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Operator: Good afternoon and welcome to the Curaleaf Holdings, Inc. First Quarter 2026 Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions on your touch-tone telephones. To withdraw your questions, you may press star and 2. Please also note today's event is being recorded. At this time, I would like to turn the floor over to Camilo Russi Lyon. Sir, please go ahead. Camilo Russi Lyon: Good afternoon, everyone, and welcome to Curaleaf Holdings, Inc. first quarter 2026 conference call. Today, I am joined by Chairman and Chief Executive Officer, Boris Jordan, President, Unknown Speaker, and Chief Financial Officer, Edward Kremer. Before we begin, I would like to remind everyone that the comments on today's call will include forward-looking statements within the meaning of Canadian and United States securities laws, which by their nature involve estimates, projections, plans, goals, forecasts, and assumptions, including the successful integration of acquisitions, and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on certain material factors or assumptions that were applied in drawing the conclusion or making a forecast in such statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Additional information about the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in the company's filings and press releases on SEDAR and EDGAR. During today's conference call, in order to provide greater transparency regarding Curaleaf Holdings, Inc.'s operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results. Such non-GAAP measures and ratios do not have a standardized meaning under U.S. GAAP. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by U.S. GAAP, should not be considered measures of Curaleaf Holdings, Inc.'s liquidity, and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U.S. GAAP financial measure under the heading Reconciliation of Non-GAAP Financial Measures in our earnings press release issued today and available on our Investor Relations website at ir.curaleaf.com. I will now turn the call over to Chairman and CEO, Boris Jordan. Boris Jordan: Thank you, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our first quarter results. 2026 is off to a strong start across macro, fundamental, and regulatory landscapes, and more importantly, we are seeing a clear shift in the trajectory of our business and the industry. The macro headwinds that constrained growth over the past three years are now beginning to turn into meaningful tailwinds. In the U.S., consumer spending remained healthy in the first quarter; however, we are closely monitoring current inflationary pressures. Stronger income tax refunds versus last year have supported spending power to the benefit of robust cannabis sales, reinforcing the resilience of underlying demand even in the face of higher gas prices. At the same time, we believe the anticipated hemp ban is already benefiting the regulated market. Alcohol retailers have begun destocking hemp-derived products, and we expect that trend to accelerate as we approach the November 11 implementation deadline, driving consumers back into the regulated channel, increasing traffic, and further strengthening the position of scaled operators like Curaleaf Holdings, Inc. From a fundamental standpoint, our strategy is delivering. The investments we have made in the core pillars of our Built for Growth framework—customer centricity, brand building, and operational excellence—are translating directly into tangible P&L performance. First quarter revenue of $324 million grew 6% year-over-year, exceeding both our guidance and internal expectations. Our domestic and international segments grew 2% and 35%, respectively, underscoring the durability of our core business and the strength and scalability of our global platform. Without question, Curaleaf International is a key differentiator and an increasingly important driver of long-term value. Gross margin was 49%, and adjusted EBITDA was $63 million, or a 20% margin, including a 170 basis point drag from our international segment as we continue to invest in driving growth and market share gains abroad. We ended the quarter with $106 million in cash on the balance sheet. Net income from continuing operations was $70 million, or $0.09 per share, compared to a net loss of $50 million, or $0.09 per share last year. We also continued to strengthen our balance sheet. We reduced our acquisition-related debt by $9 million and successfully refinanced our $475 million senior secured note with an oversubscribed $500 million three-year facility backed by strong demand from both new and existing investors. This transaction is a clear signal of investor confidence in our strategy, execution, and credit profile. Additionally, we completed the buyout of the remaining 45% minority interest in our German subsidiary Four 20 Pharma, bringing our ownership of Curaleaf International to 100%. Based on a recent comparable public market transaction, the implied value of Curaleaf International is approximately $1 billion, highlighting the significant embedded value within our global platform that we believe is not yet fully reflected in our current valuation. The U.S. cannabis industry has now entered what we believe is the most important regulatory inflection point in 55 years. Two weeks ago, under the direction of President Trump, Acting Attorney General Todd Blanche rescheduled medical cannabis from Schedule I to Schedule III, while simultaneously restarting the broader rescheduling process, with an ALJ hearing set to commence on June 29 and conclude no later than July 15. This dual-track approach is deliberate, designed to move with urgency while ensuring a durable and legally sound outcome. The practical and financial implications are highly transformative to the industry. First, federal funding for medical research will be allowed. Our U.K. team has been conducting research in concert with Imperial College London on cannabis-derived solutions for neuropathic pain. We plan to share this research with the DEA and FDA while also leveraging our partnership with the University of Pennsylvania, whose cannabis research we also support under our special research license. Access to cannabis research should shed light on the medicinal properties of the plant, and further remove the stigma that cannabis carries. Second, the removal of 280E taxation on medical cannabis, expected to be retroactive to at least January 1, immediately unlocks meaningful balance sheet benefits. 60% of Curaleaf Holdings, Inc.'s business is medical and stands to get substantial 280E relief. When the adult-use process concludes, which we expect later this summer, these benefits should extend across the adult-use portion of our business as well. The remaining open question relates to the IRS look-back period for retroactive 280E relief, and we expect further clarity in due course. Equally important, the DOJ's order opens an unexpected step that reforms medical cannabis beyond Schedule III. The order provides that we can get DEA licenses for our medical cannabis businesses, which would make our business fully legal under the CSA. In fact, today, we filed applications to register with the DEA. Proceeds from CSA-compliant cannabis cannot be deemed money laundering. The practical implications of this are yet to be seen, but we and the industry are racing to explore increased access to banking, financial services, and credit card use for our medical cannabis business. Normalized banking relationships and, critically, the ability to accept major credit cards would remove friction at the point of sale, improve conversion, and lower transaction costs, continuing the normalization of the consumer experience. It would also improve cash management and expand access to credit, representing another meaningful step change in profitability and scalability for Curaleaf Holdings, Inc. Our adult-use business may also benefit from increased access to financial services when the expected adult-use rescheduling happens later this year. Furthermore, after adult-use rescheduling, the probability of uplisting to a major exchange meaningfully increases once guidance from Treasury is provided later this year. With the glass ceiling now broken, we are seeing increased momentum at the state level as non-cannabis states, including North Carolina, South Carolina, Tennessee, and Indiana, are actively exploring medical programs. Importantly, the upside here goes well beyond tax relief and banking access. The DOJ framework introduces a catalyst from which Curaleaf Holdings, Inc. is particularly well positioned to gain. The issuance of DEA licenses to state-legal cannabis operators makes them compliant providers of cannabis under the CSA and in the international treaty framework. This opens the door for us to participate in import and export transactions. The real import-export market will require permits from the DEA, and many states have already indicated that they would support both exports and interstate commerce. For Curaleaf Holdings, Inc., this represents a significant and highly strategic opportunity. We already have built one of the largest and most efficient, sophisticated cultivation and manufacturing footprints in the United States. This established network of facilities positions us to supply our international operations with domestically grown product, dramatically improving margins and strengthening control over our supply chain. Today, we produce approximately 20% of the product we sell internationally. That leaves a substantial opportunity to vertically integrate, expand margins, and unlock incremental profitability at scale, while further leveraging our existing domestic infrastructure. Interestingly, in the U.S., the mix has flipped. We produce approximately 80% of our own products, and buy 20% third-party products. Put simply, we believe we are uniquely positioned not just to benefit from the regulatory shift, but to lead the next phase of industry growth. Curaleaf International delivered a strong start to the year with revenue growing 35% year-over-year, ahead of our internal expectations. Performance was led by continued momentum in Germany and the U.K., with early signs of recovery in Poland. In Germany, after a soft January reflecting accelerated pharmacy stocking late last year, sales rebuilt through the quarter, and March was our strongest month, a positive setup heading into Q2. In the U.K., consistent growth in patients at Curaleaf Clinic more than offset competitive pricing dynamics and patient fees. Margins were pressured this quarter as we worked through transitional dynamics in our international supply chain. Prior to the recent U.S. rescheduling developments, we had been evaluating meaningful CapEx to expand our international cultivation footprint. We are now reassessing that investment in light of a more compelling alternative—leveraging our domestic cultivation assets and award-winning U.S. genetics to supply international markets. We would not only avoid significant CapEx, but also unlock meaningful gross margin expansion as we scale. Looking ahead, we remain optimistic that Spain and France will begin contributing in 2027 as those programs finalize their frameworks. And importantly, U.S. rescheduling could act as a catalyst for other countries to embrace medical cannabis. We are actively monitoring each market, and will share more as visibility increases. With that, I would like to hand the call over to our President to discuss our U.S. strategy and operations. He has been with us for nearly a year, bringing his CPG experience from Pepsi and Albertsons to Curaleaf Holdings, Inc., and has already made an impact on the business. Unknown Speaker: Thank you, Boris. Our domestic business grew 2% year-over-year, and more importantly, we are seeing clear proof points that our strategy is working. The three pillars of our Built for Growth framework—customer centricity, operational excellence, and brand building—are coming together to create a durable and scalable foundation for growth. We saw the clearest early success in Florida, where we implemented the strategy first. By improving flower quality and strain diversity, introducing new products, aligning assortment with demand, and delivering a seamless customer experience, we drove 15% transaction growth year-over-year, more than offsetting price compression. We have now taken this playbook and are deploying it across other key markets, including Utah, Ohio, and Pennsylvania, with similarly encouraging early results. Ultimately, our entire network of states will benefit from these actions. Let us discuss the pillars of our Built for Growth strategy beginning with the first, customer centricity. Our R&D efforts have always started with a deep understanding of our consumer, and that focus continues to drive meaningful insights and innovation. BRIC 2, which launched in March, is a clear example, addressing key consumer pain points like clogging, enhancing the overall experience through flavor protection technology and Meter Mode intelligence, providing a measurable draw each time. Soon, the Flavor Series and Legacy Series of BRIC 2 strains will be complemented by the Live Series consisting of live resin and rosin to round out the portfolio. Similarly, the launch of Dark Heart last month establishes a new benchmark in ultra-premium flower. With best-in-class genetics, limited drops, and disciplined distribution, the brand is driving strong full-price sell-through and reestablishing Curaleaf Holdings, Inc. as a leader in the premium segment. Second is operational excellence, which speaks to delivering consistent improvements across our business, as we have seen in our cultivation facilities and, more recently, our retail store experience. By matching retail assortments with customer demand and optimizing pricing, we are driving steady gains in key metrics such as traffic and units per transaction. These incremental improvements are compounding into meaningful financial performance. Third is brand building, which is critical to long-term staying power as the market evolves. In Select, we have simplified the product architecture to clearly communicate its value proposition, and we are seeing positive consumer reception that will add to its market-leading position. We are also investing in trade marketing and elevated visual merchandising in partner doors, with encouraging results as domestic wholesale grew 19% this quarter. At the same time, we are expanding distribution with a disciplined focus on profitable growth. For example, last month's takeover of The Travel Agency in New York showcased our brands across both physical and digital channels, delivering outstanding results by significantly increasing traffic and AOV, benefiting both Curaleaf Holdings, Inc. and The Travel Agency. As the industry scales, we believe leading brands will capture disproportionate share. Today, according to Headset and BDSA [inaudible], the Curaleaf Holdings, Inc. portfolio holds a top share position, with Select maintaining the number one position in vapes, and we see substantial opportunity to expand on that leadership. When these three strategic pillars come together, they create a powerful flywheel, driving repeatable revenue growth, margin expansion, and increasing returns over time. I will close by recognizing that these results and the opportunity ahead are a direct reflection of the execution, discipline, and commitment of our over 5 thousand-member team across the organization. As we look forward, we believe the three-year down cycle the cannabis industry has navigated is now turning upward. The combination of improving fundamentals, accelerating regulatory momentum, and our scaled global platform positions us exceptionally well for what comes next. We thank President Trump for delivering on his commitments, turning promises into tangible results. Promises made, promises kept. Alongside Acting AG Blanche, he achieved what others had started but were not able to complete. As a result, patients, consumers, Curaleaf Holdings, Inc., and the burgeoning cannabis industry are meaningfully better today. With that, I will turn the call over to our CFO, Edward Kremer. Ed? Edward Kremer: Thank you. Total revenue for the first quarter was $324 million, a 3% sequential decline compared to the fourth quarter due to normal seasonality, and increased 6% compared to the same period last year. Strength in Ohio, Curaleaf International, New York, Utah, and Massachusetts was offset by challenges in Nevada and Illinois. By geography, our domestic segment grew 2% year-over-year, with retail contracting 2%, which was more than offset by 19% year-over-year growth in domestic wholesale. International revenue grew 35% year-over-year, beating our internal plan, driven primarily by Germany and the U.K. By channel, total revenue was [inaudible] Ohio and solid growth in Curaleaf International. Our first quarter gross profit was $157 million, resulting in a 49% gross margin, a decrease of 220 basis points compared to the prior year period. The primary drivers of this contraction were price compression and discounts, partially offset by continued cultivation efficiency gains and disciplined labor expense controls. Our domestic gross margin was 50%, flat with the fourth quarter, underscoring the stabilization we are seeing in our U.S. business. While price compression remained present in most of our markets, we continue to find ways to offset that impact through cultivation efficiencies, product innovation, and selective price increases in states where demand is outstripping supply. Notably, we have recently begun to see the rate of price compression decelerate. International gross margin was 42%, a decrease of 190 basis points sequentially, driven by pricing pressure in our U.K. business and in German flower, and lower service volume sales, which carry a higher margin. SG&A expenses were $113 million in the first quarter, an increase of $7 million from the year-ago period. Core SG&A was $108 million, an increase of $5 million from the prior year. The year-over-year increase in our core SG&A primarily reflects international expansion, additional headcount, and new store openings in Florida and Ohio. Core SG&A was 33% of revenue in the first quarter, a 35 basis point decrease compared to the prior year due to leverage and stronger sales. First quarter adjusted EBITDA was $63 million, a decrease of 4% compared to last year, while adjusted EBITDA margin was 20%, inclusive of a 170 basis point drag from international, a decrease of 200 basis points versus last year. First quarter net income from continuing operations was $70 million, or $0.09 per share, compared to a net loss of $50 million, or negative $0.09 per share in the year-ago period. During the quarter, prior to the rescheduling news, we completed a routine tax review with external counsel. Based on new information that came to light, we determined that certain tax positions in previous years met the more-likely-than-not standard required under ASC 740. This conclusion allowed us to release a significant portion of our previously recorded tax reserves and accrued interest from our balance sheet. These positions will also reduce our uncertain tax position liabilities going forward. Separately, following Treasury and IRS guidance on medical cannabis rescheduling, we expect to recognize additional 280E tax benefit in future periods. Now turning to our balance sheet and cash flow. We ended the quarter with cash and cash equivalents of $106 million. Inventory increased $16 million, or 7%, compared to the fourth quarter due to planned inventory builds in anticipation of our BRIC 2 and Dark Heart launches, coupled with inventory stocking ahead of April. Capital expenditures for 2026 continue to be expected at roughly $80 million. We generated first quarter operating cash flow and free cash flow from continuing operations of $21 million and $4 million, respectively, largely due to the aforementioned inventory investments ahead of the two product launches. We expect operating cash to build as the year progresses consistent with the cadence of our business. Our outstanding debt was $565 million. During the quarter, we reduced our acquisition-related debt by $9 million and completed refinancing of our $475 million note with a three-year $500 million note. Before moving on to guidance, I would like to announce that we are transitioning independent audit partners to BDO. BDO is the fifth-ranked global accounting firm known for its expertise, innovation, and global reach. The move reflects our commitment to strengthening transparency, enhancing financial oversight, and aligning with best-in-class partners who can support our continued growth. Notably, we are the first in the cannabis industry to make this shift, setting a new benchmark for operational excellence and forward-thinking leadership. By partnering with a firm of BDO's caliber, we are positioning ourselves to navigate an increasingly complex business landscape with greater confidence and precision as we get closer to U.S. exchange uplisting. I want to extend my sincere thanks to our accounting team for their exceptional work in making this transition possible. This achievement is a direct result of their dedication, expertise, and tireless efforts, and I would like to thank PKF for their support and partnership over the past seven years. Now on to our outlook. While we are experiencing strong increases in traffic due to the many initiatives we have in place, we are closely watching the impact higher energy prices will have on our consumers' disposable income as inflationary pressures arise. Taking these macroeconomic factors into account, and assuming current market conditions persist, we expect total revenue for the second quarter to increase 2% to 3% sequentially from the first quarter, which at the midpoint implies approximately $333 million. With that, I would like to turn the call over to the operator to open the line for questions. Operator: We will now open the call for questions. Ladies and gentlemen, at this time, we will begin the question-and-answer session. To ask a question, you may press star and then 1 on your touch-tone phones. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To withdraw your questions, you may press star and 2. In the interest of time, we do ask that you please limit yourselves to one question. Again, that is star and then 1 to join the question queue. Our first question today comes from Aaron Thomas Grey from Alliance Global Partners. Please go ahead with your question. Aaron Thomas Grey: Hi. Good evening, and thank you for the question here. Nice to see that growth continue on international. I know it has decelerated a bit from 2025, so first off, I would love to hear your outlook for growth for international for 2026. And then second, in terms of your prepared remarks on potential exports from the U.S. to international, is there any color you could give on timing, and then as we think about whether or not the existing cultivation footprint would suffice, or potentially you would want to acquire, given the climate that your current cultivation is in, and also the potential need for or the need for EU-GMP or GACP? Thank you. Boris Jordan: Thank you for that question. Let me first start with the international supply chain. As everyone knows, the international supply chain has been very difficult for everybody in the sector. A lot of cultivators are not producing the type of flower that passes very strict regulations, and therefore we have been looking, mostly in Canada, for increasing our own production, our own growing of product to ship to the international markets. However, this recent rescheduling—the language in rescheduling—really has given us pause, because we could use our U.S. infrastructure. The timing of that, we do not know. It very explicitly says that we should be able to. Upon my return from Europe—I am in Europe now—I plan to spend some time in Washington meeting with the DEA as well as the DOJ to see what the timing could be. But because once we submit our application, we are deemed rescheduled from Schedule I to Schedule III, in theory we could start very quickly. We do need state cooperation as well. We need export permits from them. There will be some time. So I really expect not to be able to do this probably until the end of the year, and we will see at that point in time. On the outlook for international growth, I think we mentioned in the last call we are looking at around 25% to 30% growth internationally this year, reduced down from over 50% last year due to no new markets. We expect that to accelerate significantly going into 2027. Operator: Our next question comes from William Joseph Kirk from Roth. Please go ahead with your question. William Joseph Kirk: Thank you, everybody. During the prepared remarks, the President gave transaction numbers for the quarter. I think he said plus 15% year-over-year, I believe, was how he said it. What is that on a same-store sales basis, and how has that transaction growth year-over-year been trending the last couple of quarters? Boris Jordan: President? Unknown Speaker: From a same-store sales basis, we are not going to comment on that, but the trends are moving in the right direction in general, and we will be able to talk about that on next cycle. But overall, as we look at transactions, they are moving up, and they are eclipsing right now the price compression that we see in the marketplace. William Joseph Kirk: Okay. And then a separate kind of follow-up question. We have seen some comments today or some reported comments out of Senator Tim Scott about banking. My question would be, how much of what we need to see or want to see from here requires some sort of congressional action versus things that can be done by the administration and the agencies, who appear to be pretty well aligned? Boris Jordan: I will take that. I think that we knew that Senator Scott was going to say this. As a matter of fact, I think last year on several podcasts and things I did, I mentioned that Senator Scott said that once we got rescheduling, as Chairman of the Senate Banking Committee, he would move SAFE Banking. So we do expect him to do that. I think we will probably see that in the third quarter, most likely. I do not think it will fit the agenda for the second quarter, and maybe we could even get a vote before the midterm election. I do not know, but certainly I think we could get a vote before year-end. It is a very popular issue, as you know. It has passed the House many, many times. I suspect that it will pass the Senate now. It seems to be more bipartisan today than it was under the previous Senate. The main person blocking it was Senator McConnell. As we know, Senator McConnell is retiring in 2027. So I do expect that SAFE Banking should be able to make it through. However, there is a chance also that we could get guidance—like the crypto industry did—from FinCEN and from Treasury that would indicate that the banking industry could start to serve the sector. However, I believe that that will be good enough for certain institutions, but I believe other institutions will want to see some level of legislation because, as we all know, one presidential administration to another could change the view, and so ramping up banking operations to then have to shut them down if the next President, for instance, had a different view, or the next Attorney General or Treasury Secretary had a different view—I think that they will want to see legislation. So certainly money-center banks, I believe, will want to see SAFE Banking legislation go through before they get involved. But I do think a lot of other financial institutions, including credit card companies and mid-sized regional banks, as well as working capital facilities and things like that, can open up with simple guidance from FinCEN and Treasury. Operator: Thank you. Our next question comes from Kenric Tyghe from Canaccord Genuity. Please go ahead with your question. Kenric Tyghe: Thank you, and good evening. This is at least the second quarter I can recall where you have highlighted lower price compression and a fairer domestic environment in terms of that price compression actually decreasing. Could you speak to, one, how broad-based that lower promotional intensity is; and two, the extent to which you think that hemp relief you were calling out—with alcohol retailers destocking and increased traffic into the regulated channel—is a factor? Thank you. Boris Jordan: I think there are several factors that are driving our comments on price compression. The first one is Curaleaf Holdings, Inc. has substantially, over the last year and the six months that I have been CEO, increased the quality of our products. We have rationalized our product SKUs. We have increased the quality of our flower substantially. And so we have been able to start to increase prices ourselves because of that, and we are seeing better margins both in our wholesale business and our retail business based on our own product quality. The second thing I would say is there are certain markets in the U.S.—I will bring two as an example, Florida and Massachusetts—that are starting to see stabilization in pricing, and we are not seeing the type of decline, or maybe even any decline, in those markets at this time. There are other markets, however, that are still compressing, but we are starting to see stabilization in certain markets. So overall, I would say that I am getting a slightly better feeling that that is partially maybe because hemp products are starting to disappear. Even though we still have many hemp sellers that have until November, we definitely think that the supply chains are starting to break down. We think there is less product availability. We think certain retailers, as they sell the inventory, are not replenishing it. And so I think we are starting to see the early part of a recurrence. I do not believe that that will really hit until early 2027, when I do expect somewhere between 10% to 15% organic growth in the sector just based on the hemp shutdown. Operator: Our next question comes from Frederico Yokota Gomes from ATB Cormark Markets. Please go ahead with your question. Frederico Yokota Gomes: Hi. Thanks. Good evening. Congrats on the great quarter here, guys. Just a question, more big picture on rescheduling. We got the medical portion, and we are probably going to get the recreational portion in the second half. We know about the 280E impact, but could you talk about the potential impact that rescheduling could have on sales, margins, the overall competitive environment, and M&A? Could it accelerate consolidation? Would it maybe let some companies that are struggling survive for longer? What do you think are some of the puts and takes here in terms of a post-rescheduling world in the industry? Boris Jordan: I think that it is too early to tell whether it will or will not have an impact on pricing. Let us be honest: most companies were not paying but accruing UTPs in their balance sheets. So I do not know yet whether we can talk about pricing changes in the marketplace at this point in time. I do not expect it to have a significant effect there. I do, however, think that it will have a significant effect on consolidation and M&A. We are already seeing a tremendous amount of tuck-in acquisitions across the country. Many companies have not announced them yet, but I can tell you we know of literally probably 10 to 15 transactions that have been done in the last two quarters regionally. Maybe they are waiting for approvals or something. And I do also expect, as I have said earlier, to see larger consolidations between MSOs as well. This is very much a velocity business. A lot of these companies compete literally across the street from each other with stores. We are seeing more transactions and we are seeing transactions increasing. And with the price compression that happened during the hemp period, we are seeing less capacity availability and less product availability in markets and shortages of products in the regulated market. And so by combining grow facilities, you are going to have massive cost savings, and you are also going to have massive synergies to be able to provide the market with product and branding. And so I do think you are going to see it. It is a compelling story to see significant MSOs starting to merge on the back of rescheduling. I think you will see it because now you have certainty on the balance sheet. And so, certainly, after we get the IRS guidance on 280E and we get, hopefully, the rescheduling of adult use in the second quarter, at that point in time, I do think that you are going to start seeing consolidation in the second half. Operator: Our next question comes from Russell Stanley from Beacon. Please go ahead with your question. Russell Stanley: Good afternoon, and thanks for the question. Just around the scheduled hemp ban and efforts that are starting to interfere with the implementation date. I would love to hear your confidence level that it will go into effect as scheduled. Do you see any risk to the date at this point? Thanks. Boris Jordan: I think that, obviously, the hemp industry is doing everything they can. They raised quite a bit of money and they are lobbying very aggressively. And this is politics, and it is Washington—never say never. But at the moment, as we speak right now, I can tell you I believe there is very little appetite within the House and Senate to change the rules that they set last year at this early stage. I do think, however, going forward, maybe a few years from now, you might get some changes, particularly around beverages. But I do not think you are going to get any changes here between now and November. Operator: Our next question comes from Pablo Zuanic from Zuanic & Associates. Please go ahead with your question. Pablo Zuanic: Thank you. Two quick questions. One, in the past, Boris, you have talked about spinning off part of the international business. On the math you are giving—$1 billion—that is about 5x system sales. Your domestic business is trading around 2.5x. Is that still in the cards, especially with stocks—although you have moved up—stocks have not moved up as much as we would have expected given all this good news? So if you can comment on that. And then the second question, which is somewhat related: I know we are all, including myself, very excited about the news flow and about the fact that companies that register with the DEA will become federally legal, supposedly, but the product will remain federally illegal, right? And will that create a problem as we move forward trying to implement a lot of these changes? When I say federally legal—you know, Iowa, Kansas, Indiana—it is still illegal there for medical even. So I am just trying to reconcile one and the other: an illegal product and a legal company. Thank you. Boris Jordan: The medical product in those states where medical product is approved will be legal under federal law, and I believe many of the states will be passing medical cannabis legislation. We already know of at least five states that in the past have not even considered it that are already now looking at passing medical cannabis legislation in those states. Some of the states you mentioned are part of that group that is looking at doing that. And so I do think that you will have that. Under the CSA, medical cannabis is going to be legal. I want to stress that point. Under our plans on international, we always have that option if we want to do it. Right now, we would like to see what happens with the rescheduling of adult use in the second quarter. Our business—if you take a look at Curaleaf Holdings, Inc.—in fact, if you add in our European business, 80% of our business is medical. And so if you combine the U.S. and the European business, 80% of our revenue actually comes from medical. However, the impact of 280E will only impact our U.S. business, which is 60% medical. And so we have a lot of options available to us if we decide. But at the moment, I am assuming and hoping that as this legislation passes in the second quarter, I do think that at that point in time, and as we get banking legislation, you will have significant institutional interest in the sector. I have spoken to many large-scale investors—large long-only funds that manage trillions of dollars. Today, they cannot really look at this sector until they have, one, visibility into adult use; two, visibility into what effect that has on the balance sheet. And at that point in time, they need to start doing their research. They need to go to their compliance committee. So I believe that it will take six to twelve months post final rescheduling for large institutional players to start participating in the market. And if that is the case, I do not see a reason for us to have to split the business up. However, I will never say never, because the European business is growing very aggressively. I do believe our margins, as we start to vertically integrate that business, are going to improve also quite dramatically, obviously helping the overall margin of the business because Europe is starting to become a bigger part of our business. And so we will take a look at things at the time that we feel necessary. Right now, I feel pretty good about keeping the business together. Operator: And with that, we will be concluding today's question-and-answer session. I would like to turn the floor back over to Camilo Russi Lyon for closing remarks. Camilo Russi Lyon: Thank you, everyone, for joining us today. We look forward to speaking with you again in about 90 days. Have a great day. Operator: And with that, ladies and gentlemen, we will be concluding today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Operator: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to Atkore's Second Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to your host, Matt Kline, Vice President of Treasury and Investor Relations. Thank you. You may begin. Matthew Kline: Thank you, and good morning, everyone. I'm joined today by Bill Waltz, President and CEO; John Deitzer, Chief Financial Officer; and John Pregenzer, Chief Operating Officer and President of Electrical. We will take questions at the conclusion of the call. I would like to remind everyone that during this call, we may make projections or forward-looking statements regarding future events or financial performance of the company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our SEC filings and today's press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. In addition, any reference in our discussion today to EBITDA means adjusted EBITDA, and any reference to EPS or adjusted EPS means adjusted diluted earnings per share. Adjusted EBITDA and adjusted diluted earnings per share are non-GAAP measures. Reconciliations of non-GAAP measures and a presentation of the most comparable GAAP measures are available in the appendix to today's presentation. With that, I'll turn it over to Bill. William Waltz: Thanks, Matt, and good morning, everyone. Starting on Slide 3. We are pleased with our second quarter performance. We achieved net sales of $731 million and adjusted EBITDA of $81 million. Adjusted EPS came in at $1.23. All 3 metrics were sequentially better than our Q1 performance. Organic volume also increased 5% year-over-year in the second quarter with contributions from both our Electrical and S&I segments. Following strong productivity improvements in FY '25, we continue to see solid productivity gains again this quarter after a very strong Q1 as well. Our productivity savings reflect our commitment to manufacturing efficiency and cost reduction. After the quarter concluded, we completed the divestitures of our high-density polyethylene or HDPE business, and we also just announced the sale of our surface protection and powder coating business in Belgium. We will continue to operate our metal framing and cable support systems facility in Belgium, which supports the electrical infrastructure market. These divestitures are part of a broader review of strategic alternatives, which we announced last year. To date, in addition to the HDPE and Belgium divestitures, we completed the sale of our Tectron tube mechanical product line, ceased manufacturing operations at 3 U.S.-based facilities and sold our Northwest Polymers recycling business. Each action represents what we believe are initiatives that will enable long-term shareholder value creation. We will continue to provide updates on our ongoing strategic alternatives process as we move forward. In addition, we announced last week that the company entered into agreements to settle 2 of the 3 punitive classes in the PVC Pipe antitrust litigation. The combined proposed settlement for the 2 punitive classes is $136.5 million and is reflected in our second quarter results. We anticipate making payment within the third quarter. Looking ahead to the remainder of fiscal '26, we are on track to deliver our outlook for adjusted EBITDA and our adjusted EPS. At the 6-month mark of our year, we remain focused on several continuous improvement and growth initiatives that are expected to create value this year and for many years to come. I'd like to take a moment to thank all of our employees for everything they do to support our key stakeholders. With that, I'll now turn the call over to John Deitzer to walk through the results from the quarter and provide more details on our outlook. John Deitzer: Thank you, Bill, and good morning, everyone. Moving to our consolidated results on Slide 4. In the second quarter, we achieved net sales of $731 million and adjusted EBITDA of $81 million. Adjusted EPS was $1.23 per share compared to $2.04 in the prior year. We are pleased to see a year-over-year improvement in our net sales, which reflects increases in both organic volumes and average selling prices. This was the first quarterly increase in net sales since the fourth quarter of fiscal 2022. Our net loss for the quarter includes several one-time items. As Bill mentioned, we reached an agreement to settle 2 of the 3 classes within the PVC antitrust litigation matter. We recorded a pretax liability of $136.5 million, which is reflected as a nonoperating expense in our second quarter results. Additionally, we recorded certain items associated with our recently completed strategic actions, including accelerated asset depreciation at the recently exited manufacturing sites as well as asset impairments and adjustments in carrying value related to the recent divestitures. Our tax rate in the second quarter was approximately 22%, a decrease from 24.7% in the prior year. Our second quarter income tax rate and benefit realized reflect the impact from several discrete items that I just referenced. Separate from these discrete items, the growth we've achieved and expect in our solar business this year has generated additional tax benefits compared to the prior year. Turning to Slide 5 and our consolidated bridges. Organic volumes were up approximately 5% compared to the second quarter of fiscal '25. Our average selling prices increased 1.5% during the quarter, which included products from both our Electrical and S&I segments. For example, our steel conduit and cable products both increased their average selling prices, while our PVC-related products declined within our Electrical segment. Our mechanical tube products saw selling price increases within our S&I segment. Moving to Slide 6. Our year-to-date volume is up mid-single digits compared to the prior year. 4 out of our 5 product categories have grown throughout the year. Our metal framing, cable management and construction services offering continued to benefit from data center growth, both in the U.S. and internationally. It is worth noting that these products and services grew approximately 10% in the first 6 months of fiscal '25. Despite the high comparability, these products and services are growing again in fiscal '26. Our plastic pipe conduit and fittings products saw growth in both our electrical and water products during the most recent quarter. Metal electrical conduit continues to see healthy end market demand, particularly for larger sizes of steel conduit. Our specialty conduit products, which include stainless steel and fiberglass are also growing due to increased market demand. Our mechanical tube business, which includes our solar-related products is growing as we expected due to better momentum for large utility scale solar projects. As we previously communicated, we are shifting certain available capacity from our existing nonsolar mechanical products to our electrical conduit products as part of our 80/20 initiative. This will continue to occur throughout the year. Overall, we continue to expect mid-single-digit volume growth for the full year. Turning to Slide 7. Net sales increased year-over-year in our Electrical segment, driven by higher volume growth and higher selling prices. Adjusted EBITDA margins improved sequentially from the first quarter, while still lower compared to the prior year. Net sales in our S&I segment were lower compared to the previous year. The segment saw higher volume and average selling prices. However, these gains were offset by the year-over-year impact from our Tectron tube product line that we divested in the first quarter as well as incrementally higher tax credits passed to solar end customers. Adjusted EBITDA and adjusted EBITDA margins both decreased year-over-year. During the second quarter last year, the S&I segment benefited from approximately $11 million of mostly one-time project-based benefits. Turning to Slide 8. Our ending cash position for the quarter was lower than our fiscal '25 ending cash balance. However, our second quarter ended prior to receipt of approximately $46 million of anticipated customer payments that occurred at the end of the calendar month. Excluding this timing aspect, we generated approximately $19 million of operating cash flow, highlighted by better inventory efficiencies. In addition, our March net sales per day were the highest of any fiscal month over the past 3 years, reflecting a higher ending accounts receivable balance that will be collected in subsequent months. Our balance sheet remains in a strong position with no debt maturity repayments required until 2030. Moving to Slide 9. We continue to expect volume growth to be mid-single digits for the full year. This growth is expected to be driven through a combination of nonresidential construction growth as well as contributions from certain initiatives such as solar and global construction services. We are adjusting our expectation for net sales to reflect a reduction from our HDPE divestiture and the divestiture of the 2 facilities in Belgium. For the full year, we expect net sales to be in the range of $2.9 billion to $2.95 billion. We continue to expect adjusted EBITDA in the range of $340 million to $360 million and adjusted EPS in the range of $5.05 and $5.55. The tax rate for the third and fourth quarter are expected to be in the range of 22% to 24% to approximate our adjusted EPS. As we look at end market demand, we expect our third quarter to grow sequentially in net sales, adjusted EBITDA and adjusted EPS from Q2 and then slightly grow sequentially from Q3 to Q4 in all 3 metrics. With that, I'll turn it to John Pregenzer to give an update on our strategic actions and our long-term focus. John Pregenzer: Thanks, John. Turning to Slide 10. To date, we have successfully executed several strategic actions. Since Q1 of this year, we ceased manufacturing at 3 U.S. facilities on schedule. I want to recognize and thank our teams for their commitment to improving our operational footprint and cost structure while delivering a positive customer experience. In April, we successfully divested our HDPE business, which included 5 manufacturing facilities. As part of this transaction, Atkore will retain a 10% ownership interest in a combined business that includes InfraPipe's existing HDPE business. Excluding the impact of our HDPE business, the electrical adjusted EBITDA margins would have been around 150 basis points higher in fiscal Q2. Additionally, we divested our surface protection and powder coating business located in Belgium. As we reflect on actions taken to date, we remain committed to utilizing the Atkore Business System to create shareholder value by improving operational performance, delivering consistent productivity and serving our customers with a highly diverse electrical infrastructure portfolio. Long-term electrification trends remain strong, and Atkore will continue to make strategic decisions with these trends in mind. In the meantime, there is more work to be done this fiscal year. As John mentioned, we expect volume growth to be mid-single digits for the year, and we believe the second half of the year will build upon the growth we've seen in the first half of the year. The electrical industry is a great place to be, and our operational and commercial teams are well positioned to capitalize on these opportunities globally. With that, we'll turn it over to the operator to open the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Andy Kaplowitz from Citigroup. Andrew Kaplowitz: Could you give more color into what you're seeing in the overall markets in terms of volume and the drivers of that volume? Because when I look at your volume growth, as you said, you moved up nicely into the mid-single-digit range in Q2. I know you only reiterated your volume growth assumptions for the year, but I think you said data center growth up 10% in the first half. But does that start to ramp up in earnest in the second half? Any color on how big as a percentage of the business data centers is at this point? And is there something that's offsetting that growth in the second half? John Deitzer: I'll start on some of the items I referenced, Andy, and then I'll turn it to Bill and John to give a more macro perspective. The 10% was in reference to the metal framing, cable management and construction services business that grew 10% last year. So we had a tough comp in that business, but we're still up low single digits. So we're pleased to see that, and we also see that as a real opportunity for us in the back half of the year. I think John Pregenzer in his comments talked about we're well positioned commercially here to continue to capture some projects in that construction services and metal framing business really as we ramp in the back half of the year. So that will be some areas where we can outperform the market and get to that mid-single-digit outlook. So that's the clarification that was in -- the 10% was the last year growth in that sub business. But I'll turn it to Bill here to give some perspective here on the macro because there are some pockets of strength in items. William Waltz: Yes. So Andy, following up on John's comments. Overall, the markets are good across virtually everything. I would characterize -- data centers are double-digit growth. So anybody obviously happily as I'm sure you're seeing with your coverage that is focused on data centers or preponderance of their products should be growing, I think, organically double digits. For our products in that area, we're seeing high growth with those products, whether it's the metal conduit, larger diameter PVC, the metal framing and so forth that John Deitzer just mentioned. Other products are probably in the low single digit to mid-single -- other vertical markets are probably in the low to mid-single-digit growth. The things I would call out, and this correlates with like if you or anybody else to look at Dodge would see probably the same thing. The low markets are office buildings, if you strip out Dodge as a separate category and residential still seems to be slow but growing. And then obviously, on the other end, data centers are the highest growth. The one thing from our voice of customer of optimism talking to our distributors is kind of the manufacturing and industrial feels like they're optimistic for the future, which I don't know if Dodge calls out. Final statement there before I told us are too long is in talking to our customers, they're optimistic, good backlogs for the rest of this year as a holistic statement. Andrew Kaplowitz: Just one follow-up there, Bill, John. Like do you -- you've been working on initiatives like construction services for a while, and it seems like it's starting to ramp up. So does that mean data centers play a bigger role for you guys? I know it's hard to sort of break out the exact sales. But as you sort of go to the second half of this year and into '27, should we see a bigger role at Atkore from data centers given your initiatives? John Pregenzer: Andy, this is John. For sure, data centers are a big part of what we're doing global -- on the global construction services side. And as we look on the back half of the year, that's going to drive a lot of the growth that we're projecting. Also, we're seeing continued pickup in solar. So those will be 2 key areas that are going to drive what we're going to expect to see in the second half. William Waltz: Yes. And Andy, I'll just follow up. These are real rough, call it CEO math. But if you figure overall, markets are growing. And again, we're always talking, by the way, volume, as you know, other -- whether a distributor or manufacturer with positive price in their products, add the 2 plus inorganic growth and sum them together. But just organic volume, I'm going to say the market is up, let's just say, 2.5% to 3% and then our self-help, as John Pregenzer just walked through with data centers, the solar torque tubes, PVC, water, those type of things, should add another 2.5%, 3% that you get somewhere around that mid-single-digit growth. Andrew Kaplowitz: That's helpful. And then the other thing trying to figure out is the dynamics of price versus cost. I think last quarter, you said that baked into your guide was not a lot of additional spread given all the moving pieces. But obviously, as you guys have seen general upward trajectory of commodities, it looks like you've had some continued cost headwinds. So maybe give us more color on the spread you're seeing in the major commodities that you traffic in, whether it's steel or PVC. Are they getting more favorable at all in terms of the spread? And then how much of a hit are you taking with aluminum and copper, for example? John Deitzer: Andy, I'll start with some of the dynamics that we experienced here in the second quarter and then we're probably seeing in the back half, and then I'll kind of let Bill give any comments here also on the market dynamics. In the second quarter, in particular, we probably actually saw more of a steel impact in our costs because that was really the last year when we look back, it was the transition from our fiscal Q2 into fiscal Q3, go back to April of last year, Liberation Day, et cetera. That's where we saw the real spike occur. So our costs this year in the quarter were related here also with the -- primarily in the steel area. As we look forward in Q2 and looking forward into Q3, we are seeing that dynamic with copper and aluminum that impact our cable business. We are recovering a portion of that through higher selling prices, but that is definitely an area where we're seeing significant spread compression. And for us, the cable business is about 17% of company sales. And it was down in volume, but flat in revenue. So we did pick up a portion in price, but that decline in revenue also has an unfavorable impact to the cost structure and the margin. So that's an area of compression for us right now. But on steel, we have had several quarters here of sequential price increases on our steel-related products. I think I mentioned that in my comments. So we are positive here on seeing some of the trends. We were up for the first time in revenue year-over-year since the fourth quarter of 2022. Now that's on a sales basis, not on a profitability basis, I understand. But we are seeing some positive here momentum, and we'll see if that can continue. Anything... William Waltz: Yes. The only thing I would add, Andy, to that, and I did read your pre-guide this morning is most commodities, as John just mentioned, steel, but copper, as you go year-over-year is up, PVC resin is up at the moment -- I'm saying at the moment, but if we're sitting here at the beginning of May. But as we hold our guide -- and by the way, price for gas and everything else for trucking is up. But as we hold our guide, we feel comfortable with that. Obviously, one could infer that we're getting enough price to cover those costs as we go in the second half. So, so far for the year, there's always puts and takes in our product line and different things, but we're -- things are playing out as we expected. Operator: Your next question comes from the line of David Tarantino from KeyBanc. David Tarantino: Could you give us an update on both the strategic review and the ongoing cost savings program? You've announced a number of pruning deals and cost-saving initiatives. But could you give us some color on how you're thinking on the review on a go-forward basis? Are we still contemplating a broad range of outcomes here? William Waltz: Yes. So I'll do it in reverse order. I'll focus on the initiatives. I think the initiatives that we've laid out last fall, we've now hit everyone. In other words, as John Pregenzer covered in his remarks, we successfully compliment, as John did, the employees that did it really well, the 3 facilities on track for hitting, as we called out in the last quarter, $10 million to $12 million of annualized savings. there could be a slight upside to that. We divested everything that we had planned for, including the major one was HDPE, but including the small non-core operations in Belgium here just in the last day or 2, et cetera, et cetera. So those things are all -- and they all went very successfully. The facilities have been moved kind of on schedule, probably in less cost overall than even we expected. So those things are all going well. As for the overall holistic strategic review, both the Board and we have announced a strategic review committee are still considering kind of all options. They're being diligent. But beyond that, to say a time frame or whatever, the Board does not want to get locked into doing what they perceive as best for the shareholders, but whatever time schedule that takes. David Tarantino: Okay. Great. That's helpful. And maybe on the top line, nice to see pricing contribute positively. So could you give us some color on what drove the positive inflection here? It sounds like primarily in steel, but maybe some color on what you're hearing in the channel and what you're seeing from the level of imports would be helpful. William Waltz: Yes. So a couple of things. Thanks, David. Obviously, the under -- it's not a direct correlation, but the underlying commodities have a factor. We've always said in my mind, the first thing is supply and demand. From there, it's the cost of the commodities. But overall, as I referenced, I think, to Andy's question, if you look over the year, copper is up, steel cost is up, resin costs are up. So -- and as I referenced, we're passing those things along. As I look out over the next year, for -- and you guys -- you specifically, David or anybody else can reference. But hot-rolled steel, commodity futures are basically flat for the rest of the -- I'm saying for the next 12 months, but above $1,000 per ton. PVC resin, at least what we're hearing or seeing from different people is they're going to stay up through the end of the year -- our fiscal year, and they always drop some. But now I'm a little beyond my skis here. In other words, I would check with others that are experts. But in the U.S., natural gas is used to create PVC resin, not oil, but there's still a correlation that I saw a statistic like March exports were up 20% or something going overseas, i.e., the U.S. competitiveness to ship overseas is up. So I would expect them to keep their resin cost to us and others up. So I think the underlying commodities are up. And I think supply and demand, as I referenced in the earlier question where the markets are healthy. You could see -- and the last point, you could see if you check the public corporation for distributors, I think they're having -- they're being able to pass along the cost to contractors and so forth. So it's a good environment for us to continue to drive forward in. David Tarantino: And then just the level of imports? William Waltz: Great question. Apologize if you asked that in the first round. Imports, I would do the following thing. Steel -- and I'm looking back over the last 6 months because I'd tell you, it's really spiky by month and even quarter. So I don't want to give false precision for any time frame. But steel conduit imports for the last 6 months are down as we've already alluded, the markets themselves are up. So that's helping us. Continuing supply-demand, domestic, international, so forth with good markets to drive pricing that John Deitzer spoke of. PVC products are still coming in, growing, I guess, again, it depends on the quarter, but I would say with the markets and so forth. But again, the markets are relatively strong there. So... Operator: Your next question comes from the line of Deane Dray from RBC. Deane Dray: Bill, can we follow on that last point. Just with regard to some of the imports, can you be more specific? Because we're all watching the level of imports from Mexico on the steel conduit side. At one point, it was in the low 20% of the market. It had come down into representing high teens. Where is that today? That's -- really will help us calibrating here. William Waltz: Yes. John Pregenzer, do you want to give a... John Pregenzer: Yes, Deane, I think when you look at Mexico, there's been a continual steady decline in imports month-over-month, specifically from Mexico. So where it was in the low to mid-20s at one point, we would probably estimate it's in the high teens to mid-teens at this point. But that's one area where there has been some declines. There's been some offsets from other countries importing in, but that would be the situation for Mexico. William Waltz: Yes. And Deane, I don't have with me, and I don't know if we'd share the precise number versus John's guide. But just to follow up on David's question, and again, I don't want to get -- it does bounce. So I don't want to give too level of false precision. But as we called out on our Page 6, where metal electrical conduit and fittings are up mid-single digits for the year, I would say imports from Mexico for steel conduit is down directionally mid-single digits. So it's working in our favor here. Deane Dray: What's the impact of tariffs and 232 in particular? How has that changed the level of Mexican imports? William Waltz: I think -- well, let me do some -- try to answer that 2 ways, depending on where you're going with your question is, recently, there's been some updates, but they're not a direct -- like they go, hey, it's 100% of the content of the product, not steel. But like for us, maybe you're not even going here, but steel conduit is 100% steel conduit. So that specifically any changes of late have not made a material difference for us. And I'm talking -- I could go back and give you a precise date where the administration has come out with some updates. What I would say, but this is conjecture and correlation is the tariffs that the administration put in is probably a driving factor in the fact that the statement before, if you go back, I think, to 2024, steel conduit, as you know, is growing double-digit imports versus the statement I just made that steel conduit, metal conduit is growing mid-single digits and imports are down mid-single digits. So it feels that one could easily deduct the tariffs are a large factor in that. Deane Dray: All right. That's really helpful. And any other color you can share on the PVC dynamics? Because you're seeing you're getting steel price, but you're giving price on PVC overall. Are there -- maybe answer the question, we've got a good sense on the import or the input costs in resin. But what's going on competitively, what you're still seeing selling pressure there? William Waltz: Yes. Deane, maybe I'll give a different reflection and John and John, please either correct or add to it to go. The statements we've made so far have been more -- it should be year-over-year to go, a, what is different things. I don't want to get too far out my skis with 1 month if you have this quarter behind, but I would say that as we go forward and hold our guide is that even in things like PVC, 1 month doesn't make a quarter or a year and November, we'll talk about FY '27. But that so far, we have been able to raise our price and cover those costs for PVC. So again, there's good competition out there. But as I mentioned to David, the first thing that drives our pricing is supply and demand and the markets are overall pretty healthy. Operator: This concludes the question-and-answer session. I would now like to turn the call back over to Bill Waltz for closing remarks. William Waltz: Thank you. Let me take a moment to summarize my 3 takeaways from today's discussion. First, I'm pleased with Atkore's fiscal 2026 results so far. We grew sequentially in net sales and profit in our second quarter from the first quarter, and our results reflect a combination of healthy end markets and our own self-help improvement. Second, we are on track to deliver mid-single-digit organic volume growth for the full year. This represents how we see the broader market performing and contributions from several key initiatives. Finally, our executed strategic actions reflect our commitment to making changes that increase our focus on the electrical infrastructure market and enable long-term value creation. With that, thank you for your support and interest in our company. We look forward to speaking with you during our next quarterly call. This concludes the call for today. Operator: This concludes today's conference call. You may now disconnect.
