. Turning to cash flow. We delivered transaction-adjusted free cash flow of $147 million and related conversion of 65%, a solid start to the year. Turning to Slide 6. On a reported basis, adjusted EPS for the quarter of $0.55 increased 53% year-over-year. On a pro forma basis, adjusted EPS for the quarter was up 20% versus the year ago period. The increase was primarily driven by higher segment earnings of $0.06 with an additional $0.03 benefit coming from a lower tax rate, share count and exchange gains and losses. Turning to Slide 7. Healthcare & Water Technologies first quarter net sales of $806 million were up 6% versus the year ago period on 3% organic growth and a 3% benefit from currency. For the first quarter, health care sales were up high single digits percent on an organic basis versus the year ago period. Organic growth was broad-based, led by continued strength in medical packaging and biopharma. Broader sales were down low to mid-single digits percent on an organic basis as strength in industrial water and microelectronics markets were more than offset by logistics disruptions in the Middle East. Operating EBITDA for the segment during the quarter of $244 million was up 9% versus the year ago period on organic growth, favorable mix and productivity gains. This resulted in operating EBITDA margin of 30.3% in the quarter, an increase of 110 basis points year-over-year. Turning to Diversified Industrials on Slide 8. First quarter net sales of $875 million increased 3% versus the year ago period on a 3% benefit from currency. Organic sales growth was about flat in the quarter. At the line of business level, organic sales for building technologies were down low single digits percent on continued weakness in construction markets. Industrial technologies organic sales were up low single-digits percent as continued strength in aerospace and growth in automotive were partially offset by declines in the printing and packaging businesses. Operating EBITDA for Diversified Industrials of $200 million was up 8% versus the year ago period on favorable mix and productivity. Operating EBITDA margin during the quarter was 22.9%, expanding 110 basis points versus the year ago period. Turning to Slide 9. We are raising our full year 2026 financial guidance, given our strong start to the year as well as now including the interest income benefit from the Aramids transaction. For the second quarter, we estimate net sales of about $1.8 billion, operating EBITDA of about $430 million and adjusted EPS of $0.59 per share. Our second quarter net sales guidance assumes about 3% organic growth year-over-year. Currency is expected to be a slight tailwind in the quarter. For the Healthcare & Water segment, we expect second quarter organic sales growth in the mid-single digits percent range, led by strength in medical device, biopharma and industrial water markets. For the Diversified Industrial segment, we expect second quarter organic sales growth in the low single digits percent range on continued strength in aerospace and growth in printing and packaging, partially offset by continued softness in construction markets. For the first half, our estimated net sales of about $3.5 billion assumes growth of about 4% year-over-year. This translates into operating EBITDA of about $844 million, a year-over-year increase of about 8% on a reported basis and 7% on a pro forma basis, resulting in strong operating leverage and an incremental margin greater than 40%. Our first half net sales and operating EBITDA guidance, both represent approximately 48% of our total expected full year results at the midpoint. This is in line with our historical sales and earnings cadence. For the full year 2026 at the midpoint, we now expect net sales of about $7.185 billion, a net increase of $80 million versus our prior guide. Our full year net sales guidance now assumes about 4% organic growth, including about 1% from pricing actions taken to fully offset higher input costs due to the Middle East conflict. A stronger U.S. dollar has also reduced our expected full year currency benefit to less than 1%. Operating EBITDA at the midpoint is now expected to be about $1.745 billion, primarily reflecting our stronger first quarter results partially offset by currency headwinds. Our adjusted EPS range is now expected to be $2.35 to $2.40 per share, a $0.10 increase versus our prior guidance. Our EPS guidance now includes benefits from higher interest income due to the Aramids transaction as well as a lower tax rate which we now expect to be in the 24% to 25% range. At the midpoint, our adjusted EPS is about a 40% increase on a reported basis, and a 15% increase on a pro forma basis. With that, we are pleased to take your questions, and let me turn it back to the operator to open the Q&A. Operator: [Operator Instructions] Your first question comes from the line of Scott Davis with Melius Research. Scott Davis: Congrats on second kind of clean quarter in a row, numbers look pretty good overall. But a couple of kind of big picture questions. I mean you guys have been implementing 80/20. Where are we in that process? And what kind of impact has that had on your top line? Lori Koch: Yes. So we are well into the process within the Diversified Industrials portfolio. So we selected 4 businesses to start, and we're about 2/3 through the initial study. We didn't have any impact in the full year guide on either top line or margin with respect to any implementation, but we would expect over time to see nice margin appreciation with minimal top line impact as we look to improve the margin profile of the businesses and scope. Scott Davis: Okay. Fair enough. And then -- well, I'm going to move on to stranded costs. Where are we with stranded costs in the quarter and for the year. I can't recall what you expected? . Antonella Franzen: Yes. So Scott, we had estimated overall. There's about $30 million of stranded costs, which we committed to taking out within the first 2 years. So this year, we'll have a nice start on that. So for the full year, we'll have approximately like $10 million out from a run rate basis, we'll be actually halfway there. So I would tell you, we're right on cadence with where we expect to be. And again, we expect to have that out in the first 2 years. Operator: Your next question comes from the line of John McNulty with BMO Capital Markets. John McNulty: So I wanted to dig into the water business a little bit more. And especially just given some of the headwinds that you're seeing around the Middle East logistics. I guess a couple of things on it. Can you help us to think about the cost of navigating around some of these issues. Can you speak to also the customer base? And if there's been any -- I know there's been some [indiscernible] impact in the region. I guess any of your customers that may not be coming up, say, when things resume or the strait reopens, et cetera. Can you just help us to think about that? Lori Koch: Yes, thank you. So in the quarter, we had about $10 million of sales that weren't able to ship out of the Middle East. And so if you look at the results for water, we were down kind of low to mid-single digits. If you isolate out that impact of $10 million, we would have been about flat to slightly down. Those materials have already shipped in April, and so we continue to be on track with respect to our Q2 expectations. We didn't bake in a ton of disruption in Q2 with respect to the Middle East for the water business. We will, on a full year basis, continue to expect to be up mid-single digits for water. It's about flat in the first half and then up in the second half, really driven by the timing of some large projects. And so large projects last year were the reverse of this year where they were stronger in the first half in the second half. But the underlying kind of consumables or recurring revenue business is growing nicely each quarter. With respect to the impact from our customer base, nothing as of this point. So there have been a little bit of disruption in our site in Saudi Arabia, but nothing that we can't navigate around. We do have some large projects in the second half in the Middle East around the [indiscernible] as you had mentioned. Right now, we continue to expect them to be on track, but we'll have to watch as the broader situation evolves. John McNulty: Got it. Okay. No great results in a really tough, tough environment. I guess our second question would just be around the operational side. So the margin is clearly coming in really strong at this point. I guess how much of that is mix versus some of the operational improvements you were speaking to? And if it's more leaning toward the latter? It seems like you're -- if anything, you're solidly ahead of kind of the 150 to 200 basis point target that you had set for the next 3 years, I guess any thoughts or comments around that? Antonella Franzen: Yes. So first quarter margins were very strong, as you mentioned. And I would say we got a benefit of both actually. So mix was quite positive in the quarter. That added about 50 basis points of margin. But I would also say net productivity was about another 70 basis points of margin. So again, really strong performance as we move forward. When you take a look at our full year guidance that we have, margins continue to be strong. And even when you go to the first half to the second half, there's another incremental 40 basis points of margin expansion. So to your point, I would say we are well on our way to our 3-year targets that we laid out at our Investor Day. Operator: Your next question comes from the line of Christopher Parkinson with Wolfe Research. Christopher Parkinson: Just as it relates to your health care exposure, obviously, it seems like you're building a decent amount of momentum there. You addressed this at your Analyst Day, but I'd love to hear your updated thoughts. Just in terms of your balance between [ PB, ] biopharma, med device, and some of the larger secular trends that's going on. And do you feel you're underexposed to anything within that spectrum non pun intended? And is there anything that you think you'd like to add to the portfolio to really round it out? Lori Koch: So our overall health care segment is about $2 billion in sales. So it's about $1.2 billion of Tyvek sales and the remainder being the [indiscernible] sales and underneath Tyvek about half of that is health care packaging and the rest primarily are the [ garment. ] So we like our exposure as we sit today, we're nicely positioned in the med device profile between both spectrum on the CDMO side and then also on the Tyvek health care side with packaging needs. So we've got an intent to continue to add to that piece of the portfolio. We've got a nice robust pipeline of assets that are both accretive to growth and also affordable. So there are assets that we would like to add, whether it's around the packaging side to have a broader net packaging offering or whether on the CDMO side, they continue to round out our sales into that space. With respect to our appetite for M&A, we obviously closed the Aramids transaction on April 1. So we got about $1.2 billion of gross proceeds, about $1.1 billion net proceeds. We will continue to be balanced. We announced the $275 million ASR this morning. And we also continue to be prudent. So we're not going to lever up to do a deal. We targeted 2x leverage. We're a little below that today. So between the dry powder we have on the balance sheet as well as the remaining proceeds from the Aramids divestitures, it puts us in good position to also take advantage of potentially an accretive growth deal for us. Christopher Parkinson: And just as a quick follow-up, just kind of a broader question on pricing in terms of the second quarter and also the second half environment. Just how are you thinking about this by segment in terms of what you're seeing in your inputs, transportation, logistics cost. Just obviously, a lot of moving parts. I'd love to just hear your thoughts on strategy and how quickly you believe the organization can pivot? Antonella Franzen: Yes. So I would say the organization has done a great job pivoting as all this has started. So we already have surcharges as well as certain price increases in place to cover these incremental costs. So overall, our expectation is around incremental cost of around $90 million, which we expect to fully cover from a top line perspective related to price and surcharges. As you would expect, it's starting in Q2, so we don't have a full run rate in the second quarter, but the second half will have a full run rate. Just to put a little bit of numbers around it, the second quarter is around $25 million or so of price on the top line to cover those costs. Operator: Your next question comes from the line of Chigusa Katoku with JPMorgan. Chigusa Katoku: Congrats on a great quarter and a challenging operating environment. So I just wanted to follow up on the price cost. So margins were really strong this quarter. If my math is correct, it looks like it's going to step down to around 24% in the second quarter. So if you could just help me understand the puts and takes around this. I think that you plan to institute price increases on April 1, you had inventory. So I think meaningful raw material inflation as opposed to come be felt around maybe late 2Q, but any moving pieces here? And what's impacting the doctor margins in the second quarter? Antonella Franzen: Yes. So when you go from the first quarter to the second quarter, 2 things to keep in mind, price cost, to your point, we have pricing actions we'll have costs in the P&L. That's about a 30 basis point margin headwind. And there's about 40 basis points of a margin headwind from Q1 to Q2 related to mix. So that's your Q1 to kind of Q2 walk relative to where we're at, but underlying performance continues to remain very strong. When we talk about kind of what's embedded in terms of the full year, and the timing of that. So we did have some that started in April, I'll tell you, a majority of increases related to surcharges and price increases started on May 1 because there is some customer notification time that's needed relative to that. Obviously, every product that we have in inventory has different terms associated with it. So keep in mind that these increased costs started at the latter end of the first quarter. So we definitely have some impact related to that in the second quarter. And as I mentioned, when you take the difference between price on the top line and costs on the bottom line, it's about 30 basis points of the headwind in the quarter. Chigusa Katoku: Okay. Great. So is my understanding correct that the majority of increases started in May versus April. So you haven't been seeing the order trends. I guess, maybe put it differently, after you started some price increases in April, how have order trends been compared to March? Antonella Franzen: Yes. So as Lori mentioned, I would say our order trends in April were actually -- we have very similar demand as we have been seeing and nice increases overall on a year-over-year basis. So order trends are doing well. Operator: Your next question comes from the line of John Roberts with Mizuho. John Ezekiel Roberts: I think you noted strength in automotive during the quarter. Maybe you could comment a little bit on where that came from and how sustainable that might be since I think the auto outlook is not that rosy right now. Lori Koch: Yes. So we've got automotive. It's primarily within the industrial technologies line of business within Diversified. So we've got the predominant exposure within [indiscernible] we also have physicians in [indiscernible]. So our outperformance amid a tough market, as you had mentioned, is really based on the battery adhesive volumes that we have. So we've got about roundly $300 million of sales that go into EVs. A piece of that is battery, which is all incremental growth for us, and it's growing nicely in the year, well above kind of where the 20-ish percent EV growth expectations are because it's new volume for us and new wins. So we continue to be positioned nicely and realize the pipeline has been building over the last couple of years, frankly, as we got qualifications with the large OEMs. John Ezekiel Roberts: And then just a clarification. When you talk about desalination, is that municipal to you? Or is that industrial to you? Lori Koch: It's primarily industrial. Primarily RO as well. It's the reverse osmosis component of water. Operator: Your next question comes from the line of Josh Spector with UBS. Joshua Spector: I wanted to follow up on just the Middle East impacts around water. I think on some of the pre-closed conversations, there was messaging that there were maybe $25 million a month in sales into and out of the Middle East. And there is an inability to get material out, I guess, while the strait is closed. Just based on your comments about not really baking in much in terms of the outlook, have you found alternative routes for those materials? I guess it sounds like you've mitigated that, but I'm not 100% clear. So can you expand on that a bit more? . Antonella Franzen: Sure. So let me size up our total exposure related to the Middle East. So in total, it's around $300 million, about 4% of our top line. Half of that is related to sales into the Middle East and the other half is related to things that are sourced from the Middle East. So when you kind of do the math around that and 1 month of the strait being closed, that's kind of where the $25 million came from. As we mentioned earlier, there was about a $10 million impact to the top line in the first quarter related to products that we weren't able to get out. So that clearly tells you we have been able to mitigate quite a bit of that and obviously have taken that into consideration relative to our Q2 guidance. Joshua Spector: But I guess if I take that then in those comments, it seems like half of it is still impacting, maybe a little bit less. So is there something to the tune of $30 million to $40 million in sales and maybe 1/3 of that in terms of EBITDA impact in 2Q to assume that the impacts linger or does that lessen through the quarter and therefore, this whole map becomes somewhat not necessary? Antonella Franzen: All that math is not necessary. I would say that the teams have done a great job to find alternative routes in order to get some products out and to make sure that we have the necessary raw materials in order to be able to produce at the site as well. So again, the teams have stepped in very quickly to find alternatives related to that. We were able to have minimal disruption as in first occurred and clearly have plans in place as we move forward. Operator: Your next question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Lori, just on construction, can you talk about the weakness in those markets? And how much is it down for you guys in Q1 and your expectations for the first half of the year? Lori Koch: Yes. So we continue to expect overall construction markets to be about flat on a full year basis. We do have about 1% price in that space that will give us some slight organic growth but it's really kind of slightly down in the first half and then slightly up in the second half. So in the first quarter, we were down low single digits. Our performance was in line with the market where the resi, primarily North America resi continues to be weak and then you're seeing about flattish in the commercial and do-it-yourself base once you back out the data center volume that happened in commercial, our commercial is more on the health care, education, retail side. David Begleiter: Very good. And just on the Middle East conflict, are there any opportunities longer term from you being a more U.S. supplier, reliable supplier at lower cost overall down the road? Lori Koch: Yes. I mean I think there's always opportunities that we're looking for to be able to continue to expand both our share and our TAM. Not only are we well positioned from a share perspective, we're also well positioned with where our asset base sits, which has enabled us to navigate quite a few disruptions over the past couple of years. So starting back with tariffs, we were able to move product around our supply chain to mitigate the headwind there. And then now with the Middle East tariffs, we've been able to move volume around to be able to mitigate the impact that was felt initially within our KSA plant in Saudi Arabia. . Operator: Your next question comes from the line of Matthew DeYoe with Bank of America. Matthew DeYoe: So health care sales seem to be like accelerating quite a bit. I wanted to just dig in a little bit more on comps versus market versus owned portfolio position for 1Q. And as we look, I guess, to the guidance a bit, you're looking for 4% on the year, 1% from price. I think 1Q is probably closer to 1.5%. And so I kind of bridge this like 1.5%-ish from 1Q to 3% for the back half. It seems like maybe normalization of water, but can you fill in the gaps and maybe how that also relates to how health care should trend from here? Lori Koch: Yes. So we had a very strong quarter with health care in Q1, where our results were up high single digits organically. That was really nice volume and some nice price as well. And we continue to expect health care to be up mid-single digits as the year progresses and land at maybe mid- to high single digits on a full year basis. So we have really nice positions I had mentioned on the health care packaging side and see nice growth in procedures that influenced both the med packaging as well as the spectrum side. [ Livio, ] which is our biopharma business, a really, really nice results in Q1. So there's a nice recovery in demand there that will continue to see nice results. And then maybe just quick on water. I had mentioned that it was down in the first quarter that was really more around the $10 million of volume that didn't ship as well as the timing of large projects. So we'll be will be about flat overall in water in the first half and then we think up kind of high single digits in the second half really around the project timing volume to land at mid-single digits for the full year. Antonella Franzen: The only thing I would add to that is just around the water business, although it's relatively flat first half, high single digits in the second half, if you adjust for the timing of the projects and normalize that, you're more going from like a 4% growth to a 5% growth. Matthew DeYoe: Okay. And then quickly, so Tyvek's been able to absorb a fair amount of raw material pressure in the short time. And I'm looking at obviously, some of your suppliers talking about another $0.20 per pound for May. And I don't know we'll see if they can get it, right? But I'm wondering, is there kind of an ongoing propensity to be able to push surcharges in a world where this gets increasingly sketchy. I'm thinking almost maybe a little bit more on the building products side because I feel like health care would probably be less plastic, but maybe that's not the case. Lori Koch: Yes. I mean we had nice success with both mix of prices and surcharges that we already put in place, whether it was April 1 or May 1. And so I think if you can provide the documentation to your customers around what we're seeing with respect to input costs, as we had mentioned, are most felt on the [ HDPE ] side, as you had mentioned within TYVEK and then with the [indiscernible] side in water and [indiscernible]. But there's other pieces that we've seen as well. So I think there's -- we haven't received an abnormal amount of pushback. Obviously, there's always a discussion that needs to be had, but we're not looking to profit. We're looking to just cover it, and the conversation has been constructive. Operator: Your next question comes from the line of Vincent Andrews with Morgan Stanley. Vincent Andrews: You called out some weakness in packaging. We've been hearing sort of mixed things about the packaging arena. So maybe you could just talk about what you're seeing there what the outlook is for the remainder of the year? And I would assume there's also some inflation there that you need to push through. Lori Koch: Yes. So our impact in the packaging business weakness in the first quarter was really more around the [indiscernible] business in scope. It's really around home and office shrinking. It was a tough comp from a strong first quarter of last year. I think on a full year basis, we see the overall printing and packaging businesses normalizing being up kind of low single digits. Vincent Andrews: Okay. And I think the answer to this is there's nothing. But is there -- is there any at all update to [ PFAS ] or anything that's going on with the personal injury litigation? Lori Koch: Happily, no. Operator: Your next question comes from the line of Patrick Cunningham with Citi. Patrick Cunningham: You previously noted, I think, free cash flow greater than 90% for 2026. Is that still the case? And how should we think about working capital dynamics given the higher input costs potentially impacting cash generation cadence for the year. . Antonella Franzen: Yes. So first off, yes, free cash flow generation is still expected to be greater than 90% for the year. As I mentioned in our prepared remarks, our first quarter conversion was around 65%. So we did have a good start to the year. As you would expect, we tend to have a stronger free cash flow conversion in the second half of the year than the first half of the year, predominantly in the third quarter as we have our interest payments twice a year in Q2 and in Q4. Clearly, the increased cost in materials will increase your inventory dollar value, but the teams, I would say, are doing a good job relative to our inventory days outstanding and kind of taking those numbers down on a year-over-year basis. So we do have that embedded within our free cash flow conversion. So I would say we are managing working capital very well, and the teams are also focused not only on inventory but as well as DSO in terms of collections, which will put us in a good spot to achieve our free cash flow conversion for the year. Patrick Cunningham: Great. And then I think this is the first time you kind of explicitly called out microelectronics within water. So can you help us size the business there? What sort of growth rates we should expect? And any color on market penetration, new technology, new wins? Lori Koch: Yes. So microelectronics is primarily within ion exchange. So it's about 20% of ion exchange. We saw nice volume in the first quarter, as you would expect, just around the broader data center trend. So we continue to expect to perform nicely there with that business. . Operator: Your next question comes from the line of Mike Sison with Wells Fargo. Unknown Analyst: This is [ Avi ] on for Mike. I wanted to confirm your assumptions underpinning your full year '26 guidance. So when are you assuming the conflict in the Middle East resolved, if at all? And if it stretches to the end of the year, does that mean you're going to have to raise prices of more than 1%, offset incremental raw material inflation do you think you'd see any demand destruction if it stretches that long? Any color you can give would be helpful. . Antonella Franzen: Yes. So I would say our overall full year guidance anticipates that the current situation continues through the remainder of the year. So current oil prices, current natural gas prices, our assumption is that continues all year long. That is covered by the pricing actions that we have already put in place. Clearly, if this were to escalate or get even worse from where we are today, that would obviously have some impact on the assumptions that we've made, but we're not planning on it going away. Also, I would tell you if things were to escalate from where we are today, the teams would obviously see what other actions that we could take in order to mitigate any disruptions. Unknown Analyst: Got it. And then just pivoting back to health care, can you just talk about some of the underlying demand trends that are driving growth across the medical packaging and devices spaces. . Lori Koch: Yes, a lot of it is around the aging population and health care access. So that's one of the key global mega trend drivers for both med packaging and the health care needs. A lot of our exposure on the Med packaging side to the higher-end Class 3 devices and on the med device side with spectrum, it's really around cardiovascular and higher-end growth not elective surgery type application. So really, with the aging population and the access to health care is what's driving that megatrend. Operator: And the last question will come from Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Sorry, I was on mute. Apologies for that. I guess just 1 final question for me was given that you've had many years of portfolio transformation here, would you expect -- and maybe you can just provide us an update on the 80/20 strategy within Diversified Industrials and so -- there's any further portfolio reconfiguration that we can expect? Lori Koch: Yes. So the 80/20 work within Diversified is really to look at enhancing margin profile. So we had targeted 4 businesses to start and have been working through a really robust process on making sure that we're looking at the [ tailspin, ] looking we're investing, making sure that we're investing for growth in pockets of where there's opportunity across those businesses. I would say more broadly with respect to the portfolio, we're excited about the portfolio that we have. It's nicely balanced between Health Care & Water and Diversified Industrials. We're about 50-50 today. We've mentioned that over the medium term, we would like to get to more 2/3, 1/3 with respect to growth above market. So moving more of the company more towards that Health Care & Water space. But as of now, we're happy with the portfolio. But we'll always be looking, as I had mentioned, due to some M&A, we've got dry powder and cash from Aramids to be able to potentially take advantage of some good opportunities. Arun Viswanathan: Okay. And sorry, just 1 more. Given the $275 million ASR, is that really the last kind of accelerated repurchase activity that we should expect? Or maybe you can just comment on your outlook for further buybacks or yes, capital return. . Antonella Franzen: Yes. I would say, overall, we're always looking to see what's going to bring the best return to our shareholders. So we already had completed, as we announced in the last quarter, the $500 million ASR. We now announced this morning an additional $275 million ASR. As Lori mentioned, we do have a lot of flexibility relative to the cash in the door related to the Aramids transaction as well as the balance sheet we have. So we will continue to evaluate. As a reminder, we do have a $2 billion program, of which we've used the $500 million and now the $275 million. So we'll continue to evaluate our opportunities, and we'll act on what brings our shareholders the most amount of value. Operator: I will now hand the call back over to Ann Giancristoforo for closing remarks. Ann Giancristoforo: Great. Thank you, everyone, for joining our call. For your reference, a copy of our transcript will be posted on DuPont's website. This concludes today's call. Operator: Thank you. This concludes today's conference call. You may [ now disconnect. ]
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, and welcome to the Viper Energy, Inc. first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker 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 has been raised. To withdraw your question, please press *11 again. Please be advised that today’s conference is being recorded. It is now my pleasure to introduce Director of Investor Relations, Chip Seale. Chip Seale: Thank you, Andrew. Good morning, and welcome to Viper Energy, Inc.’s first quarter 2026 conference call. During our call today, we may reference an updated investor presentation which can be found on Viper Energy, Inc.’s website. Representing Viper Energy, Inc. today are Kaes Van't Hof, CEO, and Austen Gilfillian, President. 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 these 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. The 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. Kaes Van't Hof: Thank you, Chip. Welcome everyone, and thank you for listening to Viper Energy, Inc.’s first quarter 2026 conference call. The first quarter marked a strong start to the year as production exceeded our expectations and that momentum is carrying into an increased growth outlook for the remainder of 2026. During the quarter, operators in our acreage turned more than 650 gross horizontal wells to production, led by Diamondback’s 114 gross wells in the Midland Basin, with meaningful contributions from leading third-party operators across both the Midland and Delaware Basins. Based on first quarter results and continued strong activity across our acreage, we are increasing the midpoint of our full-year oil production guidance by roughly 2.5% and expect growth to be driven primarily by Diamondback’s acceleration in near-term activity and continued development of Viper Energy, Inc.’s high concentration royalty interest throughout the basin. Importantly, this increased production outlook represents over 5% organic growth relative to our pro forma 2025 exit rate. In addition to this organic growth, Viper Energy, Inc. also continues to execute on our differentiated inorganic growth strategy. Yesterday, we announced the Riverbend acquisition, in which Viper Energy, Inc. will acquire over 3,000 net royalty acres and approximately 2,000 barrels of oil production per day for $337 million in cash and 3.7 million Class A shares. These assets are highly complementary to our portfolio, with roughly 75% overlap on our existing acreage and further increase our exposure to high-quality third-party public operators. Turning to capital allocation, our first quarter return of capital of $0.94 represents 90% of our cash available for distribution, and this is comprised of a $0.68 per share dividend and $0.28 per share of stock repurchases executed in the quarter. As we have outlined, we are committed to returning at least 75% of cash available for distribution, and our return of capital framework is designed to be both disciplined and flexible to fit the needs of our business. Prior to the Riverbend acquisition, we had a further commitment to return 100% of cash available for distribution if we were at or below $1.5 billion of net debt. On that point, it is important to note that $1.5 billion net debt is not a static amount, but instead represents a capitalization mix designed to evolve with the continued growth of the business. Within our broader capital allocation strategy, we will continue to invest in growing our business when the right opportunities present themselves. However, in periods where we are closer to our minimum debt mix, we will provide all that cash back to our stockholders. In closing, Viper Energy, Inc. offers a differentiated investment within the energy sector. Our mineral and royalty model, deep inventory position, and alignment with Diamondback support durable organic growth and strong free cash flow generation. Combined with disciplined capital allocation, we are well positioned to deliver sustainable per-share growth and attractive long-term stockholder returns. Operator, please open the line for questions. Operator: Certainly. As a reminder, 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. One moment, please. First question comes from the line of Greta Drefke with Goldman Sachs. Greta Drefke: Good morning, team, and thank you for taking my questions. First off, I was just wondering if you could speak to the number and scale of remaining Permian pure-play packages available that Viper Energy, Inc. could potentially consolidate over time. Do you expect Viper Energy, Inc.’s consolidation strategy to be the roll-up of smaller positions, or are there positions with meaningful scale that Viper Energy, Inc. could evaluate over time? Kaes Van't Hof: Hey, Greta. Thanks for the question. I think it is going to be both. This deal with Riverbend is kind of the first deal in this size range that we have executed at Viper Energy, Inc.’s new pro forma size and scale, meaning post drop-down. I think it is a nice tuck-in acquisition, and we can execute on these very seamlessly. When you think about the opportunity set of deals in this size range, it is quite sizable, actually. In addition to that, there is a handful of larger opportunities. We will see how things play out. It is still tough to get deals done in this market, I would say, but as we showed yesterday, there are ways for buyers and sellers to come together with the volatility to still get deals done. I would say I am cautiously optimistic, but the opportunity set, both medium-sized and larger, is really quite massive for Viper Energy, Inc. We think we have positioned ourselves to be the buyer of choice for those mid-sized to larger deals. A deal like Riverbend would have been a very large deal for Viper Energy, Inc. three or four years ago, and now we are able to finance it without going to the market, able to pay down that financing very, very quickly, and not have a huge overhang on our stock. I think it is pretty clear that any large private equity-backed mineral position that has been built over the last five-plus years is now considering an exit with oil prices where they are. I think we are clearly the buyer of choice, but we need to be disciplined in terms of our valuation framework, and getting this deal done with Riverbend is a good example of that, and hopefully more to come. Greta Drefke: Great. Thank you. That is very helpful. And then for my second question, I just wanted to follow up a bit more on Riverbend specifically. You outlined that about 75% of the asset base overlaps with Viper Energy, Inc.’s existing assets, but I was wondering if you could provide any more detail on the quality and/or geological differences of the other 25% relative to Viper Energy, Inc.’s position. Austen Gilfillian: Yes, so the Midland Basin is going to be a lot of overlap. The Midland Basin is almost three-quarters, call it 70%, operated by Exxon and Diamondback. We are really kind of in the Midland, Glasscock, up in Reagan area, and a lot of undeveloped acreage under Exxon. I would say that looks a lot like Viper Energy, Inc. does today. The Texas Delaware looks pretty similar with some of the Reeves County assets under Permian Resources, for example. What is different is probably some of the New Mexico assets, and that is the exposure that we outlined under Conoco, Oxy, and EOG. So it is really a balanced mix. It gets a lot of what we like in the Midland Basin, and it gets some new, exciting exposure in New Mexico that Viper Energy, Inc. historically has not had a huge presence in. Operator: Thank you. And our next question comes from the line of Analyst with Barclays. Analyst: Hello. Good morning again. I want to ask about capital allocation. Given Diamondback is taking a more opportunistic approach on buybacks, can you speak to the capital allocation process and decision-making for Viper Energy, Inc. in terms of both the percentage of free cash flow being returned and the allocation of that cash return in the form of buybacks versus variable dividend? My follow-up is actually something that you mentioned on the Diamondback call, this resource recovery, that we are on the cusp of a technical breakthrough and could see resource recovery increasing in the Permian. Clearly, that is beneficial for Viper Energy, Inc. Maybe just speak to where you are seeing the productivity trends across Midland and Delaware, and how that potentially higher resource recovery could help drive Viper Energy, Inc.’s production growth down the road as well. Kaes Van't Hof: Good question. I would say the difference between Viper Energy, Inc. and Diamondback still remains that, because of the low or zero CapEx at Viper Energy, Inc. and the fact that this was taken public as a distribution vehicle, we still want to be primarily a distribution vehicle where share repurchases are brought into the equation when we have a unique situation with an unorthodox seller or a non–long-term holder of the stock, or the stock is significantly depressed in terms of valuation. Versus Diamondback, where you have an E&P business with CapEx and different priorities in terms of free cash generation. So we have gone to this number where we are going to distribute at least 75% of our free cash every quarter. This quarter we went with 90% because the balance sheet is in really, really good shape, and we will see what happens in Q2. If we have significantly higher prices throughout the quarter, I think we have flexibility to return anywhere between 75% and 90% of free cash because we know that the excess free cash flow is going to pay down the Riverbend deal very, very quickly. Viper Energy, Inc. is in a really good spot, but I would say overall we are focused on more cash going out the door than repurchases and have less need for debt reduction given the position of the business. On the resource recovery theme, this is a long-term megatheme. I do not have a ton of concrete examples today. Obviously, we have done some tests at the Diamondback level of surfactants and advanced chemicals, and those have been done in areas where we do have Viper Energy, Inc. interest, so Viper Energy, Inc. does get that benefit. It is immaterial today, but using the crystal ball four, five, six years down the road, could that be a material part of Diamondback’s capital plan and therefore Viper Energy, Inc.’s production profile? I think that is entirely possible. The other key advantage that Viper Energy, Inc. has is being in roughly 50% of the wells in this basin. We have differential knowledge as to what everybody is trying across both sides of the basin. As these tests continue, we will have differential information at Viper Energy, Inc. and hopefully leverage that to improve returns across both companies. Operator: Thank you. And our next question comes from the line of Neal Dingmann with William Blair. Neal Dingmann: Hey, Kaes. My first question, just on production guidance: besides the boost in Diamondback, could you talk about what other sort of upside third-party activity you are assuming? And secondly, just on the M&A side, after the prior sale earlier this year, are you holding much that you would now consider non-core at this time? Kaes Van't Hof: I will give you my high level. We have not booked a ton of third-party acceleration or faster development yet in our guide. I think it is likely to come, but we have seen the leading indicators without seeing them convert into dust and wells turning online. If I was a betting man, at these oil prices, things are going to accelerate throughout the basin. Austen Gilfillian: There are two parts to the DUC equation. One is the absolute amount of DUCs and permits that we have; the second part is how quickly those get converted to production. It is easy to see in real time any increase that happens in the DUC and permit count. It is harder to get a feel for the quicker conversion rates. Right now, we are getting the benefit of any increased permitting activity, but we have not modeled increased rates of conversion. That is going to be the biggest driver as you think about how it impacts the next six months. We are watching and monitoring things as they evolve, and we expect some things to come our way, but we probably have not fully baked in the acceleration benefit from third-party operators across the basin. Neal Dingmann: Thanks, Austen. Kaes Van't Hof: On the M&A side, we cleaned up all the non-Permian assets and used that to put the balance sheet in perfect shape. I think we will see a wave of private equity-backed mineral companies at least try to test the market over the next couple of quarters to a year, and we are primed from a positioning perspective to take advantage of that. Neal Dingmann: Thank you. Operator: Thank you. And our next question comes from the line of Paul Diamond with Citi. Paul Diamond: Thank you all. Good morning, and thanks for taking the call. Just a quick touch on Riverbend and the M&A. You talked about the availability of deals, but how has recent volatility impacted the bid-ask of the deals of different sizes? Are you seeing a bit more convergence on those large deals, of which Riverbend is an example? And just one quick piece of housekeeping: cash taxes had a bit of a run-up with recent pricing. At what point do you see things settle down? Is it still like 27% to 28% where things kind of level out, or how much has current volatility pulled that back? Kaes Van't Hof: We only have one good data point with the Riverbend deal. What is interesting about that deal is the strip is so backwardated that we can underwrite a relatively moderate flat oil price scenario for the NAV of that deal, call it $65 to $70 a barrel, and that actually is not too far off from where the strip is. You have the front end that is so high, so yes, we are paying a lower front-year cash flow multiple, but we are not breaking our pick on NAV because the NAV is pretty tied to that long-term mid-cycle price that we are underwriting. Riverbend had owned this position for a while, and they were looking for an exit, and the stars aligned; they were the first to make the move. Credit to them: they now have about 3 million shares of stock that are up 8% to 10% from where we did the deal, and that is a win-win. Beyond that, I have not seen anything else hit the market yet; I just know that supply is likely coming. Austen Gilfillian: On cash taxes, the rate is not changing that much in itself. We still have the 27% to 30% of pretax income, and that is really your 21% statutory rate and the effect of having a higher depletion rate from an income perspective than from a tax perspective. For first quarter taxes, we were higher as an absolute dollar amount than we guided to because income was up, but we expect that 27% to 30% to be a pretty steady rate going forward. Paul Diamond: Understood. Appreciate the clarity. I will leave it there. Chip Seale: Thank you. Operator: And our next question comes from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: Good morning, and thanks for your time again. Kaes, perhaps for you, more broadly as you think about the green-light environment for Diamondback, what degree of flexibility do you have in the development plan at Diamondback to lean more into the areas where Viper Energy, Inc. has higher NRIs for both 2026 and 2027? And maybe just more specific on 2026 guidance: is it fair to think about the cadence of growth beyond 2Q as a steady build of maybe 1,000 barrels per day per quarter to get to the average of 65.5? Kaes Van't Hof: I think the way we look at it remains the same. We do look at all of our inventory on a consolidated basis for the portion of Viper Energy, Inc. that Diamondback owns. That moves the high-interest area to the front of the development plan. If anything over the next couple of years, given the quality of what we have seen in the Barnett near Spanish Trail, I would bet that area gets accelerated versus expectations over the next 18 to 24 months. One of our best Barnett wells is right off that Spanish Trail, and it is very unique to have an area where you own 100% of the minerals. I think we have a two-well test coming on—it has been a four-well test—coming on in Spanish Trail later this year, and if I was a betting man, I would say that is going to result in accelerated development of the rest of that branch. Austen Gilfillian: On the cadence, I think that is directionally right. We will see how things trend, and if activity gets brought forward, that could move things a little bit, but as we see things today, that seems directionally right. Derrick Whitfield: Thank you. Operator: Thank you. Our next question comes from the line of Leo Mariani with Roth. Leo Mariani: I just wanted to revisit the question of variable dividend versus buyback. On the Diamondback call, you were pretty clear that you wanted to take more of a countercyclical approach and, when well above mid-cycle oil prices, lean more on paying down debt. Obviously, you do not really need to do that at Viper Energy, Inc. Should we be thinking similarly where at a higher-than–mid-cycle oil price, you are more likely to push money to the variable dividends and the buyback could be a bit more muted in the near term? Also, jumping back to the Riverbend deal: you did a good job talking about where the acreage was in terms of key operators. You made a high-level comment that some of the stuff under Exxon was a little more underdeveloped. Can you give a sense of the overall flavor of the inventory there? Is it geared more toward emerging zones, or is there still substantial core legacy zones like Wolfcamp A and Wolfcamp B? And based on what you are describing, if oil prices hang out here, would you expect that production grows a bit over time from that individual piece? Kaes Van't Hof: Generally, you are correct. We are going to lean more towards cash returns at Viper Energy, Inc. It is how the business was set up. We have not used a ton of leverage in deals—particularly the drop-down—and we paid off most of that CTO debt with the non-core asset sale. In the uses of free cash flow, Viper Energy, Inc. has a base dividend that is going to continue to grow. I would put the variable dividend probably a little bit above repurchases, just because that is how the business was set up. I do not think we are going to sit on a bunch of cash at Viper Energy, Inc., given the strength of the balance sheet. The decision tree becomes easier when you are a distribution vehicle versus an overall NAV growth vehicle at Diamondback. We are going to keep distributing cash, we are going to grow these per-share metrics, and that should result in a higher stock price but also higher distributions. Austen Gilfillian: It really highlights the advantage of the business model when you have roughly 90% free cash flow margins. It allows you to do all of the above. You can pay a big dividend with a base plus variable, you can opportunistically invest in the business—whether that is buybacks or acquisitions—and you can have targeted debt reductions, especially in times of higher commodity prices. You do not have to sit around and wonder which of those options to choose, because your investment as a percentage of operating cash flow is pretty low given the margin. On Riverbend inventory, most of the value will come from your core zones being undeveloped, especially in New Mexico and in the Midland piece. If you look at the Midland–Glasscock line, kind of in what we call the four-corners area there, there is a big chunk of legacy Pioneer—now Exxon—completely underdeveloped acreage that I think will be the primary acreage that supports the production profile over the coming years. As you dig in and think about some of the unquantified zones that we did have to pay for, you are getting the emergence of the Barnett in the Midland and also the Woodford in the Delaware, kind of on the eastern edge of the Delaware Basin. We are pretty excited about that. So I think it is a good mix of existing production and also core undeveloped zones, and you get the unquantified upside to go along with it. That is the beauty of the mineral business model. Kaes Van't Hof: On the trajectory, I think 2027 probably grows, and it has got a couple of years of slight growth. Generally, if you zoom out and look over a five- to ten-year period, it looks pretty flat, but 2027 certainly looks higher than the next-twelve-month production number that we put out. Operator: And our next question comes from the line of Tim Rezvan with KeyBanc Capital Markets. Tim Rezvan: Good morning, folks. Some of mine have been answered, so just one for you. We were a little surprised that the Viper Energy, Inc. secondary earlier this year was mostly Diamondback selling and not as many unnatural holders. That overhang is still out there a bit. Is there a price at which you potentially would not participate if some of these unnatural holders come to market? How do you think about dampening volatility should they look to sell because shares are back up to about $50? And as a follow-up, we have heard from some minerals peers that, all else equal, a higher strip is bringing sellers to market. Are you seeing that dynamic as well, or are you facing a different dynamic because you are sort of elephant hunting with a couple of the very large packages out there? Kaes Van't Hof: It kind of depends on the size of the deal and the nature of the trade. If it is a sizable deal and we need to make sure it goes smoothly with public shareholders, then we want the long-term holders of the stock to win long term, and that is probably a good use of capital. If it is smaller one-offs, we probably do not need to support it, given the higher float and liquidity of the business. Flexibility is key, and size of the prize is also key. We are well on our way at Viper Energy, Inc. toward that goal of S&P 500 inclusion as the business gets bigger. That is only going to help float, liquidity, ability to exit, and ability to get deals done. Austen Gilfillian: We have seen it on both levels. We are still actively engaged in our ground game, and calls have picked up on that front, surely as a result of where oil prices have moved. We have seen it on the smaller deals, and we have also seen it on the mid to larger packages—the phones are definitely ringing. I just cannot predict yet what the higher strip or volatility means in terms of ability to get deals done. I think the supply is going to be there. It is key for us to stay disciplined, and when the right deals can generate good returns, we will act. If we do that, things will come our way over time. Operator: I will now hand the call back over to CEO, Kaes Van't Hof, for closing remarks. Kaes Van't Hof: Thanks, everybody, for your time. Busy week, and thanks for your support of Viper Energy, Inc. The future is bright. Operator: Ladies and gentlemen, thank you for participating. This does conclude today’s program, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Carlsmed, Inc. first quarter 2026 Earnings 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. I would now like to turn the conference over to your first speaker today, Stephanie Vadkovich. Stephanie Vadkovich: Thank you, operator. Welcome to Carlsmed, Inc.'s first quarter 2026 earnings call. Joining me on today's call are Michael Cordonnier, chairman and chief executive officer, and Leonard Greenstein, chief financial officer. Before we begin, I would like to caution that comments made during this call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding the market in which Carlsmed, Inc. operates, trends, expectations and demand for Carlsmed, Inc. products, expectations with respect to reimbursement, statements about the company's clinical data, surgeon adoption and utilization, and Carlsmed, Inc.'s expected financial performance and position in the market. Any forward-looking statements made during this call, including projections for future performance, are based on management's expectations as of today. Carlsmed, Inc. undertakes no obligation to update these statements except as required by applicable law. These statements are neither promises nor guarantees and are subject to known and unknown risks and uncertainties that could cause actual results, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements. For more detailed information, please review the cautionary notes on the earnings materials accompanying today's presentation as well as Carlsmed, Inc.'s filings with the SEC, particularly the risk factors described in Carlsmed, Inc.'s Annual Report on Form 10-K for the year ended 12/31/2025. I encourage you to review all Carlsmed, Inc.'s filings with the SEC concerning these and other matters. Additionally, during today's call, management will discuss certain non-GAAP financial measures, including adjusted EBITDA. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in today's earnings press release. These filings, along with Carlsmed, Inc.'s press release for the first quarter 2026 results, are available on carlsmed.com under the investor section, and include additional information about Carlsmed, Inc.'s financial results. A recording of today's call will also be available on Carlsmed, Inc.'s website by 5:00 p.m. Pacific time today. Now I would like to turn the call over to Michael to go over Carlsmed, Inc.'s business highlights. Michael Cordonnier: Thank you, Stephanie, and welcome to the team. I would like to welcome everyone on our call today. At Carlsmed, Inc., our mission is to improve outcomes and decrease the cost of health care for spine surgery and beyond. To achieve this mission, we have pioneered patient-specific digital surgery for lumbar and cervical spine fusion procedures. Our vision is to make personalized surgery at scale the standard of care for spine surgery. Our AI-enabled digital surgery empowers surgeons to partner closely with patients to seamlessly create three-dimensional surgical plans and 3D-printed spine fusion devices designed to achieve predictable patient outcomes while supporting the surgeon's preferred surgical approach. We then provide postoperative outcome analytics to our surgeon users for each procedure through our Aprivile Insights as part of the MyAprivile ecosystem. We believe this personalized, outcome-driven, AI-enabled ecosystem approach represents the future standard in medical technology, one that is better for patients, surgeons, hospitals, and payers. Importantly, our model is built to scale efficiently. By manufacturing only what is needed for each specific procedure, we avoid the traditional prebuilt inventory trays of implants and instruments that have long burdened the legacy spine and orthopedics businesses. Instead, we are able to provide patient-specific, sterile-packed implants and instruments specific to each patient just in time for their surgery. This capital-light, demand-driven approach enables us to scale rapidly while maintaining a relentless focus on patient outcomes. With this vision as our guide, 2026 is off to a great start with solid execution across our business. In the first quarter, we saw strong adoption of our lumbar and cervical personalized surgery procedures, reinforcing our view that Aprivo as a platform technology is positioned to transform spine surgery. Our clinical outcome data continues to be robust, and our investments in technology continue to drive the scale and productivity needed to make personalized surgery the standard of care for spine fusion procedures. With the peer-reviewed data published on reduced reoperations with the Prevost personalized surgery procedures, we continue to execute on our mission to improve outcomes and decrease the cost of health care for spine surgery. Turning to the first quarter, we delivered strong revenue of $16.1 million, representing growth of 58% over the prior year. Our growth was driven by the continued focus on medical education and compelling clinical outcome data, driving expansion of our surgeon base and increasing procedure volumes. Operationally, we continue to leverage our investments in technology to further drive production efficiencies, reducing lead time by more than 30% to six business days in the quarter and delivering more than 200 basis points of margin expansion year over year. Our fully integrated digital system allows us to partner with hospitals, surgeons, and patients to seamlessly integrate into clinic and operating room workflows preoperatively, intraoperatively, and postoperatively for nearly all indicated patients. Our commercial growth continues to be driven by a surgeon-led adoption model and expanding utilization. I am proud to report that we grew our total surgeon user base by more than 60% year over year, reflective of the rapid clinical adoption of personalized surgery procedures. We continue to drive particularly strong engagement from early career and post-fellowship surgeons who are eager to adopt new technology to differentiate their practices and improve outcomes. With our rapidly growing base of surgeon users, we are still in the early innings of market penetration and have a long runway ahead of us. The Opdivo lumbar procedure represents the majority of our business today, where we continue to gain traction within the estimated 445 thousand lumbar spine fusion procedures performed annually in the U.S. Clinical evidence generation continues to support the early adoption of Aprivo by consistently demonstrating improved outcomes for patients compared to stock implants. In January, data published in the Global Spine Journal further validated our personalized spine surgery approach, including evidence demonstrating a 74% reduction in surgery revision rates at two years compared to stock devices. This peer-reviewed study compared two-year revision rates among complex adult spinal deformity patients receiving Carlsmed, Inc.'s Aprivo personalized interbody implants with previously published revision data from a similar patient cohort receiving conventional stock implants. Patients treated with Aprivo experienced significantly fewer revisions due to mechanical complications, showing a revision rate of 4.3% in patients treated with Aprivo compared to a revision rate of 16.6% in patients who had stock devices. To put this into perspective, over the past 25 years, lumbar fusion technologies have not published data to demonstrate significant reduction in reoperation rates at the standard two-year benchmark. In contrast, Aprivo’s patient-specific lumbar procedures have demonstrated clinically meaningful reduction in reoperations driven by significant decreases in key complications like rod fractures and proximal junction kyphosis. Importantly, this improvement is measured against procedures with traditional stock fusion devices used by the most experienced and skilled surgeons. As a further expansion of our Prevel lumbar procedure, we have announced successful completion of the first Aprivo bilateral lumbar fusion procedure in February. We are seeing great data in our limited market evaluation and are on track for our full commercial launch in the fourth quarter of this year. Carlsmed, Inc.'s Suprivo Lumbar Fusion has strong hospital reimbursement from CMS with all Aprivile lumbar fusion procedures covered by one of 11 different MS-DRG codes. The majority of Aprivo lumbar procedures are reassigned to the three elevated major complication or comorbidity MS-DRG codes. This provides hospitals with superior economic and clinical value to provide access to the Aprivile procedure for patients. On 04/10/2026, CMS published the FY 2027 proposed rule for the inpatient prospective payment system. Under this proposed rule, all Aprivile lumbar spine fusion procedures would be reimbursed by one of three new MS-DRG codes—523, 524, or 525—at a premium to traditional spine fusion procedures. If finalized as proposed, we see this development as very positive for patients, surgeons, and hospitals to establish and maintain long-term access to the Prevost lumbar spine fusion procedure. This published rule is preliminary. We anticipate the final rule to be published prior to becoming effective on 10/01/2026. Shifting to cervical, the first quarter 2026 represented our first full quarter in market commercially with the Aprivo cervical fusion procedure, which we launched in December 2025. With an estimated 370 thousand cervical fusion procedures performed annually in the U.S., we believe that this additional growth lever can provide additional momentum in our business as a further extension of the Aprivo platform. Cervical and lumbar spine fusion procedures are performed by spine surgery trained neurosurgeons and orthopedic surgeons alike. Many of the spine surgeons perform both lumbar spine fusion and cervical spine fusion procedures, demonstrating a substantial procedural overlap across spine surgeons. We believe that we can leverage our team to train and onboard many of the surgeons already familiar with the lumbar Privo technology platform on the Privo cervical platform. In the early days of launch, we have already trained more than 20% of our surgeon users on the cervical platform. The Aprivo cervical procedure is designed to address common causes of variable outcomes associated with anterior cervical discectomy and fusion (ACDF) failure, including subsidence, malalignment, and reoperations. The procedure is designed to optimize bone contact surface area to improve load distribution, bone graft loading, preserve end plate strength, reduce subsidence risk, and restore or maintain alignment. To complement Aprivo cervical and achieve progress against some of these challenges in cervical fusions, our newly announced Cora cervical plating system marks the debut of Carlsmed, Inc.'s patient-specific fixation portfolio and represents a fully personalized solution for ACDF procedures. The first procedure was performed in February 2026 at the University of California, San Francisco. We are progressing well with the limited market evaluation and are on track for the launch of Cora cervical personalized plating system in Q4. Much like the lumbar Aprivo procedure, the cervical Aprivo procedure has a strong inpatient reimbursement profile. In October 2025, the Aprivo cervical procedure received a new technology add-on payment up to an incremental $21 thousand 125 hospital reimbursement. This reimbursement program is for a three-year period, and CMS renewed the NTAP payment for FY 2027 as anticipated in the publication of the preliminary rule. Looking ahead, our strategic focus remains consistent and positions us to continue the durable, high-quality growth we have demonstrated to date. Within our first area of focus, patient-centric innovation, we continue to advance our proprietary personalized surgery platform, including AI-enabled 3D surgical planning, workflow automation, patient- and surgeon-specific devices, and single-use sterile-packed surgical instruments, and further procedural integration in the clinic and operating room. As discussed previously, we have demonstrated great early traction with the recent launch of Aprivo cervical, and we are collecting early clinical experience with the bilateral posterior Prevo procedure and personalized Cora cervical plate fixation. Our product innovation portfolio includes further advancement to drive ease of integration in the surgical workflow and further personalization of spine surgery. Our second area of strategic focus is surgeon education and includes further investments in our medical education team and programs to meet accelerating demand for Aprivo personalized surgery. We continue training new surgeons every month by leveraging success in academic centers to drive peer-to-peer surgeon education with the thought leaders in personalized spine surgery. We also continue to support education initiatives with upcoming resident and fellow courses in partnership with leading academic institutions. As previously mentioned, we have seen strong uptake with early and mid-career surgeons who are adopting digital surgical planning into their practice in their efforts to streamline workflow and improve patient outcomes. These surgeon users will continue to shape the future of spine surgery, and this is an ongoing growth driver for Carlsmed, Inc. that we believe will continue to drive adoption and utilization. Our third area of strategic focus, commercial execution, continues to center on surgeon onboarding, increasing surgeon utilization, and expanding within hospital systems. As we continue to scale, we have expanded our strategic and national accounts efforts to enable local and national access across large hospital systems. Across both lumbar and cervical platforms, hospitals are recognizing the clinical workflow benefits enabled by the Aprivoo ecosystem. By providing deeper integration within a surgeon's preoperative and postoperative clinical workflow, we believe that our platform solution can simplify the surgeon's pre-op planning, reduce time and complexity of the spine fusion procedure in the OR, and enhance surgeons' ability to provide predictable outcomes to spine fusion patients. Lastly, we will continue to generate clinical data to support medical education and market adoption of our transformative personalized surgery technology platform. We believe that personalized surgery at scale is a new standard of care for spine fusion and are committed to providing solutions to patients, surgeons, and hospitals that reduce revision surgeries, improve outcomes, and reduce the cost of health care. We are just getting started and look forward to providing further updates on our rapid market adoption. With that, I will turn it over to Leonard, who will review our financial performance. Leonard Greenstein: Thank you, Michael, and good afternoon, everyone. I will begin today with first quarter 2026 P&L highlights. Revenue for Q1 2026 was $16.1 million compared to $10.2 million in Q1 2025, representing 58% growth year over year. This growth was driven by the continued expansion of our total surgeon user base and increased unit volume sales of Aprivile, as our average revenue per procedure remains substantially consistent between periods. Gross margins were 77.1% in Q1 2026 compared to 74.9% in Q1 2025. This 220 basis point increase was driven by our stable average revenue per Aprivo procedure combined with efficiency improvements in our digital production system with investments made over the past few quarters. This now allows us to deliver the Aprivoo kit to the operating room within six business days of surgeon approval of the digital surgical plan. This lead time and the associated production capacity it enables will support our continued scale. Total operating expenses were $21.7 million in Q1 2026 compared to $13.4 million in Q1 2025. Of this amount, R&D expenses were $5.2 million this quarter, compared with $3.2 million in Q1 2025. This increase was primarily due to higher personnel cost to advance our patient-centric product development priorities and AI-enabled initiatives for our digital surgical planning processes. Sales and marketing expenses were $10.3 million this quarter compared with $6.7 million in Q1 2025. This was substantially driven by increased sales headcount to drive our commercial execution strategy and variable commissions to our sales team and independent sales agents with our revenue growth, as well as increased marketing spend. General and administrative expenses were $6.2 million this quarter, compared with $3.5 million in Q1 2025. The increase was driven by personnel additions and professional services costs and legal fees for customary corporate and intellectual property matters, as well as compliance and other public company related costs. Our GAAP net loss was $8.7 million this quarter compared to a net loss of $5.7 million in Q1 2025. EBITDA adjusted for stock-based compensation was negative $7.5 million this quarter, compared to negative $5.5 million during Q1 2025. We anticipate continued improvement in adjusted EBITDA over the coming years driven by expected revenue growth and leverage across our expense base. As we scale, expanding contribution margin dollars enabled by our capital-light, digital-first business model provide a clearly modeled pathway towards cash flow breakeven. Moving to our balance sheet, our cash and investments as of 03/31/2026 totaled $97.1 million. The outstanding principal under our $50 million debt facility remains at $15.6 million. While we have no current plans to make additional draws ahead of its October 2030 maturity, this facility provides low-cost, nondilutive standby capital and supports general corporate flexibility. Total liabilities as of 03/31/2026 were $26.5 million, of which $15.6 million relates to this debt facility. Our cash used in operating activities was $13.0 million during the quarter, compared to $8.2 million in Q1 2025. Unlike traditional medtech businesses that require capital investments and stock implant and instrument sets, our business scales without these barriers to profitability. As a pure-play personalized surgery company, our working capital can be more strategically deployed towards continued commercial investments to drive significant growth, delivery of our operational excellence priorities in digital production, and continued R&D pipeline development for our business value and growth. Turning to guidance, we are raising our full-year 2026 revenue range to be between $72 million and $77 million, representing 48% growth at the midpoint over full-year 2025. As we progress towards profitability, we continue to expect gross margins to remain in the mid to high 70s, and anticipate driving operating expense leverage in the coming quarters with expected revenue ramp in Aprivo lumbar and cervical. With that, I will turn the call over to the operator for questions. Operator: As a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Our first question comes from David Roman of Goldman Sachs. The line is now open. Analyst: Thank you. Good afternoon, everybody. I wanted to start a little bit on what you are seeing from a surgeon utilization perspective. We did see strong surgeon adds exiting 2025. Can you maybe give us some perspective on what you are seeing year to date qualitatively, and then how you are seeing utilization across both new and existing surgeons trend in the quarter? And how you are thinking about the balance of the year? And I think, Leonard, in your prepared remarks, you mentioned that average selling prices for Aprivo were roughly flat year over year. If I remember correctly, cervical procedures do come with lower ASP than lumbar. Can you corroborate that point? Is it just that cervical is not big enough as a percentage of total to move average ASPs, and how should we think about the weighted average selling price as cervical becomes a larger percentage of total going forward? Michael Cordonnier: We feel really good about our surgeon enthusiasm for the Aprivile platform. As we exited Q4 with really strong new surgeon adds, we saw that continue to accelerate into the year. As we discussed on the call, year over year, we have added about a 60% increase to our surgeon users. With that, we continue to see ongoing increases in utilization, particularly among those surgeon users that have gone through the initial trial process and continued through adoption. So we feel really good about the utilization and surgeon user adds that we have had. Leonard Greenstein: Yes, David. Our Q1 average revenue per procedures were consistent over the prior year quarter and in Q4 as well as Q1. As we think about the future and the combination of cervical and lumbar, we are projecting our average revenue per procedure to be in the mid to high $20 thousands as cervical takes a greater proportion of revenue over time. The average revenue per procedure for cervical is less than lumbar. To answer your question directly, the contribution margin and the ability for us to further scale our business on a single Aprivile platform that serves both the lumbar and cervical indications with largely the same ballpoint provides the operating leverage in our business to continue to scale efficiently. Operator: Thank you. One moment for our next question. Our next question comes from Travis Steed from Bank of America. Your line is now open. Analyst: Hi. This is Aden on for Travis. So first quarter, first full quarter of the cervical launch, can you talk about the puts and takes and how that is progressing? I think you said 20% of your surgeon users are trained on that. What are you seeing from those accounts that have been trained so far? And are we still expecting high single-digit to low double-digit revenue contribution from cervical for the year? And then I have a follow-up. Michael Cordonnier: Thank you. We feel really good about the traction that cervical has received here in the first quarter of launch. As reported, about 20% of our total lumbar users are now trained on cervical and going through the ramp. As we see this progression, high single-digit to low double-digit percent contribution of revenue from cervical in the total plan for the company looks about right. Analyst: Great. Thank you. And then in the Q, I see a callout of cost improvements and production fees charged by your contract manufacturer. Can you double click on that and talk about if that is a one-time item, or is that something we can expect to continue going forward? Thank you. Leonard Greenstein: Yes. We have made investments in our digital production system holistically that have allowed us to hit that six-day lead time. That really provided efficiencies in our production process inclusive of those with our contract manufacturer. The investments made in earlier quarters going back to 2025 now allow us to cut out costs and time—importantly—out of the system. What we are currently reporting in that high-70s gross margin we see to be sustainable. Operator: Thank you. As a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Our next question comes from Richard Newitter from Truist Securities. Richard, your line is now open. Analyst: Hi. Thank you for taking the questions, and congrats on the quarter. I wanted to go to the CMS proposal that just came out. You mentioned a premium and also broader coverage. I think in the past those are two things that could be pretty significant tailwinds for you in 2027, assuming everything goes as proposed into the final rule. First, what percentage of your procedures currently are getting reimbursed and covered consistently, and how much would this broaden that coverage or access? Then on the premium, we did some calculations and are estimating it could be an incremental $50 thousand reimbursement for stock implant on average—there is a big range in there—somewhere around $25 thousand to $30 thousand on average today above and beyond the premium to traditional stock implants. Is that ballpark kind of the math that you have worked out? Thanks. Michael Cordonnier: Hi, Rich. Thanks for the questions. I will talk about this in two parts. First, the current state of reimbursement for the Opdivo lumbar platform. As reported in the script, we currently have 11 different MS-DRGs that cover the Aprivo lumbar platform, all with existing coverage and reimbursement. As noted, a portion of those elevate to a higher-paying DRG today. With the proposed IPPS rule, it really simplifies the coding and reimbursement such that all Aprivo procedures would map to one of three different MS-DRGs. Based on your calculations, that seems about in line with the national average, and we agree. We think this is a really great solution that CMS is proposing to give significant reimbursement to these procedures. Analyst: That is great. In terms of where you are potentially meeting resistance or there is just not great coverage currently, what could this do for you from that standpoint? Is it 50% currently? Is it 80%? Give us a sense as to how this could broaden your coverage and access. Michael Cordonnier: We really look at this as access versus coverage because we have full coverage today. Where we really think this will provide value to hospitals in particular is to remove the ambiguity and actually simplify coding for the Aprivo procedure. We see this as very beneficial to hospitals to simplify the process so that they can code procedures as they normally would and know that they will map to the right MS-DRG. Analyst: Okay. That is really helpful. If I could squeeze one more in, just following up to David's question earlier. As cervical increases as a percentage of the mix moving through the year, Leonard, how should we think of the gross margin impact if revenue per procedure gets impacted? Leonard Greenstein: As we mentioned during our prepared remarks earlier, we see gross margins being in the mid to high 70s over the coming quarters. That factors in, as Michael covered earlier, a high single-digit to low double-digit mix between lumbar and cervical. The headwinds with the lower gross margin profile of cervical—notwithstanding the tremendous contribution margin it provides and the leverage it provides in our business—are going to be offset, as we see it, with our efficiencies in digital production for lumbar. Operator: Thank you. Our last question comes from Ryan Zimmerman from BTIG. Ryan, your line is now open. Analyst: Hi. This is Izzy on for Ryan. Thank you for taking the question. Michael, I heard your comments and the discussion around the IPPS proposal for 2027. I was just curious what you have heard in terms of feedback from your hospital customers and surgeons in reaction to the proposal. I know it is going to simplify coverage, but do you expect that there could be some benefit in terms of volumes if it is finalized as written? Michael Cordonnier: Thanks for the question. It is early days, and it is a preliminary rule. We are really holding off on those discussions until the final rule goes into place. However, this is something that, as mentioned, simplifies coding and reimbursement and makes a permanent change to the Aprivo procedure at a higher reimbursement level. Net-net, we think this is better for all stakeholders. Analyst: Appreciate it. Thank you. And then, Leonard, I have heard your commentary on guidance, but as we consider contributions layering in in the back half of the year from those new product launches, is there anything that we need to keep in mind in terms of cadence on the top line? Thanks for taking the question. Leonard Greenstein: We see, over the coming quarters, Aprivo lumbar carrying the majority of our revenue and overall contribution. Certainly, we are very pleased with the early days here at cervical and the clinical results our surgeons are seeing with that indication, and how neatly it tucks into the Aprivile platform and ecosystem. We will provide additional color as we progress into the subsequent quarters with how we see additional things shaping up in the company's favor to further drive revenue beyond what we previously guided. Operator: This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Welcome to the analyst and investor presentation for HSBC Holdings plc First Quarter 2026 Earnings. This webinar is being recorded. I will now hand over to Pam Kaur, Group Chief Financial Officer. Manveen Kaur: Welcome, everyone. Thank you for joining. We have had another quarter of positive performance, which reflects further progress towards creating a simple, more agile, growing HSBC. Annualized return on tangible equity, excluding notable items, was 18.7%. We are confident in achieving the targets we set out to you at the full year. We are updating 2 pieces of guidance today, banking NII to around $46 billion and our expected ECL charge to around 45 basis points. I'll talk to the drivers of both shortly. In the quarter, we continued to make disciplined progress in simplifying the group to unlock HSBC's growth potential. We actioned a further $0.2 billion of simplification saves and remain well on course to deliver the $1.5 billion target. We completed the privatization of Hang Seng Bank, the sale of U.K. Life Insurance, Sri Lanka Retail Banking and South Africa. And as you will have seen, we have agreed the sale of our retail banking business in Indonesia. We expect to realize an up to $0.4 billion gain on completion anticipated in the first half of 2027. Our CIB business in Indonesia is unaffected. On outlook, the economic landscape remains complex and uncertainty will persist. Our thoughts are with all those affected by current events in the Middle East. We are fully engaged in supporting our colleagues, customers and partners across the region. We are well positioned to work with our customers and manage the uncertainties in the global environment from a position of financial strength. Let's turn first to the income statement, where I will focus on year-on-year comparisons unless I indicate otherwise. Profit before tax, excluding notable items, was $10.1 billion. Notable items this quarter include a loss of $0.3 billion on moving Malta to held for sale, a loss of $0.2 billion on the sale of U.K. Life Insurance and $0.1 billion of restructuring costs related to our simplification program. Revenue, excluding notable items, grew 4% year-on-year to $19.1 billion. This was driven by banking NII and strong growth in wealth fee and other income. Annualized RoTE was 18.7%, 0.3% higher than last year. It benefited from the removal of Hang Seng Bank minorities. Looking at capital and distributions. Our CET1 capital ratio is 14%, down 90 basis points on the quarter as expected following the privatization of Hang Seng Bank. Reflecting our strong organic capital generation, we are already back to our operating range of 14% to 14.5%. The dividend for the quarter is $0.10. We continue to target a dividend payout ratio for 2026 of 50% of earnings per ordinary share, excluding material notable items and related impacts. Let's now turn to our business segment performance. Each of our 4 businesses grew revenues and each also delivered annualized RoTE in excess of 17%, excluding notable items. This broad-based performance shows our strategy is working. I would just mention the $0.2 billion gain from a one-off property asset disposal in the Corporate Center, which is not a notable item. Moving now to banking NII. Banking NII increased $0.3 billion year-on-year to $11.3 billion. It fell by $0.5 billion quarter-on-quarter. $0.3 billion of this quarterly decline is day count. We also noted at the fourth quarter, $0.1 billion in gains that we did not expect to repeat. In addition, this quarter, HIBOR was lower in March, and we also recognized a $0.1 billion adverse one-off. We are now upgrading our full year banking NII guidance to around $46 billion. This reflects an improved interest rate outlook. I would highlight that interest rate curves have been volatile and can, of course, change further in either direction. Turning now to wholesale transaction banking. Recent economic, market and tariff situations have validated the strength of our franchise, both over the last 12 months and in this quarter. We grew fee and other income 2% year-on-year. Customers continue to turn to us to help them navigate volatility and uncertainty. Our balance sheet and franchise strength are particularly valuable in times like this. In the quarter, Securities Services grew fee and other income 11%, reflecting new mandates and higher transaction volumes. Trade grew 8%, driven by continued growth in volumes. Payments grew 3%, driven by growth in volumes across most regions. Foreign exchange fell by 1% compared to a strong first quarter last year. We continue to see growth in volumes and strong client engagement. Turning now to wealth. We grew fee and other income by 15% to $2.7 billion. I remind you that the first quarter of last year was a high base. Growth was driven by all 4 income lines, and we added 287,000 new-to-bank customers in Hong Kong. It is worth remembering there is typically favorable seasonality to the first quarter when compared with the fourth quarter. Having said that, we are pleased that the investments we are making in our wealth products, distribution channels and customer experience are translating into real results. Private Banking grew 8% and Asset Management, 3%. Investment distribution performed very well, up 21%, reflecting particularly strength in our customer franchise in Hong Kong. Insurance growth of 19% from a strong base was also pleasing, again, with Hong Kong, the standout. Our insurance CSM balance was $15.2 billion, up 19% versus the prior year. First quarter wealth balances were $1.6 trillion, up 12% or $170 billion year-on-year. Net new money in the first quarter was a strong $39 billion, of which $34 billion came from Asia. This is a broad-based and robust franchise. Our investments and focus are paying off. I will note that we saw a slowdown in flows in the early days of the conflict, but activity recovered in April across our wealth franchise in Asia. Turning now to credit. Our first quarter ECL charge was $1.3 billion, equivalent to an annualized charge of 52 basis points as a percentage of loans and advances. Given the ongoing uncertainty in the outlook, we are updating our full year 2026 credit guidance to around 45 basis points. This quarter includes a $0.3 billion charge related to the Middle East conflict. This is precautionary and related to the impact of the conflict everywhere, not just in the Middle East. We also include $0.4 billion for fraud-related secondary securitization exposure with a financial sponsor in the U.K. I will emphasize that we regard the Stage 3 charge this quarter as idiosyncratic and not representative of the risks in the wider portfolio. We have completed a full review of the highest risk areas in our portfolio and have not identified any comparable fraud concerns. We have updated our risk appetite and are incorporating lessons in our due diligence processes. This remains an area in which we are comfortable, but it is not a significant growth driver in our plan. In Hong Kong commercial real estate, we had some small recoveries in the quarter. And overall, it remains broadly stable. You will see our usual detailed breakdown on Slide 21. On Slides 15 and 16, we have also set out our private market exposure. We have made these expansive definitions to give you a full picture of our full-service business in private markets. Let's now turn to costs. We continue to take a disciplined approach to cost management. We are on track to achieve our target of 1% cost growth in 2026 compared to 2025 on a target basis. Cost growth this quarter is 3% year-on-year. This included 1% driven by higher variable pay accrual based on business performance. If you exclude the variable pay accrual, target basis cost growth was around 2% year-on-year. We manage costs on a full year basis. So looking at a quarter in isolation is not meaningful. We remind you that our simplification actions provide a cumulative year-on-year benefit through 2026. For the avoidance of doubt, our 2025 target cost baseline is $34 billion when updated for FX. Now let's turn to customer deposits and loans. Our deposit momentum continues with $99 billion of deposit growth, including held-for-sale balances over the last 12 months. CIB deposits increased $10 billion quarter-on-quarter in what is usually a soft quarter. Hong Kong was a particular driver. This corporate inflow offset a slower retail flow in our Hong Kong pillar. You will see deposit seasonality on Slide 20. Excluding the movement of Malta to held for sale, IWPB deposit growth was $4 billion. You will see on Slides 18 and 19 that we have set out additional deposit disclosure. This shows you the deposit base split between fixed term and instant access accounts. The 70% instant access proportion should help you see the strength and breadth of our deposit base across our businesses. Turning to loans. Growth picked up in the quarter. CIB mainly reflects continued momentum in GTS, higher term lending in Hong Kong and drawdowns on committed lines by high-quality borrowers in the Middle East. We are pleased to be there for our customers when they need us most. Hong Kong returned to volume growth this quarter after a period of decline. We are pleased to see borrowing appetite return as the economy grows and as residential property prices recover. Our $13.7 billion investment in Hang Seng Bank is a signal of our confidence in the opportunity in Hong Kong. We are investing across both iconic banks, and we see significant growth runway for both ahead. In the U.K., we delivered another quarter of good growth. This was both mortgages and our commercial lending book. We see good momentum in our domestic portfolio. Low levels of household and corporate debt in the U.K. provide a platform for the continued growth of our franchise. Now turning to capital. Our CET1 capital ratio was 14%, down 90 basis points in the quarter. This follows the 110 basis point impact of the Hang Seng Bank privatization and Malta disposal loss. We also saw a 12 basis points impact from the fair value through other comprehensive income bond portfolio, as government yields rose following events in the Middle East. These were offset by ongoing strong organic capital generation. We are pleased to have remained within our CET1 operating range since the announcement of the Hang Seng Bank privatization. A decision on future share buybacks will be taken quarterly, subject to our normal buyback considerations. Let's turn to targets and guidance. First, targets. We reiterate the targets we set out to you at the full year. Revenue rising to 5% year-on-year growth by 2028, excluding notable items. Return on tangible equity of 17% or better, excluding notable items each year. Dividends, 50% of earnings per share, excluding material notable items and related impacts. Finally, to guidance. Today, we are updating our banking NII to around $46 billion, given the higher rate outlook and our ECL charge to 45 basis points given macroeconomic and market uncertainty. In addition, to inform management planning, we have assessed a range of top-down stress scenarios. We have set these out for you on Slide 17. I'm happy to discuss these further in Q&A. All other guidance set out on this slide remains unchanged. To conclude, the intent with which we are executing our strategy is reflected in the growth and momentum in our first quarter. It shows discipline, performance and delivery. Discipline in the way we are applying strong cost control and investing to deliver focused sustainable growth. We are on track to achieve our target of around 1% cost growth in 2026 compared to 2025 on a target basis. And we are reallocating costs from nonstrategic or low-returning businesses towards growth opportunities, while upgrading our operating model. This includes investing in artificial intelligence to empower our colleagues, simplify how we operate and enhance the customer experience by personalizing service at scale. Performance in our earnings. Each of our 4 businesses grew revenues and each also delivered annualized RoTE in excess of 17%, excluding notable items and delivery. Our first quarter results show we are creating a simple, more agile, growing HSBC built on the strong foundations of a robust balance sheet and hallmark financial strength. This is why during periods of greater uncertainties, our customers turn to us as a source of financial strength, and we remain confident in delivering against our targets. With that, I'm happy to take your questions. Operator: [Operator Instructions] Our first question today comes from Guy Stebbings at BNP Paribas. Guy Stebbings: The first one was on wealth. Clearly, another very good performance, particularly on investment distribution, insurance. Can you talk about what you're seeing in terms of flows in the competitive landscape in Hong Kong right now? I'm sort of mindful it's been a very good story and the benchmark comparisons is getting tougher in terms of growth rates. But equally, there's sort of no evidence of let up in momentum and can see another really good performance for new business CSM, which is well above what you're actually booking through the P&L right now. And then the second question was on private markets. Thanks for Slide 15 and 16. Interested in any changes you're making in your approach to this segment. You've called out the $400 million hit in Q1, and you've not identified anything comparable in the book. One of your peers has signaled sort of partially stepping away from some exposures in this segment, as they've assessed sort of levels of financial controls. I know you said this wasn't a big growth driver of the plan, but are you changing how you're thinking about this segment in any way? Manveen Kaur: Thank you, Guy. If I take your questions in turn. On the first question on wealth, we are really pleased with the growing CSM balance and as well as on investment distribution. First quarter is always a very strong quarter for us, but I'm pleased to say that even after some slowdown in the month of March, we again see momentum coming through in April. We have a very vast range of products that we offer to our customers. So we've seen some shift in the products. So people moving from bonds and mutual funds into structured products and equities and all that obviously contributes very well to our fee income in wealth. We have an iconic brand in Hong Kong. And yes, competition is fierce. But as you can see, we are also growing new customers despite putting the fee in January, and these new customers over time also become customers from a wealth perspective, but more in the near term for the insurance business. So those are all very positive signs for us. From a private credit perspective, our overall exposure on private credit has stayed the same, as I called out at the year-end of $6 billion on the chart. And then this is both drawn and undrawn and the private credit and related exposure stays within 2% of our balance sheet. So that, again, from our perspective, is a comfortable position in terms of the concentration. Following the, what I would call, experience that we've seen in the fraud perspective, I've always said that in this ecosystem, no one is immune to second order sort of exposures, which is where we have had from financial sponsors. Clearly, as a learning, what we are working on is looking at very specifically some of the additional due diligence processes we may carry even where we are relying on the due diligence of financial sponsors. In terms of concentrations, we are also looking at any specific concentrations on individual counterparties in this space, but remain comfortable overall. And as I've said, we will not have this and it has never been a significant driver of private credit. So same as before, continue to be even more diligent where we are relying on financial sponsors related secondary exposures and their due diligence. Operator: Our next question today comes from Amit Goel at Mediobanca. Amit Goel: So 2 other questions from me. So one was just on the cost growth. So it seemed like the cost growth was a bit higher this quarter, even ex the VP than the overall target for the year. So just in terms of why you think the costs will be a bit more contained or at least the cost growth will be a bit more contained and the drivers there? And then also the second question is just on the Middle East scenario. So I appreciate the extra slide. Just curious on those stress scenarios. So what would we need to see or what would we have to see -- to be seeing some of that scenario play through and to have further impact on your ECL guidance? Manveen Kaur: Thank you, Amit. So I'll take the cost question first. So as we have said, our simplification actions will be completed by the middle of the year. And those simplification actions will give us cumulatively more savings in the second half of the year. And if we factor those in and phase out in line with our forecast and financial resource planning, we are very comfortable that we will be within our cost guidance of around 1% growth on a target basis. It is a timing of when you have the gross increase, which we said last year would be 3% and then the timing of when the 2% savings come so that you come to the net 1% cost growth. Now from a Middle East scenario, firstly, to be clear that our ECL guidance and indeed, when we reaffirm our targets, we look at all plausible downside scenarios, and we are, by nature, quite conservative in how we approach these matters. We have, in the fullness of an integrated top-down stress scenario called out a bookend stress scenario, which requires all 5 things to happen. So just to give you some perspective, in this kind of a scenario, you would expect stock markets to be down 35%. So it's pretty severe. You would also expect oil price at 145 basis points and market disruption as well as significant GDP slowdown across markets globally. So that is the context of this scenario. But as I said earlier, in terms of the right weightage of probability from an ECL perspective, that has already been factored in the 45 basis points guidance. And this scenario gets driven by not just an ECL number, but also an impact on the revenue line, and it assumes that the wealth business, which has continued to do really well even through the month of April will have a significant impact in this kind of a scenario as well as deposits, which typically in a stress position always become an inflow for large deposits. But because of the extreme market disruption, very high inflation that the deposits will come down because customers will need to get money in order to survive through a very stressful economic scenario. Operator: The next question today comes from Aman Rakkar at Barclays. Aman Rakkar: I just wanted to ask one quick follow-up on the Middle East scenario. Is there any chance -- I think just back of the envelope, it's a kind of $2 billion to $3 billion hit to PBT in terms of the mid- to high single-digit percentage on '26. Is there any chance you could just kind of round out the disclosure on that in terms of what the breakdown in that scenario is between revenues and impairments? I'm assuming it's literally revenues and ECLs and if you could just quantify that for us, that would be really helpful. The second question was just on banking NII, please. So first of all, I think you're calling out $100 million negative impact in the quarter. Just kind of adding that back in, I guess, to the underlying run rate, it looks like your Q1 banking NII is annualizing a shade above the $46 billion that you are guiding for your full year. So I'm interested in the sequential drivers of net interest income, please, from here, as you see them presumably rates not that much of a headwind and you've got some balance sheet momentum. So trying to work out what the negative is from here to offset that, please? Manveen Kaur: Thank you, Aman, for your 2 questions. So taking the first one. Firstly, to say, yes, the impact absolutely is equal between sort of revenues and ECLs broadly in this scenario and your numbers were right. I also want to say this is what I would call an unmitigated impact. In other words, it's prior to management actions. We are very comfortable that even in stress scenarios, we have a range of management actions we would be taking. And therefore, we are very confident in reiterating our RoTE targets for '26, '27 and '28. Now on banking NII guidance, as always, as you would expect, we tend to be quite conservative. We consider in the guidance all possible downside scenarios as well, at least the plausible ones. So in terms of the mathematical calculation, as you've done ex the one-off and looking at the day count, et cetera, it, of course, takes you above the $46 billion. Our guidance is around $46 billion, not just $46 billion. So that's the first point to call out. And the things that we have considered in terms of a possible plausible headwind would be, of course, there's an uncertainty on the interest rates. Also, we have seen the experience. There were a few weeks of impact of a lower HIBOR in the month of March, but I'm very pleased to note that the HIBOR has again come to the range that we are most pleased with, which is around 2.5% and obviously, there is the continuing tailwind of our structural hedge reinvestment. We've given you disclosures on that. And the deposit flow overall continues to be very strong, but we are happy to say around $46 billion with our usual conservatism. Operator: Our next question today comes from Andrew Coombs at Citi. Andrew Coombs: A couple of follow-ups from me, please. Just firstly, coming back on the private credit exposures on Slide 16. I think the exposure on which you booked the charge today falls within the $3 billion securitization financing bucket that you list on that slide. Can you just give us an idea, please, of how much of the exposure that you've taken a charge on today accounts for of that $3 billion total, please? And then secondly, coming back to wealth, it's difficult to quibble on 15% year-on-year growth, but that revenue growth does look slightly weaker than your peers. So can you just give us an idea of where you think the differences are? Is it business mix, which means you have lower transaction income benefit year-on-year? Anything you can comment on relative performance? Manveen Kaur: Thank you. So just in terms of the exposure, we have substantially provided for that exposure. And that exposure, when you can see mathematically, is not an insignificant part of the $3 billion that you've called it quite rightly, it really comes from that particular bucket. Coming back to your point on our revenue. So in terms of the revenue, I'll just bring to attention that the CSM balances have been growing, but the way they actually hit the P&L, it is really over a period of time. And therefore, what you capture in the P&L is 1/10 and that then flows through over the following years. So that is how I would look at it in terms of the fee income growth. If you ex that or adjust for that, we are very much in line or indeed ahead of peers in certain pockets. Operator: The next question today comes from Katherine Lei at JPMorgan. Katherine Lei: Pam, I would like to ask about the fraud cases. Like can we have more color about the fraud cases such as like what is our total exposure? Because the key concern is that is this $0.4 billion one-off or we were going to see more like step-up in impairment charges because of this particular case? I think this is the number one question. Number two question is like I look at the risk weighting, right? It seems like a downside scenario, now we aside, 45% versus like before the war, like, say, 4Q '25 is roughly about 15%. Can we get more color of like, say, in this scenario, would that be -- let's put it this way, under what situations do you think we will continue to see continue rise in this 45% of downside scenario? Manveen Kaur: Thank you, Katherine. So firstly, this fraud is an idiosyncratic fraud. We have gone back and reviewed all our highest risk exposures across our portfolio and specifically looked at the private credit exposures as called out on the slide, and we see no comparable fraud risks in this matter. And of course, we continue to review our risk appetite, tightened due diligence and so on. So therefore, we feel quite comfortable that this is a one-off fraud indeed, and it comes to us through a secondary exposure that we have through a financial sponsor and where there was reliance on the financial sponsor due diligence. So that's the first case. And second one, in terms of the downside scenarios, the 45% downside scenario is built also from a 30% Middle East-related specific scenario that we created, which was a fifth scenario. So we do not expect that 45% downside scenario to shift much. And I can just give you as a comparison as we went through periods of COVID, Russia, Ukraine, that's sort of a leaning on the downside scenario. It's pretty much at the top end of the downside scenarios. And then once the situation gets more normalized, we bring the scenarios back to what our normalized scenarios that you have called out. I also want to stress to you that the IFRS 9 downside scenarios factor in, what we think at this point of time, the full extent of the forward-looking guidance, as we would obviously calculate based upon what we're seeing on the ground as well as assumptions as well as the probabilities given to all the scenarios. And this is quite distinct and different from the bookend Middle East conflict stress scenario on Slide 18, which has a much holistic view and a range of things happening, including, as I called out, from very severe stock market disruptions as well as oil price distinction. So I just want to make a clear distinction between what you account for, what you have in your outlook versus what you keep as part of a planning exercise in terms of the range of scenarios that you should always be aware of as a good management practice. Operator: Our next question today comes from Chris Hallam at Goldman Sachs. Chris Hallam: Two for me. So the first, again, on wealth. So $5 billion of that $39 billion of net new money was deposits. So it feels as though sort of 90% of the flows were invested, whereas if I think about the stock of your wealth balances, it's closer to 60%. So how should we think about that? Is that a structural trend you're seeing? Are clients becoming more invested? And if so, what does that mean for fee margins and for returns going forward? And maybe just within the $39 billion, without the conflict in Iran, would that number have been higher or lower? And then second, on capital, like you said, well managed through the guidance range throughout the HSB privatization process. Obviously, this quarter, a couple of one-offs within the quarter, but the underlying business performance appears to be encouraging. So given all of that, can you comment on when you expect to restart share buybacks? Manveen Kaur: Thank you, Chris. So firstly, in terms of invested assets, we are very pleased with the growth in invested assets. But I just want to remind you, typically, Q1 is strong for investments. So there is some seasonality of money moving from deposits into investment assets into -- in Q1. We've also been very strong in terms of the new mandates we've got from private banking. So overall, wealth is a very robust story to call out, and it's very broad-based, not just dependent on one lever. In terms of the conflict, there was a bit of risk-off wait and watch in the second half of March. However, as April has come through, we continue to see high volume of transactional activity. And as I said earlier, our customers, they continue to readjust their portfolios and our strength lies in the broad range of products we have on offer. And we have really invested in this business. So going forward, from a fee income perspective, I do believe there is a huge tailwind for us in terms of how we build on this year-on-year. So coming back to capital now. Firstly, I'm really pleased that even with this very large core investment we have done in Hong Kong, which is a critical market for us where we are hugely confident about the future growth prospects, we have still remained throughout the entire period within our CET1 operating range, and that truly reflects the very strong capital generation capabilities of our business across all 4 businesses. So that is indeed very encouraging. Now in terms of share buybacks, you're right that even with all the one-offs we've had in the first quarter, we are in a good position, and I expect Q2 to be equally highly capital generative for us. But of course, a share buyback decision is done on a quarterly basis. Starting point is always capital generation, which looks strong. We have to also look at loan growth, then we have to look at our 50% dividend payout ratio, which is an important target for us and the residual is always in terms of share buybacks and distributions, notwithstanding any inorganic opportunities for which we have an extremely high hurdle rate. So we will look at it again starting from Q2. Operator: The next question today comes from Kunpeng Ma at China Securities. Kunpeng Ma: I got 2 questions for you. And the first one is about Hang Seng. I'm glad to hear the momentum in deposit and wealth management in the first quarter and the pickup in the momentum from April. But how -- what proportion of such momentum could be attributed to the synergies out of the Hang Seng deal? And also some color on future synergies, future synergy effects of the Hang Seng deal would be much more helpful for us. Yes. The second question is on HSBC's global footprint. Yes, this is out of the proposed disposal of the Indonesian retail business. I think the Indonesian market is quite important. It's not the kind of some marginal or less important market. So I want to know the HSBC's views on your global franchise. I mean, which markets are important to you or which markets and which business are less important? Yes. Manveen Kaur: Thank you, Kunpeng. So firstly, we have made a very good start on the Hang Seng privatization, but the synergies at the moment have been very little, if any, because it's just the start of the process. We have already started investing in Hong Kong, both in the red brand and the green brand in terms of technology, in terms of simplifying customer journeys and training and skilling of our colleagues. So we do expect progressively the growth from the synergies to come through starting from the second half of this year, but mainly through 2027, '28. So that's a very strong tailwind, again, to support our targets as we progress. And so far, everything is very much on plan and with a lot of engagement with colleagues on the ground, which is, I think, really important, both in terms of maintaining the momentum, the sentiment as well as reinforcing our strong optimism in Hong Kong, as you've already seen in the results as well as in the stabilization of the Hong Kong commercial real estate market. Now coming to our global footprint from an Indonesia perspective, we think Indonesia is a critical market for us from a CIB perspective. It is an important network market and the economy is significant from an Asian perspective. However, our retail business of the size and the scale it was and the scope it had was not within the strategy of our wealth business. It was a valuable business, remains a valuable business, as you've seen from the financials for the transaction that has been announced. But from our perspective, from a wealth perspective, it did not meet the high hurdle rate criteria we had. We have other markets where we are investing in a far more focused manner. Operator: Our next question today will come from Alastair Warr at Autonomous. Alastair Warr: Just a couple of follow-ups on the credit costs and on the insurance that we touched on just a moment ago. If you've got 52 basis points booked in for the first quarter on credit costs, it looks like, therefore, to get to your 45 over the rest of the year, you'd be looking at a little bit above 40 for the remaining quarters of the year? You were at 40 for the full year before. So is that just implicitly building in maybe a little bit more drag from the Middle East? Or is there anything else going on anywhere else for us to be thinking about? And just a second point, you touched on the CSM there and how it can make a difference to how you're booking your speed of growth of income at the wealth line. HSBC has been really strong on some big ticket quite short payment period and products that some of your big name peers in Hong Kong are not necessarily so keen on. So can I just confirm, you talked about 10 there -- that your release rate in years is about 10 years and that this shorter payment period thing doesn't turn up in a shorter release rate as well. Manveen Kaur: Thank you, Alastair. So firstly, on the credit costs. You're right, this quarter's credit cost of 52 basis points has 2 significant numbers in it. One is obviously the idiosyncratic one-off fraud-related. If you take that off, we are pretty much in line with where we would be in Q1 of 2025. Our books overall ex these 2 items have performed really well. The second being obviously the Middle East reserve. So if you take the Middle East reserve build of $300 million and the fraud number, then the actual credit cost would be lower than what it was in Q1 2025 at around $600 million. What we are looking -- $600 million, sorry. As we look at going forward into the next few quarters, we are always a bit conservative, and we do have a little bit of scope built in, both in terms of what happens on Stage 3s of the fraud-related item, obviously, that's a one-off, but the ex-fraud-related Stage 3 buildup increases because of a prolonged conflict in the Middle East. Also Q1 has been very benign on Hong Kong commercial real estate. We are very pleased that we are seeing the beginning of a stabilization, but we are not calling it the end of the cycle. So therefore, we keep that sort of a buffer for the rest of the year. So in terms of the CSM balances very specifically, there is no change in the accounting policy. Obviously, it's based upon IFRS 17 principles, hence, the drip feed over the 9- to 10-year period that we will see. And the key thing there is as long as with the new customers that we are onboarding, with the growth in the CSM balance, the growth in the CSM balance exceeds the P&L flow from the CSM balance because the trajectory is very positive in the growth of that business in Hong Kong. It is an iconic brand for us. So therefore, the demand for the product from a distribution perspective remains extremely strong. Operator: Thank you, Pam. We will take our last question today from Joseph Dickerson at Jefferies. Joseph Dickerson: I just wanted to ask in terms of the numbers you've given the guidance upgrade on the banking NII, is that taking into account the -- effectively marking the market for the current yield curve in the U.K. I note some footnotes around you were using rates, as I think mid-April. Does that take account of the yield curve in the U.K.? And then presumably, there's some outer year tailwind into that. And given you've got some outer year revenue growth assumptions, I'd be keen to know how that -- how any maturities at higher rates might influence the outer year revenue growth rate. Manveen Kaur: Thank you, Joe. So from a banking NII perspective, yes, we looked at the yield curves as -- at the middle of April across the currencies. So that's correct. In terms of the revenue growth projections that we gave for the outer years, they were based upon the yield curves as when we set our targets. So if the yield curves continue to be higher or grow, then everything else being equal, that will be a tailwind for revenue in future years. The banking NII guidance, as you know, we always only give for the current year. Operator: Thank you very much. That ends today's Q&A. So I'll now hand back to you, Pam, for any closing remarks. Manveen Kaur: So thank you all for your questions. As you've seen from our results, we are very pleased with our return on tangible equity of 18.7%. We have never printed a number of this size for nearly 20 years now. And that gives us a very good start in terms of where our targets are and how firmly we stand behind them for the next 3 years. Of course, there are macro uncertainties in the current environment, and we have given disclosures, which are very fulsome, both on private credit as well on extreme downside stress scenarios, bookends. So hopefully, in that context, I have answered all your questions. And obviously, if you have any more detailed questions, please reach out to the IR team. Thank you very much again for your patience and interaction. Operator: Thank you, everyone, for joining today. You may now disconnect.