Operator: Welcome to the Colliers International First Quarter Investors Conference Call. Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks and uncertainties. Actual results may be materially different from any future results, performance or achievements contemplated in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the company's annual information form as filed with the Canadian securities administrators and in the company's annual report on Form 40-F that was filed with the U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is Tuesday, May 5, 2026, and at this time, for opening remarks and introductions, I would like to turn the call over to the Global Chairman and Chief Executive Officer, Mr. Jay Hennick. Please go ahead, sir. Jay Hennick: Thank you for joining us. With me today is Christian Mayer, our Global Chief Financial Officer; and also Chief Executive Officer of our Commercial Real Estate division. This call, as always, is being webcast and the presentation materials are available on our website. Colliers delivered strong results for 2026 for the first quarter underscoring the durability of our company. We have made solid progress in a still uneven market, supported by continued strength in our resilient businesses and improving activity in commercial real estate. Colliers is built to compound shareholder value through 3 growth engines across the build environment. Commercial Real Estate, Engineering and Project management and Investment Management. From an earnings perspective, more than 70% of our earnings come from resilient businesses, Engineering, Project Management, Investment Management, Property Management and Mortgage Servicing. This mix gives Colliers greater stability through market cycles and more growth opportunity than others. These attributes, together with our enterprising culture and meaningful inside ownership have supported a 31-year record of delivering 17% compound annual growth in per share value. Importantly, we achieved these performance numbers at a time when our shares are trading well below their intrinsic value, creating significant upside potential for shareholders. During the quarter, we strengthened our leadership team to better capture growth opportunities in engineering, appointing Elias Mulamoottil as the CEO; and Christian as the CEO of our Commercial Real Estate business. We also increased our financial flexibility through a $400 million long-term debt financing and an extension of our revolving credit facility, supporting the acquisition of Ayesa Engineering, which we expect to close later this quarter. In Commercial Real Estate, the recovery continues to gain momentum. Transaction services, including both capital markets and leasing were up an industry-leading 25%, reflecting market share gains across the globe for Colliers and improved investor sentiment industry-wide. Engineering also delivered strong performance, providing highly technical support across attractive end markets like infrastructure, transportation, property and buildings, water and environmental. This work also has strong visibility and consistent margins while creating meaningful opportunities for growth and for collaboration across our other businesses. The acquisition of Ayesa will accelerate our momentum in engineering even further by expanding our geographic reach adding in-demand capabilities and extending our growth runway into new markets. In Investment Management, assets under management increased 9% year-over-year to almost $1.9 billion. At Harrison Street, we invest capital along institutional and high net worth individuals across high-growth infrastructure-related assets, including data centers as well as demographic driven defensive sectors such as senior housing, student housing, medical office and health care delivery. Over more than 2 decades, our differentiated investment strategies have delivered strong returns for investors and are supported by powerful secular and demographic tailwinds that continue to support our growth. We are very excited about Harrison Street's prospects as we continue to scale the business and capitalize on the many opportunities ahead. We believe we are well positioned to continue to generate attractive growth opportunities for our investors and for our shareholders. With that, I'll turn things over to Christian after which we'll open the line for questions. Christian? Christian Mayer: Good morning, everyone. Following up on Jay's overview of our strategic progress this quarter, I will now dive into the financial details that support our strong start to 2026. Please note that the non-GAAP measures discussed are defined in our press release and quarterly presentation. Unless otherwise noted, all revenue growth figures are presented in local currency. We have realigned our Engineering and Commercial Real Estate segments. This realignment resulted in a modest increase in CRE segment revenue with an offsetting decrease in the Engineering segment. Prior periods have been recast and historical comparative excel file is available on our Investor Relations site. Our first quarter consolidated revenues were up 12% and net revenues also increased 12% to $1.15 billion. Adjusted EBITDA was $125 million, up 8%. Adjusted EPS increased 5% to $0.91 and was tempered by a higher-than-expected tax rate related to certain European operations. We expect our tax rate to moderate in the coming quarters. The solid performance met our expectations and reflects effective execution across our business. First quarter Commercial Real Estate segment net revenue was up 13%. Capital markets revenues increased 43%, led by market share gains in the U.S. and in parts of Europe, both in sales and debt finance. We reported sales growth in all property types, most notably data center development land and office. The U.K., Germany and Japan also posted strong year-over-year gains in office and industrial sales. Leasing revenues were up 9% with U.S. industrial property leading the growth. Segment net margin was 6.3% and up 20 basis points over the prior year first quarter, with operating leverage from higher transactional revenues, partially offset by investment in recruiting across the segment. Third quarter Engineering segment net revenue was up 13% from a mix of recent acquisitions and solid internal growth. End market demand continues to be strong, especially in infrastructure and related areas. Net margin was 9.5%, slightly lower than last year, reflecting lower workforce utilization in residential development and telecommunications, both of which we expect will improve as we progress through the year. Our overall Engineering backlog continues to be robust. Investment Management net revenues increased 8%, driven by our recent acquisition and internal growth from new capital deployed. Net margin declined to 37.4% as expected, as a result of planned investments to integrate and streamline under the Harrison Street Asset Management brand. These costs will continue to impact margins for the next couple of quarters after which we expect to return to a low 40s net margin profile. The IM segment raised just under $1 billion in new capital commitments during the first quarter and we expect increasing momentum as the year progresses. Our fundraising target for 2026 remains unchanged at $6 billion to $9 billion. Our balance sheet is strong, with leverage at 2.3x, reflecting seasonal working capital usage and with $1.5 billion in total credit availability as of March 31. We expect to complete the acquisition of Ayesa Engineering in the coming weeks funded from available credit. We are maintaining our full year 2026 outlook for mid-teens revenue EBITDA and EPS growth. Our solid Q1 performance, which met our expectations is the foundation for this outlook. Our continued confidence stems from robust pipelines in Commercial Real Estate transactions and sustained momentum in our resilient businesses. While we acknowledge the recent increase in geopolitical risk and macroeconomic volatility, these risks are not expected to materially impact our 2026 results at this point, reflecting the inherent geographic service line and client diversification of our platform. That concludes my remarks. Operator, can you please open the line for questions? Operator: [Operator Instructions] Our first question is from Anthony Paolone from JPMorgan. Anthony Paolone: My first question relates to, I think, an engineer -- in Engineering, some of the utilization being down a little bit. And I think you mentioned it was related to residential. Can you just talk a bit more as to whether you see that as temporary and how you manage margin in instances where some of these end markets may ebb and flow? And just maybe give us a little bit more insight into how that business works in that manner? Christian Mayer: Yes, it's a great question, Tony. We have a well-diversified Engineering business that currently operates in 3 major markets: Canada, the U.S. and Australia. And in each country, we have a number of highly predictable and high demand end markets, including infrastructure, transportation, property, buildings, resi development, telcommunications, program management, institutional project management. So a wide variety of end users. And that is intentional. We try to also have a well-balanced business between public and private sector clientele so that we can manage ebbs and flows like we are seeing today in residential development and in telecom. So we manage the business for consistency and margins from time to time. A couple of these areas will be stronger or weaker and over time, we're able to generate a consistent margin, and we do expect that these 2 areas will rebound in the coming quarters. Anthony Paolone: Okay. And then my follow-up question relates to you are mentioning making some investments into the CRE segment. Can you talk more specifically about what types of investments those maybe whether it's people or other types of items and kind of where you see the opportunity in making those investments? Christian Mayer: Yes. Tony, there's really 2 areas, and you hit the nail on the head, it's people, first and foremost. We continue to recruit at an accelerating pace and bringing people into our cap markets and leasing business in major markets around the world. And so that's the primary focus. Secondarily, we've talked with us before, we are increasing the pace of our IT spending, both OpEx and CapEx. That is to enable AI and technology and efficiencies are going to come from that as well as enhanced abilities for our producers to be of service to clients and hopefully, more productive. So those are the areas that we're investing in. Operator: And our next question is from Frederic Bastien from Raymond James. Frederic Bastien: So we had some pretty solid results from the CRE segment. However, outsourcing was -- outsourcing growth was a bit on the soft side. Was there any tough comparables that you're lapping? Or -- I just want to get a bit more color on what transpired here. Christian Mayer: Frederic, no real notable tough compares. We had slightly slower than we had hoped, growth there, still in the low single digits, but nothing really of note. And then we hope on a full year basis that our growth will accelerate in that outsourcing area. Frederic Bastien: Okay. Switching gears to Investment Management. We saw some pretty good growth, obviously, some acquired growth in there as well. But as we look at the next couple of quarters, how do we -- how can we expect the pace of revenue to ramp both on an organic basis, fundraising, acquisition and the like? Jay Hennick: So IM is very interesting because, as you know, we have spent the last couple of quarters, and it's going to continue for a while, bringing together our 4 platforms under the Harrison Street brand. Needless to say that has a lot to do with bringing people together, rebranding funds, streamlining accounting systems across the board. IT and a variety of other areas. So we're very excited about the -- that particular platform. It's got some great momentum in terms of -- first of all, it's got unique and strong differentiated strategies, as I talked about in my comments, but fundraising in particular is gaining momentum as you -- as Christian mentioned. We're holding our forecast at $6-plus billion of new capital. We've also returned a lot of capital this past quarter to our investors in terms of property sales versus new assets acquired. So there's a lot going on in that segment. We're building what we think is a very strong Harrison Street Asset Management that's a truly global business with a streamlined and one management team. These things take time and building companies like this is something that we've done many times over the years. So we feel like we're on pace or ahead. We feel like we're walking into a fundraising environment that's -- that should be more buoyant going forward. And the teams are excited, and we have several new strategies all around infrastructure and deep relationships that we've built with leading academic institutions, hospitals, all of which we have been serving for over 2 decades. But now new opportunities in 3P partnerships and a variety of other things are materializing, which are creating unique investment opportunities for our investors. So a lot there to unpack. But suffice it to say, we're very excited about but where I am -- will be in the next several quarters. Frederic Bastien: Great. Last one. Maybe a follow-up. With respect to the pace of fundraising, do you expect it to be even over the next quarters or just more -- ramp up more into the back half of the year? Jay Hennick: I'm sorry, I didn't hear that full question there, Frederic? Frederic Bastien: Yes. With respect to the pace of fundraising, do you expect that to come evenly over the next quarter or be more back-end loaded towards back... Jay Hennick: It never comes evenly as you can appreciate. It is quite unpredictable. We have bigger pipelines in terms of fundraising than we've ever had before. We've had good first closes or we're in the process of having first closes in the Basalt fund and in the Harrison Street closed-end fund, all of which there's only a limited amount of capital we can take. So it's a function of when the final decisions are made and when that comes in. So we're expecting both of those to be substantially completed before the end of the year. But when the exact commitments are made is still up in the air, but -- and will be. I can't really predict it. Operator: Our next question is from Erin Kyle from CIBC Capital Markets. Erin Kyle: Maybe just a follow-up to that last 1 on the fundraising environment. Jay, I appreciate your comments around the unpredictability of the fundraising quarter-to-quarter. But maybe on that note, what gives you confidence on the trajectory towards that $6 billion to $9 billion in 2026? Maybe you have an idea of how much advanced fundraising is already soft circled or in discussions? And how that compares right now versus to where it did, yes, last year? Jay Hennick: Well, for sure, it's way ahead of last year. And the confidence that we have is that we have new strategies in the marketplace this year, which we didn't have last year. We were completing our investment cycle in several of the funds last year. And this year, we're open with new funds and new investment opportunities. So there's a lot of investors looking at some of the unique Harrison Street products. Infrastructure is all the rage, as you know. Everybody is talking about data centers. That's a significant part of our business. I think we own 64. We've been in the data center business and Harrison Street for 6 years now. So this is a well-worn path for us. In fact, we're considering in a couple of cases, selling assets early because of the heat to buy data center assets but our infrastructure doesn't end with data center. Data centers, there's all kinds of other infrastructure-related assets, long-term investment opportunities that are a part of our open-ended funds, new opportunities in our closed-ended funds. There's some separate investments that our teams are making. And then of course, let's go back to the demographically driven assets that we have in seniors, students, health care delivery, all of which have huge tailwinds. So one of the great things about this platform is that we have designed it to focus on a specific group of assets that have these tailwinds. And that's what's giving us the confidence that -- and our results have been very good over decades. So all of that gives us confidence that this will be a strong year for us fundraising-wise. And we hope that we'll raise more money than the range that we give you that we've given you, but we are optimistic. Erin Kyle: That's a lot of helpful color there. Maybe I'll switch gears to the Commercial Real Estate business. The capital markets growth was exceptionally strong this quarter. you're lapping a weaker comparative period, but are you able to identify like how much of that growth reflects pent-up demand versus a sustained improvement in buyer confidence here? Christian Mayer: So Erin, we won't watch our capital markets business very carefully. I believe this is our seventh quarter of capital markets growth on a quarter-over-quarter basis. So the conditions for transacting continue to improve, credit availability, bid-ask spreads, the desire of our clients and market participants to transact is improving because they see more transactions happening, which gives more confidence to investors as well as to sellers. So nothing really in particular to note this quarter, but it is a continuation of this multi-quarter recovery in capital markets activity that we think we're in the early to mid-innings of a recovery. We have a couple of years at least to go to recover to prior peak transaction levels. And I'd say we also have today, a bigger, stronger, more productive producer workforce in our Capital Markets business than we ever have had in the past. So we're feeling really positive. Jay Hennick: And I would underline a comment that I made, 45% in capital markets growth was significant. But when you take it together with our transactions, we were at 25% between leasing and capital markets, we were industry-leading. And that's very telling when you consider the other players in the industry on a global basis. Operator: Our next question is from Nevan Yochim from BMO Capital Markets. Nevan Yochim: Nevan on for Steve today. You provided a little bit of color so far on the Outsourcing segment. I was hoping you could just touch on your expectations for growth in capital markets as well as leasing for 2026 and how that's expected to trend through the year? Christian Mayer: Sure, Nevan. Obviously, we talked about the strong growth in our transaction business in the first quarter. I would expect that to continue on a full year basis. Capital markets growth on a full year basis somewhere in the 25% range. Leasing in the 8% range or so on a full year basis. And then rounding out our Commercial Real Estate business, outsourcing growing in the 5% range on a full year basis. So continuing to see strong growth, not necessarily at rates that we saw in the first quarter, which is the seasonal slow quarter. So growth there can be made to higher percentage numbers, but certainly on a full year base is looking very solid right now. Nevan Yochim: Great. And we're seeing a strong recovery here in the capital markets and the CRE business. I'm wondering if you're able to quantify the remaining upside in a full recovery scenario? Christian Mayer: Well, Nevan, I talked about we're probably a couple of years away from a full recovery. And as I mentioned, we have a bigger, better stronger and more productive workforce today than we've ever had in the past. We've been investing heavily into our debt finance business, capital markets, producers and various specialty asset classes. Multifamily being a big area of focus for us, which is a huge market that we have significant opportunity in for growth of market share. So we're -- we think we're going to have a nice long runway of recovery ahead here and looking to exceed prior high water marks at some point in the next couple of years. Operator: Our next question is from Julien Blouin from Goldman Sachs. Julien Blouin: Just curious any signs of caution in EMEA or APAC, maybe that decision-making is slowing one of your peers commented that they were seeing deals being canceled or delayed in Europe due to the geopolitical instability. So just wondering if you're seeing any of that and then how is that sort of working its way into your thoughts about the back half of this year? Jay Hennick: I think it's true that Europe and APAC both are slowing. The strength of our results in the first quarter really came from North America. And the North American market continues to do well. We have some insight into the current quarter as well. But Europe is slowing, and we're watching it very carefully. And it's -- I think it's -- the geopolitical piece is part of it. There's other reasons as well. There's not as much access to financing in Europe, which is an opportunity we see long term. Asia Pac is interesting because you've got some markets that are doing very well and you've got other markets that used to do well last year, for example, and all of a sudden, they're just stalled. So the beauty of having a global business and strong positions in many markets is you're geographically diversified. Not too many people talk about geographic diversification, and that creates another sort of stable business for us because you'll have some markets that will exceed in some markets that will be soft. And it will happen within service lines as well. I mean there was an earlier question, and I'm expanding your question here a little with an earlier question about outsourcing. Well, what's happened in some markets in property management, for example, as developers are running into financial difficulty, they're deciding that they're going to take property management in-house and in our view, it's -- we've seen it so many times over the years. They do it for -- they do it for a year or two. They realize it's a very difficult business. It's a lot of employees to manage over wide geographies. And the better way is to have somebody that has a national platform like us to manage nationally and focus on the asset management side, but that doesn't stop some of those property -- some of those property owners that in-source property management. So there's those kinds of things that are happening. But if you double-click and move back a little bit, the geographic diversification is what gives us confidence and strength in this wonderful platform we have called Colliers. Julien Blouin: That's really helpful. Maybe latching on to that last point I'm seeing some in-sourcing from property owners. Do you think at all this is being impacted by AI that some of them are feeling maybe bolder or more capable with sort of advancements in AI to go ahead and in-source the property management functions? Jay Hennick: There's no question like -- we have a massive property management business on a global basis. And there's no question that AI over time, will not only provide us with unique information that will hopefully differentiate us in this business, but also helps us streamline back office functions. But property management is -- it's a fair margin business. And so yes, there'll be a pickup in margin. We'll be better at what we do but I think you need a major player like us to be able to invest in the IT platforms necessary to bring better margins. And so when a small player is in-sourcing because he thinks AI is going to enhance its margin, I think, is a bit naive. Operator: Our next question is from Himanshu Gupta from Scotiabank. Himanshu Gupta: So first on Investment Management, IM. I mean, it looks like $1 billion of fundraising in Q1. Was it in line with your expectations? And was there any funding done in Q2 so far? Christian Mayer: Yes, Himanshu, we always want to raise more capital, of course. So our progress in Q1 was good. And I guess, what gives us more confidence and as part of the second part of your question, we have had closes here through April. So off to strong start. But look, we are continuing to focus on the full year fundraise with the products that we have in the market and our visibility and confidence is high. We raised over $5 billion last year, and we're very confident we're going to raise more than that this year with the -- the work we've done in terms of our products and our strategies as well as our fundraising capabilities, quite frankly. Himanshu Gupta: Okay. And then within IM, how much private credit exposure do you have? And have you seen any impact so far in terms of redemptions or any read through for your business? Christian Mayer: Himanshu, I want to be very clear on this. We have no corporate credit exposure at all in our business. We provide certain real estate asset-backed credit strategies and products. They're tied to real estate directly. We're not -- as I mentioned, not participating in any of this corporate type credit or these other troubled areas they may read about in the news. Jay Hennick: And it's part -- it's also a small part of our business. you guys -- you can correct me if I'm wrong, but I'm thinking it's 6% of the AUM. Christian Mayer: 8% or 10% of the AUM. Jay Hennick: 8% or 10% of the AUM. Christian Mayer: Backed by multifamily real estate very primarily very strong asset classes with strong underlying cash flows. Himanshu Gupta: Got it. And no redemptions as such, I mean regarding this exposure? Christian Mayer: No, exactly. Himanshu Gupta: Moving on. Q4 margins in IM expected to be in below 40% net margin you mentioned. Is it predicated on you raising this $6 billion to $9 billion of fundraising? Or do you think if the fundraising is softer, this margin expectation will be revised down as well? Christian Mayer: Well, Himanshu, our forecast, all assembles and fits together. So -- of course, we need -- we expect to raise $6 billion to $9 billion to expect to achieve the financial results that we've talked about for Investment Management, including that margin goal. A few things have to happen. Integration is progressing and we'll continue to progress towards year-end. And then, of course, fundraising will, by year-end, lead to higher quarterly revenues, which will which will give us the visibility going forward in terms of our margin profile. Jay Hennick: Yes. And just to be clear, you raise capital and then you have to put it to work. So if we raise a range of capital during the year, and we start to put it to work, it doesn't pay dividends until the following year. There'll be some modest pickup but not material. Himanshu Gupta: Yes, that's a good point. Okay. Maybe the last question here on CRE, Commercial Real Estate. Clearly, strong capital markets revenue, strong leasing revenues, as you mentioned. Maybe we did not see much operating leverage in Q1 in terms of incremental margins or incremental revenue. Is that correct? Christian Mayer: Well, we did see some operating leverage Himanshu, in the quarter as I mentioned earlier on the call, which was partially offset by our investments in recruiting and in IT infrastructure. So I'll just mention that, again, the Q1 is our seasonal slow quarter in the business. We achieved a good flow through. And we have a couple of things I've pointed out as well as some things like seasonality in our producer mix that impact the flow-through in the quarter, but we're confident that we'll have higher flow-through later in the year as we did last year. You saw our margins pick up significantly in the third and fourth quarters, and that will happen again this year. Himanshu Gupta: Got it. Maybe my final, final question here. So the question is really on synergies. Like synergies between Engineering and CRE, Commercial Real Estate. Have you identified? Can you even quantify and how did -- will be realized over time? And that's my final question. Christian Mayer: Yes. So Himanshu, your question is about synergies between Commercial Real Estate and our Engineering business, and I think we've talked about a couple of times over the last few quarters about how our engineers are working with our capital markets professionals to help identify opportunities to qualify land acquisition to help with design activities, environmental assessments, property condition assessments. So that work continues in our Engineering business in consultation with our capital markets professionals, and it's something that is bearing fruit. I don't have any exact numbers for you at the moment in front of me, but it's an exciting additional avenue to differentiate ourselves and provide additional value to our clients, including some of our largest clients. Jay Hennick: I mean let me just add some obvious ones we've talked about it on previous calls. If a client wants to assemble land, whether they want to build multifamily development, a data center, et cetera, et cetera, our CRE professionals know the land business, know where the opportunities are. They bring it forward. We are co selling to our clients, not only will we find the land, but we'll also entitle it. And that's where the engineers start getting involved, roads, power sources, water, a variety of other things. The client makes a decision, do you want to buy the land based on the engineering information. If they do buy the land, we then go into what can be built, we can project manage the construction of the project and deliver it at the end of the day. And frankly, our Investment Management team is also looking at opportunities to invest in some of those applications. So more and more, our complementary services are working more closely together to either find, finance, entitle, build, own, all of these types of assets. And that's one of the unique features of what Colliers is trying to build as a provider of multiple services across the build environment. We believe all of these things are complementary. It's the same client base or similar client base. It's high-value often very complicated services that need to be performed and having deep client relationships and knowledge of the market, both locally and internationally when it comes to financing these transactions gives our professionals huge advantage. So there's many examples, but I hope that 1 gives you sort of a deep understanding of what we're seeing out in the marketplace. This merger of these various professional services. Operator: Our next question is from Jimmy Shan from RBC Capital Markets. Khing Shan: Most of my questions have been answered. Just 2 quick ones for me. So first, just following up on capital markets. Are you seeing any impact from the recent rate volatility in decision-making even within North America, which has been strong? And then second, in terms of leverage. So on a pro forma basis, I think you'll be about 2.7x. And how should we think about the pace of M&A for the balance of the year? Christian Mayer: So Jimmy, rate volatility that we've seen in North America has been a little bit higher. But at this point, not a major concern. Obviously, we'd like to see rates lower and more stable. But with these rate conditions still seeing significant interest in capital markets activity. In terms of our leverage profile, you will see with the Ayesa acquisition closing in the next few weeks, you'll see our Q2 leverage at the 2.9 to 3x level based on the seasonality of the business that in Q1 as our starting point, and we will see that leverage come down meaningfully in Q3 and Q4. In the meantime, we're going to continue to be active looking at acquisitions of all kinds, but we're going to focus our efforts in the near term on tuck-in acquisitions that we can do at -- that are smaller, that we can do at reasonable prices and then make great strategic sense for us as we build out our platforms. Jay Hennick: Christian makes a very good point. Acquisition pipelines are very interesting right now. And yes, on smaller transactions that expand capabilities, fill white space, et cetera. And let's not forget the Ayesa acquisition. One of the key strengths of that is it opens up 4 or 5 major markets for our Engineering business. And since the transaction was announced and consistently since then, we've been approached both at Colliers head office, but also the Ayesa management team about potential additions those that want to join as partners in the Ayesa business. So we're quite excited about what the future holds there. And it was one of the great strengths of that potential acquisition for us because it gave us a significant foothold in so many different markets, mostly infrastructure related, highly complex. Ayesa's backlogs are stronger than ever. and the excitement level to enter the next phase of their growth is palpable. So all of these -- all -- the reason I raise all of this is we've got a buoyant pipeline of acquisitions. And -- but we are cognizant of our leverage ratio -- and that is -- that's something that we'll manage as we always have historically, but lots of stuff on the horizon. Operator: Your next question is from Daryl Young from Stifel. Daryl Young: Just one quick one for me on the Canadian Engineering and Project Management platform. Have you started to see any early signs of infrastructure spend or the defense industrial strategy working through into your pipelines? And do you anticipate that being an opportunity in the next few years? Christian Mayer: Daryl, it's a definite opportunity for us. I know we're working on the port expansion in Quebec as an example. Also defense construction, there's a number of things going on there that are active on, on both project management and engineering. So that is work in the -- on the East Coast, work in the Arctic. The opportunities there are going to be manifold over the next few years. Operator: Your next question is from Stephen Sheldon from William Blair. Matthew Filek: Jay, Christian, you have Matt Filek on for Stephen Sheldon. On leasing, are you seeing any change in average lease duration on new lease signings? Just curious if the current macro environment has tenants maybe taking a more cautious approach when it comes to making longer-term lease commitments? Jay Hennick: It's an interesting question because I think it's a bit of a bifurcated market. When you're -- when the leases are in AAA type properties, the duration seems to be longer. In suburban properties, it's about the same as it's always been. And that's primarily because people are returning to the office and -- number one. And number two, the lease rates in suburban office have fallen so much. It's very attractive for many to take on more space. Everybody is talking about increased spend around technology and that's helping office occupancy as well. So yes, those are the kinds of things that we're seeing out there. Matthew Filek: Okay. I appreciate that. And then I just had a quick one on data centers. I think you've previously mentioned that roughly 10% of AUM in Investment Management isn't tied to data centers. I'm just curious how you see that mix evolving over time given the obvious tailwinds supporting that asset class? And related to that, if you could provide any additional color on how other parts of the business are benefiting from the data center theme, that would be great. Jay Hennick: Well, I don't have the exact number, the exact numbers, but I do know that we've been in the business for 6 years. This isn't a Johnny come late lease situation. And we're looking at a lot of opportunity right now, but we're also looking at the opportunity of selling some strategic assets that we've owned for a while because the prices are significant. And so all of those types of things are being factored in. I know everybody's raving about data centers and is there enough computing power and all of those kinds of things. But our teams at Harrison Street have been deep in this area for a long time, and they're looking at it as they would any other real estate investment. And they believe that if they can deliver some significant returns to their investors because of the market timing right now, it will just help them raise capital for the next fund. So that's some additional color for you. Operator: Your next question is from Maxim Sytchev from National Bank Capital Markets. Maxim Sytchev: First, I was wondering if you don't mind mentioning the organic growth in the Engineering space because I guess we're lapping on Global suburb, but I'm not sure if you have the number for it somewhere? Christian Mayer: Yes. Max, the growth was in the mid-single digits, but we don't talk about quarterly growth on a segment basis, as you're probably aware. So not nice growth, though, as I mentioned, a mix of organic growth and acquisitions in the Engineering space. Maxim Sytchev: Okay. And then do you mind maybe talking about potentially digital investments in the Engineering business as obviously, some of the peers are sort of looking to ramp up the capability there? I was wondering what you guys are doing internally? Christian Mayer: Yes. Max, I didn't catch the first part of that question, if you could repeat it. Maxim Sytchev: Sorry, yes, just your strategy around digital investments and sort of augmented AI capability when it comes to the design side of the business as generally speaking, the bigger players seem to be moving in that direction. I'm just wondering what is sort of your color, your strategy from that perspective? Jay Hennick: Well, as I mentioned in my comments, we've increased significantly our spend around IT. A significant portion of that is around AI. We think, as we move down as we move down the decision -- and the other thing I should say is it is not only have we increased our expenditures, but we partnered with Google, and it's a very deep partnership. And Google brings with it leading cloud capabilities, world-class engineering talent and also additional databases, property databases that will help us differentiate ourselves in the marketplace, will help us streamline some of our back office functions, many of which we've been working on for the past couple of years. But the increased expenditure is in part because we believe that we have to take control of some of the delivery of technology for the first time perhaps in our history. And that's bearing some interesting fruit as we move through this. So that hopefully gives you a little bit of an overview. Operator: There are no further questions at this time. I will now hand the call back to Jay Hennick for the closing remarks. Jay Hennick: Thank you, everyone, for joining us on the first quarter conference call. We look forward to speaking to you again at the end of the second. Christian Mayer: Thank you. Operator: Thank you, ladies and gentlemen. This concludes the conference call. Thank you for your participation, and have a nice day.
Operator: Good afternoon, and welcome to Huron Consulting Group Inc.'s webcast to discuss financial results for 2026. At this time, conference call lines are in a listen-only mode. Later, we will conduct a question-and-answer session for the conference call and instructions will follow at that time. As a reminder, this conference call is being recorded. Before we begin, I would like to point all of you to the disclosure at the end of the company's news release for information about any forward-looking statements that may be made or discussed on this call. The news release is posted on Huron Consulting Group Inc.'s website. Please review that information along with the filings with the SEC for disclosure of factors that may impact subjects discussed in this afternoon's webcast. The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Huron Consulting Group Inc.'s website for all of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers. And now I would like to turn the call over to C. Mark Hussey, Chief Executive and President of Huron Consulting Group Inc. Mr. Hussey, please go ahead. C. Mark Hussey: Good afternoon, and welcome to Huron Consulting Group Inc.'s first quarter 2026 earnings call. With me today are John D. Kelly, our Chief Financial Officer, and Ronnie Dale, our Chief Operating Officer. I will begin by noting that the execution of our growth strategy continues to deliver performance consistent with the financial goals outlined for 2025 investor day. Revenues before reimbursable expenses, or RBR, increased 12% in 2026 compared to 2025, driven by growth across health care, education, and commercial segments including record RBR performance in health care. During the quarter, we also continued our trajectory of margin expansion reflecting disciplined execution by our highly talented team. Encouraged by the strong start to the year, and the strength of our pipeline and backlog, we are affirming our annual RBR and margin guidance. We continue to believe we are well positioned to serve as our clients’ trusted adviser as they evolve their business models and organizations to succeed in challenging markets, in an increasingly complex AI-enabled world. We remain focused on executing against the market tailwinds driving demand for our business, and further strengthening our competitive position to enhance our ability to best serve our clients and achieve our financial goals. I will now share some additional insight into our first quarter performance. In the health care segment, first quarter RBR grew 14% over the prior-year quarter, reflecting strong demand for our performance improvement, revenue cycle managed services, financial advisory, and strategy offerings as well as incremental RBR growth from the integration of our acquisitions. Excluding the impact of the acquisitions, organic growth for the health care segment was 10% in Q1 2026, as compared to Q1 2025. As we have discussed in prior earnings calls, health care providers are operating amidst the convergence of competitive and regulatory pressures that continue to impact financial performance and drive the need to redesign care delivery models. Constrained reimbursements, rising operational costs, and labor shortages are intensifying the need for stronger cash flow, cost optimization, and greater operational flexibility. Health systems are facing a period of rapid transformation driven by advancements in technologies. Developing and executing an AI strategy amidst the rapid pace of change has become an increasingly important issue for a growing number of our clients. Providers are increasingly seeking trusted partners with the industry expertise that can help them integrate technology, workforce, and operating model changes into cohesive, executable strategies that deliver near-term financial benefit while positioning their organizations for sustainable growth, improved margins, and long-term competitive advantage. We see significant opportunities for evaluating and integrating a broad and growing number of applications and use cases for AI and digital tools across clinical, administrative, and financial workflows in our clients’ complex operating environments. Our ability to help clients address enduring and new challenges and opportunities is at the heart of the growth strategy for our health care business. As we rapidly expand and integrate our AI capabilities across our health care offerings, we believe our distinctive operational and technology expertise along with innovative new solutions and partnerships position us well to continue our growth trajectory. Turning next to the education segment, in 2026, education segment RBR grew 4% compared to 2025, driven by strong demand for our digital offerings. Higher education institutions are experiencing uneven demand among domestic students and a significant decline in international students. Amidst that backdrop, institutions are contending with rising operating costs, funding declines, heightened regulatory scrutiny, and further erosion of public confidence in the value of a traditional four-year degree. These dynamics are forcing higher education leaders to confront fundamental questions about scale, academic portfolio mix, cost structure, and long-term financial sustainability. We believe our strong market position in higher education provides the opportunity to serve as an experienced partner that can help our clients move beyond incremental actions toward more integrated strategic transformation. Universities are prioritizing solutions that deliver near-term financial improvement while modernizing operating models, administrative workflows, and academic offerings, while increasingly leveraging AI. We believe our strong client relationships, deep industry expertise, AI capabilities, and comprehensive portfolio of offerings position us to continue to serve as a partner of choice for our clients as they address these ongoing challenges. In the commercial segment, first quarter RBR grew 22% over the prior-year quarter reflecting strong demand for our financial advisory and strategy offerings. The increase also included incremental RBR from our acquisitions of Reliant and Wilson Parable. Excluding the impact of acquisitions, RBR in Q1 2026 grew 8% organically over 2025. Commercial industries are navigating heightened complexity driven by persistent cost inflation, global supply chain realignment, geopolitical and regulatory uncertainty, and continuously evolving customer and employee expectations. At the same time, companies are accelerating the adoption of AI-enabled, data-driven operating models to improve agility, productivity, and decision making. These forces are driving demand for comprehensive solutions that integrate strategy and operations, financial advisory, and digital and AI transformation. We continue to invest in expanding our offerings to address the rapidly changing needs of our global client base, and those investments are delivering more durable growth in our commercial business in recent quarters. We will continue to deepen our industry expertise and expand our ability to deliver differentiated end-to-end solutions to enhance our competitive advantage and best address the growing needs of our clients. Through the first quarter, our views on AI and its potential impact on Huron Consulting Group Inc. remain bullish, as we believe it will be a significant contributor to future growth, margin expansion, and shareholder value. Multiple third-party research providers forecast that the AI services market will grow in the double digits over the next several years, and we believe we are well positioned to help our clients plan and execute their AI strategies and take advantage of this rapidly growing market opportunity. We have substantially increased our investment in AI capabilities and will continue to deploy them throughout our offerings and operations, building upon our industry and functional knowledge. Beyond AI, the fundamental market tailwinds for continuing growth in our business remain, creating opportunities across all three operating segments. We believe our ability to bring together our strategy, operations, technology, and people-related offerings to redesign core business functions and processes, while integrating advanced technologies, will continue to position us for long-term growth. Now let me turn to our outlook for the year. Today, we are affirming our 2026 guidance for RBR, adjusted EBITDA margin, and adjusted diluted earnings per share. Given our strong first quarter results, I am increasingly encouraged about our prospects for the year. We remain committed to driving long-term shareholder value through continued execution of our growth strategy, which has delivered consistent RBR growth and margin expansion since 2022. Our disciplined capital allocation strategy has funded both programmatic M&A and, since 12/31/2022, the repurchase of 5 million shares, or 25% of our common stock outstanding. We believe there is significantly more value to be unlocked by our strategy, particularly as we leverage our collaborative, entrepreneurial culture to compete and win in today’s rapidly evolving technological and competitive landscape. In summary, we believe our strong competitive position in health care and education enables us to leverage our expertise and powerful portfolio of consulting, managed services, and digital capabilities. We also believe our size and scale in commercial markets enables us to be nimble and aggressive with an integrated operating model that amplifies our impact across consulting, digital, and managed services capabilities. Driven by the velocity of change and complexity facing our clients, our people are well positioned to continue to execute upon our growth strategy, and achieve our stated financial goals for low double-digit revenue growth, margin expansion, and disciplined deployment of our strong free cash flow. None of this would be possible without our strong collaborative culture. Our innovative and dedicated team continue to be the heart and soul of our company. With that, let me now turn it over to John for a more detailed discussion of our financial results. John? John D. Kelly: Thank you, Mark, and good afternoon, everyone. Before I begin, please note that I will be discussing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS, and free cash flow. Our press release, 10-Q, and Investor Relations page on the Huron Consulting Group Inc. website have reconciliations of these non-GAAP measures to the most comparable GAAP measures, along with a discussion of why management uses these non-GAAP measures and why management believes they provide useful information to investors regarding our financial condition and operating results. Now I will share some of the key financial results for 2026. Q1 2026 produced RBR of $443.7 million, up 12.1% from $395.7 million in the same quarter of 2025, driven by growth across all three operating segments. Net income for Q1 2026 was $23.2 million, or $1.34 per diluted share, compared to net income of $24.5 million, or $1.33 per diluted share, in Q1 2025. As a percentage of total revenues, net income declined to 5.1% in Q1 2026 compared to 6.1% in Q1 2025, reflecting a higher effective tax rate during Q1 2026. Our effective income tax rate in Q1 2026 was 14.1%, which is more favorable than the statutory rate inclusive of state income taxes, primarily due to a discrete tax benefit for share-based compensation awards that vested during the quarter, partially offset by certain nondeductible expense items. Our effective income tax rate in Q1 2025 was negative 14.4%, as we recognized an income tax benefit on our pretax income driven by the discrete tax benefit for share-based compensation awards that vested during the quarter. The increase in effective tax rate during 2026 was anticipated in the 2026 guidance that we provided in February, and our expectation for a full-year effective tax rate between 28% and 30% remains unchanged. Adjusted EBITDA was $50.6 million in Q1 2026, or 11.4% of RBR, compared to $41.5 million in Q1 2025, or 10.5% of RBR. The increase in adjusted EBITDA was primarily attributable to the increase in segment operating income for all three segments, excluding segment depreciation and amortization and segment restructuring charges, partially offset by an increase in certain unallocated corporate expenses. Adjusted net income was $30.0 million, or $1.73 per diluted share, in Q1 2026 compared to $31.1 million, or $1.68 per diluted share, in Q1 2025. Now I will discuss the performance of each of our operating segments. The health care segment generated 51% of total company RBR during Q1 2026. This segment posted a record RBR of $225.2 million, up $26.7 million, or 13.5%, from Q1 2025. The increase in RBR in the quarter was driven by strong demand for our performance improvement, revenue cycle managed services, financial advisory, and strategy offerings. RBR in Q1 2026 included $7.3 million of incremental RBR from our acquisitions of Cliffs Insights and the consulting services division of Axient Systems. Operating income margin for the health care segment was flat at 28.4% in both Q1 2026 and Q1 2025. The education segment generated 29% of total company RBR during Q1 2026. Education segment RBR in Q1 2026 was $127.5 million, up $4.7 million, or 3.8%, from Q1 2025. RBR in Q1 2026 included an inorganic RBR contribution of $0.6 million from acquisitions that closed in 2025. The operating income margin for education was 21.6% for Q1 2026 compared to 18.8% for the same quarter in 2025. The increase in operating income margin in the quarter was primarily driven by decreases in compensation costs for our revenue-generating professionals, practice administration, and meeting expenses. The commercial segment generated 20% of total company RBR during Q1 2026 and grew 22.3% over the prior-year period, posting RBR of $91.0 million for Q1 2026 compared to $74.5 million in Q1 2025. The increase in RBR in Q1 2026 was driven by increased demand for our financial advisory and strategy offerings and included $11.0 million of incremental RBR from our acquisitions of Reliant and Wells Comparable. Operating income margin for the commercial segment was 16.4% for Q1 2026 compared to 15.2% in the same quarter in 2025. The increase in operating income margin in the quarter was primarily driven by decreases in contractor expenses and salaries and related expenses for support personnel, as well as revenue growth that outpaced the increase in performance bonus expense for our revenue-generating professionals, partially offset by an increase in salaries and related expenses for our revenue-generating professionals as a percentage of RBR. Corporate expenses not allocated at the segment level and excluding restructuring charges were $60.0 million in Q1 2026, compared to $52.4 million in Q1 2025. Unallocated corporate expenses in Q1 2026 and Q1 2025 included income of $1.2 million and $0.9 million, respectively, related to changes in the liability of our deferred compensation plan, which is offset by the change in fair value of the investment assets used to fund that plan reflected in other expense. Excluding the impact of the deferred compensation plan in both periods, unallocated corporate expenses increased $7.9 million primarily due to increases in compensation costs for our support personnel and software and data hosting expenses. The increase in compensation costs for our support personnel includes approximately $2.0 million of costs that have been reclassified from our operating segments in 2026 reflective of a shift to centralized support for certain functions. Cash flow used in operations during Q1 2026 was $162.2 million, reflecting our annual incentive payments during the quarter. Cash flow used in operations during Q1 2025 was $106.8 million. In Q1 2026, we used $11.9 million to invest in capital expenditures inclusive of internally developed software costs, resulting in negative free cash flow of $174.1 million. We continue to expect full-year free cash flow to be in a range of positive $180 million to $220 million, net of cash taxes and interest, excluding noncash stock compensation. DSO came in at 82 days for Q1 2026, compared to 79 days for Q1 2025 and 73 days for Q4 2025. The increase in DSO during the first quarter when compared to both periods reflects the impact of certain larger health care projects that include performance-based fee elements that we expect to bill and collect in 2026 in accordance with the contractual payment terms. During Q1 2026, we used $155.5 million to repurchase approximately 1.1 million shares, representing 6.5% of our outstanding shares as of the beginning of the year. Total debt as of 03/31/2026 was $856.0 million, consisting entirely of our senior bank debt, and we finished the quarter with cash of $26.5 million for net debt of $829.5 million. This was a $343.0 million increase in net debt compared to Q4 2025, primarily due to our annual cash bonus payment and share repurchases during the quarter. Our leverage ratio, as defined in our senior bank agreement, was 3.1x adjusted EBITDA as of 03/31/2026 compared to 2.2x adjusted EBITDA as of 03/31/2025. As a reminder, our first quarter typically represents a seasonal high leverage ratio given the payout of our annual bonuses in March. We remain committed to achieving a leverage ratio between 2.0x and 2.5x by year-end 2026 in alignment with the capital allocation strategy outlined at our most recent Investor Day. We accelerated our share repurchases during the first quarter, reflective of the decline in our share price during the quarter. I believe the reduction in share base, combined with the earnings growth objectives discussed at our 2025 Investor Day, positions us well to achieve continued compounding adjusted diluted earnings per share growth in the future. Now let me turn to our expectations and guidance for 2026. As Mark mentioned, today we affirm our annual RBR, margin, and adjusted EPS guidance, which includes RBR in the range of $1.78 billion to $1.86 billion, adjusted EBITDA in the range of 14.5% to 15% of RBR, and adjusted non-GAAP EPS in the range of $8.35 to $9.15. Thanks, everyone. I would now like to open the call to questions. Operator? Operator: Thank you. If your question has been answered or you wish to remove yourself from the queue, you may do so by pressing star-1-1 again. One moment for our first question, please. Our first question comes from the line of Andrew Owen Nicholas of William Blair. Please go ahead, Andrew. Andrew Owen Nicholas: Hi, good afternoon. I appreciate you taking my questions. Mark, you hinted at it a few times in the prepared remarks. I was hoping you could start by just talking about pipeline development throughout the quarter, where bookings sit. I think last quarter, you gave some really helpful disclosures on bookings in particular. So any update there and maybe how you are feeling about that pipeline relative to a couple of months ago? C. Mark Hussey: Go ahead, John. John D. Kelly: Yeah. Andrew, this is John. I can jump in with that. So in the trailing six-month period, the period ending 03/31/2026, bookings were up greater than 20% across all three of the segments. Backlog, after we book the sales, now gives us coverage for the remaining revenue guide for the remainder of the year and beyond. That remains at historically high coverage ratios across all three segments. And then from a pipeline perspective, all three of the segments are up as of April versus where they were as of December 31, and they remain at near-record levels even after giving effect to the bookings and the backlog that we have been talking about. Andrew Owen Nicholas: Awesome. Thank you. And I do not think that the 10-Q is out yet, so I was hoping you could maybe provide some segment-level color on growth by capability. In particular, I am interested in how digital trended within health care and commercial in particular. It looks like utilization was a little bit lower this quarter relative to a year ago. So any color at the segment level by capability would be helpful. John D. Kelly: Yeah, sure thing, Andrew. From a health care perspective, consulting is up 13% during the quarter. Managed services was up 42%. Digital was down 7% during the quarter, and that really reflects some of the dynamics that we talked about throughout last year, where a lot of the demand we are seeing right now is attached to performance improvement engagements as well as our managed services offering, as clients grapple with some of the financial strain that they are seeing within their environment. From an education segment perspective, consulting was down slightly. Digital within that segment was up 10%. Managed services was up in the mid-single-digit percent range. We continue to see really good demand across all of the capabilities within the education segment, which gives us continued encouragement about progressively increasing growth there as the year goes on, or at least into the next quarter. Digital remains an area where we see a lot of investment from our clients right now as they invest in some of the foundational tools that they need to drive operating efficiencies within the business. And then within the commercial segment, consulting was up approximately 50% during the quarter. That does include inorganic contributions from Wilson Peril and Treliant during the quarter. And the digital part of the business was down in the mid-single-digit percent range. Andrew Owen Nicholas: That is helpful. And then if I could just ask one more question on commercial. You said that bookings are up 20% plus across all the segments, high coverage ratios, strong pipelines. Did you see any change to demand within commercial as the quarter progressed? I know it is a small part of your overall mix, but I know you have some energy and utilities business. I am wondering if geopolitical conflict had any impact on that or conversations broadly. John D. Kelly: Really, Andrew, we did not see any change by industry within the commercial segment, so we did not see any change to demand for our energy and utilities. I would say demand remains strong for our digital capability within commercial. There is a little bit of timing during the quarter where we had a couple of our larger projects wind down toward the first part of the first quarter. A couple of the replacement projects that we sold during the quarter started a little later out of the gate than we initially anticipated. Our expectation is that digital more broadly for the year will get back into the mid- to upper-single-digit growth range starting next quarter. And we also expect that to pivot the growth range within the commercial segment next quarter as well. Operator: Thank you. Our next question comes from the line of Tobey O'Brien Sommer of Truist. Please go ahead, Tobey. Tobey O'Brien Sommer: Thank you. I was wondering if you could talk about the pace of headcount growth year over year and sequentially, what is driving that, where you are maybe still catching up on staffing based on the demand you are seeing? And if you could comment on domestic versus international, that would be helpful. Thanks. John D. Kelly: Sure, Tobey. I can jump in with the headcount increases. In health care, you see a year-over-year larger percent increase in the business, and let us exclude managed services, which is reflective of a lot of the hiring we did in the back half of last year to support the growth that we are seeing. I would expect that to normalize as the year goes on, as we get towards the back half of the year and it starts to pick up in the comparatives. The hiring that we did last year should normalize. From an education industry perspective, it is actually pretty steady, if not down a little bit, which reflects what we talked about previously with utilization being lower last year than our target, and the expectation that as we ramp back up into growth this year, you will see that first in the form of stronger utilization. So you see relatively conservative growth from an education industry perspective. From a commercial perspective, you do see the impact of the acquisitions that we did year over year within commercial, and beyond that, I would describe headcount as pretty much steady with the pace of organic growth that we see. In terms of geography, the majority of the global headcount adds that we have seen have been in the managed services part of the business. The health care managed services adds during the quarter are primarily coming from our global team. Tobey O'Brien Sommer: And as you look at your business, you do us the favor of describing it in a matrix way across functional area and then industry. Where do you see the company lagging or exceeding what you understand to be market rates of growth? C. Mark Hussey: Tobey, maybe starting with health care, we continue to see very strong demand. It is probably not quite at exactly the same level of strong that we characterized last quarter, but when you look at our long-term growth outlook that we described in terms of percentages, we are seeing consistent opportunities with that. Those are the secular tailwinds driving demand in our business. In education, that mid-single-digit growth continues to be consistent as well. Commercial is a mix of industries and capabilities, so it is a little bit harder to distill into a very tight description. In areas like our restructuring business, we are at market rates, maybe even a little bit better, as an example. With the acquisition of Wilson Perrigo coming in and some of the growth that we have seen there, probably at or perhaps above some market growth rates that we have seen. As John said, in digital we see a little bit of timing issues, and we would say we are probably consistent with what the broader market would be looking at in additional areas in commercial. Tobey O'Brien Sommer: After a quarter with a pretty large repurchase, could you update us on where you think you end the year from a leverage perspective and what the mix of your capital deployment we should expect? John D. Kelly: We remain committed to a low-twos leverage ratio at the end of the year. That is not a change from our objectives. We did accelerate a lot of the buybacks in our plan in the first quarter, reflective of the stock price decline we saw during the quarter. I would not say that we will be done with repurchases, but you will see us pace a little bit slower through the remainder of the year, being mindful of our perspective that we want to get back to the low twos from a leverage perspective. The other lever where we deploy capital is strategic tuck-in M&A. We are still active in terms of reviewing M&A possibilities. I think you will see some M&A, and it will be a slower pace than last year, primarily driven by the opportunity we saw with our own stock at the start of the year and the desire to buy back as many shares as we could during the first quarter at the current valuation. C. Mark Hussey: I would just add there is greater scrutiny around valuations in the current market, with perhaps a lot more rigor to understand those. So I think the cadence with patience may be a little bit slower than last year. For the full year, we have described in the past M&A contribution to our growth rate of 2% to 4%, probably a little bit closer to the lower end of that range, but certainly consistent with what we described to our investors back in 2025. Operator: Thank you. Our next question comes from the line of William Sutherland of Benchmark. Your line is open, Bill. William Sutherland: Thank you. Hey, good evening, everybody. John, you did not update the full-year expectations for segments, and I assume that means we can just use that slide from your last call, your year-end? John D. Kelly: That is right, Bill. There is no movement based on first-quarter results versus what we put out there. I do want to take a second to give one correction to a question that Andrew had asked earlier. It relates to consulting within the commercial segment. The roughly 50% growth is actually organic. I said that includes Wilson Peril and Reliant. Wilson Peril and Reliant are on top of that. I wanted to offer that one quick correction. William Sutherland: That is good to know. I have not gone through the restated headcount for the moving of responsibilities around, but it seemed to me that you had gotten ahead of the curve as far as hiring in health care into the first part of this year. Was that the case, or is there more of a steady state as far as the adds to headcount that we should expect there? John D. Kelly: You are right. The reclass that I mentioned in my commentary is a very small item. The broader story with health care is that we did do a significant amount of hiring in the third and fourth quarter last year. That was really two things: part of it was catching up a little bit—our utilization in that part of the business was too high in the first half of last year—keeping up with the demand we saw last year, and there was also the component that was getting us well positioned for the growth in that part of the business for this year. We did a lot of that hiring in the back half of last year, and that comes through in the metrics. I would expect that as the year goes on, you will see more of a normalization of headcount growth in health care, more in line with the revenue growth rate. William Sutherland: In the education segment, I know it is a little more challenging from a sales motion perspective, given the lack of centralization of some of the decision making. Is there a general sense that you are getting that they are getting more inclined to take on engagements they could benefit from, or does it feel like there is a lot of hesitation given all the wood to chop that they have? C. Mark Hussey: Bill, it is always interesting in higher ed. If you went back a year ago, we might have expected more short-term decision making, and it did not occur that way. It continues to be a fairly steady drumbeat of thinking about their universities’ positioning with a longer-term basis. Institutions have been around a few hundred years; they do not really think in the short term. We do see various pockets where the bigger projects that we thought perhaps might have gone away continue to be in the mix. I would conclude it is business as usual in higher ed right now. John D. Kelly: If you go back a year ago with the evolving regulatory landscape, while a lot of the strain within the industry was good for our longer-term demand, it did create some disruption for some clients last year. It was not the same in every client, but at some, there was significant disruption. In terms of the buying environment, where we were a year ago versus now, while it is still uncertain, a lot of our clients are focused on getting on with their agendas and making investments to pursue those agendas. It is a stronger buying environment this year within the education segment than twelve months ago. William Sutherland: Last one. John, you mentioned a couple of larger health care projects where the DSO was stretching a little bit. Is there a larger engagement trend going on in health care, or did those just occur without a trend? John D. Kelly: I would say not a change in trend this year versus last year. We did see a trend last year in terms of sales toward some larger projects, and we are still executing on those. To be clear, we are still selling some larger projects this year. I would not describe it as an even further increasing trend in 2026 versus 2025. Often within health care, when you have larger projects with performance-based fee elements, that requires some DSO investment during initial phases before you hit milestones with the client. We are in that phase on some of those projects sold last year and this year, and we expect to bill and collect upon achievement of those milestones in 2026. William Sutherland: I understand the cash issue, but I was actually thinking maybe the efficiency of extended projects—you might be benefiting from that in terms of utilization and margins? John D. Kelly: Those types of projects do provide great opportunities to get significant portions of our teams engaged for a longer duration, which is good from a utilization perspective within the segment. Operator: Thank you. Our next question comes from the line of Kevin Mark Steinke of Barrington Research Associates. Please go ahead, Kevin. Kevin Mark Steinke: Great, thank you. Most of my questions have been asked, but I wanted to follow up on a comment you made about remaining bullish on AI being a growth driver for your business. You mentioned the AI services market is expected to grow double digits. Do you feel like you have the capabilities in-house to address that market opportunity, or could there be acquisition activity in that area? I do not know how developed the market is from an AI services perspective to actually be able to make acquisitions there, but any comments would be appreciated. C. Mark Hussey: Sure thing, Kevin. We have been pretty successful at organically investing in this area. We have a Chief AI Officer who has been really helpful to elevate our game across each of our businesses and continue to deploy capabilities not only on the client-facing side, but also in our enterprise functions and delivery methodologies. Our ability to realize the opportunity in the market is something that we are confident in. We feel like we can hire the right people and we have not had a problem attracting talent. From an M&A standpoint, for the reasons you described, valuations are probably going to be pretty high, and I am not sure that would be the best use of our capital given that we can do these things organically. We think there are more investments to be made, but it is largely built into the model we have created. We have partnerships—like Hippocratic AI and other firms—that can help us accelerate impact as well. It is an area where “bullish” is the right word. We see a lot more opportunity, recognizing there will be risk and transformation in everything, but we are quite excited about it. John D. Kelly: I would add that a little-underappreciated part of our business—even going back several years before a lot of the evolution of AI tools—is that about 40% of our revenue comes from our technology business, our digital business. We have, natively within our employee base, significant talent with digital skills, using many of the platforms where AI is now being infused and where our clients are looking to get at-scale benefits. That does not mean we do not need to add additional talent with new AI capabilities, but the base was strong. If you look at the objectives we are delivering for clients in terms of outcomes—often financial outcomes within the industries that we serve—we have deep expertise in driving those outcomes. Take those two things together, and as we continue to add AI talent, we feel really well positioned to serve our clients in those core areas. Kevin Mark Steinke: Thank you. That is helpful commentary. I appreciate it. Operator: Seeing no more questions in the queue, I would like to turn the call back to Mr. Hussey. C. Mark Hussey: Thanks for spending time with us this afternoon, and we look forward to speaking with you again in July when we announce our second quarter results. Good evening. Operator: That concludes today’s conference call. Thank you, everyone, for your participation.
Operator: Good day and welcome to the Scorpio Tankers Inc. First Quarter 2026 Conference Call. All participants will be in listen-only mode. By pressing the star key followed by zero, you may reach an operator. Please note this event is being recorded. I would now like to hand the call over to James Doyle, Head of Corporate Development and Investor Relations. Please go ahead. Thank you for joining us today. James Doyle: Welcome to the Scorpio Tankers Inc. First Quarter 2026 Earnings Conference Call. On the call with me today are Emanuele A. Lauro, Chief Executive Officer; Robert L. Bugbee, President; Cameron Mackey, Chief Operating Officer; Christopher Avella, Chief Financial Officer; and Lars Dencker Nielsen, Chief Commercial Officer. Earlier today, we issued our first quarter earnings press release, which is available on our website, scorpiotankers.com. The information discussed on this call is based on information as of today, 05/05/2026, and may contain forward-looking statements that involve risks and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of the risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release as well as Scorpio Tankers Inc.’s SEC filings, which are available at scorpiotankers.com and sec.gov. Call participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days. We will be giving a short presentation today. The presentation is available at scorpiotankers.com on the Investor Relations page under Reports and Presentations. The slides will also be available on the webcast. After the presentation, we will go to Q&A. For those asking questions, please limit the number of questions to two. If you have an additional question, please rejoin the queue. Now I would like to introduce our Chief Executive Officer, Emanuele A. Lauro. Emanuele A. Lauro: Thank you, and good morning, and thank you for joining us today. I would like to start this earnings call by saying thank you. And thank you to all the stakeholders who have supported us in bringing the company to where it is today. When Robert, Cameron, and I started this business in 2009, I cannot say that we envisioned every detail of what the company would become. But in our most ambitious plans, I remember looking at something like this. We have built a platform that can return capital through the cycle while preserving the flexibility to invest countercyclically. This would not have been possible without the trust of our shareholders, the partnership of our customers, and, most of all, the commitment of our people. So thank you. Now focusing on the business front, in the first quarter, the company generated $214 million of adjusted EBITDA and $151 million of adjusted net income. For years, we have focused on what we have under control, on what we can control: strengthening the balance sheet, optimizing the fleet, and reducing our cash breakevens. Today, the discipline is fully reflected in the model. Our cash position stands at approximately $1.4 billion, and it is bound to hit the $2 billion mark early in the summer, with a daily cash breakeven of around $11,000 per day. To put that into perspective, in today’s market, we generate, of course, substantial free cash flow, but in a stressed environment similar to the depth of the COVID 2020 market, we remain at or above breakeven. That is a structural advantage. Our recent financing further reinforces this. We reduced our cost of capital through 1.75% convertible bonds and a new bank facility at 120 basis points; these are the lowest margins in our history. These were proactive and opportunistic actions that were executed from a position of strength and not necessity. We are applying the same discipline to the fleet. Since the start of the year, we have sold 12 of our older vessels at prices above their original purchase levels more than a decade before. This value realization is not only fleet management. The balance sheet strength and fleet optimization together create a powerful foundation for sustained capital returns. In April, we repurchased 1.4 million shares for around $100 million. Today, we are going further. We are announcing a new $500 million share buyback authorization and a quarterly dividend of $0.45 per share. This is deliberate capital allocation. By any measure, this was one of the strongest quarters in the company’s history, not only in earnings but also in execution. Rates have improved for consecutive quarters, and that momentum not only continues, but has strengthened further into the second quarter. While the timing of geopolitical developments in the Middle East remains uncertain, we remain constructive on the underlying fundamentals that are driving the tanker market. We expect restocking and demand to reassert themselves as disruptions normalize. Critically, our low breakeven model allows us to perform across all environments, as mentioned before. We can be resilient in a weaker market and highly levered in stronger ones. We believe Scorpio Tankers Inc. is exceptionally well positioned to continue generating meaningful cash flow and deliver long-term shareholder value. Thank you again, and I will now turn the call to James. James Doyle: Thanks, Emanuele. Slide 7, please. Today, product tanker rates are at unprecedented levels, with average clean tanker earnings over $70,000 per day. It is unclear when returns to the Strait of Hormuz will normalize. But what we do know is this: global inventories, commercial, strategic, and floating, have been significantly drawn down. The system will need to rebuild inventories globally, and given the scale of these draws, that process will take time. This creates a constructive setup for product tankers as refinery utilization and seaborne flows increase to support restocking and global demand. More importantly, product tanker rates were strong prior to these disruptions as a result of robust global demand driving higher seaborne exports, refinery dislocation increasing ton-mile demand, and modest fleet growth constraining supply. We remain optimistic that those fundamentals support a constructive outlook in the short and medium term. Slide 8, please. Last year, over 18 million barrels of crude and refined products transited the Strait of Hormuz. Approximately 90% of the crude oil and naphtha volumes transiting the strait were destined for Asia. West of Suez, roughly 75% of jet fuel flows go to Europe, and 45% of diesel moves to Africa. The temporary loss of these volumes has forced global rerouting of trade flows on an unprecedented scale, reshaping supply chains across regions. Slide 9, please. We are seeing a rebalancing of flows with increased exports from the U.S., Africa, and Europe partially offsetting reduced volumes from the Middle East and Asia. Voyage distances have more than offset lower volumes, tightening effective supply and supporting a strong rate environment that we are seeing today. Slide 10, please. Despite the scale of the disruption, demand has remained quite resilient. In the second quarter, refined product demand is expected to decline by approximately 1.5 million barrels per day year-over-year before rebounding by roughly 2.4 million barrels per day in the third quarter. This aligns with what we are seeing on the water, with seaborne exports down 1.9 million barrels per day in April compared to last year. As transit through the Strait of Hormuz normalizes, we expect demand to recover. Slide 11, please. Importantly, the recovery in demand is expected to occur alongside a period of significant inventory restocking following recent draws. High-frequency refined product inventories have declined by more than 80 million barrels since the start of the year. U.S. refined product inventories have drawn 12 out of the last 13 weeks. Taken together, these data points highlight the scale of the drawdown and the magnitude of the restocking cycle ahead. Slide 12, please. Product tanker newbuilding activity has slowed meaningfully over the past 18 months. Only 37 vessels have been ordered year to date, and approximately half the product tanker order book is LR2s. As we have highlighted, a meaningful portion of LR2s operate in the crude market. Today, roughly 57% of the LR2 fleet is trading crude oil. As a result, the effective product tanker order book is smaller than it appears, reinforcing the view that future fleet growth will remain constrained. Slide 13, please. Today, the order book is 18% of the existing fleet, which may seem high, but context matters. As you can see on the left, 21% of the product tanker fleet is already older than 20 years. By 2028, it will be 30%. Roughly 25% of the Aframax/LR2 fleet and 9% of the MR/Handy fleet are sanctioned, averaging 20 to 21 years old. In a normal market, much of this tonnage would have likely already exited the fleet. Slide 14, please. When adjusting for aging vessels, sanctioned capacity, and LR2 crossover, effective clean products supply fleet growth is materially lower than the headline order book implies. We expect fleet growth to average approximately 3% over the next three years, but potentially lower. As refinery utilization and seaborne flows increase to support global restocking and demand normalization, the market should tighten further. Longer term, refining capacity remains constrained while the fleet is aging faster than it can be replaced. Overall, we expect ton-mile demand to outpace fleet growth. With that, I would like to turn it over to Christopher. Christopher Avella: Thank you, James, and good morning or good afternoon, everyone. Slide 16, please. This quarter, we generated $214 million in adjusted EBITDA and $216 million in net income on an IFRS basis. This includes a $66 million gain on the sale of four vessels during the quarter. We sold another two vessels in April and have reached agreements to sell another nine vessels, all built in 2014 or 2015, all at cyclically high prices. Additionally, we declared a $0.45 per share dividend and replenished our securities repurchase program to $500 million. The chart on the right shows the evolution of our net debt position since December 2021. Our capital allocation policy over this period has been headlined by debt reduction and balance sheet fortification. As you can see, this approach has resulted in a reduction of our net debt position by $3.8 billion, from a net debt balance of $2.9 billion at 2021 to a pro forma net cash balance of $876 million as of today, which reflects our actual net cash balance of $479 million adjusted for the sales of nine vessels that are pending closing. Slide 17, please. The chart on the left breaks down our outstanding debt by type. As you can see, our capital structure keeps evolving as we continue to pursue opportunities to lower our cost of capital. First, we have $368 million in secured bank debt with a lending group exclusively comprised of experienced shipping lenders, and this debt all carries margins below 200 basis points. Further to this, $198 million of this amount is drawn revolving debt, an important tool that we can use if we want to repay the debt but maintain access to the liquidity in the future. Next is our $200 million five-year senior unsecured notes, which were issued in the Nordic bond market in January 2025 and are currently trading at above 103 to par. Last is our $375 million convertible notes due 2031, which were just issued under a month ago. These notes have a coupon rate of 1.75% and are convertible to common stock only under certain circumstances at a conversion price over $100 per share. As part of the offering of our convertible notes, we repurchased 1.3 million, or 2.6%, of our outstanding common shares for $100 million. The chart on the right shows how we continue to pursue ways to reduce our cost of capital. Over the past four years, we have transitioned our vessel-related borrowings out of expensive lease financing into lower-cost, higher-flexibility secured bank debt. Our efforts to pursue lower-cost, longer-tenor structures are ongoing, as you can see with our recent announcement of a $50 million secured credit facility with Bank of America at just a 120 basis point margin and a seven-year tenor. This strategy, coupled with our aggressive prioritization of debt reduction, has transformed the company’s credit profile, thereby unlocking these opportunities in the markets. Now around 60% of our debt structure is unsecured, and not due until 2030 and 2031. Slide 18, please. The chart on the left shows our liquidity profile. We had $1.4 billion in cash as of May 1. If we consider the sale of three vessels that were pending closing as of that date, the cash balance is $1.8 billion on a pro forma basis. We also have an additional $712 million in availability under revolving credit facilities for a total of approximately $2.5 billion in available liquidity. Since November, we have signed contracts to purchase 10 newbuilding vessels, and the chart on the right is a waterfall reflecting our commitments to purchase these vessels. Our disciplined capital allocation over the last three years has afforded us the financial flexibility to enter into these newbuilding contracts. Our remaining newbuilding commitments total just over $641 million as of today, after the payment of $69 million towards these vessels in 2026. Hypothetically speaking, we could pay for all of these vessels today in cash without incurring any new debt. Importantly, approximately 80% of these remaining installment payments are not due until the years 2027, 2028, and 2029. With a low cash breakeven rate, currently at approximately $11,000 per day, we are well positioned to build cash prior to delivery. Moreover, the age and specifications of these vessels make them attractive financing candidates, which has the potential to open opportunities for us to further optimize our capital structure and lower our cost of capital. Slide 19, please. Our cash breakeven rates are at the lowest levels in the company’s history. As shown on the left, these levels are below our achieved daily TCE rates dating back to 2013, with the closest point occurring during COVID-19 when global oil demand saw its largest decline on record. To add, the cash interest on our convertible notes only raises our cash breakeven levels by a modest amount and is more than offset by the interest we currently earn on our deposits. To illustrate our cash generation potential at these cash breakeven levels: at $20,000 per day, the company can generate up to $260 million in cash flow per year; at $30,000 per day, up to $548 million per year; at $40,000 per day, up to $836 million per year; and at $50,000 per day, up to $1.1 billion per year. This concludes our presentation today. We would like to thank everyone for their time and attention. We will now open the call for questions. Operator: To ask a question, if you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. Our first question will come from Gregory Robert Lewis of BTIG. Please go ahead. Gregory Robert Lewis: Hi, thank you, and good morning and good afternoon, and thanks for taking my questions. I guess this first question is either for Christopher or Robert. Could you walk us through the decision on the convertible bond? Clearly, you laid out how strong the balance sheet is, and you touched on it, but just curious, with a lot of cash on the balance sheet, how are we thinking about the liquidity and opportunities for staying, you know, with the convert? Christopher Avella: Sure. Thanks, Gregory. As we said, it was opportunistic. The convertible markets are strong right now, and we have a strong credit profile. It made for a good opportunity to execute an instrument that we view as a low cost of capital: a 1.75% coupon and a high conversion premium. We are mindful of the fact that we have a lot of secured debt maturing in a couple of years—say, 18 to 24 months. Our debt position is not static, and we are going to continue to look at opportunities to execute on low-cost transactions, and this is just one of those. Robert L. Bugbee: I do not have anything to add to that, Gregory. Gregory Robert Lewis: Okay, great. And then the other question on the market: James, you touched on volumes being a little bit light. Roughly a little over two months into the conflict in, or the war in, Iran, have we started to see pockets of hoarding or anything that is out of the ordinary? How is that translating into maybe new trade routes or expanding ones, replacing others? Curious what you are seeing there. James Doyle: Lars, would you like to take this one? Lars Dencker Nielsen: Yes, sure, I will start off. We have seen a lot of what you would consider to be genuinely unique voyages and instances. Ton-miles have obviously elongated across the board. We have seen a huge increase in U.S. Gulf Coast exports, very much further afield than what we would have seen before. From a pre-conflict into conflict level related to Iran, we had ships that were transporting towards the West, and before they even came to the Cape of Good Hope, they were asked to go to the Middle East, and then one day later, to go back to Asia where they had loaded from. The fact is that the price of oil and product has made it such that the price of freight has become insignificant. We are not seeing any issues of freights being curtailed because of the price of freight, because the oil underlying is so valuable and so important for the security of supply. That also goes into the structural reshuffling of product in the United States. We saw the headline of the Jones Act being waived for a brief moment in time; that has also moved the needle relative to anything we have seen in the past. So, yes, there certainly has been a lot of change. Gregory Robert Lewis: Super helpful. Thank you very much. Operator: The next question comes from Omar Nokta of Clarksons Securities. Please go ahead. Omar Nokta: Clearly, things are moving in a really nice direction for Scorpio Tankers Inc., certainly from a financial perspective—going deeper into net cash. You just re-upped the buyback to $500 million, and I wanted to get a sense from you: does this signal a pivot in how you are viewing use of capital from here? And is there any preference at this point in terms of the interest looking either at the shares or the unsecured notes or the converts? Robert L. Bugbee: I do not think it creates a pivot in strategy. I think it creates a point where we feel ready enough to give ourselves the largest ever buyback the company has ever had, if it decides that that is the right thing to do. So there is no pivot. The idea is a developing strategy. The first thing is to de-lever. The second is to start to renew the fleet and take advantage of backwardation in the curve. The third is, as Christopher says, to start to use that balance sheet to get very effective, cheaper finance. Being able to put up the largest ever buyback for the company is a continuation of the strategy: we will watch, act, and react when and if we see the opportunity. We have developed, in a way, a hammer and an anvil here. We have the tremendous cash position that the company has and its ability to get debt cheaply. Underneath it, we are developing the anvil so that if you had a wobble in the stock or we see a continuing dislocation between NAV and stock price, we can take advantage of that, because we believe very much in the long-term development and continued health of the company. Omar Nokta: Thanks, Robert. That makes sense. Maybe just a follow-up: you were mentioning the fleet and taking advantage of the backwardation. How are you thinking about the fleet as it is now? You sold a bunch of vessels this year; you have about $500 million coming in in the second quarter from those vessel sales. Are we getting to a point where the active selling, if you want to call it that, slows down? And is it more about fine-tuning the fleet? Is it looking at newbuildings? How are you thinking about the fleet position from here? Robert L. Bugbee: We have not changed on that. We will continue to take opportunistic sales and work on longer-term time charters too. At the same time, we might continue to gently and responsibly, where it is clear that the financing is not changing our hammer, engage in the renewal part of it. You are not going to see some massive, great big order. You are not going to see an acquisition of a competitor. It is going to be continuing to gently move each of the parameters we are looking at along the way—much of the same. Operator: The next question comes from Jonathan B. Chappell of Evercore ISI. Please go ahead. Jonathan B. Chappell: Thank you, and good morning. James, appreciate the presentation. Regarding the disruption, a lot of it seems to be focused around once the flows normalize. Can you help us with scenario analysis? There is still a lot of uncertainty. It feels like the path may be changing by the week, if not the hour. What are some of the other upside opportunities but also downside risks as this unprecedented situation continues to evolve? Robert L. Bugbee: Thanks. I do not think we are in control of that. We do not spend much time going through the hypotheticals or working out if they happen, if they all happen, or even whether any will happen. Information changes—whether or not the straits are open, whether or not there were shells hitting international ships about three or four times just yesterday. We will pass on the hypotheticals, if that is okay. Jonathan B. Chappell: Okay. How have your operations changed? We see these headline rates. Are you fully absorbing them? Have you had to move the fleet around, so maybe you have imbalance or maybe even better exposure to certain regions? As we think about these headline rates, how does it translate to you both from a top-line perspective, but also from a potential disruption or cost/bunker perspective? Lars Dencker Nielsen: This is part and parcel of what we do every single day. We assess where we anticipate the market to react as fleets are deployed. When this happened, we made a conscious effort to move our ships West, where we could see that the market dislocation was the greatest and there were clearly, at the margin, stronger market movements taking place. We moved ships a lot, both through the canal and also around the Cape of Good Hope, and we also made sure that the ships we had opening in New Zealand, Alaska, and North Asia made decisions to move across. That took a little time, but it paid off. You still see today, even with the high volatility in the markets, rates are moving 15% to 20% intra-week. Structurally, the West market has been benefiting from a rate perspective more than vessels trading East of Suez. Jonathan B. Chappell: Got it. Thank you, Lars. Thanks, Robert. Operator: The next question comes from an Analyst at Bank of America. Please go ahead. Analyst: Great. Good morning and good afternoon. Can you talk about any increased interest in multiyear charters given the environment, and your thoughts on that? Do you want to keep the same exposure to the spot market? And then any incremental developments from Venezuela—we have talked about that a lot in terms of short-haul moves. Robert L. Bugbee: I will take one part first. Our reduced breakevens, the lack of debt, and low borrowing cost open up situations where you can look quite favorably at five-year, six-year, seven-year charters. These are very simple, profitable, secure returns, adding to a base of income which has always been lacking in tanker companies. We are not only looking at opportunities that arise, but also favorable to them because of our own financial breakeven dynamics. Lars, would you like to go through the details? Lars Dencker Nielsen: We reported a couple within the quarter. In my experience, these are generational highs in terms of long-term charters, and this is long-term charters to very bankable first-class end users, which we have not seen before. We will always have a balance between spot and time charter. We certainly still have a very large component towards spot, but the ships we have on time charter all reflect the quality of the paper and also counterparties that we have strategically aligned with in terms of the spot business we also do for them, so the relationship goes to a different level. Over the years, that has benefited the business. In terms of looking at period charters for the future, we continue to look at charters every single day. There has been continued interest both in MRs and in LR2/Aframaxes. As everybody on the call will appreciate, we today look at LR2s and Aframaxes as one segment. There has been substantial interest in that market. We have seen one-year deals at extremely high and elevated numbers, three-year interest, five-year interest. Eight-year deals, which we have done on a one-off basis, are not that frequent, but it is clear that not only shipowners consider the market to look pretty good; a lot of the people we do business with are willing to put pen to paper for long-term charter. Analyst: Great insight. Thanks, Lars. Two rapid ones: are you seeing any shortages now at this point on some products—jet fuel or different areas? It seemed like Australia was starting to ration some fuel. Thoughts on where we are? James was talking about inventories. Then you mentioned the $2 billion in cash by this summer, but with the $500 million buyback plan, thoughts on the other $1.5 billion usage plans? James Doyle: I will start with shortages. In Southeast Asia, we have seen methods to reduce travel, but at a high level, it appears it is more inefficient supply to meet demand. Demand has been quite strong. A lot of the current issues fall to the fact that there is not a lot of spare refining capacity in the world. We have been talking about this for years: closures around the world, and refinery capacity has moved further away from the consumer. What you are seeing is a result of this. Going forward, you are going to see a lot of restocking. You will still see refinery dislocation because of how long it takes to build a refinery. We will see how the situation develops, but it is very constructive in the short to medium term based on this refinery dislocation. Robert L. Bugbee: On the future, I think you will see us continue to maintain a very healthy overall cash position. We have said we would even consider further sales of older tonnage. That would result in an even higher cash position than any forecast you could make at the moment. We have also said that we would be willing to explore opportunistically continuing our renewal, which would indicate a few newbuilding orders—not many, but a few to keep a steady position—while keeping the vast majority of cash generated. You are giving some of it out on buybacks, as you have seen so far this quarter, dividends, and newbuilding orders. We did not raise the dividend this quarter, but not for any reason other than it was a knockout quarter. It is fantastic, and we would like to have a look later in the year—July or September—whether we are likely to increase the dividend again, and by how much, whether in smaller steps or a slightly bigger step. Overall, it is a continuation of what we have been doing in the last six, nine, twelve months: taking advantage of the arbitrage on the curve, taking advantage of great secondhand prices, which are indicated to still be increasing. We are seeing that in the market. It is a continuation. It is working well so far. Operator: The next question comes from an Analyst at Jefferies. Please go ahead. Analyst: Good morning and good afternoon, everyone. I wanted to touch on fleet renewal. Do you have a preference whether it is more LR2s or medium-range exposure in the fleet? Any general commentary on fleet exposure within fleet renewals would be helpful. I do have one follow-up. Robert L. Bugbee: We have backed off the VLCCs in terms of expanding there. The recent renewals have been in product tankers, both MRs and LR2s. My expectation is that is where we would continue to concentrate and find opportunity. Analyst: Appreciate it, thank you. Then a follow-up on the dividend itself. Given the favorable financial position that you are in now—and I appreciate your stance on flexibility—do you have any kind of quarterly targeted payout that we should be looking at? Robert L. Bugbee: We have not reached that. I can tell you what we will not have: we will not do extraordinary dividends, and we will not do a high payout dividend. We are for what we would call a permanent dividend that can be met through good times and bad, and ideally can be improved on in good times and bad. High payout dividends, particularly those tied to percentages of income, work great in good times and are quite tragic in other times. Operator: The next question comes from Christopher Robertson of Deutsche Bank. Please go ahead. Christopher Robertson: Good morning, everyone. Thank you for taking my questions. This might be one for Lars. This is related to the bunker fuel market. Initially there was quite a bit of disruption and a huge spike in prices. Can you talk about availability and whether it is having any impact on where you are thinking about positioning the fleet and which voyages you are taking? Has that situation gotten better over the last few weeks? Lars Dencker Nielsen: The short answer is that we do not see issues today in terms of securing bunkers on any of our ships around the world. Prices certainly went to a very high and elevated place, and there were a lot of questions as the conflict started, and we were looking at this. To be honest, this is what we do every single day anyway. Bunker planning is a very important part of any voyage planning that we do. These things are looked at at any given time so that we can reflect the pricing of the bunker input to the output on the time charter equivalent. Right now, we do not encounter issues that create additional challenges for us in terms of supplying bunkers. Christopher Robertson: Got it, thank you. A follow-up related to the dividend. Realizing this is a bit of a chicken-and-egg situation, Robert, could you talk a little more about the philosophy around the dividend? Are you looking for a certain amount of balance sheet strength, a certain breakeven level, or a certain market environment in rate sustainability? What would drive an increase to the dividend, realizing that the goal is to have a sustained level throughout various parts of the cycle? Robert L. Bugbee: The goal is a regular dividend that we can raise through the cycle—not the same percentage of earnings or linked to the stock price. We would hope to raise the regular dividend so it is clear to the most conservative of long-only large institutions, and hopefully to the income growth side too, that we can pay it under any circumstances. You are starting to see in the presentation a lot of concentration by Christopher on cash breakeven and slides related to what happens if we relive the worst market we have ever lived in, which is COVID. Can the company continue to pay and grow the dividend through that cycle? That is how we are evaluating it. At the moment, things are moving. We waited in the last quarters gradually. This was an unbelievably knockout quarter. We felt it was unclear whether to raise it 1 cent or 5 cents. We left it aside, knowing we had an incredible quarter. We put steps into the balance sheet and gave terrific guidance for the second quarter. It is extraordinary; it even surprised us. Later in the year we can see what the next sustainable level is that we are happy to move to. Christopher Robertson: Got it. Thank you. That is very prudent, and we appreciate the commentary. Thank you, Robert. Robert L. Bugbee: Thank you. Operator: The next question comes from Liam Dalton Burke of B. Riley. Please go ahead. Liam Dalton Burke: Yes, thank you. Even prior to the tensions in the Mideast, the rates in the Aframaxes were higher, and there had been a lot of shift from clean to dirty. Post tensions, is there anything that would flip that situation where the Aframaxes would move back to the LR2s or start trading clean? Lars Dencker Nielsen: We are in the perfect situation where you have a lot of LR2s in a north of $100,000 per day market, where the alternative in Aframax is also trading north of $100,000 per day. If you look at the numbers, a couple of years back we were trading around 256 LR2s in the market. Today, we are trading around 170 LR2s in the market. You have had a large component of LR2s go into the sanctioned trade and the age part as well. You also have the element of crude transporting itself farther afield. You have a very strong Aframax market not only in the Atlantic Basin but also East of Suez. TMX, which goes from the Pacific Northwest to Asia, has been extremely strong. The market that goes down to the Pacific lightering area has also been very strong, particularly because VLCCs have been very strong. The Suezmaxes have been very strong. Every element within that framework is extremely strong. The last time we saw switching the other way was when you had a very weak crude market that had been persistent for a while, and the LR2 market had ramped up. At that point, you had a delta of about $8 million between one to the other, and you started seeing a large number of vessels going into the clean market. Today, whichever way you look at it, it is very strong. Regarding Venezuela, that is also an Aframax market. TMX is 100% an Aframax market. The stuff that goes out of Australia is 100% an Aframax market. The story is good in terms of supply and demand when you look at LR2s and Aframaxes together, which is what you have to do today. The argument that was the case a while back—saying you have all these ships being built—does not hold that much when you consider the average ages of the fleet and what ships are actually able to trade. Structurally, we are looking at a very decent supply-demand story on both Aframaxes and LR2s. Liam Dalton Burke: Great, thank you. I think this would be for James. You have always highlighted the redistribution of global refinery capacity. Post-conflict, a lot of that has been Middle East refinery. Would you anticipate any modification of that redistribution? James Doyle: Thanks, William. Good question. It is a challenge. The quickest you can probably build a refinery is seven years, so if you are not starting today, it is not coming in that time frame. One of the things we feel is likely is people will view storage differently coming out of this—how much crude and how much product you are keeping domestically. I think that is going to be great for refinery runs. But in terms of major changes, it will be a challenge to do anything in a short time frame. I am certain people might look at new pipeline opportunities. Liam Dalton Burke: Great. Thank you. Operator: This concludes our question and answer session. I would like to turn the call back over to Emanuele A. Lauro for any closing remarks. Emanuele A. Lauro: Thank you very much, operator. No closing remarks of any substance apart from thanking everybody for your time and looking forward to connecting in the near future. Have a great day. Bye-bye. Operator: The conference has now concluded. Thank you for attending today’s presentation, and you may now disconnect.
Harry: Good morning, ladies and gentlemen. My name is Harry, and I will be your conference operator today. At this time, I would like to welcome you to the Ferguson Results Quarter Ended October 31, 2025, Conference Call. All lines have been placed on mute to prevent any interference with the presentation. At the end of prepared remarks, there will be a question and answer session. Please press star followed by the number two. Thank you. I would now like to turn the call over to Mr. Brian Lantz, Ferguson's VP of Investor Relations and Communications. You may begin your conference call. Brian Lantz: Good morning, everyone. And welcome to Ferguson's quarterly earnings conference call and webcast. Hopefully, you've had a chance to review the earnings announcement we issued this morning. The announcement is available in the Investors section of our corporate website and on our SEC filings webpage. A recording of this call will be made available later today. I want to remind everyone that some of our statements today may be forward-looking and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected, including the various risks and uncertainties discussed in our Form 10-Ks available on the SEC's website. Also, any forward-looking statements represent the company's expectations only as of today, and we disclaim any obligation to update these statements. In addition, on today's call, we will also discuss certain non-GAAP financial measures. Therefore, all references to operating profit, operating margin, diluted earnings per share, effective tax rate, and earnings before interest, taxes, depreciation, and amortization reflect certain non-GAAP adjustments. Please refer to our earnings presentation and announcement on our website for additional information regarding those non-GAAP measures, including reconciliations to their most directly comparable GAAP financial measures. With me on the call today are Kevin Murphy, our CEO, and Bill Brundage, our CFO. I will now turn the call over to Kevin. Kevin Murphy: Thank you, Brian. Welcome everyone to Ferguson's quarterly results conference call. On today's call, we'll cover highlights of our quarterly performance. I'll also provide a more detailed view of our performance by end market and customer group. I'll turn the call over to Bill to review financials and our updated guidance before I wrap up with a few final comments. We'll have time to take your questions at the end. During the quarter, once again, our expert associates delivered strong results continuing to execute our growth strategy in a challenging market environment. Sales of $8.2 billion increased 5% over the prior year driven by organic growth of 4% and acquisition growth of 1%. Gross margin of 30.7% increased 60 basis points over the prior year. We remain disciplined on cost and generated $808 million of operating profit, which grew 14% over last year. Diluted earnings per share increased nearly 16% over the prior year to $2.84. We continued to execute our capital priorities, deploying $511 million this quarter. We declared a 7% increase to our quarterly dividend to 89¢ per share. And we acquired Moore Supply Company, HVAC equipment and supplies business in the Chicago Metro Area. We also returned $372 million to shareholders via share repurchases and dividends. Our balance sheet remains strong, with net debt to EBITDA of 1.1 times. While we continue to operate in a challenging environment, we remain confident in our markets over the medium term. And we'll stay focused on leveraging multiyear tailwinds in both residential and nonresidential end markets as we support the complex project needs of the water and air specialized professional. Turning to our performance by end markets in The United States. Net sales grew by 5.3%. Residential end markets representing approximately half of US revenue remain challenged. New residential housing starts and permit activity have been weak, Repair, maintenance, and improvement work has also remained soft. We continue to outperform the markets with residential revenue down 1% in the quarter. Nonresidential end markets performed better than residential. Our scale, expertise, multi-customer group approach, and value-added services drove continued share gains with nonresidential revenue up 12% during the quarter. Strength in large capital project activity has continued, and we've seen solid shipments, with growth in open order volumes and bidding activity. Our intentional balanced approach to end markets continues to position us well. Moving next to revenue performance across our customer groups in The United States. We grew Waterworks revenues by 14% as our highly diversified customer group saw strength in large capital projects public works, general municipal, and meters and metering technology, offsetting weakness in residential. Ferguson Home, which brings together our best-in-class showroom and digital experience, grew 1% in a challenging new construction and remodel market. Our ability to present a unified experience and cater to higher-end projects drove outperformance against the broader market. Residential trade plumbing declined by 4%, due to headwinds in both new and RMI construction. HVAC declined by 6%, against a strong 9% comparable and weaker markets impacted by the industry's transition to new efficiency standards and weak new residential construction activity as well as a pressured consumer. We remain pleased with our execution our counter build-out for the dual trade and M&A opportunities. Commercial mechanical customer group grew 21% on top of a 1% prior year comparable. Driven by large capital projects such as data centers, partially offset by weaker activity in traditional nonresidential projects. For fire and fabrication, facility supply, and industrial customer groups all saw growth during the quarter as we continued to take share and leverage our unique multi-customer group approach. Our customer groups are better together, sharing expertise to provide end-to-end solutions that help simplify complex projects and maximize contractor productivity. Now let me pass the call over to Bill for the financial results in more detail. Bill Brundage: Thank you, Kevin, and good morning, everyone. Net sales of $8.2 billion were 5.1% ahead of last year. Driven by organic revenue growth of 4.2% and acquisition growth of 1%. Partially offset by 0.1% from the adverse impact of foreign exchange rates and from a divestment in Canada. Price inflation was approximately 3%. Modest sequential improvement in finished goods pricing, offset by commodity-related categories being down low single digits. Gross margin of 30.7% increased 60 basis points over last year, driven by our associates' disciplined execution. Operating costs grew slower than revenue, delivering 20 basis points of operating leverage. And operating profit of $808 million was up 14.4% delivering a 9.9% operating margin with 80 basis points of expansion over the prior year. Diluted earnings per share of $2.84 was 15.9% above last year, driven by operating profit growth and the impact of share repurchases. And our balance sheet remains strong at 1.1 times net debt to EBITDA. Moving to our segment results, net sales in The U.S. grew 5.3%, with organic growth of 4.4% and a further 0.9% contribution from acquisitions. Operating profit of $806 million increased $109 million over the prior year, delivering an operating margin of 10.4%. In Canada, net sales were 2.2% ahead of last year. With organic growth of 0.7% and a 4.6% contribution from acquisitions partially offset by a 1.6% adverse impact from foreign exchange rates as well as 1.5% from a noncore business divestment. Markets have remained subdued in Canada, particularly in residential. Operating profit of $16 million was $7 million below last year. Moving next to our cash flow performance for the quarter. EBITDA of $867 million was $109 million ahead of last year. Working capital investments of $440 million during the quarter was up slightly from $376 million in the prior year. Principally driven by timing. Operating cash flow, was $430 million compared to $345 million in the prior year. We have continued to invest in organic growth through CapEx, investing $118 million in the quarter, resulting in free cash flow of $325 million compared to $274 million in the prior year. Turning to capital allocation. As previously mentioned, we invested $440 million in working capital. And another $118 million in CapEx. To further build on our competitive advantages and drive above-market organic growth. We paid $164 million of dividends during the quarter, and our board declared an $0.89 per share quarterly dividend. Representing a 7% increase on the prior year. And reflecting our confidence in the business. We continue to consolidate our fragmented markets through bolt-on geographic and capability acquisitions. As Kevin mentioned, we completed the acquisition of Moore Supply Company during the quarter. A great addition to our HVAC presence in the Chicago area. Our markets remain very highly fragmented, and our acquisition pipeline is healthy. And finally, we are committed to returning surplus capital to shareholders when we are below the low end of our target leverage range of one to two times net debt to EBITDA. We returned $208 million to shareholders via share repurchases during the quarter. Reducing the share count by nearly 1,000,000. And we have approximately $800 million outstanding under the current share repurchase program. Now turning to our updated calendar 2025 guidance. We are pleased with our continued market outperformance and solid growth in the quarter. We are well positioned to deliver a strong calendar year 2025 performance and remain confident in our markets over the medium term despite near-term uncertainties. We now expect approximately 5% revenue growth for the year. And we expect an operating margin range of between 9.4% to 9.6% up from our prior expectation of between 9.2% to 9.6%. Interest expense is expected to be approximately $190 million for the year. We estimate CapEx of approximately $350 million the upper end of our previous guide. We continue to expect our effective tax rate to land at approximately 26%. We believe we are well positioned as we finish the year head into the new calendar year. Thank you, and I'll now pass back to Kevin. Kevin Murphy: Thank you, Bill. As we conclude our remarks, let me first reiterate our thanks for the hard work and diligence of our expert associates. They continue to execute on our growth strategy, we work to drive construction productivity for our customers. We're particularly pleased with the double-digit nonresidential growth as our teams closely collaborate to simplify projects bring order to chaos, and deliver end-to-end solutions to help maximize customer success. We're poised to deliver a strong calendar 2025 performance and our strong balance sheet enables us to invest in organic growth consolidate our fragmented markets through acquisitions, and return capital to our shareholders. We'll continue to operate at the lower end of our target leverage range maintain flexibility and capitalizes on strategic opportunities as they arise. We remain confident in our markets over the medium term, and expect to continue to outperform our markets as we leverage multiyear structural tailwinds. Our size, scale, and strategy we believe we're well positioned to take advantage of opportunities in the underbuilt and aging US housing market nonresidential large capital projects, and the growing demand for water and air specialized professionals. Thank you for your time today. Bill and I are now happy to take your questions. Operator? I'll hand the call back over to you. Harry: A. If you change your mind, please press star followed by 2 to exit the queue. And finally, I'm preparing to ask your question. Please ensure your device is unmuted locally. And our first question today will be from the line of Matthew Bouley with Barclays. Please go ahead. Your line is open. Matthew Bouley: Good morning, everyone. Thank you for taking the questions. Wanted to start on the data center and large capital projects. I'm wondering if at this point, given all the growth you've seen, you're able to quantify, perhaps what portion of the business, that is for you today, and maybe kinda where that can get to. But also, I'm curious if you can kind of know, give us a little bit of color on the timing of bidding and the momentum and if there's any risk of kind of lumpiness given how those projects work and how you ship to them or if we should kinda think that this is gonna be more of a, I don't know, smoother kinda outlook for that business. Thank you. Bill Brundage: Yeah. Good morning, Matt. Thanks for the question. I'll start this is Bill. I'll start with that one. If you take a step back and look at overall large capital projects for us, we would estimate that that that is somewhere between mid to high single digits as a percentage of our total company revenue at this point. With data centers specifically being a bit over 50% of that a bit over half of that overall large capital project. Revenue. In terms of what we're seeing in the market, the pipeline does continue to grow. So we're seeing additional projects coming into planning. We're then seeing that continue to flow into additional bidding activity. And our open order volume on large capital projects does continue to grow. And you're seeing that, you saw it come through revenue this quarter. Principally in the commercial mechanical business, which was up 21% and then a portion of that waterworks business, which grew 14%. So we are continuing to see that activity grow. Certainly, the gestation period of these projects is much longer than maybe our traditional projects. And so, yes, there could be some lumpiness, in terms of of revenue rate as as we move into the future. But overall, we remain bullish that this is a continued growth area for us, and and will continue to be driving revenue as we as we exit '25 and step into '26. And, Matt, as Bill said, the lumpiness will likely be there in the gestation period for these projects. It's gonna be longer but that's part of the reason why we're reasonably pleased with our progress. As you look at our ability to deliver scale, a multi-customer group approach, a broad base of vendors that can bring product to the site on time and in full. The impact of modular construction on data center work, that's all serving us well in terms of what those share gains look like, especially against the backdrop where traditional nonres is in a pretty challenging spot. Matthew Bouley: Alright. That's perfect. Thanks for that, guys. And then secondly, kind of jumping into the outlook I guess, maybe this is since a bit of an unusual period here where you're guiding to just kind of the sub period. I guess I'm curious if you could kind of give us any color on the November or quarter to date results. But just given this is sort of a smaller and again, unusual guidance outlook here, If you're willing to kind of give any early twenty twenty-six thoughts, you know, across the end markets, kinda carryover inflation, etcetera, to sorta help us point us, directionally a little bit into next year. Thank you. Kevin Murphy: Sure. Yeah. Matt, as as we maybe as as we take a step back, if you recall when we set out our calendar '25 guidance at the end of our fiscal year in July, We had talked about the first half of the calendar year growth being about 5%. And our expectation that we believe that that growth was gonna get a bit more challenging as we work through the calendar year particularly towards the end of the calendar year. As we were expecting additional new res pressure, and HVAC pressure to step up. And that's what we've started to see play through, so very much in line with our expectations. Maybe I'll shift to the calendar quarter as we're gonna try to try to get to the calendar year reporting now. If you look at calendar Q4 to date, so October, November, and basically the first, you know, week, week and a half of December, our total growth is sitting at about 3% for that period. Again, very much in line with our expectations with with that additional pressure on new resi and HVAC. And so, clearly, now with about three weeks to go, I would expect our calendar Q4 growth rates to be somewhere in that that 3% range as we round out the year. And then as we look forward into '26, we will set out our calendar '26 guidance in February. We're back with you in a couple of months as we get onto that calendar year cycle. But but the early part of '26, we wouldn't expect much change from a market perspective or much difference. As we exit the year at about that 3% range and then step into the step into the new year. But, again, we'll set out our views on the market. And our views on our guidance in February. Matthew Bouley: Excellent. Thanks, Bill. Good luck, guys. Harry: Thanks, Matt. Next question today will be from the line of Ryan Merkel with William Blair. Please go ahead. Your line is open. Ryan Merkel: Want to follow-up on the last comment on 4Q. Just a little bit of a slowdown there to growth up 3%. Is there anything that stands out? Or is it just maybe just seasonally, it's just a bit softer at this at this point. Kevin Murphy: Yeah. It it it is that new res pressure continuing to play through, Ryan. If you go back, permits and starts, as everybody's well aware, had continued to weaken through the calendar year. Outside of our waterworks business, there's a little bit of a lag of those slower starts coming through the rest of our customer groups, to then then play through on revenue. I think we're just seeing that playing through on those weaker starts. And then, certainly, there's more HVAC pressure, which we talked about during our last quarterly conference call. Our HVAC business was down about 6% for our first quarter or for the quarter ended October. That growth got a little bit more challenging towards the end of the quarter as the market's in a pretty tough spot. So I think those two those are the two pressure points we would point to. Still, as you look through that, we're very bullish and optimistic on the HVAC market overall over the medium to long term. And and we would believe that residential at some point will will stabilize on on the new resi side. Ryan Merkel: Got it. That makes sense and pretty consistent with what we're hearing. Let me shift to pricing. Looks like it came in a little better than you thought. Maybe talk about that and then talk about how the commodities are trending and if you expect supplier price increases as we head into the New Year? Kevin Murphy: Yes. Overall, the quarter, inflation was about 3%. So to your point, it stepped up from about 2% in the previous quarter to 3% this quarter. Finished goods was up a little bit more than it was in the prior quarter. So I'd still consider that kind of at the high end of that low single digit range. And commodities were down in the low single digit range still. As a basket. If you look at commodities, three three main baskets within that that group, PVC, which is our largest commodity basket, is still in deflation. Down in the double digit range, kind of that low double digit range. Steel, is up. I would call that mild inflation, and then we're still seeing strong inflation on copper tube and fittings. So overall, pretty consistent with what we expected. As we as we round out the first quarter and and enter into the end of the calendar year. And if we look at entering the calendar '26, we would expect modest price increases that are in line with traditional behavior on the finished goods side of the world, and those announcements are coming through right now. Hard to say what's gonna happen with all of the different dynamics that are involved in the market right now, but our expectation is that it'll be a more normalized pricing environment knowing full well that we had six quarters of deflation before we got back to flat and then plus two in the previous quarter. Ryan Merkel: Alright. Good job. I'll pass it on. Thanks. Thanks, Ryan. Thanks, Ryan. Harry: Next question today will be from the line of Dave Manthey with Baird. Please go ahead. Your line is open. Dave Manthey: Yes. Thank you. Good morning, guys. Along the lines of the the pricing discussion here with price looking like it's going to represent a pretty positive factor year over year through the, the coming calendar year against what what appears to be pretty easy deflation affected comps last year. Should we continue to expect incremental margins to run ahead of that sort of targeted 11% to 13% rate given the contribution from positive pricing over the course of the next four quarters? Bill Brundage: Maybe this is Seth. Back, Dave, we're very pleased with the operating margin in improvement that the business has delivered this calendar year. If you go back to calendar '24, we delivered a 9.1% operating margin. We've just given our updated guidance, which is nine four to nine six. So call that a nine five at the midpoint. So we're expecting a very solid progression on operating margins this year of somewhere in that 30 to 50 basis point range. Now I would remind you, we did have a bit of outsized gross margin gain during the during the middle part of this calendar year. Recall, we had a a quarter with 31% and then 31.7% gross margins, and we had flagged that there were some impact of the timing and extent of supplier price increases And then we expected that gross margin to to normalize and and you've seen that play through now in this last quarter. So we wouldn't expect that kind of outsized gain to next year. So probably actually a little bit of a headwind in the middle part of the of the calendar year versus versus the prior year, twenty-six to twenty-five. We'll set out our guidance for overall operating margins next year, and certainly, that will that will be dependent on what the market environment is like. Assuming that we have supportive market and we have decent growth, we would expect some modest progression on operating margins next year. But, again, we'll be back with you in February and give you a more clear view of what we expect at that point. Dave Manthey: Makes sense. Thank you. And second, as it relates to the $2 billion ish in revenues from major projects that you discussed, It seems like you've been having a lot of success there because of the one Ferguson effort. Could you maybe I don't know if you could quantify or or bigger than a bread basket, tell us what percentage of those projects do you get more than one product and customer group via the one Ferguson effort. Versus not. Is that something you could share with us? Kevin Murphy: Yeah, Dave. Thank you. And and certainly, when we talk about large capital projects, we're talking about those projects north of $400 million in overall construction value. And so it's it's a varied group. Certainly, data center gets a lot of the attention today, but it's beyond that to pharma, biotechnology, onshoring, reshoring, manufacturing, and and others. And so the projects do vary. I will say, and people ask us quite a bit about what happens after large capital projects aren't the talk of the day. And the answer to that is really a new way of working for Ferguson. And so we are engaged early on in the construction process, early on with general contractors and owners around what specifications look like, how we can make sure that we have supply chains that stand up to timelines, And so doing that together with the contractors on the job we're engaging most of our nonresidential customer groups on these projects, whether that be industrial, fire and fabrication, waterworks, commercial mechanical, and they vary again depending on the kind of job. But that's the way we intend to work as we move forward. Never abandoning the local relationships that we have with our core contractor base, but also making sure that we can deliver on tight timelines make sure that we got the right product set for the job to deliver. Dave Manthey: That's great, Kevin. Thanks. Harry: Next question will be from the line of Keith Hughes with Truist. Please go ahead. Your line is open. Julian: Hey, good morning. This is Julian on for Keith. Just in terms of HVAC, when do you think comps are going to start to ease from the pre shipments ahead of the standard change from last Kevin Murphy: Yeah. I'd I'd say to again, to build on what Bill has already said, the market's in a tough spot right now. We saw it get a bit worse. As we went through the quarter and exited October. It's a variety of factors, though. You've got a bit of the a two l transition. As you had pull forward. You certainly have equipment price increase playing in now. As the majority of the sell through is in that new equipment standard. And then you've got a pressured consumer that is moving a bit to repair versus replace environment. And then you had some degree of play through on multifamily new construction that is now, you know, passed. And so we're pleased with the overall execution. When does that start to get back to a replace environment? When do we start to see a bit of residential life? That's that's tough to to pinpoint. For us, we're bullish on what that market looks like over time. And we're gonna continue to build out convenient locations across The United States. Continue to build out our OEM brand representation, We're gonna continue to focus on M&A expansion as we capitalize on what we think is a growing trend with that dual trade contractor. Julian: Got it. Thank you. Harry: Next question will be from the line of Scott Schneeberger with Oppenheimer. Please go ahead. Your line is open. Scott Schneeberger: Thanks very much. Good morning. The I want to touch on some SG and A topics. Last fiscal year, you made investments in trainees, HVAC counter expansion, large project teams. Just to could I get an update on on how these investments have been trending what you're looking for maybe going out over the coming year, and, and impacts of these, of these investments to date. Thanks. Bill Brundage: Yes. Scott, thanks for the question. First off, from a trainee perspective, our trainee program something that's been really foundational to the success of this company over decades now. And it's a it's an area that we invest in in good markets and in bad markets. So we continue to add trainees year in, year out to fuel our pipeline of talent. This year, we added roughly 250 to 300 trainees in our in our classes throughout the year, and we would expect to continue that that program and expand that program as we step into calendar '26. In terms of additional investments, Kevin just talked about our HVAC expansion plans and the build out of convenient locations. We have now completed roughly 650 counter conversions So that is both taking HVAC counters and adding plumbing products as well as taking plumbing counters and adding HVAC products. And it's not just the products. It's also the expertise of and our associates that we train to ensure that we have experts serving experts. We believe that is yielding real fruit. So despite a very challenging eight HVAC environment, we believe we are outperforming that HVAC market. And have done so for the last several quarters. And we will continue, as Kevin said, to fuel that growth to to ensure that we expand that HVAC footprint. And and and maybe lastly, we're continuing to invest from a a technology and a digital standpoint. And so we continue to invest in new technology tool, digital tools, principally in the areas of HVAC. And for the repair, replace plumbing contractor. We're very pleased with the progress that we've made with with many of those investments. If you take a step back from an overall SG and A perspective, we've been able to continue to invest in those types of areas to fuel future growth while we've managed the cost base. And we did take some cost actions earlier in this in this calendar year that we talked about a couple of quarters ago. Those cost actions have played through where we've received the benefits of that. And so while even though we're operating in still a a bit of a challenging top line market environment, we're delivering good quality SG and A leverage. While we're continuing to invest in the business for the future. So we feel good about where the cost base sits as we exit calendar '25 and enter calendar '26. And maybe to just build on what Bill was saying. Certainly, the trainee aspect is a long-term investment in the business and making sure that we have a pipeline of talented associates to grow this. Business over time. He spoke about the HVAC business, so I won't be repetitive there. But when you look at what investments we've made in waterworks diversification, and making sure that we have a broad book of business from residential to public works to water wastewater treatment plant to geosynthetics and soil stabilization that is serving us well. And, certainly, we're pleased with a plus 14% growth rate We're pleased with the large capital project space. We talked about a multi-customer group approach and engaging early on in the project. But we're also investing in value-added services like fabrication. Valve actuation and automation, and virtual design. And so that's serving us well, obviously, with plus 21 in the commercial mechanical business. We're pleased. And then lastly, when you talk about Ferguson Home, and bringing together what is a best-in-class digital platform, with a showroom experience and a consultative approach and a builder outside Salesforce that's driving growth with the connected consumer to that builder, designer, and remodeler. And so we think all of those investments are proving to be successful as we move through a it's a challenging environment. Scott Schneeberger: Great. Thanks, guys. And just a follow-up. Spoke a little bit earlier. You you were asked about, supplier pricing going into next year. I'm just curious that from a high level, how are you thinking about managing inventory as you enter 2026? Thanks. Kevin Murphy: Yeah. We think our inventories are in a good spot right now. Teams are doing a really nice job and have done so managing through a unique environment. With price increases coming through the system this year. So I wouldn't expect significant changes to the inventory profile as we exit calendar '25 and enter calendar '26. We think we have the right levels of inventory to take care of our customers and to support continued market outperformance. Scott Schneeberger: Great. Thanks very much. Harry: Thank you. Our final question will come from the line of Nigel Coe with Wolfe Research. Please go ahead. Your line is now open. Nigel Coe: Thanks for the question, guys. Appreciate it. So you gave a bit of color on the calendar fourth quarter. I missed any gross margin commentary. Just wondering if there's any sense on how that's been trending year to date? Bill Brundage: Yeah. I would I would think of it, Nigel, in a pretty similar range. To the quarter that we just reported. And as we had talked about coming out of the summer months that we had expected, to get back more into that normalized range of somewhere between 30-31%, So I think you can you can expect it in that in that range. As we exit the calendar year. Nigel Coe: Great. And then a lot of helpful commentary on the larger project. Sites. In terms of I know this would probably be in quite a range, but any sense on what Stoixson's sort of opportunity would be on a typical large project? Again, I know there's no typical large project but any sense on what the kind of content might be for those? Bill Brundage: Yeah. Well, I'll caveat it with it will vary significantly. Depending on the type of project. But and and as Kevin talked about, when we talk about large capital projects, we're talking about those projects that have construction value north of $400 million. As a general ballpark, you take that construction value and somewhere 2-4% of the construction value would generally make up our product set and our customer group set. But, again, that will vary pretty significantly. And that certainly doesn't include, you know, in the likes of the data center, that wouldn't include the cost of the servers chips and those types of interior pieces of equipment to run the data center. It's more just that construction value. Nigel Coe: Right. Very helpful. Thank you. Harry: Thank you, guys. Have a great This concludes today's Q and A session. I'll now hand over to Kevin Murphy for closing remarks. Kevin Murphy: Thank you, operator. And let's end the call in the way that we began with a strong thank you to our associates for their hard work and diligence in what is clearly a challenging market. As you heard today, we're pleased with the quarter. 5% revenue growth, expansion of growth in operating margin, 16% EPS growth, operating profit growth of 14%, continued investment in the business, and a strong balance sheet. We're pleased with the execution of the teams. And the continued investment in key growth areas that are yielding solid results we're sat here today. We'll continue to focus on driving construction productivity for the water and air specialized professional. We're gonna leverage scale with the best local relationships We're gonna continue investing in value-added services and digital tools. So thank you very much for your time today, Have a happy holidays, and we'll talk to you soon. Thank you. Harry: That concludes Ferguson's results. For the quarter ended 10/31/2025 conference call. I'd like to thank you for your participation. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Rhythm Pharmaceuticals First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Dave Connolly. David Connolly: Thank you, Michelle. I'm Dave Connolly here at Rhythm Pharmaceuticals. For those of you participating on the conference call, our slides can be accessed and controlled by going to the Investors section of our website, ir.rhythmtx.com. This morning, we issued our press release that provides first quarter 2026 financial results and a business update, and that press release is available on our website. Our agenda is listed on Slide 2. On the call today are David Meeker, Chairman, Chief Executive Officer and President; Jennifer Lee, Executive Vice President, Head of North America; Hunter Smith, Chief Financial Officer; and Yann Mazabraud, Executive Vice President, Head of International, who is on the line joining us from Europe. On Slide 3, I'll remind you that this call contains remarks concerning future expectations, plans and prospects, which constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our most recent annual or quarterly reports on file with the SEC. In addition, any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent dates. We specifically disclaim any obligation to update such statements. With that, I'll turn the call over to David Meeker, who will begin on Slide 5. David Meeker: Thank you, Dave. Good morning and thank you for joining. So we had another good quarter. Now before we dive into some of the more recent events, I do want to highlight the ongoing progress in our base business, predominantly BBS. Revenues for the quarter were $60 million. As we would expect with an ultra-rare disease, awareness of the disease continues to grow, leading to more patients diagnosed or potential candidates for therapy. We have learned much through this initial launch, and we continue to adapt and optimize use of available data to connect with the right health care providers who may have a BBS patient. There is still more long-term opportunity to unlock with BBS. With the FDA approval of IMCIVREE for acquired HO on our PDUFA date and European marketing authorization, which came early, we have expanded our focus. As with the BBS launch, our plan will be to share a few of the early launch metrics with the goal of giving you a sense of how it is working, with the usual caveat that it is extremely early. That said, we are pleased with the strong start, with more than 150 start forms to date and a good reception at the payer level. Jennifer will provide more details. Slide 6 is to remind you again of the significant opportunity in HO, with an estimated prevalence of 10,000 patients in the U.S. and Europe and 5,000 to 8,000 patients in Japan. And with a much more concentrated call point than BBS, this is a meaningfully larger opportunity. Japan is positioned to be the second-largest opportunity for HO behind the U.S. As we have shared, we have been extremely appreciative of the highly collaborative, encouraging nature of our interactions with the Japanese regulatory authority, the PMDA. All Japanese patients have completed the 12-month trial, eight patients on treatment and four on placebo. One patient discontinued early secondary to hyperpigmentation. Slide 7 shows the BMI change as compared to the values for the full 142 patients. As you can see from the results, the results were similar to the full cohort. The placebo-adjusted differences were slightly less, mostly due in part, at least, to the fact that the placebo group did not gain weight in the same way their Western counterparts did. Although the numbers are small, this may reflect cultural differences with a more obesity-prone environment in the West. The team has moved rapidly to complete the filing, putting us in the position of an anticipated approval before the end of the year. The Japanese team is fully in place, and Yann will talk more about the opportunity and the organizational build. Finally, as we have previously shared, we look forward to a number of milestones this year. Pending late-breaking abstract acceptance, our goal is to share Dr. Miller's 6-month data in PWS at the endo meeting in June. Similar to what was presented in December, we would expect to share BMI data, HQCT data and DEXA scan data for those patients who have completed the scans. We anticipate sharing 718 data midyear, and we are targeting the Q2 earnings call, at which time we would share the Part C results in HO and potentially the available data in PWS. CMC work and biva bioequivalent studies for the new formulation are underway, with the goal of being in a position to start the Phase III trial with bivamelagon in HO by the end of 2026. I will now turn the call over to Jennifer. Jennifer Chien: Thank you, David. I'm going to be starting today on Slide 10. It is an exciting time for Rhythm with the acquired HO approval, and our U.S. commercial launch is off to a strong start. The early reception has been positive. Physicians are prescribing IMCIVREE for patients with acquired HO, payers, especially those with experience through BBS, have begun approving reimbursement, and we have patients with acquired HO who have started therapy. IMCIVREE was first approved in 2020 for POMC and LEPR, and we launched in 2022 for Bardet-Biedl syndrome. BBS is an ultra-rare disease with an estimated prevalence of 5,000 in the U.S. Disease awareness and diagnosis rates were low at the time of launch. Over the last three years, we helped build an active community of engaged physicians who support the earlier identification and treatment of patients. And we have worked to expand reimbursement of IMCIVREE. In doing so, we delivered steady, consistent growth over the last three years. It wasn't always easy, but we've learned from the challenges along the way and laid a solid foundation for future launches, including our recent one in acquired hypothalamic obesity. For BBS, in the first quarter of 2026, we had steady growth in prescriptions. Similar to Q1 last year, we had patients that transitioned to new insurance plans, leading to a temporary increase in patients provided free drug through our bridge program. As of mid-April, we had transitioned most of these patients back to reimbursed therapy, and we are seeing steady growth in commercial patients. Now moving to the acquired HO opportunity, which we estimate is approximately twice the size of BBS at 10,000 patients. We've grown our commercial organization to extend our reach in this larger opportunity, going from 16 sales reps for BBS to a total of 42 sales reps deployed across the country. We have similarly scaled our patient services team as well. The FDA approval on March 19 and the broad label, which goes beyond tumor and tumor treatment-related HO to include other injuries that may lead to acquired HO, has opened the doors for our team to engage with more physicians. Our team's continued engagement with HCPs around the causes of acquired HO, the role of the MC4R pathway and the compelling efficacy data and product profile of IMCIVREE. This has resulted in the identification of more acquired HO patients. And we've seen steady progress of patients. This has resulted in the identification of more acquired HO patients, and we've seen steady progress of patients moving to diagnosis from suspected as physicians gain a better understanding of this unique disease and its causes. Next slide. The initial response from patients and the physician community reflects the high unmet need for treatment for acquired HO. We have received more than 150 start forms in the six weeks since approval. Of these start forms, approximately 40 are for clinical trial patients. During the first six weeks of launch, there have been approximately 110 unique prescribers for acquired HO, of which about 80% are new prescribers of IMCIVREE. To date, the large majority of prescribers have written one script for an acquired HO patient. In these early days of launch, approximately 80% of prescribers are endos, along with some pediatricians and primary care physicians. We're seeing encouraging receptivity among payers, too. Having approval in place enables us to get back in front of payers to continue education around acquired HO and IMCIVREE for this new indication. Our prior education that led to IMCIVREE coverage for BBS has facilitated our discussions with payers and supported their understanding of acquired HO as an MC4R pathway disease. We are pleased to see initial approvals for reimbursement for acquired HO prescriptions during this early phase of launch, but we continue to expect it will take approximately three to nine months from approval for HO-specific IMCIVREE policies to be established. The early launch indicators are highly encouraging, reinforcing our confidence in the long-term potential of IMCIVREE in hypothalamic obesity. We look forward to updating you on our progress. With that, let me hand it over to Yann. Yann Mazabraud: Thank you, Jennifer. I will begin on Slide 13. We are very excited about the HO opportunity in the international region as we achieved significant milestones and our path towards bringing IMCIVREE to more patients. Just last week, the European Commission granted marketing authorization for IMCIVREE for the treatment of obesity and control of hunger in patients four years old and older with acquired hypothalamic obesity due to hypothalamic injury or impairment. Our dialogue with European regulators was very constructive and efficient, resulting in the EMEA's positive CHMP opinion coming sooner than we originally expected with marketing authorization following just one month later despite this process typically taking two months. This is a tremendous achievement and the result of years of work and collaboration between Rhythm and our investigators, the European HO experts and the regulatory authorities, all of whom focused on bringing the first-ever therapy specifically approved for patients with HO. With an estimated prevalence of approximately 10,000 patients in Europe, this is a meaningful opportunity, and we have a very experienced market access team that will lead us through country-level negotiations with launches anticipated to begin in 2027. Similar to the process we previously followed for our approved indications of POMC/LEPR and BBS, we have begun efforts to seek an exemption from the German Federal Joint Committee, the G-BA, from its exclusion list that prohibits reimbursement for lifestyle drugs, such as drugs indicated for smoking cessation and general obesity. The CHMP opinion enabled us to begin this process, which can take six to nine months, putting us on track for a launch in Germany in 2027. In addition, the key local reimbursement dossier are finalized and we will begin negotiations in France, Italy, Spain and other countries. For the U.K., we leverage our EU submission through the International Recognition Procedures, IRP, to seek authorization from the Medicines and Healthcare Products Regulatory Agency, or MHRA. This was already submitted last week based on the positive CHMP opinion. Of course, there is already much enthusiasm in Europe as we have seen with the reimbursed early access programs for HO in France and Italy, which accounts for a meaningful portion of patients on reimbursed therapy in the international region. These early access programs have enabled many of the leading physicians in France and Italy to begin patients on setmelanotide, gain experience with the drug and see the benefit in patients. The French AP1 program, in particular, has generated real-world efficacy results for publication, adding to the body of evidence supporting setmelanotide therapy for HO. Next week, at the European Congress of Endocrinology in Prague, French physicians will present real-world data from more than 60 patients with HO on setmelanotide in the early access program, including a cohort on therapy for up to 12 months. Next slide. We are also rapidly advancing towards achieving anticipated marketing authorization and commercialization in Japan. With an estimated 5,000 to 8,000 patients with acquired hypothalamic obesity in Japan, where the prevalence and incidence rates are higher on a per capita basis than Europe and the U.S., the unmet need for an effective therapy is quite pronounced. There has been strong KOL support since we first disclosed our Phase II data in HO and our commitment to quickly bringing IMCIVREE to Japanese patients in need has enabled positive and open dialogue with Japanese regulators. We now have almost 50 employees in Japan, and we've begun executing on our pre-launch tactics focused on disease awareness, including face-to-face interactions, webinars and symposia and patient identification. These activities provide us with a strong understanding of the disease landscape and position us well to begin pricing negotiations upon approval. Just last month in Japan, I joined the team for a series of meeting with KOLs and Japanese government officials. In addition to the excitement for the potential impact setmelanotide will have on these patients, these KOLs and officials told us they were very appreciative of the speed and urgency with which we entered Japan. Of particular note, our team has moved fast, potentially securing approval in Japan less than a year from the U.S. approval when many companies wait years or partner with someone else to pursue approval. As we announced today, the PMDA has accepted and is reviewing our NDA filing for IMCIVREE for acquired hypothalamic obesity. Japanese regulators do not publish or announce a time line for approval as it is done in the U.S. and Europe, but we anticipate approval and launch by the end of 2026. Slide 15. Lastly, Q1 2026 was another strong quarter for the international region. We saw double-digit percent growth in patients on reimbursed therapy throughout the region, which includes more than 25 countries where IMCIVREE is available through national reimbursement or patient sales. BBS was a primary driver of growth from Q4 2025 to Q1 2026 with the early access programs in France and Italy for HO contribute meaningfully. Since IMCIVREE was first authorized in Europe for POMC and LEPR in 2021, we have built a very strong foundation with positive and collaborative relationships in place with many experts and market access officials. This experience will serve us well with HO. With that, I will turn it over to Hunter. Hunter Smith: Thank you, Yann. I begin on Slide 17. Rhythm is well capitalized and off to a strong start of what promises to be a transformational 2026. The initial phase of the U.S. launch and acquired HO is quite encouraging, and we're excited about the significant ongoing progress in the international region as well. We had a solid first quarter of 2026 with $60.1 million in global net revenues from sales of IMCIVREE, which represents 5% sequential growth over Q4 2025. During the first quarter, 61% of revenue was generated in the United States with the remainder generated outside the U.S., reflecting continued strong performance across those geographies. Globally, we saw continued growth in patients on reimbursed therapy with an 8% increase over the prior quarter, driven primarily by BBS. On Slide 18, I'll walk through the revenue quarter-over-quarter as revenue increased from $57 million in Q4 2025 to $60 million in Q1 2026. First, the U.S. while the number of patients on reimbursed therapy in the United States increased from the end of Q1 to the -- end of Q4 to the end of Q1, the specialty pharmacy inventory increase of approximately $1.8 million in Q4 had the effect of pulling sales forward, which affected U.S. revenue during the quarter. Separately, during Q1, shipments to RSP and dispenses to patients were pretty balanced. Therefore, specialty pharmacy inventory changes during the quarter did not have a significant impact on revenue. In addition, as we saw last year during the first quarter, and as Jennifer mentioned, a number of patients transitioned insurance plans in the new year. And as a result, they received free drug from our bridging program for some or much of the quarter. Due to the strong collaborative efforts of our patient support teams working closely with patients, payers and HCPs, the number of patients on bridge therapy has since returned to Q4 levels. Revenue outside the United States increased from $18.3 million to $23.2 million in Q1, reflecting a 27% sequential quarter-over-quarter increase. This growth was driven by increased sales volumes in Germany and France as well as certain named patient sales markets, particularly Saudi Arabia and Greece. As we have said previously, some of these named patient sales markets order with longer lead times, which can result in more variable quarterly revenue growth. On Slide 19 is the financial snapshot of the first quarter of 2026 results compared to the first quarter of 2025. Gross to net for U.S. sales in Q1 was 84%, which is consistent with recent quarters. Cost of goods sold in this quarter was 11.9% of product revenue within our normal range and primarily driven by cost of materials and royalty payments on setmelanotide in connection with higher product revenue during the quarter. As a percentage of product revenue, COGS can vary quarter-to-quarter based on changes in inventory balances and manufacturing activity. R&D expenses were $41.7 million for the first quarter of 2026 compared to $37 million in the same period last year. Sequentially, R&D expenses were flat compared to the fourth quarter of 2025. During the quarter, an increase in headcount and related costs was offset by a decrease in clinical trial costs and costs related to chemistry, manufacturing and controls or CMC work. The year-over-year increase is primarily attributable to an increase in headcount-related costs. SG&A expenses were $63.6 million for the first quarter of 2026 compared to $39.1 million in the prior year period. Sequentially, SG&A expenses increased by $6.1 million or approximately 11% compared to the fourth quarter of 2025. The change in SG&A expenses primarily reflected higher headcount-related costs, including stock-based compensation and marketing activities in support of the anticipated launch of IMCIVREE in acquired hypodynamic obesity. Weighted average common shares outstanding were 68 million in Q1. Cash used in operations was approximately $44.2 million during the quarter. GAAP EPS for the first quarter of 2026 was a net loss per basic and diluted share of $0.83, including $0.02 per share from accrued dividends on convertible preferred stock of $1.1 million. We ended the first quarter with approximately $341 million in cash, cash equivalents and short-term investments, which we continue to expect will be sufficient to fund planned operations for at least 24 months. Lastly for me, on Slide 20, there is further detail on operating expenses for the first quarter and our full year operating expense guidance. For the first quarter, operating expenses of approximately $105.3 million included $23.1 million of stock-based compensation. Non-GAAP operating expenses for Q1 were $82.2 million. We expect this increase on a quarterly basis throughout -- we expect this to increase on a quarterly basis throughout 2026 due to investments in CMC supporting RM-718. The increased spending on clinical trials -- increased spending on clinical supply of bivamelagon ahead of our planned Phase III trial in hypothalamic obesity and the ongoing build-out of our team in Japan and preclinical work associated with our CHI program. Our guidance is unchanged as we anticipate approximately $385 million to $415 million in non-GAAP operating expenses in fiscal year 2026, comprised of non-GAAP R&D of approximately $197 million to $213 million and non-GAAP SG&A expenses of approximately $188 million to $202 million. With that, I'll turn the call back over to David. David Meeker: Thanks, Hunter. So, in closing, I hope it's clear why we're excited about building the next phase of Rhythm. We see three clear pillars supporting this phase. Work is continuing on the genetic causes of MC4R pathway impairment. That work is focused on improving our understanding of the specific genetic variants to better clarify those variants which have true loss of function. Those patients would be the focus of our next trials, which will be done with one of our next-generation therapies. That work will continue through 2026. The second pillar, as we have focused on today is hypothalamic obesity, either due to injury or hypothalamic dysfunction due to failure of the hypothalamus to develop normally. And the third pillar is Prader-Willi syndrome, an extremely complicated disease with a huge unmet need, where we believe the MC4R pathway plays an important role. We are aggressively pursuing our life cycle management strategy with the next-generation therapies, and we are building out our early research function focused on a small number of programs, which includes our program for CHI. With that, we can now open the call for Q&A. Operator: [Operator Instructions] And the first question will come from Phil Nadeau with TD Cowen. Philip Nadeau: Congrats on the HO launch. Question is on those patient start forms and patient identification. I think the last number you gave us for a number of patients identified was approximately a few thousand, but you've said you've identified more since. Any update to that number today? And of the patient start forms you've received, how many were from that patient pool versus how many were newly discovered patients since launch? David Meeker: Jennifer? Jennifer Chien: Sure. So we've continued to make progress. We had a tiered list of groups that our sales reps were out targeting just in terms of disease education, and we've continued to make inroads in terms of penetrating that list. As I outlined, the 2,000 number has continued to increase even since that September date. It's not a number that we are updating moving forward as we're focusing more on metrics, including start forms. So many of those start forms that we've received, if you take a look at them, have come from the list of physicians that we educated prior to approval. I would say that overall, the vast majority of these start forms were from physicians that our field teams had some type of engagement with prior to approval. Operator: And the next question will come from Paul Matteis with Stifel. Paul Matteis: Congrats on the early launch progress. Taking a step back, it feels like with a number of rare disease launches lately, the street just debates whether early success is a bolus or linear and sustainable. It looks like outside of the patients who are converting from clinical trials, you're adding around 20-ish a week. Do you feel like that's a cadence based on your visibility and conversations with physicians that could be sustainable for 2026? Or if not, how are you thinking about the kinetics? Jennifer Chien: Sure. So I would say like overall, we were very pleased just in terms of the early -- first six weeks just in terms of how we were progressing. As you mentioned, we did have 40 of those Rxs coming from trial conversions and our teams continue to work with our clinical teams just in terms of pulling those forward. I would say that from the trial conversion piece, the remaining patients really are going to be based on the last visit that is actually set. So we continue to work through those in the next quarter and so moving forward. In terms of additional patients beyond the trial conversion, you talked about bolus. I would say that in any launch, as expected, there's going to be physicians who are quite activated just in terms of waiting for approval. We have some that have proactively reached out to their patients upon approval to let them know about the availability of therapy. But the vast majority of the patients or the physicians are waiting to have those conversations with their patients as they come in for their regularly scheduled visits. So that will flow through on, I would say, more of a steady pace moving forward. And we still have a lot of opportunity in terms of education as we move forward into the launch. David Meeker: Did that answer to your question, Paul? Paul Matteis: Yes. Operator: And the next question is going to come from Derek Archila with Wells Fargo. Derek Archila: Congrats on the progress here. I just had a question on the 110 prescribers. I guess what's the makeup of these physicians. Are these mostly in centers of excellence? Or are these more one-offs? Jennifer Chien: So in terms of the prescribers, one, I will say that we were very happy to see that there is a nice breadth of physicians with patients that have been activated just in terms of interest to prescribe IMCIVREE for their patients. Is that something that we will continue to focus on as we move forward as there were many physicians on our targeted list with potential patients? To date, I would say that the vast majority, similar to other rare diseases of these physicians have written one script for their patients. But I would also say that there is still opportunity that remains with some of these physicians just in terms of having additional patients within their practice. And that is aligned with sort of the flow that I outlined in terms of those patients coming in so that physician can have that ongoing dialogue regarding diagnosis as well as IMCIVREE potential. And then relating -- sorry, relating to the concentration within the centers of excellence. In the past, we have outlined that we are focused in terms of these 42 priority accounts. However, I would say that our list follows also the patients that we have identified in the claims and the physicians who actually have these patients potentially that are HO patients. And so that breadth goes beyond these priority accounts, and we have received definite scripts that are outside of these priority accounts as well. Operator: And the next question is going to come from Dennis Ding with Jefferies. Yuchen Ding: Congrats on the quarter. So we're trying to get a sense of underlying demand here. So for the doctors who have prescribed IMCIVREE to an AHO patient, what's primarily been the gating factor preventing them from prescribing it to their second or third patient? Is it doctors getting comfortable with the product profile and reimbursement? And it seems like the vast majority of them are new to IMCIVREE or perhaps just the timing of patient visits. Jennifer Chien: So I would say that the primary gating factors are -- could be two pieces. The primary one is the pace and the schedule just in terms of those patients coming in to have that dialogue around IMCIVREE. So that is really pre-planned just in terms of what that normal visit may look like for that patient. I think the other factor is, as we also continued with our education with HCPs, there were some patients that may have come top of mind or had already been diagnosed. But through our education, they also had several aha moments just in terms of other patients that they suspected may also have AHO. And going back in terms of our breadth, we were very pleased in terms of the label that we got upon approval that was squatters and just brain tumor and brain tumor management-related causes of AHO. So there's still opportunity just in terms of educating about the other potential causes of AHO and getting those patients also to a diagnosis. Operator: Next question comes from Corinne Johnson with Goldman Sachs. Corinne Jenkins: Maybe if you could just quantify a bit more the reimbursement dynamics here for these AHO patients that are getting on therapy and translate that to how we should think about maybe net price per patient as this becomes a bigger portion of contribution to revenue? David Meeker: Yes. As Jennifer [indiscernible] just for the reimbursement. So a little bit of sense for the mix of payers here. And then I think Corinne's getting at the Medicaid, of course, would have a discount and the like and so. Jennifer Chien: Sure. So we are very early in the launch with just in terms of understanding what that payer mix will look like. And with that said, what we have seen is we've received scripts from basically all different payer types. I would say that just from the access perspective moving forward, I think there was a lot of benefit just in terms of the education that we had done with the BBS and the payers who have experience with BBS, also understanding that this is very different than general obesity. So once again, very pleased in terms of the fact that we did and already do have patients who have been approved for reimbursement as early in the process. The caveat here is that in terms of actually having those policies in place, I reiterate that expectation continues to be approximately three to nine months from approval. So we're going to continue to monitor what that payer mix looks like as we move forward and update in future calls. Operator: And the next question will come from Michael Ulz with Morgan Stanley. Michael Ulz: Congrats on the launch as well. Maybe just a follow-up on the HO launch, just in terms of the greater than 150 start forms. Maybe if you can compare that to your internal expectations at the beginning of the launch? And then secondly, just how should we think about converting those patients to revenues, just given it sounds like you're having sort of good traction with payers early on here? Jennifer Chien: So I would say that overall, just in terms of the start forms that we've received. We were really pleased with, one, the speed just in terms of working and all the work has been done with planning for those clinical trial conversions. So once again, the number that we were able to convert to actually having a commercial Rx was great just in terms of that collaborative effort to get to that point. In terms of the other Rxs that we've received, I think that it is a strong start. Right now, we still feel like there's a lot of opportunity that remains just in terms of physicians that we've spoken with that may potentially have a patient who will have that conversation as we move forward. So, we do expect to see a steady growth throughout the year just in terms of the Rxs we received moving forward. From the payer dynamic piece, I would say that in terms of the approvals, if we also compare with BBS, well, one, the expectation in terms of these Rxs being denied upfront because there isn't a specific HO policy in place early just in terms of launch. That did happen. However, like with the appropriate information that was provided, we were seeing with some of these payers a quicker approval time line than we did in the initial BBS launch. So I think that was a positive dynamic that we did see. Operator: And the next question is going to come from Seamus Fernandez with Guggenheim. Seamus Fernandez: So there's going to be some updates on PWS soon. And just wanted to get a better sense of what you believe the sort of clinical value add of setmelanotide in this space or at least targeting MC4R can be in this space. Is it going to be exclusively on weight loss without much benefit on satiety? Is it both weight loss and satiety benefits that are a possibility? Just trying to get a better sense of what you see the overall kind of PWS target product profile that you're seeking in this setting and what we're likely to learn with the six-month data versus potential update on the second quarter results conference call, which may be incremental to the presentation in that setting. David Meeker: Yes. Thanks, Seamus. Yes, just to be clear, for the 718 data, that Prader-Willi data, whatever we have, and hopefully, we'll have something that we can comment on at that point, but that will be extremely early in a much smaller number of patients. So the most informative data set that's coming is Dr. Miller's data set, which we'll put out at endo. Our expectation is really just based on the biology here, right, which is MC4R so one, as I said in my opening comments there, I mean, we're quite convinced that this MC4R pathway is an important part of the biology in Prader-Willi. It's not the only thing. Correcting this does not fix or help correct a Prader-Willi patient's disease, but it can have, we believe, a significant impact. And that biology is a satiety signal. You decrease hunger and we think an accompanying decrease in their hyperphagia symptoms, which are the behaviors that are driven by that severe hunger and increases energy expenditure. And the net of that will be a decrease in their overall weight. We also know, and we highlighted this on our December call when we released the early data from Dr. Miller's trial, there's other reasons these patients eat, and we talked about the obsessive compulsive disorder part of this and the like. And so those are confounding elements of a very complicated disease. But specifically with regard to what we would hope, it would be both, both a reduction in their hyperphagia symptoms and a decrease in [indiscernible]. Operator: And our next question will come from Samantha Semenkow with Citi. Samantha Semenkow: Congratulations on the early HO launch. I have one on Japan. Just given the large potential market for HO in Japan, this is a bit in your prepared remarks, but could you elaborate more on some of the feedback you've received from Japanese KOLs on the impact IMCIVREE could have in this population? And then just pending the approval there later this year, how should we think about the trajectory of that launch in Japan relative to the early start we've seen thus far in the U.S. for HO? David Meeker: Yes. So Yann, did you got that? So KOL reactions to... Yann Mazabraud: Yes. Thank you for the question. So first of all, as I said in my remarks, I was in Japan a few weeks ago, and I have met with the many of the Japanese KOL and many of the investigators of the trial. So first, I think everybody in Japan is really concerned about the disease because of the significant prevalence. Two, they saw firsthand the results on their patients. So they are already believers in the efficacy of the drug. The third aspect is that we have engaged with them extremely early on. So it's more than three years that we have interacted with them, and they have been part of publications and they have worked with us on a lot of data. So there is almost already a long-lasting relationship with them. So that's the third aspect. The third aspect in terms of trajectories is still difficult to -- so first, I will not compare the U.S. and Japan, as it is a bit difficult to forecast. We have good results so far in terms of patient identification. We have identified 151 Tier 1 hospitals with the highest volume of brain tumor surgeries, and those hospitals are currently being visited by the Japanese field force. So again, I will not give a number, but we think that we have a significant amount of Japanese patients who will start the treatment in '27 following the launch. Operator: And the next question will come from Joseph Stringer with Needham & Company. Joseph Stringer: You mentioned the 150 start forms in the first six weeks of the AHO launch, 40 or so from the clinical trial. How does this number of start forms compare to the first six weeks of the BBS launch? And is this a fair comp at this point? And then our second question is on the patients, the 150 patients associated with the start forms. How many of these are tumor injury-related patients, and those who have had surgery? Just curious, given the broad label, what you're seeing in terms of a diverse patient pool, perhaps outside of the more common tumor-related cause? David Meeker: Yes. Thanks. So maybe I'll make a comment on the BBS, and then Jennifer can comment on the mix of the tumors versus [indiscernible]. So is BBS a good comp? I mean, it's a rare disease. I think there are some fundamental differences here, which we've highlighted just in terms of how the HO population, A, is larger, but B, also being concentrated in the endo. So there is a difference there. So I'm not sure it's the best. That said, this is a steeper launch. I mean, the rate of start forms in the first six weeks is higher than we had in BBS. I'll make a few comments once we finish all the questions about how to put all this together. But I think what you're hearing is, yes, we're really pleased with the 150. And yes, it is a more rapid start than we had with BBS. And on the tumor, Jen? Jennifer Chien: Sure. And I'll echo the point that David made just in terms of the difference between the number of start forms in the first six weeks of the HO launch versus the BBS launch. The piece, though that I don't exactly remember, is the number of trial conversions on the BBS side, where that study had a much smaller number of total patients who were in the U.S. in that BBS study. But definitely, even with that said, a higher number of Rxs on this launch versus the BBS one. In terms of the backgrounds of the patients, the vast majority of these patients are with tumor or a tumor treatment-related background. However, our indication is broader, and it covers things like stroke, TBI, or inflammation. And we have received Rxs from patients with these backgrounds as well. And I think that to date, the physicians who are aware of acquired hypothalamic obesity, I think their thinking is more around the tumor-based background. So there's still a lot of opportunity in terms of even educating physicians holistically in terms of the various other backgrounds that may lead to acquired hypothalamic obesity moving forward as well. Operator: And our last question is going to come from Lisa Walter with RBC Capital. Lisa Walter: Maybe just one on Prader-Willi syndrome. I'm just curious how important you think it is for ex-U.S. approval to have both hyperphagia and weight loss on the label. I think with ViTAD, we saw that the EMA perhaps did not want to approve ViTAD, given some of the chosen endpoints. So just curious how you are thinking about Prader-Willi syndrome trial design here for success, both in the U.S. and ex-U.S. David Meeker: Yes. Thanks for the question. I think one, just back to the mechanism of this drug and this pathway. It's a satiety signal. We reduce hunger. We've shown that consistently across all of our trials. We haven't, for some trial design reasons, had some challenges getting that into the U.S. label, but we have gotten it into the European label. So the European label, it is indicated for the reduction of hunger and diseases that we're studying. So as I said before, our expectation is that we will seek a label that has both a hyperphagia reduction with the expectation that we would get that worldwide globally, certainly in the three major regions that we've talked about today, and a reduction in weight/BMI. Operator: And I would now like to turn the call back over to David Meeker for closing remarks. David Meeker: So thanks, everybody, for tuning in. I hope -- and thanks for your patience here. I realize everybody would