Operator: Hello, and welcome to Solventum Corporation's first quarter fiscal year 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, please press 1 on your telephone keypad. I would now like to turn the conference over to Amy Wakeham, Senior Vice President of Investor Relations, Finance, and Communications. You may begin. Amy Wakeham: Thank you. Good afternoon, and welcome to Solventum Corporation's first quarter fiscal year 2026 earnings call. Joining me on today's call are Chief Executive Officer, Bryan Hanson, and Chief Financial Officer, Wayde McMillan. A replay of today's earnings call will be available later today in the Investor Relations section of our corporate website. The earnings press release and presentation are both available there now. During today's call, our discussion and any comments we make will be on a non-GAAP basis unless they are specifically called out as GAAP. The non-GAAP information discussed is not intended to be considered in isolation or as a substitute for the reported GAAP financial information. Please review the supporting schedules in today's earnings press release to reconcile the non-GAAP measures with the GAAP reported numbers. Our discussion on today's call will include forward-looking statements including, but not limited to, expectations about our future financial and operating performance. These statements are made based on reasonable assumptions; however, our actual results could differ. Please review our SEC filings for a complete discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements made today. Following our prepared remarks, we will hold a Q&A session. For this portion of today's call, please limit yourself to one question and one related follow-up. If you have additional questions, you can rejoin the call queue. And with that, I would now like to hand the call over to Bryan. Bryan Hanson: All right. Great, and thanks, Amy, and to all of our shareholders and everyone else following the Solventum Corporation story, I just want to say thanks and welcome to our first quarter 2026 earnings call. I am going to start by addressing our Solvers around the world because I am pretty sure that a few of them are listening in today. I just want to say thank you, and thank you once again for delivering on your commitments in our fast-paced transformation environment. I know it is not easy with the amount of change, but the results that we are sharing today just do not happen without you and your hard work. I am extremely proud of not just your dedication but the results that you continue to deliver. This team's ability to drive outcomes while navigating ongoing separation efforts, ERP implementations, and acquisitions and divestitures is a testament to the strong talent we have in the organization. It is a testament to you, and it is a testament to the culture that we have already built. So again, to our global team members, thank you very much for making it happen. Now let us get into it. We delivered first quarter results ahead of our plan and ahead of expectations. Organic sales growth and EPS both exceeded our plan, again reflecting very strong execution across the organization and the momentum that we have already built. We saw solid performance across all segments driven by strong commercial execution and new product launches, and thanks to positive volume, mix, and continued progress in our savings initiatives, we also achieved better-than-expected performance on margins as well. This is a clear reflection of the discipline and rigor we have built into how we manage this business. Q1 is a clear indication that we are well on our way to delivering our 2026 guidance and, importantly, our go-forward LRP objectives. Our transformation journey is working; we have rebuilt our commercial engine with clearer accountability, needed specialization, and stronger leadership, and now innovation is reinforcing the commercial momentum that we have built. We expect to have close to 20 new products launched over the next two years, and as you would expect, a meaningful portion of them will be within our growth driver areas. This will be additional fuel for that new and enhanced commercial team. On operational efficiency and the separation from 3M, we have made meaningful progress on our ERP cutovers as well as the overall separation process, and I can tell you that the team continues to execute against these milestones with purpose. That said, we cannot wait to get to 2027 and put the majority of the separation work behind us. We expect the resources and bandwidth we free up to create significant value, and that is exactly what our Transform for the Future program is designed to capture. As a reminder, our Transform for the Future program is a multiyear $500 million savings program. It is our way of proactively reshaping our operating structure while freeing up resources to invest for the long term. We are streamlining systems, increasing automation, and optimizing our global footprint while repositioning spend toward the highest-return areas of our business. This program is already paying dividends and will deliver more meaningfully in 2027 and beyond. On our portfolio optimization program, we have moved rapidly with clear proof points of our ability to execute, ranging from SKU rationalization to the sale of the P&F business to the acquisition of Acera. And we are just getting started. We see portfolio optimization as a perpetual lever for value creation here at Solventum Corporation. As we said in our original Investor Day, we will continually assess our businesses for strategic and financial fit, and when we determine that someone else can offer more value for a business we divest, or we see another path to increase shareholder value, we will act decisively just like we did with the purification and filtration business. Relative to our SKU rationalization, we are more than halfway through this process and expect to finish by the end of this year. Our separation of P&F is on track and progressing well, and Acera—although it is early—the performance reinforces our ability to identify, close, and effectively integrate attractive assets in our space. In fact, Acera is another great proof point that portfolio optimization is not just a strategic priority; it is a value creation lever that we absolutely know how to pull. We targeted the right asset, a fast-growth business aligned to our existing call points and, as a result, immediately beneficial to our combined commercial teams. Importantly, we see Acera as just the beginning. We have a target-rich environment for additional tuck-in acquisitions and a balance sheet that gives us the flexibility to pursue them while also returning capital to shareholders. As you probably remember, we have board approval for up to $1 billion in share buybacks, and given the substantial value we see in our shares and the quality of our business, one should expect that we will accelerate execution of that approval. Moving to our three operating segments, I will start with MedSurg, which is our largest business. We continue to see strong underlying performance in our growth driver areas. Negative pressure wound therapy was led by ongoing demand for traditional and single-use therapy, continued expansion of our VAC Peel & Place dressing, and our specialized sales force. With Acera, it opens the door to the fast-growth acute care synthetic tissue space and really slots perfectly into our advanced wound care infrastructure. We are early in integration, but the thesis is playing out. The team is executing, the product portfolio is resonating with our customers, and we expect Acera to be a meaningful contributor to reported growth as the year progresses. In our infection prevention and surgical solutions business, Tegaderm CHG remains a consistent performer as our team successfully upsells this important clinical solution, and we are encouraged by the adoption of the recent Attest sterilization product launches as well. Both of these areas are benefiting from our specialized sales teams. In Dental Solutions, we are building on the momentum we saw in 2025. Our Clarity brand relaunch, Filtek EasyMatch, and Clarity Aligners Pro Clear are resonating with our customers and benefiting again from a more specialized sales team. As we exited 2025, this team made significant strides in improving backorders, and our customers are noticing. I want to thank our supply chain and the dental teams for making it happen. Moving to our Health Information Systems business, we continue to benefit from the strength of our revenue cycle management sub-business. Inside RCM, our autonomous coding offering continues to gain traction in both outpatient and inpatient settings. Our international expansion is providing a strong tailwind as well. Relative to AI and autonomous coding, I will reiterate what I said on our last call. We see AI as a helpful tool to deliver better outcomes when it comes to autonomous coding, but what differentiates the outcomes is the data, the rules, and the rigor behind them. We are differentially able to leverage AI thanks to our unique ability to efficiently and effectively train it. We built deep rules and algorithms designed to assure accurate and compliant reimbursement coding, and this, combined with our vast datasets and proprietary workflows, allows us to more effectively train and maximize AI and, ultimately, deliver autonomous coding that our customers can trust. The economics of autonomous coding are compelling. Our customers benefit by improving productivity, eliminating FTE cost infrastructure, and improving revenue capture thanks to increased accuracy. That is a powerful value proposition: reduce cost, improve productivity, and capture more revenue. Shifting gears to tariffs, we continue to expect the annual headwinds to be in the range of $100 million to $120 million. From the very beginning, our supply chain teams have been actively working on mitigation strategies since we first saw tariff headwinds emerge. Our Transform for the Future program gives us additional firepower to offset these headwinds, and as a result, we have committed to expanding operating margins 50 to 100 basis points in 2026, and we absolutely intend to do so. Zooming out, going into Q1, we had people ask whether we could maintain the momentum we saw in 2025. We did triple our comparable annual sales growth in 2025, but that was before the full benefits of our recent product launches, our pipeline innovation, and the commercial enhancements that we made in 2025. For our full year 2026 expectations, excluding SKU exits, we represent continued progress on that ramp. As I have said in the past and will say again, it is not a question of whether we get to our LRP targets of 4% to 5% organic sales growth; it is a question of when. To summarize the key messages: number one, our underlying commercial momentum is real and continuing, and our new product pipeline will be the fuel that momentum needs to continue from here. Number two, our operational programs—the Transform for the Future program, programmatic supply chain savings, and the separation progress—give us additional confidence in the margin expansion story for the full year and beyond. Number three, we have moved with speed and, importantly, impact on portfolio optimization, but we are not finished. We will continue to actively shape this portfolio for the long term. Number four, the ramp toward our long-range plan is happening, it is real, and it is happening faster than most people thought possible. I will now turn the call over to Wayde to walk through our financial details, and then we will open it up to questions. Wayde, go ahead. Wayde McMillan: Thanks, Bryan. We are off to a great start in 2026, delivering first quarter results that were ahead of our plan and expectations on both sales and earnings. As usual, I will begin with an update on separation progress and portfolio actions, then walk through the quarter, and conclude with a review of the full-year outlook. Our separation from 3M continues to progress; we have exited approximately 50% of the transition service agreements and are on pace to exit over 90% by the end of 2026. We have also migrated approximately 75% of over 1,200 system applications, which captures the recent and successful ERP cutover in Asia Pacific, including China. We are now looking ahead to our next wave of ERP cutovers, which includes the U.S. and Canada, planned for Q3. There was also meaningful progress across our facilities with the move of our Saint Paul, Minnesota facility from the legacy 3M campus to our new standalone facility in Eagan, Minnesota, and we achieved a meaningful milestone with the completion of our site migration activities covering several hundred sites around the globe. We also finished a strategic expansion of our manufacturing facility in South Dakota, which enhances our supply chain's flexibility to support existing product growth and new product launches. With further work to streamline our distribution centers, we are now down to 54 worldwide. Regarding recent portfolio activities, we continue to make progress on the P&F divestiture, with a majority of transition service agreements to be completed in 2027, and the Acera integration efforts are tracking to plan while maintaining strong momentum of the commercial team. Now turning to our first quarter results. Starting with top-line performance, sales of $2 billion increased 2.1% on an organic basis compared to prior year and decreased 3% on a reported basis. Foreign currency was a 270 basis point benefit to reported growth, while the net impact of acquisitions and divestitures was a 780 basis point headwind to reported growth. Growth in the quarter was driven by stronger-than-expected performance across all segments, primarily from volume, while pricing remained within the expected range. Our SKU rationalization remains on track with a 100 basis point impact in the quarter, tracking in line with our full-year expectation. Organic growth on a normalized basis would have been approximately 4% when taking into consideration separation-related timing benefits that accelerated sales volume of approximately 70 basis points from Q2 into Q1, along with the difficult year-over-year comparison and SKU headwinds, all before the contribution of Acera, which would have added another approximately 40 basis points. Moving to the segments, MedSurg delivered $1.2 billion in sales, an increase of 1.2% on an organic basis. Within MedSurg, Advanced Wound Care grew 2.1%. Negative pressure wound therapy performance was driven by strong brand, new product launches, and commercial enhancements. Acera contributed $28 million to reported sales, which is reflected in the Advanced Wound Care business. Infection Prevention and Surgical Solutions grew 0.6%, reflecting improved commercial alignment and continued customer demand, as well as the separation-related timing benefits previously mentioned. As a reminder, IPSS growth in the prior year was just over 8%, as the primary beneficiary of order timing related to customers buying ahead of ERP and distribution center moves and SKU exits. Our Dental Solutions segment delivered $354 million in sales, an increase of 3.4% on an organic basis. Growth was driven by innovation as well as separation-related timing benefits. Core restoratives led overall performance, driven by strong underlying demand and commercial execution leveraging new product launches. Our Health Information Systems had another strong result with $342 million in sales, an increase of 4.7% on an organic basis, driven by strength across revenue cycle management and performance management solutions, offset by expected double-digit declines in clinician productivity solutions. Combined with strong customer retention, the pipeline activity and backlog conversion continue to support confidence in our sales growth. From an operational standpoint, we made further progress in supply chain execution during the quarter. Backorders across the portfolio continued to improve, reflecting improved manufacturing performance and the benefits of ERP and distribution actions. Looking down the P&L, even in the face of tariffs and inflation, our gross margins of 56.4% improved 80 basis points over prior year, driven by favorable programmatic savings, portfolio moves, as well as sales leverage and mix. We were above our expectations as typical first quarter seasonality was more than offset by benefits from additional sales, favorable mix, and higher programmatic savings. Operating expenses decreased versus prior year although were 100 basis points higher as a percentage of sales. This reflects the impact of portfolio moves, partially offset by the benefit of our savings programs, including Transform for the Future, outpacing investments. In total, we delivered adjusted operating income of $392 million, or an operating margin of 19.5%. Similar to last year and consistent with our expectations for a sequential seasonal decrease, operational improvements mostly offset the impact of tariffs and inflation. Net interest expense decreased year over year primarily due to a lower average debt balance following the paydown of debt in our third quarter 2025 using proceeds from the [inaudible]. Our tax rate of 20.4% was within our full-year guidance range expectations. Altogether, we delivered earnings per share of $1.48, or 11% growth, ahead of expectations. Shifting to our balance sheet, we ended the quarter with $561 million in cash and equivalents and net debt of $4.5 billion. From a free cash flow perspective, we finished ahead of our expectations mainly due to timing within the year. We had several expected demands on cash flow in Q1, including higher separation costs and tax payments related to the P&F divestiture, as well as normal seasonality for annual compensation and expense timing. Like last year, we expect Q1 to be the lowest quarter of the year. Looking ahead, free cash flow will improve, with Q4 representing the strongest quarter due to step-down of separation-related costs, timing of tax and interest payments, and the outlook for improved operating results as we exit 2026. On our fourth quarter earnings call, we indicated the separation costs and P&F divestiture transient headwinds will mostly complete in 2026, and we continue to expect significant improvement in 2027. We also started the first quarter of our share repurchase program and repurchased approximately 923,000 shares for total consideration of $67 million for the three months ended March 2026. Our balance sheet strength is well positioned for us to execute our balanced capital plan, inclusive of share repurchases and tuck-in acquisitions. Regarding our full-year 2026 outlook, we delivered a solid first quarter performance benefiting from commercial execution, increased contributions from innovation, and portfolio moves. Our confidence in underlying growth and operating performance continues to increase, and we are off to a great start with important ERP and separation milestones still to go while navigating an elevated macro headwind environment. As a result, we are maintaining our full-year organic sales growth and free cash flow guidance as provided on our fourth quarter call, and following the better-than-expected start to the year, we now estimate that our earnings per share will be toward the high end of our initial $6.40 to $6.60 range. We also want to provide some added insights about sales phasing as it relates to the last large ERP cutover, which is planned for the U.S. in Q3. We estimate over $100 million of sales timing benefit in Q2 that we expect will reverse in 2026, mostly in Q3. The additional sales phasing is an important part of our mitigation, and we will update you on our Q2 and subsequent calls on the eventual impact. Turning back to the full year, we continue to estimate a foreign exchange benefit of approximately 100 basis points on sales growth, and we are holding operating margin in the range of 21% to 21.5%, an increase of 50 to 100 basis points over prior year despite significant headwinds from tariffs annualizing and inflationary impacts. There is no change to our tax rate of 19.5% to 20.5%. In summary, we delivered a strong start to 2026. Business momentum is improving, the work in the portfolio is having a positive impact, and our execution is creating a clearer path to margin expansion and cash conversion. We will now open the call for questions. Operator: Thank you. If you would like to ask a question, please press 1 on your telephone keypad. If you would like to withdraw your question, simply press 1 again. As a reminder, please limit yourself to one question and one follow-up. Your first question comes from Brett Adam Fishbin with KeyBanc Capital Markets. Your line is open. Brett Adam Fishbin: Hey, thank you so much for taking the questions. I wanted to start with the phasing commentary around the ERP event. Could you flesh out where you expect to see the benefit relative to the different segments in Q2 from a modeling perspective? Wayde McMillan: Sure. Hey, Brett. As we called out in the prepared remarks, we are estimating over $100 million of additional sales in Q2 as we work with our customers and distributors to advance orders before we begin our Q3 cutover of ERPs in the U.S. and Canada. This will mostly impact IPSS and Dental, to your question. This is a key mitigation strategy to ease the number of orders and shipments in Q3 as we ramp up on new ERP functionality. Keep in mind, the U.S. is a very different region in that the majority of our sales go through distribution, and this helps mitigate any challenges with ERP cutovers with advanced orders into the distributors. Importantly, when we eventually report Q2, we will provide the amount of orders shipped in advance and then adjust our second half accordingly. As we have shared previously, it is difficult to predict advanced orders and volume. Therefore, we are giving you a heads-up here on magnitude, not precision. The key is we are not adjusting our full-year guide. We expect all Q2 advanced orders will be offset in 2026, mostly in Q3, and the good news is that we are nearing the end of our heavy lift on ERPs from 3M. This will be the last large cutover, and we plan to be done with ERPs and 90% of the TSAs by the end of the year. Bryan Hanson: I might just draft off of that too. It sounds a little messy—it is big numbers—but we feel pretty confident on this one. We are lucky because it is the biggest region we have in the ERP cutover, and we feel like the mitigation efforts are fantastic. It puts us in a really nice position to have almost all of our business run through distribution in the U.S., and because we can stock up those distributors, even if we have a challenge, we can cover our customers and continue to recognize revenue, which is great. In addition, this is our last one, so the team has gotten pretty good here. We have a tuned-up team and a really strong contingency program. Brett Adam Fishbin: Thanks, that is super clear. A quick related follow-up: thinking about Q2 and that $100 million benefit, on an underlying basis, is there any reason to think that the ex-ERP benefit run rate would not be somewhere within the 2% to 3% current guidance range? Wayde McMillan: That is the intent of calling out the heads-up on this advanced ordering. We do think it will be a larger magnitude than we experienced last year. We are not giving quarterly guidance, but you should assume that given the strong performance in Q1, we should continue that momentum in and through the rest of the year. Bryan Hanson: Good way to look at it. Thanks, Brett. Operator: Your next question comes from David Roman with Goldman Sachs. Your line is open. David Roman: Thank you. Good afternoon, everyone. In your prepared remarks, you talked mostly about the contribution to revenue growth coming from volume and mix versus price. Can you give us more flavor on the volume versus mix contribution, and what you are seeing from a new product launch perspective year to date? Bryan Hanson: I will start with the new product launches. As I referenced in my prepared remarks, one of the biggest catalysts we have right now is the commercial enhancements, but now we are feeding that commercial machine with some really nice product launches. I talked about those, and they are definitely helping us, with more coming—about 20 new products over the next two years. It is a combination of the enhanced commercial organization, the focus we have in growth drivers, and we are peppering in some really nice product launches as well. Wayde McMillan: On volume, mix, and price, the way to think about it is our price continues to be in that plus/minus 1% range. That means the majority of our growth is volume-based, with a significant contribution from volume and a modest positive mix. David Roman: Very helpful. As a follow-up, this is the first quarter you initiated the share repurchase program, and it was another quarter with macro-related volatility. How did you think about deploying the buyback in the quarter? Were there competing considerations for capital that drove the amount to be where it was, or should we expect this to ramp over the course of the year? Wayde McMillan: We are very happy to have our share repurchase program kicked off in Q1. We have multiple layers to it. The first layer is to repurchase shares to offset dilution of stock-based comp and to hold our share count flat. Then we also have an opportunity to buy if we see value in the shares, and we certainly see a lot of value in the stock where it has been trading more recently. We will balance that with our M&A plan. It is a balanced plan for us—when we launched the authorization program, we also launched the first acquisition of Acera. We will continue looking at tuck-in acquisitions where we can drive value, and we will also be looking at our share repurchase program with a minimum of anti-dilution and being opportunistic where we see value. Operator: Your next question comes from Ryan Zimmerman with BTIG. Your line is open. Ryan Zimmerman: Good afternoon, and thanks for taking the question. Following up on the ERP cutover dynamics: you called out about a 70 basis point impact from some order pull forward. As you think about what occurred in Asia with the ERP cutover, what did you see in terms of impact when you did that cutover that informs the U.S. plan? And how much of that 70 basis points was reflective of preparation for the Asia ERP cutover? Wayde McMillan: Great questions. Our primary objective is always to ensure product availability for our customers. The good news is we had a very successful ERP cutover in Asia Pacific, including multiple countries plus China, and that is in the rearview mirror now. We started with Europe, moved to Asia Pacific, and now we are moving to the U.S. The 70 basis points we called out was related to volume purchased ahead of mostly SKU exits and some of the separation work we are doing, not necessarily ERPs. There is a little ERP element, but given that the U.S. ERP cutovers are not until Q3, the majority of that is other separation activity. Think about countries where we have a couple of months without registrations as we cut registrations over from 3M to Solventum Corporation, so we shipped some advanced orders to keep customers stocked as we transition. To clarify, the 70 basis points in the quarter is volume we would have normally seen in Q2 that moved into Q1. Ryan Zimmerman: Understood. Looking at margins, gross margins came in well ahead of consensus. I do not believe there is any refund activity in there. Your comments suggest you are still holding the line on tariff assumptions for the year. Where is your head at on tariff refunds or potential changes in tariff rates through the year? Wayde McMillan: On gross margin, we had a benefit from sales and mix as well as higher programmatic savings. We normally expect some seasonality headwinds in Q1; we saw those, but they were more than offset, which drove the 80 basis points of margin expansion. We also benefited from portfolio moves—the P&F divestiture and the Acera acquisition are both accretive to gross margins. On tariffs, it is a fluid situation. We are monitoring and managing it closely, but without clarity at this point, we are holding our estimate in the $100 million to $120 million range for the year. Our Q1 came in at the high end of that range on a quarterly basis. We have not booked any potential refunds in our results yet; like most companies, we are in process on refunds, but nothing has been recognized. Bryan Hanson: On the gross margin side, since it came up, maybe you can provide any color for the rest of the year, Wayde? Wayde McMillan: Yes, thanks. We do expect the rest of the year to be slightly below Q1. We think closer to 56% gross margin is a good estimate for the coming quarters. So, strong Q1 a little above 56%; for the rest of the year, just under 56% would be a good estimate. Operator: Your next question comes from Jason M. Bednar with Piper Sandler. Your line is open. Jason M. Bednar: Hey, good afternoon. I am going to layer onto the ERP cutover topic from a different angle. You sound confident around the planning. What does this big U.S. ERP change mean for your OpEx savings plans? When do you begin realizing cost savings from this switch—later this year, early next year? And is that wrapped into your restructuring cost savings program, or are these distinct items? Bryan Hanson: Maybe I will quickly say on the mitigation plan, I want to call out the team because everyone is working really hard on the ERP cutovers. It is a very large cross-functional group that is just flat out right now. The mitigation process we have gone through is probably the best I have ever seen, so I feel very confident coming into Q3. On whether this opens up margin opportunity, Wayde? Wayde McMillan: The primary objective here is separation from 3M. Because we were in a separation situation, there was not a lot of preplanning around ERP cutovers to drive OpEx benefits immediately. So OpEx does not benefit significantly from the ERP cutovers at this time. However, Transform for the Future is designed to pick up on the systems we have and drive savings going forward—system benefits, automation, efficiencies—hand in glove with the rest of the Transform for the Future work, including structural areas. On operating expenses this year, we had $740 million of OpEx in Q1, which is lower in dollars but higher as a percentage of sales. Some of that was due to seasonality—higher compensation-related and other timing of expenses in Q1. We expect operating expenses to step down from Q1 into Q2, Q3, and Q4, which helps us increase operating margins as we move through the year. Jason M. Bednar: Thanks for the extra modeling color. As a follow-up, Bryan, you mentioned almost 20 new products over the next couple of years. Can you break out by segment, cadence of launch activity, contribution to growth, and whether these are brand-new products versus relaunches? Bryan Hanson: You remembered exactly—almost 20. It is mainly new products. There are some relaunches in certain areas where we will do capacity expansion to meet demand and then relaunch globally, but the large majority are new products across each of our businesses. The cadence is steady and will accelerate through the two years, but it is not back-end loaded—nice cadence this year and the same next year. They are dedicated to our growth driver areas, with some outside of that, and span each of our businesses. We think about the portfolio as singles, doubles, and triples—not relying on one home run—so it reduces risk. The combined portfolio launches on a cadence that is digestible for the organization and gives the new commercial team the fuel they need to hit our LRP targets and, hopefully, beyond. Operator: Your next question comes from Travis Lee Steed with Bank of America. Your line is open. Travis Lee Steed: Thanks for taking the question, and congrats on the good quarter. Following up on the portfolio comments in the prepared remarks: do you have any signs that someone else might be willing to pay a higher value than public investors are valuing parts of the business at? And on timing, is there anything that might slow that down, or could something happen fairly quickly? Any other color on the portfolio side? Bryan Hanson: We expected interest here because we are leaning in on this as a vector of value creation. The good news is where we are from a perspective—after a spin, there are considerations outside of typical transaction factors, and the further the spin gets in the rearview mirror, the more flexibility we have. That itself indicates where we are. Then it is the simple formula you mentioned. I do not want to lean one direction or the other, but when others view our businesses as either strategically more relevant to them or financially attractive, we will pay attention. We will unlock shareholder value whether via transaction or other methods. On timeline, I do not want to set expectations. We are constantly looking at this the right way—both exits and additions. Acera is a great example of exactly the type of deal we are looking for on the add side: great growth, squarely in our business, lower risk because we know the space, and synergistic with our commercial infrastructure. Expect more of that, and we can do those while also returning cash to shareholders. We feel in a good position. Operator: Your next question comes from Rick White with Stifel. Your line is open. Rick White: Hi, good afternoon, Bryan and Wayde, and nice to see another excellent quarter here. It is hard to resist coming back to the second quarter. Consensus is a shade over $2 billion for Q2 coming into the call. Do you feel like that adequately reflects a reasonable midpoint given all the puts and takes? Wayde McMillan: It is worth coming back to this dynamic. We are not commenting on quarterly guidance, but number one, nothing changes for the total year—our guidance stays the same. Our recommendation would be: do not change your Q2 models. When we get to Q2, we are going to overachieve because of a certain amount of advanced ordering. It could be higher or lower than $100 million. When that number lands in Q2, we will call it out and then give you a clear read-through of our numbers without that advanced ordering, and we will take that same amount out of the second half, mostly in Q3. It is great that we have a higher amount of product through distribution in the U.S.; it gives us a nice mitigation strategy for the ERPs here. Bryan Hanson: If you think about it, you can expect Q2, on a normalized basis and not guiding to it, to be in the range of the growth guidance we have given, and then on top of that, Q2 is going to come in substantially higher due to the phasing. We just do not want you to try to model the phasing precisely because it will be wrong. When we get to Q2, we will give you the actuals, and as Wayde said, we will provide the information to help with your models in Q3 and Q4. Rick White: Understood. Talking about Q2 EPS then—you nudged your range toward the upper end. If consensus is $1.65 for Q2, leave it alone even with Acera contributing more, more new product, more cost reduction, and the extra $100 million revenue and leverage? Conceptually, what do we do with that? Wayde McMillan: If we set aside the phasing and look at the business: yes, we should see improvement in EPS in Q2 because Q1 is our lowest operating margin quarter, and we had a very tough comp in sales in Q1. In Q2, we should see good sales growth, higher operating margins, and that should drive improved EPS. Bringing phasing back in, if you just do the math on an extra $100 million of sales, we are not increasing investments tied to that phasing, so you will see a clear drop-through in gross margin and EPS. We will wait to see the precise mix and the exact amount—higher or lower than $100 million—but as a simple view, about 5% extra sales with roughly 30% drop-through on EPS. Again, I would not recommend precision there; it is a large magnitude, but not finalized. Net: Q2 looks like another strong quarter with improved EPS, plus additional drop-through from phasing. Rick White: Shifting to Health Information Systems, can you approximate your current mix of full AI autonomous coding versus primarily traditional computer-assisted coding? If not revenue, maybe from a customer adoption standpoint? Bryan Hanson: Great question. The good news is our team’s confidence is increasing in how much coding can eventually be fully autonomous—now talking 80% to 90% of all coding, inpatient and outpatient. In practice, it takes time to implement, so today there is a definite mix—some customers using autonomous in certain aspects, others not yet, and we continue to proliferate. A good view we can share: during the current strategic plan period, our assumption—given our progress and the trust customers have in our capabilities—is that we could get close to 50% of our customers moving over to autonomous coding. Within those hospitals and systems, we will continue to increase the percentage of coding that is autonomous over time, expanding from initial swim lanes. The value proposition—FTE infrastructure reductions, faster productivity and speed to reimbursement, and improved revenue capture from fewer mistakes—is compelling. We are moving rapidly but safely given the compliance and revenue implications. Operator: And your last question is a follow-up from David Roman with Goldman Sachs. Your line is open. David Roman: Thank you. I hate to come back to the Q2 dynamic, but there is confusion. Is the message to leave Q2 the same, you will beat Q2 and then lower the back half to right-size that? Or is the message that, on an underlying basis, Q2 would improve and there will be some unknown upside that may or may not come out of the back half? Wayde McMillan: We debated whether to give a heads-up for over $100 million of phasing or just wait for Q2. We thought the heads-up would be more helpful. To restate: our recommendation is do not change your Q2 models. Whatever the advanced orders are in Q2, we will take the mirror image out of the second half, mostly in Q3. If you want a simple approach, do not change anything now. When Q2 happens, we will disclose the phasing amount, and we will mirror that out of the second half. Separately, we do see momentum in the business. We expect our growth rate to strengthen off the tough Q1 comp and our operating margin to improve seasonally off Q1, which should support EPS improvement irrespective of phasing. David Roman: Very helpful. Lastly, when all is said and done, you would expect 2026 growth to improve versus 2025 and continue to put you on a trajectory toward the LRP targets you issued? Wayde McMillan: Absolutely. We expect improvement across all segments on an underlying basis. They all have growth drivers, commercial improvements, and innovation improvements. Dental had a significant improvement in the second half last year in backorders, so you have to look at Dental on an underlying basis without that tough comp, but otherwise, yes—improvement across 2026 for all three businesses, keeping us on track toward the LRP. Bryan Hanson: I think that was the last question. Before I pass it to Amy to close us out, I want to publicly compliment our team and make sure they get credit. Almost 100% of the LTE and 60% of our XLT are new to the organization, and we made those changes with very little disruption. We completed our first global restructuring—the Solventum Way—with over $100 million in savings, putting a structure in place to drive our new culture. We created a new mission and value system, and 90% of team members understand it and are energized by it. We scored above benchmark on our first global employee survey despite a challenging, changing environment. We completely revamped our R&D team and process. We increased our accounting depth and moved R&D from 2% to the mid-teens, significantly increasing pipeline value. We identified our primary markets and growth drivers and specialized over a thousand reps globally to drive those growth drivers—a significant commercial change. We completed more than half of our complex separation from 3M, including multiple and concurrent ERP cutovers, plus concurrent manufacturing and distribution center changes, closures, and openings. We implemented a multiyear SKU rationalization program. We sold and began separating our P&F business for $4 billion, which is one of the best multiples in the sector. We paid down half the original $8 billion debt we had at spin. We acquired and began integrating Acera. We announced and started implementing a $1 billion share repurchase program. We kicked off a multiyear global cost savings program aimed at $500 million of savings. All of that while this team has tripled comparable sales growth from our starting point. This is not possible without a deeply connected and experienced team. To our global team members: thank you. Amy Wakeham: Thank you, Bryan. Thank you, everyone, for listening, and to our analysts for your questions. As a reminder, if you have any follow-ups or need anything else, please contact the Investor Relations team directly. This concludes our first quarter fiscal year 2026 conference call. Operator: Thank you. The conference has now concluded.