like the specific numbers and the ability to provide guidance. And as we've said with BBS, and as we all know, launches are enormously challenging to forecast, and rare disease launches are even more difficult. So with that famous caveat that it is early, what you're hearing is, yes, we're pleased. We're really pleased with the start here. I think this is a strong start. We're very happy about the breadth of prescribers that Jennifer highlighted. This is not a launch where we've got two or three believers, and they're writing a bunch of scripts. This is where it's very broad. The dynamic that question was raised. And as Jennifer highlighted, I think the good news about the dynamic is that there's been some reasonable sense of urgency. And we're at the Pediatric Endocrine Society meeting over the weekend in San Francisco. And I've been around a lot of rare disease type meetings, and rare diseases tend to get lost in these larger meetings, and that wasn't a huge meeting. But I have to say I was struck by the level of awareness, the number of endos, endocrinologists, pediatric endocrinologists, in this case, with awareness, a tremendous amount of excitement, and just really struggling with what they can do for their patients, and excited about at least now that there's something to do. So all of those dynamics, again, are very much in the positive category here. So we look forward to updating you. That will be on our Q2 call, but pretty excited about where we are out of the gates. Thanks, all. Operator: Thank you. This concludes today's conference call. Thank you for participating, 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 thank you for standing by. My name is Mel, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Tidewater Inc. First Quarter 2026 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to West Gotcher. Go ahead. West Gotcher: Thank you, Mel. Good morning, everyone, and welcome to Tidewater Inc.’s First Quarter 2026 Earnings Conference Call. I am joined on the call this morning by our President and CEO, Quintin V. Kneen; our Chief Financial Officer, Samuel R. Rubio; and our Chief Operating Officer, Piers Middleton. During today’s call, we will make certain statements that are forward-looking and refer to our plans and expectations. There are risks, uncertainties, and other factors that may cause the company’s actual performance to be materially different from that stated or implied by any comments that we are making during today’s conference call. Please refer to our most recent Form 10-Ks and Form 10-Q for additional details on these factors. These documents are available on our website at tdw.com or through the SEC at sec.gov. Information presented on this call speaks only as of today, 05/05/2026. Therefore, you are advised that any time-sensitive information may no longer be accurate at the time of any replay. Also during the call, we will present both GAAP and non-GAAP financial measures. Reconciliations of GAAP to non-GAAP financial measures can be found in our earnings release, located on our website at tdw.com. I will now turn the call over to Quintin. Quintin V. Kneen: Thank you, West. Good morning, and welcome to Tidewater Inc.’s First Quarter 2026 Earnings Conference Call. I will start the call today with the quarter’s highlights and then talk about capital allocation and what we are seeing on vessel supply and demand. West will walk through our financial outlook and what we are thinking about for 2026 guidance. Piers will cover the global market and operations, and Sam will close with the consolidated financial results. Each of us will touch on the impact from Operation Epic Fury. Starting with the first quarter, revenue and gross margin were both ahead of what we expected. Revenue was $326.2 million, driven mainly by higher utilization and stronger day rates. Gross margin was just under 49%, up slightly quarter over quarter and over three percentage points above our internal plan. Utilization benefited from strong uptime with less downtime for repairs and fewer dry-dock days than we expected. Overall, I am really pleased with the operational execution and with the returns we are seeing from the fleet investments we have made over the past few years. Before I get into more detail on the financials, I want to touch on Operation Epic Fury, what it meant for the quarter, and what we are watching going forward. As I said on last quarter’s call, we had not seen any disruption to our business at the outset, and we expected that any cost impact—especially insurance and fuel—would be immaterial. Quintin V. Kneen: And so far that has held to be true. Our vessels in the Middle East continue to operate normally, and utilization and revenue in the first quarter—specifically March, the first full month after the operation began—came in above our forecast. We did see some higher costs, mainly in crew along with insurance and fuel. The biggest item has been the incremental hazard pay for our crews. Insurance and fuel have been a smaller piece. Sam will share more detail in his remarks. Looking ahead, we are seeing pent-up demand in the region, and we believe activity could rebound above what we expected just a quarter ago once the conflict is resolved. In the first quarter, we generated $34 million of free cash flow. The step down sequentially was related to less cash flow from working capital and relatively higher dry-dock spend. Just as a reminder, in the fourth quarter we collected a sizable past-due receivable from PEMEX, which drove the working capital change, and Q4 is typically our lightest dry-dock quarter, whereas Q1 is usually our heaviest as we get vessels ready for a busier working season as the weather improves. That drove the dry-dock change. Importantly, nothing has changed in how we are thinking about free cash flow for the year, and the first quarter is tracking with our expectations for 2026. As we discussed previously, during the first quarter we announced our agreement to acquire Wilson Sons Ultratug Offshore—22 PSVs focused exclusively on the offshore market in Brazil—for $500 million. We have already started the pre-integration work using the playbook we built through prior acquisitions. The Wilson team has been well organized and is highly capable, and we are making good progress getting ready to bring the business onto the Tidewater Inc. platform. On approvals, things are moving as expected and we still anticipate closing by the end of the second quarter. We did not repurchase any shares in the first quarter because we plan to fund the equity portion of the Wilson transaction with cash on hand, and we are still waiting for consents to transfer the existing Wilson debt. We still have $500 million authorized under the program, which represents about 12% of the shares outstanding as of yesterday’s close. Even as we work towards closing and integrating Wilson, we are still in a good position to look at additional M&A opportunities. Our balance sheet remains strong and we continue to expect net leverage to be less than one times at closing. Liquidity is solid, and after issuing our unsecured notes last summer we have good visibility into the cost of debt capital should we decide to use it for an acquisition. Our preference is still to use cash, but we will consider using stock if the right fleet is available at the right value. With the GulfMark, Swire SOF segment, and now Wilson acquisitions, we have built a meaningful presence in essentially every major offshore basin. These have largely been newer, higher-specification fleets, and they have helped reestablish Tidewater Inc. as the leading OSV provider globally. We have also successfully reentered Brazil, which we have talked about as a priority market. From here, we will stay focused on fleets and geographies where our platform gives us an edge and where bringing additional vessels onboard can create outsized value. We continue to benefit from our scale and high-specification PSVs and anchor handlers, two of the most in-demand vessel classes in the global OSV fleet. When we look out over the next couple of years, we see the market tightening in late 2026 and into 2027 and 2028. That should set up for meaningful day-rate improvements over that time. If day rates move up the way we expect over the coming years, that will flow through to higher earnings and cash flow generation. If we do not see value-accretive acquisitions, we will look for other ways to put that excess cash to work. Our share repurchase philosophy has not changed. We will be opportunistic and disciplined, and more broadly, we do not think it makes sense to build and sit on a large cash balance for an extended period. As we move through to the Wilson closing and into a period of higher free cash flow, we will stick with the same capital allocation framework that is core to how we run the business. In practice, this means we will continue to weigh the relative merits of M&A versus share repurchase. We continue to view buybacks as an attractive way to return capital to shareholders. Turning to the outlook, while the Middle East conflict is still ongoing, what we have seen so far could be a positive for the offshore vessel market over time. Energy security became a key theme since the conflict in Ukraine, and the Middle East conflict has added another layer—an increased focus on sovereign energy independence, particularly in the Eastern Hemisphere. So far, at least 500 million barrels of oil have been lost, and there is still no clear sign when recent production losses will be reversed. The longer that goes on, the bigger the need becomes to replace those inventories, and historically, crude prices have had a strong relationship with inventory levels. Continued depletion should provide longer-term price support. Put together, the inventory drawdown and the heightened awareness of geopolitical risks suggest oil prices may have a higher floor than before the Middle East conflict began, which supports additional offshore projects. Stepping back, we think the trend towards offshore development supports a structural improvement in demand for offshore activity and for offshore vessels. We see this as a long-term dynamic, and it is additive to the demand we have been seeing already. Recent comments from offshore drillers point to a meaningful increase in fixtures and a high level of drilling unit utilization. We view the expected pickup in offshore drilling as a strong positive for our business. We support a range of offshore applications, but drilling activity typically has the biggest impact on vessel demand. Offshore vessel activity has been building year to date, and as it continues to pick up, the pressure on available supply creates an opportunity for higher utilization and higher day rates. On the supply side, the global fleet has stayed essentially flat over the past few years. A handful of vessels are expected to deliver late in this year and into early 2027, but we view those additions as relatively small in the context of the overall market. As supply tightens further, we can see a path to day-rate increases of roughly $3,000 to $4,000 per day per year for the entire fleet, moving the fleet back towards earning its cost of capital. We are excited about the drilling outlook, but we also expect other drivers of vessel demand—especially production and EPCI-related support—to remain strong. Production work has stayed robust and helped offset some of the relative drilling softness early in 2026. Looking ahead, we continue to like the outlook for both, given the strength we are seeing in both subsea and EPCI backlog, as well as continued momentum in FPSO orders. Over the longer term, more drilling in less developed regions should drive additional infrastructure work, which supports sustained demand across these categories. We are pleased with how the first quarter came together. While we still have some uncertainty in the Middle East until the conflict is resolved, we are increasingly optimistic about the outlook for the business. We will stay disciplined on capital and continue to look for value-accretive ways to deploy it, and we expect the opportunity set and our ability to capitalize on it to improve over the next 18 months. With that, let me turn it back over to West. West Gotcher: As Quintin mentioned, we did not repurchase any shares during the first quarter due to the pending Wilson acquisition. At the end of the first quarter, we retained our $500 million share repurchase authorization. As a reminder, under our outstanding bonds, we are unlimited in our ability to return capital to shareholders provided our net debt to EBITDA is less than 1.25x, pro forma for any share repurchase. Under our revolving credit facility, we are also unlimited in our ability to repurchase shares provided the net debt to EBITDA does not exceed one times. However, to the extent that we exceed one times net leverage, we still retain the flexibility to continue returns to shareholders, provided that free cash flow generation is in excess of cumulative returns to shareholders. We still anticipate being below one times net leverage, assuming a June 30 close of the Wilson acquisition. From a capital allocation perspective, we look to execute share repurchase transactions when suitable M&A targets are not available. We retain the option of evaluating M&A and share repurchases concurrently, but our financial policies and philosophies dictate our relative appetite to pursue both concurrently. Given that the offshore vessel market has stabilized at a healthy level, along with the constructive outlook for offshore vessel activity more broadly, the M&A landscape remains favorable and we will continue to evaluate additional inorganic opportunities to add to our platform. Turning to our leading-edge day rates, I will reference the data that was posted in our investor materials yesterday. Across the fleet, our weighted-average leading-edge day rate increased modestly in the first quarter compared to 2025. This is the first time since 2025 that our weighted-average term contract measure for new contracts has increased. Our largest class of PSVs saw average day rates increase sequentially, which we find encouraging given the relatively large number of contracts for these vessels and the geographic dispersion of the contracts. During the quarter, we entered into 18 term contracts with an average duration of 13 months, with two specific long-term contracts skewing the average. Excluding these contracts, the average duration of our new contracts during the quarter was seven months. Turning to our financial outlook, we are maintaining our full-year 2026 revenue guidance of $1.43 billion to $1.48 billion and a full-year gross margin range of 49% to 51%. Our guidance assumes that we close the Wilson acquisition at the end of the second quarter. Our view of the legacy Tidewater Inc. annual revenue and gross margin guidance has not changed from our initiation of guidance in November 2025. Our second-half expectation for the Wilson business remains unchanged. We expect our second-quarter revenue to be roughly flat with the first quarter, consistent with prior expectations, but expect our gross margin to decline by about 5 percentage points sequentially due to cost increases associated with Operation Epic Fury. However, we are in a position to seek rebills for about half of the conflict-related cost increases from our customers related to direct cost increases associated with crew wages, insurance costs, and G&A support, but we have not contemplated the recoupment of these costs in our guidance. Our forecast assumes a normalization of costs associated with the conflict in the Middle East by the end of 2026. To the extent the conflict-related cost pressure continues beyond the second quarter, we are similarly privileged to seek rebills from our customers on realized direct cost increases. Second-quarter guidance does not assume any impact from the Wilson acquisition. In summary, we are pleased to be able to maintain our full-year guidance given the impact from the conflict in the Middle East, with the possibility of recouping a good portion of the cost increase that we are absorbing in our current Q2 guidance. Our expectation remains that there is the potential for uplift to our full-year guidance depending on the strength of drilling activity picking up towards the end of the year. Looking to the remainder of 2026, first-quarter 2026 revenue plus firm backlog and options for the legacy Tidewater Inc. fleet represents $1.1 billion of revenue for the full year, representing approximately 84% of the midpoint of our legacy Tidewater Inc. 2026 revenue guidance. Approximately 69% of remaining available days for 2026 are captured in firm backlog and options. Our full-year revenue guidance assumes utilization of approximately 80% for the legacy Tidewater Inc. fleet, leaving us with 11% of capacity to be chartered if the market tightens quicker than we are anticipating. Our midsized anchor handlers and largest class of PSVs retain the most opportunity for incremental work, followed by our smaller and largest class of anchor handlers and midsized PSVs. Contract cover is higher in the earlier part of the year, with more opportunity available later in the year. The bigger risk to our backlog revenue is unanticipated downtime due to unplanned maintenance and incremental time spent on dry docks. With that, I will turn the call over to Piers for an overview of the commercial landscape. Piers Middleton: Thank you, West, and good morning, everyone. This quarter, I will talk a little about what we are seeing in each of our regions as we look out through the rest of the year and into 2026. Overall, the OSV market showed continued signs of improvement throughout the quarter, with sentiment starting to pick up in all regions where we operate, even those which could face some short-term challenges through 2025. Amid rising rig demand and offshore E&P activity, the long-term outlook for the OSV market remains strong, with the ongoing upturn in project investment expected to continue to drive additional incremental demand out to 2030, while the continued limitations in the supply of any significant growth in the global OSV fleet will further exacerbate the expected tightness in our market. Working through our various regions and starting with Europe, the North Sea OSV spot market strengthened throughout the quarter. In the PSV sector, spot rates strengthened significantly as the quarter progressed, with fixing activity remaining strong, helped by several PSVs leaving the region for warmer climates, a trend we do not see stopping in the short term. In the AHTS sector, supply constraints continued to drive rates higher, with spot rates in the largest classes of AHTS reaching record highs above $350,000 per day in Norway. In the Mediterranean, we continue to see strong activity, and with our global operating platform we were able to move two further vessels into the region to meet the increased demand that we mentioned on our last earnings call. Overall, we expect the Mediterranean region to be a strong market longer term, with several drilling campaigns and EPCI projects commencing in 2026. In Africa, even with the busier dry-dock schedule in the region, we had a good Q1 with a large increase in utilization across our West African and Angolan fleets, predominantly due to some overruns in drilling campaigns in both Namibia and Congo, as well as an uptick in EPCI work in Angola and Mozambique. Looking ahead, we do expect some slowdown in activity across the region in Q2, but are on track for a big pickup in activity from Q3 onwards, led by renewed drilling and EPCI activity in Nigeria, Namibia, Angola, Congo, and Mozambique. In the Middle East, as Quintin mentioned, we saw little disruption to our vessel activity in the region, with all our vessels remaining on hire throughout the quarter. However, we have seen a slowdown in new tendering activity as our customers assess the short-term impact of Operation Epic Fury on their plans. Looking ahead, low tendering activity is expected to persist in the near term due to the elevated risk, and while it is probably too early to predict with any accuracy long-term rate movements in the region, we do expect day rates in the shorter term to be impacted positively on the upside due to the lack of any new supply being able to enter the region. While the duration and trajectory of the conflict are still unclear, as Quintin mentioned, the ramifications of the conflict will likely have longer-term positive benefits to the OSV industry both in the Middle East and globally. In the Americas, as mentioned on our last call, we remain excited with the long-term outlook in Brazil, with the recent announcement that SBM agreed contracting terms with Petrobras for construction of two more FPSOs to be deployed offshore Brazil, with first production targeted for 2030. While there has been some short-term slowdown in OSV tendering activity in 2026, this is expected to pick back up again after elections are completed in Q4 of this year. In Mexico, PEMEX’s underlying financial pressures continue to weigh down sentiment; however, we are seeing some uptick in tendering activity from other oil companies in the country, which bodes well for 2027 and 2028. Lastly, in Asia Pacific, Taiwan, Indonesia, and Australia were the key drivers of demand in the current quarter, with several new contracts signed to support both drilling and EPCI activity that will kick off in Q2 and should go all the way through into 2027. Looking further out into 2027, we are also starting to see several of the other NOCs and IOCs in the broader region getting organized to increase drilling activities starting in 2026 all the way out to 2028, which bodes well for the region going forward. Overall, we are very pleased with how the market has continued to move in the right direction in Q1, and we fully expect that positive momentum to continue into the second half of the year. With that, I will hand it over to Sam. Samuel R. Rubio: Thank you, Piers, and good morning, everyone. I would now like to take you through our financial results, where my discussion will focus on the sequential quarterly comparisons of 2026 compared to 2025. In the first quarter, we reported net income of $6.1 million, or $0.02 per share. We generated $326.2 million in revenue compared to $336.8 million in the fourth quarter. We saw average day rates increase about 1% versus the fourth quarter but saw a slight decline in active utilization to 80.6% from 81.7% in Q4. The revenue decline was primarily due to a decrease in operating days, as there were two fewer days in the quarter, coupled with the lower utilization due to higher dry-dock days. Gross margin in the first quarter was $159.3 million compared to $164 million in the fourth quarter. Gross margin percentage in the first quarter was 48.8%, nicely above our Q1 expectation and slightly ahead of our Q4 margin of 48.7%. The increase in margin versus Q4 was primarily due to the decrease in operating costs. Operating costs for the first quarter were $166.9 million compared to $1.727 billion in Q4. The decrease in operating costs was due mainly to lower R&M costs and lower other operating expenses in addition to two fewer days in the quarter. While overall cost was lower, we did incur about $2.3 million of cost due to the Iran conflict, the majority of which was incurred in the Middle East. Costs directly impacted were higher insurance costs and higher crew wages in the form of hazard pay. Indirectly, we also saw fuel and travel costs increase due to the increase in the commodity price. Our EBITDA was $129.3 million in the first quarter compared to $143.1 million in the fourth quarter. For the first quarter, total G&A cost was $33.6 million, which is $5.4 million lower than Q4. The decrease was mostly due to lower professional fees due to a decrease in M&A transaction costs as well as costs associated with our Q4 internal vessel realignment. In addition, we saw a decrease in salaries and benefits due to adjustments made to our compensation expense. For 2026, exclusive of additional M&A costs, we expect Tidewater Inc. standalone G&A costs to be about $125 million. This includes an estimated $14 million of noncash stock compensation. Moreover, we expect to incur approximately $7 million in additional G&A costs in the second half of this year related to the Wilson acquisition. In the first quarter, we incurred $36.4 million in deferred dry-dock costs compared to $13.9 million in the fourth quarter. Q1 is typically a heavy dry-dock quarter, and this quarter was no exception, as we had 949 dry-dock days that affected utilization by about five percentage points. Dry-dock costs for 2026 are expected to be approximately $122 million. Additionally, we expect to incur approximately $16 million in dry-dock costs in the second half of the year related to the Wilson acquisition. In Q1, we incurred $14.9 million in capital expenditures related to vessel modifications and upgrades. For the full year 2026, we expect to incur approximately $51 million in capital expenditures. This amount includes a planned major upgrade to one of our Norwegian vessels. Absent this upgrade, our maintenance CapEx is expected to be approximately $36 million for 2026. In Q1, we spent $24.4 million related to two purchase options we have exercised for vessels we have been leasing. This amount is not reflected as CapEx spend, but is instead reflected in the financing section of our cash flow statement in Q1 as payments on finance leases. In addition, we expect to incur about $1 million in CapEx spend in the second half of the year related to the Wilson acquisition. We generated $34.4 million of free cash flow in Q1 compared to $151.2 million in Q4. The free cash flow decrease quarter over quarter was mainly attributable to higher deferred dry-dock and CapEx spend in Q1 and a large working capital benefit achieved in Q4 due to a significant increase in cash collections that did not repeat in Q1. In Q1, we sold two vessels for proceeds of $3.3 million, which is also lower than the Q4 sale proceeds of $5.3 million. Though the Q1 free cash flow amount was lower than Q4, it was higher than our internal estimate. As a reminder, following our debt refinancing, which was completed in Q3 2025, we only have small debt repayments that are related to the financing of recently constructed smaller crew transport vessels. We have no payments until 2030 on our new unsecured notes. Following the anticipated close of the Wilson acquisition, our debt maturity and repayment profile will change to accommodate the newly assumed Wilson debt. We conduct our business through five operating segments. In the first quarter, consolidated average day rates were 1% higher versus Q4, led by our Europe and Mediterranean day rates improving by 9% and our APAC segment increasing by 7%, partially offset by relatively small declines in each of our other regions. Total revenues were 3% lower compared to the fourth quarter, with decreases in the Americas, Africa, and Middle East, partially offset by increases in our APAC and Europe and Mediterranean regions. Regionally, gross margin increased by four percentage points in Africa, three percentage points in our APAC region, and one percentage point in the Middle East despite the conflict in Iran. Our Europe and Mediterranean region saw a decrease of two percentage points, and the Americas declined by four percentage points. The gross margin increase in our African region was primarily due to a five percentage point increase in utilization due to fewer idle days, offset by slightly higher repair and dry-dock days. This was offset somewhat by a decline in average day rates of 4%. Operating costs decreased by 15% due mainly to a decrease of four vessels operating in the area and two fewer operating days in the quarter. The gross margin increase in the APAC region was due to an increase in utilization due to fewer repair days and a 7% day-rate increase, partially offset by a small increase in operating costs as we had two vessels transferred into the area. The increase in Middle East gross margin was primarily due to a 5% decrease in operating costs. The decrease was primarily due to fewer operating days and lower R&M expense due to fewer DFR days, partially offset by higher costs related to the conflict. In the quarter, we did see a small drop in day rates and utilization. Utilization was down slightly quarter over quarter primarily due to higher idle days, partially offset by fewer dry-dock and repair days. Our Europe and Mediterranean region gross margin was two percentage points lower versus the prior quarter, but three percentage points higher than our expectation. Revenue was up 5.5% due to a 9% increase in day rates, partially offset by a seven percentage point decrease in utilization. We had a heavy dry-dock schedule in the quarter, and we mobilized vessels into the region, which contributed to the decrease in utilization. Dry docks represented a five percentage point decrease in utilization in Q1 compared to less than one percentage point in Q4. The increased revenue was partially offset by higher operating expenses related to higher salaries and travel and supplies and R&M due primarily to an average of four additional vessels operating in the region. Gross margin in our Americas segment decreased by four percentage points due mainly to a $12 million decrease in revenue caused by a four percentage point decline in utilization as well as a 3% decrease in average day rates. Utilization was affected by higher dry-dock and repair days. The revenue decrease was partially offset by a 10% decrease in operating cost versus Q4. The decrease was primarily due to transferring two vessels out of the region during Q1. As noted in our press release and as Quintin mentioned earlier on the call, we experienced additional operating costs in Q1 related to the impacts from Operation Epic Fury. We estimate ongoing additional crew wages in the form of hazard pay and insurance costs of about $1.6 million per month. In addition, we expect approximately $1.8 million of additional monthly costs related to fuel and travel expenses due to the higher global commodity prices. The fuel and travel expenses are estimates based on our forecasted activity and current commodity prices. These elevated costs related to the conflict will likely continue into the near future, though it is uncertain how long this geopolitical disruption may last. It is also widely expected that commodities markets will remain elevated beyond the immediate resolution of the conflict. In a scenario where the conflict extends and remains similar in nature to its current state, we estimate total operating cost increases of between $10 million and $11 million per quarter. We are currently working with our customers for reimbursement of wages and insurance costs that are provided for under our contracts, but as of now we have not included this in our guidance. When we look at our Q1 revenue, I am glad to announce that we did not experience any material reduction due to contract cancellations because of this conflict. As it relates to the Wilson acquisition, integration meetings are progressing as expected, and we expect the transaction to close by the end of the second quarter. We strongly believe that our increased presence in the Brazilian market is an important piece to our global strategy and are excited about our growth there. In summary, Q1 was another strong quarter from an operations and execution standpoint. We exceeded internal expectations for free cash flow, day rate, and utilization in what is typically a seasonally slow quarter, and industry fundamentals remain strong. Our balance sheet is in excellent condition, and we continue to be optimistic about the opportunities that lie ahead for Tidewater Inc. With that, I will turn it back over to Quintin. Quintin V. Kneen: Sam, thank you. We will now open the call for questions. Operator: If you have dialed in and would like to ask a question, please press star then 1 on your telephone keypad to raise your hand and join the queue. Your first question comes from the line of Ben Summers of BTIG. Your line is open. Analyst: Hey, good morning, and thank you for taking my questions. You called out the anchor handler market being particularly tight in Q1, especially in the North Sea. Is this more of a regional development, or is this something you are seeing across the global fleet? Piers Middleton: Yes. Hi, Ben. Thanks for the question. It is basically something that is happening in the North Sea where there tends to be a bit more of a spot market, but we are certainly seeing on the larger anchor-handling sizes that there has been some consolidation in that market, and that has driven some of that tightness. That has allowed some of our competitors to push day rates, which helps us as well. So long as we are all moving in the right direction, that is a positive thing. Generally, what we see is that the spot market in the North Sea tends to drive a lot of the noise elsewhere as well, so we expect that to have a trickle-down effect through the rest of the globe over the next few quarters. It is a positive sign on the largest classes of anchor handlers. If you see that in Norway, it tends to push through to other regions as well, and that is driven by increased towing of rigs but also on the subsea construction side—the big anchors needed for trenching and subsea support work as well. It plays into what we have been saying about the increase in EPCI work and also exploration starting to pick up again. Analyst: Awesome, thank you. Super helpful. On the broader picture, you talked about the long-term increased focus on energy security. Are there any specific basins you would call out as being specifically emphasized? Anything across the global fleet that could be specifically impacted by this longer-term trend? Quintin V. Kneen: Principally the smaller markets in Asia, I believe. I think you are going to see real strength growing over the next few years in Indonesia and Malaysia. Piers may have some other anecdotal information as well. I mean, I think it is across all, but it is primarily going to be in Asia. Piers Middleton: We see a huge amount of demand coming out of that region, and we are already seeing it a little bit in Indonesia as well. It is going to have a kick into Africa as well in terms of more drilling and pulling more supply. I would not be surprised if we see it on the East Coast of Africa, and of course we have already seen some of the Western Mediterranean pick up in Libya and so forth. Quintin V. Kneen: So, yes, you are starting to see players that have not been in the market over the past five or six years really reaching out and trying to develop their resources. Analyst: Thank you for taking my questions, and congrats on all the progress. Operator: Thank you. Your next question comes from the line of Josh Jain of Daniel Energy Partners. Your line is open. Analyst: Thanks for taking my questions. Offshore rig companies have outlined pretty constructive outlooks for activity over the next 12 months. I know you are not going to guide 2027 dry docks, but is there any thought in bringing forward any of those when you can? Or is it reasonable to think the dry-dock schedule is going to be more friendly as we exit this year into 2027, and how are you positioning the company given the expected growth in the deepwater side? Piers Middleton: We are not trying to bring any dry docks forward. We tend to plan out over a five-year period to help supply chain and procurement as well. We have a pretty well-set operation on that side and how we look at things. We might move one or two depending on how projects pan out, but at the moment we have a pretty good sightline in terms of where projects are rolling out over the next few years, both for our own technical team and for our commercial team in terms of what projects we are seeing and in which areas, and we try to line up our vessels and dry docks accordingly to that. Analyst: And then on the other one, with the Helix–Hornbeck merger, does this frame at all how you think about growing your business moving forward with respect to different service offerings? Or does additional M&A look more like Wilson and some of the other things that you have done over the last couple of years? Quintin V. Kneen: It does not change our view, because we have always had that expansive view of other service lines. It is certainly a lot easier for us to do that in our existing market. To the extent that we do reach out, it would be with a franchise that we feel is already well performing in that particular vertical. But no, it does not change anything. Glad to see it. More consolidation is better. I certainly cannot consolidate this industry by myself, so the more the merrier. Analyst: If I could sneak in one more. Given the number of rigs that were given multiyear extensions with Petrobras in the last 90 days, how does that frame your discussion for the Wilson acquisition? At the time of the deal, you talked about a number of assets that were in the process of being extended. Can you update us on those and how much more confident you are today than when you did the deal about that market? Piers Middleton: Josh, overall positive. We went into this year with an election going on in Brazil, so we have seen a couple of tenders being pushed to the right. The understanding from the market is that Petrobras wants to make some decisions on longer-term commitments. Overall, Petrobras is positive. There are also the IOCs coming out as well in that region, even moving up the tender margin as well. We do not see any concerns in terms of future tendering—maybe there is a bit of movement to the right on some of them—but overall, nothing that concerns us at the moment. It is very positive in terms of what we are seeing on the rig side, and then the additional FPSOs are coming as well. There is a really good long-term story in Brazil that we think we are well placed to take advantage of once we get the Wilson acquisition into the business. Operator: Thank you. Your next question comes from the line of Jim Rollison of Raymond James. Your line is open. Analyst: Hey, good morning, and thanks for all the detail again this quarter. Quintin, last quarter you were pretty optimistic about how things were shaping up as we head into late this year, really into next year and beyond, and that has only gotten better with the oil macro situation that has come out of this Middle East conflict. It sounds like you are having some customer conversations that have picked up. Are they already trying to mobilize incremental activity at this stage, and how do you think that translates into the timing of your ability to start pushing day rates up? Quintin V. Kneen: It is always a bit of a guess, but the building activity that we are seeing from the rig companies, EPCI, and subsea contractors gives us a lot of confidence in our ability to push day rates up once the market tightens. We are a little bit later in the chartering process for those customers, so I think we are not going to be able to demonstrate that until later into 2026 and into 2027. Analyst: Got it. And then back to M&A. You have the Wilson deal closing, and there have been a couple of other chess pieces moved off the board since you announced that deal. Has the shift in the oil macro and the better environment outlook changed any of the dynamics of opportunities in terms of target acquisition pricing expectations at this point? Quintin V. Kneen: I think people are definitely getting more confident in the longer-term view of the industry, and that is helping. People are also beginning to appreciate the importance of consolidation—they see the benefits from the drillers and other subsectors. I have not seen any real price movements at this point, but if the industry continues to improve at a steady rate, we will certainly see that too. Operator: Your next question comes from the line of Don Crist of Johnson Rice. Your line is open. Analyst: Sorry if this has already been addressed—I got on the call a little late. It is a busy morning. I just wanted to ask about the Far East. We are hearing some news reports of energy shortages and things like that. I know you had a bunch of boats working in Malaysia and Indonesia in the past that got sidelined for other reasons. What is the state of the Indonesian and Malaysia markets right now and your ability to put those big boats back to work? Is that coming sooner rather than later? Any thoughts around that? Piers Middleton: Hi, Don. The market is pretty positive. We do not have a huge number of our biggest market-age-specific vessels there, but we do have a lot of big boats in the region, which will be working in Malaysia, Indonesia, and Australia, and then up in Taiwan. We are very positive. As we said earlier, with the energy security story, we are going to continue to see more investment in those countries. I think the governments have been shocked a little bit by what has happened with Operation Epic Fury. Longer term, we were already seeing it, but we expect to see the governments really doubling down in terms of pushing their NOCs and also the IOCs that operate in those countries to do more investment—more drilling, exploration, and getting production. We are busy down there at the moment, and we expect to continue to be busy as well. We have moved one or two ships already into the region this year. With our operating platform, we are able to do that. It is a positive story in Asia Pacific for us. Analyst: And M&A has been a big topic in Q4 and Q1, so you have not really done any stock buybacks. Quintin, are you leaning more towards stock buybacks as the M&A story goes to the background and you are able to buy some stock back here, or are you going to keep that optionality for the future? Quintin V. Kneen: I do not believe that the M&A opportunities are winding down. We have no issue returning money to shareholders, and share repurchases are our way to do it. But to the extent that we see more value in acquisitions by getting the right boats at the right price, then I would lean toward that. Operator: That concludes our Q&A session. I will now turn the call back over to Quintin V. Kneen for closing remarks. Quintin V. Kneen: Thank you again for joining us today. We look forward to updating you again in August. Goodbye. Operator: This concludes today’s conference call. You may now disconnect.
William Lundin: Okay. So welcome, everybody, to IPC's 2026 First Quarter Results Update Presentation. I'm William Lundin, the President and CEO. I'm joined today by Christophe Nerguararian, our CFO; as well as Rebecca Gordon, our SVP of Corporate Planning and Investor Relations. So I'll start with the highlights and give an operational update, then Christophe will touch on the financial highlights for the quarter. Following the presentation, we'll take questions, which can be submitted through conference call or via the web online. Jumping into the highlights. We're very pleased to report another solid quarter of operational performance. Production for Q1 was at the top end of the quarterly forecast at 43,000 barrels of oil equivalent per day, and we're retaining our full year production guidance range of 44,000 to 47,000 boes per day. We had good cost discipline with Q1 operating expenditure coming in at sub USD 18 per barrel of oil equivalent, and we are maintaining guidance for OpEx at USD 18 to USD 20 per barrel. Entering 2026, we set a lean work program and budget as we were assuming a base case price estimate of $65 per barrel Brent. And in response to the improved pricing environment, we're taking advantage of our operatorship and increasing our capital program from USD 122 million to USD 163 million, predominantly to accommodate short-cycle investments across some of our producing assets. The Q1 capital spend was USD 71 million. Operating cash flow generation for Q1 was $68 million, and we revised our full year OCF guidance to USD 220 million to USD 340 million assuming $70 to $90 per barrel Brent for the remainder of 2026. Free cash flow was minus USD 17 million. And we are entering really an inflection point here for the company and there shouldn't be too many more quarters of negative free cash flow going forward with Blackrod first oil expected in the near horizon. Full year free cash flow is expected to be between 0 to USD 120 million positive between $70 to $90 Brent for the rest of 2026. Net debt stands at $513 million, and we expanded our Canadian credit facility during the quarter to USD 250 million. We also extended the maturity of that to 2028. So that gives us an increased headroom and overall flexibility. Our benchmark hedges for WTI and Brent for approximately 40% of our production exposure rolls off in June, leaving us fully exposed to benchmark oil prices from July onwards. We have some WTI/WCS differential hedges and transport/quality-related hedges tied to our Canadian heavy oil exposure as well at attractive levels and some natural gas hedges in place that are currently in the money as well. No material incidents took place during the quarter, we're very pleased to report on. So on to the following slide. As shown on the production graph on Slide 3 here, IPC delivered flat production, really at the high end of our guidance in the first quarter, with overall strong performance across all the assets in the portfolio. So I'll touch on more detail on each of the assets' performance later on in the presentation. Moving on, we're very strongly positioned to deliver within our CMD production forecast range of 44,000 to 47,000 barrels of oil equivalent per day. Drawing your eyes to the bottom of the production chart on this slide. 2026 is really a story of two tales here with forecast production volumes expected to rise materially at the back end of the year with Blackrod Phase 1 oil production set to come online. In addition to some of the incremental capital adds, fast payback projects we've also added in, this will be contributing more so at the back end of this year for production rates. Our production mix is weighted 60% towards Canadian crude, which is tied to WCS pricing, 10% to Brent-linked production coming from Malaysia and France and the remaining balance of 30% being natural gas from Southern Alberta. And I'd also like to reiterate here that the 44,000 to 47,000 barrels of oil equivalent per day guidance is an annual average, very much an annual average rather than a quarterly average as can be seen on the high and low guidance bands on that bottom left-hand chart. OpEx, so we are maintaining that original Capital Markets Day forecast as we set out in February of $18 to $20 a barrel. First quarter operating cash flow was USD 68 million. The differentials from Brent to WTI, can be seen in the brackets there, was $9 and from WTI to WCS was $14 a barrel. So the Brent to WTI differential was notably high on the back end of the geopolitical conflict in the Middle East, which our Brent-linked production benefits from, of course. Our operating cash flow full year forecast for 2026 is updated to USD 220 million to USD 340 million based on $70 to $90 Brent, and that assumes a $5 differential between Brent and WTI and a $14 differential between WTI and WCS. So a material improvement compared to our CMD forecast and notably more than funding our incremental capital spend program this year with the revised updated operating cash flow generation outlook. Moving on to our CapEx program inclusive of decommissioning, which now stands at a forecast of $163 million. So that's roughly $40 million higher than the original CMD CapEx guidance. The increase is mainly due to accelerated fast payback drilling activity at our Southern Suffield assets in Alberta and in the Paris Basin in France, which I will expand on following asset-specific slides. So we continue to see great progress at Blackrod, and we've updated our 2026 budget outlook for the forecast spend at that asset. Big picture, the multiyear budget for Blackrod Phase 1 growth capital, the first oil is USD 850 million. There has been some minor cost pressure with total costs expected to be approximately USD 857 million, which is less than 1% overall of that original sanction CapEx guidance for the growth capital to first oil. And we're still expecting the project to be delivered in terms of first oil in Q3 of 2026, which is ahead of the original timeline given at the time of sanction back in 2023. Because of this continued acceleration and positive progress, there are some sustaining completion costs as well being pulled forward, which is a positive outcome overall. The free cash flow outlook, we're projecting to generate between 0 to $120 million of positive free cash flow between $70 and $90 Brent for the remainder of 2026. Very exciting to be returning into a positive free cash flow generating position this year with a major boost in free cash flow levels anticipated in 2027 and beyond as Blackrod Phase 1 ramps up and comes onstream. Moving to the share repurchases slide. IPC, of course, has a very strong track record of share repurchases in our brief history as a company. So 77 million shares have been bought back at an average price of SEK 79 or CAD 11 per share, respectively. And that represents around $1.4 billion of value created from the share repurchases when comparing the average share price that those shares were bought back at to our current share price. Notably on the antidilution waterfall, the only time shares were issued in a transaction was for the BlackPearl acquisition back in 2018. All of those shares have been bought back. And our current shares outstanding is just shy of 113 million shares, which is less than the original starting amount of 113.5 million shares. And we've transformed the company to where we are today compared to at inception in 2017. Now we see a 4.5x increase in production levels, 18x increase on our 2P reserves in excess of 20 years, added to our 2P reserve life index in excess of 1 billion barrels of contingent resources, added an overall 4x increase to our NAV compared to that of when the company was formed at the beginning of 2017. So Blackrod. This is a 20-year journey in the making to bring this vision into reality by unlocking a Phase 1 commercial development. I had the privilege of being at site at the end of April. This is a world-class SAGD plant with a best-in-class operational staff. It's a compact site with a small footprint for the CPF and nearby well pad facility tie-ins. This asset is going to propel the company to new levels, and it's been a fantastic journey going from sanction through to development and on to startup now with rotating equipment well in service at this point in time. Original guidance for this project, again, back in 2023 when it was sanctioned, called for first oil in late 2026 and growth capital up into that point of USD 850 million. We achieved first steam ahead of our original forecast, resulting in a schedule improvement which was announced at the beginning of this year, with first oil expected in Q3 2026. So operations continue to progress well, and we're strongly positioned to deliver within this accelerated timeline. Cumulative spend as at the end of Q1 from the beginning of 2023 on the growth capital is USD 842 million with some minor works remaining on the final boiler tie-in as well as well pad facilities as we expect to deliver this project overall in line with the original growth capital guidance to first oil. I really couldn't be more proud of our multidisciplinary IPC teams as well as the vendors utilized in this major undertaking, and we're especially pleased that there has been no material safety incidents under IPC's supervision as prime contractor of the site. Excellent delivery overall and stewardship of this project to date. So Blackrod valuation. Again, this is a true game-changing asset for IPC. We have regulatory approval up to 80,000 barrels of oil per day with over 1.45 billion barrels of recoverable resource. Phase 1 targets 30,000 barrels per day and 311 million barrels of 2P reserves. And the economics as at the beginning of this year, based on our conservative reserve auditor price deck, is USD 1.4 billion of net present value using a 10% discount rate and approximately a $47 WTI breakeven. As you can see on the figure on the right-hand side of the slide, this is a massive uniform sandstone reservoir. It's contiguous and homogeneous, lending to a very much predictable and scalable product potential that's validated through the 15 years that it's been under pilot operation testing. In the lower graph here, the dark wedge on the bar chart reflects what is booked in 2P reserves and carried within our valuation. The light blue component of that bar chart is the contingent resources and represents upside to our business. Moving on to our producing assets. Our current flagship oil-producing asset at Onion Lake Thermal delivered stable production through Q1. We also did some 4D seismic work at the beginning of the year and are reviewing that data to hone in on some additional potential infill targets on existing producing drainage patterns. And also to note on that schematic on the right, H Pad is the next main drainage pattern to be developed in the sequence. Moving on to the Suffield area assets. So very much predictable and low decline production, the Suffield area assets, which delivered around 23,000 barrels of oil equivalent per day through Q1. We're very excited to be redeploying some capital into these assets, where we've sanctioned a 4-well production drilling campaign within the Basal Quartz area, just west of the Suffield block. Production from France and Malaysia for Q1 was in excess of 5,000 barrels of oil per day. We had some incremental activity that's also been sanctioned now in France. We look to drill 3 sidetracks in the FAB field and 1 sidetrack in the Villeperdue field. So very exciting to be drilling again in France. And in Malaysia, we also plan to do an operational activity of workover using a hydraulic workover unit later this year on our A13 well. So with that, I will hand it over to Christophe to go through the financial highlights. Thank you. Christophe Nerguararian: Thank you very much, Will. Good morning, everyone. So indeed, a good quarter with production at the high end of our Q1 guidance at 43,000 barrels of oil equivalent per day. And of course, during this first quarter, when the situation happened between Iran, the U.S. and Israel, the oil prices increased massively from the beginning of March. And so you really have a relatively high average Dated Brent oil price for the whole quarter, in excess of $81 per barrel, but that was really two sides of the story with lower oil prices in January and February and much higher in March. So overall, that really helped generate on that basis strong operating cash flows and EBITDA for the quarter at USD 68 million and USD 64 million. As we guided before and as most of our investors know, the capital expenditure in 2026 was always expected to be much front-loaded, and so you can see a disproportionate portion of the CapEx spent during this quarter translating into a free cash flow of negative USD 17 million. And it depends where oil prices will be on average for Q2, but it's fair to assume that the free cash flow may be negative again in Q2. But from that point onwards, we're expecting to turn the corner and to be again back into free cash flow territory for the second half, depending on where first oil kicks in at Blackrod. So USD 13 million of net profit for this quarter. The net debt increased during this first quarter by USD 30 million. Again, it's fair to assume that this net debt would increase again in the second quarter and from that point on progressively. Depending on where oil prices stand, we should see some deleverage from Q3 or from Q4. But certainly this year, we should start to see some accelerated deleveraging as the Blackrod production ramps up over time. Realized prices, so I mentioned, were strong. And I think it's interesting, a bit sad at the same time, but interesting to see that the physical market is quite dislocated. And so the Dated Brent has been trading at between $5 up to $30 premium on top of the future or the financial Brent, if you wish. And when we lifted our cargo in Malaysia, the last one in March, we had a good premium. And for the future June cargo, which we're going to lift in Malaysia, we can see that the physical market is very tight because the premium we can realize there are very, very high. So you can see we sold in March a cargo in Malaysia at USD 110 per barrel, while on average for the quarter, Dated Brent was USD 81. The Brent-WTI differential widened a bit at $9 and the WTI/WCS differential stood at negative $14 for the quarter. We're continuing in Canada to sell our heavy oil on parity or very close to the WCS. Gas prices were actually okay during this first quarter. But overall, the market again is quite disconnected between the U.S., and the Canadian market has been a new reality for the Canadian gas prices over the last 18 months now for the lack of infrastructure and communicating infrastructure between the Canadian gas pipeline network and the U.S. market. So you can see that we realized CAD 2.5 per Mcf during this first quarter. But the forecast is showing for the summer months lower gas prices, which is still a negative to IPC given that we are producing more gas than we're consuming at Onion Lake or that we will consume in the following quarters at Blackrod. Now the positive in the long run is that because we are consuming gas at Blackrod, it will be a relatively cheap feedstock gas going forward. In terms of financial results, it's interesting to compare '25 and '26. We had during this first quarter '26 similar production and overall revenues between the first quarter '26 and '25. Some of the difference between the 2 quarters in '26 and '25 was coming from the fact that we lost $10 million of hedges -- hedged losses in this first quarter because we had hedged around 40% of our WTI and Brent exposure at between $62 and $68 per barrel. And of course, we've been losing in the month of March mainly. And given that we are still hedged until the end of June at those around 40% level at current prices, we can expect to make a hedging loss of around USD 30 million during the second quarter. But I think it's important to flag as well that beyond the end of June, we no longer have any benchmark hedged. So we are totally exposed to the Brent and the WTI prices going forward into the second half of 2026. Looking at the operating costs. So we were below during this first quarter as a result of strong production level and relatively low electricity and gas prices. We can expect higher operating cost per barrel going into the second quarter with a bit of a slightly lower production in the second quarter. In the third quarter, when we're going to move progressively into commercial production at Blackrod, we're going to register some OpEx which will be a bit higher in the first months of operation. But you can see that as soon as the Blackrod production ramps up in the fourth quarter, the OpEx per barrel will progressively reduce, and we would expect that trend to continue into 2027. You can see the netback on the following graph with gross margin of close to $18 per barrel and operating cash flow at $17.5 and EBITDA at $16.5 per barrel of oil equivalent of netback. Looking at the evolution of our net debt. So we increased our net debt this quarter by USD 30 million given the reasonably high CapEx of $71 million we spent during the year. So we spent more CapEx than the level of operating cash flow. This is going to reverse in Q2 and even more so in the second half of this year. In terms of financial items, it's sort of a steady state now in the second half. Last year when we refinanced our bonds, we had some exceptional and one-off fees that we paid as part of that bond refinancing. From now on, it's going to be much more stable. And just to mention that the foreign exchange loss you can see here of $6.5 million during this quarter is a noncash item. Otherwise, the G&A remains reasonably stable and flat at around USD 4 million per quarter. So looking at the financial results. We generated net revenues of $173 million, netting a cash margin of $68 million and gross profit of USD 37 million, which net of the financial items, tax and tax elements yielded a net profit of USD 13 million for the quarter. The balance sheet has continued to evolve since we sanctioned the Blackrod project. As you expect, our level of cash has reduced and our level of net debt increased over the last 3 years. But again, we are almost touching distance from reversing this trend certainly going into 2027 but as well going into the second half of this year. And I will let Will conclude this presentation. William Lundin: Thank you very much, Christophe. So in summary, very exciting to be ramping up activity really across all regions of operations. Q1 capital came in at USD 71 million and the full year outlook is $163 million now, really leveraging our operatorship and increasing our production exposure to the high commodity pricing environment that we're seeing. We're well positioned to deliver within our production guidance, and our operating costs remain under control. Operating cash flow generation was robust for Q1 at USD 68 million. And the outlook for the full year is $220 million to $340 million. We have in excess of USD 150 million of undrawn liquidity headroom. There are no material environmental or safety incidents that took place in the first quarter. And with that, I'm happy to pass it over to the operator to begin questions, and you can also submit your questions online via the web. Thank you. Operator: [Operator Instructions] We'll now take our first question from Teodor Nilsen of SB1 Markets. Teodor Nilsen: Will and Christophe, first question there is around the small CapEx increase you announced. I just wanted to know what is driven by cost increases and what is driven by higher activity. And second part of that question is related to the activity increase. By how much should we assume that the exit rate production this year increases as a result of the accelerated investments? So that's the first two questions. And third question, that is on share repurchases. You've, of course, been very successful doing that for the past 2 years as you discussed. But you haven't been doing any repurchase. You have not done any material repurchases the past few months. So I just wanted a background for that. Do you think the share price approached a reasonable level? Or are there other reasons for why you have reduced the buybacks? William Lundin: Thanks very much, Teodor, for the questions. I'll head those off. First one being the small CapEx increase. So we had an adjustment of $122 million to $163 million for capital expenditure for 2026. So that $40 million some-odd increase, the lion's share of that is for capital activity in France and Canada. So we're going to be doing 4 sidetracks drilling program in France for approximately $15 million and also in Southern Alberta at our Suffield area assets, more on the more recently acquired in 2023 Core 4 property. We're also going to be drilling 4 wells there. So the total combined amount is around $23 million when you add the France plus the Brooks-related activity that we're undertaking. I also touched on the slight cost increase at Blackrod there as well, which was expanded on throughout the presentation. But really the vast majority of the cost increases are deliberate cost increases here to increase the activity for production contributing projects. And so that production increase for those 2 projects that I had noted, which will be more back-end weighted this year in terms of the production contribution, we expect to see in excess of 1,000 barrels per day on average delivered for 2027 from those 2 programs. So very attractive cost per flowing barrel metrics to undertake those capital activities and really a part of our whole strategy as well over the past couple of years while we've been accommodating the growth capital for Blackrod as well as buying back our shares at very cheap levels. Some of the capital activity that's been ripe and ready to go across our existing producing assets, we've elected to wait until more constructive oil prices present themselves. And here we are now. And that is the reason for why we've kind of prioritized the incremental capital going towards production contributing activity right now as opposed to share buybacks. We do have the flexibility to restart share buybacks, where we have the NCIB activated up until December of this year. We are steadfast on focusing on getting Blackrod on to production here. We continue to monitor market conditions and overall liquidity headroom. Safe to say we are very strongly positioned, and it's something that we're going to continue to monitor as the year progresses here in terms of restarting shareholder returns. Operator: [Operator Instructions] We will now move on to our next question from Mark Wilson of Jefferies. Mark Wilson: Excellent progress as ever and good look with the final steps in Blackrod, obviously. I thought the most interesting area now is the gas side of things in Canada. You mentioned that your hedges are rolling off for WTI. Just remind us where that stands for the gas, particularly as that is looking weaker in terms of infrastructure. And whether you think there's any longer-term impact from the M&A we've seen into Canadian gas, Shell coming in for ARC and further phases of Canada LNG. Just be interested to hear that. Christophe Nerguararian: Yes. Thank you, Mark, and very good questions. So I skipped the table on hedging as Will touched on it already in the opening slide. But you're absolutely right. It was very interesting to see Shell going after ARC, which is a large gas producer, and so this is just speculation at this stage, but probably paves the way or at least increases the chances and the odds that Shell would go and try to expand the LNG facility on the West Coast of Canada, North of Vancouver. And that's a fairly obvious move when you look at the massive arbitrage you can see between local domestic gas prices and international gas prices. So I think the projection in the very short term is to probably still have reasonably low gas prices onshore Western Canada, but the prospects of having more demand from that LNG Canada plant going forward has probably increased over the last few weeks. In terms of hedging, we have 50,000 GJ a day of gas hedged at CAD 2.7 per GJ or CAD 2.8 per McF. So unfortunately, that's probably going to be in the money. And so you know us. We remain very opportunistic. If we see any gas prices hike in the forward curve, you should fairly expect us to seize that kind of opportunities. And so that was your main question, around gas prices. No, you're absolutely right, that in terms of WTI or Brent exposure, the hedges are rolling off at the end of this quarter, at the end of June. And so we'll be fully exposed going forward to what looks to be reasonably constructive oil prices going forward. William Lundin: Sorry, just to add to that in terms of being a great signal in terms of Shell increasing its exposure in Canada just for the upstream overall Canadian landscape there. And now with that acquisition, Shell has secured roughly 3/4 of its feed gas requirements for both Phase 1 and Phase 2 of LNG Canada. So it certainly bodes well and signaling for an FID of Phase 2, but we're still yet to see that for that LNG project on the West Coast of B.C. there. Mark Wilson: Got it. Okay. And is it worth mentioning on the broader Canada side of things, what was it I heard recently, is it a sovereign wealth fund? Or is it an infrastructure fund? And any implications? William Lundin: Yes. That was Mark Carney, and he said a sovereign wealth fund. The extent of the details are yet to be understood in terms of where the funding is going to come from to be able to do that. But that is the headline that Mark Carney announced, was a sovereign wealth fund. Mark Wilson: Okay, okay. And then just one last point. I might have missed it in Teodor's question. But the short cycle in Suffield, that's obviously targeting liquids, I imagine. William Lundin: Yes, oil. Mark Wilson: Okay. Very good. Congratulations again. Looking forward to reading the rest of the news in the year as it ramps up. Christophe Nerguararian: Exactly, thank you. William Lundin: Much appreciate it. Thanks, Mark. Operator: Thank you. We have no further questions in the queue. I'll now hand it over to the company for online questions. Rebecca Gordon: Okay. Thanks, operator. So we've got a couple of questions here. Maybe we can just start with a bit of information on the short cycle, Will. Just a couple of questions on Ferguson and whether we have opportunity there to put some rigs in or maybe look at additional drilling there. William Lundin: Yes, for sure. So Ferguson, there's quite a few opportunities in terms of drilling as well as recompletion, refracking-related activity as well that we are looking into. Some of the activity is likely to be an operating expenditure-related item. So that is something that we do plan to do in terms of a few wells and recompletions on a few wellbores there. So look to see some minor production boost coming from the asset towards the tail end of the year. Rebecca Gordon: Okay. Very good. And then another question here. I mean, obviously, there's a lot of interest on Phase 2. Is there any intention to bring that forward now? Or how are we feeling about the timing given the oil price? William Lundin: Yes. I think the liquidity position as we've stated for quite some time now is going to change quite rapidly as Blackrod Phase 1 sets to come onstream in the back half of this year, and we look to generate significant free cash flow in the year of 2027 even at more modest oil prices. And if these pricing levels are to hold through 2027, it's going to put us in a very, very good place to look to continue pursuing our key capital allocation strategic pillars in terms of organic growth, shareholder returns and also staying opportunistic towards M&A. But for Phase 2 specifically, our future expansion potential at Blackrod behind the scenes is definitely something that's being worked up. But of course, we remain very, very much focused on successfully completing and bringing Phase 1 online from an oil-producing standpoint. Rebecca Gordon: Great. Thanks. And then just a quick question on capital structure, Christophe. Could you explain the increase in the RCF, why you went for that? Christophe Nerguararian: Yes. Well, if you look back at what IPC has been doing as a corporate, we try to raise and improve liquidity when we don't need it. So it's been a constant discussion with our banking partners and banking friends. We enjoy very good support from Canadian banks these days. There was the opportunity to increase the Canadian revolving credit facility from CAD 250 million to USD 250 million, which we just did and extended the maturity up to May 2028 as we do every year. So it's all positive for no other specific purpose than having ample liquidity. Rebecca Gordon: Fantastic. Thanks. Will, just a question on regulatory framework, so in Canada, the U.S. and our other operating jurisdictions. Have we seen any changes post the Iran war in those sort of regulatory frameworks or anticipate anything to come? William Lundin: No, there hasn't been any changes regulatory-wise in the stable jurisdictions where we operate and we have production operations taking place. And specifically in Canada also, they have a sliding framework based on oil prices for the royalties. So no changes expected there or elsewhere within the portfolio at this time. Rebecca Gordon: Okay. Fantastic. And then maybe one final question here. What would be your priority post Blackrod complete in terms of organic growth or shareholder returns or buybacks? William Lundin: Yes. The infamous question, I think. The punch line here is that we have the ability to do it all, and we look to strike the right cadence in terms of pulling forward organic growth and continuing to screen opportunities in the M&A landscape and balancing shareholder returns as well. And so I think we're going to be really strongly positioned to deliver on all three of those fronts. And the main lens, of course, will be to maximize shareholder value in our pursuit of that capital allocation strategy. Rebecca Gordon: Okay. Fantastic. That's what we have time for today. That's all our questions. So I leave it to you to close, Will. William Lundin: Excellent. Thanks very much, Rebecca, and thanks, everyone, for tuning in to our first quarter results update presentation. We're very, very strongly positioned, and It's a super exciting time for the company with the next major catalyst being Blackrod first oil. So that will come in due course very soon here. So thanks, everyone, and take care. Operator: Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Greetings. Welcome to the Vitesse Energy First Quarter 2026 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to the Director of Investor Relations and Business Development at Vitesse, Ben Messier. Thank you. You may begin. Ben Messier: Good morning, everyone, and thanks for joining. Today, we will be discussing our first quarter 2026 results. Our 10-Q and earnings release were released yesterday after market close and an updated investor presentation can be found on the Vitesse website. I'm joined this morning by our CEO and President, Jamie Benard; our CFO, Jimmy Henderson; and Brian Cree, our former President, who is with us in a senior adviser capacity. Before we begin, please be reminded that this call may contain estimates, projections and other forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are subject to several risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. Please review our earnings release and risk factors discussed in our filings with the SEC for additional information. In addition, today's discussion may reference non-GAAP financial measures. For a reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measure, please reference our 10-Q and earnings release. Now I will turn the call over to Vitesse's CEO and President, Jamie Benard. Jamie Benard: Thank you, Ben. Good morning, everyone, and thank you for joining today's call. It's a privilege to begin my tenure as CEO and President of Vitesse as of last Friday. I want to thank the group for their hard work getting us to where we are today, and I look forward to building on the strong foundation already in place. I want to thank Brian Cree, in particular, for his commitment to ensuring a seamless handoff and for his continued partnership as a senior adviser through this transition. Vitesse's primary objective of returning capital to stockholders has not changed. Our Board reaffirmed that commitment last week in declaring our second quarter cash dividend at an annualized rate of $1.75 per share. Our fundamental strategy remains consistent, disciplined capital allocation towards high rate of return opportunities. This includes organic development of our long-duration asset base, purchases of near-term development opportunities and accretive acquisitions, we will continue to maintain a conservative balance sheet and hedge at prices that support our dividend. The Powder River Basin acquisition that closed in early April is a good example of that strategy in action. It is accretive in all key financial metrics and funded with equity to preserve balance sheet flexibility. You should expect more of the same discipline going forward. I'll now turn the call over to Brian Cree to provide more detail on our results and operations. Brian Cree: Good morning, everyone, and thanks, Jamie. I've been fortunate to serve as President of Vitesse over the past 13 years. We've accomplished a great deal together. I'm most proud of the strength of our team and the culture we've built. Jamie, you're in good hands, and I look forward to working alongside you through this transition. Production for the first quarter averaged 15,962 barrels of oil equivalent per day, up 7% year-over-year and above our internal expectations. Oil production contributed 89% of total oil and natural gas revenue in the quarter. These results do not yet include any contribution from the Powder River Basin acquisition, which closed in early April. This acquisition is anticipated to add an average of 1,400 net barrels of oil equivalent per day over the remainder of 2026 and was closed without issue for 1.9 million shares of Vitesse common stock. Our underlying asset continues to be developed at a consistent and robust pace. As of March 31, 2026, we had 19.9 net wells in our development pipeline, including 6.2 net wells that were either drilling or completing and another 13.7 net locations that have been permitted for development. As we previously discussed, 3 and 4-mile development continues to increase across the Williston Basin. For Vitesse, 72% of our year-to-date AFEs have been for these extended laterals and drilling activity continues to progress further into areas where we hold concentrated acreage positions. As of last week, 67% of the 28 rigs drilling in the Williston were on Vitesse acreage. With the continued hostilities in the Middle East, we have opportunistically layered on additional oil hedges through the end of 2028 at levels supportive to our dividend. For the remainder of 2026, we have approximately 73% of our oil production hedged through swaps and collars with a weighted average floor of $64.68 and ceiling of $67.20 per barrel. We have approximately 50% of our 2026 natural gas production hedged through collars with a weighted average floor of $3.73 and ceiling of $4.91 per MMBtu. Both percentages of hedged oil and natural gas volumes are based on the midpoint of our annual guidance. Thank you for your time. Now I'll hand the call over to our CFO, Jimmy Henderson. James Henderson: Good morning, everyone. Before I get into the first quarter performance, I want to welcome Jamie to the team. I'm excited about the company's future and look forward to working together. With that, I want to highlight a few items from our financial results for the first quarter of 2026. Please refer to our earnings release and 10-Q, which were filed last night for any further details. As Brian mentioned, production for the quarter was right at 16,000 BOE per day with a 63% oil cut. For the quarter, adjusted EBITDA was $33.4 million and we had an adjusted net loss of $300,000. GAAP net loss was $42.3 million, driven by a $48.2 million unrealized hedge loss. As a reminder, this loss is due to forward prices as of March 31 and is a noncash item. These hedges allow us to lock in the underlying returns as our asset is developed where properties are acquired, which in turn support our dividend and our balance sheet. Free cash flow for the quarter was $12 million after $18.7 million of development capital expenditures net of divestitures with the Powder River Basin acquisition contributing for the remainder of 2026 and our hedge book now extending through 2028, we remain very well positioned to support our $1.75 annualized dividend. As for the balance sheet, we ended the quarter with total debt of $144.5 million, putting net debt to our trailing 12-month adjusted EBITDA at just 0.82x. In April, we amended our revolving credit facility, expanding availability by $25 million. The elected commitment amount and borrowing base now sit at $275 million with total liquidity before internal cash flows of roughly $130 million. Our previously issued guidance has not changed and incorporates the Powder River Basin acquisition as previously mentioned. We are optimistic that the development pace could increase in the current environment but at this time, our operators continue to be diligent as we've seen through the industry as a whole. In closing, I want to recognize the team's execution this quarter. Leadership transitions are important moments for any organization, but what ensures continuity is the strength of the people across the business. We are entering this next chapter from a position of strength, fully aligned on strategy and ready to execute. With that, let me now pass the call back to the operator for questions. Operator: [Operator Instructions] The first question comes from the line of Jeff Grampp with Northland Capital Markets. Jeffrey Grampp: Jamie, curious for you with this being your first earnings call and welcome and congrats. If you could just lay out at a high level, kind of what's your vision for Vitesse over the coming years? And maybe what attracted you to the company and what you perhaps see as the main opportunities you're planning on spending time on as you kind of get up to speed and hit the grab on here with the company? Jamie Benard: Sure. Thanks for the question. Well, what drew me to Vitesse is truly, it's alignment, alignment between my experience, my philosophy and the company strategy. I've spent most of my career across both operated and non-operated models and most recently with a very heavy focus in the Williston Basin. So I understand where value is created and where it's lost. That shaped a very disciplined approach to capital allocation. And Vitesse already embodies that discipline, strong returns, conservative balance sheet, clear commitment to returning capital to stockholders. That's a model I believe in. So this isn't about coming in to change direction. It's about leaning into a strategy that works and helping scale it very thoughtfully. Jeffrey Grampp: Great. I appreciate that. And for my follow-up, this is the market share, if you will, your percentage of rigs in the Bakken seems to be maintained at a super high clip. I think you guys had typically talked about being in kind of that 30% to 50% range. And I think this is the second quarter above 60%. Is this just kind of -- it will ebb and flow? Do you guys see this as maybe something more fundamental changing in terms of operators focusing more on Vitesse acreage? Just wondering if there's anything to read there. Brian Cree: Yes, Jeff, this is Brian. I'll try to handle that one. Look, as we've talked about in the past, a lot of the development that's going on in the Williston right now is really focusing on the 3-mile and 4-mile development and where those development areas seem to be trending toward is just areas of the field where Vitesse has a larger acreage position. So I think that's what we're seeing. Obviously, it can always ebb and flow, it always will. This is a very high level for us at this point in time, but it is consistent with kind of what we've been seeing, which is that 3- and 4-mile development being in areas where Vitesse has a lot of acreage. Operator: Next question comes from the line of Chris Baker with Evercore ISI. Christopher Baker: So I just want to start off maybe on a similar note, just in terms of the significant exposure you all have to rigs in the Bakken. Could you maybe just talk about what you guys have seen over the past quarter or two in terms of AFEs? And then you kind of touched on this earlier in terms of -- with higher prices at some point, likely to see an acceleration in activity. Just kind of curious as you guys think about service costs or the potential for service cost inflation in the back half of the year, sort of how you think that could maybe come together? And what sort of a reasonable outlook in terms of activity and what that could mean for service costs? Brian Cree: Chris, this is Brian. I'll start with that. As I mentioned over the last few quarters, a lot of our development activity has been focused on the extended laterals. And what we have seen over that last probably 6-month period is that the operators are becoming much better, just as they have all along at bringing drilling costs down. So the 3- and 4-mile CapEx that we are seeing has continued to decline, especially in the last 3 months period of time. The operators are just getting really good and efficient at drilling 3 and 4-mile laterals. Now what that means for cost on a go-forward basis. Obviously, with oil prices where they are, it's something we're going to continue to watch and it's going to really be a combination of what those operators do from a rig count standpoint. We have not really seen a lot of increased activity at this point in time. Our operators seem to be very disciplined about their approach to adding rigs. Clearly, in the field right now, there is a higher level of activity on workover rigs, maybe some increased frac crews. So it does appear that our operators are looking to try to bring back production as quickly as they can, wells that may have been off-line. They're trying to get them back online. But that being said, we have not seen an increase in the amount of rigs drilling. We've heard some comments that maybe there's a couple of more rigs to be added in the next quarter. but we just haven't seen that big increase. And so certainly, there's going to be some costs that go up as a result of just what's been going on, fuel costs, whatnot. But in terms of where the larger costs of drilling and completion will occur is if the activity levels go up substantially. Christopher Baker: That's great. And a follow-up, obviously, the dividend is pretty central for you all. I think the team obviously has evolved. But you did a good job last quarter of, I guess, resetting the outlook and really kind of reflecting, I think, what was a much different macro outlook at the start of the year. Since then, we've seen prices come up quite a bit. Again, to think that we're talking about incremental activity is certainly a big shift in the outlook. Just curious, as you guys think about the hedge program, opportunities for further sort of accretive M&A like the PRB deal and the dividend, just to kind of maybe wrap it all into, I think, some interrelated and interrelated topic. Does the change in the macro outlook influence how you think about hedging going forward? Obviously, it provides a good amount of downside protection, but much different outlook in terms of -- at least from our perspective, the opportunity to see a higher for longer type environment starts to establish itself. James Henderson: Chris, this is Jimmy. I'll take a stab at that. There's a handful of questions embedded in that, that are all very germane to our strategy and what we think about on a daily basis. I think starting off with a core tenet of ours is the dividend. And we believe it's set at a level now that we're very comfortable with. We don't want to be super reactive to short-term volatility and near-term commodity prices. So we want to be very careful about setting that level, and we've always maintained that as a fixed dividend that we don't want to be moving up and down. So we'll continue to have that discussion quarter-by-quarter with our Board. Obviously, with our hedging position and our activity level coming into this year, we're -- it's set at a level that's supported by where we're at on both of those things. But we'll continue to evaluate it as we go through the year and into next year. Definitely -- it all really comes back to sort of how you laid out capital allocation. We want to continue to invest in the company and do accretive transactions that create value for our shareholders for the long term. So we want to be able to have enough dry powder to invest in acquisitions, continue to fund drilling on our acreage. It's a very high return proposition. So we want to continue to do that. So really, it's the same as it's always been. The strategy of capital allocation is what we're all about, and we want to be able to do all those things in a measured way. Christopher Baker: Great. So it sounds like, if I'm hearing correctly, sort of no change to how you're thinking about hedging from here? James Henderson: We've been very opportunistic about putting hedges on as you can see in our press release last night. We've just very methodically added hedges every since conflict in Iran started. Tried to maintain enough dry powder to keep adding to our position in a way that's supportive of our dividend and gives us the ability to add more as we go. It's very opportunistic, but very methodical at the same time. Operator: Next question comes from the line of Poe Fratt with Alliance Global Partners. Charles Fratt: Jamie, I'm not that familiar with your background, but could you highlight sort of any notable experience that you have on the acquisition front? And then also highlight where you have experienced outside of the Bakken as far as maybe that there might be some future direction in that way? And then if you could just sort of highlight -- you talked pretty broadly about adding value, but can you be a little more specific on which prong of the strategy you think you can make the most impact on near term? Jamie Benard: Sure. Happy to address it. So on the M&A front, going back over the past years, I'd say it's north of $3 billion between the Permian Basin, the Marcellus, the Eagle Ford, both from the operated and the non-operated positions. It's where I've been focused. And then of late, the last two years, I've been leading an operated organization in -- primarily in the Williston Basin as well as the Permian Basin. So as far as avenues to create value to be more specific, like we said, this isn't a change in direction. This is methodically adding value consistent with the existing strategy and with the experience in the Williston Basin and other basins as well, we're going to continue to look at all opportunities and start to hone in on what fits us best, and it's more about quality as opposed to quantity as far as opportunities come. Charles Fratt: And then reading between the lines, so if AFEs continued at the same pace and you don't see a pickup, operators or other operators are sort of taking more of a wait-and-see attitude. How well positioned is the organization right now to move into the operated arena? How many locations do you have ready if you were to make that pivot? Jamie Benard: Sure. We're in the middle of a comprehensive planning process for the reasons you just mentioned with permitting and it's four locations right now that we're contemplating. That said, we're not going to mobilize anything until we've done a very constant -- the size of our inventory. We're going to measure twice and cut once. But as always, it comes down to capital discipline and how those opportunities compete against other activity throughout the portfolio. So it's nice to have that feather in our cap but it's still going to be competing against other activity. Brian Cree: Yes. Poe, this is Brian. Let me just add to that is, obviously, one of the great things about the Lucero acquisition is it gave us that operated asset. It gave us that flexibility to allocate capital to either our operated properties or our non-operated properties. And our guidance for this year, the $50 million to $80 million of CapEx did not assume any operated development. So with oil prices in the 60s at the time that we set that budget and that guidance, it didn't really make sense to us to spend our capital on those operator development opportunities, and we wanted to hold those in our inventory. Obviously, now with the change in prices, it's something that, as Jamie said, we are planning for, we are looking at, we are preparing to be able to take advantage of the higher prices. But again, we're going to remain disciplined. We're going to look at everything that goes on over the next few months and analyze what other opportunities come before us. It's great to have that asset available for us to develop at the right time. The right time can be when we don't have as much CapEx coming in other areas or it can be when the rates of return are really high. And clearly, the rates of return on these properties are very strong, but we'll continue to evaluate what other operators bring our way in what we see in AFEs and then make that decision as the year goes. Charles Fratt: Great. It sounds like, Brian, though, it's more of the '27 of that from an impact to the production profile? Brian Cree: Yes. I think, Poe, if we drill these wells, it would likely be sometime in the fall. So by the time you drill and complete those, you get those online, it's much more impactful to 2027 than it would be to 2026. Charles Fratt: Great. That's helpful. And then if you could just address looking outside the basin. Obviously, the Powder River acquisition is an example of that. But if you could look at more broadly, where else are you looking? I heard that Jamie mentioned the Marcellus and my sense is you wouldn't go into the Marcellus, but maybe correct me if I'm wrong there. Brian Cree: No, I think you have a pretty good understanding of that. We have looked at a lot more gas assets over the last year, 1.5 years than we had previously. But clearly, for us, there's a great pipeline of acquisition opportunities. What I think is most prevalent for us at this point in time is that several of the opportunities we're looking at are right in our core asset area. And that's a little different. We've always looked at all kinds of different basins, whether it be oil or gas. But right now, we're seeing a lot of good opportunities both in the Williston and the DJ, where we have the majority of our production and assets. And a couple in the powder also where we just completed one. So it's kind of cool that we have the opportunity to look at things that are right in our backyard, but we will continue to look at other basins. And I think Jamie's experience coming in, in those other basins is something that we'll continue to try to leverage on. Operator: Next question comes from the line of Noel Parks with Tuohy Brothers. Noel Parks: I was just wondering if -- you mentioned a moment ago that there was -- you're seeing a higher level of activity in workover rigs. And is there anything available that you consider where the -- I'm thinking in the Williston, for example, where the main value would really consist mostly of refracs. I'm just wondering if you -- if anybody has put things on the market like that? And if so, how you might approach valuing something like that? Brian Cree: Well, clearly, refracs is something that we have always been high on and believe will be a needle mover in the Williston Basin over time. It's interesting when prices are lower, like they were in the 60s, you don't have as many companies completing wells. And right now, a lot of the refrac opportunities have been kind of in connection with additional development to where you go into a DSU that's got one or two wells that were drilled back in 2014 and '15. And now there's four, five, six additional wells being drilled, a lot of times. What we've seen is the operators are refracing those wells. I think that will continue. We have not seen an uptick in refracs at this point in time like we have seen in the workover category. I think I heard the NDIC say the other day that they've seen about a 20% increase in workover rigs going on. I just think that, that is the quickest way to get production online to take advantage of the current prices. And I think look, the industry is just trying to figure out what's going to happen in Iran and where those prices are going to be in 3 to 6 months. And again, the workover activity is the quickest way, along with just getting fracs done on any wells that have been drilled that were kind of DUCs. And so that's where we've seen the enhanced activity level so far. Noel Parks: Great. And I apologize if you've touched on this already. But I wonder if you could -- for the transactions you see or reviewed or pursued, I was wondering if you can kind of maybe characterize what the types of sellers are that you see coming to the market? Sometimes, of course, higher prices does get a few people out of the other channels. And I guess I'm just wondering sort of maybe what sort of the pace and quality of deals is that you're reviewing these days? Ben Messier: Noel, it's Ben. It's always a mix. I would say right now about 80% of the transactions we're evaluating are private equity-backed portfolio companies that frankly, are trying to monetize it in the elevated price environment, which is why making acquisitions goes hand-in-hand with hedging to ensure that we can lock in whatever returns we underwrite. There are one or two larger public companies right now that are bringing assets to market that are in our wheelhouse. So I think that impacts kind of the cash stock mix to, I'd say, some PE-backed sellers are generally more open to taking shares, whereas a big public company probably wants cash. So we evaluate all of these things when making acquisitions. I mean the goal remains the same regardless of the seller. It's got to be accretive. It needs to keep our balance sheet conservative and it needs to be an attractive asset. Noel Parks: Great. And just a follow-up on that. I mean can you kind of give an idea of roughly what vintage of PE companies you're seeing selling kind of like roughly when they were started or raised their funds? Ben Messier: A lot of the assets we're evaluating right now. We also evaluated last year in different forms. So I think they're PE-backed assets that are reaching the end of their fund life for the most part and are happy to see the higher prices to try to reach their internal hurdle rates that they need. Operator: Next question comes from the line of Jeff Grampp with Northland Capital Markets. Jeffrey Grampp: Just had one follow-up. I'm seeing some commentary regarding some pretty interesting pricing dynamics going on in a lot of basins, Bakken, specifically. Just kind of curious what you guys are seeing with respect to oil dips and it's perhaps hard to forecast much beyond maybe a quarter or two. But just wondering how that might influence realizations for Q2 and in the near term. James Henderson: Jeff this is Jimmy. I'll take a shot at that. Yes, we're definitely seeing some cash prices that are better than what -- better than WTI, frankly. Pretty evident when you look at the index that's pegged on the Dakota Access Pipelines, the [ DAPL dip ] has been positive here in the spring months of the year and early summer. So we do expect to see much improvement in our differentials that we realize for physical oil cells for at least the next few months. And obviously, that's a result of sort of changing in flows of light sweet oil around the world is -- a lot of Canadian oils being called to the West and being exported. That's reduced the flows down to the Midwest of the U.S. And so there's been a big call on oil coming out of the Bakken to meet the needs of refineries in the Midwest and even on down to the goal. So yes, at least for the short, medium term here, we are pretty optimistic about what differentials will be experiencing. And the great thing about that is that's unhedged. So it's incremental to the realized pricing that we're getting after hedging effects. So it looks like it could set up for a pretty interesting second and third quarter here. Operator: Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to Jamie Benard for closing comments. Jamie Benard: Thank you all for your time today. As mentioned, Vitesse's priorities remain returning capital to stockholders, discipline, capital allocation, pursuing accretive growth opportunities and maintaining a conservative balance sheet. So should you have any additional questions, please feel free to contact Ben Messier directly. And we look forward to speaking with you at one of our investor events or on next quarter's earnings call. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to the MPLX First Quarter 2026 Earnings Call. My name is Julie, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin. Kristina Kazarian: Welcome to MPLX's First Quarter 2026 Earnings Conference Call. The slides that accompany this call can be found on our website at mplx.com under the Investor tab. Joining me on the call today are Maryann Mannen, President and CEO; Chris Hagedorn, CFO; and other members of the executive team. We invite you to read the safe harbor statements on Slide 2. We will be making forward-looking statements today. Actual results may differ. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. With that, I will turn the call over to Maryann. Maryann Mannen: Thanks, Kristina. Good morning, and thank you for joining our call. MPLX delivered over $1.7 billion of adjusted EBITDA, which enabled a return of over $1.1 billion to our unitholders. 2026 is a year of execution with multiple investments expected to transition from construction to operations and EBITDA generation. With Secretariat I coming online in April, Harmon Creek III in the third quarter and the Titan gas treating complex reaching over 400 million cubic feet per day of treating capacity in the fourth quarter. This gives us confidence that year-over-year growth in 2026 will exceed that of 2025. The underlying fundamentals in natural gas and NGLs remain strong. We see strategic opportunity to support increasing demand for these commodities. As an example, in the Delaware Basin of the Permian we treated over 150 million cubic feet per day of our committed producer sour gas at our recently acquired Titan facility. Our third acid gas injection well in the Delaware Basin is expected to be completed in the third quarter. The expansion of the Titan complex is on schedule. Downstream, the 200 million cubic feet per day Secretariat I processing plant has entered service. Last quarter, we announced our intention to further expand our gas processing footprint with Secretariat II, an additional 300 million cubic feet per day of capacity expected online in the second half of 2028. Once in service, our total processing capacity in the basin will reach approximately 1.7 billion cubic feet per day. These investments meaningfully strengthen our position in the Delaware Basin, supporting activity in the low-cost sour gas windows and extending the competitiveness of our broader value chain. The Blackcomb natural gas pipeline continues to progress as planned, and is expected to enter service in the fourth quarter. Demand for firm takeaway capacity is driving expansions on several long-haul natural gas pipelines. Volume commitments from top-tier shippers underscore the competitiveness of our footprint as well as the long-term durability of our natural gas system. Within NGL, the expansion of the BANGL pipeline to 300,000 barrels per day is expected online in the fourth quarter, providing critical takeaway capacity as in-basin NGL volumes grow. Construction across our Gulf Coast fractionation and export facilities continues to advance on time and on budget. Our fully integrated NGL value chain provides high confidence in the volumes, utilization and durability of cash flows these assets will generate for years to come. Against the backdrop of ongoing geopolitical uncertainty, the strategic importance of U.S. energy infrastructure has never been clearer. Global demand for secure, reliable energy continues to grow, and the international customers are increasingly more dependent on the United States as a preferred supplier. MPLX is exceptionally well positioned to capitalize on this opportunity. Our joint venture LPG Export Terminal is favorably located along the Gulf Coast, providing meaningful, competitive and logistical advantages. In the Marcellus, construction of Harmon Creek III remains on track for a third quarter in-service date increasing our total processing capacity to 8.1 billion cubic feet per day in the Northeast. This project, along with our associated gathering and compression expansions enhances our ability to meet producer needs in liquids-rich areas and supports long-term throughput growth. Beyond 2026, the opportunity set for natural gas and NGLs remains robust. We are deploying 90% of our $2.4 billion organic growth capital plan toward these opportunities which will drive continued mid-single-digit growth. Now let me turn the call over to Chris to discuss our operational and financial results for the quarter. Carl Hagedorn: Thanks, Maryann. Slide 8 outlines the first quarter operational and financial performance highlights for our Crude Oil and Products Logistics segment. Segment adjusted EBITDA increased $14 million when compared to the first quarter of 2025. The increase was primarily driven by higher rates across the business units, partially offset by lower crude pipeline throughputs. Pipeline volumes decreased 4% year-over-year, primarily due to Marathon's refining turnaround and maintenance activities in the Midwest and Gulf Coast regions. Terminal volumes also decreased 4% year-over-year, primarily due to less favorable market dynamics and refining industry turnaround activity in the first quarter. Moving on to Slide 9. Segment adjusted EBITDA decreased $42 million compared to the first quarter of 2025. 2025 included a onetime $37 million benefit associated with the customer agreement. The decrease was primarily driven by a $45 million impact from divestiture of our noncore gathering and processing assets in 2025, lower natural gas liquids prices and higher operating expenses. These factors offset growth from equity affiliates and increased volumes inclusive of acquisitions. Excluding the impacts of our noncore Rockies divestiture, gathering volumes were up 10% year-over-year due to production growth in the Utica and Permian, including acquisitions. Processing volumes increased 2% year-over-year, primarily due to increased production in the Marcellus and the Permian. Marcellus processing utilization was 94% for the quarter, demonstrating the need for incremental capacity as Harmon Creek III is positioned to come online on a just-in-time basis in the third quarter. Total fractionation volumes decreased 3% year-over-year, primarily due to lower ethane recovery in the Marcellus as a result of elevated regional gas prices in the first quarter. Winter Storm Fern in January impacted crude oil and natural gas production volumes resulting in a roughly $13 million headwind to our first quarter results. We would like to extend our gratitude to our teams in the field whose round-the-clock efforts for continuous safe and reliable operations at our MPLX assets during the storm. Thank you to our team. Across our business for every $0.05 change in weighted average NGL price, MPLX expects approximately a $20 million annual impact to segment adjusted EBITDA. During the first quarter, to manage this exposure, MPLX executed an economic hedge on 80% of this risk and recognized the negative mark-to-market of $56 million during the quarter. This impact will offset -- be offset by physical gains over the course of 2026. As a reminder, the first quarter is typically our lowest quarter for project-related expenses. While we expect these expenses in 2026 will be flat versus the prior year, we anticipate a sequential increase of $50 million in the second quarter, reflecting the seasonality of this project-related work. Now let me hand it back to Maryann for some concluding thoughts. Maryann Mannen: Thanks, Chris. MPLX has a proven history of executing on our commitments and delivering consistent financial performance. Through disciplined capital deployment and optimization of our integrated value chains, we have sustained strong EBITDA growth and maintained a robust return profile. This track record supports our confidence in our ability to continue creating value for unitholders through both organic project execution and reliable capital returns. Our long-term strategy is straightforward, and we are executing with discipline, operate safely and reliably, grow through high-return investments, optimize our integrated value chains and to maintain a strong financial foundation. The actions we have taken to position MPLX over the last several years are delivering strong results. The strength of our base business continues to deliver steady durable growth. As we progress through 2026, we expect the investments we are making to provide a clear path to continued mid-single-digit growth, and we continue to evaluate both organic and inorganic opportunities to drive income generation. With this momentum, we remain confident in our outlook and committed to creating exceptional value for our unitholders. Now let me turn the call over to Kristina. Kristina Kazarian: Thanks, Maryann. As we open the call for your questions, as a courtesy to all participants, we ask that you limit yourself to one question and a follow-up. If time permits, we will reprompt for additional questions. With that, operator, we are ready for questions today. Operator: [Operator Instructions] Our first question comes from John Mackay with Goldman Sachs. John Mackay: Look, in the back half of last year, you were talking about considerably higher EBITDA growth for '26 over '25. First quarter was flattish. I understand some of the moving pieces you guys gave on the cost side. And then you've walked us through the project ramp timelines. But could you spend a little bit more time walking us through how we should think about the EBITDA ramp through the year and kind of getting to that maybe above mid-single-digit target you laid out last call? Maryann Mannen: And you're correct. And as we were talking about in 2025, we continue to see growth '25, '26, if you let me to look at it first on an annual basis, '25 to '26 growth rate to be stronger than we saw '24 to '25. And as you well said, that growth for us is more back half weighted for 2026 than front half weighted. If you look at it over a 3-year period, our mid-single-digit growth has trended right around that 7.5% range. So I mentioned in a couple of my opening remarks there, Secretariat I now in service. And so obviously, we'll see that EBITDA strength coming online throughout the back half of this year. We typically see a 9- to 12-month ramp. We could see that in a little more narrower window as we look at Secretariat I. I also talked about Harmon Creek III. That project remains on track to enter service in the third quarter. I think you know this. It's a 300 million cubic feet per day gas processing plant. It also includes construction of a second 40,000 barrel a day de-eth, and it gives total Northeast gas processing and fractionation capacity to a total of 8.1 Bcf a day and 800,000 barrels a day, respectively, when that project comes online. A few other projects, as you know, will lean in. So the back half of the year, we expect to be stronger clearly than the first half of the year. And we see good line of sight to that, which also continues to give us confidence, frankly, in our 12.5% distribution increase. As you know, we've been talking about that for 2026 as well and 2027. And again, we remain confident in these projects delivering a little bit longer term. As you know, we've got our fractionation '28, '29 coming online and the export dock. That project remains well on track, on budget, as you've heard me say as well. So back half weighted, remain confident, we still expect '26 to be a stronger growth than 2025. Let me pause there, John. John Mackay: That's clear. Second question for me is just given the disruptions we've seen in the Middle East. We've seen a kind of higher call for U.S. hydrocarbon exports. Could you just kind of remind us your asset position there, kind of what you've been seeing on the commercial side? Maybe if you can walk through LOOP, Mount Airy and then, I guess, any incremental comments on the NGL dock under construction would be great. Maryann Mannen: Yes. I'll pass that to Shawn. He can give you some insights on the export dock as well. Shawn Lyon: John, this is Shawn. Thanks for the question. As we look at what's going on in the market dynamics right now and we look at our asset base, Mount Airy is a great example. We're located strategically right next to Garyville, and based on some of the market things going on, I think MPC and others will continue to lean into that. So we anticipate that asset utilization will be increasing some. And then also, as you look -- you talked about LOOP. MPLX has a share of LOOP there. We've seen Venezuelan crude come in. And obviously, some imports and exports are increasing across that asset base there. And as Maryann mentioned on the, I'll say, the export dock and fractionator complex on the Gulf Coast. We're excited as we continue to stay on track for in-service date of '28 and '29. Again, we're excited that those -- our facilities, our assets are going to be full as we go in service date there. Operator: Our next question comes from Burke Sansiviero with Wolfe Research. Burke Sansiviero: So distribution coverage has been 1.3x over the past 2 quarters. Can you just provide a little bit more color on your confidence in growing the distribution by 12.5% for another 2 years and staying above the -- at or above the 1.3x threshold, seems to imply that cash flows also need to grow 12.5% from here? Maryann Mannen: Yes, certainly. So when we think about our 12.5% distribution growth both for this year 2026 and 2027, we've set financial metrics for that and one of which is, as you stated, that our coverage doesn't fall below 1.3x. So that is our commitment. We look at that, obviously, on an annual basis, of course. But you're absolutely correct. Cash flows would be supportive of that, and we continue to see our ability to do that for '26 and '27. Burke Sansiviero: And buybacks have been somewhat programmatic over the past year at $100 million a quarter cadence. Can you just talk to why buybacks went down in Q1 to $50 million? And are you looking to retain more cash from here? Maryann Mannen: Certainly. So -- what I would say is there really no change in our overall capital allocation strategy. We continue to see opportunities to put capital to work and, therefore, have modified our share buyback program. I want to pass it to Chris because I know he's got a few things that he wants to share as well. Carl Hagedorn: Yes. Thanks, [ Keith ]. And I'll say, as Maryann stated, again, no change to our capital allocation methodology or strategy. Distributions will continue to be that primary tool to return capital to unitholders with the unit repurchases really being that more flexible method of returning capital. But what I would also say is we continue to believe that MPLX units trade at a discount. We think this type of a program at this level reflects that belief. Operator: [Operator Instructions] Our next question comes from Manav Gupta with UBS. Manav Gupta: I have two questions. I'm going to ask them right upfront. So first, can we get an update on the Titan sour complex, what you're seeing in that area? Is the producer activity increasing with higher crude prices in that particular area? And second, I wanted to talk to you about -- a little bit about the local gas markets in Texas. There are more pipelines coming to Agua Dulce, including yours, but then you also have some pipelines like Traverse and Bay Runner, which can move gas out of Agua Dulce and help with these opportunities where local prices are depressed. So could you talk about the local gas Texas markets and how MPLX can benefit from the dislocation in prices in various hubs? Maryann Mannen: So in general, first, let me share with you sort of overall progress on Titan. First and foremost, as I mentioned, we were successful in the first quarter treating over 150 million cubic feet per day in the first quarter. As a matter of fact, March was actually -- we saw our absolute strongest performance in the month of March. And no change in our expectations for the completion of Titan II by the end of this year, 2026. So that we will have full run rate EBITDA as we outlined when we talked about the opportunity for Northwind. So we expect that expansion from 150 million to over 400 million cubic feet per day of sour gas treating capacity to be available and consistent. We're seeing a lot of interest from our producers, producer customers in that space, particularly as they are moving their production into that region. I'm going to first pass it to Greg to give you some incremental color on the customers. And then to respond to your question around all of the Texas opportunities as we see all that pipeline, I'm going to ask then Dave to answer your question on that. Thanks, Manav. Gregory Floerke: Manav, this is Greg. Just a little bit more color on the Titan system. We have been focused daily and weekly on integrated -- integrating that system, increasing reliability, bringing on more volume. We really continue to be excited about the number of rigs that are operating up in the -- this portion of Lea County in the Delaware Basin and the associated gas that comes with it. CO2, H2S, sour gas that needs treating. So the demand is definitely there, as Maryann said. In terms of the projects, the scaling this is our other big focus, and that includes Titan II. We recently brought on a new sour gas treater on the north end of the system that we call Pelham. It's a compressor station as well. That is operating well. And Titan and the multiple pipeline projects that are associated with increasing -- doubling our capacity at Titan. And our fourth AGI well are all in construction and on schedule for fourth quarter completion. David Heppner: So Manav, this is Dave. And maybe I'll touch on -- I'll build on a little bit what Greg talked about and touch on the gas markets and dig a little deeper in our overall Permian wellhead-to-water nat gas strategy because I think I'll try to bring all the pieces of the puzzle together for you. So first of all, let me reaffirm a little bit that generally, MPLX is a fee-based business, and we're not taking on the commodity risks within the nat gas markets in the U.S. Gulf Coast. With that said, when we think about our strategy, maybe think it in about 5 major components. So Greg touched on the first one. In-basin gathering, processing and treating. From there long-haul egress pipelines, and I'll talk about those in a minute. And then connectivity between markets. And then the next is connectivity into demand centers, specifically LNG, but also potentially data centers and power. And then finally is giving our shipper customers optionality and flexibility to all those markets. So -- when you think about the long-haul pipelines, you mentioned Agua Dulce. So from the basin in Agua Dulce, of course, we have Whistler already moving 2.5 Bcf a day, and we have Blackcomb coming in service in the third quarter of this year. And then when you think about the long hauls into the Katy market, of course, we have Matterhorn currently flowing 2.5 Bcf a day, similar to Whistler. And we have Eiger coming online in 2028 in the second half of 2028. So those are those 4 main headers, both into Agua Dulce and Katy, which gives our customers that flexibility to those markets. But I think the other piece of the puzzle is Traverse, which is the bidirectional pipe between those two markets, which allows that flexibility. So that's that connectivity between markets. And then you think about you getting it to the end demand centers, specifically LNG and the high growth -- rapid growth in the LNG market. So of course, we got ADCC going into Corpus Christi, and we have the Bay Runner I and II go into NextDecade, specifically down in Brownsville, those last ones. So when we think about all that, that's really how we're trying to build out -- have been building out and continue to build out our nat gas strategy. With all that said, we also believe that there is the need for incremental egress pipelines out of the basin. So as we look forward, we think and believe that MPLX can continue to play a very active role in supporting those value chain solutions that -- and our strategies necessary to address all that incremental demand in those market opportunities. So hopefully, that gives you a little bit of color on how we're thinking about it. Kristina Kazarian: All right. Thank you. Operator? Operator: I am showing no additional questions. I will turn the call back to Kristina. Kristina Kazarian: Thank you. Thank you for your interest in MPLX. Should you have more questions or would you like clarifications on topics discussed this morning, please contact us. Our team will be available to take your calls. Thank you for joining us today. Operator: Thank you for your participation. Participants, you may disconnect at this time.
Operator: Greetings, and welcome to the Enpro First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to James Gentile, Vice President, Investor Relations. Thank you. You may begin. James Gentile: Thanks, Jessie, and good morning, everyone. Thank you for joining us today as we review Enpro's first quarter 2026 earnings results and discuss our improved outlook for 2026. I'll remind you that this call is being webcast at enpro.com, where you can find the presentation that accompanies the call. With me today is Eric Vaillancourt, our President and Chief Executive Officer; and Joe Bruderek, Executive Vice President and Chief Financial Officer. During this morning's call, we will reference a number of non-GAAP financial measures. Tables reconciling the historical non-GAAP measures to the comparable GAAP measures are included in the appendix to the presentation materials. Also, a friendly reminder that we will be making statements on this call, including our current perspectives for full year 2026 guidance that are not historical facts and that are considered forward-looking in nature. These statements involve a number of risks and uncertainties, including those described in our filings with the SEC. We do not undertake any obligation to update these forward-looking statements. It is now my pleasure to turn the call over to Eric Vaillancourt, our President and Chief Executive Officer. Eric? Eric Vaillancourt: Thanks, James, and good morning, everyone. Thank you for your interest in Enpro, as we discuss our first quarter results, provide an update on strategic initiatives and share our current views for the balance of 2026. Before we discuss our results for the first quarter, I would like to recognize our 4,000 colleagues across the company who are accelerating their personal and professional growth, while contributing to Enpro's strategic and financial successes. Momentum and excitement is showing up throughout the organization. And we are off to a strong start in the second year of Enpro 3.0. We are energized to continue providing critical products and solutions to our customers, while driving significant enterprise value creation, by unlocking compounding strength of our portfolio. Our leading market positions, committed colleagues and strong balance sheet support the continued execution of our multiyear value creation strategy. After my update, I will turn the call over to Joe for a more detailed discussion of our results and drivers of our increased guidance for 2026. Now on to the highlights for the first quarter. We started 2026 off on the front foot with reported sales up nearly 11% year-over-year. Improving demand in semiconductor markets drove sales in the Advanced Surface Technologies segment up over 11%. Additionally, the contributions from the 2 businesses that we acquired in the fourth quarter, AlpHa Measurement Solutions and drove Sealing Technologies sales up 10.8%. Total company adjusted EBITDA increased nearly 13% to over $76 million at a margin over 25% for the first quarter. We are pleased with these results, especially as we continue to invest in growth opportunities across the company at high-margin return thresholds, while accelerating investments in the development and growth of our colleagues. Throughout our organization, teams are excited to drive our 3.0 strategy forward. Our early progress shows the benefits we expect to unlock as we move into this phase of our strategy. We are confident that our proven excellent execution will allow us to continue to succeed in a variety of macroeconomic backdrops. In AST, positive trends across the segment's portfolio of products and solutions are translating into strong performance. The slope of the demand curve has steepened with order patterns accelerating during the first quarter ahead of our expectations at the start of the year. For us, execution is top of mind. And we began building inventory during the first quarter to ensure that we can effectively deliver for our customers and proactively manage potential capacity, supply chain and labor constraints as demand increases. We are already seeing the investments we made in AST during the downturn begin to bear fruit in the early stages of the recovery cycle. We expect these investments will position us well to capture opportunities from the acceleration of semiconductor capital equipment spending for the balance of the year and beyond. We also believe that, our vertical integration model is a key differentiator for Enpro in the next phase of the semiconductor industry growth, as many of our new business wins are using more of our solutions to drive value for our customers, enhancing our specified position in critical in-chamber tools, including gas dispersion and wafer handling applications. In addition, hard work to qualify and earn processor record designations solidifies our position in leading-edge precision cleaning solutions, a business that is currently strong and accelerating. Our capacity expansion in Taiwan, California and Arizona, both executed and ongoing, position us to participate in the rapid expansion of leading-edge chip production, capacity supporting advanced computing and artificial intelligence. In Sealing Technologies, segment revenue of 10.8% was primarily driven by the first full quarter contribution from the acquisitions of AlpHa and Overlook completed in the fourth quarter of 2025, recovering nuclear solutions sales and currency tailwinds. Commercial vehicle sales were down year-over-year, below our expectations as demand remains slow, although we're cautiously optimistic that we are nearing the bottom in commercial vehicle markets. Aerospace sales in Sealing were flat year-over-year, reflecting a difficult year-over-year comparison in commercial aerospace, which was partially offset by continued acceleration in demand for products supporting space applications. Total Sealing segment orders were up double digits during the first quarter. Sealing Technologies segment profitability remained strong at 32.5% with disciplined execution helping to offset continued growth investments, softness in commercial vehicle sales and tepid general industrial demand internationally. Aftermarket sales represented 60% of Sealing segment revenue in the quarter. Integration is going well at AlpHa and Overlook. And we are making the appropriate investments to fully integrate these businesses into Enpro and unlock additional growth opportunities. Our new colleagues are already finding ways to leverage Enpro network, including our sourcing, supply chain capabilities and operational expertise while delivering strong top line growth during the first quarter. Additionally, AMI, which we acquired in January 2024, continues to perform above plan. We expect the Sealing Technologies segment to continue to deliver continued best-in-class performance. Our growth priorities underpinning the Enpro 3.0 strategy remain unchanged and will guide our performance through 2030. Over the long term, we are positioned to generate mid to high single-digit organic top-line growth with strong profitability and returns complemented by capability expanding acquisitions that meet our rigorous strategic and financial criteria. We are targeting mid-single-digit organic growth in Sealing Technologies. While at AST, we are targeting at least high single-digit organic growth, with both segments capable of generating 30% adjusted segment EBITDA margins plus or minus 250 basis points through 2030. Our cash flows allow us to maintain our strong balance sheet with a net leverage ratio currently at 1.9x after taking into account the fourth quarter acquisitions of AlpHa and Overlook. Our first capital allocation priority is to reinvest in the business and our people, while pursuing select strategic acquisitions that expand our leading-edge capabilities and meet our stringent criteria, without the use of excess leverage to drive growth in line or above Enpro 3.0 goals. We are excited to deliver on our promises and continue to execute our strategic plan. Life is good at Enpro and the future is bright. Joe? Joe Bruderek: Thank you, Eric, and good morning, everyone. Enpro started 2026 with strong results and consistent execution despite a dynamic macroeconomic environment. For the first quarter, sales of $303 million increased nearly 11%, supported by strong year-on-year revenue growth at AST of over 11%. The contributions from the recent acquisitions and steady overall performance in the Sealing Technologies segment. First quarter adjusted EBITDA of $76.4 million increased nearly 13% compared to the prior year period. Total company adjusted EBITDA margin of 25.2% expanded by 40 basis points year-over-year, driven by consistent performance in the Sealing Technologies segment and a nearly 20% increase in AST segment EBITDA, which includes expenses tied to growth investments, both executed and ongoing. Corporate expenses of $13.7 million in the first quarter of 2026 increased from $11.3 million a year ago, primarily driven by higher incentive compensation accruals and $1.2 million in restructuring costs. Adjusted diluted earnings per share of $2.14 increased 13%, largely driven by the factors behind adjusted EBITDA growth year-over-year. Moving to a discussion of segment performance. Sealing Technologies sales increased 10.8% to $199 million. Growth was driven by the contributions from the AlpHa and Overlook acquisitions, a recovery in Nuclear solutions sales from the choppiness experienced last year, strength in compositional analysis applications, as well as strategic pricing actions. These gains more than offset soft commercial vehicle demand and slower general industrial sales internationally. Foreign currency translation was also a tailwind. North American general industrial, aerospace and food and biopharma sales were firm throughout the quarter. For the first quarter, adjusted segment EBITDA increased over 10%, driven by favorable mix, strategic pricing initiatives, contributions from AlpHa and Overlook and foreign exchange tailwinds, partially offset by lower commercial vehicle volumes and investment in growth initiatives. Adjusted segment EBITDA margin was 32.5% and remained above 30% for the ninth consecutive quarter. Turning now to Advanced Surface Technologies. Sales for the first quarter were up over 11% and orders during the quarter hit a clear inflection point. Demand for precision cleaning solutions tied to advanced node chip production is accelerating. In addition, our outlook for semiconductor capital equipment spending has improved. And we built inventory of key products during the first quarter to prepare for the expected increase in demand. For the first quarter, adjusted segment EBITDA increased 18.5% versus the prior year period. Adjusted segment EBITDA margin expanded 140 basis points to 23.3%. Operating leverage on higher sales growth and higher production volumes, as well as favorable mix were offset in part by $2 million of increased expenses tied to growth initiatives. Our #1 priority is to serve our customers and remain agile as we enter this period of unprecedented demand for our semiconductor products and solutions. Moving to the balance sheet and cash flow. Our balance sheet remains strong. And we have ample financial flexibility to execute on our long-term organic growth initiatives and consider select acquisitions that align with our strategic priorities and deliver attractive returns. We generated strong free cash flow in the first quarter, more than doubling from last year to $26.5 million, while capital expenditures increased nearly 40% to $13.1 million, largely supporting growth and efficiency projects. During the first quarter, we repaid $50 million in revolving debt, bringing our leverage ratio to 1.9x trailing 12-month adjusted EBITDA. We expect to continue generating strong free cash flow in 2026 with an unchanged capital expenditure budget of around $50 million this year as we continue to invest in the company at solid margin and return thresholds. Finally, our strong balance sheet and cash generation provide us with ample liquidity to make these investments, while continuing to return capital to shareholders. In the first quarter, we paid a $0.32 per share quarterly dividend totaling $6.9 million. We also have an outstanding $50 million share repurchase authorization. Moving now to our increased guidance. We are raising our total year 2026 guidance issued in mid-February and now expect total Enpro sales to increase in the 10% to 14% range, up from 8% to 12%. Adjusted EBITDA in the range of $315 million to $330 million, up from $305 million to $320 million previously and adjusted diluted earnings per share to range from $8.85 to $9.50, up from $8.50 to $9.20. The normalized tax rate used to calculate adjusted diluted earnings per share remains at 25% and fully diluted shares outstanding are 21.3 million. In Sealing Technologies, shorter cycle order patterns remain solid as we enter our seasonally strong second quarter. As Eric mentioned, we are seeing double-digit order growth year-on-year despite a slightly softer commercial vehicle outlook than previously expected. And we expect mid-single-digit revenue growth, excluding the contributions from AlpHa and Overlook in the Sealing Technologies segment for the year. We are encouraged by positive order momentum in domestic general industrial, aerospace, food and biopharma and compositional analysis, as well as smaller but improving pockets of earned growth in areas such as communications and data center infrastructure. We expect these elements to support improved sequential sales performance in Sealing Technologies into the second quarter while not factoring in any recovery in commercial vehicle markets in our improved guidance ranges. Finally, we expect Sealing segment profitability to remain towards the high end of our long-term target range of 30%, plus or minus 250 basis points for the year. In the Advanced Surface Technologies segment, we are seeing significant order momentum with strong acceleration in Precision cleaning solutions and critical in-chamber tools. New platforms and capacity expansions that we have invested in will begin to generate revenue in the second half of 2026, with ramp schedules dependent on underlying volume into 2027 and beyond. At this time, we expect AST revenue growth in the mid-teens range year-over-year, with segment profitability improving to a run rate close to 25% by the end of 2026 as capacity and supply chains aligned to meet elevated demand levels. Thank you for your time today. I will now turn the call back to Eric for closing comments. Eric Vaillancourt: Thank you, Joe. We are excited to demonstrate our strength and agility as we continue to accelerate our personal and profitable growth in the second year of Enpro 3.0. Thank you all for your interest in Enpro. We'll now welcome your questions. Operator: [Operator Instructions] Our first question is coming from the line of Jeff Hammond with KeyBanc Capital Markets. Mitchell Moore: This is Mitch Moore on for Jeff. Obviously, just really nice margin progression sequentially for AST. Could you help us just unpack a little bit how that inventory investment helped margins in AST? And then separately, just could you help us understand the margin trajectory kind of through the balance of the year? Is it kind of a linear progression to that 25% you talked about? Joe Bruderek: Yes. Thanks, Mitch. As you noted, we did see progression from the low 20%s to 23% and change for the first quarter. The inventory build, which is really important as we head into significant demand in the second quarter and more specifically for the back half of the year, contributed about 150 basis points to the margin increase in the first quarter. We also saw Precision cleaning continue to be very strong, tied to advanced node precision cleaning work, both in Taiwan and the U.S., which helped margins. And we're also seeing a little bit of leverage on the revenue growth. We expect to continue to build inventory a little bit in the second quarter. It might be a little bit less than we had in the first quarter. And then revenue increasing to offset any lower inventory build potentially in the second quarter. So margins relatively similar in the second quarter and then seeing incrementally throughout the second half, pointing towards that roughly 25% run rate that we expect to exit the year at. Mitchell Moore: Great. That's helpful. And then maybe just the Sealing. I think orders were up double digits in the quarter. Could you just expand on the order activity you saw there, where you're seeing it, if it's concentrated or more broad-based? And then if you could just talk a little bit about your confidence in Sealing kind of picking up through the remainder of the year with a little bit slower start here. Eric Vaillancourt: Very confident in Sealing picking up throughout the year. Our order rate is very strong, exiting the first quarter and building throughout the quarter. So very positive on the year. I don't have any concerns there. Very strong in North America, space, aerospace in general. General industrial in the U.S. is still pretty strong. Only area of weakness really is general industrial and a little bit in Europe, a little bit in Asia. But it still doesn't have any meaningful impact to our overall results. Operator: Our next question is coming from the line of Steve Ferazani with Sidoti & Company. Steve Ferazani: Appreciate the detail on the presentation. Eric, I understand commercial vehicles still being weak. Obviously, we've seen 3 or 4 quarters -- 3 or 4 months of much stronger Class 8 truck orders, obviously, coming off of a significant trough. When would you start seeing that? And do you -- is that built in at all that CV comes back at all in the second half? Eric Vaillancourt: It's not built into our projections at all, as we said in the script. Although, I am cautiously optimistic that it does start to pick up in the second half of the year. Keep in mind, the reason for the acceleration in truck orders is really to avoid the extra cost dilution enhancements in the trucks. And so right now, people are prioritizing trucks versus trailers. But that demand will normalize over time to roughly -- if you look over a 20-year cycle, it's about 250,000 units a year, we're somewhere 170,000 to 180,000 now. So I expect next -- at the end of this year, beginning of next year, somewhere in that time frame, you'll start to see some momentum build. I mean, the ratio between trucks and trailers really doesn't change much. We expect to have about 1.1 trailers per truck. So you would expect that to come back. And our aftermarket business remains very strong. Steve Ferazani: Got it. How are you feeling about the 2 acquisitions now with the quarter under your belt? I know that with Overlook, they had made some pretty significant capacity additions prior to the acquisition. In terms of those 2 businesses, do they require significant investments to grow moving forward? How do you feel about them? Eric Vaillancourt: Very, very strong. Very excited about them going forward. They don't require significant investments. Overlook, they made a pretty significant investment and moved into a new building or did move into a new building in the first quarter. But that was already ongoing before we closed on the business. So it really, it was just a move at this point. And so most of the upfitting that already done and their backlog and their performance is really impressive. AlpHa continues to go well. And so we're still excited about those businesses going forward. Joe Bruderek: And I'll just add, Eric, the integrations are going well. I think the teams are joining our functional support, we're helping where we can there. We're already seeing some supply chain opportunities. In addition, we're making some smaller investments. But investments in their commercial organizations to help expand growth opportunities and enter a few new markets and new customers. So we expect that's an area that we can add value and help them grow over time. Steve Ferazani: And I think you mentioned in the script that AMI since the acquisition was 2024, I believe, continues to outperform in general. How are you thinking about that compositional analysis market? Eric Vaillancourt: Love the space. We just would like to do more. And we continue to have a very active pipeline and we continue to look for the right opportunities to meet all of our criteria that are exciting. And there's several opportunities in our pipeline exciting and the more and more opportunities seem like to come to the market. So there's more momentum in that space. Joe Bruderek: Overall, if you take into consideration the compositional analysis growth perspective. We're looking for a kind of minimum high single-digit organic top-line growth moving forward with incremental investments to expand end market positions and commercial expertise. Steve Ferazani: Got it. That's helpful. Just if I get one more in, in terms of where you are with the various qualifying processes to meet advanced node production. Is there a lot more to go there? Eric Vaillancourt: I don't think it ever stops. So I start by saying that. So no, Arizona is getting fully qualified now. I don't know how much longer -- it shouldn't be long at all. But at the same time, there's new investments in Taiwan that are just starting. There's new customers that are starting as well. So I don't think it ever ends, 2-nanometer is going to start to ramp at some point in the next little bit and then you're already trying to qualify 1.4. So it's -- I don't it stops. I think of that as continued investment. Operator: [Operator Instructions] Our next question is coming from the line of Ian Zaffino with Oppenheimer & Company. Isaac Sellhausen: This is Isaac Sellhausen on for Ian. Just on the updated guidance, if you could unpack a little bit more on what has changed with regards to the outlook for the AST business. Maybe if you could parse out the demand drivers between cleaning and coating and the semi cap side. It sounds like visibility is a bit better in capital equipment. Joe Bruderek: Yes, we're clearly seeing increased order momentum and longer lead times. And demand is inflecting significantly sooner and higher than we expected coming into the year from an AST's perspective. And it's coming from both. It's coming from precision cleaning and semiconductor capital equipment in really all geographies. So our increased guidance is pretty much all driven by AST. Our teams are rallying around meeting the higher demand, working with our customers and the entire supply chain and all of our partners to kind of meet the overall industry demand. The outlook is really bright for the rest of the year. The second half is firming up where when we had the call in February, we talked about we saw orders for the second half and really starting in the end of the second quarter. Well, the second quarter is filling in nicely. We're seeing some of that demand come a little sooner into the second quarter. And the second half is clearly going to be significantly increased over the first half in the magnitude of double-digit increase second half versus the first half. And the industry is all talking about rallying to meet this higher demand and out through the end of '26 and really into '27. So there's tremendous optimism. And we expect to participate and even outperform what the market expects. Isaac Sellhausen: Okay. Great. And then just as a follow-up on the margin outlook for both businesses, obviously, it sounds like you guys are managing any kind of inflationary pressures just fine. But is there anything to call out maybe on the cost side with regards to whether it's fuel or equipment. But yes, that would be helpful. Joe Bruderek: No, there really isn't anything that's going to be meaningful from the supply side or cost side. Like I said, we do a very good job in general. Operator: We have no further questions at this time. So I would like to turn the floor back over to James Gentile for closing comments. James Gentile: Thank you, everyone. We're seeing strong momentum across Enpro and look forward to updating all of you when we report second quarter results in early August. Have a great rest of your day. Operator: Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. And you may disconnect your lines at this time.