Operator: Good day, everyone. My name is Kehaylani, I will be your conference operator today. At this time, I would like to welcome you to the Q1 2026 Rapid7, Inc. Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, and if you have joined by the webinar, please use the raise hand icon which can be found at the bottom of your webinar application. At this time, I would like to turn the call over to Matt Wells, Vice President of Investor Relations. Matt Wells: Thank you, operator, and good afternoon, everyone. We appreciate you joining us. Today, we will be discussing Rapid7, Inc.'s first quarter fiscal 2026 financial results. We have distributed our earnings press release over the wire, and it can be accessed on our investor relations website. With me on the call today are Corey Thomas, our CEO, and Rafe Brown, our CFO. As a reminder, all participants are in a listen-only mode, and a question and answer session will follow our opening remarks. Before I hand the call over to Corey, I want to note that certain statements made during this conference call may be considered forward-looking under federal securities laws. Such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include our outlook for the second quarter and fiscal year 2026, any assumptions for fiscal periods beyond that period, and our positioning, strategy, business plan, operational improvements, and growth drivers. These forward-looking statements are based on our current expectations and beliefs and information currently available to us. While we believe any forward-looking statements we make are reasonable, actual results could differ materially due to a number of risks and uncertainties including those contained in our filings with the SEC. Reported results should not be considered as indicative of future performance. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except to the extent required by applicable law. Further information on these forward-looking statements and risk factors are included in the filings we make with the SEC, including the section titled “Cautionary Language Concerning Forward-Looking Statements” in our earnings press release. Additionally, over the course of this call, we will use non-GAAP measures to describe our performance. Please review our earnings press release and filings with the SEC for a rationale behind the use of non-GAAP measures and for a full reconciliation of these GAAP to non-GAAP metrics. These documents, in addition to a replay of this call, will be available on the Rapid7, Inc. Investor Relations website. And with that, I would like to turn the call over to Corey. Corey Thomas: Thank you, Matt, and welcome to everyone joining Rapid7, Inc.'s first quarter 2026 earnings call. Let me start by sharing insights from the influx of conversations we have been having with customers as they navigate the rapidly evolving cyber landscape. CIOs and CISOs are telling us the same thing in different ways. Advances from frontier models have fundamentally accelerated the threat environment and outpaced operating models built to defend against it. Vulnerabilities can now be discovered and exploited autonomously, and attackers are moving at machine speed. This fundamentally rewrites the value equation in security. The premium is no longer on detecting threats faster after they emerge; it shifts to preemptive exposure management, autonomous detection, and remediation at scale, closing the windows attackers exploit before they can be exploited at all. This is precisely the environment that plays to our strengths, and that is why our investments in the AI SOC and preemptive security operations are resonating so strongly with customers. The shift we are enabling from reactive to preemptive, from human scale to machine scale, is not a marketing reframe. It is the only viable path forward for teams that need to anticipate where attackers will move next, prioritize the exposures that actually matter, and respond at the speed of modern attacks. Customers are looking for a partner who can unify their data, apply AI with the right context, drive remediation at scale, and translate all of it into measurable outcomes. That is exactly where we are focused. The core platform we are building across detection and response and exposure management is becoming the foundation customers turn to as they modernize for this new threat reality. By unifying exposure and inspection on the Command platform, and combining AI-driven operations with the depth of expertise that we have built over 25 years, we are giving customers a single, coherent way to reduce risk, disrupt attackers, and build durable cyber resilience. The opportunity in front of us has never been clearer, and our conviction in this strategy has never been higher. Turning to the first quarter, I am pleased to report that Rapid7, Inc. delivered outperformance against all guided metrics. ARR of $832 million and revenue of $210 million were driven by sustained growth in our detection and response business, offset by trends in other parts of our business, particularly our non-core standalone offerings. Non-GAAP operating income of $24 million exceeded our guidance and helped drive strong free cash flow of $33 million. Our quarterly results reflect a greater focus on balancing strategic investment and driving scale in the business. In detection and response, ARR growth of approximately 7% was driven by strength in our MDR business. Our approach to delivering AI-enabled SOC, combined with deep services expertise, continues to receive strong market validation, and this quarter we added a new Fortune 500 customer in a seven-figure ARR deal. In exposure management, we will continue to simplify the migration process of upgrading our large vulnerability management base into the Exposure Command platform. Our approach to a unified AI-driven exposure platform continues to resonate with new and existing customers. In this quarter, a large Fortune 500 customer consolidated on Rapid7, Inc. as their exposure platform of choice in a competitive deal cycle. In the quarter, we acquired Kensile Security, an agentic platform built to run security operations autonomously and at machine speed. This is a direct accelerant to our AI SOC vision. Data mesh shifts customers away from a per-alert investigation model to a system-driven one. Coverage scales with the environment, not headcount. This unlocks two things: a meaningful tailwind for MDR growth and a path to higher contribution margins through software-driven efficiency. Most importantly, Kinzo opens the door to the full MDR market. Rapid7, Inc. is evolving into a preemptive, agentic security platform that accelerates the entire SOC, delivered either as a managed service or a self-managed platform. By combining deep MDR expertise with exposure-driven visibility into vulnerabilities and attacker behavior, Rapid7, Inc. enables organizations to detect, investigate, and stop threats earlier. We also continue to innovate on our Exposure Command platform, delivering two major capabilities: runtime validation for cloud environments and data security posture management to strengthen proactive exposure reduction across hybrid environments. In plain terms, we no longer just tell customers what their vulnerabilities are. We tell them which ones are actively being exploited in their environment. Runtime validation determines what attackers can actually reach in production, and DSPM maps where the high-value data lives and who has access to it. Together, they collapse the noise and surface the small set of exposures that actually matter. These steps accelerate the playbook we shared with you in February: strategically investing in our AI-enabled SOC to deliver preemptive security infrastructure while also deploying expert talent towards high-value customer engagements that AI cannot replicate. Turning to customer wins in the quarter, Rapid7, Inc. continues to be the partner of choice for global organizations securing complex on-prem, cloud, and hybrid environments. The go-to-market changes Alan, our chief commercial officer, put in place at the start of the year are beginning to bear fruit. We are running a sharper, more focused organization, and productivity has improved. While it is still early, the operating discipline we committed to in February is beginning to take hold, and we believe that as an organization we can continue to drive efficiencies over the middle term. In this quarter alone, a Fortune 500 mining company with global operations selected Rapid7, Inc. as its MDR provider of choice in a seven-figure deal. This was a long, competitive sales cycle in which our SIEM and detection and response capabilities stood out to their security leaders. Rapid7, Inc.'s history managing cloud, hybrid, and on-prem environments and strong technical knowledge helped cement this decision. After years of only covering a portion of its environment, a global Fortune 500 aviation manufacturer expanded with Rapid7, Inc. as their preferred global exposure management provider in a large six-figure deal. Capabilities of our Command platform combined with our in-house technical talent were resonant points during the expansion process. And lastly, a leading health services provider selected Rapid7, Inc. as their MDR provider of choice in a large six-figure deal. Previously, subsidiaries of the organization used disparate tools and lacked unified coverage. Rapid7, Inc.'s ability to address challenges at a regional and local level, in addition to unified coverage across ecosystems, stood out to security leaders at the organization. Now, before I pass the call to Rafe, I want to dive deeper into the implications that the unprecedented shift to frontier models brings to the security landscape. I want to be clear that this market shift is a long-term tailwind for us, not a threat. Vulnerability discovery has been accelerating and commoditizing for years, driven by advances in AI coding and reasoning, and frontier models like Anthropic’s Methos and Google’s Big Sleep have made that trajectory undeniable. Methos surfaced more than 2,000 previously unknown vulnerabilities in seven weeks. That is a new baseline. But here is the part of the story that headlines miss. Methos commoditized vulnerability identification—finding bugs in code. It does not commoditize the operational reality of managing those vulnerabilities across complex enterprise environments. It does not commoditize detection and response. It does not commoditize exposure management. If anything, it makes it all the more essential because the volume and velocity of findings every enterprise has to act on is about to increase dramatically. The value is migrating in three directions, and Rapid7, Inc. is at the intersection of each trend. First, remediation at scale. The Command platform provides the granular visibility and tracking required to manage thousands of findings across hybrid environments. Combined with our SOAR capabilities and Kenzo’s agentic AI, we are moving from traditional patch management towards AI-native remediation—identifying flaws and deploying fixes autonomously. Second, detection and response. A faster discovery cycle on the attacker side means a faster response cycle on the defender side. Kenzo accelerates our MDR service from AI-assisted workflows to autonomous, machine-speed investigation. Detection is no longer the bottleneck; it becomes a precursor to near-instantaneous response. And third, preemptive exposure management. Our March releases of runtime validation and data security posture management move Exposure Command from continuous assessment to continuous validation, telling customers which exposures are actually exploitable in their environment against their sensitive data, given their identity surface. This is the shift the market is describing, and it is the shift that Rapid7, Inc. has been building toward. More vulnerabilities found means more demand for an operational platform that turns findings into outcomes. To close, this is a moment of real change in our industry. We have the data foundation. We now have a step-change AI capability accelerated by Kenzo. And we have the expertise customers do not get from a model alone. The team is executing with urgency. The operating discipline is taking hold, and the work we are doing this year sets up share gains we expect to deliver over the medium term. With that, I would like to pass the call to Rafe to discuss Q1 results in more detail and our updated 2026 guidance. Rafe, over to you. Rafe Brown: Thank you, Corey, and good afternoon, everyone. As a quick reminder, unless otherwise noted, all numbers except revenue and balance sheet items mentioned during my remarks today are non-GAAP. Please refer to our earnings release and SEC filings for additional details regarding the presentation of our results and guidance metrics. In 2026, I am pleased to report that we exceeded guidance across all guided metrics. We finished the first quarter with total ARR of $832 million. But let me add a bit more color. I have now been at Rapid7, Inc. for five months, making this a good opportunity to step back and share some of my observations, which I think will also help you better understand our underlying mix of businesses, as well as the rationale for the strategy we are pursuing. A key takeaway is that while many people think of Rapid7, Inc. as a VM and DNR provider, that categorization of our business is incomplete. I believe that the business should be thought of in two distinct groupings. First, our core platform solutions group, comprised of our detection and response solutions, which includes MDR, and our exposure management business, which includes VM and Exposure Command. These core platform solutions constitute more than 80% of our total ARR and have been the sustained growth driver in our business in recent years. As you know, we have different underlying trajectories within core platform solutions, led by our strong MDR business and work underway to return the exposure management business to growth. These core platform solutions are where our business is focused. As such, the performance of our core platform solutions is the clearest indicator of the ongoing transformation within Rapid7, Inc., and they are the solutions where we are concentrating product development and go-to-market resources. The remainder of our business mix, or second grouping, consists of standalone non-platform offerings. As customers have shifted towards platform-based offerings over the past few years, these standalone non-platform products have declined on a year-over-year basis. While they remain profitable and we continue to support our customers using these products, standalone non-platform offerings are not central to our strategy. As a result, their declines have been the driver of the sequential net ARR declines we have witnessed in recent periods. With the benefit of that context and framing, let me unpack our Q1 ARR performance. Our core platform solutions, now totaling over 80% of our overall ARR as I shared moments ago, grew approximately 2% on a year-over-year basis, led by our strongest offer in the group—our detection and response business—which, at approximately 55% of total ARR, grew approximately 7% on a year-over-year basis. While DNR growth was partially offset by our exposure management business within these core platform solutions, we remain pleased to see ongoing momentum in our more holistic Exposure Command offerings, driven by both new customers and customers migrating to this new platform. We are not where we want to be across all elements of our core platform solutions, but re-accelerating the growth of these core platform solutions is the focus of our strategy, and where we are placing our bets, as you heard Corey describe in detail earlier. In contrast, our non-platform products declined in the quarter, driving the sequential decline we saw in total ARR. As we plan for the remainder of 2026 and beyond, we see opportunities to optimize margins for these standalone, non-platform solutions as we take steps to improve the alignment of our investment resources toward growing core platform solutions. Returning now to other important metrics, total revenue of $209.7 million declined 0.3% year over year. Within this, product revenue of $204 million was flat year over year and services revenue declined slightly. We finished the quarter with over 11,500 customers and an average ARR per customer of approximately $72,000. Turning to first quarter profitability, total non-GAAP gross margins of 72% were down approximately 280 basis points year over year, consistent with our expectations, driven by improved staffing in our global security operation centers. We reported non-GAAP operating income of $24.4 million, or a margin of 11.7%, favorable to our guidance. This upside to profitability drove non-GAAP earnings of $0.36 per diluted share. Free cash flow totaled $33.4 million in the first quarter, driven by strong collections. From a balance sheet perspective, we ended the first quarter with $670 million in cash, cash equivalents, and short-term investments. In addition to these resources, we have a $200 million undrawn revolver in place. Our cash and investment balances, undrawn credit facility, and continued free cash flow generation give us confidence in our ability to settle our March 2027 convertible debt upon maturity as well as fund ongoing operations. This brings us to second quarter 2026 guidance. We expect to end the second quarter with ARR of approximately $820 million. On a sequential basis, we expect ending ARR for our core platform solutions—DNR and exposure management—will be approximately flat quarter on quarter, with an expected sequential ARR decline in our non-core standalone, non-platform offerings. For the second quarter, we expect total revenue in the range of $207 million to $209 million, or down approximately 2.9% at the midpoint on a year-over-year basis. Non-GAAP operating income is expected to be in the range of $24 million to $26 million, or a margin of 12% at the midpoint. Non-GAAP earnings per diluted share are expected in the range of $0.33 to $0.36 on approximately 78.3 million fully diluted shares. Updating our full year fiscal 2026 guidance, we expect total revenue in the range of $836 million to $842 million, a year-on-year decline of approximately 2.4% at the midpoint. We are raising non-GAAP operating income guidance to a range of $112 million to $118 million, or a full year non-GAAP operating margin of 13.7% at the midpoint. As previously highlighted, the business exited 2025 with a higher expense run rate, reflecting 2025 investments across people, technology, and our India global capability center. By closely managing ongoing investments, we expect non-GAAP operating margins to improve to the mid-teens as 2026 progresses, and we remain focused on continuing to improve operating margins in 2027. Non-GAAP earnings per share are expected to be in the range of $1.52 to $1.60 per share on approximately 79.4 million fully diluted shares. We expect 2026 free cash flow in the range of $125 million to $135 million for the full year, flat with prior year performance at the midpoint and a free cash flow margin of approximately 15.5%. In conclusion, there is a tremendous opportunity for cybersecurity companies who can help their customers respond at the incredible pace of new vulnerabilities and increasing attacks. Rapid7, Inc.'s core platform offerings of detection and response and exposure management are uniquely positioned to help companies navigate these threats, which we believe presents a long-term growth opportunity for our business. And with that, I would like to turn the call over to the operator for Q&A. Operator: If you have joined by the webinar, please use the raise hand icon which can be found at the bottom of your webinar application. When you are called on, please unmute your line and ask your question. We kindly ask that you limit yourself to one question and one follow-up. Our first question comes from Michael Cikos with Needham. Please unmute your line to ask your question. Michael Cikos: Hey, guys. Thanks for taking the questions here. Can you hear me okay? Operator: Yes, we hear you just fine. Michael Cikos: Terrific, thank you again. I just wanted to start out with the guidance we have here for the ARR, and thanks for splitting out the core versus the non-core. Could you help us think about that core business? Where are we specifically with exposure management in helping that business start to see growth versus some of the headwinds we have seen in recent quarters? Corey Thomas: Yes. Rafe and I can tag-team it. On exposure management, we are happy that we are seeing stabilization. I would not say that it is a growth driver, to be clear. It is not, but we are seeing the stabilization and improvements that we would expect, and we see good leading indicators that that business is set up to improve. But it is nothing that we can claim success or improvement on. We are still working through the upgrade cycle in a noisy environment. We are optimistic that the backdrop of what is happening in AI gets customers refocused back on the need to take exposure management seriously as a priority, because there was lots of noise before about all the things people could focus on. We are certainly heartened by the early conversations, but that is not something that we will translate directly into a forecast or guide at this stage. Michael Cikos: Understood. And for the guide here, again, I know we are navigating the core versus the non-core ARR components. If I am just looking at the guide we have here on the ARR for Q2—and I know you guys are only guiding a quarter out at this point—it is less than what consensus had been thinking about here. Can you give us a flavor for what the shape of the rest of the year looks like, or any other things we should be mindful of as we navigate the next couple of quarters since we are only getting that ARR data point from a guidance standpoint on a quarterly basis? Corey Thomas: We are only guiding the quarter right now, and as Rafe says, we want to make sure that you have the transparency as we go through it. The one thing I will comment on is, clearly in the first half of the year, we are seeing the non-core—which I have talked about before—decelerating off at a faster rate. Our core is still a net positive contributor. As that plays out, we will see how that plays out and whether we see the acceleration in exposure and the impact of DNR. I would just say, to give you revenue guidance, we feel very good about that. We have lots of confidence in all the measures that we guide on. We will keep you updated as we go along, but we are not doing any further breakouts right now. Michael Cikos: Thank you. I will leave it there. Matt Wells: Thank you. Appreciate it. Operator: Our next question comes from Matthew Hedberg with RBC. Please unmute to ask your question. Analyst: Hey, guys. This is Mike Richards on for Matt. Appreciate you taking the question. It made a ton of sense when you were talking about the changes with Methos and the other frontier models and how that can act as a tailwind for Rapid7, Inc. But I was wondering about how these changes are impacting customers. Is there confusion in the market around frontier models and vulnerability discovery and what that means versus exposure management, or do they get it? Any details you can provide on what the customers are thinking right now? Corey Thomas: It is a great question. Number one, I think there is probably more confusion with investors than there is with security experts, which we understand, which is why I wanted to clarify it in my prepared remarks. Most customers—there are two classes of things that are going on. Customers that have the expertise on staff are expecting a lot more scale of vulnerabilities and confusion. What we are hearing from them is the need to really focus on exploitability, understanding what is in the environment, focus on understanding reachability—what is happening—and then remediation and organization management at scale, which requires an understanding of the attack surface. These are all things that we are focused on. We are accelerating our efforts to make it easier for customers to understand which vulnerabilities matter most, because there is going to be a lot of real things and a lot of noise. As things surge for customers, they are remediating and addressing the most important things as quickly as possible. What we have seen so far with customers is that those that are in the know understand it and are focused on it, and they are asking us how we can help them actually manage the complexity of having a lot more to manage. There will be a lot more real stuff to address, and there is going to be a lot more noise too. There are also a lot of customers that are less mature in their cycle, and the word vulnerability is vulnerability, but the knowledge does get out there. They will have to respond. They will not be able to remediate everything all at once, and so they too will have to understand it. The tricky part for an investor is that “vulnerability”—whether you do discovery or scanning or vulnerabilities in code—sounds the same, but they are very different. Code-level vulnerabilities are very different than vulnerability management, which is very different than exposure management. Exposure management is about addressing the things that are actually exploitable and the vulnerabilities that actually lead to compromise, and doing that at scale across the environment. There are differences, but using the word vulnerability can cause nuance and confusion. Analyst: I appreciate it. That is helpful. Yes, that is super helpful. And just as a quick follow-up, maybe taking a step back from a macro perspective, are you seeing any change in customer behavior as it relates to geopolitical uncertainty or even AI budgets crowding out, as we have heard of more and more enterprises running up on their AI budgets and that impacting other areas of enterprise software spend? Corey Thomas: Everyone is trying to figure out what is the right way to budget and plan for it. That is an obvious thing that organizations all over the world are trying to figure out—what is the right AI strategy, how do I budget for it, how do I plan for it, and how do I deal with the leapfrogging that happens from time to time? Universally, this is a year where, more than ever, we are seeing customers looking for how they can start showing real benefits and new outcomes from the technology. It is moving from pilots to delivery. That is what makes me excited about the investment we have made organically and with Kinzo. Customers are in the “show me” stage, looking for how we can help them scale their security operations. I hardly know any customers that are getting a lot more people allocated to the teams, so they are looking for technology and services to scale their security operations, and that is where we are focused. Thanks again for your questions. Operator: Thank you. Our next question comes from Joseph Gallo with Jefferies. Please unmute to ask your question. Joseph Gallo: Hey, guys. Thanks for the question. I want to ask one high-level one and one explicit about Q2. High level, you are investing in areas of growth—MDR, go to market, integrating AI. How should we think about the trade-off between stabilizing ARR growth and maintaining gross margins going forward? Any guardrails that we can think through? Corey Thomas: Our team has a very clear mandate: we have to scale margins. We feel that we have the right setup for that. If you think about our MDR business, which is our fast-growing business that historically has had less contribution margins at scale than some of our other businesses, that is also a business where we expect gross margins to expand. That was a big part of Kenzo’s thesis—that we can deliver better service with better efficiency and better cost leverage. We are excited by that. Delivering our customers a better experience and doing it more efficiently is good for our investors too. Both myself and the management team have a mandate that we have to expand margins over time, but we are willing to make tactical investments to make sure we are doing it the right way. It was absolutely the right thing to do this year, as we saw the tsunami of cyber risk hitting customers, to make sure that we were properly staffed in our MDR environment to manage and respond, and to deliver a great quality of service, which leads to long-term retention and expansion. We know that we can do more AI automation to handle some of those soft services over time. We feel very good that we made the right decision to make sure customers are set up well, and we are managing the business to expand margins over time. Rafe Brown: I would just call out, as we mentioned in our remarks, we continue to expect to see bottom-line margins improving as we go across 2026. When we do planning, we roll it out and look at carryforward numbers to make sure we are very conscious of run rates going into the next year. In 2025, we saw some investment, and we knew that would impact year-over-year comparisons in the first part of the year, but you will start to see the benefits of that and see those improving margins even here in 2026 as we move to the back half of the year. Joseph Gallo: That is very clear and really helpful. Maybe just a follow-up. I want to understand exactly what our takeaway should be with your Q2 ARR guide. Q1 declined $8 million quarter over quarter. You are guiding to another decline of $12 million. Is that 20% of the non-core business? Is that churn getting worse? Is it lower expected new business for the 80% of the business that is growing? We are one month into Q2, so I am curious what you are seeing in Q2 that indicates that new ARR might be a little bit worse than you saw in Q1. Corey Thomas: In Q1, even though we expect other, or the non-core, to churn—and it is not a core area of focus or investment—when we see acceleration, we take a more cautious outlook. We definitely saw acceleration of the churn in Q1 in the standalone non-core businesses, and we are taking an appropriately thoughtful viewpoint as we go into Q2. I also do not want to predict that we are going to overcompensate for that by acceleration of core. That is the primary driver and takeaway now. That is part of why Rafe gave the commentary. Rafe Brown: That is exactly right. We wanted to share that color on what is going on, because it is important for everyone to see where our core business is, how it has been growing, and have that clarity. That is going to be the long-term future for the organization, and those products will be the ones that we are taking to customers on a regular basis. We hope by breaking that out, that illuminates exactly what is going on. Joseph Gallo: It is extremely helpful. Thank you very much for that. Thanks. Thank you very much. Operator: Our next question is from Adam Tindle with Raymond James. Please unmute to ask your question. Adam Tindle: Okay, thanks. Good afternoon. I just want to continue on the topic of core versus non-core. If I rewind back, Corey, I know the strategy was to really create a lot of synergy between the platform historically. As we fast forward to today and have one piece of the business that is understandably non-regrettable churn or in decline, how are you managing the impact on core while non-core churns? I imagine there is some customer overlap. Why would churn in the non-core piece potentially not impact core? What are you doing to mitigate that potential risk? Corey Thomas: It is exactly the right question. Whenever you have dynamics—and just to remind you, non-core includes things that are lower on the priority list and some legacy standalone stuff—you hit the core point. As you manage these things, what we have to do well is help customers scale their security operations, and the core of that is the preemptive platform with exposure management and detection and response, and how we weave that together. There is a subset— not all customers are overlapping. We have a healthy amount of standalone customers. For customers that are overlapping, their experience matters deeply, and our teams are actively working to make sure that we deliver those customers the right experience. In the world of rapid innovation at the pace of AI, we are rapidly rolling out new services that address their need, and we are expanding their scope and their experience with us. If you look at some of the announcements we have been making, we have been picking up our pace of innovation, our pace of things that we are communicating to the market, and our pace of what we are providing customers as far as their existing subscriptions. Our view is, if we do that well and keep delivering on that, we are adding more strategic value in areas that matter more, and therefore we can continue to focus on those areas. These types of transitions have to be managed well, and it is something that we are focused on. Adam Tindle: Rafe, maybe just a quick follow-up. You talked about the silver lining being profitability. I think you mentioned mid-teens operating margin in fiscal 2026 and that you expect to continue to improve in fiscal 2027. It is uncommon that we see platforms undergoing growth pressure that are still able to scale and not experience lack of leverage on the downside. What are the drivers in terms of your confidence in margins in mid-teens and continuing to improve in fiscal 2027, and any parameters you would like to set so we can understand what “continue to improve” in fiscal 2027 might mean? Rafe Brown: What is giving us confidence as we go through 2026 is, first of all, recall that there was a great deal of investment across people and technology last year, including opening up the India center. All of those things happened in 2025. Especially in the early parts of the year, the year-over-year comparisons bear the brunt of that cost uptick. A lot of that work was in place to help build efficiencies in our organization, giving us locations where we can get great productivity at an affordable rate. Having SOCs around the world on a global basis is important to our customers, but also important to our efficient operations. As we get people ramped up and get that part of the business locked in, that is offering efficiencies for us. We are also being very careful in 2026 about cost management across the board. We want to deliver on the commitment we have made on margins, so we are being cautious about where we spend. Some of this plays out when we talk about core versus non-core—being clear about where we should invest to drive long-term growth versus where we need to be more moderate in how we manage those costs. All of that together is driving what we are planning for 2026 and giving us confidence as we look at those run rates as we leave this year into next. Thank you. Operator: Our next question comes from Jonathan Ho with William Blair. Please unmute and ask your question. Jonathan Ho: Hi, good afternoon. I wanted to dig a little bit into the emergence of the Methos models. How do we think about the broader opportunity set around MDR and CTEM evolving with that AI landscape, and how does your product specifically need to change to address the emerging landscape? Corey Thomas: Great question, Jonathan. I think you have to first understand what is changing for customers in order to understand the work we are doing that is valuable and the work we need to do differently. Customers are going to see an influx of zero-days. They are going to see a much larger volume of vulnerabilities. They are going to see more exploitable vulnerabilities, but the amount of vulnerabilities they see are not all going to be exploitable. Their ability to figure out what really matters is going to be key. Their ability to manage remediation at scale in tighter time frames matters. If you could do remediation in months before, then figuring out which stuff matters and managing the remediation in days, weeks, and months as appropriate is critical. We have a massive remediation backlog overall. The pace of exploiting vulnerabilities is increasing, and dwell time is shrinking. People will have to go from detection quickly to active response. That is another significant change. Customers will be dealing with speed, scale, and the need to respond quickly without breaking things. Where does that go? Rapid7, Inc. has a long history of focusing on exploitability, and our security researchers are accelerating and moving our models and upgrading those to deal with the increasing insertion and speed to discern what is exploitable from what is not. As we built out our overall exposure management framework, we believe that vulnerabilities are not the core thing that matter in themselves. It is the intersection of vulnerabilities, how devices and networks and technology are configured, as well as the controls in the environment. After all, that is what exploitability is—it is reachability combined with what controls are in place and what is configured, combined with what is vulnerable. We understand that better than most organizations. The last piece we invested in is Kenzo, which is the detection accelerator. We are upping the visibility and the ability to quickly process what is exploited in the environment. We are accelerating investments in remediation management to help customers track and manage remediation across the environment. We were already bringing forth Kinzo for instantaneous detection, but we are also investing heavily in leveraging our understanding of both the configuration surface and the control surface to help customers understand the best interdiction or immediate intervention options they have to contain attacks. They will have to respond in the moment, and sometimes a forward remediation is not available. Those are the things that are changing for the customer, the things we are investing in, and the things we are accelerating and changing in our technology. Jonathan Ho: Thank you. I will keep it to one. Operator: Next question is from Eric Heath with KeyBanc. Please unmute to ask your question. Eric Michael Heath: Alright, thanks for taking the question. Maybe one for Corey and one for Rafe, if I may. Corey, Glasswing has been out for about a month and it feels like there is a lot of urgency out there. What impact have you seen thus far in Q2 in the pipeline? And then for Rafe, very much appreciate the color on the platform growth and the guidance. Any specificity you can give on how net new ARR in Q1 was for core platform, and how we should think about the exit rate for the non-core platform products as we exit 2026? Corey Thomas: I have hit on it partially before. With Glasswing, there are two things. There is a small cohort of our customers who have seen it and accessed it, and they want insights into how we help them deal with the truly exploitable ones and also the volume and the noise. That feedback and engagement is driving some of the strategy I talked about earlier. Then there are those on the outside trying to figure it out, and they are looking for perspective about how much this changes their technology strategy. Do they have to put all new projects on hold and do remediation for the next six months? If so, what type of remediation? They are in a necessity mindset. We are still in the early days because many organizations do not know the magnitude of the impact specifically for them. Rafe Brown: To add a bit more color on the first quarter, we were really pleased with the sales organization and their hard work in Q1. You will recall that we had a new leader—Alan joined late last year. He made a few changes on the team, even as we started this quarter, and the team executed well. Productivity increased across the quarter. We saw good execution on a lot of operational details that are important to running a sales organization. That translates into our core platform solutions, where within core, the detection and response business—which is now 55% of total ARR, a little more color than we have shared in past quarters—grew at 7% on a year-over-year basis. That is new, net of any churn we had in the quarter. Combined with exposure management solutions, that whole core solution group was growing at 2%. Good execution on the top line, good work from the product team helping our customers, and execution all around ensured that core numbers were growing in the first quarter. Operator: The next question is from Srinivas Guthari with Baird. Please unmute to ask your question. Analyst: Thanks a lot for taking my question. A follow-up to Jonathan’s, and Corey, thanks for the color on how the value will shift towards remediation at scale and exposure validation. In terms of monetization and timing, how does that show up in practice in this post-frontier AI model world—in terms of MDR, urgency for Exposure Command upgrades, runtime validation, and the broader platform? Corey Thomas: Our current plans—this is probably a double using baseball parlance—are for this to be a catalyst to help move the priority of exposure management back to the forefront, which significantly helps with the VM upgrade initiative and focus. That is our focus. We are not looking to charge incrementally for it. We think we have a monetization plan that is already attached to it. Seeing the VM-to-Exposure Command acceleration in the upgrade program is where we expect to see the monetization. We are accelerating some things along with that strategy where we focus and tighten how you manage remediation at scale, how you assess exposures from both a control and a configuration standpoint, and how you do active response. On the MDR side, the thing I am talking to most customers about is how they enable active response and do more automation and more AI-driven response across their portfolio. Customers are getting comfortable with that. Our goal is to lead that discussion with trust. That is an expansion area, an investment area, and a potential monetization area, though it is a bit too early. It is one of the biggest incremental areas where we are recalibrating resources: how we shift active response to machine speed while ensuring we can do that safely based on our knowledge of the overall attack surface, the control surface, and the configuration surface. Analyst: Very helpful. Thanks a lot, Corey. And just a follow-up, Rafe—you talked about prudence in the non-core guide and more confidence in the core platform growing. In terms of the go-to-market changes that have been put in place bearing fruit, can you unpack what is happening in the plumbing? Is there a healthier mix of more singles and doubles now? Is the channel-sourced pipeline more efficient? Is there a better upgrade motion? Corey Thomas: The big one is that Alan has really tightened the focus on selling the core, which is DNR, Exposure, and the Command platform integrated capability. When you have a strategy, you are not selling all over the place. We have a tighter focus there. We are seeing tighter pipeline builds in those areas and more focused, consistent execution. The biggest thing is that as we set targets, we hit the targets. We all want to see acceleration and faster growth, but we have confidence in the trends of how we are seeing business performance start to shift. We want everything to go faster, but we have confidence in both the management and the visibility that gives us confidence about how we see the year standing now. Operator: Our next question is from Mina Marshall with Morgan Stanley. Please unmute to ask your question. Analyst: Hi, this is Abhishek Merli on for Mina Marshall. Thanks for taking the question, and congrats on the quarter. I wanted to touch on Kenzo Security and where that product sits in the roadmap in the context of AI-driven investigation. What capabilities have already been incorporated into customer workflows versus what remains in development? Should we think of it as improving productivity or customer-facing remediation? Any further details on that? Corey Thomas: Kenzo was excellent. Their data mesh and their model were extraordinary at doing investigations at scale. It was an alert processing engine that allowed you to process alerts from all over the environment. We are in the act of integrating it right now. It is not a done integration. The team has come in; we are integrating it and will be rolling it out to customers starting in the next couple of months and then through the rest of this year. The core of what Kenzo does is an AI platform for processing alerts and doing high-quality investigations at scale. Typically, an analyst gets an alert, has to make sure it is not duplicated—over time, SIEMs did not do a good job of this; DNR systems like Rapid7, Inc.’s did a good job with deduplication. Then you have to collect knowledge and context to figure out whether it is real or false. Once you have a sense of whether it was real, you have to do another level of investigation to figure out how bad it was in the environment and what you need to contain and remediate. That took hours and days. Kenzo is excellent at doing that in massive volume and at machine speed, with better efficacy rates. We are taking it in, applying the model, and extending the model to hit not just alerts but a much wider range of data sources as we go forward. The other part we are adding in at Rapid7, Inc. is that, because we have deep knowledge of the environment, we have a wider range of response options available. That is new development work in progress, so I will not get too far ahead, but customers need to know how they can respond at speed and scale. Some of that will be used in our technology and some in third-party technology, but we have to have the brain to know which controls and systems to leverage at scale—whether existing controls or new startups—based on our knowledge of the environment. Operator: Our next question is from Adam Borg with Stifel. Please go ahead. Adam Borg: Thanks for fitting me in, and I will just stick to one. Corey, you talked at length about how the frontier models are driving increased vulnerability identification, but that is really where the tailwinds begin for you. Investors may be a little more confused on their role over time. What is preventing these frontier models from moving from identification of vulnerabilities toward exploitability, reachability, prioritization, and remediation that you talked about? They seem to be talking about moving in that direction. Any way you could talk about the moats that a vendor like yourself has to prevent that from occurring would be helpful. Thanks. Corey Thomas: There are three different moats that matter. First, this is not versus the frontier models—we leverage frontier models inside Rapid7, Inc. Anyone who is not leveraging frontier models is not going to be relevant. This is about where the use cases matter. If anyone has used frontier models at any scale, you know you have to discern the cost of the activity you are doing. Someone can scan and do exploitability analysis in the environment, but they are paying a lot more than what you get for the same information in a core vulnerability management system. Frontier models are not designed to do that efficiently now. Could they build specialized software to do that? Potentially, yes, but then you are building the product and you have to operate it at scale and cost. As someone who has tested these systems, you can run up a lot of money doing what you think is a straightforward scan. Second, it is not whether something is vulnerable; it is whether it is actually exploitable in the environment. Exploitability means you have to understand not just the vulnerability—you have to understand the configuration of the complete environment and the controls and how they intersect. That is specialized knowledge and data we have optimized around. We understand what is exploitable, what is reachable, and how that is configurable in the overall environment. Third, when you get to taking action and responding in the environment, I do not think anyone wants a frontier model running rampant making configuration changes for active defense and active response in their environment. Models are updated all the time, and by many of the authors’ own admission, that is not how most people will trust security to be handled. For autonomous response, you need the knowledge base and you need the trust. We are building active response on a system of trust and knowledge. That is a big deal because you do not want your active response being too clever. If you give the keys to systems that can make any type of change in the environment, minor errors can cause catastrophe. Most CISOs and IT people know that. They are looking for things that do the mission well and cost effectively. We are adopters of the technology, but it is important to understand the constraints too. Adam Borg: Incredibly helpful. I really appreciate it. Operator: Last question comes from Gray Powell with BTIG. Please unmute to ask your question. Gray Powell: Thank you very much. Can you hear me? Operator: Yes. Gray Powell: Excellent. Thank you for taking the question. I think you hit on this before, but I want to circle back on the non-core products and how we should think about that trendline stabilizing over the next 12 months. If I am doing the math correctly, in ballpark terms, I would assume that non-core is maybe a little over $150 million in ARR. Q2 guidance implies that it is down about $10 million. Is there a level where we should think about that number stabilizing? And they are existing customers, so why is there not an opportunity to upsell them on the platform? Is there a conversion opportunity there? Rafe Brown: Thank you for the question. The best way to think about it is we are trying to build out robust platforms that are attractive to our customers. Some of our customers have platform offerings but may have also bought something standalone. That is part of the equation. As Corey mentioned, it is very important that we take care of these customers and that their whole experience with Rapid7, Inc. is very important. We think there is also an opportunity for those who may not have a platform solution to migrate onto one of our platforms. We are looking for technologies that we can integrate in and make that platform richer. That is our number one focus around those customers. I wanted to break that out because this trend has been going on behind the scenes for some time over the last few quarters, where you will see those standalone non-core offerings are where we have had more of the challenges on the renewal front. What we are calling out is that we are focused on building attractive platforms with robust technology. That creates an upgrade path for many of our customers and allows us to focus on meeting the demands of the present market. Gray Powell: Understood. Okay. Thank you very much. Analyst: Thank you very much. Operator: Thank you, everyone, for joining. This concludes today’s call. You may now disconnect.
Christian Gjerde: Good morning, and welcome, everybody, to this first quarter results presentation for Elopak. My name is Christian Gjerde, and I'm the Head of Treasury and Investor Relations. Today's presentation will be held by our CEO, Thomas Kormendi; and our CFO, Bent Axelsen, and will last for around 30 minutes, followed by a Q&A session, where we will take questions from the people here in the audience as well as the people joining us online. So with that short introduction, over to you, Thomas. Thomas Kormendi: Thank you, Christian, and a warm welcome to all of you here on the beautiful, beautiful spring day in Oslo. It's really great to see so many of you here in person. So Q1 let's get started. As you know, some of you will know, just 2 words on who we are. We are actually in the business of sustainable packaging. All we do, the only thing we do is fiber-based packaging. We do that with protecting essential commodities, not the least dairy products, but also other products such as juices, soups. And in all of this work, we are committed to reducing the use of plastics. So Q1, what -- let's look at the performance here. Well, first of all, we report a revenue pretty much stable in terms of -- stable when you look at the constant currency. We're reporting a 3.9% decline. But on constant currency, given the exchange rate primarily in U.S., we're looking at a stable development. Secondly, as you know, and some of you who have followed us, we've had a strong -- very, very strong development in Americas. And actually, our development in the U.S., in the Americas continues with 6% growth on a constant currency basis and also another strong quarter for Little Rock. Little Rock as you recall, that we started up last year in April, and that has now onboarded more and more customers in Line 1. So although we have seen and we have reported earlier, somewhat slower onboarding of our customers. And when I say onboarding, it's not about acquiring customers, but it's about onboarding their designs, onboarding their materials. That has been somewhat slower. We still remain absolutely confident in the midterm targets related to Americas. Second -- thirdly, the EBITDA. We came in at EUR 41 million, which corresponds to around just short of 14%. And we also came in at an earnings per share slightly above the previous -- the year-on-year quarter last time. What we also see, even though we have also during this last quarter, invested quite heavily in the expansion in Americas, we still come in at a very solid 2.2 leverage ratio, which is actually slightly impacted as well by the currency impact of Americas. Very importantly, of course, and I'm coming back to that in a little bit broader sense. But as everyone around us know, we have a turbulent world around us, particularly in the Middle East. It does impact a lot of the raw materials, including our raw materials. And it does have a cost impact on our side as well. I will come back to some of the mitigating effects that we are addressing this with in the coming slides. Now on the revenue. As I said, revenue overall stable, although we report a EUR 12 million lower revenue. This is primarily related to the commissioning of filling machines. And as you may remember from Q4, where we reported a very strong filling machine commissioning, the commissioning of filling machines is not a linear curve. It will vary a little bit between the quarters. If you look at the EBITDA, you could -- there is a decline of EUR 3.6 million versus same period last year. However, EUR 2.5 million of this relates entirely to currency impact from the U.S. dollar. And the remainder as well as the impact that we've had in this period relates to some one-off effects that we've had. We've also seen a tough margin pressure in India, including pressure on margin, pressure on volume. And we have also front-loaded some of the strategic initiatives that we have taken already in Q1. So all of that impacts the EBITDA for this period. Now we have also initiated a program and some of those initiatives have already taken place. During this quarter, we have had restructuring effects in the likes of EUR 1.3 million, which is part of the program of reducing our -- addressing our costs, and these will have been adjusted in the EBITDA from Q1. Back to the Middle East and the extraordinary cost impact. Now everybody in the world now knows where Hormuz Strait is, very exactly where it is. Everybody knows what the impact is beyond just the surrounding countries. What you see in our world is a very significant increase in LDPE. On the slide, you will see that the LDPE increase is around 160%, which is, by the way, a picture we -- some of us will recognize from '22, where we saw raw materials explode as well, not the least on the plastic side, but also aluminum foil and other raw materials in general. We are now seeing the increase, right? And what we have done is that we have, of course, addressed these increases by implementing and introducing extraordinary surcharges on the pricing side towards our customers, given the price -- the cost pressure that we are seeing. These have been introduced. They are being implemented as we speak. And they are, of course, related to an existing price level on LDPE, on polyethylene, on naphtha, but also an expected development. So this carries a certain uncertainty because none of us know exactly how this develops. So what we have introduced is a mechanism that will allow for this kind of uncertainty. And it also brings me to the strategy of Elopak. And we remain absolutely committed and confident in our strategy that consists of these 3 pillars. The global growth, as we know, is not the least related to America, which is the big growth driver we have. We have Little Rock up and running. Little Rock is accretive. Little Rock is producing in high volumes. Little Rock is producing in multiple shifts in Line 1. We are establishing Line 2 as we speak, and we have already agreed and announced that we will do Line 3 as well. Little Rock is the foundation or rather Americas is the foundation of the realizing global growth. But beyond that, it's also India, and it's also MENA, where we are now working as well as we have announced earlier on expanding our portfolio, getting more aseptic products in, getting more ESL long extended shelf-life products in. The second one is the leadership in the core. And as we have talked about earlier, we have a strong position in chilled fresh business in Europe, and we continue to build that with a number of initiatives related around sustainability, related around the PPWR, et cetera. But the third one is the one that I'd like just to spend a little bit of time on because the third one relates to the plastic to carton conversion. And of course, in times that we see now, right, LDPE increasing off the roof, we see that competitive solutions such as PET will have increased by 60% for a PET bottle with the impact of LDPE. So while -- actually, while clearly, it impacts everyone in packaging with rising raw materials, the situation we see now is that primarily the impact will relate to the plastics products, which will, at some point, potentially improve the understanding among customers, among retailers that the carton packaging in a much, much wider sense than what we have now creates stability in cost, creates a much better transparency in cost and is a an alternative not only for sustainability reasons, but also for cost reasons when it comes to packaging other products than just milk and juice. And that is what we do in the third box, leveraging the plastic replacement because this is the area where we work with the nonfood products. This is the area where we work with alternatives to plastics, which can be very closely related to our business or a little bit further related, where we can utilize our strong know-how in liquid products, in filling of liquid and semi-liquid products. So in short, the current development poses a certain amount of challenges for anyone in any industry, primarily because it's uncertain what comes out of the ongoing conflict, but particularly for the carton industry and for packaging in our case, it does also provide the understanding, the certainty among customers that carton actually provides a whole range of advantages in their cost portfolio and their product portfolio beyond the fact that it is the most sustainable solution. And with that, I think I will hand over to you, Bent. Bent K. Axelsen: Thank you, Thomas. Before we dive into the numbers, I would like to address 2 changes that we have done to how we report our figures. The first thing that we are doing is that we are moving the R&D activities and associated corporate activities from the EMEA segment to what we call other and elimination, simply because this unit is serving both segments, not only EMEA. So this will improve the comparability and clarity when we are reviewing the relative performance between EMEA and America. The second change that we are doing is reflecting an adjustment to our operating model where the aftermarket services and spares part are now run by the local regions together with the blanks, together with the closures. Today, or in the previous reporting regime, all these financials were reported in EMEA. Now the America part of these financials will now be reported in the Americas segment because these are services and spare parts sold to the American market. So we think this is a logical change. The 2025 figures are reclassified in this report, and there is more information in this presentation file and in the report. So let's start with the EMEA segment. In EMEA, we are reporting stable volumes with results impacted by one-off effects and timing effects related to filling machines. The revenues are EUR 208 million, down 7% from last year. If we look into this reduction of EUR 16.5 million, EUR 6 million is related to timing of filling machines sold by EMEA to external customers, while EUR 9 million is related to reduced sales from EMEA to Americas internal sales. So altogether, EUR 15 million is basically timing related to filling machines. If we go then to the carton and closure revenues, they are moderately down compared to last year, and that is a result of a negative mix impact, which I will dive into. The Pure-Pak volumes, they are stable in the EMEA segment. What you see here is that there is a decline in the aseptic juice segment. This is what we have reported before. It's a result of the consumer preferences combined with the very high citrus prices that we have observed for the last year. These products are -- we have attractive margins. We have growth in other segments in UHT milk, but they are sold at a lower price point compared to aseptic juice. We see year-over-year growth in MENA, driven by growth in North African markets and we also see growth of closures as we are growing with customers that both buy our blanks and our closures together. If we look at Roll Fed, we are happy to report that we are growing the Roll Fed volumes again after several quarters with decline. This comes from onboarding of customers in Poland. But as you know, the pricing points on the margin for Roll Fed is lower compared to Pure-Pak. So it's not enough to compensate fully. In contrast, in India, we are reporting a volume decline in Roll Fed year-over-year. And we are also having, as we reported before, a pressure on margin. The revenue decline is around 13% on a constant currency basis, 26% reported. So that is related to the weakening of the rupee. So as we have reported before, the supply-demand balance is pressured in India. And in this quarter, we saw, particularly in January, February, this also impacting our volume development. If we move to EBITDA, we are reporting EUR 36 million, down from EUR 40.7 million. The margin is 17.4%. This contains EUR 1.8 million one-off related to an operational matter. It also is a result of the mix effect that I talked about for Pure-Pak versus Roll Fed, but also the fact that India remains margin dilutive, and we also see the absolute impact as the results are down in India year-over-year. If we move to America, we are reporting around EUR 95 million. As Thomas explained, it's a 6% growth on a constant currency basis, but a decline of 4% because of the weakening of the U.S. dollar. The revenue growth is below our earlier expectations due to the weaker demand for plant-based which is important for our growth in America. We are seeing consumption patterns changing into lactose-free milk, other dairy products, and there's also concern related to cost inflation. We are working very actively to fill that shortfall with other types of business in the quarters to come. In addition, the quarter was impacted by destocking among our customers. In Q4, some of our customers were building inventory in Q4, and they're now taking the stock down to normal level, and that also impacted the top line in the first quarter. Finally, on the revenue side, we also have a timing effect of filling machines in America with a decline of EUR 5 million for the quarter. If we look at profitability, the EBITDA was EUR 21 million, up from EUR 19.7 million, and the margin is improving to 22%, as you can see. And this comes from the improved production output of Little Rock and with the operational leverage that we get from that ramp-up. And we also would like to remind that 1 year ago, we had negative results of Little Rock because we have pre-start-up costs in that quarter. The share on net income is EUR 2 million compared to EUR 2.5 million last year, and that is solely driven by the weakening of the Dominican peso against the dollar, while the underlying performance remained stable. And as Thomas explained, we have -- the U.S. dollar has significantly weakened year-over-year and in America results that is measured in euro, that is EUR 2.4 million down. That wraps up America. So let's look at the bridge from EUR 44.6 million to EUR 41 million. Here, the American development and the margin accretive development in America continues to be the most important growth driver for the company. We see -- in Europe, we see the negative effect because of the negative mix effect with less juice cartons and more Roll Fed, but also the impact from the result decline in India. Raw materials are largely stable. Behind that number, we have higher board cost as per our contracts. We see higher other prices, but lower PE prices giving this number. In this quarter, our raw materials are not significantly affected by the conflict in Iran. But as Thomas explained, we expect these costs to affect the Q2 cost base and also onwards. On the operational costs, we have the EUR 1.8 million one-off effects and the rest is related to the wanted increase in R&D is related to inflation is related to the onboarding -- sorry, the frontloading of strategic initiatives in the quarter. The JV results, we have addressed and it comes to the FX combined for the group, that's EUR 2.5 million. And I just want to reiterate the fact that in Americas, we are running this as a U.S. dollar business with dollar revenues and dollar raw material base. If we look at the underlying result, if it adjusts for the one-off, the margin is -- would then have been around 14.4% for the quarter, so in line with the same quarter last year. Let's move to the cash flow. So the -- if we look just starting at the net debt, that is increasing by EUR 21.6 million. The main contributor to that is actually the strengthening of the NOK against the euro that gives a loss on our green bonds. What is important to remember is that this is mitigated by our cross-currency swaps, but we don't report the positive gains, the gains from the currency swaps in our net debt. So that is EUR 16 million. If you start to continue with the cash flow from operations, we are reporting around EUR 20 million based on an EBITDA of EUR 41 million. We have taxes paid of EUR 4 million, and we are also reversing the accounting results from the joint ventures to get to the EUR 20 million. When it comes to cash flow from investing activities, that is around EUR 12 million. This is based on the continued expansion in Little Rock and also the normal maintenance programs, also the replacement of equipment in Europe. Maybe one more thing before I move on to the next element is to come back to working capital because I jumped that, that is EUR 14 million negative effect, and that can be split into 2 factors. It's the timing. EUR 17 million worsening is related to settlement of account payables for our filling machines. So that is really a one-off because we are settling machines that we have commissioned some time ago. Structurally, we see a reduction of inventory around EUR 5 million. This is a result of the structural work that we are doing to improve the inventory turnover. Now what we would like to say is that this reduction is a little bit more than what we think is sustainable. So we expect some moderate increase of the inventory to get back to normal levels. Filling machine inventories also went down following the sales in the quarter. Now we are ready to go to the cash flow from financing and loan payments, which is minus EUR 14 million. That is included in the lease payments, the interest payments and also purchase of treasury shares. This brings us then, including the FX effect to EUR 286 million net debt. The leverage ratio is 2.2 compared to 2 at the end of the previous quarter. This is following this, I would say, the technical increase of the net debt bringing by the FX effects, but also the continued investment in the U.S. plant. The ROCE declined by 0.6, and that is a result of a lower last 12 months adjusted EBIT. And the capital employed actually is now stabilized since year-end. The accumulated investment in the U.S. plant is $106 million, and we have around $22 million to go to get -- that will take us to the full 3 lines in Little Rock. Let's -- before I give the word back to Thomas, let's just address how we think about the -- where the quarter is ending to compared to what you would have expected. So as you know, we are not guiding individual quarters in Elopak. But if you go to our Q4 earnings release, we said that we would deliver on our midterm targets. So if you convert that into implied Q1 guiding, that could be an expectation of EUR 50 million and versus a reported adjusted EBITDA of EUR 41 million. This gap is 50-50 between structural market implications, market effects and one-offs. Within the 50% market effects, 30% is Americas, 10% is Europe and MENA and 10% is India approximately. And the remaining 50% is related to the phasing of filling machines and phasing of fixed costs and also one-offs. In addition to the price increases that Thomas was talking about, we are obviously working with our cost base to delay and reduce spend where it makes sense without jeopardizing our long-term value creation. With that, this concludes the financial section. So back to you, Thomas. Thomas Kormendi: Thank you, Bent. And so overall, I think it's fair to say that we have seen somewhat softer market conditions generally in Q1 than what we've seen earlier. And one of the impacts that Bent just mentioned was, of course, the plant-based, which is a significant business in U.S. and part of the growth that we are looking for in U.S. What we also see, and that is very important for us is to say the ongoing crisis, ongoing situation in the Middle East causes extraordinary cost increases in all industries, including ours, and we are now mitigating this with price increases, in fact. We call it surcharges, but it is higher prices to compensate for this. We are seeing that, but we are also doing, as Bent explained, the other side of the -- whatever it's called, but we're also looking at our own cost base and at the same time, taking some steps to ensure that we are adapting and keeping our costs at bay in times like these. I think also, though, it's very, very important to remember, and for those of you who were with us from the IPO, where we had a year of '22 with increasing costs, with increasing a lot of turmoil, this is a resilient business. This is a business of basic food, basic food stuff that people need. So even if we have ups and downs as we do have, like any other industry, we are in a very resilient world. And the demand for our kind of products will continue even when economies around the world and including the -- our part of the world will be more or less constrained through consumer spending. So what we are saying is despite this volatile political -- geopolitical situation that we're in and with all the potential impact, we expect to continuously also improve from Q2 and onwards, our results in a moderate and gradual way. That is how we look at the year and that is how we are going to address the year and the cost situation that we experienced thing. So with this, I'd like to thank from my side and hand over to you, Christian, please. Christian Gjerde: Thank you, Thomas. Thank you, Bent. So with that, we will move to Q&A, starting with the people here in the audience first. So if you raise your hand, I will come out with a mic. Please state your full name, the company that you represent and make sure to speak into the microphone. Elliott Geoffrey Jones: Elliott Jones from Danske Bank. Just firstly, you mentioned some plastics prices up 60%. Obviously, it's a near-term headwind to you guys. But I'm just wondering your -- some of your plastic competition. Is this something that customers have started talking about that you're hearing? And is that something you can capitalize on kind of longer term? Thomas Kormendi: So what I did say is that PET in specifics, you would look at the cost of a PET bottle will have increased about 60%. If you look at the LDPE that is being used in our carton as well, we're looking at, as you saw on the slide, somewhere around 160% cost increase, really, really, really significant. So what you typically see in the industry and many of our customers will have a mix of plastics and cartons, right? So what -- and they will, depending on where they are, provide private label and/or their own brands. The decision they make then is what kind of format am I using? If it's a brand, you don't easily change from one format to the next for all the obvious reasons. But what does happen in times like this is that the consideration is what is the right format moving forward is much more relevant when it comes to costs as well as sustainability. We have been very clear that from a sustainability point of view, the carton solution is the absolute superior solution versus plastics, both from a renewability point of view, from a CO2 point of view and also eventually, as we move on, you'll see it from a recycling point of view. Now what we are seeing then here is that with the insecurity that is created in PE pricing, when you are a customer, when you are a retailer, you're going to look -- you are looking now at carton saying, this creates a stability, it creates transparency. It creates a predictability in cost that plastics cannot guarantee because it's all about the oil price. It doesn't mean, though, short term that everyone changes into carton sadly. But that's not going to happen because of equipment, because of industrial production, et cetera. So these take time, but it's very, very important in the longer perspective and very important for the new areas that we're discussing where the consideration should we -- should we not suddenly tilt hopefully more towards, yes, we should go carton. Elliott Geoffrey Jones: And then just 2 more quick ones. Just on the Americas segment, you talked about this being affected by developments in plant-based. Can you kind of provide more color as to how that could affect maybe your medium-term growth targets in the Americas? Would that kind of delay the pathway to 100% utilization rates in the lines that you've announced? Or do you see it easy to kind of replace those volumes near term? Thomas Kormendi: I would never use the word easy, right? But I think what is very important is we commit to our midterm targets for Americas. That is the simple story. And we are absolutely convinced with the plans we have in place that we are going to deliver on this midterm target. Remember, that's EUR 480 million calculated on the exchange rate --. Bent K. Axelsen: At that time... Thomas Kormendi: At that time, right? So we don't know what happens to exchange rate, obviously. But that plan stands, will be delivered accordingly. Elliott Geoffrey Jones: Got it. And then just on the EMEA mix effect. Am I right in thinking that it's not obviously an easy fix in terms of reversing that in Q2? Should we expect that kind of mix effect to continue maybe in the next few quarters? Bent K. Axelsen: So when it comes to the juice development, that is a trend that we have reported for quite a few quarters. So we expect that trend to continue. It depends a little bit on the citrus prices. So I think we need to distinguish between the consumer preferences and focusing on sugar versus the cost of juice because of the citrus prices and the diseases that have been worse in recent years, Yellow Dragon disease, I think it's the name, and that has reduced the supply of citrus. So that is not a quick fix at all. When it comes to the Roll Fed business in the Europe, we have then finally been able to grow that business after several quarters with decline. Some of that decline was related to the cap regime back in the days, I think it was 1st of July 2024, which is more of a one-off, and there also have been increased pricing competition. What's going to happen to the Roll Fed business where we are able to continue to grow that business? It depends on the whole raw material situation and the whole Iran conflict because it's -- Roll Fed is the most competitive product group that we have in Elopak. So yes, to juice on Roll Fed, we will wait and see before we can call it a positive trend. We need some more quarters in the bank. Ole-Petter Sjøvold: Ole-Petter Sjøvold, SpareBank 1 Markets. So first, a question on the contracts for Little Rock. I mean, as we understand it, it's no take-or-pay, but it's when the customers take materially lower volumes, the price could be up to negotiation. So could you give some insight into this? And could we potentially then see some sort of compensation later this year that should relate to Q1? Thomas Kormendi: It's a little bit difficult to answer, but if you take the mechanics in this, right, the way we normally do this, and we have, of course, some very, very big customers around the world, including U.S. These customers will say to us, look, we would like to -- we would like you, please, to produce X amount of volume, and we will then agree a price on that volume. When they make that commitment, which is a commitment, it doesn't necessarily mean that if you do something less, then there is a compensation. There are -- we also have those models, I have to say. But in the bigger context, it is much more of, I say, can you fill our needs. So what would typically happen is after a while, if that volume is not -- we're not seeing the volume coming for different reasons. Typically, one reason is they have more stock than what they thought, honestly. You would think they know, but it's actually, in some cases, many plants and there are -- so the volume will arrive later. That's one area. The other area is, of course, there can be -- they say, well, we're going to use more suppliers simply for contingency reasons and procurement reasons, et cetera, et cetera. Now in the latter case, right, so we say on a more continuous basis, we're going to see lower volume than what we have agreed. We will renegotiate price. Price and volume always correlates. So if you're not delivering the volume, we need to have a different discussion on price. If you're saying we are not delivering volume because of some stock reasons, typically would not happen. Ole-Petter Sjøvold: Got it. And a final question for me. On the price surcharges you're implementing right now, I mean, you guys typically hedge LDPE prices and aluminum prices in Q3, Q4 on the majority of your exposure. Are you able to increase prices for the full extent of what your price or cost should increase if you didn't hedge? Or is it only your open exposure able to push out to increase prices? Thomas Kormendi: That's a very good question. And the reality is, of course, that we, as well as our competitors, right, everybody hedges as you would do normally. So when we increase our price, we have to think about our competitors as well, and we keep that in mind. So typically, what you would see in extraordinary situations like this is that everyone tries to limit the cost increases that are needed to cover the cost, right? And we live in a competitive world, so we do the same. But it's also very clear that hedges are for this year, right? So what happens next year when you need new hedges, and we don't know where the raw materials will be at that time, that's another set of increases that would come on top of that. But we are not in a position that we can increase only based on our own costing. We have to look at market conditions as well, of course. Christian Gjerde: If there are no further questions from the audience, then we will move to the questions that we have received online. So starting with a question from Geir Olsen. More than 90% of your revenues comes from cartons and closures. Could you provide some color on the revenue mix across key end markets such as milk, juice, liquid detergents and other categories and highlight where you are currently seeing the most -- the strongest growth? Bent K. Axelsen: Yes. So with our disclosure principles, we do not report on end user segments. I would say when it comes to the biggest contributor of growth, that continues to be America for us. And America for us is milk. It's a combination of plant-based, in particular for the growth in Little Rock, but also dairy. Juice in America is limited. So milk, America is the biggest contributor. As far as what we call nonfood is concerned, it's still a very, very limited part of the business as of today, but we believe that to be an interesting and significant business opportunity in the long term. That really depends on the hunger for green alternatives and to which extent green is back on the agenda again because of the new energy crisis. And there's a lot of discussions in media, whether this is now a forced green agenda coming from the conflict. And I think this is probably where I should leave that comment, IR. Thomas Kormendi: I think you're right, Bent. Christian Gjerde: So thank you for that, Bent. And then moving to the next question or questions, I would say, coming from Hakon Fuglu. I'll do them one by one to make it easier for you. First question, have you been impacted in the quarter by raw material cost and/or logistical costs? Bent K. Axelsen: The implications of the Iran conflict is very limited. So we haven't commented on those in Q1. There could have been some freight increases in the region in the beginning or in the end of the quarter. But when it comes to the raw material impact, which is a big part that has not impacted Q1. And let me remind that we have an inventory turn of around 2 to 3 months, so which means a spot price increase end of March will take at least 2 months for that to impact the reported costs in our accounts. Christian Gjerde: Thank you, Bent. And moving to Hakon's second question. What's your hedge position on raw materials for EMEA? And should we expect similar price increases this time as we witnessed during 2022? Bent K. Axelsen: So when it comes to PE, we are hedged south of 80%. When it comes to ALU, which is a smaller part of the cost, we are hedged mid-50s. PE is around 11%, 12% of the material cost as reported in our P&L. Aluminum is around 5%, if I remember correctly. To your second question, I think the difference between '22 and 2026 is that in '22, it was PE, it was ALU, it was electricity, which was maybe the biggest relative increase we had, it was pallets, it was inflation on almost everything. The situation that we're looking at right now is a situation mainly related to PE. We saw the price increases on the chart and also the ALU. So the breadth of the inflation is not the same so far. So it's not the same as '22. I think the situation reminds me more of 2021 when we saw the raw material start to increase following the aftermath of the pandemic. And in 2021, this was not yet a broad inflation. So '26 reminds me more about '21, and I hope that '27 will not become '22. Christian Gjerde: Thank you, Bent. Then a couple of more questions from Hakon. How much of the phasing/one-off costs for the quarter is related to Americas? Bent K. Axelsen: So I have to think about that. When it comes to America, there are some one-offs related to the destocking effect, but we have not quantified that in the report, but it's part of the picture. And it's -- when you start to generate the results, you see the impact of that destocking effect. It's there, but it's not a major effect in our numbers. The main proportion of the one-off is related to EMEA. Christian Gjerde: Thank you, Bent. And then the last question from Hakon. Is production Line 2 at Little Rock ramping up according to plan? Thomas Kormendi: Well, it's actually too early to ramp up production in Little Rock on Line 2. So -- and the plan was not that it would ramp up yet. So you could say it's according to plan, if you like. We are not ramping up yet. We're installing. We're preparing, but we have not ramped up the production yet on Line 2. Christian Gjerde: Thank you, Thomas. Then we have a question from [ Cole Hopen ]. Focusing on surcharges and price increases. Firstly, can you give some color on how you approach these commercially with customers? Are the surcharges just for logistics or polymers as well? I'll take that part of it first and then --. Thomas Kormendi: Yes. So what we do is we sit down with our customers. We explain them the situation in all of the agreements we have. We have what is called sit-down clauses. Clearly, this is an extraordinary situation, extraordinary event hitting pretty much all industries, definitely also ours. So there is a wide understanding that's needed. The cost increases are -- the cost surcharge that we are introducing relates to both PE as well as logistics. Christian Gjerde: Thank you, Thomas. And then the second part of Cole's question, have our liquid packaging board suppliers also approached you for logistical surcharge costs? Thomas Kormendi: If our suppliers -- so -- and this is actually -- maybe I should have qualified my previous statement. When we deliver our material from our plants to our customers, there's a mix of Incoterms. Some will pick it up themselves, somewhere -- in some cases, we will arrange the transport, et cetera. And with our suppliers, it's the same thing. It depends on who it is and what the Incoterms are. So if -- and in some cases, it's very transparent, we simply pay whatever the transport is and in some cases, included in the price. So it's difficult to give one answer on that. Christian Gjerde: Thank you, Thomas. Then we have a question from Niclas Gehin in DNB. You write in the report that you are confident in reaching your midterm target for Americas in 2028. Can we also expect for you to reach your midterm targets for 2026? Thomas Kormendi: Well, you have to look at the -- you have to take the outlook statement for what it is. And I think the way we have phrased it is we think the underlying business is doing well. We also recognize the fact that there is a lot of uncertainty around us out of our control, one of which relates to, of course, as we keep saying, the Middle East, but also other impacts. So for that reason, we are not guiding on '26 beyond what we said in the outlook statement. Christian Gjerde: Thank you, Thomas. Then we have a question from Marcus Gavelli at Pareto. Assuming price hikes, price increases will not be fully passed on to customers before later this year, so some lags in the implementation of that. Should we expect near-term margin squeeze? And are the ongoing price increases sufficient to fully offset the cost increase that you are seeing today? Bent K. Axelsen: So should I take the first part of the answer. So --. Thomas Kormendi: I can think about the second. Bent K. Axelsen: Yes. So I will speak slowly. Thomas Kormendi: Exactly. Bent K. Axelsen: So when we are looking at this, we need to consider a couple of things. So one thing is the inventory speed. So when we have a price hike in the spot prices, how long time will it take before it will hit the cost base in our P&L. The second element is the timing that these surcharges becomes effective and we are in the process of working and implementing those price increases as we speak. So based on the information we have today, it's difficult to assess which force is stronger, but we stick to what we say in the outlook that we believe that second quarter overall will start a gradual improvement compared to Q1. Thomas Kormendi: And then the -- just repeat the second question, please, exactly. Christian Gjerde: Second question he is basically asking, are we passing all the full net of the open price increase to our customers. Thomas Kormendi: So I think when you think of the price surcharge, right, this is based on partly what we know, i.e., the existing price levels of PE. It's also based on what we think and we don't know how long these price impacts will last. So what we have passed on now is actually what we need to cover the cost of the significantly increased cost that we are experiencing. If these costs tend for whatever reason become even higher, then it's a different situation, right? And we need to reassess and we need -- and as I said before, we've put in a mechanism that will allow for some movement in this. But it's very important to understand for everyone, including our customers, by the way, that this is a volatile time. We have little to very, very limited visibility on how cost will develop. And we have various indexes when it comes to PE, et cetera, but they tend to be, let's just say, not very accurate historically. So we have to look at it, but we are implementing a plan. We're implementing a surcharge to cover for the costs. And it's important that we cover for cost. And it's just like in '22, when you cover -- if you look at it from a margin point of view, it does have an impact. There is no way around it. If you increase by the cost levels you have in price, there is a margin impact on that. Christian Gjerde: Thank you, Thomas. Then we have a final question from Martin Melbye at ABG. Could you please comment on the change in the competitive situation in Europe? Thomas Kormendi: I'm not entirely sure what the question means when it changed compared to what and compared to when. Christian Gjerde: Yes. I think he's referring to the update that we gave to the market in February where we talked about increased price competition in Europe. Thomas Kormendi: Right. So what we have seen during the end of last year is more intense competition in the core markets of Europe, in the chilled business, in our core business. And that, in a way, to be honest, is not surprising given that we have had good development and success in building our market share from a strong point to an even stronger point. And of course, at some point, you will expect that there will be reactions and competitors trying to win back lost territory. That has been the case that attempts have been made. But so far, knock on wood, we have been in a good position to defend our positions and defend our strongholds where we are now. Since then, nothing significant has changed in that respect. And -- but I think it's also absolutely normal and expected, whether it's in Europe or in America, that competition as we are growing, as we are building our business, competition will try to fight back. And we will try to do our very best to defend our positions and keep growing the business as we have done for the last many years. Christian Gjerde: Thank you, Thomas. I see that concludes our online questions for today. So thank you, everyone, for joining this fantastic morning in Oslo. I wish everyone a good day. Thomas Kormendi: Thank you, everyone, for listening to me so many times. Thank you and all the best.