Operator: Greetings. Welcome to Ball Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Brandon Potthoff, Head of Investor Relations. Thank you. You may begin. Brandon Potthoff: Good morning, everyone. This is Ball Corporation's conference call regarding the company's first quarter 2026 results. During this call, we will reference our first quarter 2026 earnings presentation available through this webcast and on our website at investors.ball.com. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. We assume no obligation to update any forward-looking statements made today. Some factors that could cause the results or outcomes to differ are described in the company's latest Form 10-K, other SEC filings and in today's earnings release and earnings presentation. If you do not already have our earnings release, it is available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of today's earnings release. In addition, the release includes a summary of noncomparable items as well as a reconciliation of comparable net earnings and diluted earnings per share calculations. I would now like to turn the call over to our CEO, Ron Lewis. Ron Lewis: Thank you, Brandon. Today, I'm joined on our call by Dan Rabbitt, Senior Vice President and Chief Financial Officer. I will provide some brief introductory remarks and discuss first quarter 2026 financial performance and our outlook for the remainder of 2026. Dan will touch on key metrics, and then we will finish up with closing comments and Q&A. As we begin, I want to start with the big picture because it continues to matter how we think about Ball and our long-term value creation. We believe Ball is positioned to win and the fundamental supporting that belief remained firmly in place. Packaged liquid volume is continuing to grow globally, and aluminum cans are taking share as consumers, customers and retailers increasingly prioritize convenience, performance and sustainability. That dynamic creates a durable long runway of demand for our products. Within that growing market, Ball is executing at a high level. Across our regions, we continue to leverage long-term customer partnerships, a well contracted portfolio and an unmatched global footprint. Our utilization levels are strong, reflecting both disciplined capacity management and consistent commercial execution. We are pairing that execution with financial strength. We delivered solid results to start 2026, supported by a healthy balance sheet and a capital allocation framework grounded in EVA. Our focus remains on deploying capital where it earns returns above our hurdle rate and on continuing momentum as we move through the year. Operationally, our teams are performing well. Standardization, cost discipline and the Ball business system are driving improved profit per can and reinforcing our ability to generate operating leverage as volumes grow. While we are proud of the progress we continue to see opportunity ahead. When you bring together attractive industry fundamentals, disciplined execution, financial strength and an operating system built for continuous improvement, Ball remains exceptionally well positioned, not just for this year, but for the long term. Our strong start to the year underscores the resilience of our business, particularly in a complex geopolitical and macroeconomic environment. Our strategy is clear, consistent and grounded in our 4 strategic pillars, and that strategy is working. First is executing exceptionally in our core business. That discipline shows up in how we operate every day across our plants and regions, and it underpins our ability to deliver solid Q1 results in an uncertain world. Second, we stay close to our customers and maximize our global network, long-term partnerships strong service levels and a well-balanced footprint allow us to respond quickly and reliably. Third, we continue to accelerate the substrate shift to aluminum and expand categories. Aluminum, sustainability and performance advantages matter, reinforcing demand and long-term growth opportunities. And fourth, we manage complexity to our advantage. Our scale, standardization and systems enable us to remain focused on execution rather than distraction. The Ball business system brings these pillars together, connecting commercial excellence, operational excellence and continuous improvement. At the center are our people and our culture. Low ego, high collaboration and a shared commitment to doing the right things the right way. This is what makes our business resilient, supports strong Q1 performance and positions Ball to continue delivering disciplined execution and long-term value creation regardless of the external environment. The Ball business system is how we operate, and EVA remains our North Star. Together, they drive disciplined execution and capital allocation, enabling us to deliver results. That discipline showed up in our first quarter performance. We executed well and stayed focused on the levers we control, earning returns above our cost of capital while maintaining flexibility. This approach underpins a growth algorithm of 10-plus percent comparable diluted EPS growth, strong free cash flow and consistent returns to shareholders. The results we delivered this quarter are a direct outcome of this operating and financial discipline, and they set up the discussion on our performance in the quarter. Turning to our first quarter performance. We had a good start to 2026. Global volumes were up nearly 1% year-over-year, reflecting slightly stronger-than-expected volumes in North America and in-line performance in South America, partially offset by volumes in EMEA. What stands out is our execution. Comparable operating earnings grew 10% year-over-year, exceeding our 2x operating leverage objective for the quarter. That performance flowed through to the bottom line. with comparable diluted EPS up 22% year-over-year, driven by strong operational execution, cost discipline and capital allocation. The first quarter performance reinforces our confidence in delivering 10-plus percent EPS growth for the full year. We also remain focused on shareholder returns and are on track to deliver in the range of $800 million to shareholders in 2026. Operationally, we continue to advance our priorities, including completing the Benepack acquisition to expand EMEA capacity and making good progress at our Millersburg, Oregon facility, which remains on track towards full ramp up in 2027. Overall, this was a solid first quarter that reflects the resilience of our business, disciplined execution and the strength of our operating model. With that outlook in mind, I'll let Dan walk you through the details of our first quarter financial performance and provide more color on our current expectations for 2026. Over to you, Dan. Daniel Rabbitt: Thank you, Ron. Before walking through our first quarter 2026 performance, I want to spend a moment on the changes we made to our financial reporting this quarter. As you saw in the earnings release this morning, we updated how we report our segment financials. As Ron and I stepped into our roles, we took a fresh look at how we measure performance and align accountability across the organization. It became clear that we needed to more clearly distinguish between operating decisions made within the businesses and financing decisions made at corporate level. As a result, we amended our definition of comparable operating earnings to exclude such items as factoring fees interest income and other impacts driven by corporate financing activity rather than the underlying operations. Importantly, these financing-related items remain included in comparable net earnings in comparable diluted EPS. So there is not a material change to how we measure or report overall company earnings. In addition, we moved our beverage can plants in India and Myanmar into the EMEA segment, which has had management and P&L responsibility for those operations for several years. We believe these changes provide a clearer view of underlying operating performance by segment, while continuing to give investors full transparency into our consolidated financial results. And to be clear, these changes do not materially impact comparable net earnings or comparable diluted EPS. Additional information can be found in notes of the earnings press release as well as on investors.ball.com under financial results. With that context, I'll now walk you through our first quarter 2026 financial performance. Overall, the business delivered a good start to the year. Global ship beverage volumes increased approximately 1% year-over-year, low single-digit volume growth in North America and EMEA, partially offset by lower volumes in South America. Despite ongoing geopolitical and macroeconomic events, our teams executed well across the business. Comparable operating earnings increased 10% year-over-year. That performance translated into comparable diluted earnings per share of $0.94, up 22% year-over-year. This first quarter performance reflects the strength and resilience of our operating model and is consistent with the financial framework we've laid out for 2026. In North and Central America, segment comparable operating earnings increased 2.5% in the first quarter. Volumes increased low single-digit percent year-over-year, reflecting slightly stronger demand, particularly in energy drinks and nonalcoholic beverages. The team continues to execute at a high level, supporting customers, managing costs and navigating a dynamic operating environment. As we look to the remainder of 2026, we continue to expect volume growth at the low end of our long-term range of 1% to 3%. As previously discussed, we anticipate $35 million of start-up costs related to the Millersburg facility and U.S. domestication of ins to begin later this year. While these costs represent a near-term headwind, they support long-term volume growth and operating leverage. In EMEA, segment comparable operating earnings increased 20% in the first quarter. Volumes were up low single-digit percent year-over-year. The team continues to perform well operationally and during the quarter, we completed the Benepack acquisition, further strengthening our European footprint and expanding capacity in Hungary and Belgium. As we integrate these assets, we see meaningful opportunity to drive both volume growth and operating leverage as capacity is filled. For 2026, with the inclusion of Benepack, we continue to expect volume growth above the top end of our long-term 3% to 5% range, along with operating leverage of 2x. In South America, segment comparable operating earnings were flat in the first quarter. Volumes declined mid-single-digit percent year-over-year, reflecting customer timing and inventory position coming into the quarter. Despite lower volumes, the team remained disciplined on cost and execution supporting earnings and positioning the business well as growth normalizes in the next 3 quarters. Looking ahead, we continue to expect volume growth at the low end of our long-term range of 4% to 6% in 2026 with operating leverage of 2x. Focusing on modeling details for 2026. As Ron noted, with the resilience of our business and our pass-through models, we continue to expect to be on track with our algorithm of 10% plus comparable diluted EPS growth. We anticipate free cash flow of greater than $900 million in 2026. Our 2026 full year effective tax rate on comparable earnings is expected to be slightly above 23%. Full year 2026 interest expense is expected to be in the range of $320 million. CapEx is expected to be in line with GAAP D&A in 2026. Full year 2026 reported adjusted corporate undistributed costs recorded in other nonreportable are expected to be in the range of $175 million. We anticipate year-end 2026 net debt to comparable EBITDA and to be around 2.7x, and we will repurchase at least $600 million of shares, which will bring our total capital return to shareholders to $800 million in 2026. And last week, Ball's board declared its quarterly cash dividend. With that, I'll turn it back to Ron. Ron Lewis: Thanks, Dan. Overall, our strong first quarter results reflect exactly how we intend to run Ball. Amid ongoing geopolitical and macroeconomic factors, our teams stayed focused on what we control, serving our customers, running our operations with discipline and allocating capital through an EVA lens. The Ball business system and our strategic pillars are not theoretical. They are driving resilience in our business and translating into earnings, cash generation and returns for shareholders. We had a good start to 2026 and just as importantly, we are executing in a way that reinforces our confidence in the year ahead. Thank you. And with that, we are ready for your questions. Operator: [Operator Instructions] Our first question is from George Staphos with Bank of America. George Staphos: Question for you first. With the performance, are you seeing any effects that you could call out from the Middle East tensions in terms of increased costs that won't necessarily be passed through real time this year, any effects on volume, particularly as regards to Europe, was there any effect on the segment's volumes related to the conflict that you could call out? And then a couple of follow-ons. Ron Lewis: George, thanks for the question. Nice to talk to you. From the impact on the Middle East, First, it's important to note that we do not have any direct business in the Middle East. And as a rule of thumb, we maintain supply chains that are as short as possible. So there's no supply assurance impacts either for our business or for our customers. It is a fact, however, the cost of all things, commodities that are affected by the conflict in the Middle East to have affected our business like others, especially aluminum. And that's where our resilient business model comes to the 4. The way that our contracts work generally is we pass on the cost of aluminum to our customers on an immediate basis, and then they choose how they will manage that cost impact. So thus far, the can is winning. The can is winning in every region we operate. And EMEA is no different than that of North America or South America. Our volumes are actually accelerating as we begin the second quarter of the year across all of our businesses. and EMEA is no different from that. George Staphos: Okay. I appreciate that, Ron. Maybe the related question did European volume perform as you expected? Were there any one-off factors that might have led to better or worse performance related? Are there any important contracts qualitatively that we should at least have in the back of our mind that you'll be managing against and to renegotiate for 2027. And then lastly, with Europe with the contracts. The last point being, we appreciate all the detail you're giving us and the granularity and getting back to basically operating performance within the segment. Are there any other metrics that you would call out that you're using as a guide point or a North Star user term for the segment in terms of profitability over time beyond the 2x leverage? Ron Lewis: Thanks, George. So any one-offs related to our EMEA volume would be specifically, we purchased the business known as Benepack, the 2 plants, 1 in Belgium and 1 in Hungary. And we purchased that from basically the beginning of February, we assumed that we would have it from the beginning of the year. So that probably affected what we had versus what we had planned. The second thing is, we sold a business in Saudi Arabia called UAC. And that business was reported previously in our other segments and with the change in our segment reporting, that's now from a comparable perspective, Q1 of last year is reported in our business. So that shows up as a headwind in our business. Those 2 things probably would have been some one-offs for us. But the core of our Europe business, we believe we're in line with market. We're within our algorithm that we talk about in the 3% to 5% growth, and we feel pretty good about how we started the year there. basically as expected. You asked about contracts. It gives me a moment to just say that for this year, we are fully contracted. And we actually are volume constrained in North America, as you know, and we have been volume-constrained in Europe because it grew so fast last year as did North America. And those 2 things why we are building a plant in North America and why we acquired the Benepack plants. So we're sold for 2026. For 2027, we're more than 90% sold and out through the end of the decade, we are basically 50% sold. So no, we don't have any specific contracts that we are concerned about. We've got long-term contracts in place. And that's just the nature of this business, which makes it a wonderful business to be in because we're able to establish some great long-term relationships that help our customers win and win with they can. As it relates to what metrics we would like point you to, it would probably be operating earnings per can. And that's why we've had the segment changes that we did. And I'm sure we'll get questions about that as well. But it's basically we want to have the most transparent cleaner for you all that analyze and comment on us and advise on us. We want you to have the cleanest looking Canada. So the operating earnings per can would be the metric that we would point you to. Operator: Our next question is from Ghansham Panjabi with Baird. Ghansham Panjabi: I guess just picking up on the last question from George. So if I have this right, it looks like 1Q was pretty much in line with your expectations on a volumetric basis, but was really the operating leverage that was quite strong. And if that's accurate. Can you just give us the specifics, Ron, on what drove that improvement in operating earnings specific to the first quarter? Ron Lewis: Yes. Ghansham, nice to hear your voice. Thanks for the question. I would say, yes, we were largely in line with what we expected from a volume perspective, even with our South America business down year-on-year. We were probably a little bit ahead of what we expected in North America. And we were a little bit behind in EMEA. And let me just take a moment to talk about volume. While we were down in South America -- well, how did we compare versus the market? We think we were in line with market in North America. We think we were in line with the market in EMEA, and we were obviously below the market in South America given what our competitors have already already publicly stated. As we begin Q2 at an enterprise level, our volumes as we finished April were up mid-single digits. Again, that's as we expected them to be. And importantly, our South America business is up 20% April on April, and that erases all of the declines we saw in Q1, and we're back to flat volume for the year. So we are very confident in our predictions for how our business will finish on a volume basis for 2026. We expect to finish in our 2% to 3% towards the top end of our range of the 2% to 3% volume at enterprise level, and we expect North America to be towards the bottom end of our range because we are capacity constrained. We expect EMEA to be above the 3% to 5% commitment that we've made because of the inorganic acquisition that we made as well as a business that's performing in line or better with market. And in South America, we expect to still achieve the 4% to 6% volume growth as it relates to our long-term commitment. Now as for the operating leverage, maybe I'll give Dan Rabbitt a moment to reflect on that for us because I think I want to hear his voice in this meeting, and I think you do, too. Daniel Rabbitt: Yes. Thank you, Ron, and Ghansham, thanks for the question. We are -- as we've been speaking to a lot of you all very focused on trying to improve the profitability. And that is why Ron really highlighted the the growing importance of our metric of profit per can. We measured in profit per 1,000 being manufacturers, but regardless, it's profit for can focus. And I think the business is responding very well to how to this focus. And you've seen -- we saw good performance, good cost management, good pass-through of our cost really on top of our game that came through to deliver that 10% growth on operating earnings quarter-over-quarter. Ghansham Panjabi: Okay. Fantastic. Very comprehensive. And then just on the resegmentation, if you will, and just moving the plants in India and Myanmar to the EMEA segment, should we take away from this that you're just going to focus on North America, Europe and Latin America and not so much on the emerging markets, including those regions? Or is it just an interim move, if you will, before before you start looking at capital deployment in the other regions, the emerging markets outside of South America. Ron Lewis: Let me start with that question, Ghansham. Thank you for it. And I know we probably have some follow-up work to do with you and others after this call. But number one, the reason we made this segment operating change is this is the way we manage our business. It really is. We -- the management team that manages our EMEA business is also the management team that manages those plants that we've now included in our EMEA business. So we're doing it for the way that we operate our business. We want you to look at us and advise on us the way we operate our business. Number two, we want it to be as clean as possible for you and others to analyze us from an operating earnings perspective. So it's about transparency for us, both the way we operate internally and the way that we want you to look at us. the 3 regions in which we operate, including those regions that we've now added to our EMEA business are our core business, and we are the market leader in North America, South America and what is our EMEA business, the footprint that we have there. And we're very excited about our EMEA business. It's a growing business, especially those parts of the world that we just added. India is growing high teens and has been for years, and you saw us add capacity and announce additional capacity adds to India and you see our competitors looking to add capacity there. So it's a great market, and there are other great markets out there. I wouldn't take from this that we are focusing only and solely on the markets we operate in. And maybe, Dan, if you wouldn't mind commenting a bit on the other segment changes. Daniel Rabbitt: Yes. As far as the segments goes, the other thing that we did noteworthy really and was taking out the financing, the treasury-related items of the businesses to allow for better transparency on how the businesses are performing. And we really like our prospects in all 3 regions. And as you know, we measure everything from how we want to grow this company through the lens of EVA, and we see great opportunities in all 3 of our regions. And -- so I think now you have a better picture on how they're performing. And really, if the changes may be contrary to what people might think is actually were slightly negative, but the operating earnings would have been higher had we not made them on the quarter. I think over the long haul, we see this as a de minimis change. And again, reinforcing that the net earnings really have not changed. We're really materially the same place where we are when you look at the bottom line. Operator: Our next question is from Anthony Pettinari with Citi. Bryan Burgmeier: This is Bryan Burgmeier on for Anthony. Just wanted to ask about tariffs. Curious if there's any impact to Ball from sort of the latest changes announced early last month, specifically just thinking about covering some of the derivative products or applying the tar value to the whole value of the product and conversely, maybe some changes to Mexican beer. Just not sure if that alters the Dew for Ball at all. Ron Lewis: Bryan, thanks for the question. again, the tariffs that manage and govern the aluminum ecosystem and industry are Section 232. That's what's most impactful on aluminum cost and pricing. And the recent changes I think they're de minimis for our business. There's a slight positive for products that can come to the U.S. filled products, be they impact extruded aerosol packages or, as you said, beverage packages that are filled. So net-net, it could be slightly positive. But we're focused on serving our customers. And when they look for supply from us, that's what we're intending to do. And yes, so far, so good. Bryan Burgmeier: Got it. Got it. And then you touched on India already, but just wanted to follow up there. You've seen maybe some reports like energy shortages or material shortages. Just curious if that region has been impacted at all by what's going on in the Middle East? And it seems like a pretty good growth outlook over there. But Yes, if you could just maybe share some details on the near term and long term for India. Daniel Rabbitt: Thanks, Bryan. India, for sure, is an exciting place. That's the real story is that we've seen multiple years of high teens plus 20% growth. So the can industry is really moving quickly to establish supply locally as we are. As I noted, we've recently added capacity to 1 of our 2 plants there, and we've announced the adding of capacity to the second of our plants. So that's the real story of just managing growth in a high-growth market with with capacity constraints. There are continuing to be imports into that country because we cannot, as an industry manage to fulfill all the demand locally and there are some minor supply chain disruptions in that market that are, I think, come and gone. So we're running our plants and our plants at capacity. So if there there's any -- there was no material impact and nothing to note really to talk about on this call, and we're excited about the long-term prospects of India. Operator: Our next question is from Phil Ng with Jefferies. John Dunigan: This is John on for Phil. I just wanted to start on EMEA. The comparable EMEA earnings came in quite a bit better than we expected. It sounded like Benepack wasn't much of a contributor, at least compared to where you were thinking it was going to close. But you did note that the FX actually supported the earnings in the segment. Could you just maybe give us a little bit more detail on what drove some of the higher year-over-year comparable EBIT in the quarter? Daniel Rabbitt: Sure. This is Dan. I mean, I think we have to start with is that the business performed really well. We're again, focusing very much on improving profit. This region really has probably the most runway to improve profit and indeed, they're doing that. So I think it's a credit to that. But when you look at the overall puts and takes that Ron previously had talked about. The driver of this region is the EMEA segment, as you've always heard about at the last few years. It is performing very well. We're getting good now with the India plants and the Myanmarr plant coming in. Those 2 are showing growth and good operating leverage as well. So I think the 2 inorganic opportunities that we took on buying Benepack and selling the UAC really kind of neutralize each other. So I think really mostly what's happening is good performance in this segment. John Dunigan: Great. And maybe you could just quantify how much the FX supported earnings in 1Q? And then my second question is just on the corporate undistributed cost. It sounds like they stepped up. Maybe that was just a factor of some of the recasting that you did, but going up to $175 million, I think you said. Could you just tell us what's going on there? Daniel Rabbitt: Yes. Well, a lot of the positive FX now is moving out of the segment reporting for what we did. So -- but for the company as a whole, I think we probably had about $15 million of positive earnings from the translation and a lot of that is the euro when you compare it year-over-year from the first quarter because it was at a low point a year ago and now it's kind of, I don't know, about 0.15 higher on the foreign exchange. Ron Lewis: As it relates to EMEA specifically, John, I think it was less than half of the gain in operating earnings in our EMEA business was related to FX. John Dunigan: Great. And then the corporate undistributed? Ron Lewis: That's what I think Dan referred to earlier, which was the $15 million. John Dunigan: I apologize. Ron Lewis: So there's a corporate undistributed. That's where we put the FX gains and losses as the translational impact on EMEA was less than half of the operating earnings gain, and that's what you heard from from others in the industry as well. Operator: Our next question is from Edlain Rodriguez with Mizuho Securities. Edlain Rodriguez: I mean clearly, I mean, one, we are clearly in an inflationary environment globally. Like how do you expect this to impact consumer mood and ability to spend. And if there is any impact, like in which region would you expect to kind of start seeing that first? Ron Lewis: Thanks for the question. Well, first of all, the can is winning in every single region in which we operate, and it continues to take share from other substrates. That was true last year and the year before, and it's true this quarter, and we believe it will be true for the foreseeable future. So the can is winning. And we can -- you see the same data we see, and we're really pleased for that. And why is that? It's because of the unique nature of the can. It provides a robust transportation. It provides a robust shelf life. The can has a shelf life of the year. It provides a great billboard effect. You could sell it a singles multiples. I mean, I can talk for for hours about the benefits and the filling your product in an aluminum beverage package and especially one made by Ball. So that's what makes it unique and helpful. As it relates to inflation on the consumer, I mean, all inflation -- all costs are going up. And all I can say is our customers are excited about winning with the can as well. Every time I go to one of our plants, I see new promotional activity coming into summer, especially in the Northern Hemisphere. So every one of our plants is running and most of those labels are promotional labels. And I think our customers will continue to lean into the can as a means of helping them to support the consumer as they seek value. Daniel Rabbitt: And Ron, the only other thing to add is that as consumer really is in place -- has headwinds, it tends to kind of retreat to doing more home consumption. Ron Lewis: And that's been the reason why it's remained so strong. Edlain Rodriguez: Now clearly, that's the case. And 1 quick one. In terms of like the past to make and assume you have for aluminum and other costs, can you remind us how -- like is there a lag? And how much is that lag in terms of like how quickly you pass to those costs? Ron Lewis: Okay. Well, let me do very quickly on aluminum, it's I say immediate, and our other cost pass-throughs are formulaic in nature, and usually, they pass through on an annualized basis. Is there more detail you'd like to add to that, Dan? Daniel Rabbitt: Yes. I think the 2 areas I would add on to that is that really we're talking about higher energy costs and how does that impact us. Ron covered the aluminum, so I won't go back to that. It's really about the customer often pays for the freight, more often at pace for the freight, too. So that's a pass-through to and that's a fairly immediate pass-through in many circumstances. And then when we look at the year, we always look at trying to hedge and lock in our energy cost. And so we're in a pretty good position from what it takes to run our plants right now, too. Ron Lewis: And we do those hedging to align with our customer contracts so that we want to be valued for the additional values that we add to the aluminum that we buy and make into aluminum beverage cans and ends and bottles for our customers. Operator: Our next question is from Mike Roxland with Truist Securities. Michael Roxland: Congrats on all the progress. First question I had is, Dan, you just mentioned in response to John's question that the EMEA business has the most runway to improve profit and they're doing that. That segment was already achieving operating leverage target, whereas North America is. And so I'm just wondering what you see in terms of potential for EMEA and why it has the most runway relative to other businesses. . Daniel Rabbitt: Yes. Thanks, Michael. I think the main thing to do is when you take a look at the profit per can, MEA is our lowest, okay? So for the regions. And they actually have been focused for several years and making the biggest strides on it. And as far as the profit per can. So that's why I highlight that there's the most opportunity and the most progress has been made, too, as we think about that from them. Your question about North America, really, right now for the last quarter or 2, we see North America on target for trying to -- for the 2x operating leverage. It's been pretty close to that number. As we measure it this quarter and last. So I think good things are happening in North America as well. And it is also increasing its profit for [ CAM2 ] as we look at it. Ron Lewis: And if you don't mind, Dan, I'd like to add a few things, Mike, thanks for the question. How are we going to improve our -- why do we believe we can improve our operating earnings in Europe? It comes back to our operational excellence platform. Number one, we need to implement manufacturing standards in our business, and we're doing that. Number two, we need to manage our network well and adding 2 new plants in countries where we didn't operate in Belgium and in Hungary are certainly going to help us. And we're investing in our people and our systems. So those are the things that I think will -- that give us confidence that we can continue to compete and operate our plants and our network well. I would say the other thing is Europe, we always talk about it as a land of opportunity. There is still significant opportunities for can penetration. So we know there's a lot of runway to go. We're really proud of our ability to deliver our operating leverage this quarter. We delivered and then some across the enterprise, we certainly delivered it and then some in our EMEA business. We delivered flat op earnings in South America despite the volume declines in North America. We achieved our operating leverage there as well in the quarter, although for the enterprise for the full year, we expect to do more or less operating leverage as compared to our volumes at 2x. That's what we're planning to do. Daniel Rabbitt: And Ron, I think I'll use this as an opportunity to reiterate the outlook for North America. We've been talking about the $35 million of ramp-up costs for Millersburg and the domestication of some in production as well. And that was not in the first quarter. So as we start to think about the rest of the year, you're going to see those costs come in later in this order and heavily in the third quarter, possibly a little in the fourth quarter as well. So that's going to distort some of that operating leverage. And that's why we've been saying all year long, you're going to have to make some adjustments for those, and you will see the operating leverage on the base business. Michael Roxland: That's perfect. And if I had just one quick follow-up. In terms of some of the incremental costs you're experiencing, obviously, they're believed to be transitory of freight, chemicals, energy, and I think I know the answer is going to be but going to ask the question anyway. What levers do you have available to you internally to offset those higher costs? I'm assuming operational efficiencies, deploying best practices, the bold business systems, some of the things you mentioned on your commentary. But are those are the levers that you have in your wheelhouse to basically offset incremental costs and to even potentially drive margins higher when those costs recede. Ron Lewis: Mike, I think you're thinking about it the right way. We have to be operationally excellent every day, and that's the first pillar with our strategy. So that -- those are the primary means by which we offset those costs. And they're real. So -- and then the second thing is we are a resilient business model. We are rewarded for and paid for making cans, bottles and ins as efficiently as possible. . And the cost that we manage on behalf of our customers are generally passed on to them in a formulaic way, be it freight, be it other direct materials, be it aluminum through various means. So that's what makes us a very resilient business in a very resilient industry. Operator: Our next question is from Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: I guess I just wanted to get your thoughts on maybe the contracting environment. You guys are adding capacity in North America and Europe and and elsewhere. So presumably, supply and demand is relatively tight in all regions. But are you expecting to -- given that tight capacity, would there be any pricing opportunities over the next few years? I mean how should we still expect about 1/3 of your contracts roll over every year? Or maybe you can just kind of help us frame those kinds of opportunities as well. Ron Lewis: Arun, thanks for the question. I would say you saw the industry grow significantly the last few years. Certainly, last year, Ball, we grew more than 4%, so above our long-term algorithm. And we used up a lot of the latent capacity that we had. So strong growth in the last several years has led to a relatively tight supply demand scenario. We, as a business, are operating certainly at asset utilization levels in the mid- to high 90s depending on the region on a percentage basis. So the supply and demand is relatively balanced to tight. The next thing I would say is the long-term nature of our business is also reflected in the long-term nature of our contracts with our customers. So I mentioned earlier on the call, we are sold out for this year. We are more than 90% sold for next year, and we're more than 50% sold for the balance of the decade. We have a heavy capital deployment in our industry. So it requires that level of commitment from a customer for multiyear contracts. So we're well contracted. You said there's roughly 1/3 of our volume turnover every year just based on those numbers, it's significantly less than that. Is there an opportunity for us for pricing, I would say, we want to be fairly rewarded for what we do. including down to all of the value-added things that we do, whether it be a different type of specialty can or a special special promotion or a different type of ink. Those are the things that we deserve to and get rewarded for when we're able to bring that sort of innovation to the market. the market will be what it will be, and we just know that we need to be operationally excellent to compete in it. Thank you, Arun. Arun Viswanathan: Okay. And then if I could ask a follow-up. Just curious on if you will be putting in more capacity here in North America. Obviously, you have the Millersburg plant, but Presumably, that will only bring you down to the low 90s and maybe even in the mid-90s. So is that -- would you be adding more capacity? And what are your customers, I guess, when you do go through this process, you kind of presell the plant out? Or is it kind of more done in the future? Ron Lewis: Yes. Thanks for the question, Arun. It gives us a chance to talk about Millersburg, which will be commissioning late this year, and it will bring material volume to our network next year. It will allow us to remove some supply chain inefficiencies because we do not have capacity in the Pacific Northwest and the U.S. So that will help us and our customers. The most important thing about that plant that you should know is it comes on the back of a long-term offtake agreement with one of our most strategic customers. So that plant is -- capacity is spoken for, for many, many years to come when we build it. And that is the second thing that you said, the case for any plant that we would build, we will not build a plant unless we have a long-term offtake agreement filling essentially all of the capacity for that plant. So we're excited to bring new capacity to North America, but we only bring it on the back of a customer's commitment to us because they see the growth of the beverage can. Maybe a specific comment, for example, the energy drink category, as you know, and we all know, is growing and continues to grow unabated. And as it grows, we're excited to help our customers in that regard. And we have potential to build another plant on the East Coast at some point before the end of the decade, but I wouldn't get too excited about it because it won't be in the next several years. But we have intentions to build a plant in the East Coast in North Carolina because of the growth of one of our more -- most strategic customers as well. And we'll do that when it's appropriate. And hopefully, that gives you a sense of how we deploy our capital related to our customers. Thank you. Operator: Our next question is from Hilary Cateno with Deutsche Bank. Unknown Analyst: Could you talk about what you're seeing from the CPGs and in terms of promotional activity? Are you seeing them be more promotional than they have been in the past? Any color on that would be helpful. Ron Lewis: Hilary, thanks for your coverage of us. We appreciate it. Yes, it's great. Our customers, we've really them and look to them for guidance on how they view the consumer. They're much better at this than us, and we really appreciate the insights they provide us. Based on what we know and we hear from them, I'm going to talk specifically about the summer coming up. When I go into our plants and our factories around the world, be it in Europe, in South America or in the U.S., at least one of the lines is running a World Cup label. So that's exciting. Everyone is excited about the summer's World Cup coming up. And if you're walking through one of our plants in North America, I can almost guarantee you, you will also see another rhine -- line running America 250-year celebration labels as well. So clearly, our customers are looking forward to taking advantage of some exciting consumer-driven marketing activity this summer. And it should be at least -- it will be no worse than neutral, and we think it will be a net positive for us. We couldn't put a number on it right now. We're just pleased that our customers continue to see the value that I spoke about earlier of the beverage can. It provides an amazing billboard for them to talk about that promotion. They can use it as a multipack or a single different sizes and the robustness of the package means that they can lean into the can as opposed to other packaging substrates because of the shelf life and the quality that, that can provides for their product. Unknown Analyst: Got it. That's helpful. And then just a follow-up question. The EVA framework really seems to be working well in setting a clear guideline and goals on the corporate level. So could you just talk a little bit about how the EVA framework is being used to like incentivize employees at the plant level and to make operational decisions and is that what's driving operational efficiency on the corporate level as well. Ron Lewis: Thanks for the question, Hilary. I'll let Dan say a few words in a moment about EVA, but it just gives me a chance to say, EVA is our North Star. It hasn't for a long, long time, and it will continue to be for the foreseeable future. So how we deploy capital, running a cost-efficient business, that's what acting like an owner means. So as it relates to our plants, all of us are rewarded for delivering EVA dollars, every single person in this company. And maybe, Dan, could you give some nuance around how we're thinking about EVA operationally? Daniel Rabbitt: Yes. Yes, the nice thing about having EVA is it's been here longer than Ron and I have. And so it's really ingrained in the culture. We do like to have everybody included in these plans. And what we're really focused on now is breaking EVA down from this financial concept into what they can actually do to improve EVA. So we're making it much more personal. And that's one of the key items we're doing to improve the profitability of the company right now is really getting much more granular and breaking down EVA. Operator: Our final question will be from Matt Roberts with Raymond James. Matthew Roberts: I got a couple of messages clarifications on first April. I know you said that was up mid-single digits. What region was that? Or was that enterprise wide? I believe South America, you said April up 20%. How much of that 20% was the catch-up from 1Q? Ron Lewis: Thanks for the question, Matt. So enterprise-wide, we started the quarter, the month of April, up mid-single digits as an enterprise. Within that enterprise, South America, April volumes were up 20%. How much of it was catch-up from Q1? Well, what I can say is that April volume made up for all of the declines we saw in the first quarter. And it gives me a moment to just say what happened in the first quarter. What happened in the first quarter for us was you saw a really strong volume for us, high single digits in Q4 2025. So we came into the to Q1 with a pretty healthy sales of cans to our customers who had built a strong inventory. The peak season in South America, weather wasn't probably as good as on average that it would normally be. So it was a little weaker than average, but the -- coming out of peak, the weather has been quite good. And we're seeing a strong pull through as we come out of that peak selling season in South America. And we think that's some of what's happening. And it wasn't asked, but we delivered flat operating earnings in the region, which we're really proud of. And how we did that was we actually got to a position where our inventory levels were a bit lower than we expected. So we were able to build back our inventory, which helped us to deliver the P&L in South America. And also, we had some good size mix and country mix there as well that helped us deliver flat operating earnings while we had volumes down a bit. So hope that answers your question about the volume and a little bonus on color on South America. Okay. Thank you very much, Matt. And Sherry, I think that's our last question. So I just wanted to thank everybody again for your interest in our company. our analysis of our company, your partnership in helping us tell our story. We really appreciate that very much. We look forward to talking with all of you more and sharing our story. So we're excited about how we delivered the first quarter of 2026. We're confident in how we're going to complete 2026. And importantly, we're confident in the long-term nature and the resilient business that we have the privilege to run. So thanks again, everyone, and we look forward to talking to you very soon. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Ladies and gentlemen, good day, and welcome to the Leonardo DRS First Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this event is being recorded. I would now like to turn the call over to Steve Vather, Senior Vice President, Corporate Development and Investor Relations. Please go ahead. Stephen Vather: Good morning, and welcome, everyone. Thank you for joining today's quarterly earnings conference call. With me today are John Baylouny, our President and CEO; and Mike Dippold, our CFO. They will discuss our strategy, operational highlights, financial results and outlook. Today's call is being webcast on the Investor Relations section of the website, where you can also find the earnings release and supplemental presentation. Management may also make forward-looking statements during the call regarding future events, future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. For a full discussion of these risk factors, please refer to our latest Form 10-K and our other SEC filings. We undertake no obligation other than as may be required by law, to update any of the forward-looking statements made on this call. During this call, management will also discuss non-GAAP financial measures, which we believe provide useful information for investors. These non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures. You can find a reconciliation of the non-GAAP measures discussed on this call in our earnings release. With that, I will turn the call over to John. John? John Baylouny: Thank you, Steve, and welcome, everyone. We appreciate you joining us to discuss our first quarter 2026 results. This morning, we're pleased to report strong quarterly results and an excellent start to 2026. The team's steadfast execution is translating into tangible financial outperformance as results clearly demonstrate. Revenue for the first quarter was up 6% year-over-year. Adjusted EBITDA grew 28% year-over-year, allowing us to deliver adjusted diluted EPS of $0.26 a share. Importantly, we're delivering these results while maintaining healthy levels of organic investment in R&D and capital expenditures. This disciplined approach reflects our commitment to meeting both current and future customer needs as we continue to build on our foundation of growth. Let me share a few performance highlights from the quarter. Robust customer demand drove our 17th consecutive book-to-bill of at least 1x revenue, bolstering our funded backlog to new company records and enhancing visibility and growth for the full year. That momentum, coupled with favorable material receipt timing, accelerated revenue growth and enabled outperformance against our expectations in Q1. Increasing volume, favorable program mix and solid operational execution unlocked higher profitability and margin expansion. Overall, the strength delivered in the first quarter gives us confidence to raise our expected growth and profitability for the full year. Our differentiated technology portfolio and exceptional people are foundational to these results. I want to thank the entire team for their dedication and unwavered commitment to our customers, partners and shareholders. The global threat environment remains elevated with limited signs of near-term easing. Against that dynamic backdrop, our focus remains on delivering differentiated technologies that drive overmatch and mission success for our customers. Our customers are operating with a clarity of a full year appropriations for fiscal year '26. Additionally, there are indications that supplemental defense funding enacted through last summer's reconciliation package will be deployed this fiscal year, accelerating the procurement of critical capabilities. The overall funding and budget environment continues to be favorable. Last month, the administration released its fiscal year '27 budget request, proposing $1.5 trillion in total defense spending. As usual, Congress will consider and negotiate the final funding allocations. Importantly, we remain strongly aligned with our customers' spending priorities, including shipbuilding and industrial base resiliency, layered air and missile defense, counter UAS, unmanned systems, space and missile replenishment. Furthermore, the recent tensions in the Middle East, along with ongoing conflict in Ukraine continue to reinforce several key lessons shaping requirements and budgets. First, missiles and one-way drones are now so widespread that attacks that were once anomalous are expected at scale and are proliferating. This reality is fundamentally reshaping requirements and the nature of warfare. Layered air defense and counter UAS are no longer optional. They are now required. Second, adversaries are increasingly targeting large radars and other high-value assets to degrade infrastructure, sensing and defensive capabilities to quickly create exploitable vulnerabilities. This is accelerating the shift towards distributed, resilient and modular sensing and battle management architectures that can be rapidly proliferated, replaced and scaled. We are already seeing this trend in space with the shift from geosynchronous to low earth orbit satellites and is also beginning to manifest in the ground and naval arenas, where unmanned vessels can be utilized as sensor and effector equipped perimeters deployed around manned platforms. Third, volume scalability and effector cost symmetry are essential to counter growing threats. Magazine depth and munition stockpiles are a key factor in operational endurance. We are supporting production ramps across several weapon systems, advancing seeker capabilities for improved sensing on next-generation missile platforms and introducing lower-cost seekers to enable more symmetric countermeasures. Each of these trends represents a fundamental shift and plays directly to DRS' strengths. DRS is a market leader in tactical radars, and our technology continues to deliver significant operational and mission impact. Additionally, our tactical radars continue to see immense global demand, and we are aggressively increasing throughput and production capacity to satisfy that appetite. Recent hostilities have again demonstrated that force protection cannot be confined to fixed sites. It must also be embedded in maneuver units and proliferated at scale. Our force protection solutions span multiple domains. In the quarter, we received a $533 million production contract IDIQ with the Distributed Aperture Infrared Countermeasure System, or DAIRCM for aircraft survivability. DAIRCM combines both missile warning and infrared countermeasures into one system and leverages multiple sensors to provide a 360-degree threat picture, each with a laser director to defeat increasingly capable missiles that threaten aircraft. As recent operations have demonstrated, both rotary and fixed wing platforms without this capability are vulnerable in contested airspace. Across our portfolio, our capabilities are modular and platform agnostic, optimized for size, weight, power and cost to meet customers' specific needs. Let me illustrate that with a few examples. We can deploy power and propulsion technologies on a platform as compact as a medium unmanned surface vessel and scale all the way to the Columbia class submarine. That modularity approach is one we strongly advocate for as the Navy considers future service combatant platforms. Similarly, our infrared sensing capabilities span deployment from attritable Class 1 drones to the most sophisticated ground combat vehicles. And because our technologies are domain agnostic, that same sensing capability can be deployed across ground, air, sea and space. We also stand to benefit as customers accelerate modernization and expand production rates, a tailwind evident throughout our portfolio. We're investing in both research and development and capital against that broader demand. Overall, we view these trends as part of an enduring structural shift, and they align directly with our core strengths. The business continues to perform well, and we remain focused on 3 key strategic priorities: innovation, growth and execution. The diversity and differentiation of our portfolio creates multiple growth avenues. Our increased investment in innovation is evident through the accelerated pace of procurement-ready prototypes that meet the needs of our customers. Those capabilities include next-generation multi-domain counter UAS solutions, key technologies underpinning next-generation command and control architectures and cutting-edge space sensing capabilities, among others. In the quarter, we demonstrated counter UAS mission execution from both unmanned ground and unmanned naval platforms, further validating our platform-agnostic approach where our enabling technologies can be integrated into virtually any platform. We also released THOR, a tactical high-performance embedded computing product. THOR is an open architecture, rugged chassis designed to deliver high-density processing at the tactical edge with native support for AI-enabled operations and multi-sensor data fusion. We remain deeply committed to a truly open architecture approach. giving our customers the flexibility to deploy best-of-breed hardware and software solutions, not locked to a single provider. Our approach is open, flexible, modular and affordable, enabling customers to scale sustainably. Our capabilities extend beyond hardware into integration and software. We apply the same open and modular philosophy to software as we do hardware. A platform level operating system, SAGEcore accelerates data fusion across disparate sensor and effective solutions, converting that data into actionable intelligence for improved and faster decision-making. SAGEcore is a key component of the integrated counter UAS solution being tested with our customers today. Our innovation and growth initiatives are backstopped by customer trust earned through consistent execution. As we add new efforts to the portfolio, including the SDA tracking layer Tranche 3 program, we're applying the same operational rigor that guides execution across the company. Our customers operate in some of the most demanding and consequential environments in the world and earning their trust requires more than great technology. It requires consistent, reliable delivery and partnership. We take that mandate seriously, and our ultimate measure of success is ensuring that our customers have what they need when they need it. We believe that solid execution enables growth and that philosophy and that philosophy is embedded in everything that we do. With that, I'll turn it over to Mike to walk through the financials. Michael Dippold: Thanks, John. John covered the strategic backdrop and why our portfolio remains well positioned. Let me walk through first quarter results by key metric and then discuss our revised 2026 outlook. Overall, our first quarter results were well above the framework we provided on our last call as both revenue and profitability came in stronger than expected. Revenue in the first quarter was $846 million, up 6% year-over-year. Quarterly revenue exceeded expectations on favorable receipt timing and the year-over-year growth came from programs related to tactical radars, infrared sensing and electric power and propulsion. The strong contribution from tactical radars and infrared sensing was evident in the increased ASC segment revenue. In IMS, Q1 revenue growth was more modest as electric power and propulsion strength was offset by a tough compare in force protection program, mostly attributed to timing. Moving to profitability. Adjusted EBITDA was $105 million in the first quarter, representing year-over-year growth of 28%. Adjusted EBITDA margin was 12.4%, reflecting 210 basis points of year-over-year margin expansion. The increased adjusted EBITDA and margin came from strong program execution across the business, favorable mix and operational leverage from higher volume. Shifting to the segment view. In Q1, ASC adjusted EBITDA was up 48% with margin expanding by 290 basis points, reflecting improved execution, better mix and operational leverage. For IMS, adjusted EBITDA growth of 8% outpaced the top line with margin expanding 90 basis points driven by strong program execution, including on the Columbia Class. Turning to the bottom line metrics. First quarter net earnings were $62 million and diluted EPS was $0.23 a share, up 24% and 21%, respectively. Our adjusted net earnings of $69 million and adjusted diluted EPS of $0.26 a share were up 28% and 30%, respectively. The favorable year-over-year compares were driven primarily by strong operating profitability and lower net interest expense. Moving to free cash flow. Free cash flow in the quarter reflected typical seasonality with a modest outflow. However, relative performance improved meaningfully versus last year. Higher profitability, better working capital management and solid program execution drove the improvement. We are only 1 quarter into the year. Our strong start to that year gives us confidence to increase our full year outlook across metrics. We are increasing our range for revenue to $3.9 billion to $3.975 billion, implying strong year-over-year organic revenue growth of 7% to 9%. Our funded backlog continues to provide healthy visibility into growth. That said, the timing and level of material receipts, pace of program execution and the capture of book-to-bill revenue remain as the primary drivers behind the variability in the range. Additionally, we are increasing the range of adjusted EBITDA to between $515 million and $530 million, which also assumes an improved margin expectation over our prior guide. As you know, we do not provide granular guidance on our segments, but to help with your modeling, let me provide some directional color. We continue to expect strong revenue growth from both our segments. Adjusted EBITDA dollar growth is expected across both segments, but the margin improvement over the as-reported 2025 will come from IMS. The stronger operational execution, combined with reduced assumptions for net interest expense is flowing through to our bottom line metrics. We are now projecting adjusted diluted EPS to be in the $1.26 to $1.30 per share range. Our underlying assumptions for tax rate and diluted share count for the year remain unchanged at 18.5% and 269 million, respectively. We are now targeting free cash flow generation at approximately 75% of adjusted net earnings for the year. Despite the lighter capital expenditures in the quarter, we still expect increased capital investment for the balance of the year. The slight revision to our free cash flow conversion for the year is largely driven by increased assumption for working capital investment to fund future growth. Finally, let me give you some color on our current expectations for the second quarter. We expect revenue to trend around $900 million and adjusted EBITDA margin should be comparable to Q1 in the mid-12% range. Additionally, we expect to be modestly free cash flow positive in the quarter, alleviating some of the cash generation load from the second half. Let me turn the call back over to John for closing remarks. John Baylouny: Thanks, Mike. I want to recognize our team for the dedication and mission focus they bring every day in support of our customers and the nation's most important security priorities. Our team understands the stakes. Our nation is at war and our service members are counting on the technology and products that we deliver. That's why we're operating on a wartime footing across the company. Our first quarter performance, along with the progress we've made over the last several years, highlights the quality of our portfolio and validates the strategy we've been executing. We're starting this year from a position of strength, and we intend to build on that momentum, driving meaningful growth in the near term, while continuing to develop the longer horizon opportunities that will shape the next phase of DRS. We're investing in innovation and capacity at the moment when the demand for these capabilities is both urgent and enduring. Looking forward, our priority is clear: provide differentiated next-generation solutions with speed, quality and the ability to scale so we can deliver the consistent performance our customers and shareholders have come to expect. With that, we're happy to take your questions. Operator: [Operator Instructions] And your first question comes from the line of Peter Arment from Baird. Peter Arment: John, Mike, Steve, nice results. John, maybe just to kick things off at a high level. We've gotten a lot of materials out from the budget and the request. Obviously, you mentioned the reconciliation bill and opportunities there. But when you look across kind of some of those details on the fiscal '27 request, anything that jumps out at you, whether the opportunities that you're seeing for DRS and space or force protection or maybe you just want to comment on broadly the portfolio. John Baylouny: Yes. Thanks, Peter. I appreciate the question. First, the budget request represents a very high priority for defense in the United States, the $1.5 trillion. The budget is very clearly rich with opportunity and with urgency, as you probably know. Obviously, Congress will need to weigh in on the overall budget and the budget level. What I want to highlight, though, is the most important element of that budget is really what's inside it. And the prioritization of the elements that are in there really align very nicely with DRS' capabilities. For instance, shipbuilding, air missile defense, counter UAS unmanned, space and missiles are all very prevalent in the budget. So we see a huge alignment between where we are and where that budget is. And each of those elements is growing. It's growing very quickly. Again, we'll have to see what Congress does with the overall funding levels, but we're encouraged by the prioritization that's inside that budget. Peter Arment: Got it. And then just quickly, Mike, as a follow-up, CapEx to start the year started a little light. Any change? Or just how should we think about kind of cadence of CapEx for this year? Michael Dippold: Yes. I would say the light CapEx in Q1, Peter, was attributed to timing. You're going to see that pick up over the subsequent quarters. And as we laid out in our last call, kind of that 5% of sales threshold is where we anticipate being at the end of the year. So no real change, just kind of ramping up as we go across the year. Operator: Your next question comes from the line of Seth Seifman from JPMorgan. Alexander Ladd: This is Alex on for Seth today. I wanted to ask kind of on the IMS margin specifically. I mean, it got off to a good start here in Q1 at 14.6%. It comes off of Q4, where if you kind of adjust out that one-timer, it kind of ends up in the high teens range. Curious kind of if you guys could elaborate a little bit more on the recent momentum you've been seeing with IMS profitability. Has there been any sort of unlock with respect to maybe the Columbia class program specifically? And I know you guys talked about the IMS margin expansion kind of expected to drive the overall company's margin expansion for the rest of the year. So curious if you guys could kind of elaborate a little bit more on that. Michael Dippold: Yes, sure. I'll take that, Alex, and thanks for the question. The IMS margins were notably strong, really execution based across the segment. but the largest contributor being Columbia Class. So we're continuing to see strong execution on that program. The team is performing very well, and that continues to be the catalyst for the margin expansion within the segment. But more broadly than that, we did see program level efficiency throughout the segment. We managed costs well, and I think that's what's driving the EBITDA growth. I think you should think about this segment being kind of in this range as we progress throughout the course of the year. I think this is a good kind of revised baseline for the segment. Alexander Ladd: Okay. Great. That's very helpful. And then maybe kind of for this next question, focus a little bit more on ASC. I certainly appreciate you guys are kind of at a record backlog level and the overall company's book-to-bill has been one-time or greater for the past 17 quarters. So if we kind of look at the book-to-bill specific for ASC over the past couple of quarters, it looks like it's dipped below 1x. Kind of curious if you guys can maybe provide a quick update on what you're seeing in the order environment there. Michael Dippold: Yes. I wouldn't be too overly concerned with the kind of the quarterly trend here that you see -- saw last quarter and now this quarter from an ASC perspective. If you kind of zoom out a little bit on the time period, the segment over the last 12 months is right around 1:1. But I think more importantly, as John kind of went through on the call, we continue to see solid demand signals from the customer. Our tactical radars are continuing to see global demand and how they're important in the air defense domain. John mentioned a $500 million DAIRCM IDIQ contract that we haven't started to see order flow come through on. If you couple that with some of the next-gen sensing programs where we have just recently been awarded some IDIQ contracts and also what's happening in space, I think the book-to-bill trend is one that's going to reverse pretty quickly in a favorable manner. Operator: Your next question comes from Andre Madrid from BTIG. Andre Madrid: I wanted to talk a bit more about capital deployment and more specifically about what you guys are seeing on the M&A front. I know you talked last quarter about M&A being mainly focused on closing specific technology gaps. With -- can you maybe talk about the current M&A pipeline with that context? Operator: This is the operator. You have your question repeated for them, please? Andre Madrid: Yes, sure, sure. I was just pointing out like I think M&A focus last quarter was said to be mainly on closing technology gaps. With that in context, I mean, can you maybe talk about what the pipeline currently looks like? John Baylouny: Yes, Andre, thanks for the question. We have a little bit of a gap in your question, but I think we got it. Look, our primary focus for capital deployment is really, as we've talked about before, organic. We're spending more on R&D, more on CapEx, focusing a lot on building capability inside the business. That said, we are still looking for technology gap fulfillment and kind of tuck-ins in the M&A pipeline. That pipeline does span the gamut of capabilities from hardware to software, where we see areas of growing demand and growing market pull, if you will, as well as aligning with gaps and -- and when I talk about gaps, I'm talking about areas where -- for want of a piece of technology, we could provide a solution to the customer. And so those are the kinds of things that we're looking for. Typically, we do a lot of partnerships for fulfilling those kind of gaps, but we look for them in the M&A market as well. Hopefully, that answers your question. Andre Madrid: Yes. Yes. No, that's definitely helpful. And I guess on that point, you mentioned the organic investments you're making, higher IRAD spend. I guess when you look at IRAD, like what is most of your attention going towards? If you can maybe provide like a top 3 kind of areas in which you're looking to invest specifically through the balance of '26? John Baylouny: Well, what I would tell you that those -- our focus -- our investment is definitely focused in areas of highest demand. And when I say highest demand, I'm talking about growth, right? So if you go back to that -- the budget request, you kind of see that shipbuilding, you're seeing missiles, and we provide seekers for missiles, counter UAS, where you're seeing kind of in the $14 billion, $15 billion in the request for counter UAS. Those capabilities are really well aligned. Our investments are really well aligned to those growing demand, space, et cetera. That's where we're putting our money. Operator: And your next question comes from Austin Moeller from Canaccord Genuity. Austin Moeller: So just my first question here. The adjusted EBITDA margin improvement within ASC, is that partially being driven by improvement in germanium availability and supply? Is it being driven by any inflation cost escalators or renegotiations of contracts? Or is it just more favorable mix of tactical radars and DAIRCMs and volume moving through the factory? Michael Dippold: Yes, Austin, thanks for the question. I would say that the margin expansion, first and foremost, is driven by the favorable mix coming out of the tactical radar piece that we had and demand we saw there. Also, we're starting to see the operational leverage materialize as the IRAD wasn't a headwind to margin. So that certainly helped the margin expansion. But the last point of the margin expansion is where you directed the question. We certainly have had a better result on the margin side because of the raw material costing, especially germanium. So that helped the segment outperform the prior year. Austin Moeller: Okay. And I think you guys said in your prepared remarks, you alluded to underwater platforms or counter UAS for underwater platforms. Could you elaborate on that a little bit more? Is that radar? Is that Sonar? Is that like the tactical MHRs? How should we think about that? John Baylouny: Yes, Austin, we were referring to unmanned surface vessels. And what we've done is we've taken our counter UAS mission equipment package, really kind of taking it off a tank and putting it on -- we did unmanned surface vessels and we put it on unmanned ground vehicles. So we believe that the future of warfare is increasingly going to be robotic. So you're going to have unmanned platforms out in front, protecting manned platforms. And so what we've done is we put these on the ground vehicle side, on the surface side, we put it at sea, and we demonstrated this capability. Again, there's a lot of money that the Navy will spend on unmanned surface vessels. The money is in the reconciliation bill from '26. The question is, what are they going to do with the unmanned surface vessels. We believe that there's a market here for counter UAS. That's why we went and did this demonstration as part of our IRAD to put that to see. So I think really an incredible capability. Our team really did a great job here. If you look at some of the LinkedIn post, you can see the pictures of that platform. Operator: Your next question comes from Jon Tanwanteng from CJS Securities. Jonathan Tanwanteng: Really nice quarter and outlook there. I was wondering if you could give us an update on the status of your radar operations in Israel, if you're seeing any disruptions there just from the conflict and if there's any resolution to that as you move forward? John Baylouny: Well, first and foremost, our -- the backlog and the revenue there is rising pretty quickly. The demand for those capabilities is nearly insatiable. We're investing in infrastructure to be able to increase production at a very high rate. The team is doing a great job of doing that. We -- of course, some of our employees have to do some reserve duty and things like that. That hasn't really impacted us in any material way. And I think the team is doing a great job of increasing production. So -- but the demand is there for sure. Jonathan Tanwanteng: Got it. That's good to hear. And then I was also wondering if you could talk about maybe your expectations for this fall and what happens if Congress changes hands. Would you expect to see friction or vulnerability in any specific parts of the budget or overall? And where would you expect to see continued strength? John Baylouny: Yes, it's a great question. Look, I'm not going to kind of predict what happens to the overall to Congress or to the budget. But I would just go back to the point of what's in the budget. I think that the prioritization of capability that we provide is clear in that budget request. No matter what happens on the Hill, no matter what happens with the funding level, first of all, there'll be an increase in budget, whether it goes to $1.5 trillion or not is another question. But there'll be an increase. But the more important point is that the focus of attention and the prioritization in that budget is aligned to DRS and aligned to our capabilities. Operator: And your next question comes from Alexandra Mandery from Truist Securities. Alexandra Eleni Mandery: Nice results. Given the strong defense demand environment across domains, how are you prioritizing resources internally given opportunities across naval, ground, space and in the air? And where do you expect the most growth in 2026 and into 2027? John Baylouny: It's a great question. We're really prioritizing our internal capital based on growth rates, on market growth rates. And so the areas that we're focusing attention, which I mentioned already, shipbuilding and air and missile defense, counter UAS, unmanned space and missiles are all prioritized in our internal efforts. I think we're going to see growth in all of those areas of our plan -- of our portfolio. I wouldn't want to guess as to which one is going to win, but we certainly run a competition here. So we'll see which one wins. Alexandra Eleni Mandery: Great. And can you provide additional color on what drove improved execution and operations in the quarter? Michael Dippold: Yes. I would -- I'll take that. I'll say one of the major elements was what I alluded to earlier on the call, which is we've got a little bit more line of sight for what we've done from a raw material and supply perspective. So the material favorability that we've seen, both from a timing perspective, driving the revenue as well as from an execution perspective helped on the margin side there. The other elements were really more attributed to the actual volume of revenue and the operational leverage driving that additional revenue and gross margin contribution down to the bottom line as the IRAD spend and the G&A spend were much less of a headwind in Q1 of '26 than they were in the prior year. Operator: [Operator Instructions] And your next question comes from Ron Epstein from Bank of America. Alexander Christian Preston: This is Alex Preston on for Ron today. If we could start maybe on shipbuilding, right, output continues to expand. At the same time, outsourcing is expanding as well and the supply base seems to be making, call it, slow and steady progress. Can you just update us maybe on any options or discussions to expand content or second sourcing perhaps in addition to what's already in progress at Charleston? John Baylouny: Yes, sure. Let me take that. First of all, we are working with our customer on second sourcing the steam turbine generators for the submarine industrial base. We're seeing that, look, at the end of the day, the Navy deserves to have at least 2 sources for these capabilities. Right now, they have one. We're starting to see some of the money move out of the reconciliation bill out of OMB to the customer set. Some of that money has made its way to us already. So this is one area of focus for us is to continue growing content to be a steam turbine generator second source. Another area that I'll point you to is the Navy is focused on a battleship. And one of the things that we believe is that whatever the Navy ends up trying to design in a next-generation surface combatant, they need to have an electric propulsion system. That electric propulsion system is really necessary to be able to move power around within the ship. We know that those ships are going to have to fight from a longer distance because the anti-ship missiles are -- have a greater range today. And so having an electric propulsion system allows those ships to provide power to radars for longer-range radars for directed energy weapons for electronic warfare for a longer range. And so we believe that's the architecture of the future. Going one step further than that, we believe that the Navy should be focused on a modular architecture, an architecture that would provide the capability from -- all the way from a battleship down to a cruiser to a destroyer or a frigate or a corvette, even a USV, medium-sized USV. And so when the Navy would design an architecture once and then move forward. So we're investing in these components, power components that would provide that flexibility for the Navy to basically build whatever they want to build once they've designed and tested an architecture. And so we're focused there on providing that capability for the Navy. We think that the Navy is moving in that direction. We're helping them with some ideas here on how to do that. And so we'll -- I think that's another big vector for us, and that's where we're investing some money. Alexander Christian Preston: Got it. And then I know the budget has been brought up a couple of times, but maybe to ask a question from a slightly different angle. I'm curious if you can talk maybe more specifically about your assumptions between the base and reconciliation budgets into '27, right? Some of the largest items in reconciliation seem maybe more relevant to DRS. I'm curious if reconciliation is sort of considered upside for you or in your plans and maybe broadly how that's influencing your planning into '27 and beyond. John Baylouny: It's a great question, Alex. I think that as you look at the bill, a lot of the reconciliation elements are things that are needed right now. And I think that the administration did that purposely. So -- but I would say that if you looked at the base budget, they have the same kind of prioritization that aligns well with DRS' capabilities. Certainly, our capabilities are applicable to the reconciliation portion of the bill, but very well aligned to the base bill as well. I would tell you that our plan does not include -- it's not dependent on a $1.5 trillion budget. We're -- I wouldn't say we're expecting, but this isn't -- we're not dependent on a $1.5 trillion budget. So whatever comes out of the hill on the other side is going to have the same prioritization that, that base bill has, which aligns directly with DRS' capabilities. Operator: There are no further questions at this time. And now I would like to turn the call back over to John Baylouny, Chief Executive Officer, for the closing remarks. Please go ahead. John Baylouny: Well, I want to thank everyone for joining today's call. This quarter underscores the momentum in our business, strong profitability, sustained organic growth and a disciplined approach to investing. We're off to a strong start in 2026. Our execution and visibility support raising our full year outlook. As I discussed earlier, we continue to see a rapid rate of change in the nature of warfare, and we believe the theme of capability proliferation is enduring and it's driving the shift toward distributed, resilient, modular architectures that can be quickly replaced and scaled. DRS has a strategic advantage because we provide enabling technologies and we pair that with deep integration expertise and growing software capabilities. As our funded backlog reaches new company records, we continue to invest in innovation and capacity to execute on the clear multiyear demand in front of us. If you have any further follow-up questions, Steve and the team will be available after the call. And we appreciate your time and continued interest in DRS. We look forward to updating you again next quarter. Thank you. Operator: Ladies and gentlemen, thank you all for joining, and that concludes today's conference call. All participants may now disconnect. Stephen Vather: Thanks for your help today. John Baylouny: Really appreciate it very much. Operator: Thank you very much as well. And I hope everyone will have a good day ahead of them. Stephen Vather: Thank you. Have a good one. Bye. Operator: Thank you. Bye-bye.