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: At which time, you will be given instructions for the question and answer session. Also as a reminder, this conference is being recorded. With that, I would now like to turn the call over to Ryan Flaim, Director of Investor Relations. Ryan, you may begin. Welcome, everyone. We appreciate you joining us. Ryan Flaim: Joining me today are Klaviyo, Inc. cofounder and co-CEO, Andrew Bialecki, co-CEO Chano Fernandez, and CFO, Amanda Whalen. Andrew, Chano, and Amanda will first share their views on the quarter and then we will open up the line for your questions. Our commentary today will include non-GAAP measures. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release and supplemental materials, which can be found on our Investor Relations website. Additionally, some of our comments today contain forward-looking statements that are subject to risks, uncertainties, and assumptions, which could change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risk factors, uncertainties, assumptions, and other factors that could affect our financial results are included in our filings with the SEC. We do not undertake any responsibility to update these forward-looking statements, except as required by law. Andrew, that concludes my introduction. We are ready to begin. Andrew Bialecki: Thanks, everyone, and welcome. We have entered the era of agents and infrastructure, at least so far as software is concerned, and our first quarter showed what that means for Klaviyo, Inc. Before I cover our results and highlight a few specific observations, I would like to take a few minutes to remind everyone of the opportunity AI presents and how we are taking advantage of it. Our strategy is centered on helping businesses grow by maximizing their most important asset, their relationships with their consumers. The businesses that win are the ones that deliver stunning personalized experiences at scale. That has been the goal of everything we have built at Klaviyo, Inc. for the last decade. The reality is that creating those experiences through deep personalization, engaging media, meeting customers where they want to be met, and optimizing those experiences automatically is still not easy. Our work over the last decade has been building the infrastructure to make that possible, what we call the B2C CRM. As we built it, we felt a growing gap between what our infrastructure is capable of and how businesses are actually using it. This capability overhang means businesses are missing opportunities with their consumers and, in turn, leaving real dollars and greater success on the table. AI agents are allowing us to close that gap and are revealing enormous latent demand for intelligence to design, deliver, and optimize consumer experiences. Our agents are going further, finding new opportunities for the businesses we serve, and contributing back to product direction. They are already among our most advanced users of our data and experience infrastructure, pushing the limits of what is possible and giving feedback for what to build next. We are entering a positive loop where agents use our infrastructure to build stunning consumer experiences that generate data and feedback that improves the infrastructure, which in turn makes agents smarter and more capable. The cycle repeats. Together, agents and the infrastructure we provide are the autonomous B2C CRM. We believe every consumer business will run on it, and every consumer experience will be driven by it. Our agents and infrastructure get better with increased data, scale, and usage. Our infrastructure sees almost 4 billion daily events and signals across 8 billion consumer profiles. Ingesting, storing, and indexing these signals in real time gives every business running on Klaviyo, Inc. a real-time data feed on how consumers and businesses are interacting with each other and, critically, gives businesses and the agents they run context on what will delight consumers. The laws of consumer behavior shift in real time. Our customers and the agents they deploy use our real-time view of consumers as context to deliver stunning, highly performing experiences. Agents make it even easier to infuse this context into experiences for the benefit of consumers and businesses alike. Let us look at our first quarter results to show what this looks like in practice. Revenue increased 28% year over year to $358 million, with strong momentum across enterprise, international, and our B2C CRM platform. Non-GAAP operating margin increased to over 16%, the highest in our history. More than 196 thousand brands are on our platform. We closed the largest number of multi-million dollar ARR deals ever, and our largest customers once again grew their revenue, known as GMV, roughly two times faster than the broader market. Our investments in AI are not limited to the agents and infrastructure we build, but extend to how we operate and deliver Klaviyo, Inc. Annualized revenue per full-time employee in Q1 was over $600 thousand, up more than 25% year over year. As an example, we are committing and shipping code at nearly double the rate per engineer from a year ago. As a result, we shipped more than 75 features in the first quarter, including private preview of our next-generation marketing analytics agent, Composer; increased intelligence and channel capabilities for Customer Agent; and deeper partnerships and product integrations with Google, Anthropic, Shopify, and Canva. I would like to share a bit more on our agent products and how we are seeing customers use them, starting with Composer. Composer is our next-generation agent for marketing and analysis, and is an entirely redesigned agent harness. It builds from the learnings of how customers are using our first-generation Marketing Agent. Marketing Agent’s functionality was more narrowly scoped to content marketing and campaign creation. Composer takes advantage of the advances in underlying LLMs’ abilities to reason and use tools. Composer’s scope is dramatically expanded. It can reason over your data, take actions across consumer experiences, and learn from those experiments. The private preview we introduced in March includes the ability to autonomously query and analyze consumer and marketing data and create marketing campaigns and automations across all services, with support for creating and optimizing Customer Agent coming soon. On top of this, we built Composer to be extensible, so customers and partners can build sub-agents and system connectors it can use, and make them available wherever users work, not just the Klaviyo, Inc. interface. Because this is such a significant step forward, we are being deliberate about quality, both in Composer’s analysis and its creative decision-making. The bar is high. We are committed to meeting it. Similar to how AI coding represented a shift from engineers focusing on how software is created to what software to create, we have seen a similar trend with Composer where users are buying marketing by focusing on what they want to achieve and create, letting Composer do the research and initial creation, then iterating with Composer on the insights and perfecting its outputs. The proof points are very exciting. Take one beauty brand in our preview. Composer audited their marketing, found automations that had been broken for years, fixed them live, and surfaced half a dozen other opportunities their team had never gotten to across creative, discounting strategy, and personalization. That pattern is repeating across our enterprise users in the preview. Teams are using Composer to audit, source opportunities, and implement in a single session. One of the most recognized apparel brands in the U.S. saw a 40%+ increase in top-performing flow revenue following a single session. Hydro Flask used Composer to find misconfigured targeting that had been preventing a campaign from sending, and Composer fixed it with them live. A prominent personal finance company mapped and prioritized more than 1 thousand flows across 13 business units in a single session, giving their team a clear picture of where to focus first. This is why global brands are telling us that Composer solves the biggest pain point they have and is the best agentic marketing solution they have seen on the market in the past year. Because Composer runs securely inside Klaviyo, Inc.’s data perimeter, it already addresses the data privacy concerns that typically slow enterprise AI adoption. For one enterprise fashion brand, it was the first marketing AI tool to clear their security team’s review because Composer runs inside Klaviyo, Inc.’s trusted environment. Composer is the future of how businesses will use Klaviyo, Inc. to understand their consumers and create stunning experiences for them. We are very excited to open it up to more of our customers and partners in the coming weeks. Turning to Customer Agent, and similar to Composer, we have taken advantage of the improvements in underlying LLM intelligence and tool use to allow businesses to create more tailored, highly performing agents their consumers can interact with. The experience and abilities of Customer Agent built on Klaviyo, Inc. can now be entirely customized with our Custom Skills launch last week. Customer Agent now runs across text, WhatsApp, email, RCS, and web chat, and we are adding voice and multilingual support. Adoption continues to grow month over month, and the experiences Customer Agent delivers are showing real results. Digitally native fashion brand Naked Wardrobe resolved 84% of conversations through Customer Agent and AI and saw a 28% increase in average order value, helping consumers own their style and buy on their time, including many instances of consumers shopping and chatting at 2 AM when customer support would have otherwise been offline. Finally, underneath our agents is our data infrastructure capable of training, serving, and optimizing personalization, machine learning, and AI models. These models do not require direct tuning from users. They learn from usage, and they improve the platform automatically. This unlocks true one-to-one personalization: the right content for every consumer at every interaction, delivered across every channel and agent we operate. These models and the features that leverage them were used by nearly two-thirds of our customers in the first quarter, and usage is driving outcomes. As an example, customers using our personalized send-time models saw a 35% lift in click-through rates—more engaged consumers and higher revenue driven by infrastructure that gets smarter the more it is used. We believe this is the year marketing and analysis agents like Composer and always-on agents like Customer Agent become standard and ubiquitous. We built for that deliberately, meeting customers in the tools they already use—an open garden, not a walled one—and to accelerate that, we have deepened integrations and expanded partnerships across the AI ecosystem. In February, we deepened our integration with Google by launching RCS to all customers, and we opened up beta access to Google Search and Ads products that connect discovery directly to Customer Agent experiences over RCS. A consumer can now see an ad, tap it, and then immediately have an immersive conversation with a brand powered by Customer Agent. Google delivers the reach, Klaviyo, Inc. stores the consumer relationship, and delivers the personalized experience. We have extended access to our infrastructure and agents via expanded MCP connectors and applications with Claude, ChatGPT, and Canva. MCP usage of Klaviyo, Inc. continues to expand rapidly, increasing more than 10% week over week in Q1, and top users of MCP are querying more consumer data and building more marketing campaigns than their peers, with 16% more platform usage relative to those that do not use MCP. Businesses are connecting more data to Klaviyo, Inc., centralizing it, and taking advantage of the increased accessibility. Consumer event volume from the hundreds of apps in our marketplace is up 44% year on year. As an example, AS Beauty, home to Laura Geller and other brands and one of our largest customers, runs a complete omnichannel program on Klaviyo, Inc., including greatly expanding their text messaging program this quarter. Their team queries Klaviyo, Inc. data in Claude, models campaign performance, and makes faster decisions. Their KAV, or Klaviyo, Inc. attributed value, is up 20% over the past two years. A senior leader there recently described Klaviyo, Inc. as an indispensable pillar of their business—an infrastructure that they and their brands rely upon. None of this happens without our customers and partners pushing us, and Klaviyo, Inc. is delivering. We are grateful for both. I would like to finish by providing an update on our leadership team. First, Q1 was Chano’s and my first full quarter together as co-CEOs, and it has been a terrific partnership. We have so much in common, including a relentless drive to deliver, and highly complementary skills. Second, as we announced in a press release earlier today, after almost four years as our CFO, Amanda has made the personal decision to step down from her role at Klaviyo, Inc. in the coming months, spend more time with her family, and then pursue the next phase of her career. I want to take a moment to recognize what Amanda has meant to Klaviyo, Inc. She was instrumental in building the team that took us through the IPO and helped us scale into a multiproduct, global, AI-native business. Amanda will continue to lead our finance organization through August 21, 2026, and will remain in an advisory capacity through November 2026 to support a smooth transition. We initiated a search for our next CFO, who will build on our strong financial foundation and momentum. Beyond what she has helped us build, she has been a terrific strategic partner and a trusted adviser to me and many others across Klaviyo, Inc. We wish her the absolute best, Amanda, on behalf of the entire Klaviyo, Inc. team, thank you. Amanda Whalen: Thank you. Chano Fernandez: And with that, Jono. Thanks, Andrew. I want to echo your words on Amanda and the impact she has had across Klaviyo, Inc. We have confidence in the team and transition plan, and we are grateful Amanda will continue to provide leadership and support in the months ahead. Turning to the quarter, the core business is strong, and the opportunity in front of us is large. Enterprise, international, and platform consolidation each have real momentum right now. AI accelerates all three. Let me walk you through what we are seeing and how we are executing. Starting with enterprise, net new customers in the $50 thousand+ ARR cohort were notably higher than Q1 2025. We closed one of our largest deals ever—an expansion bringing a single customer's contract to over $6 million ARR. The problem I hear consistently in enterprise is fragmentation. Customer data, marketing execution, and service are spread across too many systems. Fragmentation costs revenue, where the resonance is consolidation onto one data model and one execution layer, with AI that operates with full customer context across the entire lifecycle. That is what Klaviyo, Inc. does. The wins in Q1 reflect that. Alis and Bolivia are migrating to Klaviyo, Inc. to unify online behavior, purchase history, and store-associated interactions in one system. Weber Grills replaced a legacy platform with Klaviyo, Inc. globally across the U.S., APAC, and EMEA. Expansion activity was also strong as customers standardized more of their workflows on our platform. Take Patagonia, a long-time email customer that came to us with two things on their mind: improving the customer experience and migrating off of a fragmented text messaging setup creating redundant messaging across channels. We showed them a clear technical plan and a credible commercial case. But the reason they chose Klaviyo, Inc. was anchored in where we are going together—RCS omnichannel journeys that support both commerce and advocacy. Patagonia is not a brand that wants to send more messages. They want to send the right ones. Finally, we were proud that this quarter, the Forrester Wave named Klaviyo, Inc. a Strong Performer, and recognized us with the highest customer satisfaction score among all vendors evaluated. We have enterprise credibility validated by a name enterprises trust, alongside proof the pipeline is converting. International revenue outside the Americas grew 39% year over year in Q1, and five of our top 10 largest new customers are from EMEA. What we are seeing in EMEA is not just growth. It is the same platform priorities driving our largest U.S. enterprise deals: unification, real-time data, and AI across channels. Allsense is a great example. The flagship UK fashion retailer replaced legacy technology in a multiyear deal, with both the global digital director and chief technology and transformation officers as champions of the move. The rationale was speed to execution, the ability to unlock WhatsApp as a new audience channel, and the future opportunity to consolidate email and other channels on a single platform. They shared that this move reflects their desire to move toward a more agile way of working that will significantly reduce the hours spent on day-to-day CRM activities. We also worked with a hobby and a fast-growing Nordic charm retailer selling across multiple international markets, winning a competitive deal that came down to speed, flexibility, and the strength of our native integrations with platforms like Shopify. We continue to deepen the product capabilities our international customers want. Local-aware catalogs are a good example. Shopify merchants with country-specific catalogs can now run fully synchronized multi-market data automatically across every region they operate in. For many global brands, that is a requirement. Now Klaviyo, Inc. delivers it. That same pattern—complex, multi-market operations consolidating onto Klaviyo, Inc.—is showing up in categories well beyond ecommerce goods. Legends Global is a flagship win in ticketing and live events. They are bringing their global portfolio of more than 260 venues and attractions onto Klaviyo, Inc., integrating ticketing and venue systems, syncing data through our warehouse capabilities, and giving the U.S. and UK teams a single platform to activate and execute across every market they operate in. Our partner ecosystem is deepening that reach further. In hospitality, the Thanx integration brings restaurants’ loyalty into a single workflow, and with our Integration Objects feature, now GA, operators on cloud-based Guesty and Mews can trigger a pre-stay reminder the moment a reservation is made. We are building the go-to-market foundation to match the opportunity. Consistency in how we sell, how we deploy, and how we support customers at scale—the data is clear. When customers unify on Klaviyo, Inc. across email, text, analytics, and service, outcomes compound. Our cross-sell motion is executing against that. One thing worth calling out on text messaging because it speaks directly to how we approach the market: carrier fees have risen meaningfully across the industry over the past 12 months, and most platforms passed those costs through immediately. We chose to absorb them, a decision that reflects our commitment to customers first. This also gave us a real pricing advantage this quarter, and we leaned into it. But our competitive position is more durable than price. Text in Klaviyo, Inc. runs on the same unified profile as email, WhatsApp, and every other channel, and that is what drives long-term share gains. Going forward, we will be thoughtful and intentional about any future cost pass-throughs while continuing to negotiate the most competitive text message rates. In closing, Q1 showed a business with strong fundamentals, growing enterprise relevance, and international momentum that is structural. We are investing where the opportunity is biggest, improving the execution foundation to capture it, and staying focused on delivering outcomes for customers. The road ahead is significant, and we are ready for it. With that, I will turn it over to Amanda. Amanda Whalen: Thanks, Chano and AB. Q1 was proof not just of what Klaviyo, Inc. can do, but of how our business model works when each part reinforces the others. The growth engines we have been building—multi-product adoption, enterprise momentum, and international expansion—reinforced each other this quarter. AI accelerated all of them. The results showed up exactly where we expected to see them: in revenue, in margin, in customer retention, and in the expanding value customers are generating from our platform. Revenue grew 28% year over year to $358 million, ahead of our expectations. We delivered our strongest non-GAAP operating margin and our first quarter of positive GAAP operating margin since going public. NRR was 110%, up two points year over year, meaning our customers are not just staying, they are growing with us. Customers are also earning more from every message, with KAV—or the revenue that customers generate from Klaviyo, Inc.—per message up approximately 8% year over year. That is how our model is designed to work—tangible evidence of how we are building more valuable customer relationships that help our customers, and in turn our business, grow. Turning to our growth engines. First, multi-product adoption grew as more brands sought out the strategic advantage of consolidating onto a single platform. Service remains on the steepest adoption curve in our company’s history. All of this matters for future growth because multiproduct customers retain better and generate more value per profile over time. Second, enterprise momentum continued in Q1, with our $50 thousand+ ARR customers growing 38% year over year, to 4 thousand 175 customers. This is reflective of a broader structural shift as leading brands modernize and consolidate their tech stacks. These are complex multichannel relationships choosing Klaviyo, Inc. as their long-term platform because we unify data, intelligence, and action in one place. Third, international was again a highlight, with revenue outside of the Americas up 39% year over year. Notably, revenue for EMEA outside of the UK was up 51%, marking the sixth consecutive quarter of growth above 50% in that region. Let us now turn to AI. Across each of our growth engines, AI is increasing both velocity and yield—helping customers do more, faster, and with better results. Automated flows generate 10 times more revenue per message than campaigns, and that acceleration is important because it flows directly into our model. As customers generate more value, we grow as well. Agents also represent a net new revenue opportunity. Customer Agent is already contributing, and we expect that to grow as we expand channels and capabilities. Composer is early, but the value signals so far are strong. Higher intelligence drives higher value, and higher value drives revenue. Turning to the P&L. Non-GAAP operating income was $59 million in Q1, representing a 16% non-GAAP operating margin. That is nearly 500 basis points of expansion year over year and our strongest margin since going public. GAAP profitability was driven by improved non-GAAP operating margin as well as a two percentage point reduction in stock-based compensation year over year. Non-GAAP gross margin was 76%. This reflects our continued success with text messaging cross-sell, offset in part by infrastructure efficiencies. Non-GAAP operating expenses were 59% of revenue, down 560 basis points year on year. Sales and marketing, in particular, saw meaningful leverage. This reflects two things: first, operational efficiencies enabled by AI that we are building into the business; and second, the absence of the B2C CRM marketing investment that we made in Q1 last year. Free cash flow was $19 million, a 5% margin. This reflects normal seasonality and the timing of annual bonus payments, consistent with what we saw in Q1 last year. Our trailing twelve-month free cash flow margin was 16%, spotlighting the strong cash generation potential of the business. In March, our Board authorized a $500 million share repurchase program. This authorization reflects our Board’s and management’s confidence in the durability of our strategy, the scale of the opportunity ahead, and our conviction that Klaviyo, Inc. reflects an attractive long-term investment. As a component of that program, we immediately entered a $100 million accelerated share repurchase, which was completed in April. We continue to execute on the remaining authorization. Our model is efficient enough that we can invest aggressively in growing the platform—in AI and agents, in international, in enterprise—and simultaneously return capital to shareholders. Turning to guidance. We are confident in the trajectory and setup for the remainder of the year. We outperformed Q1 expectations by approximately $10 million. Based on that performance and the broad momentum we are seeing, we are raising our full-year 2026 revenue guidance by $13 million at the midpoint. This reflects our conviction in what is ahead. We now project revenue between $1.514 billion and $1.522 billion, representing 23% year-on-year growth. We are also raising our full-year 2026 non-GAAP operating income guidance to a range of $222 million to $228 million, a non-GAAP operating margin of approximately 14.5% to 15%. The model continues to support reinvestment and growth while delivering expanded profitability. This guidance assumes that we continue to absorb the majority of carrier fee increases. As Chano described, thus far, we have made the strategic decision to absorb these fees rather than passing them directly to customers. Over the course of the year, we will continue to be intentional in our approach, striking a balance that is strong and smart for both our business and our customers. For Q2, we expect revenue of $359 million to $363 million, representing growth of approximately 23% to 24%, and non-GAAP operating income of $47.5 million to $50.5 million, or a non-GAAP operating margin of 13% to 14%. As you are building your models for the balance of the year, I would like to call out a few items. With regards to revenue, we expect our sequential step-up in revenue from Q3 to Q4 to be similar to last year. We also expect higher operating margins in our fourth quarter this year compared to Q2 and Q3, driven by timing of investments as well as compounding effects of AI efficiencies. As we said last quarter, with scale, we have improved our forecasting visibility, which means we are guiding with greater precision. Our guidance philosophy remains consistent. Our goal is to share the best visibility we have and numbers that we are confident in delivering. Our guidance reflects both that increased precision and our confidence in the business. Before we open the line to questions, I want to say a few words about the transition that we announced today. Klaviyo, Inc. has never been stronger than where we are today. There is significant opportunity ahead for us, strong momentum across the business, and a clear path to continue growing rapidly while expanding profitability. We also have an exceptional team in place, and I have always believed the right moment to take the next step is when the work is in great hands. AB and Chano, thank you for your partnership. Importantly, I am not going anywhere just yet. I will remain CFO through August 2026 before transitioning into an advisory role through November 2026. It has been a privilege to be a part of Klaviyo, Inc., and I will be cheering this team on every step of the way. In closing, here is what we hope you will take away from Q1. We beat and raised. We expanded operating margin to the strongest level since our IPO. We returned $100 million to shareholders while continuing to invest in the platform. The businesses we serve grew, and their engagement with Klaviyo, Inc. is deepening. This is exactly what our model is built to do, and AI is making all of it faster. We are confident in our trajectory. The platform is getting stronger, and the results are following. With that, we will open the line up for questions. Operator: At this time, if you would like to ask a question, please click on the Raise Hand. We ask that you limit yourself to one question. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait one moment for the queue to form. Our first question is from Samad Samana from Jefferies. Please unmute your line and ask your question. Samad Samana: Hi. Good evening, and thanks for taking my question. So I am going to pack a two-parter into this. First, on the product side, just as I think about Composer adoption, what are you seeing on customers that typically lead new product adoption, and how do you expect that product to accelerate the AI adoption flywheel? And just in case you mute me, Amanda, great to work with you and I continue to look forward to working with you until the transition. Second, on guiding with more precision—does that mean that the Q2 guide should be closer to the pin? We had a slightly smaller beat in Q1. Was that already a philosophy that started when you guided for Q1? Help us get better context there. Thank you so much. Andrew Bialecki: Awesome. Thanks for the question. I will do the Composer one and pass over to Amanda on guidance. We launched this private preview in March, and we are very excited about the results we have seen so far. For context, our Composer agent is really a combination of a bunch of sub-agents that do various tasks. You can think about two big groupings. One, it will actually do marketing creation—it can create marketing campaigns, automations, templates, and creative content. Two, it will do analysis—it will look at your customers, who they are, help you with cohorting, understand behaviors, as well as look back over previous marketing campaign performance and help you figure out what to do next. We have introduced this to a wide range of customers. Some are power users; some are entrepreneurs just starting out, so we can get a feel for their usage patterns. Universally, the feedback has been very positive. We talk about this as our next-generation agent building off of the success of our Marketing Agent last fall, and we have dramatically expanded its scope. You can think of this as version two—or n+1—of our agent. We are getting very good at building marketing creative and content that is on-brand. This is both a function of improvements in the underlying LLMs as well as technology we have built at Klaviyo, Inc. to harness those agents and keep them in the direction that brands want them. We have an unfair advantage because we can teach our agent to pattern match off of past campaigns, which makes it better at maintaining the brand and feel you want. On the analytics side, we have seen incredible results. We have customers running daily or weekly reviews of their marketing and how their customers are behaving. So far we have only given them the ability to run that ad hoc, where they log in and execute those queries. In the near future, it is not hard to see customers scheduling these to run and alert them of issues. Couple that with the creation part of our agents, and they will be able to automatically take action. In some cases, we expect our agent will automatically decide to run new campaigns or make modifications for optimizations. The path to value is very clear because as we run incremental campaigns and make improvements, we can measure the results. Customers see it and feel it. Pricing, packaging, and monetization are also very clear, and we are using this private preview to work through that. We have never been more excited about the intelligence and agent capabilities we can build on top of the infrastructure that is Klaviyo, Inc.’s marketing and data platform. Amanda, I will turn it to you for guidance. Amanda Whalen: Thanks, Samad, and I am looking forward to staying in touch with you as well. On the question on guidance, we are closer to the pin this quarter by design. As we committed to you last quarter, we spoke about guiding with greater and greater accuracy that comes with the benefits of greater precision and greater visibility that we see from scale. The tighter beat reflects that improved ability to forecast the business. If you take a step back and look at Q1, it was incredibly strong. We saw 28% revenue growth, we saw our highest operating margin since the time of the IPO, we had our first quarter of GAAP profitability, and we saw real strength in core metrics like NRR of 110% and greater-than-$50 thousand customers up 38%. Overall, it was an incredibly strong Q1 that gives us confidence looking forward and gave us confidence to raise the outlook for the rest of the year by $13 million, which is even greater than the beat that we had for Q1. It reflects both our increased precision and the confidence and momentum we have in the business. Operator: Thank you. Our next question is from DJ Hynes from Canaccord Genuity. Please unmute your line and ask your question. DJ Hynes: Hey, thank you, guys. AB, I would love to hear how your agency partners are embracing the innovation that Klaviyo, Inc. is delivering. On the one hand, you are giving them incredibly powerful tools to do their jobs better. On the other hand, if the autonomous vision takes shape, you are kind of putting them out of work. How do you balance that dynamic, and what are you hearing from those folks? Andrew Bialecki: Yeah. I mentioned in our opening remarks this capability overhang—basically, what you can do with Klaviyo, Inc. and the infrastructure that we built is actually a lot more than our customers and businesses are taking advantage of. Our agencies have always helped close that gap. Now, with our agents—Composer, which optimizes how you understand your customers and marketing, and Customer Agent, which is more consumer-facing—agencies are accelerating the adoption of both. With Composer, it makes it easier to take advantage of everything you can do with Klaviyo, Inc., with the data and the marketing and messaging primitives that we give you. Agencies are able to take on more clients as a result because they get more leverage from Composer. I have had many conversations where folks said they are changing their ratios of the kinds of projects they can take on because of Klaviyo, Inc.’s ease of use and the agentic capabilities we are offering. I have also talked to dozens of agencies that are establishing new practices around our Customer Agent. Our Customer Agent is a whole new surface—the digital representative for your business. It can do customer support, help with sales conversations, marketing conversations—it can run the gamut. Because it is connected back to our data platform, it has a real-time view of who that end consumer is. It can do much better than more generic AI agents at matching up to what a consumer is looking for. You see that show up in product recommendation stats. Driving adoption takes know-how. Setting up agents is not something a lot of customers have expertise around. We are building product to help, including agents that will train up agents. But many businesses have nuance in how they want experiences to work. Agencies are helping bridge that gap and drive adoption. We have done a bunch of work to help them set up their own practices so they can set up Customer Agents for our customers and help drive adoption. Our agency network is in great shape, and they are excited to help usher both of our agents to our almost 200 thousand customers. Chano Fernandez: 200 thousand customers—yep. Hey, DJ, this is Chano speaking. Hope you are well. Just to give you an example, I talked to one of our agency partners that is building a custom order-editing skill connected via an API that is handling the full post-purchase experience without a human in the loop. That has created significant automation and increased productivity for them. We are all very excited. Operator: Thank you. Our next question is from Rob Oliver from Baird. Please unmute your line and ask your question. Rob Oliver: Thank you. Can you guys hear me okay? Operator: We have got you. Rob Oliver: Great, thanks. First of all, Amanda, wish you all the best—it has been a pleasure working with you. My question is for Chano. Coming into this year, there was a lot of excitement around the enterprise opportunity—moving upmarket and legacy replacements. You guys called out at least one really large win in the quarter. I would love to hear some color from you on what you are seeing within that installed base. How are sales cycles? How is the legacy replacement trend relative to where it was when we all gathered last fall in Boston? Any update on partner contribution would also be helpful. Thank you very much. Chano Fernandez: Thank you so much, Rob, for your question. First, the data. We doubled the number of customers over $1 million ARR last year, and again in Q1 2026. Amanda commented on the number of customers over $50 thousand growing 38% year on year. We talked today about an expansion to more than $6 million ARR, and we talked about other customers like Patagonia that have been long-term email customers now adding text because they see fragmentation and the value of a unified platform bringing customer experiences together. That all presents a terrific opportunity for us. Even with this growth raise, the beginning of the year is very exciting because we are playing more into the enterprise. That will play more toward larger quarters, especially at the end of the year, with Q4 being much bigger. The team is doing a very good job focusing on discipline—how we are building the pipeline and how we are doing qualification on deals—getting much more meaningful in terms of enterprise cadences. If you ask how I feel about the opportunity versus back in the autumn, I am even more excited because I can see it tangibly. We are still in the early innings and have a lot of work ahead, but the opportunity is massive. This can be a significant reacceleration engine for Klaviyo, Inc. It will not pan out in one quarter or two, but the growth levels we are seeing should have significant impact down the road—and that is not too far away. Creating those customer cases and experiences brings much more confidence that we are a player. In terms of partners, as you know, we announced Accenture and are working with them closely, of course with other partners as well, with a clear target list, activities, and progress. I expect we will see some of those wins during the next few months. On some of the wins we have already announced, there has been support from partners, whether they influenced the deal or sourced the deal. Either way, it is good for us. I am very excited about enterprise being a game changer for this company. Of course, we want to keep the healthy business that is our bread and butter—the entrepreneur, SMB, and lower segments. They are doing very well if you look at the increase in net new logos and the dynamics in that segment. Operator: Our next question is from Raimo Lenschow from Barclays. Please unmute your line and ask your question. Raimo Lenschow: Thank you, and all the best from me as well, Amanda. The question I have—people asked me about the carrier fee that you mentioned. I think some of your competitors are altering that. Can you talk a little bit about the impact it would have on potential revenue and profitability? Thank you. Amanda Whalen: Sure, thanks so much, Raimo. These are carrier fees. When you are in the text messaging business, there are carrier fees from the big telco carriers that generally, for many of our competitors, are a pass-through. Our primary operating principle is to operate with our customers with consistency, transparency, and trust, helping to make their business more predictable. Thus far, we have taken the strategic choice not to pass through those carrier fees. They vary by carrier, and it has been building over the last year or so, with some announcements even as recently as last week. We wanted to provide predictability for our customers. It certainly helps on price, and Chano and the team are leaning in on how we show customers that value. But the reason we win is not price; it is primarily because of the value we create and the benefits from consolidation. As these grow, we will keep making thoughtful choices over time. I will not say we will continue to absorb them forever, but we are going to be strong, choiceful, and intentional about how, when, and in what manner we do that. That intention is built into the outlook for the back half of the year, both the increasing penetration of the text messaging business as well as this choice we are making on carrier fees. Operator: Thank you. Our next question is from Terry Tillman from Truist Securities. Please unmute your line and ask your question. Terry, if you can hear us, please unmute your line and ask your question. Operator: Okay, great. If Terry, you want to hop back in the queue, we can move on to the next question and we will pull you up again. Operator: Thank you. Our next question is from BTIG. Please unmute your line and ask your question. Analyst: Hey, awesome, thank you so much. One of the value propositions of Composer is around the velocity of campaigns. How should we think about Composer from a standalone SKU perspective versus Composer allowing customers to accelerate their email and messaging volumes? And then, does that play into your decision to not pass through the SMS carrier fees? Thank you. Andrew Bialecki: Great, thanks. When we think about Composer, ultimately what we are providing is intelligence, delivered in the form factor of tokens. Customers are using it to review who their customers are, the effectiveness of their marketing, and then figure out what to do next. Those sessions—those reviews—are incredibly valuable. They are generating thousands, even hundreds of thousands of dollars in incremental revenue and sales. The pricing people get is similar to if you were to hire someone or value your own time, except we provide that intelligence via tokens much more efficiently. We can go much deeper because our agents have access to internal benchmarks and best practices that are not publicly available. That intelligence is an entirely new revenue stream. Think about the activities people are doing in and around Klaviyo, Inc.—storing information, logging in to understand cohorts and behavioral trends, creating marketing, and reviewing that marketing. Composer monetizes that intelligence layer. In terms of impact on overall platform usage, yes, we are seeing incremental use. As we have opened up the underlying Klaviyo, Inc. infrastructure to third-party agents or LLM clients like ChatGPT, Claude, and Gemini via MCP, users who have integrated MCP and are best users are doing 16% more marketing—more campaigns and more automations—and querying into their data more frequently. That is the easy version of the trend because it still requires people to prompt on their own. With our agent, you will be able to set it in synchronous mode—chatting with it—or asynchronous/recurring mode—“run every day.” We think that will drive even more usage. There is a lot of latent opportunity to do better marketing and deliver better customer experiences, and Composer is the conduit to do that. People see the value and are willing to pay for it. It will have a halo effect in two dimensions. One, it will increase messaging volume because messaging will be better—creative, content, personalization. Two, Klaviyo, Inc. indexes on the number of relationships a business has. We help businesses grow more of those relationships and improve quality. When marketers are strapped for time, there are cohorts that do not get the right experience. Agents do not have that problem. They can tirelessly optimize for every single consumer. We expect the number of consumer relationships will grow and churn will go down because quality goes up. Amanda Whalen: For the second half of your question on carrier fees, it is very separate from Composer. As we discussed, carrier fees are about the choice and balance we are making between customer predictability and trust and maintaining our overall margins. If you look at our Q1 gross margins, you can see that compared to last year, we absorbed the carrier fees, saw significant growth in our text messaging business, and were able to hold our gross margins relatively steady. That shows our ability to deliver on both priorities at once. Our priorities for the back half of the year are to grow our gross profit dollars—continuing to grow revenue and gross profit dollars—while expanding our operating margin. We committed to increasing operating margins by at least a point this year, and we raised both operating income dollars and operating margin in our guidance in reflection of that strength. Chano Fernandez: I would not take the decision to not pass through carrier fees as why we are winning. It is an intentional decision to be customer-first and provide pricing stability now. We will be intentional about if and when we decide to pass through in the future. We are winning because of the value of our offering and the unified data platform we provide. We will evaluate pricing down the road. The aim is not to compete on price. The decision was important to provide stability to our customers and is reflected in the highest customer satisfaction as highlighted in the Forrester Wave. Happy customers renew and buy more from you. Operator: Thank you. Our next question is from Sitikantha Panigrahi from Mizuho. Please unmute your line and ask your question. Sitikantha Panigrahi: Great. Can you hear me? Okay, great. Amanda, it is a pleasure working with you—wish you good luck. I want to dig into the NRR at 110%, up two points year over year but flat sequentially. In prior calls, you talked about key drivers like core email, SMS, and then cross-sell and profile enforcement. Has the profile enforcement benefit already lapsed, so what keeps NRR at this or above this level? What are the next drivers that will push NRR higher in the back half of this year? Amanda Whalen: Thank you, Siti. It is a great question. The largest driver of NRR is customer behavior and the way customers are leaning into Klaviyo, Inc.—to automate more, send more, and increasingly use flows, which generate 10 times more revenue per message compared to a static campaign. As customers see that value, they lean in and use Klaviyo, Inc. more. If you break down NRR, the first and largest driver is expansion of customers’ usage of our existing products. The second driver is cross-sell. We have increasing and strong momentum there as well. Customers see the value of consolidating onto a single platform, which not only simplifies operations but makes for a better customer journey and drives better relationships. There is a little impact in NRR from lapping the price and profile enforcement from last year. Over the course of this year, you will see some impact from that lapping, but you will also see positive contribution from improvements in expansion and cross-sell. Operator: Thank you. Our next question is from Goldman Sachs. Please unmute your line and ask your question. Analyst: Thank you for taking my question. I understand the lighter beat was by design, but I think the sequential growth in the first quarter was still a bit lighter versus prior first quarters. Given Klaviyo, Inc. has outsized exposure to retail and ecommerce, is this potentially a result of the business becoming more seasonal over time as it scales, or is there a better way to think about that? Thank you. Amanda Whalen: I think it is maybe a little bit inverse to that. Because we have gone to profile enforcement, we still do see seasonality—Q4 is our customers’ biggest time of the year, and we are there for them—but with profile enforcement, we see a little bit less seasonality than in the past. The remaining seasonality primarily comes from our text messaging business and some expansion in email. In Q1, we saw strength across many parts of the business. International grew 39% year on year. Enterprise momentum is increasing, and those enterprise relationships tend to be steadier multiyear contracts. A great example is AllSaints, which signed a three-year contract. Those are going to be less variable across the year. All of these areas of strength contributed to a great Q1 and a strong outlook for the year. Operator: Thank you. Our final question is from Scott Berg from Needham and Company. Please unmute your line and ask your question. Scott Berg: Hi, everyone. Thanks for taking my question. Nice quarter here. I want to ask about the state of marketing budgets overall from what you are seeing with customers, through an interesting lens since you sell to a lot of different-sized customers. Your results suggest the marketing space seems to be on fire right now, at least from a demand perspective, especially relative to the rest of enterprise software that is growing 40% to 50% slower than Klaviyo, Inc. Why? What in the environment is driving the spend, or what are you seeing that has customers saying, “I have got to do this now, and in a big way”? Andrew Bialecki: Thanks, Scott. I can give you three trends we are seeing. First, unlike most enterprise software, we are focused on revenue generation. If you can help grow top line and profits, there is insatiable appetite to spend more, and we see that constantly. Second, consolidation—within marketing and also across marketing, data and analytics products, and now service (Customer Hub on the website). People want to merge those budgets. It is not just about total cost of ownership; it is because combining the data we have with marketing channels yields better performance, and that makes a big difference. Those trends are evergreen and durable and big contributors to our growth. Third, there is a lot of demand for intelligence applied to this combined B2C CRM infrastructure we offer. People know there are ideas they cannot see or projects they cannot execute on, and they want to use intelligence to execute efficiently, create profitability, and increase revenues. Chano Fernandez: I would only add personalization and the breadth of understanding that we provide via customer profiles—communicating at the right time, with the right channel, with the right message—is really powerful in our platform. Customers are leveraging that and seeing results through Klaviyo, Inc. attributed revenue. Our customers’ GMV grew more than double the rest of the market. Another trend is productivity—the opportunity to do much more with less headcount. Creating targeted campaigns and, at the same time, having Customer Agents that can communicate and put a great face to their business is a terrific capability they are leveraging. The increased revenue impact and ROI they are seeing, plus this technology shift where Klaviyo, Inc. is at the center, is what is driving it. Scott Berg: Excellent. Thanks for taking my question. Operator: This concludes today’s call. Thank you for joining us. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Cytokinetics, Incorporated Q1 2026 earnings conference call. This call is being recorded, and all participants are in a listen-only mode. There will be no question and answer session after the company's prepared remarks. I would now like to turn the call over to Diane Weiser, Cytokinetics, Incorporated’s Senior Vice President of Corporate Affairs. Please go ahead. Diane Weiser: Good afternoon, and thanks for joining us on the call today. Robert I. Blum, President and Chief Executive Officer, will begin with an overview of the quarter and recent developments. Andrew M. Callos, EVP and Chief Commercial Officer, will discuss the commercial launch of MYCorzo in the United States and readiness in Europe. Fady Ibraham Malik, EVP of R&D, will address the results from Acacia HCM. Stuart Kupfer, SVP and Chief Medical Officer, will provide updates related to our ongoing clinical development programs. Sung H. Lee, EVP and Chief Financial Officer, will provide a financial overview for the quarter. And finally, Robert I. Blum will make closing remarks and review key milestones for the year ahead. As you can see on this slide, today’s discussion will include forward-looking statements that are subject to risks and uncertainties. Please refer to our SEC filings for a discussion of these factors. I will now turn the call over to Robert I. Blum. Robert I. Blum: 2026 has been a remarkable period for Cytokinetics, Incorporated and one that I believe reflects the emerging promise of what we have been building here for over 25 years. Most notably, we launched MYCorzo, our first approved medicine for the treatment of adults with symptomatic oHCM in the United States. This is a milestone many years in the making and reflects our unwavering dedication to translating our science into impact for patients. As Andrew M. Callos will discuss, our initial commercial launch, while representing only a partial quarter, is exceeding our internal expectations with net product revenue of $4.8 million in the first quarter. The level of engagement from prescribers, the pace of REMS certifications, and the early demand all reinforce our conviction in the significant opportunity ahead for MYCorzo. And based on its clear differentiation, we believe this initial momentum builds a strong foundation for longer-term commercial success. Beyond the United States, during the quarter, the European Commission approved MYCorzo for patients with oHCM, and we are now moving quickly towards our first European commercial launch in Germany in the second quarter. The global market for MYCorzo is significant, and we are prudently building the right infrastructure to realize its potential. And then, of course, there is Acacia HCM. This morning, we reported positive top-line results from this pivotal Phase 3 clinical trial of aficamtin in nonobstructive HCM. We were very pleased to see that aficamtin improved both symptoms and exercise capacity with no new safety signals observed. Fady Ibraham Malik will speak more to the results that we reported, but we are excited by what these results represent for patients living with nHCM who have no currently approved therapies and for aficamtin, which, depending on the results of regulatory review, may now have the opportunity to be the first product approved to treat the full spectrum of HCM. With a statistically significant and clinically meaningful effect on both endpoints, we believe we have a very clear picture of the treatment effect that aficamtin has in nHCM. Given the trial results, we plan to meet with regulatory authorities, including the FDA, to discuss our plans for promptly submitting a supplemental NDA. During the quarter, there were several meaningful regulatory updates for aficamtin beyond that. In the United States, our sNDA for MAPLE HCM was accepted for filing by the FDA, and we were assigned a PDUFA date of 11/14/2026. We believe the results of MAPLE HCM will enable us to accelerate expansion of the prescriber base, especially with cardiologists in the community setting. Outside of the United States, we submitted an MAA for aficamtin in oHCM in Switzerland, and as a reminder, we also have a marketing application already under review in Canada. Plus, our partner Sanofi is continuing to progress potential approvals in Hong Kong and Taiwan. Taken together, the progress we made in this first quarter is a testament to what we have built in service of our vision of becoming the leading muscle-focused specialty biopharma company intent on meaningfully improving the lives of patients through global access to our innovative medicines. As we look ahead, we enter the remainder of 2026 with strong commercial momentum, conviction in our pipeline, and a deep sense of purpose. Our priorities remain the continued growth of MYCorzo in the United States, advancing our planned launches in oHCM in Europe, pursuing expansion into nHCM, and advancing our muscle biology pipeline, all with disciplined execution and careful attention to capital allocation. I will now turn the call over to Andrew M. Callos. Andrew M. Callos: Thanks, Robert I. Blum. I am thrilled to be reporting on our first quarter of commercial performance for MYCorzo. MYCorzo became available to patients on January 27, and we saw HCP prescribing within days. We have had a strong start that exceeded our expectations. Our launch is grounded in the foundation of clinical evidence and differentiation. The results from SEQUOIA-HCM demonstrate that MYCorzo provides rapid and sustained reduction in obstruction with improvement in symptoms, outcomes that resonate with HCPs. MYCorzo also offers an adaptable monitoring schedule with echocardiograms permitted within a flexible two- to eight-week window and a REMS that does not require DDI counseling. Over 80% of treating HCPs report awareness that they have seen the prescribing information for MYCorzo on an as-needed basis. We are pleased to see continued growth in perceptions of clinical differentiation favoring MYCorzo. In our most recent ACT survey, we see a higher majority of HCPs favoring the clinical profile of MYCorzo, especially among the high-volume HCM prescribers surveyed. In addition, HCPs surveyed view MYCorzo favorably across metrics such as dosing flexibility, safety and tolerability profile, and REMS program requirements. Beyond the clinical profile, treating physicians are also responding favorably to the practical elements of prescribing MYCorzo. Across key metrics of ease of prescribing, echocardiogram monitoring flexibility, and the absence of DDI restrictions within REMS, HCPs appear to view MYCorzo as differentiated. Following FDA approval in December, our team of 100-plus cardiovascular account specialists began engaging HCPs in early January, a few weeks ahead of when product became available in late January. Since then, they have reached HCPs at all levels of HCM prescribing. Our initial launch prioritized focusing our promotional and sales force activity on deepening prescribing among the high-volume HCM prescribers that have historically generated 80% of HCM prescriptions. While our call points span over 10,000 HCPs, we are currently putting greater emphasis in call allocation on the high-volume HCM prescribers. In Q1, our sales teams detailed over 90% of these HCPs. We plan to continue this emphasis on high-volume prescribers until we achieve over 50% new-to-brand prescription share among these HCPs, which we anticipate will occur by year-end. Once we see strong share performance in the high-volume HCM prescribers, we will put greater emphasis on increasing the breadth of prescribing, while still maintaining leadership and growth in the high-volume HCM prescribers. We are already seeing uptake outside the high-volume prescribers. In Q1, more than 40% of MYCorzo prescriptions are from the combination of low-volume HCM prescribers and first-time HCM prescriber segments. In Q1, our field force reached an estimated 40% of these HCPs. Beyond personal and non-personal promotion, our surround-sound approach to reaching HCPs has also delivered strong interest with robust participation in our peer-to-peer physician speaker programs and engagement with our digital advertising. By the end of Q1, over 2,100 people were already enrolled in the MYCorzo patient community. In addition to our clinical profile, we are taking the time to educate HCPs on our REMS program and patient services, as they are different from what HCPs have become accustomed to. Since launch, we have moved quickly to release enhancements to these systems that are consistent with HCPs’ feedback and clinical practice. To measure launch performance overall, we have committed to sharing three launch metrics: the depth and breadth of prescribing, and volume of patients. Breadth of HCP prescribing is measured by the number of HCPs who have written prescriptions. Depth of HCP prescribing is measured by the number of patients each HCP prescribed MYCorzo. Volume of patients is measured by the number of unique patients prescribed MYCorzo. In Q1, we saw strong demand, with more than 275 unique HCPs prescribing MYCorzo, with over 50% from the high-volume HCM prescriber segment. Through April, we have seen continued prescriber growth, with more than 425 HCPs prescribing MYCorzo. Overall, these HCPs have written an average of 2.4 prescriptions per HCP, while the high-volume prescribers have prescribed MYCorzo to approximately 2.6 patients per HCP. While it is difficult to be precise about our new-to-brand Q1 exit share due to some limitations in data availability, our internal analysis leveraging projected syndicated data suggests that the MYCorzo new-to-brand Q1 exit share was greater than 30%. These are very encouraging numbers at such an early stage of our launch. We also see positive momentum in the 1,400-plus HCPs who became REMS certified during the quarter, a potential leading indicator of HCPs who plan to prescribe MYCorzo. The differentiated profile of MYCorzo and our targeted HCP engagement since the beginning of the year has resulted in approximately 680 patients prescribed MYCorzo by the end of Q1 2026, and through April the number of patients has increased to 1,100. Importantly, in Q1, over 70% of dispensed patients are on a paid prescription. On average, patients convert to a paid prescription in less than two weeks. Most of these metrics exceed our launch expectations. This is particularly due to our limited distribution model with dedicated focus on MYCorzo patients, which has helped us achieve a high percentage of patients on a paid prescription very early in the launch phase. As we continue to accelerate our launch, we are also focused on expanding and reducing barriers to prescribe. As we have shared, we have been engaging with payers for quite some time regarding the clinical evidence from our clinical trial program and the clinical and economic burden of oHCM. We currently have comparable access for nearly 90% of Medicare lives and expect to have parity in Medicare within Q2. We are also building commercial access and expect to reach 50% of commercial lives by early Q3 and remain on target to achieve commercial access at parity by the end of Q4. Simultaneously, we are continuing to expand our commercial readiness and planning in key geographies around the world. We secured approval for MYCorzo in the EU in February and continue to move quickly towards our first European commercial launch in Germany, planned in the second quarter. In support of that milestone, we finished hiring and onboarding our full German team inclusive of sales, marketing, medical, and leadership teams. Across the EU, we have also now submitted six HTA dossiers, with five more expected to be submitted this quarter, on the path to broaden European patient access. We also submitted an MAA to Swissmedic, and beyond Europe we continue to look forward to receiving a decision in Canada in the second half of this year. Cytokinetics, Incorporated is now firmly a commercial-stage company, and while it is early in our U.S. launch, we are very encouraged by the initial performance. Both in the U.S. and in Europe, our commercial teams are dedicated to delivering excellence in this new chapter of our company’s history. I will now turn the call over to Fady Ibraham Malik. Fady Ibraham Malik: Thanks, Andrew M. Callos. This morning, we were thrilled to report the top-line results from Acacia HCM. The trial met both of its dual primary endpoints, demonstrating statistically significant improvements from baseline to week 36 in both KCCQ Clinical Summary Score and peak VO2 compared to placebo. In patients treated with aficamtin, KCCQ increased by 11.4 points compared to 8.4 points for patients on placebo, resulting in a least squares mean difference of 3 points with a p-value of 0.021. Similarly, peak VO2 increased by 0.64 mL/kg/min in patients on aficamtin, while it decreased by 0.03 mL/kg/min for patients on placebo, resulting in a least squares mean difference of 0.67 mL/kg/min and a p-value of 0.003. Statistically significant improvements were also observed in key secondary endpoints, including the proportion of patients with improvements in NYHA functional class, the composite Z score of ventilatory efficiency and peak VO2, and NT-proBNP. Importantly, there were no new safety signals identified. The percentage of patients who completed treatment in Acacia HCM was similar between those receiving aficamtin or placebo. Incidence of LVEF less than 50% was 10% in patients taking aficamtin, of which two patients experienced a serious adverse event of heart failure. LVEF less than 50% occurred in 1% of patients taking placebo. Treatment interruptions due to LVEF less than 40% occurred in 3% of the patients taking aficamtin. The improvement in KCCQ was robust and consistent throughout the treatment period in patients on aficamtin. Following washout, KCCQ decreased for patients on aficamtin to match the placebo group. At week 36, peak VO2 increased for patients on aficamtin, while it remained unchanged for patients on placebo, consistent with prior trials of aficamtin. What makes the data particularly compelling is the consistency across what the primary, secondary, and other exploratory endpoints capture. The KCCQ is the patient-reported measure that reflects how they feel and function, their symptoms, their quality of life, while peak VO2 reflects an objective functional measure of exercise capacity. NYHA functional class, the first key secondary endpoint, is also a measure of symptom and functional burden, but is physician assessed. To have improved both symptoms and functional capacity in a meaningful way reflects the depth of the potential impact of aficamtin in this patient population. This is a historic moment for the HCM community. nHCM is a serious condition for which no therapies have ever been approved. These results suggest that aficamtin has the potential to change that and to become a treatment to support the full spectrum of the disease. We could not be more enthusiastic about what we have seen in these top-line results. I want to take this moment to express my gratitude to our team for their relentless conduct of this trial to ensure the quality and robustness of the findings. Additionally, we are deeply grateful to the patients who participated in Acacia HCM, to their families, and to the investigators and site staff across the globe who conducted this trial with such dedication and rigor. Our thanks go to all for everything they have contributed to this program, and, in turn, to the entire HCM community. Next, we plan to submit Acacia HCM for presentation at an upcoming medical meeting and look forward to presenting the results in a more fulsome fashion at that time. Until then, we will not be able to share any additional detail on top of what was reported in today’s press release. As Robert I. Blum mentioned, we will be discussing these results with the U.S. FDA and other regulatory authorities. It has been an extremely exciting start to the year, to say the least. I will now hand it over to Stuart Kupfer to speak more about our ongoing clinical trials in both HCM and heart failure. Stuart Kupfer: Thanks, Fady Ibraham Malik. First, I will touch on our ongoing global clinical programs for aficamtin in HCM. During the quarter, we continued to advance three trials that together are building a comprehensive clinical foundation across indications, geographies, and patient populations. In obstructive HCM, our partner Bayer advanced conduct of CAMELLIA-HCM, a Phase 3 clinical trial evaluating aficamtin in Japanese patients. In pediatric patients with obstructive HCM, we continued enrolling CEDAR-HCM, our global clinical trial evaluating aficamtin in adolescents and younger children. We expect to complete enrollment in the adolescent cohort by the end of 2026. In nonobstructive HCM, we continued enrollment of the Japanese cohort of Acacia HCM. Japan represents an important market where aficamtin is not yet approved for either obstructive or nonobstructive HCM. Both CAMELLIA-HCM and the Japanese cohort of Acacia HCM are designed to support potential marketing authorization for both indications in that country. To that end, I am also pleased to note that aficamtin received orphan drug designation from the Japan Ministry of Health, Labour and Welfare for the treatment of nonobstructive HCM in adults and for obstructive HCM in pediatric patients, reflecting the unmet need that remains in these populations. Now I will move on to our clinical development programs in heart failure. COMET-HS, the confirmatory Phase 3 clinical trial of omecamtiv mecarbil in patients with symptomatic heart failure with severely reduced ejection fraction less than 30%, is progressing well. All sites in the U.S. and Europe are now activated, and we are working to bring on additional trial sites in China. We are pleased with the progress we have made so far this year and plan to continue enrollment through 2026. We also continued AMBER-HFpEF, the Phase 2 clinical trial of ulicamten in patients with symptomatic heart failure with preserved ejection fraction of at least 60%. During the quarter, we expanded enrollment in cohort one following a recommendation from the dose level review committee to collect more data at the current doses, and we expect to complete patient enrollment in cohort one in the second half of this year. Across these programs, we remain focused on rigorous execution and are encouraged by the progress we continue to make in building what we believe will be a leading specialty cardiology franchise. With that, I will pass it to Sung H. Lee. Sung H. Lee: Thanks, Stuart Kupfer. Beginning with revenue, total revenues for the first quarter were $0.4 million compared to $1.6 million for the same period in 2025. In the first quarter, we recorded $4.8 million in net product revenues for MYCorzo, which reflects approximately nine weeks of commercial sales following the U.S. launch near the end of January. As Andrew M. Callos stated earlier, we saw strong demand for MYCorzo, and the net product revenue is reflective of over 70% of dispensed patients on a paid prescription, with the balance receiving drug through either our 30-day free trial bridge or patient assistance programs. We expect the majority of patients receiving MYCorzo through free trial and bridge programs to transition to paid prescriptions on a timely basis, and this dynamic is expected to repeat in future quarters. Other components that contributed to total revenues in the first quarter include $2.6 million in collaboration revenue compared to $1.6 million for the same period in 2025, and $11.9 million from the achievement of a milestone under the Bayer license agreement tied to the first commercial sale of MYCorzo in the U.S. Turning to expenses, R&D expenses for the first quarter were $95.5 million compared to $98.3 million for the same period in 2025. The decrease was primarily due to higher clinical trial activity in 2025, partially offset by higher personnel-related costs in 2026. SG&A expenses for the first quarter were $104.9 million compared to $57.4 million for the same period in 2025. The increase was primarily due to external costs associated with the commercial launch of MYCorzo, the U.S. sales force, and higher non-sales personnel-related costs, including stock-based compensation. Cost of goods sold for the first quarter of 2026 was $0.2 million. Collaboration cost of revenues for 2026 was $2.4 million compared to $1.6 million for the same period in 2025. Collaboration cost of revenues includes cost reimbursements as well as costs incurred in connection with manufacturing drug supplies for collaboration partners. Net loss for 2026 was $[inaudible] or $1.67 per share compared to a net loss of $161.4 million or $1.36 per share for the same period in 2025. Turning to the balance sheet, we ended the first quarter with approximately $1.1 billion in cash and investments compared to $1.2 billion at the end of 2025. Cash and investments declined by approximately $144 million during 2026. Moving on to our financial guidance, we are maintaining our full-year 2026 financial guidance, with GAAP combined R&D and SG&A expense expected to be between $830 million and $870 million. Stock-based compensation included in the GAAP combined R&D and SG&A expense is expected to be between $120 million and $130 million. Excluding stock-based compensation from the GAAP combined R&D and SG&A expense results in a range of $700 million and $750 million. As we have just announced positive top-line results from Acacia HCM, we will update you accordingly in the future on the potential impact of this development on our financial guidance. Looking ahead, we remain focused on disciplined capital allocation and prioritizing our investments on the launches of MYCorzo in the U.S. and Europe, advancing our development pipeline, and investing in our muscle biology platform and research pipeline. With that, I will hand it back to Robert I. Blum. Robert I. Blum: Thank you, Sung H. Lee. This was a first quarter we will long remember at Cytokinetics, Incorporated. Our first medicine reached the hands of patients in the United States. We recorded our first product sales revenues. We progressed readiness for future global launches. And more recently, this morning, we reported positive top-line results from Acacia HCM, results that we believe may open a new chapter for patients living with nHCM. I am incredibly proud of what we have accomplished so far in 2026, and I am even more energized by what lies ahead. The opportunity in HCM has never looked brighter; we have never been better positioned to deliver. We look forward to keeping you updated as we progress through the year. I will now recap our 2026 milestones. For aficamtin, we expect to meet with regulatory authorities, including the U.S. FDA, to discuss the results of Acacia HCM and our potential plans for submitting a supplemental NDA. We expect to launch MYCorzo in Germany in the second quarter of 2026. We expect to potentially receive FDA approval of the supplemental NDA for MAPLE HCM in Q4 2026. We expect to complete enrollment in the adolescent cohort of CEDAR-HCM in the fourth quarter this year, and we expect to potentially receive approval from Health Canada in the second half of this year. For omecamtiv mecarbil, we expect to continue patient enrollment in the conduct of COMET-HS through 2026. For ulicamten, we expect to complete patient enrollment in cohort one of AMBER-HFpEF in 2H 2026. And for CK-089, we expect to begin conduct of a second Phase 1 study. Finally, for our preclinical development and our ongoing research, we expect to continue those activities directed to additional muscle biology–focused programs through the year. As a reminder, there will not be a question and answer session following these prepared remarks on today’s call. We want to thank all the participants on this call today for your continued support and your interest in Cytokinetics, Incorporated. Operator, with that, we can now please conclude the call. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the Emerson Electric Co. Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Doug Ashby, Director of Investor Relations. Please go ahead. Doug Ashby: Good afternoon, and thank you for joining Emerson Electric Co.’s second quarter 2026 earnings conference call. Today, I am joined by Emerson Electric Co.’s President and Chief Executive Officer, Surendralal Karsanbhai, Chief Financial Officer, Michael J. Baughman, and Chief Operating Officer, Ram R. Krishnan. As always, I encourage everyone to follow along with the slide presentation available on our website. Please turn to Slide 2, which contains a degree of business risk and uncertainty. Please take time to read the Safe Harbor statement and note on the non-GAAP measures. I will now pass the call over to Emerson Electric Co.’s President and CEO, Surendralal Karsanbhai, for his opening remarks. Surendralal Karsanbhai: Thank you, Doug. Good afternoon. I would like to begin by thanking our colleagues around the world. At this moment, it is important to highlight our teams in the Middle East who persevered in a challenging, at times dangerous, environment. All of our employees and families remain safe and we continue to serve our customer needs throughout the region. What defines our company is a high-performance culture based on deep respect for each other and an unwavering commitment to our customers. Led by Liam Hurley, our team in the Middle East brought this to life. Thank you. Please turn to Slide 3. We are committed to ongoing Board refreshment, and today, we announced the newest member elected to our Board of Directors. Jennifer Neustadt is the Senior Vice President and General Counsel of Apple. Prior to joining Apple in January 2026, Jennifer served as Chief Legal Officer at Meta. She previously held multiple senior roles at the U.S. Department of State, White House Office of Management and Budget, and the Department of Justice. Jennifer also spent 12 years in private practice advising technology, media, and financial services firms on litigation and regulatory matters. Her unique expertise in corporate governance, global business, and technology and innovation will be a tremendous addition to the Emerson Electric Co. Board. Jennifer will officially join our Board on 08/03/2026. This will expand Emerson Electric Co.’s Board to 11 members. We are excited to have Jennifer join us. Please turn to Slide 4. End-market demand remains strong. Underlying orders grew 5% in the second quarter, led by Software and Systems, which saw robust investment in growth verticals and sustained momentum in North America and India. Emerson Electric Co.’s second quarter results reflect our ability to deliver in a dynamic environment. Underlying sales growth of 5% was below expectations due to a one-point impact from the Middle East conflict. Test and Measurement continued to exceed expectations, up 12% year over year, and our Ovation business was up mid-teens, driven by the secular demand for power. Adjusted segment EBITDA margin of 27.6% exceeded expectations and we delivered adjusted earnings per share of $1.54, near the top end of our guidance. As expected, annual contract value of our software grew 9% year over year and ended the quarter at $1.64 billion. We are updating our full-year guidance to reflect the impact of the conflict in the Middle East, and we now expect sales growth of 4.5% with underlying growth of 3%. Adjusted segment EBITDA margin is still expected to be approximately 28%, and we are raising the bottom and midpoint of our adjusted EPS guide, now expecting $6.45 to $6.55 per share. We remain confident in our second-half plans for 2026 based on the orders momentum we are seeing and the visibility we have from our backlog, which is up 9% year over year. Throughout the first half, Emerson Electric Co. completed $542 million of share repurchases, and we remain committed to returning approximately $2.2 billion of capital to shareholders this fiscal year. Finally, I want to highlight the strength of our differentiated industrial software portfolio to address concerns in the broader software market regarding AI. We are seeing healthy growth in ACV and expect to finish the year up 10% plus. Our software is based on decades of deep domain expertise and serves mission-critical applications in highly regulated industries. These applications require real-time compute and traceability of data, where being right 99.9% of the time is not good enough. Further, we are well positioned to benefit from embedding AI in our solutions. This represents a great opportunity for Emerson Electric Co. as we advance the journey to autonomous operations. Emerson Electric Co. recently deployed an AI-driven optimization solution for Aramco, one of the world’s leading integrated energy and chemicals companies. Emerson Electric Co.’s Aspen Hybrid Models were integrated into Aramco’s existing refinery planning network to create one of the world’s largest multisite optimization models and give Aramco a scalable, robust tool for global refinery planning. Next week, AspenTech and NI will both host user conferences where Emerson Electric Co. will showcase our latest innovations which will help customers unlock greater levels of optimization and productivity across their operations. As Contech will hold, they are optimizing with over 1,100 customers from 49 countries, including keynotes from ExxonMobil, TotalEnergies, and Exelon. And NI Connect will feature keynote addresses from prominent customers, including NVIDIA and Alstom, with over 1,600 attendees from 38 countries. Please turn to Slide 5. Underlying orders grew 5% in the second quarter, consistent with our expectations and supporting our second-half sales plan. North America and India continued to drive orders performance. Demand in Europe remained stable but soft, while China has started the year slower than expected. Software and Systems orders grew 18% year over year, with Test and Measurement and Control Systems and Software both up 18%. We saw sustained robust investment in power, with orders in our Ovation business up 41% and ACV in AspenTech’s Digital Grid Management Suite up 31%. We expect our growth verticals to be multiyear drivers of growth supported by secular tailwinds, and we are seeing significant capital being deployed in projects. Emerson Electric Co. won approximately $450 million from our project funnel in the quarter, with 85% from our growth verticals led by power, life sciences, and LNG. The funnel grew to $11.2 billion, driven by new opportunities in power. Now I want to highlight a few key recent project wins. First, Emerson Electric Co. was selected by Encore, the largest electric delivery company in Texas, to enable the delivery of reliable power to more than 13 million residents. Encore will use AspenTech’s DGM to modernize and scale its distribution grid, preparing for increased demand driven by the growing population in Texas. Encore will gain operational efficiencies and enhance grid management capabilities by leveraging a purpose-built OT platform for both transmission and distribution systems. Next, Emerson Electric Co. was chosen by NextDecade for the Train 4 and 5 expansion to the 12 million tons per annum in capacity. Emerson Electric Co. will supply instruments, valves, and analytical systems and was selected based upon our strong operational performance in LNG applications and our local presence and support. Third, a major pharmaceutical manufacturer based in Indiana chose Emerson Electric Co. to support the three-site production program for oral GLP-1s. Ramping production quickly to meet substantial demand is critical for this project, and Emerson Electric Co. will provide our leading DeltaV control systems and software as well as our ability to execute complex projects. Lastly, Emerson Electric Co. will provide NI software and modular hardware to a leading aerospace company headquartered in South Texas for the production of the next-generation communications satellite. Emerson Electric Co. was chosen for its ability to provide improved test speed and measurement accuracy within a small footprint. Please turn to Slide 6. We have a $1.2 billion business in the Middle East, representing 7% of sales. Emerson Electric Co. has an $8.5 billion installed base in the region, and over 1,400 employees across manufacturing, field service, and sales administration. The conflict presented a significant disruption in the quarter, causing a one-point impact to underlying sales. First and foremost, the safety of our employees and customers is our ultimate priority, and we took actions such as shutting down manufacturing for a period to protect our people. In March, our field service engineers also operated at less than 50% of pre-conflict levels. Emerson Electric Co. maintains a strong regionalized manufacturing strategy in the Middle East, but components for instruments and valves are imported into the region. Additionally, the closure of the Strait of Hormuz caused significant disruptions to ocean, air, and ground logistics, which restricted our ability to import necessary components, instruments, and valves. Our customers experienced a varying degree of impact, with 47 customer sites identified as having been damaged in some capacity. We saw a slowdown of MRO and project activity in the quarter as some facilities restricted personnel. But we saw an improvement in activity in April. We are encouraged by the efforts of our employees and customers to drive business continuity. The situation remains challenging, and we expect it to impact the full-year 2026 underlying sales by one point. Customer sites were largely operational by mid-April, although running at around 75% capacity due to their inability to move product out of the Strait of Hormuz. Emerson Electric Co.’s manufacturing facilities are both operational, and our field service engineers are now operating at 80% of pre-conflict levels. The dedication and service levels of our employees is deepening customer relationships, and we are working proactively with our customers to ensure we can meet their needs as they begin to work to repair damaged infrastructure. We have already seen rehabilitation activity, and we expect to have additional opportunities as customers continue to assess their facilities. Overall, we estimate a future rebuild and restart opportunity of approximately $100 million, which will play out over several quarters. Although the Strait of Hormuz remains effectively closed, our teams are implementing alternative routes and expect to see logistics continue to improve. While we are seeing increased freight expenses in the region, the cost impact to Emerson Electric Co. is manageable. Importantly, on-site project execution work is now progressing well at several key sites, and the outlook for projects remains strong. I want to reiterate how proud I am of our employees for their resiliency, and we continue to stand with our customers during this challenging situation. With that, I will now turn the call over to Michael J. Baughman to discuss our financial results and guidance in more detail. Michael J. Baughman: Thanks, Surendralal. Please turn to Slide 7 for a more in-depth look at our Q2 financial results. As a reminder, our first-half financial results are adversely affected by a software contract renewal dynamic that impacted Q2 sales growth by approximately two percentage points, adjusted segment EBITDA margin expansion by 90 basis points, and earnings per share growth by $0.09. Our Q2 results were also adversely affected by the Middle East conflict by approximately one point. Excluding these headwinds, Q2 underlying sales growth was approximately 3%. We continue to see strong growth at Test and Measurement, up 12% in the quarter, and Control Systems and Software, which was up 4% excluding the software renewal dynamic. Price contributed 3.5 points to growth, as expected, and MRO was 65% of sales. Backlog ended the quarter at $8.2 billion, up 9% year over year, and our book-to-bill was 1.07. Adjusted segment EBITDA margin of 27% exceeded expectations and benefited from favorable segment and geographic mix. Price/cost and cost reductions more than offset inflation. Excluding the 90-basis-point impact from the software contract renewal dynamic, adjusted segment EBITDA margin was up 50 basis points. Adjusted earnings per share was $1.54, a 4% increase year over year, while Q2 cash flow came in at $694 million with a margin of 15%. We are on track for full-year cash flow growth of approximately 10% at greater than 18% margin. Q2 was a difficult quarter due to the conflict in the Middle East, and I am proud of the operational performance we delivered. One moment, please. It appears we are having some technical difficulty. Thank you. You may now resume. Okay. Sorry about that. We had some technical difficulties. We are going to resume on Slide 9, where we will talk about underlying sales by region. The Americas were up 5%, with the U.S. up 9%. The pace of business in North America remained strong with significant activity across our growth verticals and resilient spend in MRO. As expected, Europe was soft, declining 4%. The Middle East and Africa was down 5%, driven by the conflict in the region as customers were forced to curtail operations. As Surendralal mentioned in his comments, we have modeled the conflict in the Middle East as a one-point headwind to consolidated Emerson Electric Co. sales growth in 2026. During the first half of our fiscal year, we have seen better-than-expected growth in the U.S. We expect the strength in the U.S. to continue, and we now expect the U.S. to grow high single digits for the year. This incremental growth is offset by a slower-than-expected China, which we now expect to be down mid-single digits for the year. Globally, we are seeing significant activity sustained in our growth verticals, which were up 22% in the quarter. Power was up 23%. We saw healthy investment in plant modernizations, lifetime extensions, and behind-the-meter generation for data centers. We also saw robust performance across the other growth verticals, particularly in aerospace and defense, and life sciences. Please turn to Slide 9 for details on the sales and margin performance for our three business groups. Software and Systems faced a 4.5% sales headwind from the software contract renewal dynamic and reported underlying sales growth of 1%. The growth was led by broad-based strength in Test and Measurement, which was up 12%. We saw significant Software and Systems growth in power, life sciences, semiconductor, and aerospace and defense. Software and Systems margin of 29.2% decreased 250 basis points year over year, driven by the software contract renewal dynamic, which was a 300-basis-point drag. Intelligent Devices underlying sales were down 1%. The conflict in the Middle East impacted this growth by two points, offsetting strength in power and LNG. Intelligent Devices margin of 27.9% increased 80 basis points year over year from strong price/cost and cost reductions. Safety and Productivity was up 2% underlying, driven by electrical products and stable project activity in North America, while European markets remain soft. Safety and Productivity’s margin of 21.7% was down 10 basis points year over year, driven by lower volume, offset by benefits from price and cost reduction. Please turn to Slide 10, where I will bridge Q2 adjusted EPS from the prior year. Excluding the $0.09 impact of software renewals, operations delivered $0.08 of incremental EPS in Q2. Of this, Software and Systems contributed $0.05, Intelligent Devices added $0.02, and Safety and Productivity contributed $0.01. Non-operating items added $0.07, primarily from FX benefits. Overall, adjusted EPS grew 4% year on year to $1.54. Please turn to Slide 11 for our 2026 underlying sales guidance by Business Group. We are adjusting our full-year guidance for sales to reflect the Middle East conflict and now expect full-year underlying sales growth of approximately 3%. We expect Software and Systems to be up approximately 8% in Q3 and are increasing our full-year expectations to up 5% based on the strength of our growth verticals in this business and strength in the U.S. Test and Measurement is planned to grow mid-teens in Q3 and low teens for the full year, up from our prior expectations of high single-digit growth in 2026. The Control Systems and Software segment is expected to grow mid-single digits in Q3 and low single digits for the full year. We continue to see robust adoption of our software and still expect ACV growth of 10% plus in 2026. Intelligent Devices is projected to grow 4% in Q3, and we are lowering our full-year expectations to approximately 2% driven by the conflict in the Middle East. Second-half growth in Intelligent Devices is supported by backlog phasing and the timing of product shipments, with strength in the U.S. and growth verticals offsetting a slower-than-expected China. Safety and Productivity is expected to grow 1% in Q3 and 2% for the full year. The North America market continues to recover; we are seeing sustained strength in electric utilities. However, automotive and European markets remain weak. Overall, Emerson Electric Co. expects to grow approximately 5% in Q3 and 3% for the full year. Excluding the impact of software contract renewals, Emerson Electric Co.’s growth rate is expected to be 4% for the full year. Please turn to Slide 12 for details on our Q3 and full-year 2026 guidance. Before going through the details, I would like to highlight a few important assumptions embedded in our guidance. Our guidance considers a gradual resumption of activity in the Middle East and assumes the impact of the conflict remains in the region. Additionally, we expect a net neutral impact from the removal of IEBA tariffs, as this benefit is offset by increases in Section 1 and 232 tariffs as well as freight costs. Finally, our earnings and cash flow guidance excludes any benefit of potential tariff refunds. For the full year, we expect FX to be a tailwind to sales of approximately 1.5% and GAAP sales to increase approximately 4.5%. We still expect adjusted segment EBITDA margin of approximately 28% and free cash flow of $3.5 billion to $3.6 billion. We are raising the bottom and midpoint of our 2026 adjusted EPS guide and now expect $6.45 to $6.55. We still expect to return approximately $2.2 billion to shareholders through $1.2 billion in dividends and $1.0 billion of share repurchase, of which we completed $542 million in the first half. Moving to the third quarter, sales growth is expected to be approximately 5.5% with underlying sales growth of approximately 5%. We expect adjusted segment EBITDA margin of approximately 28% and adjusted EPS of $1.65 to $1.70. With that, I would like to turn the call back to the operator for Q&A. Operator: We will now open the call for questions. Thank you. Our first question is from Scott Davis with Melius Research. Scott Davis: Hey, good afternoon, guys. Hi, Scott. A couple just points to clarify. I thought that detail you gave in the call was pretty thorough, but so we lost about a point in the Middle East, and it sounds like you expect to get about a half of that point back. Is that correct? Is the rest lost revenues, or is there still optionality or potential to regain the remainder of those revenues? Michael J. Baughman: No. I think, Scott, we have seen the disruption in the Middle East, and as we mentioned on the call, there was about $50 million in the quarter. As we look out, we are expecting about another $100 million of disruption. What we see is encouraging with the supply chain improving, but it is still a very uncertain situation and we have six months left here for the year, and capacity right now is running at about 75%. We mentioned that there is some opportunity out there for rebuild and restart, and that has started, but that is going to take, we think, six quarters to unfold here, and we will see how that goes. But I would say do not think there are revenues that are lost, and in fact, over the longer term, there should be opportunity. In this next six months, based on what we saw in the quarter and based on what we see on the ground today, we felt it was prudent to bake that in and take the full-year guide down by a point at the top line. Scott Davis: Okay. That is helpful. And then I do not think you mentioned why China was weak in the prepared remarks, but down 9% was pretty material. Is that chemical-related, or are there other dynamics? Surendralal Karsanbhai: Yes, Scott. You hit the nail on the head. Our exposure to the chemical industry in China, an industry that continues to be over-capacitized and very weak in terms of spend, has adversely impacted us now for a few quarters, and that continued through the second quarter of the year, which then led us to assess China for the year more in the negative mid-single digits versus the low single digits as we had originally thought three months ago. Operator: Our next question is from Andrew Obin with Bank of America. Andrew Obin: Yes, just to follow up on the rebuild question. Was I correct that the value of the rebuild is $100 million? Surendralal Karsanbhai: That is what we have assessed to date. That is based on pace of quotations and orders that we have received already. Now obviously, that is based on the 47 sites that have been impacted across the region. That number could change over time. And that is also based on what we assess restart procedures will entail for MRO activities. So that is all that we have today, Andrew. Andrew Obin: I guess the question I have, if I am just sort of thinking about damage to Ras Laffan and your content, you know, just that gets me a much higher number. So what is wrong with that kind of analysis? And then, clearly, you guys are on the ground, you know what is happening. It just seems the number should be order of magnitude higher given the amount of damage that we have been reading about. Michael J. Baughman: So, Andrew, I think the way the $100 million we have estimated is on the damage created to the installed base on the 47 sites impacted. Now, if you are talking about the LNG capacity that came online to be rebuilt, that is a much bigger opportunity. We have not really scoped that. What we are scoping for you is the near term disruptions we have seen in customers, and as they try to restart operations, what we call our lifecycle services businesses—we quantified that over the next quarters to be in the tune of $100 million. But to your point, the capacity that was taken offline, as that comes online, that is a much bigger number, but we are not in a position to quantify it at this point. Andrew Obin: Okay. That makes perfect sense. Thank you so much. And then just another question, sort of more fundamental question. Has the dial changed post–Middle East as to where downstream CapEx goes or chemical CapEx goes? I think a lot of capacity was reliant on Middle East feedstocks—huge capital costs, low cost of capital. But as we have learned during COVID that efficiency versus reliability are not necessarily the same things. Has thinking changed about where facilities go going forward and where this capacity will be domiciled going forward? I am just thinking, right, because I do not think chemicals are particularly competitive in North America, but any glimmer of hope of any of that capacity coming to North America? Sorry for a long question. Surendralal Karsanbhai: It is a good question, Andrew, and it is certainly worth thinking about the future balancing of capacity in the chemical industry. As you know, at least on the bulk chemical side, that has been largely dominated by China, with Germany and the United States having smaller components. As you move towards the more specialized chemicals, the Europeans and the Americans have had more of a position. That is going to take some time. Right now, I would say the first step is going to be to find alternatives in the Middle East for the Strait of Hormuz. A lot of pipeline quotation activity is ongoing across Saudi Arabia and a few of the other countries to bypass what likely will be a concerning pinch point from here on forward, and so that activity has started. But certainly, I think as things start to settle, producers will eventually balance capacity needs across the world and regionalize their production. Operator: Our next question is from Andrew Alec Kaplowitz with Citigroup. Andrew Alec Kaplowitz: Good afternoon, everyone. Surendralal Karsanbhai: Hi, Andy. Maybe just a little more color on the near-term demand environment and orders moving forward. I know obviously you have more difficult order comparisons from here, but as you said, you are getting good momentum from the growth verticals, particularly in power and Test and Measurement. Can you sustain that mid-single-digit order growth rate in this environment? Did you see any difference in order cadence between January and April? A couple of your industrial peers called out a weak start to the calendar year outside of the Middle East. Surendralal Karsanbhai: Yes. No, we felt it was a very strong quarter outside of the Middle East. It was driven for us, as we remarked in the written comments, by the United States and by India, which led. And we saw broad growth across all of the growth verticals, with the lowest one being probably semiconductors in the mid-teens, and all of them in terms of orders grew above that. We feel really good in terms of that resiliency. Of course, the Middle East was much softer than expected in the quarter. We expect that to rebound. We have already seen in April that was encouraging in the Middle East, particularly as it relates to MRO activity, and we will see how the projects ultimately pan out. But I think mid-single-digit orders are sustainable for us as we navigate through the remainder of 2026. At this point in time, we feel very confident that with our backlog support, we have the second half well sized, and then with this momentum in orders, we will be setting us up for 2027. Andrew Alec Kaplowitz: Helpful, Surendralal. And as you said, your expectations for margins, really margin incrementals, have been drifting up a bit given the lower sales forecast, and that is despite, I think, you absorbing more inflation with price. Maybe talk about what you are doing to offset the inflation. Are you baking in more, for instance, memory chip inflation, and confidence level that you can continue to offset inflation headwinds even on lower growth? Michael J. Baughman: Pricing has been very, very disciplined. Our cost reductions and, frankly, favorable mix in some of the sales we have executed has helped, but ongoing productivity actions and supply chain mitigation actions to offset inflation are really what is driving the margins. Operator: Our next question is from Julian Mitchell with Barclays. Julian Mitchell: Hi, good afternoon. Just wanted to understand quickly how you thought about the high-level guidance moving parts. You have taken a little bit down on the revenue line; the EPS dollar guide low end, though, has moved up, with an unchanged segment margin guide. So is what is happening really a narrower corporate cost and then perhaps some rounding in the margins? Is that what is helping? And on the mix front—you have mentioned it a couple of times—help us understand how you see that mix impact playing out over the balance of the year, please. Michael J. Baughman: Yes, Julian. From a margin perspective, you are correct when you say it is in the roundings. It has not fundamentally changed. If you think about it, our view—other than the $50 million and the approximate $100 million in the back half of the year in a region that really has lower margins—our full-year view has not changed. The mix will improve a little, but as we have said, a lot of this growth in the second half is in backlog; it is projects. So there will be a volume uptick with some project and some mix going forward, and it all nets out. We feel very comfortable holding the 28% for the year. Julian Mitchell: That is helpful. Thank you. And then as we are looking at the balance of the year, I think you have in Q3 and Q4 a mid-single-digit sequential revenue increase dialed in and kind of high-30s operating leverage. Is that a fair placeholder for both quarters? Anything we should bear in mind in one versus the other? And on the ACV front, I think you are embedding an acceleration in the back half. Anything to call out there? Michael J. Baughman: I think from a leverage perspective, the numbers are affected by that software contract renewal dynamic and the effects there. But if you take that out, we will be over 40% leverage on the full year, which certainly means some acceleration in the back half. From an ACV perspective, yes, we continue to reiterate the 10% plus for the full year. We had a good quarter, and we continue to think that the ACV growth of 10% plus is the right number for us. And I think you said sequential growth mid-single digits. That is correct. And also year-over-year growth is mid-single digits. So I think that is an important addition to your statement. Sequential growth mid-single digit is consistent with year-over-year mid-single digit, and if you do the math, the leverage will be a tad better than the 30s you stated for the second half. Yeah. Operator: Our next question is from Jeffrey Todd Sprague with Vertical Research. Jeffrey Todd Sprague: Hey, thank you. Good morning, everyone. Just wanted to get a broader sense of the total global ramifications of this. The nature of my question, right, is the comment of the war stays contained in the Middle East, but the economic impacts are not contained. We have Europe becoming less competitive from an energy cost standpoint, maybe China not having the cheaper feedstocks it needs for its chemical industry. So when you are kind of framing this—and I know none of us have a crystal ball—how are you thinking about those second-order impacts? Are you trying to dial those in any way? Surendralal Karsanbhai: It is a very good question, and certainly, Jeff, we have to create a framework in which to set expectations for the second half and performance for the second half of our fiscal year, of course within a time frame of just six months. We have to work within to mitigate potential impact. That framework that we built has a very important assumption, as you stated, that this conflict essentially is constrained to the Arabian Peninsula, the Arabian Sea, the Persian Gulf area. There are certainly economic downstream impacts that are already being felt—certainly feedstock pricing and supply. We have electricity curtailments in parts of Southeast Asia. We have accounted for as much of that as we know today. But very honestly, we have not assumed a significant deterioration in economic conditions or growth, for example, in India or any of the countries in Southeast Asia, that, in a much broader, deeper conflict, would significantly be impacted. Jeffrey Todd Sprague: Right. Understood. And then maybe just a little—if we did not have this war going on, there would probably be a lot more Test and Measurement questions. Maybe just come back to Test and Measurement. The raw numbers you shared with us—growth rates—sound quite encouraging. Anything beneath the surface on verticals or distribution channel that you can share that sheds a little light on the demand profile here? Michael J. Baughman: Yes. I mean, I think the momentum in Test and Measurement is clearly led by semis and aerospace and defense. Both end markets are doing very, very well for us, and frankly, we expect continued momentum across both those sectors, whether it is new space, defense spending, and then certainly on the semi side, the RF and mixed-signal investments that are happening, data center investments. I think there is no surprise there. The weakest segment we have within our Test and Measurement business is the transportation segment, the automotive segment. We believe we have kind of hit bottom, and that will start growing low single digits again. Most of that business is in Europe, and our portfolio business has been resilient. We had a nice run as we came through the recovery mode, but that has stabilized in the mid-single-digit type growth rate. So, on a cumulative fashion, the double-digit for Test and Measurement is sustainable for the next couple of quarters, and we expect that to continue into 2027. Operator: Our next question is from Deane Michael Dray with RBC Capital. Deane Michael Dray: Thank you. Good afternoon, everyone. Surendralal Karsanbhai: Hello, Deane. Deane Michael Dray: I would love to do a similar run-through on power—bigger number there. I think you said up 23%. Could you just talk about the visibility? You called out plant modernization but also behind the meter. Does that stand, and what is the outlook for the balance of the year? Michael J. Baughman: From a power perspective, the momentum in terms of the project funnel—which is a pretty big funnel and that is made up of both modernizations as well as greenfield—and we are starting to see greenfield. There was some greenfield in Q2. We expect bigger greenfield activity in the half. And a similar comment on behind the meter. We saw some behind-the-meter opportunities in Q2, but we expect more to happen in the second half and into 2027. So broad spread for the Ovation business. Obviously that flows through to our valves and instruments business, which is doing very well. And also we called out our Digital Grid Management business; on the transmission and distribution side, a lot of investment is happening in the T&D space. So broad-based strength in power, certainly led by North America, which is our strongest market, but we are seeing momentum in Latin America, particularly Mexico, good activity in China, rest of Asia, and some activity in Europe. Deane Michael Dray: Good to hear there. And then if we just spotlight MRO for a moment—you called out it was 65% of your mix. In previous oil spikes—you get $100 oil—you often see the refiners just turn on the cash register, run 24/7, and do as much MRO project activity as possible, right up until regulatory limits. Have you seen any delays there? Do you expect anything like that this time? Surendralal Karsanbhai: No, Deane. As a matter of fact, we tend to see when you run things that hard, the opportunities for MRO actually increase for us, particularly in stringent applications of high pressure, high temperatures. To date, we have not seen any change in trends that would alarm us negatively on MRO anywhere in the globe, other than what we highlighted related to sites in the Middle East. Operator: Our next question is from Andrew Buscaglia with BNP Paribas. Andrew Buscaglia: Hi, good afternoon, everyone. Surendralal Karsanbhai: Hi. Andrew Buscaglia: Obviously very topical throughout the quarter and throughout the year this year has been AI and software. It sounds like you have these new products out. It sounds like adoption is going well. Can you give us an update on anything you have learned intra-quarter on that front? And then I am curious on the outlook—how impactful do you see these products contributing to growth going forward, even as soon as this year? Maybe you can comment on that, please. Michael J. Baughman: Yes. A lot of customer interest, not only on the NI side, but certainly the capabilities we have launched on Ovation, DeltaV, as well as AspenTech. It will be a very interesting users group event where you are going to see a lot more customer input as it relates to pace of adoption for both NI and AspenTech, so we will get to learn that in a couple of weeks. We do believe that it is a differentiator for us and we are seeing a lot of activity, particularly in the Ovation business, in terms of customer dialogue and a lot of quotes around AI. I would say it is a little early for it to translate into meaningful revenue opportunities. We have been very thoughtful on pricing and making sure that we can extract value and tiering the product suites where we can capture the value, with tiering on the higher-tier products which will have the AI functionality. Time will tell. There is certainly a lot of customer interest, but we do not have meaningful impact on revenue as we sit here today. As we progress into 2027 and beyond, I think it will be a huge differentiator for us. Andrew Buscaglia: Fair enough. And, sticking with software, I wanted to check on your margin cadence through the back half of the year. There is a little bit of noise starting the first half or second half, but can you comment on what is behind the implied guidance for the back half of the year for that segment and the puts and takes there? Michael J. Baughman: This is Control Systems and Software, or Control Systems and Software, just to clarify? Andrew Buscaglia: Yeah, Software and Systems. Michael J. Baughman: It should be up a little bit in the second half versus where it was in the first half, but pretty consistent through the year. There is some project execution there that plays against some of the mix favorability that we will see in the business mix that comes through. Operator: Our next question is from Joseph John O’Dea with Wells Fargo. Joseph John O’Dea: Hi, good afternoon. You made a comment about seeing significant capital deployed in projects, and I would imagine that some of this is a continuation of what you are seeing in growth verticals—so you talk about power and LNG and life sciences. But I am curious if you are seeing an acceleration as well as a broadening out at all. A lot of what we have heard in terms of industrial end-market activity is companies seeing a continuation of spend on areas like productivity, but not so much a broadening out on the capital project side. Are you seeing some broadening out or acceleration of this? Surendralal Karsanbhai: We continue to see consistency in the funnel. As you know, Joe, we look at that on a two- to three-year basis. It grew to $11.2 billion, and the growth has come entirely from inside of our growth verticals. Power really drove the growth in the funnel, but the win rate and the project deliveries continue to be consistent within the growth verticals that we identified. We have not seen tremendous broadening beyond that. It continues to be those five core verticals that are driving not just the activity, but also feeding of the funnel. Michael J. Baughman: Yes, you said it. The new capital formation in our five growth sectors of power, LNG, life sciences, semiconductors, and aerospace and defense continues to accelerate. Every meeting we have with our businesses points to more opportunities in the funnel being added across these five verticals. The core markets in energy, refining, and petrochemical—it depends on the geography there—show stable or muted activity, but as it relates to the growth verticals, there is no slowing down. In fact, we see accelerating additions of opportunities to the funnel. Joseph John O’Dea: And then just touching on the margin strength in Intelligent Devices in the quarter—we saw it in both Sensors and Final Control. If you can unpack that a little bit more with respect to mix and cost actions during the quarter. You do expect a step-up in the growth rate in the back half. Curious the degree to which volume then helps those margins sequentially and how mix is expected to play out as you move forward in the year. Michael J. Baughman: As we talked about, it was the strong price/cost and cost reductions. I will say we got a little bit of benefit in the quarter from not having the IEPA tariffs, and obviously as we move forward, that benefit will, as we talked about, be offset by other tariffs and some freight cost pressure. As we move into the second half, the margins will have, as you suspected, offsetting factors of volume being beneficial with some mix pressure as projects get delivered. I expect to see that group improve margins year over year, as they have been doing, and continue to perform very well. But there will be some pressures that should offset net-net. Year over year, we will see improvement in the operating margins there. Operator: Our next question is from Analyst. Analyst: Yes, thanks. Good afternoon. I wondered if you could just touch on a couple of things for me. Free cash flow came in a little light of where I thought it might end up being, so I wonder if you could talk a little bit about that and how we might think about the phasing through the back half of the year. And then secondly, just on Intelligent Devices, I think even ex–the Middle East, the business came in a little light of your guide. Is the primary driver of that weakness in China and Europe? If you could unpick that a little bit for us, that would be really helpful. Michael J. Baughman: Sure, Alex. In terms of cash flow, the first half was certainly affected by the interest from the Aspen buy-in that was primarily in the back half of last year, and so we will lap that out as we move forward. We also had some tax payment timing that was a negative in the first half. We also had a buildup of some working capital as we get ready for the second half of the year. If you are looking at the prior year, our cash flow that year was far more ratable than it historically has been. This year will look a little more like we have looked in the two years prior to last year. On Intelligent Devices this period versus expectation, yes, there was some softness in China and Europe as you suspected. Operator: Thank you. This concludes today’s conference. We thank you again for your participation. You may disconnect your lines at this time.