Operator: Thank you for standing by, and welcome to Enlight Renewable Energy's First Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the call over to Limor Zohar Megen, Director of Investor Relations. Please go ahead. Limor Zohar Megen: Thank you, operator. Good morning, everyone, and thank you for joining Enlight Renewable Energy's First Quarter 2026 Earnings Conference Call. Before beginning this call, I would like to draw participants' attention to the following. Certain statements made on the call today, including, but not limited to, statements regarding business strategy and plans, our project portfolio, market opportunity, utility demand and potential growth, discussions with commercial counterparties and financing sources, pricing trends for materials, progress of company projects, including anticipated timing of related approvals and project completion and anticipated production delays, expected impact from various regulatory developments, completion of development, the potential impact of the current conflict in Israel on our operations and financial condition and company actions designed to mitigate such impact and the company's future financial and operational results, and guidance, including revenue and adjusted EBITDA are forward-looking statements within the meaning of U.S. federal securities laws, which reflect management's best judgment based on currently available information. We reference certain project metrics in this earnings call and additional information about such metrics can be found in our earnings release. These statements involve risks and uncertainties that may cause actual results to differ from our expectations. Please refer to our 2025 annual report filed with the SEC on March 30, 2026, and other filings for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Additionally, non-IFRS financial measures may be discussed on the call. These non-IFRS measures should be considered in addition to and not as a substitute for or in isolation from our results prepared in accordance with IFRS. Reconciliations to the most directly comparable IFRS financial measures are available in the earnings release and the earnings presentation for today's call, which are posted on our Investor Relations web page. With me this morning are Gilad Yavetz, Executive Chairman and the Co-Founder of Enlight; Adi Leviatan, CEO of Enlight; Nir Yehuda, CFO of Enlight; and Jared Mckee, CEO of Clēnera. Adi will provide a summary of the business results and turn the call over to Jared for a review of our U.S. activity, and then Nir will review the first quarter results. Our executive team will then be available to answer your questions. I will now turn the call over to Adi Leviatan, CEO of Enlight. Adi, please begin. Adi Leviatan: Good morning and good afternoon, everyone, and thank you for joining us to review Enlight's first quarter 2026 results. We are off to a very strong start to the year, delivering excellent financial performance and continued execution momentum across our global platform. Our results this quarter clearly reflect the strength of our operating assets, the scale and quality of our development portfolio and our ability to consistently convert projects into cash-generating capacity. Before diving into the numbers, I want to briefly address the broader environment. The first quarter once again demonstrated the resilience of Enlight's diversified platform. Despite ongoing geopolitical and macroeconomic uncertainty, our assets continue to operate reliably. Our projects advanced according to plan, and our financial performance remains strong. This resilience is the result of geographic and technological diversification and the fact that renewable energy and storage assets provide stability even in volatile conditions. Turning now to the quarter. In Q1, revenues and income increased 54% year-over-year to $200 million, while adjusted EBITDA reached $154 million, representing 58% growth year-over-year, excluding the impact of the sell-down of the Sunlight cluster. This growth was driven primarily by new projects entering operation in the U.S. alongside strong wind conditions in Israel and Europe, increased electricity trading activity in Israel and supportive foreign exchange effects. Importantly, this was organic operating growth and reflects the continued expansion of our income-generating portfolio and the future potential of advancing projects in our development portfolio over time. The U.S. became our largest geographic segment this quarter, contributing 37% of total revenues following the ramp-up of Roadrunner and Quail Ranch. This marks a meaningful milestone in the scaling of our U.S. platform. Beyond the financials, Q1 was another strong execution quarter. During the quarter, we grew our U.S. portfolio that successfully passed system impact studies by approximately 2 factored gigawatt, reaching a total of 20 factored gigawatt, significantly increasing interconnection certainty. More than 60% of our advanced development and development portfolio completed the system impact study. We expect additional projects to be safe harbored in 2026, bringing the total to 15 to 17 factored gigawatt or about 80% of our U.S. advanced development and development portfolio. Our U.S. portfolio expanded by 2.6 factored gigawatt, more than 10% sequentially and expanded in additional demand areas outside of WECC, supporting our medium- to long-term growth in the market. Last, we started construction at CO Bar 3, the 475 megawatt PV phase of the CO Bar complex, fully in line with our execution plan. These developments further reinforce our ability to deliver large-scale solar plus storage projects with speed, discipline and attractive economics and supports our growth potential beyond 2028. In Europe, the opportunity is equally compelling. While renewable generation continues to expand rapidly, energy storage deployment has not kept pace, creating a systemic need for flexibility and balancing capacity. According to Wood Mackenzie, this need amounts to 1.4 terawatts of storage capacity by 2034 globally. This gap is structural, not cyclical and supports attractive long-term economics for well-positioned storage projects. During the quarter, we continued to advance our European expansion and are now in advanced negotiations to expand our business in additional markets, including Finland and Romania as part of our strategy to deepen our presence in high potential storage markets. Energy storage remains a core growth pillar for Enlight in Europe with a vast portfolio of 14 gigawatt hour, of which 4.9 gigawatt hour in the mature portfolio fully aligned with our focus on disciplined capital allocation and attractive returns. In Middle East, North Africa, we are deploying the full scope of Enlight's capabilities, leveraging our position as a leading and trusted energy player. Israel remains a core market where we are active across utility scale wind and solar, energy storage, agrivoltaics and high-voltage infrastructure. Enlight's position in Israel, combined with our unique expertise in different energy generation applications enable us to significantly grow in Israel and develop new and innovative growth engines. In agrivoltaics, specifically, we continue to scale rapidly with dozens of land agreements signed over the past year, representing approximately 3 factor gigawatt of future solar capacity while strengthening synergies between energy generation and agriculture, enhancing food security and energy security at once. The agrivoltaics opportunity in Israel is huge. We estimate more than 120,000 acres will be needed to meet renewable energy targets by 2050 with a market size estimated at several billion dollars. At the same time, we're advancing high-voltage storage projects in Israel totaling more than 2 factor gigawatts, which enhance grid flexibility and resilience while enabling us to optimize revenue generation. Looking ahead, we believe Israel is on track to become one of the countries with the highest energy storage capacity per capita globally, and we are well positioned to take advantage of this opportunity. Across the portfolio, execution continued at a strong pace. We advanced 0.5 a factored gigawatt into construction during the quarter, mostly attributed to Phase 3 in the CO Bar complex advancing to construction and expanded our total portfolio to over 41 factored gigawatts, a sequential increase of 8%. Looking ahead, we expect approximately 7 factory gigawatts to be under construction during 2026, with over 90% of our mature portfolio either operating or under construction by year-end. This level of visibility is the outcome of years of disciplined development, extensive grid interconnection work and proactive risk management. Stepping back to the broader demand environment, we continue to see structural growth in electricity demand, driven in part by the rapid adoption of AI and data-intensive applications and the resulting expansion of data centers. Industry forecasts indicate that U.S. data center electricity consumption could triple by the end of the decade, requiring more than 300 terawatt hour of new capacity that is fast to deploy, scalable and cost effective. In this environment, solar combined with storage stands out. Compared to other generation technologies, it offers shorter time to market, meaningfully lower LCOE and the flexibility required to support modern grids. Enlight is well positioned to capture this demand, leveraging our large grid-ready sites, proven execution capabilities and deep experience delivering solar plus storage at scale. The business environment in which we operate remains extremely favorable with rising demand, constrained supply and attractive equipment costs. Recent geopolitical disruptions, together with the sharp increase in oil and gas prices have underscored the strategic importance of renewable energy as a reliable and competitive source. Turning to outlook. We are reaffirming our full year 2026 guidance. Revenues and income of $755 million to $785 million and adjusted EBITDA of $545 million to $565 million. More importantly, we continue to stand firmly behind our long-term growth trajectory. With approximately 7 factored gigawatts expected to be under construction in 2026 and the vast majority of our mature portfolio either operating or under construction, we see a clear and credible path to more than $2.1 billion of annual revenue run rate by the end of 2028. This growth is anchored in projects already in hand, supported by strong and increasing returns and executed with discipline. Before I wrap up, let me summarize the key takeaways. We delivered a strong start to 2026 with excellent financial performance and execution momentum. We continue to expand and derisk our U.S. portfolio, advancing key milestones, including system impact study completion, safe harbor progression and the start of construction at CO Bar 3. We see utility scale growth opportunities in Middle East, North Africa, a market in which we have a significant competitive advantage. We are well positioned to capture structural demand growth and systemic grid needs, leveraging the speed, cost and flexibility of solar and storage. And we remain focused on disciplined growth and long-term value creation while not compromising on returns, profitability and the strength of our balance sheet. With that, I will hand the call over to Jared. Jared McKee: Thank you, Adi. In the U.S., Clēnera continues to execute on its long-term growth strategy and remains firmly focused on disciplined construction execution, while at the same time, expanding our portfolio and customer base. This quarter, we have continued to grow and advance our development portfolio across U.S. markets, led by significant progress in PJM. We submitted interconnection applications within PJM for an additional 2,500 factored megawatts across 5 projects. PJM is a market with exceptional opportunities for new solar and storage, characterized by sustained utility demand, tight capacity dynamics and attractive power pricing that supports long-term profitability. Our operating assets continue to demonstrate the quality and durability of our portfolio. Energy generation across operating projects has been stable and predictable. We continue to monitor uptime closely. Clēnera is currently constructing 6 projects totaling 3.4 factored gigawatts. Our construction portfolio reflects deliberate investments in our internal processes, targeted hiring and retention and long-standing relationships with Tier 1 suppliers and contractors. It also demonstrates our ability to consistently deliver approximately 2 factored gigawatts annually. As a result, the construction progress we are reporting today reflects our expected baseline delivery level and our confidence in achieving commercial operations year-after-year. At the CO Bar complex in Northwest Arizona, ground clearing and other site construction activities are underway on the third phase of the project. Phases 1 and 2 are in full construction and making steady progress. Combined, these 3 phases include nearly 1.5 factored gigawatts. Initial CODs are on track for the second half of 2027 with CODs for the following phases in first half of 2028. For the final 2 phases of the CO Bar complex, CO Bar 4 and 5, we have secured a domestic source for the batteries totaling 3,176 megawatt hours. Our sourcing strategy mitigates tariff and supply chain risks for these critical phases. In Northeast Arizona, progress is steady at the construction of the Snowflake complex. The first phase, Snowflake A includes 594 megawatts of PV generation and 1,900 megawatt hours of energy storage. We are near the halfway mark of installing both the PV and battery components and remain on target for COD in the second half of 2027. The Country Acres project outside of Sacramento, California remains on schedule for COD at the end of this year. This project includes 403 megawatts PV and 688 megawatt hours of energy storage. When operational, it will generate enough energy to power over 85,000 California homes. Finally, work is underway at Crimson Orchard project located in Elmore County, Idaho. This project includes 120 megawatts of PV generation and 400 megawatt hours of energy storage. Spring weather has allowed us to make significant progress on the project's civil work and prepare the site for major equipment deliveries. Foundation work has begun for the batteries and switchyard. Our market strength has once again been confirmed with the closing of the construction financing package in March, totaling $304 million for the Crimson Orchard project. This clears the path for the project's successful commercial operation in 2027. Taking a step back from specific projects, I want to offer an update on our supply chain. Despite global disruptions in shipping due to geopolitical conflicts in the Middle East, we have seen limited exposure to availability or pricing of our materials. Looking ahead, we may see ripple effects on the supply chain and logistic inputs. Nevertheless, we continue to enhance our diverse pool of supplier resources, including U.S. domestic manufacturing to give us flexibility and resilience in the face of uncertainty. With one of the largest U.S. solar and storage construction pipelines, we are well positioned to be a preferred counterparty for our suppliers and vendors. To close, Clēnera remains firmly focused on what matters most to our investors. executing large-scale construction projects on schedule, maintaining reliable operating performance, advancing a deep and diversified development pipeline and expanding our customer base thoughtfully and strategically. I will now turn the phone over to Nir. Nir Yehuda: Thank you, Jared. Q1 '26 delivered a strong start to the year, setting the foundation for the quarters ahead. The company's total revenues and income increased to $200 million, up from $130 million last year, a growth rate of 54% year-over-year. This was composed of revenues from the sale of electricity, which amounted to $157 million, an increase of $47 million from the first quarter of '25 as well as recognition of $43 million in income from tax benefit, an increase of $23 million from Q1 '25 attributed to the new operational project Roadrunner and Quail Ranch. The increase in revenues from the sale of electricity was driven mainly by new projects, which contributed $16 million to revenues growth. It was also a strong quarter for our wind project with increased generation contributing $14 million. Electricity trade activity in Israel roughly doubled from last year, contributing $6 million to revenues growth. And finally, the appreciation of the Israeli shekel and euro versus the U.S. dollar contributed $12 million. The company adjusted EBITDA grew by 70% to $154 million compared to $132 million for the same period in '25, excluding the contribution of $42 million from the sale of 44% of the Sunlight cluster in Q1 '25 and follow-on sale of 11% of the cluster in Q1 '26, which contributed $12 million. EBITDA in Q1 '26 grew by 58% or $52 million. The increase of $70 million in revenue was offset by an additional $70 million in cost of sales linked to new projects and to the increase in electricity trade activity in Israel, while G&A and project development expenses increased by $6 million. In contrast, other income increased by $5 million. First quarter net income amounted to $38 million compared to $102 million in Q1 '25 and $21 million excluding the Sunlight cluster sale contribution. An increase of $52 million in EBITDA was partially offset by an increase of $70 million in depreciation and amortization attributable to the start of operation of new projects as well as an increase of $4 million in expense related to share-based compensation. Additionally, net financial expenses increased by $12 million, mainly as a result of the commercial operation of new projects and tax expenses increased by $4 million, net of the Sunlight sale impact. During the first quarter, Enlight continued to solidify its financial position, raising approximately $740 million, mainly from a private placement of 6 million shares to Israeli institutional investors for $422 million and $304 million from project finance. In total, our cash and cash equivalents at the topco level increased to $709 million. Additionally, we have $270 million held by subsidiaries. In addition, we have $525 million of credit facility with $360 million available and approximately $1.6 billion in LC and surety bond facility, including $1 billion available, further enhancing our financial flexibility. Our solid financial position and internal resources will continue to support our growth towards the $2 billion revenue mark and beyond. I will now turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Justin Clare of ROTH Capital Partners. Justin Clare: Congrats on the strong results. I wanted to started off... Adi Leviatan: Thanks, Justin. Nice to hear from you. Justin Clare: Yes, likewise. So I wanted to start out just asking about the unlevered returns here. It looks like the expectation for under construction and preconstruction projects increased to 13%. I think that's up from 12% to 13% last quarter and then 11% to 12% a couple of quarters ago. So just wondering if you could speak to what's driving the improvement? Is this better PPA pricing, lower equipment costs or other factors here? And then are you seeing further opportunity for improvements in the return profile, let's say, for future projects that are moving through the pipeline today? Adi Leviatan: Yes. Thanks again for the question. I will give a little bit of an answer, and I will also pass it over to my colleague, Itay Banayan, the Chief Corporate Development Officer. So we are constantly working on improving the rates of return in our projects. The projects that are currently under construction and preconstruction, we continue to do optimization work on the capital expenditure and on other aspects. Specifically, in this case, we did significant work to further improve the profitability or the -- to further reduce the CapEx on CO Bar's storage components of these projects, changing the sources of supply for the batteries to different suppliers, also making us eligible in this case for domestic content. So a double win in that sense. And we did additional moves, which we constantly again do to try to improve the economics of our projects, thereby reaching this 13% solidly. I'll pass it over to Itay Banayan, our Chief Corporate Development Officer. Itay Banayan: Justin, good to hear from you. Yes, everything that Adi said, and in general, it's something that we're very proud of. On the same slide, you see that the first 3.9 factored gigawatts that we connected to the grid over 17 years or so. And now we are in the process of the construction and preconstruction of 7.7. So almost doubling in 1 year or in 2 years, everything that we did in 17 years. And at the same time, we're improving and enjoying the economies of scale and the reduction in CapEx and the increase in the PPAs, and it's a global phenomenon. So we're not only growing, but we're constantly improving and taking a lot of -- putting a lot of attention on profitability, on cash flows, on the balance sheet and so on. Justin Clare: Okay. Great. Yes, it's good to see the improvements in the return profile here. Maybe just shifting over to the operational capacity here. It looks like the outlook for 2027 was reduced a little bit to 7.3 factored gigawatts, down from 8 last quarter, and then the ARR was stepped down to $1.4 billion from $1.6 billion. Wondering if you could just walk through that change, what potentially shifted out of the 2027 time frame? And then it does look like 2028 is -- remains intact in terms of your outlook there. So just wondering, is this a matter of just a project timing or any other factors? Adi Leviatan: Yes. And it actually relates to the previous point as well for specifically the purpose of improving further the rate of return on the CO Bar 4 and 5, the parts of the -- that are standalone storage in CO Bar, we actually did change the suppliers of the BESS, the battery energy storage system, and therefore, had to do some reengineering on site, which pushed the project's COD, like commercial operation date just from the end of '27 into the beginning of '28. And similarly, one additional project in Europe project, Bertikow which was also pushed forward just by a very short amount of time. Generally speaking, we like that these projects -- we have one chance to get them right and then they're going to be producing electricity and revenues for us for 20, 25, 30 years. So to push them out by a month or by a couple of months is something that we sometimes do in order to improve them. And they are all connecting just a very short delay, which is a natural normal course of the developer's life. Operator: Our next question comes from the line of Jon Windham of UBS. Jonathan Windham: I guess sort of a bigger picture question. Through your Clēnera subsidiary, you're going to be one of the largest customers for stationary storage in the United States over the next 5-plus years. I'm wondering, there's been a number of announcements of new entrants into the stationary storage market, namely LG Energy Solutions, General Motors and Ford. Have you had dialogues with any of these potential new suppliers? And how do you think that plays out in the supply-demand balance and pricing for batteries in the future? Adi Leviatan: Thank you for the question. I would like to ask Jared if you are comfortable taking this question forward. Jared McKee: Absolutely, Adi. Thank you for the question, and thank you for your insight into the market. We are constantly talking with potential suppliers on the battery and on the PV side. Specifically on the battery side, we welcome new domestic suppliers opening operations and manufacturing facilities in the U.S. It both adds rigidity and robustness to the supply chain and allows us to secure both domestic sources and reduce our risk overall from any sort of geopolitical occurrences throughout the world. We are engaged with multiple suppliers on the battery side. And as these battery manufacturing facilities get built out, the supply continues to grow. And so this supply is being distributed to the same amount of projects. And so we do like the supply and demand curves that this provides for us, and we expect that we will have very effective negotiations over the next period of time with our potential suppliers. It gives us the ability to leverage our portfolio, as you mentioned, we will be one of the larger customers in the United States for stationary BESS. And we intend to continue to deliver results like we shared today, where we are constantly increasing the profile of our projects and making them better. Operator: Our next question comes from the line of Corinne Blanchard of Deutsche Bank. Corinne Blanchard: The first question, can you talk about the cadence that you're expecting for the rest of the year? I think 1Q is showing a little bit of better seasonality maybe than we had anticipated. So just wondering how the rest of the year is going to shape up? And then maybe second question, can you talk about the safe harbor in your portfolio and how that has evolved during 1Q? Itay Banayan: Corinne, good to hear from you. This is Itay. What was the second part of the question? Adi Leviatan: Safe harbor. Itay Banayan: Safe harbor, okay. So with the first half of the question, in terms of the seasonality, the quarter and the year indeed started very strong and exceeded our expectations. Nevertheless, we do anticipated seasonality over the year. The first quarter is usually a very strong quarter in terms of wind, and it was even better than we anticipated. And in general, as Adi mentioned during the call, we are keeping our guidance for the year intact. It is only the first quarter. And as I mentioned, there was some -- I think there was some gap with the consensus, but our internal expectations were not that far away. And in terms of safe harboring... Adi Leviatan: We do have the opportunity to safe harbor an additional 2 to 4 factored gigawatt in the next couple of months until basically the end of June. And it is completely at our discretion. Obviously, as you know, projects that are being safe harbored, we need to then maintain like full activity, construction activity at the site from when we safe harbor them until their completion, and we need to make sure that they are connected that they arrive at commercial operations before the end of 2030. So we are taking our decisions to -- from the 2 to 4 factored gigawatt additional that we have options to safe harbor to bring the total amount to 15 to 17 factored gigawatts of safe harbor. We're taking those decisions in the next couple of months. Jared, anything to add on the safe harbor point? Jared McKee: Yes. Just that we are actively [indiscernible] the projects are being safe harbored through physical work of a significant nature, both on-site and off-site. Adi, I think you shared the numbers most accurately. And yes, we are excited to have this large portfolio of projects to be able to pull from over the next really several years of commissioning and CODs. Adi Leviatan: And I will come back just to say, Corinne, that when the One Big Beautiful Bill Act came out in May last year, exactly a year ago, there was obviously concern. And at the time, we promised or we anticipated that we would be able to safe harbor 6 to 8 factored gigawatt of projects by the end of 2028. We're now standing here towards the 16 -- sorry, 15 to 17 factored gigawatts that we would be able to safe harbor by the end of 2030. So significantly more than we predicted at the time, and we're really making the most of the safe harbor regime as long as it's in place. And we also are very confident about our ability to successfully develop and execute projects in the United States after the end of that regime, but we have enough time for that in solar projects after the end of 2030 and for storage projects even after the end of 2032. Corinne Blanchard: Right. Can I ask one more follow-up question? Can you talk about the 2028 target? It seems like you might be able to raise it or we kind of felt from the presentation like you are like $100 million ahead of the target. Can you just like give a little bit more thought on that one? Adi Leviatan: So we give the 2028 annual run rate as we forecasted today. The component that is today -- the $2.1 billion of this is already today in the mature portion of our portfolio. And then there's additional projects that are currently not yet in the mature, they're in advanced development. But nevertheless, they will make it to be connected by the end of 2028, which is why there's that $2.1 billion to $2.3 billion range. At this point, we cannot give a more accurate number, but that is the composition of the number. Itay Banayan: But Corinne, you can see that over the last couple of quarters, the percentage of the mature portfolio outside of the 2028 road map has increased over time. And with the start of construction of additional 3 factored gigawatts this year, the vast majority of the 2028 plan is going to be either operating or under construction this year, and thus reducing significantly any development risk and increasing the certainty that stand behind this road map. And again, you can see with all of the safe harboring that we're doing and the increase of the portfolio in the development and the advanced development that we are looking ahead at the growth beyond '28. And there is a lot of materials in the presentation and the earnings release when you analyze the portfolio to see that there is significant potential beyond 2028. Operator: [Operator Instructions] Our next question comes from the line of Maheep Mandloi of Mizuho. Maheep Mandloi: Maybe just like a follow-up on this safe harbor and on Slide 16. I presume like the main bottleneck for new projects is the interconnection of the completed system impact study, right? So I'm just trying to -- curious like if you could see more of the safe harbor come through before June and kind of hit this 19.9%, which you already have completed the system impact study for. Just curious like what would it take for safe harbor to ramp up to match that number? Adi Leviatan: Maheep, it's nice to hear from you. Jared, I'm going to please redirect the question to you. Jared McKee: Yes, no problem. Maheep, my apologies. I had a hard time hearing. Do you mind actually rephrasing the question? I just want to make sure I can answer it accurately. Maheep Mandloi: Yes, sure. I mean like talking to some of the developers or the industry, it looks like the interconnection is probably like a bigger bottleneck to get projects online by 2030 rather than just safe harbor. So was curious like if you have -- given you have 19.9 factored gigawatts of completed system impact study, can safe harbor ramp up to match that 19.9 by July 4 of this year? Or just curious like what would it take for safe harbor to grow from this 15, 16 -- 15, 17 gigawatts to the almost 20 factored gigawatts you have completed system impact study. Jared McKee: Got it. Okay. So just to confirm, it's really asking, is there the ability to match the safe harbor numbers with the completed system impact study that's sitting right around 20 factored gigawatts. Is that accurate? Maheep Mandloi: That's right. Jared McKee: Okay. So as you can see, one, we are very proud of the fact that we have 20 gigawatts of projects that have completed system impact study. This actually shows the success of what we are doing here in the U.S. at the Clēnera side, along with everyone at the Enlight team is to really go through and successfully go through that part of the process. On the safe harbor side, as Adi mentioned, we have optionality. What we are looking at is we are making a very strategic decision project by project to make sure that invested dollars into safe harbor and the work of significant nature is for projects that have ability to advance and COD by 2030. There are going to be some projects out of that 20 factored gigawatts that have time lines due to interconnection or other criteria that is going to be beyond the 2030 time frame. And so we probably won't see the safe harbor number go up to 20 gigawatts because there is going to be some projects. But as Adi mentioned, we are already significantly farther along on the safe harbor process for the majority of our portfolio than we had previously announced. There is some opportunity to hit that top end and maybe even a little bit more of the safe harbor on that 15 to 17 that Adi mentioned. The likelihood that it gets up to the 20 from a strategic standpoint is not completely likely just due to the fact that some of those 20 factored gigawatts are going to come online after 2030. Maheep Mandloi: Got it. Helpful. And are you seeing any interest from customers to have behind-the-meter solar, presumably that might not require interconnection study, right, I think. The limit over there would be how much would be able to safe harbor, right? So curious if you're seeing any customers ask about Island [indiscernible] behind-the-meter solar for you? Jared McKee: Yes. We've definitely seen this in the marketplace. I think our focus has been we have enough projects that are already through the system impact study that the projects that we are looking at by 2030 are those that are going to be connected to the grid, but we have seen interest in the marketplace, both from large load customers to really look at behind-the-meter solutions. We are always actively looking at ways to expand and to grow. And so we are looking at those types of opportunities. But our focus is really on our core business, which is very, very robust projects through the interconnection balanced by utilities that we can deliver on, and we have 20 factored gigawatts of projects that we can choose from. And out of that 20 factored gigawatts, we have another 15 to 17 that were going to have safe harbor. And so that is a very robust pipeline through the next 4 years. Maheep Mandloi: I appreciate that. And just one last one, just on cash sources, if you can kind of comment on how much of the current cash or what you might have in years can support growth beyond this 12 to 13 factor gigawatt post 2028. Itay Banayan: Maheep, so to remind, we have very strong access to capital globally, both at the assets level with project finance from Tier 1 lenders and at the corporate level with the access both to the Tel Aviv Stock Exchange and the NASDAQ, which we're seeing an improved liquidity -- significantly improved liquidity in the past year. At the moment, and there is -- there are details in the earnings release on the sources that we have on hand. At the moment, we have significant amounts to support the 2028 plan and beyond. So we don't need any outside resources of capital in order to support the 2028 plan and a significant factored gigawatts beyond it. Operator: Thank you. I would now like to turn the conference back over to the CEO for closing remarks. Madam? Adi Leviatan: Thank you. We highly appreciate your questions and also participating in our 2026 Q1 earnings report. We hope that you can also join us on May 19 for the investor conference where we plan to share more exciting content about our strategy going forward, and we highly appreciate you joining us here today. Thank you so much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
David Cohen: Good morning, everyone. Welcome to Gartner's First Quarter 2026 Earnings Call. I am David Cohen, SVP of Investor Relations. [Operator Instructions] After comments by Gene Hall, Gartner's Chairman and Chief Executive Officer; and Craig Safian, Gartner's Chief Financial Officer, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. This call will include a discussion of first quarter 2026 financial results and Gartner's outlook for 2026 as disclosed in today's earnings release and earnings supplement both posted to our website, investor.gartner.com. On the call, unless stated otherwise, all references to revenue are for adjusted revenue, and all references to EBITDA are for adjusted EBITDA, in each case, excluding the divested operation and with the adjustments as described in our earnings release and supplement. Our contract values and associated growth rates we discuss are based on 2026 foreign exchange rates. All growth rates in Gene's comments are FX neutral, unless stated otherwise. All references to share counts are for fully diluted weighted average share counts, unless stated otherwise. Reconciliations for all non-GAAP numbers we use are available in the Investor Relations section of the gartner.com website. As set forth in more detail in today's earnings release, certain statements made on this call may constitute forward-looking statements. Forward-looking statements confined materially from actual results and are subject to a number of risks and uncertainties, including those contained in the company's 2025 annual report on Form 10-K and quarterly reports on Form 10-Q as well as in other filings with the SEC. I encourage all of you to review the risk factors listed in these documents. Now I will turn the call over to Gartner's Chairman and Chief Executive Officer, Gene Hall. Eugene Hall: Good morning. Thanks for joining us today. First quarter insights, revenue, EBITDA, adjusted EPS and free cash flow were ahead of expectations. New business with enterprise leaders was strong in the first 2 months of the quarter. Due to changes in the geopolitical environment, client decisions slowed somewhat in March. Year-over-year contract value growth accelerated in the first quarter. We were agile in managing expenses, and we continue to deliver unparalleled value to our clients. Gartner's strategy is to guide executives on their journeys to achieve their mission-critical priorities. Our clients are the senior most executives and their teams who lead every major enterprise function. For example, Chief Information Officers and Senior IT leaders, Chief Supply Chain Officers and Heads of Logistics, Chief Financial Officers and Corporate Controllers and more. These roles are enduring regardless of change in the world. The executives who lead these roles will always have priorities that are mission critical to the success of their enterprise, their functions and their personal careers. Priorities that are mission-critical tend to be long, complex journeys. They take time and effort to achieve. Executives want and need help. In today's environment, most executives face information overload. It could be challenging to differentiate authoritative sources from others. Trust is at a premium. Gartner is the best, most trusted source for the help executives need to achieve success. We proactively deliver insights that guide smarter decisions and stronger outcomes on mission-critical priorities. Gartner insights are derived from a vast pool of highly proprietary data. Every year, we hold more than 0.5 million 2-way conversations with more than 80,000 executives across every major function and in every industry. We conduct more than 27,000 briefings with the executives from technology providers. We also leverage data from proprietary surveys, tools, models, benchmarks and more. This gives us a deep understanding of what executives care about most, what's working and what isn't. Our insights are independent and objective. They reflect the latest information and situations our clients are experiencing. They're continually updated and they're available exclusively from Gartner. A large part of our value comes from helping clients see around corners. We help leaders understand issues and approaches they're often not aware of. We help them identify blind spots, prioritize issues and avoid costly mistakes. Our insights are forward-looking. We guide clients on how the world is likely to change and what they should do to thrive in uncertain environments. We deliver unparalleled client value through both digital and human interactions. Clients can access our written insights, budget quadrants, pipe cycles, critical capabilities, ignition guides, toolkits for procurement and governance and many more. In addition, through inquiry, clients can tap into the deep expertise of our world-class analysts that goes beyond what's in our written insights. They can get personalized support from experienced practitioners. Through our conferences, clients can interact in person with analysts, peers and technology providers. They can validate decisions through the Gartner Pure community, which has more than 100,000 executives from nearly every enterprise function. And of course, they can use AskGartner to go even deeper into specific topics. No one else does what we do at our scope and scale. Retention is foundational to our success. Clients who engage frequently with our insights, receive greater value and retain at higher rates. To support more frequent client engagement, we've been transforming our business and technology insights organization and processes. I covered the dimensions of this transformation on last quarter's earnings call. They are impact, volume, timeliness and user experience. Today, I'll give you an update on how we're doing. We measure progress in a number of ways. I'll highlight just a few examples for simplicity's sake. Starting with impact. Our objective is to ensure insights are always on the topics our clients care about most right now. We've increased the number of high-impact documents by 22%. The second dimension is volume. The number of documents in our insights library is up 19%. The third dimension is timeliness. With the accelerating rate of change in the world, we've introduced insights that are published the same day important events occur. The number of these documents has more than doubled. A recent example includes recommendations for heads of software engineering in response to the dramatic change in the security landscape posed by Anthropixs Mythos. And of course, we continue to make improvements on the user experience. For example, we've added the ability to create downloadable PowerPoint presentations directly from within AskGartner. Clients can ask questions in 25 languages, and we continue to integrate additional proprietary data sources. The programs we have underway are driving increased client engagement, which should result in higher retention and additional new business. AI continues to be one of the most requested topics across all the roles we serve. Gartner sits at the nexus of CIOs and IT organizations, business leaders and AI technology providers. This gives us a full proprietary perspective that includes all the major players. We also have comprehensive independent and objective guidance on all aspects of AI, strategy, ROI, ethics and governance, workforce readiness and more. We cover the full range of issues leaders need to address to be successful with AI. And we are world-class users of AI internally. No one is more capable or better positioned to guide leaders along their AI journeys than Gartner. Our people drive our success. I just returned from one of our sales recognition events, where I had the opportunity to spend time with hundreds of our most successful salespeople. They continue to demonstrate unwavering dedication to their clients, and are incredibly excited at the future of our business. In closing, Gartner has an unparalleled and enduring value proposition. We're transforming our business and technology insights organization and processes to deliver even more client value. Clients who engage frequently with our insights receive greater value and retain at higher rates. Gartner is the best source for clients looking to achieve success on their AI journeys, and our teams are incredibly optimistic about our future. Looking ahead to the rest of the year, we expect contract value will accelerate. We will continue to drive strong free cash flow that we can put to use to drive incremental shareholder value, and we expect to deliver adjusted EPS on a compound annual basis above 12% over the next 3 years. With that, I'll hand the call over to our Chief Financial Officer, Craig Safian. Craig Safian: Thank you, Gene, and good morning. First quarter contract value, or CV, grew 1% year-over-year. This was an acceleration from the fourth quarter. Insights revenue, EBITDA, adjusted EPS and free cash flow in the first quarter were better than expected. We are increasing our EBITDA, adjusted EPS and free cash flow guidance for the full year. In the first quarter, we reduced our share count by about 4%, buying back $535 million of stock. And we expect to generate significant free cash flow and have fewer shares outstanding over the course of the next several years. First quarter revenue was $1.5 billion, up 2% year-over-year as reported and down 1% FX neutral. In addition, total contribution margin was 72%, EBITDA was $395 million, up 6% as reported and 1% FX neutral. Adjusted EPS was $3.32, up 11% from Q1 of last year. And free cash flow was $371 million, up 29% year-over-year. Rolling 4-quarter return on invested capital was about 27%. Insights revenue in the quarter grew 3% year-over-year as reported and was about flat FX neutral. First quarter Insights contribution margin was 78%, up about 120 basis points versus last year. Contract value was $5.3 billion at the end of the first quarter, up 1% versus the prior year and an acceleration from year-end. Excluding the U.S. federal government, CV growth was 3.5%. At March 31, we had approximately $114 million of U.S. Federal CV. Q1 is normally a higher-than-average renewal quarter and our seasonally lowest new business quarter. The second quarter is a smaller renewal quarter and a larger new business quarter than Q1. We had more than $200 million in new business in the first quarter as there continues to be considerable interest in Gartner's proprietary unbiased insights. As you recall, new business dollars increase each quarter as we move through the year. Driving engagement is critically important to retention. As Gene discussed, through both digital and human interactions, we understand our clients' mission-critical priorities, and we are proactive in helping them to address those priorities. This ongoing engagement helps drive client success and strong retention. We've increased license user engagement levels over time. In each month of the first quarter, they are higher than they've been in any of the same months over the past 3 years with consistent engagement improvements in both digital and human interactions. Derived from analyzing monthly active users, overall engagement in Q1 was up over 170 basis points compared to the prior year quarter. Digital engagement improved by more than 160 basis points year-over-year. Human interactions increased more than 80 basis points year-over-year through improvements in the usage of analyst inquiries. Global Technology Sales contract value was $4 billion at the end of the first quarter, up versus the prior year. GTS CV for both enterprise leaders and tech vendors increased by more than 3% year-over-year ex Fed. Wallet retention for GTS was 97% for the quarter. Ex Fed, wallet retention was 99%. GTS new business was down 4% compared to last year and down about 3% ex Fed. As Gene noted, new business was tracking ahead of the prior year through February and was affected a bit in March due to the geopolitical environment. Global Business Sales contract value was $1.3 billion at the end of the first quarter, up 3% year-over-year. Ex Fed, GBS CV grew 5%. Growth was led by the sales, supply chain and legal practices. Wallet retention for GBS was 98% for the quarter. GBS new business was down 2% compared to last year. Again, as Gene noted, new business was tracking very favorably through February with some client decision-making slowing down in March. Conferences revenue for the first quarter was $78 million. On a same conference basis, revenue growth was around 9% FX neutral. Contribution margin was 39%. We held 10 destination conferences in the first quarter as planned. Q1 consulting revenue was $119 million compared with $140 million in the year ago period. Consulting contribution margin was 31% in Q1. Labor-based revenue was $90 million. Backlog at March 31 was $201 million. In contract optimization, we had $147 million of revenue on an LTM basis, about flat compared with Q1 of 2025. On a 2-year CAGR basis, revenue was up about [ 15%. ] As you know, our contract optimization revenue is highly variable. EBITDA for the first quarter was $395 million, up 6% from last year as reported and 1% FX neutral. We outperformed expectations in the first quarter through effective expense management and a prudent approach to guidance. Adjusted EPS in Q1 was $3.32, up 11% compared to Q1 last year. We had 70 million shares outstanding in the first quarter. This is an improvement of about 8 million shares or approximately 10% year-over-year. We exited the first quarter with 68 million shares on an unweighted basis. Free cash flow remained strong in the first quarter, up 29% year-over-year. Free cash flow on a rolling 4-quarter basis was $1.3 billion. Adjusting for several items detailed in the earnings supplement, free cash flow was 20% of reported revenue, 79% of adjusted EBITDA and 145% of GAAP net income. At the end of the first quarter, we had about $1.7 billion of cash. This includes about $500 million for running the business and around $1.2 billion available to deploy on behalf of shareholders. Our March 31 debt balance was about $3 billion. Our reported gross debt to trailing 12-month EBITDA was under 2x. We repurchased $535 million of stock during the first quarter, reducing our share count by more than 4%. Last week, the Board increased the buyback authorization to about $1.2 billion. We expect the Board will refresh the amount as needed. We are updating our full year guidance to reflect recent performance and trends, including FX. For Insights revenue in 2026, our guidance reflects Q1 contract value. The revenue outlook is operationally unchanged as we had modeled in the NCVI performance we saw in the quarter. We increased the outlook for FX. For conferences, we are basing our guidance on the 56 in-person destination conferences we have planned for 2026. We have good visibility into current year revenue with the majority of what we've guided already under contract. For consulting, we have reflected a prudent view for the balance of the year based on the Q1 results. Contract optimization has had several very strong years and the business remains highly variable. For 2026, we expect consolidated revenue at or above $6.405 billion, which is updated from last quarter and is FX-neutral growth of 1%. We now expect full year EBITDA at or above $1.545 billion, up $30 million from our prior guidance. This reflects full year margins at or above 24.1%, also up from last quarter. We expect 2026 adjusted EPS at or above $13.25, an increase from last quarter that primarily reflects the increase in the EBITDA outlook and a lower share count. For 2026, we expect free cash flow at or above $1.16 billion. This reflects a conversion from GAAP net income of 137%. Our guidance is based on 69 million fully diluted weighted average shares outstanding, which incorporates the repurchases made through the end of the first quarter. We exited Q1 with about 68 million fully diluted shares. For Q2, we expect EBITDA at or above $425 million. Our profit and cash flow results in Q1 were ahead of expectations, and we've increased the EBITDA, adjusted EPS and free cash flow guidance for 2026. Contract value ex Fed grew 3.5% in the quarter and total CV growth improved from the fourth quarter of 2025. We are positioned to accelerate CV growth in 2026, and we expect to deliver adjusted EPS on a compound basis above 12% over the next 3 years. We'll also deploy our capital on stock repurchases, which will lower the share count over time and on strategic value-enhancing tuck-in M&A. With that, I'll turn the call back over to the operator, and we'll be happy to take your questions. Operator? Operator: [Operator Instructions] First question comes from the line of Jeff Mueller with Baird. Jeffrey Meuler: Yes. So it makes sense that the selling environment would be tougher in March. Can you give any perspective on if that has started to convert in April, the things that kind of slipped out of March by some indications, maybe the environment is getting a little bit better. And then just any differentiation on new business sales trends between new logo versus upselling in the base, which I think had been lagging? Eugene Hall: Okay. Jeff, it's Gene. I'll get started. So in terms of -- again, as I said in my prepared remarks, we had really good January and February, March decision slowed down. By and large, clients and prospects told us, we still want to buy from you, but we can't make a decision today. To your point, as a role to April, we're seeing many of those deals actually closed where clients delayed in March, but actually be came through and closed in April. Craig Safian: And then Jeff, on the mix between new logo and existing client growth, the what we saw through the first 2 months where we did see nice year-over-year growth that was broad-based across both new logo and with existing clients. And then with the challenging -- more challenging environment in March, it was also broad-based across new logo and existing clients. And so as we continue to see some of those things, as Gene just mentioned, come through, it's a mix of new logo growth and growth with existing accounts. Jeffrey Meuler: Got it. And then on -- good to hear overall engagement of both in person and digital. Just anything you can give us on the evolution of AskGartner, either usage statistics or any meaningful changes in, I guess, user experience, either from something new with the foundational models that underpin it or any adjustments that you've been making to it? Eugene Hall: Yes. So as Gartner is just one part of our value proposition. Obviously, there's a whole lot of other pieces of Gartner like people buy. We have a start and it's important we will make it competitive. The client usage continues to increase and the amount of repeat client usage continues to increase. And so we're seeing increasing engagement with AskGartner. We do a new release every 2 weeks. Clients -- we have a telesales you want a button on there and they do, plus we do market research. And every 2 weeks, we have new releases. As Craig and I mentioned in our remarks, we've added sort of support for 25 languages. You can now create PowerPoints directly from the from with AskGartner, and there's all series of other kinds of upgrades. And we're upgrading every 2 weeks, so it's too numerous to actually talk about over the course of the quarter. Craig Safian: Yes. And Jeff, it's a common -- those upgrades are a combination of feature enhancements and incremental proprietary data that the tool is going from as well. And so we are very quickly rolling out new features, as Gene mentioned, every 2 weeks, and we'll continue to do that as there's demand for it, as the models improve and as our clients give us feedback on what they want from the tool. Operator: Our next question is from Faiza Alwy with Deutsche Bank. Faiza Alwy: Yes. I wanted to follow up on the geopolitics comment. And I'm curious if you could give us some regional color. Did you see slowing sort of across the board? Or if there was any differentiation regionally? I'm assuming maybe you saw some slower decision-making outside the U.S., but just would love some additional color there. Eugene Hall: So there was a slowdown across the board by by industry. It was worse in some places than others. So if you could imagine, with airlines and transportation companies, it was worse in financial institutions, for example. And. It was worse in the country's directly impact such as the Gulf Cooperation Council countries than it was in places that were less impacted like in the U.S. Faiza Alwy: Okay. Understood. And then I'm curious if you're reevaluating any pricing strategies, maybe just thinking about the overall price point just as virtually every company is trying to figure out AI, but maybe they can't afford your services at -- or your subscription at the price point that it is. So just curious how you're thinking about any changes around pricing. Eugene Hall: We talk to our clients a lot about price and understand how they think about pricing, weather we're priced appropriately or not. And the feedback we get from our clients today is that their pricing is very appropriate where they expect. They're very comfortable with it. We have different price points. So if a client -- we have our community guide the products was the highest price than our guided products and our advisory products and our reference products. And when clients have price sensitivity, we give them an option they can go for a different level of service. So same content with a different level of service with those, and that's what clients choose to do. As we look within each of those groups, we feel like we're priced at property. Again, we talk we bench work with clients to see if that's the case. We also look when clients say I'm not going to buy a price is a major issue. And price is not the issue, it's potentially, if they're not going to buy, the CFO said, we have to cut all expenses 50%. And so whether we're at 4 points or 8 points higher isn't tissue at all, it's kind of a broader cost cutting that organization is going through. Craig Safian: And Faiza, it's important to remember who we're targeting and focusing on from a go-to-market perspective and a strategy perspective, which is really the top of the org chart and each of the functions that we serve. And so again, we are going in and targeting the CIO, the Chief Information Officer or the CFO or the Chief Supply Chain Officer, et cetera, and their teams. And so we're starting at the top of the pyramid where there tends to be much less price sensitivity around those things. And again, we have, as Gene articulated, an architecture where if there is price sensitivity, there are offerings that we can provide to the clients if they're not willing to sign up for a guided product. They'll go to adviser product. If they're not willing to go with the adviser product to go with the reference pros and so on. Eugene Hall: And the other thing to think about is that, it's a very small part of their budget. So even our smallest clients would have $100 million of revenue. And so individual executive likes to have a $10 million budget and their service card might be $100,000 out of that $10 million budget. So the -- whether it's $100,000 or $104,000 isn't big issue, it's about the value they had. Operator: Our next question comes from the line of Andrew Nicholas with William Blair. Andrew Nicholas: I wanted to ask on the U.S. federal government business, in particular. I think it was 250 basis point headwind in the quarter. Maybe a little bit more than I would have thought because I thought you had lapped most of that. Can you just level set for us where you sit in that kind of renewal cycle post kind of some of the government approach changes early last year? And maybe at what point would you expect that headwind to alleviate as we move through '26? Craig Safian: Andrew, it's Craig. On the U.S. Federal side, as we talked about through most of last year, the DOGE impacts, we really didn't start feeling them until March of last year. And so Jan and Feb were, let's just say, semi normal month from a selling environment perspective. And then when the DOGE activities kicked in, that was really March and April and then forward from there. And so I think as we roll into Q2, we really do start to then lap the significant challenges that we had there. From a U.S. federal CV perspective, we exited Q1 with about $114 million worth of U.S. federal CV spread across GTS and GBS, the bulk of that actually in GBS -- GTS, I'm sorry, the bulk of that in GTS, I should say. What we saw from a renewal rate perspective in the quarter was obviously a significant improvement on a year-over-year basis. we are renewing a lot of business. We are writing new business, but we really do start to lap the significant challenges starting in Q2 with the U.S. Fed clients. Andrew Nicholas: Perfect. Very helpful. And then for my follow-up, I just kind of want to go to the headcount growth. I think you had outlined low single-digit growth for GTS and in mid-singles for GBS as kind of your targets for this year. Is that still the case? And any color you could give us on the cadence of the slope of that ramp would be great. Craig Safian: Yes, Andrew. So the target still remain. You articulated them correctly. That is what we are gunning for over the course of the year. We typically do see a little bit of a step back in the numbers in Q1 just because we do a lot of our promotions in the first quarter from a frontline seller to manager. It does -- we try and get ahead of that from a hiring perspective, but it often does take a little bit of time to catch up on some of that hiring. As we noted, the hiring we're doing in 2026 is really about 2027 and 2028 and beyond. We've got ample capacity in 2026 to deliver on that CV acceleration that we've been talking about. The other note I'd mentioned is we are hiring more incremental new business developers than AEs. It's not one or the other, but we definitely have a bias towards hiring incremental BDs right now as opposed to hiring incremental account managers going forward. And that's baked into those year-end numbers you talked about, and that's all baked into our OpEx guide as well. Operator: Our next question comes from Jason Haas with Wells Fargo. Jason Haas: I'm curious for the ex federal government CV, did that accelerate from the 3.5% that you reported for 1Q in April? And how are you expecting that to trend through the year? Do you expect an acceleration in ex federal government CV growth? Craig Safian: Jason, it's Craig. So we're not giving any stats on April yet. We've barely closed the books on that. So I can't quite comment on that. I think the answer on the CV trend is we expect the whole CV base to accelerate over the course of 2026 and then continuing onward, which would be a combo of the U.S. Fed recovery and then also the non-U.S. Fed base accelerating as well. Jason Haas: Okay. Great. And then do your pre-existing long-term targets still hold? Or are those no longer in place? Craig Safian: That's a great question. So there's no change to the medium-term objectives. I would say those objectives really do apply to a normal operating environment, and you can still find those medium-term objectives in our Gartner 101 presentation, which is on the Investor Relations site. I do think as we think about where we are today, and both Gene and I articulated this, we expect in the current environment for our CV growth to accelerate. We're committed to driving compound annual growth at or above 12% to our EPS number. We continue to have a great and very large addressable market and a compelling client value proposition. Those 2 things are unchanged. We've rebaselined the EBITDA margin now based on our updated guidance of 24.1%, and we would expect our margins moving forward over the medium term to expand from there. And then obviously, with the great free cash flow engine that we have, we expect to generate a significant amount of free cash flow. As CV growth accelerates, we'll get more towards the higher end of our typical conversion levels of net income to free cash flow or EBITDA to the free cash flow. And obviously, we'll have all that free cash flow to put to use on behalf of our shareholders as well. Operator: Our next question, it comes from Surinder Thind with Jefferies. Surinder Thind: When looking ahead, when we think about the acceleration in CV growth, any color there where you can maybe disaggregate the drivers? Is the expectation maybe a bit more new business development? Or should we expect wallet retention to continue to improve and maybe a bit more upsell at existing clients? And then maybe I assume it's also underpinned by just normalized annual price increases that are normally embedded. Eugene Hall: The reason we're expecting CV to accelerate is, we're expecting -- so we're making a bunch of changes in visit we talked about. So Craig talked about how we're driving engagement, and we expect engagement to go up. And in fact, engagement has been rising just as Craig outlined. We expect that to continue because we've got a big focus on it. When we get more engagement, we expect that our retention will increase as well. And so our CV retention will increase with our increased engagement. In addition to that, we're making a bunch of changes in BTI and I articulated all the changes we're making. And we expect that's going to lead to more and better insights that again leads to even more engagement and also help support new business growth. And so as we look forward through the year, we expect that our new business growth and our retention both improving as we go through the year. Based on all the changes we're making and the leading indicators, which Craig and I talked about that indicates that these things are causing increased engagement with our clients, which ultimately should result in more more business, more retention and higher growth. Craig Safian: And Surinder, you should see that come through, obviously, in the CV growth rate but also in the lot retention number, which is the measure of net growth from clients that stay with us. And so the more that clients stay with us, the more new business opportunities we have with that. The more that they stay with us, the more opportunity we have to expand the relationship and so on and so on. So we would expect the CV acceleration to read through both, obviously, to the top line CV growth, but also on the [indiscernible] retention line as well as we will be selling more new business to existing clients over that time frame as well. Surinder Thind: Got it. And then just on the management of costs, can you maybe provide a bit more color there just relative to your expectations versus just kind of normally being conservative when you initially guide, just any update where maybe there's a bit more benefits from even if it's AI or just other things that are going on and the opportunity for any potential structural change in the outlook for margins at this point? Or is it just one small step forward each quarter at this point? Craig Safian: Yes, it's a great question, Surinder. So as we look at the OpEx number, I'd say a couple of things. So 1 is we're obviously very focused on making sure that we're delivering on our commitments from both EBITDA profitability perspective and a free cash flow perspective, and we are tuning our OpEx model as we go. The second thing I'd say is we're very focused on making sure that we keep our run rates aligned with our CV growth expectations, which are essentially what drive future revenue growth. And again, we want to make sure that we not only deliver strong earnings and free cash flow in current year, but that we're setting ourselves up to continue to do that into the future. Third thing I'd say is we are always focused on continuous innovation and continuous improvement and driving operational efficiencies through the business. we can leverage AI for some of that. We can leverage other technologies for other things. We can improve processes as well, and we will continue to do that. And then the fourth thing I'd say is we're doing all that while also making sure we're making investments that we believe will drive future medium- and long-term growth for us. And so under the covers, we'll be investing in places and we may be harvesting benefits and efficiencies in other places so that we can reinvest in the places that we know drive value. So we know we need analysts in our business and technology insights business. We're not going to stop investing there. We know adding QBH drives long-term growth we're going to be adding there. It may mean that we are driving significant operational efficiencies in other areas, and we'll continue to do that so that we free up the appropriate resources to invest in the things that we believe will drive long-term growth. Operator: Our next question comes from Josh Chan with UBS. Joshua Chan: I guess, as we think about sort of the selling environment on a year-over-year basis, it's obvious that in Q1 it was worse than last year. But as we go into Q2, you lap Liberation Day in the prior year, et cetera. How do you think about the year-over-year selling environment comparison as we kind of go through the rest of the year? Eugene Hall: So what I'd say, Josh, is it kind of depends on how the world evolves. As I sit here today, as I mentioned, a lot of the deals that clients in March said, let's wait and revisit this in a couple of weeks actually closed in April. In fact, one of the things that will an interesting is that a lot of these companies think airline shipping companies, other energy-intensive industries and geographies. And basically that normally a functional leader like a CIO, which have [indiscernible] decision, when times are tough, what will happen is I'll say we're going to escalate that maybe even the CEO depending on how have the decision with the company. And so we saw more of those kind of escalations. They got escalated, they said you the values there and then they closed. It just took longer to close. And so I think that what happens in the rest of the year is going to depend on kind of what the environment looks like. Craig Safian: The one thing I'd add, Josh, though, is we pride ourselves on adapting. And so yes, the environment is crazy and continues to remain a little bit chaotic, but we're making sure that our sales and our service people are armed with the right tools, contracts back up, et cetera, to be successful in any sort of environment. We'll see how the world evolves, but we're going to make sure that we keep -- we're going to make sure that sales and service from our perspective are armed to deliver value, highlight the value for prospects, continue to deliver the value for clients, et cetera, moving forward. Eugene Hall: Yes. To build on Craig's point, one of the things that I talked about both the last and on this call is we made more change in the last year than we've ever opened Gartner in terms of increasing value to clients. And those -- the [indiscernible] speed farm is going to be tough going forward. And we want to make sure we're resilient in that environment. And I think what we're seeing here is that selling cycles are longer, but they're still buying. And so that's kind of what we saw happen in March. So again, January and February, actually, we had great very robust new business growth that is Greg and I talked about. Decisions then took longer starting March. And so I think there are good signs overall for what the selling environment, but it's probably going to take longer decision cycles if the environment continues to have the uncertainty in does today. Joshua Chan: Sure. Sure. That makes a lot of sense. And I appreciate the color there. And then maybe on your EPS CAGR outlook, can you talk about the drivers behind that 12%? I mean, obviously, revenue growth, at least currently is not probably at that level, so you're going to need some margins or buybacks. Can you just talk about what contributes to that level of EPS growth? Craig Safian: Yes, Josh, happy to. So again, over a 3-year period, where our expectation is CV growth will reaccelerate, which will drive future revenue growth. As we noted earlier and have noted for a while, we're committed delivering strong margins and margin expansion over time as well. And then obviously, on top of that, we have significant capital to put to use on behalf of our shareholders. Over the last 12 months, I think we've bought back like $2.4 billion, $2.5 billion worth of stock, reducing the share count significantly. And obviously, our intention will be to continue to do that, and that's obviously, one of the bigger drivers to that EPS CAGR as well. Operator: Our next question comes from Toni Kaplan with Morgan Stanley. Toni Kaplan: Gene, just a strategic question. A number of the other info services firms have been starting to use large LLM providers as like an additional distribution channel. And I know your business is different being more weighted towards advisory, but you still have proprietary data that people want. And so I was wondering if -- is there a sort of broader data distribution that you would consider? Or do you think that, that dilutes your value proposition too much because, obviously, a lot of the value isn't talking to the research analysts and the network and everything like that? Eugene Hall: Yes. Toni, I think you're at the nail on the head, which is what clients rule out us for is for us to proactively go to them and say, given your mission-critical priorities, here's the things you should be worried about, things you may not have thought of, things that you might be surprised by. And so what they rely on us for is to be very proactive as opposed to wait and answer a question. So that's not our plan to work with us. That's not our value proposition. And then in addition to that, there's a big human component, and so we have our executive partners, which can function as advisers to our clients, with our analysts, which are world-class experts. And while they publish, obviously, a lot of content and insights, the kind of rule that we have, that's only like 5% of what they know that could be active and valuable. It's our -- when they do it an inquiry with our analysts, clients get access to that other 95% that actually isn't -- we have a vast content library, but again, that's only a portion of what our analysts actually know. And then we have our conferences that they go to which clients get to interact live, we have peer interactive. And so if you think about it, the -- that piece of it is just a small piece of our overall value proposition. And so we want to focus on what clients want from us the most value, which is a whole tell us what I'm not seeing, help you see around corners, tell how world is going to evolve so that I can be successful in this uncertain environment. And that doesn't really fit well with feeding into an LLM that is really answering questions, which is we have as Gartner. That's not the majority of what we do that's all my clients [indiscernible]. Toni Kaplan: Yes. That makes sense. I wanted to shift to consulting. I know both the labor-based and contract optimization was down a bit year-over-year, and contract optimization can be volatile and the comp was tough. But on the labor base, any -- do you just attribute the slowdown there to just normal macro slowdown? You mentioned a lot that March was slower, or do you think that there's something structurally worse going on right now given AI? Eugene Hall: Yes. Toni, I don't think if there's something structurally worse. And again, this is a different behavior than we saw in Q4. So it's not something that has been kind of a long-term thing. I think basically, it's what you said, which is the American environment changed a lot, and that affects both the -- it effective differently, both the labor part of the business as well as CFC -- FX CFC, because if a client was going to buy something, and they postpone that decision. We get paid when they buy something. And so with CFC, you had both a very tough comp, as Greg went through. In addition, if clients, and we saw this, say, "Hey, I was going to do that big software deal. I've decided to push the decision of for a month," that puts us getting paid off as well. Operator: Our next question comes from the line of George Tong with Goldman Sachs. Keen Fai Tong: I wanted to take a step back on CV performance. Can you provide more details on the reasons why CV growth is coming below historical levels in the high single, low double-digit range? Specifically, can you outline how much of the slower growth is due to tariff affected industries, government spending, the macro environment and other potential unnamed factors? Craig Safian: George. So I think; one, the first obvious headwind is the U.S. federal business, which we talked about in detail and is a 250-basis-point headwind in the quarter alone. That business, we believe, is rebaselined. Our current assumptions are for it to be flat in 2026 and grow from there going forward. And so that is a temporary headwind. Obviously, we've been dealing with it for since really March of last year, but that certainly remains the most dominant headwind that we have going forward, or that we have had that have impacted the results and should write itself going forward. In terms of the other areas, I think it's a combination of -- the macro has been really, really, really challenging over the last several quarters and whether it's the DOGE impacts that started in March of last year, josh referred to Liberation Day, which I remember was April 2 of last year to lots of other geopolitical challenges over the course of the year to where we sit today. I think the short answer is, we fully expect our CV growth rate to accelerate over the course of 2026. As I mentioned earlier, we expect it to increase across the board. So yes, we expect the U.S. Fed growth rate improve as we lap some of the more challenging areas, but we also expect the non-U.S. Fed business to accelerate. That includes tariff affected and nontariff affected, that includes software companies and IT services companies, et cetera. And so I think from where we sit today, we expect CD growth to reaccelerate over the course of 2026. And again, we believe the combination of that CV growth reacceleration, our operating expense management, our ability to invest in the right areas that drive and support future growth will allow us to drive significant free cash flow and earnings per share growing at a 12% compound a growth rate. Keen Fai Tong: Got it. That's helpful. And then following up on the CV growth expectations. So you noted acceleration over the course of the year. What are your CV growth expectations exiting the year? And do you expect the improvement to be relatively linear from 1Q? Craig Safian: So we don't guide to CV growth, George, and we're going to continue to not do that. What I can tell you is we expect to accelerate over the course of this year. I did note in my prepared remarks that Q1 happens to be a heavy renewal quarter and our smallest new business quarter. As we roll into Q2 and Q3, we see increasing levels of new business dollars, and we just have less CV that is up for renewal in those quarters. And so that certainly helps. CV though, is a rolling 4-quarter number. And so we expect to continue to see improvements across the year. And we don't believe that we're done at the end of this year. But right now, we're focused on making sure we're driving engagement, making sure we're delivering on all the transformations Gene outlined, and all those things should lead to CV growth accelerating over the course of this year. And again, that should benefit us as we roll forward in 2027 and beyond. Operator: Our next question is from Jeff Silber with BMO Capital Markets. Jeffrey Silber: You mentioned a couple of times your goal to have compounded adjusted EPS growth, I think, over -- at or above 12% over the next 3 years. What kind of headcount growth do you need to get there both from a sales force perspective and an analyst perspective? Craig Safian: Yes, Jeff. I mean, I think it's all baked into our ability to drive the margin to get the desired results that give us that 12% CAGR. Our operating model with QBH or sales headcount, is unchanged, so grow at roughly [ 300 ] bps slower than what we're growing or our expectation around CV growth. That framework still -- we're still operating with that framework going forward. And on the analyst side, it's really demand-driven. And because we've got such a good finger on the pulse of what our clients are most interested in, we're actually able to predict where that demand is and make sure that we've got the appropriate analyst levels and analyst count to handle that. And so it's not a specific number. And we'll do all that while also driving efficiency and improvement across the rest of the business. And so the combination of those three things is what gives us the [indiscernible] the operating result levers to get to that 12% EPS CAGR over time. Jeffrey Silber: Okay. That's great. And just to clarify something, the base here that you're talking about, is that 2025 or 2026? Craig Safian: That base year is 2025. It's a great question. Thanks for clarifying that, Jeff. Operator: And our next question is from Jasper Bibb with Truist Securities. Jasper Bibb: Again, I know you don't guide for CV, but I think you've mentioned on a couple of earlier questions that CV should reaccelerate those total and ex fed through the year and helpful context to around the seasonal payments of renewals and new business. I just wanted to clarify, like, do you think we see a reacceleration in the ex Fed CV growth number next quarter? Or maybe are we still a little bit further away from the acceleration in ex Fed CV? Craig Safian: Jasper, so all I'll tell you without getting into too many details is we expect the CV growth rate to accelerate over the course of the year. We're not going to get into the details of expectations by segment of business per quarter. We'll tell you all about that when we report our Q2 results. but the headline should be that we expect CV growth to accelerate. Jeffrey Silber: Got it. And then maybe following up on the early pricing question. I think there was some speculation intra-quarter if sales teams have made offers to sign on below the normal $50,000 ASP for new LUs, I guess can you just clear up kind of in response to that, like if there's anything that's changed on your approach to pricing or offering discounts? Craig Safian: Yes. So we do not offer discounts. Our pricing strategy and focus and mechanics are unchanged. We put through our normal annual price increase on November 1 of last year. That has been in place since then. And we are -- despite -- well, of course, you may be hearing, I could assure you we are not -- there's no change in our discounting posture or philosophy. Operator: And our next question comes from Scott Wurtzel with Wolfe Research. Scott Wurtzel: Just one for me. Just wondering if you can talk a little bit about just the puts and takes on client versus wallet retention in the quarter with client retention ticking down a little bit, but wallet retention ticking up. Just wondering if there was any incremental, I guess, price realization or upsells that drove that expanding wallet retention will client ticked down? Craig Safian: Yes. Scott, great question. I think it's largely a function of those are both rolling 4 quarter numbers. In the first quarter, as I noted earlier, it's our smallest new business dollar quarter, which implies it's our smallest new business enterprise quarter as well. And so we added new enterprises there. But as always, there is a lot of churn within our small tech clients. That's -- it's improved over the last couple of years, but that's still the most significant impact on that client retention number. And because those are typically lower spending clients, does not have as big of an impact on the wallet retention number. With wallet also, we are lapping some of the challenges from last year, but also we are holding on to more dollars than we have historical -- than we did last year as well. And so I think that's manifesting itself in that modest improvement in the wallet retention number as well. Operator: And our next question is from Ashish Sabadra with RBC Capital Markets. Ashish Sabadra: I just wanted to focus on the tech vendor conversation. I was wondering if you could provide any color on that front, how is that trending? And also, if you could talk about some of the challenges that software companies are facing, has that influence any of that conversation? Craig Safian: So on the tech vendor side, I think what we're seeing is consistent with what we saw in the last couple of quarters where our business with software companies and services companies is growing at high single-digit growth rate, and other elements of our tech vendor client universe are not performing as well, most notably, I'd say, hardware providers and telecom carriers, which we classify as part of that that tech community. But the bulk of our CV sits with software and services and the software and services business continues to grow at high single-digit growth rates. Ashish Sabadra: That's very helpful color. And then on the quota-bearing headcount, I just wanted to follow up on the prior comment around hiring more incremental new business developers than account managers. How should we think about the overall QDH growth going forward, but also how do we think about that mix shift going forward and influence on productivity. Craig Safian: Yes, it's a great question. So again, it's not binary 1 or the other. We're obviously -- as we are successful with our BD and they sell more new business, we do need to hire account managers to catch that business, retain it and going forward. But what we've been doing is driving productivity and efficiency out of our account management teams by adding incremental clients to their territories. And again, we've studied this really intently to make sure that we're not going too far on any of those, and we feel really good about the productivity gains we've driven there. And what that does is free up incremental for us to invest in business developers. And when you think about the size of the addressable market opportunity, the fact that there are roughly 140,000 enterprises that we think to be clients of Gartner, and we're currently doing business with 14,000 of them, the way we capture that market -- that incremental market is really through business developer investment. It's a slow shift in mix, though, because, yes, the bias is towards hiring incremental BDs, but it's not like a student body left or a student right. And so that mix will move moderately over time but we think it's the right combination of being able to manage, retain and grow the existing client base while having the right-sized engine to be the new logo addition and incremented growth going forward as well. So we think we've got the right mix there going forward, and we'll continue to update our investors and the investment community on that incremental investment and the mix of that investment going forward. Eugene Hall: The vast majority of our sales force today is account executives. They do a lot of new business growth as well, and we expect that to continue. And even given with our accounts executives under the covers, we changed territories all the time. So if there's less demand in the U.S. federal government, then what we'll do is reduce territories there and move those over to places where there's higher demand. And so there's more change when under the covers to actually improve productivity as well. Operator: And our last question comes from Wahid Amin with Bank of America. Wahid Amin: Just one for me. On an earlier remark, you talked about sometimes clients and budgets are tight, maybe the selling environment is much longer than expected. How would you classify the customers that want to keep a Gartner subscription, but may consider down selling or using a different user experience? Are you seeing a huge influx of that? Eugene Hall: It's a great question. So in all times, we have some clients that are upgrading some upgrading, there are some that are downgrading clients. Because while there's more concern today because of so much political things. Any time there's always clients, sometimes they are doing well and some that aren't. And so to your point, we often see clients that are doing really well, so they want to upgrade and get more value. They try it at lower price points and more value. Similarly, we often see clients say, "Hey, my CFO says cut half expenses, I won't keep Gartner, so let's go with the lower service level unless we still keep partner. Those things actually tend to balance out. And so we see about as many upgrades as downgrades, which is why we don't talk about it that much because it actually -- the 2 balance out almost exactly. Operator: Ladies and gentlemen, this will conclude the Q&A session. I will pass it back to Gene Hall for closing comments. Eugene Hall: Well, here's what I'd like to take away from today's discussion. Gartner has an unparalleled and enduring value proposition. We're the best, most trusted source for executives who want to succeed with their mission-critical priorities. We're transforming our business and technology insights organization processes to deliver even more client value. Clients engage ritually with our insights receive greater value and retain higher weights. Gartner is the best source for clients looking to achieve success upon their AI journeys. We are incredibly optimistic about our future. And looking ahead to the rest of the year, we expect contract value will accelerate. We will continue to grow our strong free cash flow that we can put to use to drive incremental shareholder value. And we expect to deliver adjusted EPS on a compound annual basis above 12% over the next 3 years. Thanks for joining us today, and I look forward to updating you again next quarter. Operator: And this concludes our conference. Thank you for participating, and you may now disconnect.