Operator: Good day, and welcome to the AGCO 2026 Q1 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Greg Peterson, AGCO Head of Investor Relations. Please go ahead. Greg Peterson: Thanks, and good morning. Welcome to those of you joining us for AGCO's First Quarter 2026 Earnings Call. We will refer to a slide presentation this morning that is posted on our website at www.agcocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix of the presentation. . We'll make forward-looking statements this morning, including statements about our strategic plans and initiatives as well as our financial impacts. We'll address demand, product development and capital expenditure plans and timing of those plans, and our expectations concerning the costs and benefits of those plans and timing of those benefits. We'll also cover future revenue, crop production and farm income production levels, price levels, margins, earnings, operating income, cash flow, engineering expense, tax rates and other financial metrics. All of these forward-looking statements are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks are further described in the safe harbor included on Slide 2 in the accompanying presentation. Actual results could differ materially from those suggested in these statements. Further information concerning these and other risks is included in AGCO's filings with the SEC, including its Form 10-K for the year ended December 31, 2025, and subsequent Form 10-Q filings. AGCO disclaims any obligation to update any forward-looking statements, except as required by law. We will make a replay of this call available on our corporate website later today. On the call with me this morning is Eric Hansotia, our Chairman, President and Chief Executive Officer; as well as Damon Audia, Senior Vice President and Chief Financial Officer. With that, Eric, please go ahead. Eric Hansotia: Thank you, Greg, and good morning, everyone. AGCO delivered very solid results in the first quarter, reflecting effective execution against our strategy and the growing impact of the actions we've taken over the recent years to streamline our cost structure. Net sales were approximately $2.3 billion, up 14% year-over-year. driven primarily by stronger performance in [indiscernible] compared to the challenging prior year period. With differing industry conditions across regions, the year-over-year improvement highlights our ability to perform consistently and deliver solid results across varied demand environments. Operating income increased more than 60% year-over-year to $80.7 million with reported operating margin expanding 100 basis points to 3.4%. On an adjusted basis, operating margin improved 50 basis points to 4.6% driven by better volume leverage and ongoing benefits from business optimization initiatives, partially offset by higher cost inputs, including tariffs. These results underscore the pragmatic focused manner in which we are operating the business. Over the past 2 years, we have taken deliberate actions to simplify and focus our operations and sharpened execution, including a leaner cost structure, more disciplined production planning and improved channel alignment. The performance delivered this quarter supports the increased durability and resilience of our earnings model. While near-term demand remains uneven across regions, we continue to believe the business is operating around the trough of the cycle, with inventories normalizing and underlying conditions beginning to set the stage for the next phase of recovery. Adjusted operating income increased nearly 30% and adjusting EPS more than doubled year-over-year to $0.94, highlighting the operating leverage inherent in the business from lower cycle levels as well as a lower adjusted tax rate in the quarter. We also continue to emphasize structured working capital management and inventory alignment. Dealer inventories improved in the first quarter. positioning us in a more balanced position to support customers while maintaining better operational stability through the remainder of the year. We are encouraged by the progress delivered this quarter and remain fully focused on executing our plans to drive sustainable margin enhancement, cash generation and long-term value creation. Slide 4 details industry unit retail sales by region for the first quarter. While fleet ages continue to increase, farmer purchasing activity reflects a measured and thoughtful approach shaped by the current macro environment, trade policy dynamics, higher interest rates and input costs tighter credit conditions and currency volatility are influencing buying decisions globally, particularly for larger equipment. In North America, overall industry tractor volumes trended lower relative to the prior year with the most pronounced weakness in higher horsepower tractors. Farmers continue to defend more capital-intensive purchases amid current farmer economics, evolving grain export demand and elevated input costs. In Western Europe, industry tractor sales increased compared to softer prior year period with growth across most of Western European markets. Combined demand; however, remain cautious as farmers wave financing conditions and capital allocation decisions. In Brazil, industry retail demand moderated across both tractors and combines with larger equipment most affected by higher interest rates, credit availability and currency effects, while demand for smaller and midsize equipment remain relatively more resilient. Against the evolving macro backdrop, farmer purchasing decisions remain deliberate with customers balancing operational requirements, alongside financing costs and broader economic conditions. Investment activity continues to prioritize solutions that deliver clear productivity gains and cost benefits, including precision agriculture and technology upgrades while larger equipment replacement decisions are sequenced thoughtfully. This environment continues to support disciplined production planning and inventory alignment across the industry. AGCO's factory production hours are shown on Slide 5. First quarter production hours increased 15% year-over-year, reflecting a lower level of production in the first quarter of 2025. The year-over-year increase was driven primarily by Europe, where production levels rebounded from a particularly reduced first quarter 2025 base. Importantly, first quarter 2026 production was aligned with our operating plan and reflected intentional timing and product mix rather than a change in underlying demand trends. Full year 2026 production hours are still planned to be broadly flat to modestly lower than 2025. We are executing a deliberate and measured step down in production as the year progresses. This approach reflects our continued focus on inventory optimization in North America and Latin America, active support of dealer destocking and close alignment of output and market demand. Turning to regional inventories. In Europe, dealer inventory months of supply improved modestly to just under 4 months aligned with our target. This reflects effective execution across the channel with sent operating below the regional average in MessyFerguson Valter modestly above. This well-balanced position provides operational flexibility across product categories and supports continued focus on margin quality and mix optimization in our largest and most profitable region. In Latin America, dealer inventories moved to 4 months of supply from 5 months at year-end, continuing progress toward our 3-month target. Dealer inventory units declined approximately 10% during the quarter, reflecting disciplined coordination of shipments and production with a slightly softer industry outlook. In North America, dealer inventories closed the quarter at approximately 7 months of supply, consistent with our year-end levels and slightly above our 6-month target. Large egg units decreased sequentially and but were offset by the normal increase in the low horsepower segment this quarter in anticipation of the spring retail selling season. Production continues to be managed intentionally with a clear priority on channel health, and long-term stability. Slide 6 highlights our strategy to outpace the market and drive margin improvement to our adjusted operating margin target of 14% to 15% at mid-cycle over time. What is increasingly evident is that AGCO is delivering stronger and more resilient financial outcomes across a range of demand conditions compared to prior cycles. The structural actions implemented over recent years are translating into a more durable margins, improved earnings stability and higher quality cash generation, demonstrating the effectiveness of our evolved operating model. Our 3 growth levers: high-margin products, technology-driven differentiation and a growing higher-value aftermarket business continue to provide meaningful support in the current environment. each lever contributes distinct value and together, they reinforce a business model that is less reliant on unit volumes and more centered on value creation. This foundation underpins our ability to consistently deliver mid-cycle adjusted operating margins in the 14% to 15% range over time. It reflects a structurally improved AGCO more focused on higher-value revenue streams, more disciplined on costs and investment and increasingly driven by technology solutions and services. Importantly, this operating model also supports strong cash generation with free cash flow conversions of approximately 75% to 100% through the cycle. That financial flexibility enables continued investment in innovation and business advancement, while supporting capital returns to shareholders as evidenced by our recent increased dividend and share repurchase announcements. Taken together, these elements highlight why AGCO is operating today from a more favorable and resilient position and why our business is well positioned to deliver consistent performance across future market cycles. Turning to Slide 7. We are seeing a series of tangible strategy wins as we execute against our farmers first priorities. These actions demonstrate how we're building a durable competitive advantage by combining engineering leadership with increasingly advanced digital and enabled capabilities. Our approach reflects a focus on prioritizing growth while also delivering efficiency, as we apply AI where it delivers measurable value for farmers and strengthens business performance through better decisions and execution. AI is increasingly becoming a significant enabler in that road map and across the organization to support long-term value creation and differentiation. AI solutions on the farm and in our products are designed to help farmers to achieve more with fewer inputs such as land, labor, fuel and chemicals. Solutions, including Symphony Vision use intelligent cameras intended to optimize precision application in real time, improving effectiveness and helping to reduce waste. At our PTX Winter Conference, we introduced AI-enabled innovations, including Symphony Vision Dual and AROTube to advance real-time precision applications and automated seed placement. These innovations reinforce our position in high-value technology-enabled solutions. We use AI in customer support and service to connect machine data, customer needs and AGCO expertise to reduce downtime and strengthen long-term customer relationships. It is transforming how we work with thousands of parts leads generated for dealers and tools like product information assistant to more closely connect dealers and farmers. And third, AI inside AGCO is improving efficiency, quality, cost and speed. Use cases range from AI-powered financial forecasting to AI-driven market analytics that automate used equipment price analysis and free up experts to focus on more value-driven actions. These capabilities are being deployed in a structured and purposeful manner to support margin expansion and growth. We are seeing strong and growing demand from our employees to leverage and deploy VVI solutions to better support our dealers and farmers. We view this momentum, along with our project reimagine run rate cost savings as a clear opportunity to drive measurable efficiency gains and productivity improvements across the organization over time. In short, we are taking an enterprise view with AI using human in the loop oversight and aligning with the evolving regulatory frameworks to support trusted, responsible and scalable usage. On Slide 8, we also continue to see strong external validation of our innovation and technology leadership. Our outrun mixed fleet retrofit technology are in the prestigious Davidson Prize for the second consecutive year. This time for them is tillage, reflecting our step-by-step progress towards our ambition for full firm autonomy by 2030. Our AGCO Parts shop received the Digital Engineering Award for a next-generation unified B2B platform that improves dealer efficiency, order accuracy and visibility at scale, which supports aftermarket growth and reinforces our farmer first focus on uptime. As EGCOPower's Core [indiscernible] 0 was named Diesel Engine of the Year, reinforcing our continued leadership in efficient powertrain innovation. The family of core engines were designed to run on an array of fuel options, helping them deliver the performance our farmers' demand around the world. I want to recognize and thank the teams across AGCO whose work continues to set a high bar for our industry. With that, I'll turn it over to Damon to walk through the financial results for the quarter. Damon Audia: Thank you, Eric, and good morning, everyone. Slide 9 provides an overview of regional net sales performance for the first quarter. Net sales increased approximately 5% in the first quarter compared to the prior year period, excluding the favorable impact of currency translation. By region, the Europe/Middle East segment delivered a 9% increase in net sales on a constant currency basis, higher sales resulted from increased unit volumes compared to the first quarter of 2025, which included dealer inventory destocking. Sales growth in Germany and the United Kingdom was partially offset by lower activity in Turkey and France. The increase was driven by strong growth in high horsepower tractor sales. North American net sales also increased 9%, excluding currency impacts. Higher unit sales compared to the prior year, together with positive share growth supported the increase. The most significant gains were in high-horsepower tractors, hay equipment and sprayers highlighting continued customer investment in productivity-enhancing solutions. Net sales in Latin America were 30% lower on a constant currency basis, reflecting very measured purchasing activity across virtually all product categories as the environment in Brazil and Argentina remain challenging in the quarter. Asia Pacific Africa net sales increased more than 20%, excluding currency impacts, driven by higher sales in Australia and South Africa partially offset by lower sales across most Asian markets. Consolidated replacement part sales were approximately $447 million in the first quarter, increasing 3% year-over-year on a reported basis and down nearly 6%, excluding favorable currency translation. Results reflected wet weather in Europe early in the quarter that limited parts consumption. And in North America, where dealers remain focused on inventory optimization amid continued cautious farmer sentiment. Turning to Slide 10. Adjusted operating margin was 4.6% in the first quarter, an improvement of 50 basis points year-over-year. This reflects strong execution in the Europe, Middle East region, once again, combined with continued operational and cost discipline across the broader organization. By region, Europe, Middle East income from operations increased by over $104 million compared to the first quarter of 2025 with operating margins exceeding 16%. These strong results were driven by sales growth, a richer mix and increased production compared to the prior period. North America income from operations reflected an approximately $27 million year-over-year reduction with operating margins remaining below breakeven. Results heavily reflect the year-over-year impact of tariff-related costs along with factory under absorption associated with our disciplined approach to reduce production levels. Latin America operating income decreased roughly $47 million year-over-year with results below breakeven, driven by several factors, including significantly lower sales volume and negative pricing. Asia Pacific Africa operating income increased about $7 million in the first quarter, supported by higher sales and increased production during the quarter. Slide 11 outlines our first quarter cash performance and full year estimated free cash flow. Free cash flow represents cash used and are provided by operating activities less purchases of property, plant and equipment. Free cash flow conversion is defined as free cash flow divided by adjusted net income. We used $455 million of cash in the first quarter of 2026 reflecting the normal seasonal inventory build, consistent with our operating cadence. The prior year quarter reflected unusually low production levels, mainly in Europe that limited inventory investment and reduced cash usage. Our 2026 production schedule reflects a return to our typical seasonal patterns, resulting in higher inventory investment and cash usage early in the year. This profile was fully aligned with our plan and remains consistent with achieving free cash flow in a targeted range of 75% to 100% of adjusted net income for the full year. Our approach to capital allocation remains disciplined and consistent, prioritizing reinvestment in the business, maintaining an investment-grade balance sheet, pursuing targeted acquisitions that accelerate technology adoption and returning capital to shareholders. This framework continues to guide both our decision-making and the sequencing of capital deployment. As part of this approach today, we announced that we are evolving our long-standing AGCO Finance U.S. and Canadian joint ventures to better align with increasing regulatory and compliance requirements on enhancing capital efficiency. On April 30, the company executed various agreements with wholly owned subsidiaries of Rabobank to sell AGCO's 49% equity interest in its U.S. and Canadian joint ventures for approximately $190 million, while establishing new financing framework agreements that are intended to strengthen the strategic and commercial benefits of these partnerships. AGCO Finance remains the predominant financing partner for AGCO and our customers. This structural evolution strengthens AGCO's farm refer strategy by ensuring continued access to competitive finance offerings. These actions optimize regulatory capital deployment, strengthen our commitment to providing competitive financing solutions to our farmers and dealers and bolster our financial flexibility. The proceeds from these transactions are incremental to free cash flow and are being used to support capital returns to shareholders. Building on both our record free cash flow generation in 2025 and these proceeds AGCO has increased our capacity to return capital to shareholders. We continue to execute share repurchases under our $1 billion authorization. Following the initial $300 million announcement in October last year, we are initiating an additional $350 million in repurchases during the second quarter of 2026. In addition, the Board of Directors also improved an increase in our regular quarterly dividend to $0.30 per share, up from $0.29. At this rate, annualized dividends would total [ $1.20 ] per common share. Collectively, these actions demonstrate a continued focus on disciplined capital deployment, balancing enhancing near-term shareholder returns with long-term financial flexibility. Turning to Slide 12, which summarizes our 2026 market outlook across our 3 major regions. Global agricultural markets entered 2026, reflecting conservative purchasing behavior shaped by high borrowing costs, extended margin compression and evolving policy and trade dynamics. Recently, geopolitical developments have contributed to higher fertilizer and fuel costs, reinforcing cautious behaviors across the industry. Current conditions point to a gradual and uneven recovery, rather than a near-term rebound. We are maintaining our forecast for North America and Western Europe and adjusting our Latin American forecast from flat to down modestly in 2026. In North America, farm income dynamics and increased input costs continue to shape demand, particularly for large equipment. Deal activity continues to focus on managing used inventories and limiting new commitments, which is weighing on large tractors and combined purchases. Higher fertilizer and diesel cost tied to recent geopolitical developments have added to grower caution heading into the planting season, further limiting discretionary capital spending. Smaller equipment continues to demonstrate relatively stable demand compared to large ag supported by livestock and hay related demand. While performance has improved year-over-year, early year activity has been more modest than anticipated amid recent macro events, reinforcing our views that upside remains limited for the remainder of the year. Overall, we expect the North American large ag equipment market to be down around 15% below 2025 levels with the small ag segment modestly higher. In Western Europe, near-term demand has demonstrated select areas of strength. At the same time, confident remains fragile. Farmer profitability challenges, increased input costs evolving regulatory uncertainty and prudent capital spending behavior continue to weigh on sentiment. Recent geopolitical developments, including the development in the Middle East have added to this environment, particularly around energy cost despite near-term demand strengths. Subsidy frameworks and relatively favorable interest rate dynamics continue to provide a stabilizing foundation for the region. Taken together, we still expect Western Europe to be up modestly in 2026. In Brazil, in broader Latin American region, interest rates and tighter credit conditions continue to influence purchasing patterns, particularly for large machinery. Increasing input costs and financing dynamics are guiding investment decisions, contributing to equipment demand variability. Brazilian retail tractor volumes in '26 are now projected modestly below 2025 levels, but with long-term fundamentals remaining relatively constructive. Overall, the agricultural equipment cycle in '26 reflects discipline, selective purchasing and delayed replacement activity. As financing conditions normalize, input cost pressures moderate and grain prices improve, the aging fleet and structural foundation supporting recovery remain in place with regional timing varying by market and segment. Slide 13, highlights the key elements underlying our full year 2026 outlook. Global industry demand in 2026 is now positioned in line with prior year levels, operating at approximately 86% of mid-cycle demand, consistent with the stabilization phase of the cycle. Our sales plan reflects continued market share gains, pricing in the range of 2% to 3% and roughly a 3% foreign currency benefit. While pricing helped moderate the impact of material inflation and tariff-related costs, the incremental increases in these pressures from events in the first quarter will now more than offset pricing actions resulting in margin dilution and lower profitability in 2026. Inventory management remains a priority in 2026, particularly in North America and Latin America, supporting our ongoing dealer inventory alignment and a balanced demand-driven go-to-market approach. Our outlook reflects the current tariff environment and our established mitigation actions, including cost initiatives and pricing. Since the fourth quarter earnings call, the tariff environment has evolved with the Supreme Court ruling related to EPA tariffs as well as new guidance on the calculation methodology related to Section 232 tariffs. We now expect tariff costs of approximately $135 million in 2026, which is around $90 million increase from 2025 and $25 million higher than our previous estimate. These estimates could change as things evolve during the year. Our adjusted operating margin and earnings per share outlook do not assume any refunds related to the [ EPA ] tariff. We are currently evaluating the impact to our business and the ultimate timing and amount of any potential refunds remain uncertain. We are prepared to adjust our outlook should tariff or trade policy conditions change. Engineering expense is planned at around 5% of sales in 2026, representing an increase of nearly $40 million year-over-year, supporting innovation across the portfolio while maintaining investment discipline. Operational efficiency initiatives are increasing and we now expect them to deliver approximately $60 million to $70 million of benefit in 2026, up from $40 million to $60 million, reinforcing our ongoing transformation progress. Production hours in 2026 are expected to be flat to slightly down compared to 2025 with a measured step down as the year progresses to support inventory normalization and demand alignment. Based on these assumptions, adjusted operating margin is still targeted in the range of 7.5% to 8% reflecting structural portfolio improvements and cost actions, partially offset by price cost pressures, increased tariff costs as well as increased freight costs. Finally, although our effective tax rate was 24% in the first quarter, we still expect our effective tax rate for 2026 to be in the range of 31% to 33%. Turning to Slide 14 for 2026 outlook. We have modestly tightened our full year net sales outlook to $10.5 billion to $10.7 billion, reflecting improved performance in certain regions slightly higher foreign exchange effects and continued execution, partially offset by ongoing market volatility. Adjusted earnings per share are targeted at approximately $6 supported by continued strong cost discipline and execution consistency. This revised outlook reflects our strong first quarter performance, along with the incremental tariff costs and other cost headwinds I mentioned previously. The current earnings per share outlook also assumes approximately $0.15 per share benefit associated with the share repurchase announced today. Capital expenditures are planned at around $350 million, positioning the company for future demand while preserving investment discipline. Free cash flow conversion remains targeted at 75% to 100% of adjusted net income, supported by strong working capital management and ongoing inventory efficiency. Second quarter net sales are targeted between $2.7 billion and $2.8 billion. Second quarter earnings per share are targeted between $1.35 and $1.40, reflecting the alignment of production with demand cost execution and timing of efficiency initiatives. The second quarter EPS target excludes any impact from the potential [ IEP ] tariff refunds or the sale of our equity interest in the AGCO Finance U.S. and Canadian joint ventures. The AGCO Finance transaction in North America will accelerate cash flows from the existing portfolio and result in a second quarter earnings lift. However, for the full year, we do not expect a meaningful change in the portfolio's earnings contribution. Slide 15 outlines the details for our 2026 tech data be held near Chicago, Illinois. A strategic business update will be held on October 6, followed by a live field demonstration of our precision agricultural stack and farmer core initiative on October 7. We look forward to hosting you just outside of Chicago. With that, I will turn the call over to the operator to begin the Q&A. Operator: [Operator Instructions] The first question is from Jamie Cook with Truist. Jamie Cook: I guess 2 questions. Damian, just unpacking how we think about -- I mean we had losses in North America and in Latin America in the first quarter. Just trying to understand, in particular, it was like the restatement with Mexico, how do we think about the full year potential loss in cadence, I guess, of earnings throughout the year, I guess, would be my first question. And then my second question, can you just dig a little deeper on some of the pricing commentary that you referred to like by region. You know what I mean, I guess I was impressed that we actually held the 2% to 3% price increase. Unknown Executive: Sure. So I think if we look at the cadence here with the incremental tariff costs that we alluded to in the scripted remarks, we're going to see North America sort of stay at this sort of the mid-teens margin loss for the balance of the year here. despite the solid pricing, that incremental $25 million is going to really be concentrated in North America, as you would expect. It will fluctuate a little bit in the quarter with volume here. But generally, you're looking at sort of an earnings kind of in that negative 10%, negative 12% for the full year. South America, we had a challenging first quarter -- or at -- excuse me, we had a challenging first quarter see that sort of rolling into the second quarter here with a slight breakeven, the slight loss likely in Q2. And then as we hopefully see the industry recover, we've talked about the election year some of the incentives as we get to the FINAME funding in the middle of the year, we see that turning certain positive. I think net for the full year, when you look at the first half headwinds second half opportunities probably closer to a breakeven business for Latin America as we look at the full year. I think, Jamie, on the second question on pricing, again, we did reaffirm the 2% to 3%. When I look at how pricing panned out in the first quarter, overall, I would say total company, it was modestly a little bit better than what we had expected. Now we saw stronger performance in pricing in North America and in Europe and then we saw a significantly weaker pricing in the Latin American region. So for total company, again, I still feel good that we're in that 2% to 3% range. But as I look at how things are unfolding, so far, I would say it's going to be a little bit stronger coming from North America and Europe and a little bit weaker coming out of the Latin American region, at least to start the year. Operator: Next question is from Kristen Owen with Oppenheimer. Kristen Owen: Damon, you walked through a lot of puts and takes on the guidance. It's easy to look at it and say, okay, you beat by $0.50 in the first quarter, so we're going to raise the guidance by $0.50. But it sounds like there's a lot more to it than that. So maybe just help us with the bridge on the updated guidance, what got better, what got worse? And then I have a follow-up on some of the cost-related items. Damon Audia: Yes. Sure, Kristen. So I think if you look at our prior guidance, we were $5.50 to $6. So we'll use the midpoint there. We rolled through the $0.50 beat in the first quarter. I alluded on the call, tariffs are around a $25 million incremental headwind, so call that around $0.25 of a headwind. Kristen, we tweaked our volumes, our industry outlook for South for Latin America and a little bit, I would say, in Eastern Europe, Turkey mainly. So the industry being a little bit softer for the balance of the year, that's around a $0.20 headwind. We've had incremental freight costs as we look at diesel fuel, ocean freight charges, other costs that we're seeing given the Middle East conflict, that's around a $0.20 headwind flowing into our cost of goods sold. To offset that, we included the share repurchase. We've estimated that at around $0.15 of a positive for the full year. And then we've also increased our restructuring savings outlook, which was $40 million to $60 million. We now have that at $60 to $70 million. So that, coupled with a little bit of other cost of goods sold savings opportunities, that's around a $0.20 positive relative to our original outlook. And so when you put those together, you get around $6. Kristen Owen: Fantastic. So the restructuring savings then the $40 million to $60 million now, $60 million to $70 million. In some of the prepared remarks, you talked about some of the internal initiatives. Can you maybe help us understand how much of that is just an acceleration or maybe a pull forward of the bridge that gets us to 14% to 16% by the end of the decade? Or how much of that is sort of incremental upside that maybe gives you greater confidence in that mid-cycle margin target? Damon Audia: Yes. So I'd say, Kristen, it's probably about 50-50. So we did have some savings that was planned more into the Q3, Q4 time frame. Given the industry, we've been able to pull as we did a little bit last year, we pulled some of that ahead. So if you remember on the fourth quarter call, we said we were run rating at around $190 million. I would tell you now after the end of the first quarter, we're run rating just a little bit over $200 million. So part of that was pulling some things ahead. But in this environment, as we leverage technology, more of the teams are seeing more opportunities. So there is some incremental long-term savings. So again, for this year, I would say it's kind of split between a pull ahead and an incremental. So that will carry over to some incremental savings as we get into 2027 given the annualization. But generally, I'd say we're run rating a little bit north of $200 million now. Operator: The next question is from Mig Dobre with Baird. Unknown Analyst: This is Peter Kalanarian on for Mig this morning. I guess I have one on Europe here. How confident are you in the relative strength in Europe holding through the remainder of the year? It's my understanding that EU farmers maybe don't preorder their inputs to the same extent as we see in North America. So could you maybe help me understand the dynamics there, what you're seeing in terms of farmer health? And then second part of the question on margin progression for Europe, I believe it's previously been a pretty steady mid-teens through the year. Is there any change there that we should be aware of? Eric Hansotia: Yes, I'll start off with that answer. So if you think about the crops that are planted in Europe, the biggest crop planted is wheat, and it's often -- it's a winter wheat predominantly. So that's planted in the fall. It starts growing over the winter and then it continues to grow in the spring and in the summer and is harvested early summer. So the cycle is a little different than what we think about in North America of most of the planting happening in the spring because of the mix of grains that they put in. So that's one dimension. They still do prebuy a fair amount, not quite as much as North America, but a fair amount. And so I think it really comes down to how long is this war going to last and how big of an impact is the increase in cost for fertilizer. Fertilizer is up somewhere between 35% and 50%, but it all depends on if that lasts through the rest of the year. Most predictions right now, of course, this is unpredictable, but many folks are using the assumption that this war is not going to last in terms of quarters, it's going to last in terms of several more weeks in terms of cutting off the street. So if that's true, then flow can normalize in time for the next big use of fertilizer in the Northern Hemisphere, which is more weighted toward the fall. Damon Audia: And then, Peter, if I -- in answer to your second question about the European margins and the cadence, again, Europe continues to be very strong for us if I think about the margins. generally speaking, likely in the mid-teens for each of the remaining 3 quarters, a little bit lower here in the second quarter as we'll have some of that incremental engineering expense. Remember, we have a high concentration of engineering expense in Europe. I'd say probably closer to flat to last year's margins and then picking up modestly here in the back half of the year as we introduce some new products and some of that new product pricing kicks in. But generally speaking, kind of in those mid-teens here for the balance of the year. Unknown Analyst: Awesome. And then a quick follow-up here on Latin America. How many -- do you have the pricing in place you feel to clear the channel here in the next couple of quarters? Or do you think that price will have to come down even further -- and I guess, tangential to that question, how many quarters of destock do you think we have left before inventory can get down to that target level of, call it, 3-ish months? Damon Audia: Yes. I think, Peter, for us, we're always looking market back from a pricing standpoint and our relative value to the farmers and also relative to the competition. I don't see a significant change in pricing, but again, subject to market conditions. I think we're trying to be much more proactive on our side. We will have inventory -- production will come down probably around 20% year-over-year in Q2 as we look to better adjust the production schedule. We made great progress on the dealer inventories this last quarter. As I mentioned in my part of the remarks, units were down around 10% -- so we are taking the units out. We're reducing the production here. We'll reduce it again another 20%, trying to get closer to that 3-month target here, hopefully by the end of the second quarter. But again, remember, for us, when we give you the dealers' month of supply, that's a 12-month forward look. So as that industry is changing either positively or negatively, that 12-month forward calculation can also influence even though the units may come down. So I feel good about what the team is doing in managing a very challenging situation. We know South America is likely the most susceptible to the diesel fuel cost, the fertilizer increases that Eric just alluded to. So the team is doing a good job sort of managing the production schedule to try to keep the retail and production as closely aligned as possible, but at the same time, getting the dealer inventory levels down, but still servicing the demand we're seeing. So a lot of work down there, but we feel good about how the team is managing it. Eric Hansotia: Maybe one more thing on Brazil. It's a very, very tight presidential race. And last week was AgrShow. There was a lot of talk at AgrShow about favorable terms coming into the market from the government. Unfortunately, there's no detail on what those terms are going to be, but certainly a lot of talk about they're coming. And so farmers, I think, to some degree, are a bit on hold until they get clarity on what that environment will be. But if you anticipate the chapter we're in right before an election is probably going to be something positive for farmers. Just don't have any clarity on it yet. Operator: The next question is from Steve Volkmann with Jefferies. Stephen Volkmann: I apologize if I missed this, Damon. I think you said that '26 production hours are going to be flat to slightly down, but it sounds like they're going to be down quite a bit in the second quarter, and you obviously reduced inventory in the first. So is the cadence that we're going to have like some big increases in the second half? Just how does that sort of play out? Damon Audia: Yes, Steve. So we had the big increase here in the first quarter. It was heavily in Europe because of the year-over-year comparison. It wasn't that we were running in excess. If you remember last year, we had a slow start as we were sort of destocking a little bit in Europe. If I look at Q2 here, you're looking at North America is likely going to be relatively flat to year-over-year. The big change will be the South American market. We'll be slowing production there in Q2 and likely in Q3 based on the current industry outlook. But as Eric just alluded to, such a volatile market or uncertain market there, we manage it one quarter at a time. But at least our outlook right now, this flat to down guide assumes more underproduction in the Latin American region, but relatively stable production in Europe and in North America for the balance of the year. Stephen Volkmann: Okay. I see. And then just anything to call out relative to your view of kind of how Precision ag sales kind of flow this year? Is there any upside or downside to your views there? Damon Audia: I don't think there's any upside or downside. Again, the first quarter was very much in line with our expectations. I think the sales for PTX as a whole were relatively flat year-over-year. So I think, Steve, when you look at the industry being down here in North America, down in the challenge in South America, the fact that PTX delivered relatively flat sales year-over-year is a testament to the retrofit market and how well that business is doing. For the full year, we still expect it to be flat to modestly up for the full year. Operator: The next question is from Joel Jackson with BMO Capital Markets. Joel Jackson: I wonder if you can provide any -- like we're talking about traversing the bottom here, things getting better as the year progresses. Do you have any updated views on what you think this cycle will look like in the next year or 2 as we get back into growth and maybe compare that to prior cycles? Eric Hansotia: Yes, it's a pretty uncertain environment we're in, but I would say we expect that -- you look at what are the drivers of cycles. And the primary one I'd look at is the age of the existing fleet in the farm. And in all of our regions, it's at peak levels. So when the farmer looks out into their machine shed, they see old equipment and they see a lot of technology coming into the market. And so there's a draw or replacement demand. that's going to happen. And there's other turbochargers that could happen and could boost that. Brazil is putting a lot more of their corn into ethanol. The U.S. ethanol blend may move from 10% to 15% may move to year around. I don't know yet, but that's under a heavy discussion. Biofuel policy and sustainable aviation fuel are getting a lot of attention right now. There's more protein demand with Li and the GLP drugs. So you combine all of those things, and those all give us -- those are the ones we've been talking about for several years. Those are natural tailwinds for this industry to recover tactically because of the fleet age and more strategically because of these macro drivers. And we see all of those as playing for the farmer. They need some more certainty. They need the straight to open up. They need their cost to settle back down and they need the trade flows to open up, which is a relatively short-term thing. Once that happens, I think the cycle will progress like it usually does. We've been 2 to 3 years now at the bottom, and then it usually works its way back up. It's depending on the situation, 7- to 10-year overall cycle. So we expect a migration back up to mid-cycle volumes and then hopefully above mid-cycle after that. Joel Jackson: Going in the background. I apologize for the noise. And just my second question, the buyback less announced, would that be very upfront like the buyback last year or more spare? Damon Audia: Yes, normally, we do the buyback in the form of an ASR. There is a portion that is directly done with TaFI, our largest shareholder. So you can assume that 85% of it directionally is done through the form of an ASR and then the balance comes from Tafi at a later date. Operator: The next question is from Kyle Menges with Citigroup. Kyle Menges: This is Randy on for Kyle. It would just be great to get some more color on some of the changing tariff dynamics as it relates to your outlook, maybe bifurcating between impacts from the IEPA overturn, the new Section 232 ruling. And then any color on how you're thinking about what potential Section 301 impacts could be would be helpful. Damon Audia: Yes, Randy. So with the IEPA ruling, we have now taken that out of our guidance and factored in the new cost calculation for 232. When we look at the net of those 2, that's around a $24 million headwind relative to our prior guidance. And so that's sort of been factored into our outlook. as I mentioned in my pre-scripted remarks, we've not assumed any refund or anything related to the IEPA in our current EPS outlook. If something was to be monetized, that would be incremental. As it relates to the pending 301 tariffs, again, we have not assumed anything beyond what's currently in place today into our outlook. I think it's important to remember, though, as if there is something that comes as a result of 301, the question of when do those take effect when do they hit our inventory and then when does that flow through cost of goods sold. So as we think about something maybe coming this summer, the reality of that hitting 2026 is quite low, just given the flow of inventory and finding its time to our cost of goods sold. So again, we're monitoring the situation. The teams are doing a great job in trying to mitigate these tariffs, looking for offsets or ways to ship directly to Canada, which historically we would have flown those European products into the U.S. and then up to Canada. So looking for ways to avoid some of these where possible to limit the impact on our dealers and our farmers. But overall, as I said, around $25 million is the net headwind this year. Operator: The next question is from Kevin from Wells Fargo. Unknown Analyst: Can you talk about what you're seeing in terms of used inventory destocking in North America during the quarter? And what do you expect in terms of the pace going forward? Damon Audia: Yes, Kevin, I think overall, we don't have as much visibility as maybe some of our competitors do on the used. But overall, generally speaking, it's not as big of an issue for our dealers versus the new. We're probably directionally about maybe a month in a better position than we are in the news in the new. So overall, not a huge issue, but something that we're watching closely. Unknown Analyst: Got it. And then maybe switching gears, how should we think about the sales of the stake in the joint ventures in terms of the impact on the equity income line on a go-forward basis? Damon Audia: Yes. I think the -- so Kevin, thanks for asking the question. I guess the way to think about this is the $190 million of cash that I mentioned is reflective of the equity value and the cash flow considerations of the existing portfolio as of April 30. So if you think about that, the transaction, it's going to accelerate the cash flows from the existing portfolio, and that's what's going to result in this Q2 earnings benefit. But on the full year basis, the contribution from the portfolio hasn't really changed. So that's the way to think about it here in 2026. As I think about '27 and beyond, what's happened that equity and earnings is now going to disappear for those 2 entities, and you're going to see that show up at a smaller percentage, but show up as a reduction in sales discount. So it will be slightly accretive to the operating margin and a little bit negative from an earnings per share perspective. Operator: The next question is from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: This is Esther on for Angel. I just had a question around North America market share. Can you unpack a bit more about what you're seeing in North America and just provide a little bit more color on the market share gains? Also curious to know if farmers are telling you anything that's driving the switch of brands and whether there are any particular regions in the U.S. where you're seeing this? Eric Hansotia: Yes, I'll take that one. So globally, we had our highest market share. We grew again market share in quarter 1. We've now got our all-time record highest market share for the company globally. And a big driver of that is North America. We're getting market share gains in both of our brands, Massey Ferguson and Fendt in terms of machinery brands. And essentially, we've gone through a few phases here. The first phase was getting our parts and service performing at a record level, and that's been done for several years now. Then getting our product portfolio to the best in the industry. We've got that in place solidly. And now we're working with our dealers to really raise their performance. That's the focus of this chapter, working with all of our dealers to implement farmer Core, which is a changing of the distribution model where they do the work on the farm. They move from reactive to proactive, monitoring the machinery on the farm and doing everything proactively instead of having the customer having to come to the brick-and-mortar store, we come to the farmer, way more convenient, way more proactive. So this establishment of the world's best products has been done. Now we're working on the world's best distribution and service support that can be delivered to the farmers. And we're seeing once farmers experience that. They love it. They love the convenience of having everything done with them and on their location. So that's the primary thing. It's more of a large ag focus. You asked kind of where is it happening? It's more large ag than small ag because it's -- that's the focus of Farmer core. But it's geographically, I wouldn't say that there's a specific area in the country. Did I capture all your points? Or was there anything... Angel Castillo Malpica: Just like a quick follow-up. Just like what you laid out, is there any concerns about any like aggressive pricing from competition just due to the market share gains that you're seeing? Eric Hansotia: Well, we always have to keep our eyes on that. But in general, I think we're all public companies, disciplined players and working on generating value as opposed to trying to take margin hits to go after price discounts. We've not seen that in the past on any kind of broad scale, not saying it can't ever happen, but we haven't seen it in the past, and we're not seeing it now. Operator: The final question today is from John Peter with Bernstein. Unknown Analyst: This is filling in for Chad. Can we double-click on your order book by region, please? Damon Audia: Yes, sure. I'll take care of that. So for North America, our order board is kind of in the range of 2 to 4 months depending on the product type. I would say for the lifestyle or the rural lifestyle, so the lower horsepower, we're about 2 months. As I mentioned in my remarks, we're into the spring selling season right now, so very customary to see the order board at the low point. For Fendt, we're probably closer to 4 months. In Europe, we're at 3 to 4 months, so relatively consistent to where we've been for the last several quarters. And in Latin America, if you remember, we only opened the order board up 1 quarter in advance. And so we're sitting at around 3 months of orders in South America. So again, fairly consistent as to where we've been in the last few months -- last few quarters, excuse me. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks. Eric Hansotia: Thank you for joining us today for our continued -- and your continued interest in AGCO. The first quarter highlights our continued progress in building a more focused and resilient AGCO, executing with discipline and staying anchored to what we control while advancing our Farmer First strategy. The performance delivered this quarter reflects the effectiveness of actions taken over several years, including portfolio sharpening, execution enhancement and improved earnings durability. We remain focused on delivering for all of our stakeholders. For our farmers, we continue to invest in practical innovation spanning precision agriculture and AI-enabled solutions, service and uptime. -- all designed to help them operate more productively and profitably. We've achieved the highest Net Promoter Score for quarter 1 in the history of our company and have a record high market share globally with big gains in North America. For shareholders, our record 2025 cash generation enables balanced capital deployment, including increased dividends and ongoing share repurchases alongside continued investment. Looking ahead, we remain focused on cost management, production alignment, technology advancement and market share growth, positioning the company to perform effectively through the current environment and capture opportunity as demand grows over time. Thank you for your continued support for AGCO. We value your partnership and look forward to building long-term value together. Operator: Thank you for joining the AGCO earnings call. The call has concluded. Have a nice day.
Operator: Good day, and welcome to the Aptiv Q1 2026 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Betsy Frank, Vice President, Investor Relations. Please go ahead. Betsy Frank: Thank you, Cynthia. Good morning, and thanks for joining Aptiv's First Quarter 2026 Earnings Conference Call. The press release, slide presentation and updated New Aptiv pro forma financials can be found on the Investor Relations portion of our website at aptiv.com. Today's review of our financials exclude amortization, restructuring and other special items, and will address the continuing operations of Aptiv as of March 31. The reconciliations between GAAP and non-GAAP measures are included at the back of the slide presentation and the earnings press release. Unless stated otherwise, all references to growth rates are on an adjusted year-over-year basis. During today's call, we will be providing certain forward-looking information that reflects Aptiv's current view of future financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings. Joining us today will be Kevin Clark, Aptiv's Chair and Chief Executive Officer; and Varun Laroyia, Executive Vice President and Chief Financial Officer. With that, I'd like to turn the call over to Kevin. Kevin P. Clark: Thank you, Betsy, and thanks, everyone, for joining us this morning. Starting on Slide 3. The first quarter concluded with the successful completion of the separation of our Electrical Distribution Systems business into a new independent public company, Versigent, which you'll hear more about following their earnings release and conference call after the market closes later today. The step in our portfolio evolution better positions Aptiv to enhance our advanced software and hardware tech stack, further diversify our end market mix and accelerate our revenue and earnings growth. I'll start by covering our first quarter total Aptiv results. We continue to flawlessly execute for our customers in an increasingly dynamic environment, further amplified by the conflict in the Middle East, enabled by our operating rigor and the resilience of our business model. We secured $7 billion of new business awards while also delivering solid financial results, including revenue of over $5 billion, an increase of 1% versus the prior year despite a deterioration in underlying vehicle production. Adjusted EBITDA of over $750 million, driven by flow-through on volume growth and strong operating performance, which helped to offset significant year-over-year headwinds from FX and commodities. When combined with lower net interest expense and a lower share count resulted in record earnings per share of $1.71. Varun will review our financial results in more detail later. Turning to Slide 4. My remaining prepared remarks will be focused exclusively on New Aptiv, a leading provider of advanced software and optimized hardware solutions across multiple end markets that are being shaped by the acceleration of automation, electrification and digitalization. Our deep domain expertise and experience providing OEMs with our technology stack to enable their vehicles to sense, think, act and continually optimize increasingly can be utilized for applications in other end markets, which I'll talk more about in a moment. Competitively, we're well positioned with content on all market-leading platforms across automotive, commercial aerospace and telecom. And roughly 1/4 of our business is in markets outside of automotive, and we have several strategic priorities underway to further increase our penetration of those markets, and we maintain a diversified regional revenue mix and have significant momentum gaining share with the leading local China OEMs on vehicle platforms sold in China, as well as exported to or manufactured in overseas markets. In addition, we've made significant progress further penetrating the leading OEMs serving the markets in Japan, Korea and India. Turning to Slide 5 to spend a moment discussing New Aptiv's investment thesis. First, we've built a comprehensive portfolio that collectively powers intelligence at the Edge by enabling devices and systems to sense, think, act and continually optimize. Second, we deliver our unique product portfolio through a robust operating model that leverages our global engineering, supply chain, manufacturing and commercial capabilities, enabling us to provide high-performance, cost-optimized solutions backed by a resilient supply chain on a global scale, ensuring flawless execution in a dynamic environment. Third, our unique product portfolio and robust operating model are leveraged to create an attractive financial profile that includes more diversified, higher-margin revenues. And lastly, generates a significant amount of free cash flow that can be allocated both organically and inorganically to enhance the earnings power of our business while also returning capital to shareholders. We made solid progress across each of these pillars in the first quarter. Continued product innovation supporting new and emerging use cases across diverse end markets, including two that were showcased at last week's Beijing Auto Show, the advancement of our next-generation end-to-end AI-powered ADAS platform designed to deliver safer and more enhanced hands-free L2++ autonomy in both highway and urban environments. And in robotics, we partnered to enhance the functionality and performance of both an AI-powered collaborative robot and an autonomous mobile robot for material handling, each of which integrates our award-winning pulse sensor and advanced compute solutions. We successfully navigated ongoing geopolitical dynamics and the evolving macro environment by leveraging our resilient operating model to manage through changing vehicle production schedules and increasing headwinds associated with rising input costs, including resins and metals, enabling us to deliver strong operating performance in the quarter, more than offsetting ongoing headwinds while continuing to invest in key strategic initiatives. Our financial results reflected continued momentum advancing our strategic priorities, including high single-digit revenue growth in nonautomotive markets and double-digit revenue growth across our software and services product portfolio as well as margin expansion of 30 basis points, excluding FX and commodities, a measure more reflective of the results of our business given we passed the majority of input cost inflation on to our customers. And lastly, we worked diligently through the Versigent separation to position both companies for success with strong operating models, resilient supply chains and solid balance sheets. However, there's still more for us to do, and I'm confident that we'll continue to make progress further strengthening our value proposition and creating shareholder value. Moving to Slide 6. Customer awards were strong in the first quarter, totaling $4.6 billion, an increase of approximately 15% from the 2025 quarterly average, and included roughly $900 million of bookings with nonautomotive customers. Both business segments posted solid results with approximately $2.4 billion in awards for Intelligent Systems, and $2.2 billion for Engineered Components. I'll talk more about some of the key customer awards across each segment in a moment, but would also note that we have a large and growing pipeline of commercial opportunities and expect 2026 bookings of more than $20 billion. Let's now review each segment in more detail, starting with Intelligent Systems on Slide 7. Our tech stack, which first enabled intelligence at the edge for automotive applications is now gaining momentum for applications in other markets such as drones within aerospace and defense, and robotics within diversified industrials. During the quarter, there were a number of new program and product launches of [indiscernible] include the launch of an intelligent interior camera that incorporates our entire software and hardware stack, enabling enhanced interior sensing functionality, including driver monitoring and driver view features for the flagship sedan vehicle platform of a luxury German OEM. And the launch of an integrated high-performance cockpit controller for the high-volume, mid-level variant of an Indian OEM's electric SUV lineup, which follows a successful launch last year of an entry-level model. We also secured several important new business bookings in the quarter, including active safety award from a large North American OEM that integrates our full tech stack from sensors to compute to software, for incremental large truck and SUV platforms, underscoring the flexibility of our solutions and deep technology partnerships with several customers. And sensors and advanced compute awards for a leading China local OEM for their next-generation EV platform, which support production for both the China [ market ] and export volumes. We also secured several notable software and service awards, including VxWorks RTOS and a Helix virtualization software award for a leading defense [ prime ], building upon an established long-term partnership with this customer. And the software tool chain award for a large North American OEM that will be used to optimize -- which will be used to build optimized deterministic software for mission-critical and safety-critical embedded systems. This award supports this OEM's software factory initiative to move towards cloud-based development and software-defined solutions. Lastly, our commercial momentum has also accelerated in the robotics and drone markets. In addition to our partnership with robust AI and [indiscernible] robotics, this quarter, we secured another partnership agreement with [ Comau ], a top 10 industrial robotics company. In addition, we've been executing sub proofs of concept and pilots in both the robotics and drone markets, that we're confident will translate to commercial agreements, and we plan to share further progress on these efforts in the near future. Moving on to Slide 8 to cover [indiscernible] components. Notable new program launches during the quarter included a broad array of high-speed interconnect launches, including [indiscernible], Ethernet in other flexible and modular assemblies across more than two dozen nameplates and OEMs, ranging from North America to Europe to China, powering next-generation software-defined vehicle architectures. High-voltage electrical centers for two major local China OEMs, which will support production for both the China market and export volumes. Continued proof points of the progress we're making growing in the China market, specifically with the top 10 local OEMs that are growing both domestically and overseas. And terminals across numerous models within the portfolio and across regions for a North American-based global EV automaker. Moving on to new business awards. We secured a high-voltage [indiscernible] award from a major Korean OEM that combines high performance at a competitive cost, supporting its next-generation multi-power train software-defined vehicle platform. High-speed interconnects and components from multiple aerospace and defense primes, including for lower orbit satellite and subsea applications, and a low-voltage connection system award for an integrated high-power energy storage solution from a North American-based global EV OEM that scales to support grid level performance and resilience. Collectively, these awards reflect the breadth of our solutions, meeting demanding performance and reliability requirements in automotive, which also translate across a range of other end markets. I'll now turn the call over to Varun to go through our financial results, and our full year and second quarter guidance in more detail. Varun Laroyia: Thanks, Kevin, and good morning, everyone. Starting with first quarter on Slide 9. Total Aptiv, including our EDS segment delivered solid financial results in the quarter, reflecting robust execution amidst a dynamic market backdrop, where we once again navigated industry-wide and OEM-specific production disruptions and macro-driven input cost inflation. Revenues of $5.1 billion grew at an adjusted rate of 1%, driven by strength at EDS, while [ new ] Aptiv absorbed certain customer mix headwinds, but importantly, progressed in diversifying revenues with 9% growth in nonautomotive, and 10% growth in software and services. Adjusted EBITDA was $752 million. EBITDA margin declined 90 basis points year-over-year, driven by FX and commodity headwinds of 180 basis points, well above the 120 basis points we had forecasted for the quarter. It should be noted that the year-over-year impact for [ new ] Aptiv was lower. Earnings per share was $1.71, an increase of $0.02 from the prior year, reflecting the benefit of lower interest expense and low share count, partially offset by a higher tax rate. Free cash flow for the quarter was negative $362 million, and this included approximately $260 million in transaction payments across [ new Aptiv ] and Versigent consistent with our guidance for the year. It should be noted that we anticipate approximately $100 million in separation costs for new Aptiv in Q2. However, we will recoup approximately $80 million of transaction payments which were tax-related later in the year. Turning to the next slide and looking at first quarter adjusted revenue growth on a regional basis for both Total Aptiv and New Aptiv. For Total Aptiv, revenue growth of 1% on an adjusted basis was driven by growth in North America and Asia Pacific, which was partially offset by a decline in Europe. New Aptiv, as I mentioned earlier, faced some customer mix headwinds in the quarter, most of which are [indiscernible], while generating strong results in strategically important areas. Looking at revenue growth by region for New Aptiv. In North America, revenue grew 7%, driven by double-digit growth in Intelligent Systems and strength in nonautomotive markets. In Europe, revenue was down 5%, largely reflecting unfavorable customer mix, specifically with one of our largest customers in Intelligent Systems due in part to a slower-than-expected ramp-up of next-gen programs. In Asia Pacific, revenue was down 5%, essentially in line with vehicle production, reflecting continued improvement in our business mix in China with local OEMs and growth with ex-China Asian OEMs. Moving on to our results on a segment level on Slide 11 and starting with Intelligent Systems. Revenue of $1.4 billion decreased 1% versus the prior year, which reflects two discrete factors. As we have discussed previously, the cancellation of certain programs from local China OEMs in 2025, which will anniversary midyear, and a greater-than-anticipated headwind from lower production at 1 of our largest North American customers owing to supply chain constraints following its supplier fire. Although this should be partially recovered in the second half of the year. Cumulatively, these two factors amounted to approximately 250 basis points of headwinds to Intelligent Systems revenue growth in the quarter. And these were largely offset by strength in other areas, including double-digit growth in software and services. Intelligent Systems adjusted EBITDA margin declined 90 basis points primarily owing to a 60 basis point headwind related to FX and commodities, as well as incremental investments across product engineering and go-to-market to continue diversifying towards nonautomotive markets. These were partially offset by performance improvements. Moving to Engineered Components. Revenue of $1.7 billion was flat on an adjusted basis. This reflects 6% growth in nonautomotive, including double-digit growth in diversified industrials markets, offset by a 2% decline in automotive, which reflects some customer mix headwinds in China attributable to broad-based production volume declines there, including with the largest local OEM. Engineered Components adjusted EBITDA margin declined 90 basis points which was entirely the function of a 140 basis point headwind related to commodities and FX. Excluding this impact, margin expansion was driven by performance initiatives. And lastly, I'll briefly comment on our EDS business, which will move to discontinued operations starting in Q2. Revenue of $2.2 billion increased 3% on an adjusted basis driven by strength in Asia Pacific, both in China via export volumes and in APAC ex China countries. And favorable customer mix in North America, which offset broader production clients globally. EDS adjusted EBITDA margin declined 70 basis points versus the prior year, and this reflects a 260 basis point headwind related to FX and commodities which was largely offset by the timing of certain recoveries and flow-through on volume growth. Moving to Slide 12 to discuss our balance sheet before I discuss guidance. We ended the quarter with $3.2 billion of cash. This was temporarily inflated as it included $2.1 billion of gross debt raised by our EDS subsidiaries, which was assumed by Versigent on April 1st. In conjunction with the spin-off, year-to-date Aptiv has paid down $2.1 billion of debt, including $300 million in the first quarter, and $1.8 billion in early April. This was funded by a [ $1.65 billion ] dividend on a net basis from Versigent upon the spin-off, and $400 million from cash on hand. Pro forma for the spin-off mechanics, New Aptiv gross leverage. For the first quarter was 2.3x, and net leverage 1.9x, both of which are consistent with our leverage levels [indiscernible] to the ASR program that was launched in Q3 of 2024. We also deployed $75 million towards share repurchases in the quarter and plan to remain [ Aptiv ] on this front through the remainder of the year. Looking forward, we remain committed to a balanced approach to capital allocation, focusing on bolt-on acquisitions and investments, as well as continued return of excess cash to shareholders. Moving on to our 2026 financial guidance on the following slide. We are maintaining our full year 2026 financial guidance which is presented on a pro forma basis to exclude our EDS segment in the first quarter. We continue to expect adjusted revenue growth of 4% at the midpoint. And this implies an acceleration through the course of the year which is driven by the following factors, first half to second half. First, approximately 100 basis points from an improvement in vehicle production. Second, approximately 150 basis points from the abatement of certain headwinds mentioned earlier, which are specific to our business, and include the production impact at one of our customers related to a supplier fire in North America, and select program cancellations in China in 2025. And third, approximately 300 basis points from the anticipated timing of program launches and ramps. We continue to expect adjusted EBITDA and EBITDA margin of $2.4 billion and 18.6% at the midpoint. I would call out that we are starting to see incremental inflationary pressures on materials as a result of the conflict in the Middle East. And relative to our prior guidance, we now anticipate higher input costs, primarily in commodities, some of which had occurred in the first quarter. However, as in the first quarter and through last year, we expect to continue offsetting these macro headwinds through performance initiatives and where appropriate, customer pass-throughs. We continue to expect adjusted earnings per share in a range of $5.70 to $6.10, which assumes an effective tax rate of 18.5%, and does not incorporate any meaningful incremental benefit from share repurchases. Free cash flow is expected to be $750 million at the midpoint which is inclusive of transaction costs associated with the EDS separation, the majority of which are being incurred in the first half, as well as continued investments in supply chain resiliency for semiconductors. For the second quarter specifically, we expect adjusted revenue growth of 2% at the midpoint. Adjusted EBITDA and EBITDA margin of $580 million and 17.6% at the midpoint. And lastly, we expect earnings per share of $1.40 at the midpoint. Just as a reminder for everyone, on day 1 of the EDS separation, New Aptiv is burdened by $70 million in annualized stranded costs, which we are working to completely eliminate from our cost structure by the end of 2027. And finally, outflows by reiterating that our robust business model and relentless focus on optimizing performance, we remain confident in our ability to drive strong execution and financial results, as well as enhanced shareholder value. With that, I will turn the call back to Kevin for his closing remarks. Kevin P. Clark: Thanks, Varun. Before I wrap up on Slide 14, let me provide some additional context on our outlook. We continue to see significant long-term opportunity for our portfolio of products and solutions, while in the shorter term, we do see challenges that our industry will have to contend with. As Varun alluded to, the macroeconomic environment remains very dynamic, at present and is reflected in our first quarter results and full year guide, we're experiencing a meaningful increase in input costs, broadly related to the ongoing conflict in the Middle East. However, as evidenced by 2025, we have a resilient business model with an ability to mitigate and offset these pressures through performance initiatives and through commercial recoveries. That being said, should the current situation persists, it could amplify these pressures from a macroeconomic perspective, which are difficult to precisely forecast at this point. And this uncertainty could present a challenge to the value chain across the markets we serve, which is a risk, but it's also an opportunity for Aptiv to demonstrate our value proposition to our customers, providing high-performance, cost-optimized market-relevant system solutions at global scale and with industry-leading service levels. Now to wrap up, after reporting our final quarter as Total Aptiv, we're positioned to benefit from the sharper focus resulting from the completion of our strategic portfolio evolution. For the New Aptiv, we're now better positioned to accelerate our product development and enhance go-to-market activities to further penetrate multiple high-growth end markets. The high-quality opportunities we're actively engaged in is growing, and our momentum is accelerating. I'm confident these opportunities will result in incremental customer awards and strong financial results, and we'll continue to remain relentlessly focused on delivering value for our shareholders. Operator, let's now open the line for questions. Operator: [Operator Instructions] We will take our first question from Colin Langan with Wells Fargo. Colin Langan: Any color -- you kind of talked about some of the puts and takes. But the sales and margin guidance are at the midpoint [indiscernible], but we know FX is different. Commodities are different. Any puts and takes in terms of FX now a little bit more of a tailwind? Is commodity now part of your -- a bigger part of your sales and is production now down? Any color on the -- sort of the -- sort of recomposition of guidance given a lot of the changes in the quarter? Kevin P. Clark: Yes. It's Kevin, Colin. So that's a great question. So thanks for asking it. I think I'll start at a high level, and then Varun will walk you through the pieces. We're in a dynamic environment. I wouldn't say -- you made a comment or ask the question, is FX -- or FX -- is FX and commodities a bigger item for Aptiv -- the New Aptiv? From a commodity standpoint, it certainly isn't. What's going on as you follow the markets is we've had tremendous spikes in commodity prices over the last few months. And we do have products like copper, like silver, even to some extent, gold that impacts -- that is included in our product, and we get impacted by those changes in commodity prices. Clearly what's going on in the Middle East from a price of oil standpoint, impacts [ resins ]. So those input costs, the spikes in those input costs have significantly impacted us in the first quarter, and we believe for the foreseeable future. Relative to our traditional business, pre spin, I would say those are actually less from an overall buy and exposure standpoint. Varun, I don't know if you want to walk through? Varun Laroyia: Yes. I'm just going to paraphrase some of the stuff that Kevin just mentioned. But Colin, first of all, from a commodities perspective, copper, gold, silver, oil-based products such as resin, as Kevin mentioned, yes, we are seeing inflationary pressures. Those are up versus our guidance from 3 months ago. So that is one aspect, which is kind of weighing on overall updated guidance. Overall, FX remained positive for us on a year-over-year basis. So I just want to share that with you. And then I think your final point was underlying vehicle production assumptions. Yes. So from our perspective, first half to second half, we see activated vehicle production down [indiscernible] in the first half and down [ 1 ] in the second half of the year. So we do expect to see an improvement in underlying vehicle production first half to second half. Colin Langan: Now [indiscernible] imply went for the year-end production. Is that in line with S&P of [ down 2 ]? Kevin P. Clark: Yes. It's roughly in line with [ S&P ]. Colin Langan: Got it. And then just secondly, on -- if we look first half to sign up, I look at the midpoint of Q2 and the midpoint of full year guidance, you did explain pretty well the expected improvement in sales growth. There's pretty high conversion as well on margins. I think it's something like a 60% conversion on higher sales half over half. What's driving that? I know there's normally -- is that just normal seasonal recoveries? Or is that kind of skewed a little bit extra because of the commodity recoveries as well? Kevin P. Clark: Yes, I'd say a couple of items. As you know, the mix of our business first half to second half. Traditionally, we experienced higher margin, or higher flow-throughs giving engineering -- timing of engineering recoveries and items like that. There may be a small amount of commercial recovery that's back half loaded, but I think that's fairly balanced, Colin, for the full calendar year. I think the margin profile of the business ex our traditional EDS business is higher, so flow through on volume growth, just given where our gross margins are now, you should expect that to be actually higher. So I don't have the numbers right in front of me, but I don't think there's anything unique relative to first half -- second half profitability versus first half other than things like engineering recoveries. Operator: We will take our next question from James Picariello with BNB Paribas. James Picariello: Can you to the Aptiv safety growth in the quarter, and what your expectations are there? And then as well as separately for user experience. And then, yes, I know Colin just hit on this, but just on margin front. What differs this year in that first half, second half split on the year's margin cadence where we saw a more balanced split last year? Kevin P. Clark: I'm sorry, Can you repeat the second half of your question? [indiscernible] understood. James Picariello: Yes. Just on the margins, as we look at New Aptiv, so last year, the first half, second half split in profitability like just the margin was pretty balanced. First half, second half, and then this year's guidance has a more significant second half step-up on the margin front? Kevin P. Clark: Okay. I'll let Varun walk through that. As it relates to ADAS [indiscernible] growth, listen, as we is reflected in our disclosures in our presentation, we're starting to see conversions between different domains [indiscernible] so when you think about things like in-cabin sensing, is that an ADAS product, or user experience product, when you see domain consolidation and some element of use of fusion chips were the ADAS controller, or the [indiscernible] controller consolidating. It's going to continue to get fuzzier and fuzzier. So that's why we're trying to give a more clear of visibility and transparency to investors as you think about sensors and compute software and services breakdown. ADAS in Q1 was basically flat, though. Having said that, that's principally driven because of that large North American OEM that had significant supply disruption given the fire at their aluminum supplier. As we look at the back half of the year, we see a significant ramp-up related to that particular customer and ADAS growth. So we'd expect ADAS to be in line with kind of the mid-single-digit, sort of, growth rate. With respect to user experience, it's consistent with what we've talked about in the past as we introduce new -- as new programs get launched principally in China today. That's an area where we'll see second half more significant growth. It was impacted to some extent in the first quarter just given small delays in [indiscernible] in China well as some soft production with a European OEM in the [indiscernible] sector. Varun, do you want to talk about... Varun Laroyia: I will. Yes, yes. James, a good question, and thanks for raising it. So the question was specifically in terms of first half versus second half profitability. Listen, the 3 items I would highlight. The first, as Kevin mentioned, is just a second half, third quarter, fourth quarter, true-up associated with engineering credits, and that's something that we've seen in the years gone by also. That's kind of point number one. No change from that perspective. The second one I'd call out is just kind of recovery on commodities, and there's something that we've always talked about, there is a timing lag. The recoveries that we have -- the higher commodity prices currently, there is a timing like 3, 4 months is what we've typically talked about. We expect those to kind of come through in the second half as the second one. And the final point I can raise is we are happy with the way our software and services business has grown double digits in Q1. And that's an industry which continues to kind of have seasonality weighted more towards the second half of the year. So the margin profile associated with that product line also, kind of, adds to the overall profitability first half relative to the second half. James Picariello: Right. No, that's very helpful. I appreciate all that color. And then I [indiscernible] will host this conference call [indiscernible] today. But just on EDS, if you're willing to discuss this business at a high level, a competitor recently announced a major [ Conquest ] wiring award. I would just be interested in, again, any color on that competitor program announcement and any perspective on the broader bookings backdrop as it pertains to [ wiring systems ]? Kevin P. Clark: Sure. Thanks for asking this question. I typically wouldn't comment on an individual OEM program award. And I certainly wouldn't speculate on the relationship between another supplier and an OEM customer. I find it inappropriate and be very transparent [indiscernible]. However, given the nature of the comments made and the inaccurate message that's in the marketplace, I think I have to comment on this particular matter, and in line with kind of standards for the -- that should be upheld by our industry up. My comments, I want to make sure everyone [indiscernible] have been approved by General Motors leadership. I think that's important for you to know. I'll confirm GM did award a very small portion of the wire harness content on the T1 program to another supplier. This portion represents a simpler portion of the harness. It's a build-to-print portion of the harness. GM actually refers to it as the simple harnesses. We remain the supplier for the most complex portion of the programs where harness content firmly aligned with where our core strengths are. This is where most of the actual water harness content is. The bulk of our EDS business is more complex full-service wire harnesses where we design, we develop, we assemble the harness to bring more value to the OEM. And this is a business we've been strategically focused on. I think, as all you know. And this is, quite frankly, the area where it's the highest margin, and it's growing the fastest. And it's least exposed to changes in vehicle architecture and the transition to things like zonal controllers. Build-to-print. It's a much smaller portion of the EDS segment. That's, I don't know, 20% of total revenues, maybe 25% of total revenues, much less complex. It's much lower margin. And for that reason, it's not as a strategic area of focus for us. Now having said that, we want all of an OEM's wire harness business. And General Motors is a very, very important customer to us, and this is an important program. Regarding comments related to our relationship with GM, which for me is the most disturbing, in fact, remains very healthy. And I -- given the comments made, I've personally reconfirmed with GM leadership and I can share with you some comments that were made by GM leadership. There have been zero service -- these are quotes. "There have been zero service level issues. That is never a problem with EDS. EDS is the gold standard for wire harnesses and EDS is our strategic wire harness supplier. And there'll be incremental full-service wear harness opportunities for the EDS business with GM in the future." So I hope these [indiscernible] put these rumors and factually incorrect comments to bed. The EDS business is the leader in the wire harness space. It's a great business. And I'm sure Joe and team will make some comments during the earnings call early evening. Operator: We will take our next question from Chris McNally with Evercore. Chris McNally: Thanks so much, team. Kevin, on the call, I thought you sounded the most positive about some of these, sort of, additional areas of growing the active TAM that you've been in a long time. And I think a lot of times, we always discuss, sort of, M&A bolt-on opportunities in industrial. But just looking at the ECG highlights on Slide 8. I mean, the awards now are in naval, space, energy storage. And so my question here is on some of the exciting opportunities that the world is all seeing in AI and data centers, and that some of your competitors have strong business opportunity in. Could you just talk about what would have to happen organically for you to start to invest? Automotive is one of the harshest environments. Could you get into those businesses over the next year or 2 from an organic greenfield, brownfield perspective because it seems like a pretty big TAM opportunity? Kevin P. Clark: No, Chris, it's a great question, and I should start with -- it's a great question. It's a great opportunity. The team is making significant progress, quite frankly, across each of our businesses. As it relates specific to the Engineered Components business, we've been very active over the last 1.5 years, 2 years leveraging what we have in our Winchester product portfolio, which is principally targeted on nonautomotive business with a very strong position in areas like A&D, like diversified industrials. Developing solutions from that product portfolio with our traditional interconnect solutions and bringing those to nonautomotive customers more as systems. So we've made a lot of progress. That's an area we have been investing in, both from a product standpoint as well as from a go-to-market standpoint. We've been leveraging our customer relationships in the U.S. as well as in China, where there are strong OEM relationships that span across industries. So leveraging our capabilities and our relationships in those automotive businesses to take solutions into things like aerospace into areas like data centers. We have a very focused initiative as it relates to building out our data center product portfolio, certainly our space product portfolio. So there's been a great deal of focus in that space, and we're gaining real traction. To meaningfully move it, as we've talked about in the past, that really requires M&A. We have a long funnel of bolt-on M&A opportunities that the team is executing on. That hopefully, during the calendar year 2026, we're looking to close on. And to wrap up, quite frankly, we're very excited and feel like we're very well positioned to pursue these opportunities. But we're very excited about our opportunities within automotive and the trends that are headed there. Near-term, we're wrestling with a few customer mix issues and industry mix use that we think as we move on through the year, you'll see improvements on. Chris McNally: That's great, Kevin. So, I mean, [indiscernible] to paraphrase some of the small bolt-on acquisitions could go a long way to some of the internal initiatives that you've been working for. But with some of these bolt-on acquisitions comes to [ sales force ] and these relationships that then you may have a lot, so 1 plus 1 equal 3. Kevin P. Clark: Exactly. It's not just the product portfolio piece. It's the industry positioning piece and building up sales organization and product organizations that have years of experience in a particular sector that we can leverage across our broader product portfolio. Absolutely. Chris McNally: And then just the last follow-on. I mean I kind of focus on AI and data centers. But like energy storage actually should be very easy given some of the customers now, obviously, with a lot of battery -- excess battery capacity in the U.S., the customer set is almost the same for a good portion of that business. Is that one that could be done a little bit more organically? Kevin P. Clark: Yes. That's one that is being done very organically now. So that's a focused effort with a focused product portfolio with a focused sales team. So there are a significant number of business awards we received. They tend to be smaller relative to large OEM program awards. But we're gaining a significant amount of traction across multiple OEMs. So that is certainly a tailwind. Listen, as it relates to -- you made a comment about AI, and this is true in the interconnect portfolio, as well as in our software and services portfolio. As AI accelerates, it provides a structural tailwind for both of our businesses, whether that be some of the products that we have in intelligence systems, or in engineered components, as more and more is driven to the edge, AI is driven to the Edge. They need high-speed interconnects, high-speed cable assemblies. We need RTOS solutions, or Linux solutions to enable performance at the Edge, and those are areas that in automotive, we've been enabling for a very long period of time. And that's an area that we're confident we'll continue to get more traction. Operator: We will take our next question from Joe Spak with UBS. Joseph Spak: First question is, Varun, you mentioned -- and I appreciate all that, some of the margin drivers half over half. I think I counted like 550 basis points. But your guidance is about 180 basis points half-over-half. So I just want to, maybe, understand if we could sort of talk through some of the offsets and, sort of, what exactly is baked in? Like, is some of that -- some of the commodities and higher input cost, is that sort of what's sort of weighting that back down? Or maybe we just sort of complete that bridge? Varun Laroyia: Yes. Joe, it's Varun. It's a great question. Yes, you're right. I think in terms of the half-over-half walk on revenue, the 100 bps, as I mentioned, is improvement in the underlying vehicle production half-versus-half. About 150 basis points specific to us with regards to the production impact at one of our customers related to supply fire in North America and then obviously select program cancellations in China in 2025, that will anniversary midyear. And the final one to mention was just the 300 basis points of anticipated timing of program launches and ramps. So that's the 550 basis points that you mentioned. With regards to the commodity side of things, yes, as I mentioned previously, we are seeing incremental inflationary pressures on input costs over the last 90 days since we initially gave guidance for pro forma New Aptiv to now, there is an uptick of about 60 basis points on the commodities and FX side of it. As I mentioned, basically, it's commodities. FX remains a net positive on a year-over-year basis. And it's -- again, it's the same things with regards to based on where copper is trading. And while overall exposure levels to copper, pre-spin to post-spin are markedly down. We still have some of those. Some of those are contractual pass-throughs. The remainder of it is commercial negotiations. But then also, we have exposure to gold and silver. And if you see as to where those have been trading, on a year-over-year basis, that's the other aspect of it. And then finally, our Connection Systems and [indiscernible] business as part of the Engineered Components portfolio, does have a significant level of resin purchases. Clearly, a key input cost into resin is oil. But that's the other aspect that we've seen through -- come through, that we expect to kind of ramp up. So yes. And again... Joseph Spak: I may have misunderstood. So that happened was the top line and then we should think about the flow-through on that top line, and then some of the commodity inputs is sort of the offset to when we think about the margins? Sorry. Varun Laroyia: Yes, yes. That's right. Joseph Spak: Okay. Okay. And then Kevin, just maybe to follow up of your last conversation with Chris. The nonauto awards in EC and space, energy storage naval $500 million. I think we're all familiar with auto lead times, but maybe you could give us a sense for these businesses, like how quick do some of these business comes on? What's the sales process like? And when you kind of convert to revenue? And maybe the same thing for IS, if you don't mind, and [indiscernible] Kevin P. Clark: Yes. It's a good question. So the sales cadence, it's in both segments, the sales organization is a separate distinct sales organization. So we have separate teams and separate product teams. So commercial teams, as well as product teams that support the go-to-market. The programs tend to, between award and actual revenue can range as short as a few months to -- as fast -- as short as a few months to -- I think at the far end, you're talking under a year. So call it, 9 months in those sort of typical areas, so much shorter from a long lead standpoint than what we have in our traditional business, automotive or in commercial vehicle. Operator: We will take our next question from Mark Delaney with Goldman Sachs. Mark Delaney: The [ company ] spoke already about the pickup in growth from the roughly flat year-over-year organic in 1Q to the 4% outlook for the full year for New Aptiv. A couple of those drivers you spoke about were timing. We [ get 2 new ] product launches and an assumption that auto production is more stable in 2H. I'm hoping you could share more on whether there's any conservatism in those assumptions relative to customer schedules given that new launches can sometimes be delayed, and the potential or macro headwinds to weigh on demand? Kevin P. Clark: Yes. There is an element of conservatism we always place in our outlook. So we will always incorporate some element of what we refer to is hedged. And we rely upon both third-party sources as well, as our customer EDIs or schedules. There are some areas like China where schedules are a bit more fluid and changes are more -- can happen more quickly. That's less the case in places like Europe in North America. I think as Varun talked about, our outlook right now based on what we're seeing from a schedule standpoint, and then triangulating with IHS with some amount of overlay is the 100 basis point improvement first half to second half from a vehicle production standpoint. There are some specific customer headwinds that we're aware of. I mentioned the North American OEM, who we were impacted more than we originally forecasted in Q1 given a further reduction in their schedules as it relates to addressing the issues with their supplier. We pick up a benefit in the back half of the year as things become -- that gets addressed and they come online. And then we talked about we've been talking about since last year, the 3 China program cancellations that impacted us in the ADAS area, in the user experience area, we can size those, those annualized at the end of the second quarter. Those two together are worth roughly 150 basis points. And then there's roughly 300 basis points of program launches first half to second half from a growth standpoint. That's the area where we tend to overlay the most conservatism because things can shift. Some of that is in China. We did see some small delays as it related to Q1, but we're starting to see those programs launch now. That's what gives us confidence in the in the back half of this year and the revenue ramp first half to second half. Mark Delaney: Very helpful details and color, Kevin. And my other question was another one around the commodity and inflationary environment. Could you be a little bit more specific around to what extent Aptiv has seen incremental headwinds tied to inflation in 2Q that you haven't been able to offset yet? And then for your full year outlook, you spoke about getting recoveries, but you also mentioned that can come through [ on a lag ]. So I was a little unclear. Do you assume that you're able to recapture all of the recent inflation in your full year outlook? Or does some spill out into next year? Kevin P. Clark: So I think -- and Varun will correct me. I think as it relates to prior guide versus this guide, there's effectively roughly 50 basis points of FX in commodities that is in our -- that's come into our system. It's principally resin and commodity prices. And commodities would be copper -- I mentioned the copper, aluminum, areas like that. We expect to fully offset that, most of that, a significant portion of which would be operational performance initiatives that we have underway that we're able to offset the overall cost of the increased cost of those commodity prices. And there will be some amount some amount that we will push through to our customers. So we're not relying on customer recoveries to achieve our full year outlook. Those are things that we have a high level of confidence that we can manage through internally and at the same time, go back to our customers in areas where it's more challenging and pursue recoveries. You look at past track record from a recovery standpoint. We've collected 95% to 100% of what we pursued with our OEM customers because we do that operationally, we've performed extremely well. And we do that while we're presenting them with additional cost reduction opportunities to help support the recovery that we're asking for [indiscernible] Operator: We will take our next question from Itay Michaeli with TD Cowen. Itay Michaeli: Just wanted to focus in on the strong -- strong new business bookings of $5 billion and the $20 billion outlook. Kind of curious happening on the auto side. Like are we finally seeing major sourcing decisions being made next-gen architectures, and perhaps also winning some market share? Just kind of curious sort of what is driving, sort of, the inflection? Kevin P. Clark: Yes, it's a great question. Yes, I would say first quarter relative to last year, we started to see programs that we've been working on for a period of time, free up in decisions made. We're starting to see OEMs look at next-generation ADAS solution, the user experience solutions, vehicle architecture solutions, including what we refer to as smart vehicle architecture. So -- so we're seeing more of those opportunities. Itay, we have a high level of confidence in the $20 billion of bookings for New Aptiv [indiscernible] 2026, just given our funnel. I think that's, to some extent, dependent upon things stabilizing a little bit as it relates to the situation in the Middle East. We're not deteriorating. Maybe that's a better way to describe it. But we're seeing a significant amount of opportunities in and around the areas that are sweet spot. Itay Michaeli: Terrific. And a quick follow-up. I think earlier you mentioned, of course, supply chain risks to do the Middle East but also potential opportunities that can come out of that. Hoping you can kind of comment a bit more on that. Like, could you actually end up seeing -- or leverage our supply chain capabilities with OEMs, maybe kind of win more business going forward? Just kind of curious a bit on that comment. Kevin P. Clark: Yes. Listen, we are today, Itay. I would say, over the last 2 years, the job the team has done from a supply chain management standpoint, both from a service level standpoint as well as from a visibility and transparency has created a lot of goodwill and there are a number of OEMs that we're partnering with now in terms of regular supply updates. I mean, we're now at a point where we're informing OEMs of where their particular pinch points are. As we look at areas like memory, and other areas where there's concern about inflation, availability or constraints, those are areas that we've been focused on for the -- been aware of. Anticipating, focused on for the last couple of years. So we've been bringing them alternatives as it relates to a park standpoint. It's also presented us with opportunities to bring to them solutions that include more [ Aptiv ] content, displacing some of their traditional suppliers. And they're all very focused on it and listening. When we're able to say we're confident in memory supply for '26 and also '27, given the relationships and agreements we have with our suppliers, and we have actually multiple alternatives that we validated, that's very differentiating with our customers. So it positions us extremely well. And when we take that supply chain capability outside of automotive, to some of the areas like robotics, like drones. That is one of the big selling points we have in terms of supply chain visibility, knowing source down to multiple levels being able to provide multiple solutions depending upon where the application takes place, or is actually used. That's been one of the big areas that's been differentiating, for example, for us in their own space. Operator: We will take our final question from Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: I was hoping to ask if you could just -- I would say this year's revenue growth in the context of the longer-term targets. And so you're expecting some level of acceleration over the next couple of years for the [indiscernible] targets. [indiscernible] this year will be around [ 4% ]. Can you just remind us holistically, what are some of the drivers of revenue acceleration as we move past this year and towards the next couple of years of the plan? Kevin P. Clark: Yes. Thanks, Emmanuel. That's a great question and I appreciate you asking it. It's a mix of two things. One, it's improved customer mix. So in our prepared comments Varun and I were talking about progress we're making with the China local OEMs focused on the top 10 OEMs for the China market. One of the fastest-growing areas for us is on export platforms, as well as with several [indiscernible] now. We're very much focused on supporting their initiatives to manufacture overseas. So we're supporting several of them in terms of evaluation and with some of them in terms of actual programs. We're working with European OEMs as well as Chinese OEMs as it relates to China [indiscernible] for European products. So we've been very engaged there. So that's an area where we expect to see a pickup. As it relates to APAC non-China, that's been a particular focus area. And as we've talked about in the past, that's one of the fastest areas of bookings growth for us, so that's Japan, Korea, and [indiscernible]. So we're seeing a benefit from that. And then lastly, when you look at the nonautomotive space, we're growing very strong nonautomotive growth, which based on bookings and potential bookings we have in front of us. We're very, very confident. And then when you look at the software space, both in automotive as well as outside of automotive, that's an area where bookings are strong, and we're seeing solid and strong revenue growth that will drive us to the midpoint or higher in that 4% to 7% growth range. Emmanuel Rosner: That's very helpful. And then I guess I was hoping to follow up on China. So in the quarter, the New Aptiv China [indiscernible] was down 14%. You've mentioned some of the factors, including still the ongoing impact from cancellation of programs. What is sort of like your estimate of when you believe China would, sort of, like become more neutral and then eventually positive to your growth? Kevin P. Clark: Yes, great growth. So actually positive growth you'll see in Q2, and that's a result of a couple of things, the launch of new programs, and we see the benefit from that. Two, in Q1, we were affected principally in our Engineered Components business by our exposure to the top the top OEM in China in their vehicle production -- reductions. So I would say disproportionately given their year-over-year comp, that normalizes in Q2, and it's not as big of a headwind. And then lastly, as you get in the back half of the year, we talked about those 3 programs that were canceled in the second quarter of last year from a comparison standpoint. We won't have to be dealing with that. So we're expecting very strong growth in China and for the calendar year 2026. Operator: That will conclude today's question-and-answer session. I will now turn the call back over to Mr. Kevin Clark for any additional or closing remarks. Kevin P. Clark: Great. Thank you, everybody, for your time. We really appreciate you participating in our earnings call. Have a great day. Operator: The call is now complete, and thank you for joining.