Jaime Marcos: Good morning, everyone, and thank you for joining us for our first quarter 2026 results presentation. First of all, I would like to confirm that earlier this morning, before the market opened, we published this presentation and the related financial information on the CNMV and our corporate website. Today, our Chief Financial Officer, Pablo, will be the one presenting the first quarter trends. The presentation will last approximately 20 minutes, and it will be followed by our usual Q&A session. Without further ado, I would now like to hand over to Pablo. Pablo Gonzalez Martin: Thank you very much, Jaime. I will start on Page 3, where we show the main highlights of the quarter. Starting with our business activity, I would like to highlight that business volumes have accelerated their growth rate to over 3% year-on-year. This progress has been supported by an almost 4% growth in customer funds and supported by an increase of almost 11% in off-balance sheet funds, mainly mutual funds, where we are showing a 17% year-on-year growth, maintaining a 9% market share in net inflows. This improvement is also supported by a 2.4% growth in total performing loans, which for the second consecutive quarter continued to accelerate their growth. Turning to profitability. Net income for the quarter amounted to EUR 161 million. Both net interest income and fees showed year-on-year growth, something that combined with lower provisions more than offset the mid-single-digit increase in total cost. The adjusted return on tangible equity remained at 12%, while the cost-to-income ratio stood at 46%. Asset quality remained strong. The net NPA ratio stood at just 0.7%. The NPL ratio continued its downward trend, reaching 2% and its coverage further improved to 80%, significantly above the 70% reached a year ago. The cost of risk also showed a positive trend, declining to 20 basis points, marking one of the lowest levels in recent years and below our initial guidance. Lastly, we remain focused on value creation. Our CET1 ratio stayed stable at 16% during the quarter as we are allocating capital for shareholder remuneration and lending growth. Two weeks ago, we paid the 2025 final dividend which, together with the interim dividend paid in September reached EUR 443 million. This represents a payout of 70%, resulting in 9% dividend yield. Looking ahead to 2026, we expect to further enhance shareholder remuneration up to 95% of net income, thanks to our relatively higher capital position and also to our robust organic capital generation. Overall, our tangible book value per share adjusted for dividends was 9% higher than the previous year. In summary, all trends remained solid throughout the first quarter of 2026, confirming the recent positive momentum. We recognize that uncertainty has increased in the past couple of months, and it may be too early to provide more specific effects. Nevertheless, based on the information available so far and despite market volatility and the possible direct and indirect effects of the current geopolitical risks, we reaffirm all targets and commitments outlined in our strategic plan. The beginning of 2026 has been better than initially expected, which is obviously great news given the uncertain environment we are facing. All in all, we confirm our initial guidelines for the year. I will continue with the commercial activity on Page 5. As you can see, total customer funds increased by 3.9% year-on-year. On-balance sheet funds grew by 1.6% or 2.4% when excluding the public sector. Off balance sheet funds rose by 10.6%, driven by a remarkable 16% growth in mutual funds. It is worth mentioning that mutual fund balances have grown from EUR 14 billion to nearly EUR 17 billion over the past 12 months. On the next page, you can see the details regarding our assets under management and insurance business. As highlighted in the previous slide, assets under management increased by 11% year-on-year with mutual funds showing particularly strong growth of 17% despite challenging environment this quarter. Net inflows reached EUR 468 million, representing a strong 9% market share. On the right hand side, we show the revenues from these 2 business segments, which have risen by 4% compared to the last year and now account for 19% of total revenues. Now on Page 7. As you can see, loan volumes continue to grow. Total performing loans increased by 0.8% quarter-on-quarter and 2.4% year-on-year, reflecting a positive performance across all segments. Private sector loans rose by 1% compared to the previous quarter while corporate loans posted an increase of over 3%. Lending to individuals maintained its gradual growth trajectory. Mortgage volumes remained stable during the quarter and on a year-on-year basis, whereas consumer loans continued to expand at high single-digit rates like in the previous quarters. Overall, first quarter evolution demonstrates slightly better trends than previous quarters, driven mainly by improvement in the mortgage and SME segments, both of which showed some growth this quarter, while maintaining positive dynamics in corporates and consumer. On Page 8, you will find details regarding the new loan production. During the first quarter of 2026, new lending to private sector increased by 10% compared to the previous year, reaching EUR 2.5 billion. As we have just seen, we are delivering growth in the loan book in all main segments. You can see consumer lending maintains very good momentum Mortgages are close to our natural market share level. And in business lending, lower volumes are explained by some large tickets last year, but we are delivering a strong portfolio growth here on much better portfolio and customer management. Turning to Slide 9. We would like to briefly present some evolution of digital sales and customer acquisition. In the top left, 65% of consumer loans were granted digitally, significantly higher than the 49% in the previous year. It is also worth noting that digital consumer loans amounted to EUR 160 million, representing an 82% increase compared to the first quarter of 2025. In mutual funds, the weight of digital sales grew from 25% to 36%, reaching EUR 230 million, which is nearly 50% higher than last year. Also, as shown in the bottom right of the slide, I would like to highlight that more than 1 million clients use their Bizum with us, which is the instant payment tool most used in Spain, something that is quite relevant for the transactional business as you can only have one Bizum account per fund number. Also, it is worth noting that in the first quarter of 2026, the acquisition of new salary accounts has doubled, explaining the quarterly increase in the cost of deposit as we will see later. The commercial campaigns include an upfront compensation for the client in exchange for their formal commitment to maintain their salary with us in the future. As you can see, a strategy that is working very well to further improve the transactional business with our clients, which is one of the main commercial focus of the bank. Moving now to Slide 10. We highlight our continued progress in our sustainability strategy. We keep financing the transition and actively pushing green bond issuance. During 2025, our green bonds enabled the avoidance of 142,000 tons of CO2. Our pool of eligible projects continue to grow together with our ESG business, both green and social. We are well on track on the decarbonization targets over the lending portfolio. Overall, the evolution we are seeing is very positive, and this is clearly reflected in our sustainability ratings that show a consistent positive trend. We now continue with the review of the P&L in the next section in Slide 12. Net interest income increased by 1.3% compared to the first quarter of 2025. On the quarter, it fell by 1.2%, primarily due to the lower day count. Total fees were 1% higher than in the previous quarter and 3% higher than last year. Overall, revenues reached EUR 520 million, 1% higher than the first quarter of 2025. Total costs grew by 1% on a quarterly basis and 4.5% compared to last year, in line with our mid-single-digit growth guidance. Loan loss charges decreased by over 20%, both quarter-on-quarter and year-on-year, confirming the positive asset quality trends. Other provisions were 9% lower than last year and also significantly lower than last quarter when we booked some restructuring charges. Profit before tax stood at EUR 232 million. After accounting for EUR 71 million in taxes, which includes EUR 6 million of the banking tax, net income reached EUR 161 million, representing a 1.4% increase over last year. Now let's review the income statement in more detail. Starting with the net interest margin on Page 13. As you can see, the customer spread remained stable compared to the previous quarter, reversing a negative trend that began in the first quarter of 2024. Loan yield increased by 2 basis points, the same as the cost of deposits, which, as I mentioned earlier, grew due to the impact of our successful salary account campaigns. Net interest margin fell to 1.69% due to the volume effect, driven by higher balances in repo market activity. However, if we exclude this effect, net interest margin stayed stable during the quarter. On the following page, we show the details of the quarterly evolution of net interest income, which decreased by 1% during the quarter but was 1% higher than the previous year. The lower day count of the quarter amounted to EUR 6 million, while NII decreased by almost EUR 5 million. So, without this effect, NII would have actually increased during the quarter. As you can see in the bridge, the increase in deposit cost, mainly driven by customer acquisition campaigns and the lower lending income, which is fully explained by the lower day count, were partially offset by liquidity, ALCO, and wholesale funding. Turning to fee income, the trend observed in recent quarters was confirmed, with a slight decrease in banking fees, which is more than offset by non-banking fees growth, mainly from mutual funds and insurance. Despite the negative mark-to-market at the end of the quarter, fees from mutual funds continued to improve, increasing 19% year-on-year and nearly 4% quarter-on-quarter. Fees related to assets under management and insurance further strengthened their contribution this quarter, accounting for 53% of total fees, up from 48% last year and 43% in the first quarter of 2024. In Slide 16, we show you the details of the rest of revenues, which also show a relatively stable trend in recent quarters, with a slightly lower trading income this quarter owing to market conditions, but nothing material. Regarding total costs, personnel expenses continue to grow due to salary increases agreed with unions and new hirings. Other administrative expenses also reflect some of the initiatives needed to implement our business plan, leaving total costs 5% above the previous year, in line with mid-single-digit growth guidance. On the right-hand side, you can see our cost-to-income ratio, which grew to 46%, mainly owing to these initiatives that we expect will positively impact the future revenues. Something that going forward will help reverse this trend. All in all, the ratio remains below our 50% target. On the next page, we continue with the cost of risk and other provisions, which, in my view, are one of the most positive news of the quarter. As you can see on the left-hand side the cost of risk was 20 basis points, which is the lowest since the merger with Liberbank and below our initial guidance of less than 30 basis points for the year. The remaining provisions, including legal ones, were also lower, leaving total provisions at EUR 43 million in the quarter, which is 19% below 2025. Provisions showed a very positive evolution at the start of the year, which is obviously great news and leaves us in a comfortable position for the rest of the year. Moving now to Page 19, the bank's return on tangible equity continues its upward trajectory, reaching 10% as of March 2026, or 12% when adjusted for excess capital. As we frequently highlight, we consider the return on CET1 to be a reliable benchmark for us, as it effectively isolates the relatively larger accounting equity required due to solvency deductions, mainly from deferred tax assets. In the first quarter of 2026, the return on CET1 adjusted for excess capital stood at 17%. Lastly, on the right-hand side, you'll find the tangible book value per share plus dividends which has grown by 9% over the past 12 months. Let's move now to the credit quality section on Page 21. As you can see on the slide, positive trends remain in place. NPLs are down 20% year-on-year, with a coverage growing to 80%. Overall NPAs are also down 26% year-on-year, with coverage also improving to 79%, a very positive evolution that leaves total net problematic exposure at only 0.7%. If we now move to solvency on Page 23, you have the quarterly bridge. CET1 was very stable in the first 3 months of the year. Quarterly capital generation, including a positive contribution from the stake in EDP, was mainly allocated to shareholder remuneration and lending growth, which are the 2 main users where we plan to go toward our comfortable solvency position, leaving the CET1 stable at 16% in March 2026. On the next page, you will find our MREL position. As shown, our MREL ratio stood at nearly 27% at the end of March, providing a substantial buffer above the key requirements listed on the right, including an MDA buffer that was higher than 680 basis points. In terms of liquidity, all ratios remain among the highest in the sector with the NSFR at 159% and the LCR at 292%. Finally, our loan-to-deposit was 69% in March, summarizing the excess of retail funding of the bank that, among others, explains the size of our structural ALCO portfolio that we show on the following page. The yield of the portfolio grew from 2.6% to 2.7%, a small improvement owing to the reinvestment and active management. Duration and size also represented a modest increase in the quarter. It is also worth noting that 81% is public debt and that 83% is included in the amortized cost portfolio. Finally, as shown on Page 27, despite geopolitical uncertainties, we reaffirm our guidance for the year. We expect net interest income to exceed 2025 figure, net fees to grow at low-single digit and total cost to increase by mid-single digit. Regarding cost of risk, our initial forecast was to finish the year below 30 basis points, which we also maintained despite the strong first quarter of 20 basis points. It is obviously better than expected at the start of the year, but given the current situation, we prefer to be prudent. In terms of business volumes, we remain well on track to achieve the target of 3% growth. Finally, we confirm our expectation that net income for 2026 will surpass the EUR 632 million from last year. This concludes my quarterly update that as demonstrated, shows a continued improvement in the bank's overall financial position with a stronger commercial performance, enhanced results, consistently high solvency and very positive outlooks for shareholder remuneration. Thank you very much. And I will now hand over to Jaime for the Q&A session. Jaime Marcos: Thank you very much, Pablo. We will now begin with the Q&A session. [Operator Instructions] Operator, please open the line for the first question. Good morning, everyone, and thank you for joining us for our first quarter 2026 results presentation. First of all, I would like to confirm that earlier this morning, before the market opened, we published this presentation and the related financial information on the CNMV and our corporate website. Pablo Gonzalez Martin: Thank you. Maks. Regarding the cost of risk, as you can imagine, we are in an uncertain environment and geopolitical risks are part of our analysis, and we have considered with our post-model adjustment some impact in the quarter. So, we are quite aware that the potential cost of risk for the quarter was quite good and even below our guidelines for the year, but we want to be prudent for the year and maintain the guidelines for the time being. Jaime Marcos: The other one, the second one was related to a potential exit scheme because another competitor has announced one. Just as a reminder, in the fourth quarter 2025, we booked some restructuring charges to implement a similar exit scheme, a voluntary exit scheme. In our case, that exit scheme, it is more focused on renewal of part of the staff rather than specific cost cutting. So that was announced in the fourth quarter. It was booked in the fourth quarter, and it will be implemented throughout 2025. Pablo Gonzalez Martin: Yes. And was within our guidelines for total cost was considered this scheme. Jaime Marcos: Thank you, Pablo. Please, operator, can we go to the next one? Operator: Next question from the line of Miruna Chirea from Jefferies. Miruna Chirea: I just had 2, please, on NII and then one on the salary account campaigns. So firstly, on NII, you are maintaining your full year '26 guidance of NII greater than '25. But if I'm just analyzing your Q1 NII point, I'm already getting to a number that is more than 1% above '25. And presumably, you're also looking at some volume growth and potential further margin expansion for '26. So, it seems that there is some upside to your guidance. If you could just walk us through your expectations for quarterly NII provision? And then on the salary account campaigns, we showed the increase in your cost of deposits for the quarter. Could you give us some color on how successful the campaigns were and then some details on the pricing? I hear your comments about the upfront cost, but is there also a promotional rate? And if so, for how long does it last? And what does the rate reset afterwards? And if you could share any thoughts on the outlook for the cost of deposits for the rest of this year? Thank you very much. Pablo Gonzalez Martin: I'll try to give you some information on the NII. We maintain the guidance. If you consider the improvement compared to one year, it's only 1.3%. So, this is quite in line with what we were expecting. So, we maintain the NII. I think for the coming quarters and the expectation on a quarterly basis of what we expect, I think the first thing to mention is interest rate volatility is paramount and will have an impact mainly on 2027 and 2028. In the short term, in the quarterly, the impact of any interest rate shock is always smaller. So, our expectation remains that the first quarter was going to be slightly below last year. But if we consider the day count, it could consider the fourth quarter the bottom of NII. From this onward, our expectation is a gradual improvement, slower in the second quarter and then taking and picking up and having some momentum from the second half of the year and especially in 2027. So, we maintain that expectation, and we will see how this evolves. And regarding the salary account. I think this has been quite successful, and this is one of the reasons that we have some pickup in cost of deposits, but it's with our strategy to improve the transactional business with our customers and improve the transactional business down the line. And the overall cost of risk this quarter has been quite stable regardless of this impact. And going forward, obviously, we have higher rates on market prices, we will have some impact down the line, but within the expected beta that we have at the moment, and consider that we have only 25% of remunerated deposits in our book. Jaime Marcos: Thank you, Pablo. Please, operator, can we move to the following question. Operator: Next question from the line of Cecilia Romero from Barclays. Cecilia Romero Reyes: I have two. The first one on NII sensitivity and 1 year have moved higher again. Over a 24-month repricing horizon, how much incremental support can NII realistically receive from higher rates, including out of reinvestment at higher yield relative to the assumptions you had at the end of last year? And in a scenario where sector loan growth is affected by the macro backdrop and lending slows, will a stronger deposit growth support NII? And the second one on provisions, if the macro environment were to become more uncertain, how would that typically feed through into your provisioning models and cost of risk? I think you have a high weight in your base case. Are you thinking of changing your weight for each scenario? And do you have any overlays? Pablo Gonzalez Martin: Thank you, Cecilia. Regarding the NII sensitivity, I think as I mentioned, for the first year, any interest rate shock has very little impact since we started at the end of 2023 to lock in the level of rates for the next 2 years -- 2, 3 years. So, for this first 12 months, the impact will be very small. From a more second year impact, we think we have an impact for 100 basis points parallel movement of around mid- to high-single digit impact in NII. And this obviously, as you can imagine, will depend a lot on how customer deposits cost evolve. So, it's always with the assumptions that everything, the beta is maintained as it is now, which is -- has been quite stable. So, there's no reason to think in a different way. But obviously, we consider in this analysis that we have some renewed ALCO portfolio reinvestment, and we have also some new lending at higher rates after the shock. So, this gives us with a positive evolution in the second half of this year, a small one and then picking up some momentum from '27 onwards. Overall, I think it's important to remember that we have quite a significant NII sensitivity in the medium term due to our liability and the deposit -- the transactional deposit base that we have. And regarding the volumes in the impact of NII, we have given a more stable and constant balance sheet impact rather than dynamic impact. So, we haven't considered in this sensitivity the impact on volumes. I think in the short-term the impact of reducing expected volumes, we were expecting to have around 3% growth in volumes more or less for the year. So, if maybe anything of this geopolitical risk has an impact of some reduction in lending. Maybe we have an increase in the saving rate that support the deposit side. So, I'm not convinced this is negative or neither positive. We have some NII coming from the lending. The good news is the front book is ahead of the back book, and the deposits are behaving as expected. So, we're comfortable with the guidance that we give for the year and expect to improve next year. And regarding provisioning and how we consider -- we have a prudent approach in our model. And just to give you some color, the model of our IFRS 9 macroeconomic variables that consider our base scenario, we were expecting only 1.9% GDP growth for the year. And the last number that we have for the first quarter is we have an annualized 2.7%. So, still room for some reduction in the year in the GDP numbers. We consider the situation to have some impact, but not a very significant impact and still maintain positive momentum in the Spanish economy. And regarding the post-model adjustment and the 1-year cost of risk, I think we already have some buffer on top of this provisioning within our IFRS model, which is we already considered last year, and we mentioned that we consider geopolitical risk as one of the potential impact that our model didn't consider. So, we already have some provision last year, and we slightly increased this quarter, again, our post-model adjustment. So, we are comfortable with our guidance of below 30 basis points for the year, even in some stress scenarios as we are witnessing today. Jaime Marcos: Thank you, Pablo. Please can we move to the following question please, operator. Operator: Next question from the line of Borja Ramirez from Citi. Borja Ramirez Segura: I have 2 questions, please. The first is on the payroll accounts, if you could kindly provide more details on the volume outstanding and the average cost? And also, if you could provide details on the ongoing system competition in Spain? And then my second question would be, I understand that you have some ALCO maturities that I think it was between 80 and 90 basis points, around EUR 2 billion maturing this year. If you could kindly reconfirm this number. And I think you also have NII benefit from the maturity of an expensive bond at the end of this year, if I remember well. So, there could be some NII uplift on that. If you can this as well, please? Pablo Gonzalez Martin: Thank you, Borja. Regarding the customer acquisition campaigns, I think just to give you some color, we have spent around EUR 6 million in this quarter on these campaigns, which represent the successful of the campaigns, which is more than EUR 4 million more than the previous quarter. So, this strategy is picking up, and we pay slightly less than EUR 500 upfront with compromise from the customer to be with us at least for 2 years. And so, the impact on the cost is within those EUR 500 that I mentioned. And the amount, we gathered more than 12,000 new salary accounts for the quarter. Regarding the ALCO portfolio maturity, as I mentioned last presentation, we have for this year, slightly above EUR 2 billion. We still have remaining EUR 1.7 billion for the year, and the average cost is very similar to the number for the whole year. So, it's around 0.8%. And this has been considered when we say that we expect to have a slightly higher NII for the year than compared to last year. So, we already took this in consideration. And as you can imagine, we are reinvesting this at a higher level. Jaime Marcos: Thank you very much, Pablo. Operator, please, we can move to the following question. Operator: Next question from the line of Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So, my first question would be on cost growth. Some of the wage negotiations are coming due next year, if I'm not mistaken. So how should we think about cost growth beyond 2026, more in '27, '28? And what cost pressures do you see kind of on the horizon? And then my second question would be, could you just remind us how much DTA benefits we should be expecting every year going forward? Pablo Gonzalez Martin: I think regarding cost growth, I think as you can imagine, it's a combination of different things. As we mentioned within our strategic plan, we have a strategy to diversify our revenue sources. So in order to grow in corporate lending and in consumer lending and import/export lending and private banking and so on, this requires some deployment of IT developments process and people and talent. And we have been hiring some talent. So, you have to consider this on top of the actual salary increase that we mentioned. So, we maintain and we are comfortable with the 5%. I think to talk down the line for '27, '28 is too premature, and we will give more details on the future position for the bank. And on top of this, we have this, as I said, on top of these new hirings, we have some schemes, as we mentioned, to reduce some of our workforce. So, what we are doing is not a cost-cutting measure, but to renew and to uplift the capabilities of our workforce. And regarding your second question, Jaime, can you comment? Jaime Marcos: Yes. On the DTAs, very straightforward. I think that you can expect a run rate between 20 to 25 basis points per year of solvency generated by lower deductions from DTA at current profitability levels. That will be probably the summary. So, we can move please operator to the next question. Operator: Next question from the line of Carlos Peixoto from CaixaBank BPI. Carlos Peixoto: The first one would just be a little bit of a follow-up on fee income. Basically, you're maintaining the low-single digit growth for the year. Do you see any tailwinds here or headwinds, sorry, actually from the market -- the recent market volatility or potential hampering of your assets under management business because of this? And then the second one would be on capital distribution plans. So, you have already upgraded payout to very high levels. But I was just wondering whether there are any additional plans to distribute or to accelerate the distribution of the existing excess capital? Pablo Gonzalez Martin: Thank you, Carlos. I think on fee income, as we said, we have managed quite well the headwind coming from market volatility. I think that the market is performing quite well considering the geopolitical risk environment. And I think there's still some momentum in the Spanish and our customer base to increase their investment compared to their saving. And so, we haven't changed our expectations on off-balance sheet growth and mutual funds. This obviously will depend on how market evolves. But so far, I think the drawdown that we saw in March is almost recovered now. So, we don't think the customer and the investor base will change their attitude unless we have a more significant impact on the market that we don't foresee in the short-term. And regarding capital distribution plans, I think we have a quite generous level of 95% shareholder remuneration of net income. And just to recall, we will have a presentation in the second quarter. We will have the update of our interim dividend of 70% in the first half of the year. Then in the third quarter result presentation, we will announce how is going to be delivered, the 25% additional remuneration that we plan. And in the final year presentation, we will have the final dividend. So, we don't think we need to accelerate anything regarding shareholder remuneration, and we stick to our strategic plan. Jaime Marcos: Thank you very much, Pablo. Can we please move to the following question, operator. Operator: Next question from the line of Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: About corporate lending, if you could elaborate a bit more on what has been the plan delivered in the quarter? And how should we expect growth in the future? Do you think that the strong quarter-on-quarter growth that you have delivered could be maintained or there was any specific one-off transaction that distorted the growth? And the second question is on capital linked to the previous question of Carlos. I wanted to understand whether you could use part of that capital for any inorganic growth and what will be the priorities and the capital hierarchy that you will be looking for in terms of businesses, whether you will prioritize fee-based business or whether you would like to, as the guy has been suggesting looking for diversification. Pablo Gonzalez Martin: I think I have got both of the questions, but thank you, Ignacio, for your question. I think regarding the corporate lending, although the quarter has been significantly good we think the year-on-year numbers are sustainable, and we will probably maintain this 6% growth for the coming quarters. I think you have to think that we have to catch up in terms of customer activity. We are deploying more resources for this business. And although the level is higher than the market growth, we have to do some catch-up in terms of market share in this business. And so, we still have plenty of opportunities to maintain the growth. Maybe not the growth on a quarterly basis, but the growth on an annual basis could be some guidance for how much we expect to grow in the high-single digit number, between mid- and high-single digit number for the coming quarters as well. And regarding the capital, on top of what I mentioned of shareholder remuneration, we also mentioned in our strategic plan that we will consider any bolt-on operation in M&A. And this will have a clear view on improving and accelerating our diversification of revenues that we were thinking. And as you can imagine, this diversification spans from fee business, but also in areas where we have a lower market share like consumer lending or other type of specialized lending that we have a smaller market share. So, we maintain that possibility. But I think to be clear, the whole idea of this bolt-on is not something that we need to do to deliver in our strategic plan targets. It's something that will help us to accelerate the process of diversification. But we will maintain hiring people and improving capabilities to do this diversification. Jaime Marcos: Thank you again, Pablo. Let's move to the following question, please. Operator: Next question comes from the line of Fernando Gil de Santivañes from Intesa Sanpaolo. Fernando Gil de Santivañes d´Ornellas: I hope you can hear me? Pablo Gonzalez Martin: Yes. Go ahead Fernando. Fernando Gil de Santivañes d´Ornellas: So I see headcount substantially up by 100 persons in the quarter. I just want to get a sense of how should we be thinking about headcount going into the year-end of 2026 and given that you [indiscernible] to be in Q4. Pablo Gonzalez Martin: I'm not sure I got your question properly, but I think you were looking at the headcount of employees and how this has evolved in the quarter, increasing slightly. You have to consider that we have 2 different forces. One is we are growing our capabilities in certain areas. In IT, in artificial intelligence deployment and some specialized areas like specialized lending and things like that. And on the other side, we have the redundancy, the voluntary redundancy plan. And in this quarter, we have the first impact, but we have not any impact from this plan. So, net-net, I think the headcount will be very similar, slightly up, but not very significant. So, we maintain our cost guidance of mid-single digit for the year, and this consider the employee and workforce. Jaime Marcos: Thank you very much, Pablo. Just to double check, I think that we don't have any more questions. But please, operator, can you confirm it? Operator: Yes. There are no other questions at this time. Jaime Marcos: All right. So, thank you very much, everyone. The IR team remains at your disposal. If you need further info, please do not hesitate to contact us. Thank you very much for your interest and your time. Pablo Gonzalez Martin: Thank you very much. Have a good day.
Operator: Greetings, and welcome to the AMD First Quarter 2026 Conference Call. [Operator Instructions] And please note that this conference is being recorded. I will now turn the conference over to Matt Ramsay, Vice President of Financial Strategy and IR. Thank you, Matt. You may begin. Matthew Ramsay: Thank you, and welcome to AMD's First Quarter 2026 Financial Results Conference Call. By now, you should have had the opportunity to review a copy of our earnings press release and the accompanying slides. If you have not had a chance to review these materials, they can be found on the Investor Relations page of amd.com. We will refer primarily to non-GAAP financial measures during today's call. The full non-GAAP to GAAP reconciliations are available in today's press release and slides posted on our website. Participants on today's conference call are Dr. Lisa Su, our Chair and CEO; and Jean Hu, Executive Vice President, CFO and Treasurer. This is a live call and will be replayed via webcast on our website. Before we begin the call, I would like to note that Jean Hu will present at the Bank of America Global TMT Conference on Tuesday, June 2 in San Francisco. Today's discussion contains forward-looking statements based on current beliefs, assumptions and expectations, speak only as of today and as such, involve risks and uncertainties that could cause actual results to differ materially from our current expectations. Please refer to our cautionary statement in our press release for more information on factors that could cause actual results to differ materially. With that, I will hand the call over to Lisa. Lisa Su: Thank you, Matt, and good afternoon to all those listening in today. We delivered an outstanding start to the year driven by accelerating demand for AI infrastructure across our portfolio. Growth was broad-based with every segment increasing year-over-year, led by 57% data center revenue growth. First quarter revenue increased 38% year-over-year to $10.3 billion, earnings grew more than 40%, and free cash flow more than tripled to a record $2.6 billion, driven by significantly higher sales of EPYC CPUs, Instinct GPUs and Ryzen processors. These results mark a clear inflection in our growth trajectory and a structural shift in our business. Data center is now the primary driver of our revenue and earnings growth. And as AI adoption scales, demand is increasing, not only for accelerators, but also for the high-performance CPUs that power and orchestrate those workloads. Turning to our segments. Data Center revenue increased 57% year-over-year to a record $5.8 billion, led by strong demand for our EPYC CPUs and Instinct GPUs. In Server, we delivered our fourth consecutive quarter of record server CPU revenue. Revenue increased more than 50% year-over-year with sales to both Cloud and Enterprise customers each growing more than 50%. Share gains accelerated year-over-year, reflecting the ramp of fifth-gen EPYC Turin CPUs and continued strength of fourth-gen EPYC processors across a wide range of workloads. In Cloud, AI was the primary driver of growth in the quarter as every major cloud provider expanded their EPYC footprint to support a broad range of AI workloads from general purpose compute and data processing to head nodes for accelerators and emerging Agentic applications. EPYC-powered cloud instances increased nearly 50% year-over-year to more than 1,600 with instances optimized for virtually every enterprise workload and expanded availability across the largest global cloud providers. In Enterprise, demand accelerated with record revenue and record sell-through in the quarter. We expanded our customer base with new wins across financial services, health care, industrial and digital infrastructure companies, while also building momentum with mid-market and SMB customers. We are well positioned to continue gaining share as more enterprises standardize on EPYC across on-prem and hybrid environments based on our leadership performance and TCO. Looking ahead, our sixth-gen EPYC Venice processor built on our Zen 6 architecture and 2-nanometer process technology is designed to extend our leadership across cloud, enterprise and AI workloads. The Venice family spans a broad set of CPUs optimized for throughput, performance per watt and performance per dollar, including Verano, our first EPYC CPU purpose built for AI infrastructure. Across the portfolio, Venice widens our competitive advantage, delivering substantially higher performance per socket and per watt versus competitive x86 offerings and more than 2x throughput per socket versus leading ARM-based AI solutions. Customer demand is very strong with more customers validating and ramping platforms at this stage than with any prior EPYC generation, and we remain on track to launch Venice later this year. Looking more broadly, we are seeing a meaningful acceleration in customer demand driven by the rapid scaling of AI workloads across both Cloud and Enterprise. Inferencing and Agentic AI are increasing the need for server CPU compute as these workloads require additional CPU processing for orchestration, data movement and parallel execution in addition to serving as the head nodes for GPUs and accelerators. As a result, we are seeing both stronger near-term demand and deeper engagement with customers on long-term capacity planning. At our Financial Analyst Day in November, we outlined the server CPU market growing at approximately 18% annually over the next 3 to 5 years. Based on the demand signals we are seeing today and the structural increase in CPU compute requirements driven by Agentic AI, we now expect the server CPU TAM to grow at greater than 35% annually, reaching over $120 billion by 2030. In response to this demand, we are working closely with our supply chain partners to meaningfully increase our wafer and back-end capacities to support this growth. As a result, we now expect server CPU revenue to grow by more than 70% year-over-year in the second quarter, with robust growth continuing through the second half of 2026 and into 2027 as we ramp our next-generation EPYC processors. Now turning to our Data Center AI business. Revenue grew by a significant double-digit percentage year-over-year as adoption of Instinct accelerates across cloud, enterprise, sovereign and supercomputing customers. We're seeing strong momentum as customers move from pilots to large-scale production deployments, particularly in inference where our leadership memory capacity and bandwidth are key advantages. This momentum is driving deeper, long-term customer engagements, including large-scale multi-generation deployments. A key example is our expanded strategic partnership with Meta to deploy up to 6 gigawatts of AMD Instinct GPUs spanning several product generations. Our agreement includes a custom GPU accelerator based on our MI450 architecture, co-designed to support Meta's next-generation AI workloads. Shipments are on track to begin in the second half of the year, leveraging our Helios rack-scale architecture, which integrates Instinct GPUs with EPYC Venice CPUs to deliver fully optimized high-performance AI infrastructure. Together with our previously announced OpenAI partnership, these engagements position AMD as a core partner to the world's largest AI infrastructure builders with deep co-engineering relationships and multiyear visibility into large-scale deployments. More broadly, Instinct adoption continues to expand across AI native and enterprise customers for both training and inference workloads. Existing partners are expanding Instinct across a broader set of workloads, while a growing number of new partners are deploying production AI workloads on Instinct, highlighting the maturity of our hardware and software stack. On the software front, we continue to make strong progress with ROCm, improving performance, scalability and enabling customers to reach production faster. In our latest MLPerf results, MI355X delivered strong competitive performance across the full suite with leadership results in multiple categories. We also expanded day 0 support for the leading open models, including the latest Google Gemma 4 family, Qwen, Kimi and others, enabling customers to deploy new models quickly with optimized performance. To build on this momentum, we have significantly accelerated our ROCm development cadence through increased software investments and agent-based coding workflows, enabling faster performance improvements and more rapid deployment of new capabilities. Looking ahead, customer pull for Helios is very strong, driven by our leadership performance, memory bandwidth and scale out capacity. Helios development is progressing well with strong execution across silicon software and systems as we advance through key milestones. We have begun sampling MI450 series GPUs to lead customers and remain on track to ramp Helios production shipments in the second half of the year. As we approach production, demand for MI450 series GPUs continues to strengthen, with lead customer forecasts now exceeding our initial plans and a growing number of new customers engaging on large-scale deployments, including additional multi-gigawatt opportunities. With this expanded visibility, we have strong and increasing confidence in our ability to deliver tens of billions of dollars in annual Data Center AI revenue in 2027 and to exceed our long-term growth target of greater than 80% in the coming years. I look forward to sharing more on our next-generation Instinct GPUs, EPYC processors, Helios rack-scale platform and our growing customer engagements at our Advancing AI event in July. Turning to Client and Gaming. Segment revenue increased 23% year-over-year to $3.6 billion. In client, revenue grew 26% year-over-year to $2.9 billion, led by strong sales of our latest Ryzen processors and continued share gains across consumer and commercial markets. In desktop, we strengthened our Ryzen lineup, including our latest X3D processors that deliver leadership performance across gaming, content creation and professional workloads. We also introduced the Ryzen AI 400 series and Ryzen AI Pro 400 series desktop CPUs, expanding our AI PC offerings across both consumer and commercial systems. In Mobile, we delivered strong growth driven by a richer product mix as Ryzen 400 mobile PC shipments ramped and commercial adoption increased. Commercial was a key highlight in the quarter with sell-through of Ryzen Pro PCs increasing more than 50% year-over-year as Dell, HP and Lenovo broadened their AMD offerings. We also closed new enterprise wins across large technology, financial services, health care and aerospace customers. Looking ahead, we expect demand for our Ryzen CPUs to remain solid in the second quarter. However, we are planning for second half PC shipments to be lower due to higher memory and component costs. Against this backdrop, we still expect our client revenue to grow year-over-year and outperform the market, driven by the strength of our Ryzen portfolio and expanding commercial adoption. In Gaming, revenue increased 11% year-over-year to $720 million. Semi-custom revenue declined year-over-year as expected at this stage of the console cycle, while engagements with customers on next-generation platforms remain strong. In graphics, revenue increased year-over-year led by demand for our latest generation Radeon 9000 series GPUs. We also strengthened our Radeon portfolio with updates to our FSR software that improved performance and digital quality across a broad set of gaming workloads. Similar to the PC market, we believe that second half demand in gaming will be impacted by higher memory and component costs, and we are planning the business accordingly. Turning to our Embedded segment. Revenue increased 6% year-over-year to $873 million, driven by strength in test, measurement and emulation, aerospace and defense and communications as well as increased adoption of our embedded x86 products. Design win momentum grew by a double-digit percentage year-over-year with billions of dollars in new wins across markets, reflecting the continued expansion of our Embedded business from a primarily FPGA-focused portfolio to a broader set of adaptive embedded x86 and semi-custom solutions significantly expanding our TAM. Our semi-custom engagements also expanded in the quarter as data center, communications and other embedded customers leverage our broad IP portfolio and high-performance expertise to build differentiated solutions. In summary, our first quarter results mark a clear step-up in our growth trajectory with accelerating momentum across the business. Our client business continues to outperform the market, driven by Ryzen adoption and share gains, while in Embedded design win momentum and demand are strengthening across our expanded adaptive and x86 portfolio. At the same time, our Data Center business is inflecting with strong demand for both EPYC and Instinct products significant growth. While we are still in the early stages of the AI infrastructure cycle, the pace and scale of deployments we are seeing today reinforce both the magnitude and durability of the opportunity ahead. As inferencing and Agentic AI deployment scale, they are fundamentally increasing compute requirements, driving both larger scale accelerator deployments and significantly more CPU compute. AMD is uniquely positioned to lead in this next phase of AI with leadership products across high-performance service CPUs and AI accelerators and the ability to optimize them together as fully-integrated rack-scale solution. We have a world-class supply chain and are making significant investments to expand capacity and execute at scale. With the momentum we are seeing across the business and the expanding market opportunity, we see a clear path to exceed our long-term financial targets, including delivering more than $20 in EPS over the strategic time frame. Now I will turn the call over to Jean to provide additional color on our first quarter results. Jean? Jean Hu: Thank you, Lisa, and good afternoon, everyone. I'll start with a review of our first quarter financial results and then provide our current outlook for the second quarter of fiscal 2026. We are pleased with our outstanding first quarter results delivering accelerated revenue growth and earnings expansion driven by strong execution and operating leverage. First quarter revenue was $10.3 billion, exceeding the high end of our guidance, growing 38% year-over-year, driven by strong growth in the Data Center and Client and Gaming segments and the return to growth in the Embedded segment. Revenue was flat sequentially with continued growth in the Data Center segment, offset by seasonality in the Client and the Gaming segment and the Embedded segment. Gross margin was 55%, up 170 basis points versus a year ago, driven by a favorable product mix, including a higher data center revenue contribution. Operating expenses were $3.1 billion, an increase of 42% year-over-year as we continue to invest in R&D to support our AI roadmap and the long-term growth opportunities and go-to-market activities. As the business scales, operating income grew faster than topline revenue. Operating income was $2.5 billion, representing a 25% operating margin. Taxes, interest and other result in a net expense of approximately $275 million. For the quarter, diluted earnings per share was $1.37, up 43% year-over-year, underscoring the significant operating leverage in our model as we scale. Now turning to our reportable segment starting with the data center segment. Revenue was a record $5.8 billion, up 57% year-over-year and 7% sequentially, driven by strong demand for EPYC processors and the continued ramp of Instinct GPUs. Data Center segment operating income was $1.6 billion or 28% of revenue compared to $932 million or 25% a year ago. Client and Gaming segment revenue was $3.6 billion, up 23% year-over-year. On a sequential basis, revenue was down 9%, consistent with seasonality. The client business revenue was $2.9 billion, up 26% year-over-year, driven by strong demand for our latest Ryzen processors, favorable product mix and continued share gains across consumer and commercial markets. Sequentially, client revenue was down 7% due to seasonality. The Gaming business revenue was $720 million, up 11% year-over-year, primarily driven by higher demand for Radeon GPUs, partially offset by lower semi customer (sic) [ custom ] revenue. Sequentially, gaming revenue was down 15%, consistent with our expectations. In addition, as Lisa mentioned earlier, we expect second half demand in gaming to be impacted by higher memory and component costs. We now expect second half gaming revenue to decline more than 20% compared to the first half. Client and Gaming segment operating income was $575 million or 16% of revenue compared to $496 million or 17% a year ago. Embedded segment revenue was $873 million, up 6% year-over-year as demand strengthened across several end markets. Sequentially, Embedded revenue was seasonally down 8%. Embedded segment operating income was $338 million or 39% of revenue compared to $328 million or 40% a year ago. Turning to the balance sheet and the cash flow. During the quarter, we generated $3 billion in cash from continuing operations and a record $2.6 billion in free cash flow or 25% of revenue, demonstrating the cash-generating power of our business model. Inventory was roughly flat at $8 billion. At the end of the quarter, cash, cash equivalents and short-term investment was $12.3 billion. In the quarter, we repurchased 1.1 million shares and returned $221 million to shareholders. We ended the quarter with $9.2 billion authorization remaining under our share repurchase program. Now turning to our second quarter 2026 outlook. We expect revenue to be approximately $11.2 billion, plus or minus $300 million. At the middle of our guidance, revenue is expected to be up 46% year-over-year driven by a very strong growth in our Data Center segment, growth in our Client and Gaming segment and a double-digit growth in our Embedded segment. Sequentially, we expect revenue to be up approximately 9% driven by double-digit growth in both our Data Center and the Embedded segments and modest growth in our Client and Gaming segment. In addition, we expect second quarter non-GAAP gross margin to be approximately 56%, non-GAAP operating expenses to be approximately $3.3 billion, non-GAAP other income and expense to be a gain of approximately $60 million. Non-GAAP effective tax rate to be 13%, and the diluted share count is expected to be approximately 1.66 billion shares. In closing, the first quarter of 2026 was an outstanding quarter for AMD, reflecting strong momentum across the business with accelerated revenue and earnings expansion. We are very well positioned to build on the momentum as we scale our Data Center business, expand margins, drive continued earnings growth and the long-term shareholder value creation. With that, I'll turn it back to Matt for the Q&A session. Matthew Ramsay: Thank you, Jean. Operator, we're ready to start the Q&A session now. [Operator Instructions] Operator: [Operator Instructions] The first question comes from the line of Joshua Buchalter with TD Cowen. Joshua Buchalter: Congrats on the results. Actually, I'm going to start with CPUs, which hasn't happened in a bit. It hasn't been that long since you announced the $60 billion server CPU TAM for 2030 at the Analyst Day, and it's very quickly doubled. Agentic AI has obviously gotten a lot of attention in recent months, but it would be helpful to hear your thoughts on how this TAM is inflecting and changing so meaningfully in such a short amount of time. And maybe you could also speak to your confidence in hitting that greater than 50% share target from the Analyst Day as your x86 competitor seems to be improving its supply and also there seems to be more momentum on the merchant and custom ARM CPU side. Lisa Su: Yes. Sure, Josh. Thanks for the question. So first of all, back to the -- when we think about CPU TAM, I mean we've always said that CPUs are very critical part of data center infrastructure, and that's been where we've invested. And we saw the first signs of, let's call it, AI demand really pulling CPU demand last year, and that was the reason we updated the TAM to, let's call it, the 18% CAGR or approximately $60 billion. And what we've seen is all of the things that we believed in terms of Agentic AI and inferencing and all the CPU compute that is required, is just happening, and it's happening at a much faster pace. So over the last, let's call it, the last few months, as we've talked to our customers and we've seen how AI adoption is really unfolding, we're seeing significant more CPU demand from really every major cloud provider as well as enterprise customers. And the way that comes across is as AI adoption scales, you need more inferencing. As inferencing scales and you do more -- you have more agents and Agentic AI, they all require CPUs for all of the orchestration and the data processing and these other tasks. So with that, we've looked at it both bottoms up in terms of talking to customers and having them give us longer-term forecasts as well as just doing some clear workload analysis. And yes, I mean, it's a very exciting TAM. I think it's exciting to see CPUs growing greater than 35% to over $120 billion. And then when you think about AMD in the context of that, I mean, CPUs are critical for so many tasks that you are seeing a lot more discussion about CPUs in the market. But we actually view it in 3 categories, right? There's general purpose compute. There's the head nodes that really support the AI accelerators. And then there are CPUs just for all of the Agentic AI work. And to do all of this, our belief is you need a broad portfolio of CPUs, and that's really what we have been focused on is building not just one type, but really broader in terms of throughput optimized, power optimized, cost optimized, AI infrastructure optimized as we've done in the Venice family. So when you put all that together, we're very excited about the larger TAM, and we're also very happy with the traction that we're getting. We're clearly feeling like we're seeing significant share gain as we're going into our Turin portfolio that has ramped very nicely. Venice is extremely well positioned, and we're working with customers right now on -- beyond Venice and what we're doing in those architectures. So we feel really good about the market as well as our opportunity to grow to greater than 50% share of that market. Joshua Buchalter: I wanted to ask about the Instinct side. So in the press release, you mentioned that MI450 and Helios engagements are strengthening with customer forecast exceeding the expectations and the pipeline growing. You certainly have the big public OpenAI and Meta deals. Was this comment referring to those engagements upsizing versus the announced initial deployments? Or was it other customers and maybe the increase on the MI450 timeline? Or is it MI500 and beyond? Lisa Su: Sure, Josh. So we are very excited about MI450 and Helios. We're seeing significant customer interest in those products as well. So we have certainly talked about our large partnerships with OpenAI and Meta, and those are going really well. We appreciate the deep co-engineering that is going on there. When we look at the totality of, let's call it, based on our current visibility, how those forecasts are coming in with all of our customers, we're actually seeing it above our initial plans that we had planned for 2027. And I think the encouraging thing is we're seeing a breadth of customers who are now very interested in deploying at significant scale MI450 series. And those are for both training and inference workloads, although the largest deployments are for inference. And based on all of that and the scale of new customer interest, we see a path to really get to exceed our original targets of greater than 80% CAGR. And these are really 2027 time frame. Obviously, when we talk to customers, we're talking to them about MI355. There's a lot of good traction we're seeing there. MI450 and Helios, I think for significant large-scale deployments, and then many customers are also very engaged with us on the MI500 series and all of the opportunities there. So we feel like very, very good progress. And the key is that we're continuing to broaden and widen the scope of both customers as well as workloads. Operator: And the next question comes from the line of Thomas O'Malley with Barclays. Thomas O'Malley: Lisa, if I get your numbers correct here in the March quarter, it sounds like the server processor side of the CPU side grew over 50%. If you take it just at the word, it looks like maybe the data center GPU side actually grew in Q1. So I was curious around the cadence of this year kind of previously, you had talked about really a back half weighted and then kind of more so Q4 weighted year. Could you talk about if that's changed at all? And then the second part of the question is, as you go into 2027, clearly, you're pointing out a lot of upside from the larger customers and then kind of the ecosystem around them with new customers as well. But when you look at supply, that's a major issue in the ecosystem today, could you talk about where you're concerned on supply, if you are? And then any gating factors as you look into next year, whether that be power, data center build-outs, et cetera? Or do you feel really good about the ability to grow? Lisa Su: Yes. Okay. A lot of pieces of that question, Tom. So let me try to get through it. So first of all, on the Data Center segment in Q1, the Server business was greater than 50% year-over-year as we said in the prepared remarks. The Data Center AI was actually down modestly because of the China transition. We had more China revenue -- I'm sorry, sequentially more China revenue in Q4, and it was less in Q1. But as we go forward, I think we see strong growth in both segments. So we guided data center Q2, up sequentially double digits, and that's double digits in both Server as well as Data Center AI. And progression as we go forward. So first, on the server CPU side, we talked about growing to over 70% year-over-year in Q2, and that continuing into the second half of the year. And on the Data Center AI side, we will be ramping Helios in the second half of the year, so let's call it, starting with initial volume in Q3 with a significant ramp in Q4 and then continuing to ramp in Q1. So that's kind of a little bit of progression. And then to your questions about customers and supply, I think I answered, Josh, the customer question. I think we have very good visibility now into the deployments that are on track for 2027. And when I say good visibility, it's visibility down to which data centers are the GPU is going to be installed in. And so that's necessary just given all of the constraints out there. We feel that there is tightness in the supply chain, there's certainly tightness in sort of data center build-outs, but we are confident in our ability to supply to the levels of growth that we're talking about and to exceed the levels of growth that we're talking about. And we're also working very closely with our customers and our partners to ensure that we have good visibility to Data Center power. And there is much more power that's coming online in 2027. And so with all those things in mind, I think, again, lots of things to manage. It's a complex ramp, but we're very pleased with the progress on the ramp. Matthew Ramsay: All right, Tom, I think you shotgun approached the multiple questions there. So operator, maybe we can go on to the next caller, please. Thank you. Operator: The next question comes from the line of Ross Seymore with Deutsche Bank. Ross Seymore: The first one is just on the EPYC competition. Lisa, you went through some of the statistics of you versus x86 and you versus ARM, but I wanted to dive a little bit deeper into that. How do you see AMD truly differentiating, especially when you're signing -- well, you see some of your competition signing up the same customers from the ARM side and the x86 competition having more supply. So I just wanted to see if you could dig a little bit deeper into how you think the market share is going to trend over time? Lisa Su: Ross, look, we're very engaged with every major hyperscaler and in terms of understanding their needs on the CPU side. I think we have very much wanted to, let's call it, optimize our CPU roadmap for the various workloads. I think we were early to call this AI component of CPUs. And so we've been actually optimizing very closely with those customers. The way to think about this, Ross, is that you're going to need a broad portfolio of CPUs, like not all CPUs are the same. Frankly, you're going to need different CPUs for whether you're talking about general purpose operations or you're talking about head nodes or you're talking about Agentic AI tasks, they're going to be optimized differently. And we thought through that, and we are absolutely optimizing across the various workloads. So from a competitive standpoint, we feel very good about where things are. And from a deep relationship with the customer set, I think we feel very good about that. So from our current standpoint, I think the depth of our roadmap just expands as we go forward. And you shouldn't think about it as people are going to do one or the other. I think you're going to see people actually use x86 and ARM for many of the large hyperscalers. And even for those who are developing their own, they're still buying lots of CPUs in the merchant market for the reason that I just stated, which is unique different CPUs for the different types of workloads, and there's very high demand at the moment. Ross Seymore: I guess for my follow-up, maybe more for Jean on the gross margin side of things. It's nice to see the gross margin popping up in the second quarter guide. But I just wanted to get some trends longer term, maybe not specific numbers, but how should we think about when Helios and the Instinct side really ramps in the fourth quarter and more so next year. I could see some offsets with that carrying a below corporate average gross margin, but then everything that Lisa talked about with the EPYC side of things being significantly stronger might be more of an offset than it was in the past. So just walk us through the puts and takes of that and maybe directionally where you think gross margin goes over the next year or 2? Jean Hu: Yes, Ross, thanks for the question. We are very pleased with how our gross margin is trending. It came in really strong in Q1. And also, as you mentioned, we guided Q2 higher at 56%. I think as we think about the second half quarter-over-quarter, as you know, there are some puts and takes, right? I would just say, from a tailwind perspective, we actually have multiple tailwinds really are going to help our gross margin. First is the server CPU. Lisa talked about the server CPU expected to grow more than 70% in Q2 and continue to be really strong in second half. That really helps our gross margin. Secondly, in the second half for Gaming actually is going to come down, and our Client business actually continued to go up the stack. So from a Client and Gaming segment, the gross margin actually is going to be also very helpful. Embedded actually is very accretive to our gross margin. Its momentum actually is continuing in the second half. So we are really pleased with all the tailwinds we have. On the other side, MI450 will start to ramp in Q3 and then ramp significantly in Q4. That is below corporate average. So that will have different puts and takes in Q4 in the gross margin side. But when we sit here, when we look at all the positive trends we have to really offset some of the gross margin dilution from MI450 side, we actually feel really good about the setup of the gross margin for 2026. And into next year, I think some of the tailwinds I talked about that will actually continue. That's why we feel confident about continue to drive the gross margin. We actually, during our financial Analyst Day, we outlined the long-term gross margin in the range of 55% to 58%. We think for the first year, we are making good progress there. Operator: And the next question comes from the line of Timothy Arcuri with UBS. Timothy Arcuri: I wanted to ask about units versus ASP for server CPU. If I look at the June guidance, it sort of implies up 25% to 30% for server CPU. And Lisa, you had mentioned second half of the year. It sort of implies that server CPU could grow like 70%, maybe a little more this year. And so I guess my question is, how much of that growth either in June or for the year, is like units versus pricing? Is the -- are these price increases sort of mostly captured in June? Or is that also helping in the back half of the year? Lisa Su: Yes. Tim, the way I would say it is, maybe let me bring you back to Q1 for a moment. So if you look at our significant growth in the server business, it was actually -- although we were up on a year-over-year basis for both ASPs and units, it was actually much more unit driven. So we are shipping more CPUs across not just the high-end Turin family, but we're actually shipping a lot of Genoa sort of the Zen 4 family as well. As we go forward for Q2 and into the second half, we are guiding for a significant amount of growth. I think there's a little bit of ASP in there, but the way we're thinking about pricing, to be fair, is we are in a range where the supply chain is tight. And so there are some inflationary pressures. Costs have gone up a bit, and we are sharing some of that with our customers. But we are also being very thoughtful in -- look, this is -- we're playing out for the long term, and that means that we are -- our goal is to ship more units and a lot more units. And so from that standpoint, you should imagine that the majority of the growth is unit driven, and the ASPs are just really to help cover some of the inflationary pressures. Jean Hu: And just to add to what Lisa said, our ASP is increasing because of the mix where actually each new generation, the core counts, those are increasing, that actually drives the ASP up. Timothy Arcuri: And then I guess, Lisa also, so there's a lot of new architectures that are being used from multi-tenancy all the way to low latency. And your competitor has talked about the low latency part of the market being 20% plus and they, of course, added to their portfolio there. Can you talk about how you see that part of the market? I mean, obviously, you have enough business now you don't need to worry about that probably for now. But can you talk about that? Lisa Su: Yes, sure. So look, I think what we're seeing is what we expected in the sense that as you go -- as the AI adoption continues and the volumes continue to go up and the overall market goes up, you are going to see, let's call it, different compute architecture is being used because you want to get more cost optimization from that. So we expect that even in that situation, obviously, the vast majority of the TAM is still going to be, let's call it, data center GPUs as the primary accelerator. But you may choose to do optimization around inference, around low latency, around certain parts of the stack, whether it's decode versus prefill, I think that's very natural. The way we look at it is we're developing a full compute portfolio. So that's CPUs, that's GPUs, that's the ability to connect to all accelerators as well as the ability to do customization for certain customers, and we've also talked about our semi-custom capabilities. And with all of those sort of compute capabilities in our tool chest, I think we will be able to address, very effectively, a large portion of this market, including the low latency portion of the market. So from our standpoint, this is kind of a natural evolution. Now how fast it goes depends a bit on the technology in terms of what share of the TAM these things become, but we should expect that there will be different variants, and we're well prepared to address those different variants. Operator: And the next question comes from the line of Vivek Arya with Bank of America. Vivek Arya: Lisa, do you think Agentic CPU growth is incremental? Or is it coming at the expense of GPUs conceptually? So if you're raising server CPU TAM, are you also implicitly kind of raising AI TAM? So just I'm interested in your perspective on what did you think server CPU was as a percentage of AI TAM before? And what is it now with this $120 billion number? Lisa Su: Sure, Vivek. So the way we're thinking about is it's largely additive to the TAM. So you should think about we need all of the accelerators to run these foundational models, and then as these agents do work, they spawn more CPU tasks. So I would say largely incremental. The key is to make sure -- what we're seeing is in these deployments, the key is to make sure the ratio of CPUs to GPUs are the right ratio. So if you're installing a gigawatt of compute, the ratio -- there's a percentage of CPU as part of that gigawatt will increase. Some of the conversation in the industry has been about CPU to GPU ratios. And it's very hard to call exactly, but we certainly see the movement towards where in the past, the CPU to GPU ratio was primarily just as a host node in like a 1:4 or 1:8 configuration node, now changing and getting closer to a 1:1 configuration or even -- you can even imagine if you get lots and lots of agents that you could have more CPUs and GPUs. So -- but all in all, to answer your question, I think it's largely additive to the TAM. And the key is that everyone is now planning and thinking about CPUs at the same time that they're thinking about their accelerator deployments, which is a good thing. Vivek Arya: All right. And from my follow-up, Lisa, we continue to see memory prices go up. I imagine that is both kind of a cost inflation for you but perhaps an opportunity to take price as well. I'm curious, how is that dynamic playing out for AMD? And especially for your customers because a greater part of their CapEx increase is really kind of this memory inflation tax, right, that they have to pay. So how is this dynamic playing out for you and for your customers? And the part that I'm really interested in is that have you secured enough supply versus your other larger competitor who has disclosed a lot of prepayments and other things? So just how is this memory inflation dynamic playing out? And are you kind of adequately supplied from that perspective? Lisa Su: Sure. So Vivek, let me answer the second one first. I think from a supply standpoint, we are very happy with our partnerships with the memory vendors, and we have secured enough supply to certainly meet and exceed our targets. So it is a tight memory environment. Let me be clear. But I think we are very deep partnerships with the memory providers. And then back to your comments on the inflationary pressures. I mean, look, this is something that everyone in the industry is working with in the time of tight supply, we are seeing some cost increases on the memory side. I think we are all working through that. The way we're seeing it unfold in the market is actually on the Data Center side, because of the, let's call it, the demand for AI compute, I mean people are largely focused on supply and ensuring that the supply assurance is there. The corollary of that, the larger impact that we're watching is the impact on the consumer markets. And as we said in the prepared remarks, we are expecting that there could be some demand -- sort of the demand impact as a result of the memory price increases on things like the PC business in the second half of the year as well as the Gaming business. So we're taking that into account in our overall model. And we continue to work closely with the memory providers as well as our customers to ensure that every time we ship a CPU or GPU, then it's paired with the memory on the other side so that we don't have compute that is not being deployed. Operator: And the next question comes from the line of Aaron Rakers with Wells Fargo. Aaron Rakers: Congrats on the results. I want to stick on the topic of CPU to GPU. And as we think about the chart that you had outlined at the Analyst Day, there was obviously broken out between traditional CPUs and then the AI bucket on top of that. Obviously, I think the new forecast has a lot to do with the AI CPU expansion. I'm just curious, when you're doing a CPU in an AI workload, is there structurally a different level of ASP tied to that kind of CPU optimized for AI relative to a general purpose server CPU? Any kind of color or help on that would be useful. Lisa Su: Sure, Aaron. So let me start with the broader question. The broader question regarding -- the way we think about the CPU TAM is, again, think about it as 3 categories. So there is a traditional CPUs, let's call it, general purpose CPU TAM that is increasing, but let's call it, increasing at low rate, maybe, let's call it, low double digits, then you have your AI head node, which is connecting to accelerators, which is also growing, but it's smaller. And then the largest piece of the growth is this Agentic AI piece, which we think is really stemming from all of the Agentic processes. I don't have a number that I can tell you in terms of relative ASPs because it really depends on the workload that is being run. And what we see going forward is as core counts increase, obviously, we will see ASP increase. And that's the direction that we're going in as we go forward. But the main point is -- the largest portion of this is the Agentic AI, the CPUs that are serving these Agentic AI workloads in terms of the TAM increase. Aaron Rakers: And as a quick follow up, I'm curious, how do you characterize the competitive landscape as we see some of the ARM introductions in the market. Just curious of your views on the competitive landscape and server CPU. Lisa Su: Yes. Aaron, the best way to think about the server CPU landscape is, again, number one, everyone is talking about CPUs. So that tells you how critical they are for the AI infrastructure. And I think that's a good thing. We feel like we're very well positioned. No question, ARM is good architecture. It has a place in the Data Center market. We view it as more point products relative to a portfolio, where, from an AMD standpoint, we've built this broad portfolio of CPUs, going forward, what you're going to need for all of these different workloads. And we have, in the Venice time frame, added an AI-optimized CPU with the Verano in addition to our throughput optimized and sort of cost optimized point. So from that standpoint, I think we're very competitive. We're continuing to innovate on architecture. We're continuing to innovate on both advanced packaging as well as all of the architectural pieces. So we feel very well positioned going forward. And the key is the TAM is much, much larger than anybody thought. And so there's a lot of opportunity for different products to be successful in this area. Operator: And the next question comes from the line of C.J. Muse with Cantor Fitzgerald. Christopher Muse: I guess first question, I was hoping to speak a bit more about client for all of calendar '26. You talked about growth -- expected growth, but would love to hear your thoughts around seasonality in the second half. And I'm assuming that you are repurposing certain logic tiles from clients over to the Data Center and would love to kind of better understand what the implications are for ASPs on the client side looking into the second half. Lisa Su: Sure. So C.J. I think the client business has performed really well for us. I think if we look at Q1, it actually was a little bit stronger than what we expected. We are seeing some mix shift in the client business. The mix that we're seeing is the M&C or the Notebook business is actually growing, especially the premium portion. We're making very good progress in the commercial PC arena with our AI PCs. We did see desktops a little bit softer just given desktop is a more consumer-focused market. And so in that market, it's more impacted by some of the memory pricing and the component price increases. When we look at the full year, our commentary is we are planning for some demand impact in the second half due to the memory pricing. But even in that environment, what we're focused on is ensuring that we continue to make good progress on the Commercial business and continuing to focus on the premium segments of the market. So we believe that we will continue to grow on a year-over-year basis for the Client business compared to last year. And as it relates to ASPs, again, it's a little bit of puts and takes between Notebook and Desktop. But overall, I think we're feeling good about our opportunity to outperform the market and clients going forward. Does that answer? Christopher Muse: That was perfect. And then I guess a question on Instinct gross margins. With compute essentially sold out and obviously, you're building a business, so one has to be, I guess, conservative on that front. But I would think outside of kind of passing through HBM that given the very tight wafer environment that this would be a place where you could look to drive your Instinct margins closer to your corporate average? How are you thinking about that either today or in the coming 1, 2, 3 years? Jean Hu: C.J. at this stage, we really focus on driving the topline revenue growth on our Instinct family of product. I think on the gross margin side, you're absolutely right, it's really -- the demand for compute is tremendous. We actually are very strategic in how we think about the -- how we work with the customers. And of course, the different customers also have a different gross margin. I think, over time, once we start to ramp our revenue, we'll have a lot of opportunities to improve gross margin, both on the ASP side, but also, more importantly, on the cost side when we scale our business. Operator: And the next question comes from the line of Stacy Rasgon with Bernstein Research. Stacy Rasgon: For the first one, I just wanted to make sure I have the near-term AI GPU trajectory correct. So I know you said it was down sequentially in Q1 because of China. You had like $390 million of China revenue in Q4. So the AI business in Q1 actually grow sequentially ex China because it doesn't feel like it, given the server outlook? And then I look at what's maybe suggested for Q2, are you thinking GPUs and servers kind of grow similar rate sequentially because it would probably put GPUs in Q2 below the overall revenue in Q4, which seems low to me. I'm just trying to tie all that out. Could you help me with that, please? Jean Hu: Yes. So I think, Stacy, I appreciate the question. I think if you look at Q1, we did mention Data Center AI was down modest pace sequentially, primarily due to lower China revenue in the quarter. I think on your second question regarding Q2, you're right, both Data Center AI and the server will grow double digit in Q2. Stacy Rasgon: Yes. But you didn't answer my question. In Q1, did it grow sequentially ex the China step down, I guess, is what I'm asking. Jean Hu: The China, for our business, in Q1, it's not material. So I think I will repeat what I just said. Yes, the revenue -- the China revenue in Q1 is not material. Stacy Rasgon: Okay. Okay. So you don't want to -- okay. Second question, OpEx [indiscernible] for spending -- but it sort of continues to blow past the targets. You kind of give an OpEx guide and then it blows through it and then you guide higher. So again, I'm not bothered by this. I'm just wondering why is the OpEx been so hard to forecast? And how should we be thinking about OpEx through the rest of the year given the revenue growth? Jean Hu: Yes. Thanks, Stacy, for that question. I think the most important thing is given the tremendous market opportunities we have, we actually are investing aggressively. If you look at the past several quarters, we're really leaning in, in investing, but all the AI investments are driving the revenue momentum. So if you look at the Q1, revenue was 38% up, then Q2, we guided 46% up. The investments are driving the revenue momentum. Some of the OpEx increase, of course, is tied to the revenue. When you look at our beat on the revenue side versus our guidance, we did beat on the revenue side, right? So that impacted a little bit. But also, at the same time, we have a lot of customer engagement with our Data Center AI business, we do continue to make sure we have the resource to support our different customers. Matthew Ramsay: Thank you very much. Operator, I think we have time for one more caller on the call. Thank you. Operator: Our final question comes from the line of Blayne Curtis with Jefferies. Blayne Curtis: Lisa, I just want to go back to the supply side. There was a lot of story about your competitor restarting 7-nanometer. I'm just kind of curious as you look at that landscape which is quite robust through the end of the decade, do you think that the older products will stay around longer? And is there a way to think about the implications for gross margin in such a strong market. Is that actually a negative? Lisa Su: Actually, Blayne, I don't think we see the older products hanging around longer. In our case, I think it might be company-specific stuff. In our case, we actually see -- first of all, Turin is very strong. We actually crossed over 50% of our revenue being Turin this quarter. Genoa is very strong. We're still shipping some Milan, but I would say that's come down over time. So in general, people want to use the newer products because they're just more efficient in every aspect from performance, from cost structure, from a power standpoint. So that's what we're seeing. By the way, I should also mention, in addition to what we're seeing in the cloud segment of server, we're seeing really nice strong pickup in enterprise. And there as well, we're seeing our newer products do very well. So from our standpoint, it is all about ensuring that we ship what the customer needs. And in this case, it typically is our newer products, and we expect that to continue. As we transition into Venice later this year, we will expect Turin and Genoa to continue shipping, but there's a lot of goodness in going to the new products. And on the supply chain side, I know there's been a lot of discussion about how tight the supply chain is. The supply chain is tight. I would definitely say that. But I also think this is an area where we excel. We have very deep relationships across the supply chain on the wafer side, on the back end capacity side. And we are seeing meaningful improvements in that. And as our customers come to us with more demand, we are getting more supply. And the good thing about this is we're now talking about '27 CPU demand, we're talking about '28 CPU demand. And so that allows us to just plan much better as we go forward. Blayne Curtis: And then just a quick one for Jean. I'm just curious to follow up on Stacy's question on OpEx. I guess I was a little surprised that SG&A is kind of outpacing R&D. I was just kind of curious, is that start-up costs, because in a strong market, you wouldn't think you would have to discount or have a big sales effort. So I'm just kind of curious for the year, how you think about R&D growth versus SG&A? Jean Hu: I think for the year, you should expect us to grow R&D much faster than SG&A. I think in the past few quarters, we have been really building our go-to-market machine, and we have been investing more in sales and marketing side. But going forward, you should expect the year-over-year growth R&D will grow faster than SG&A growth. Lisa Su: Yes. And if I just add to that, Blayne, the places that we invest -- Jean is absolutely right. We're investing in R&D ahead of sales and marketing. But the places that we're investing in sales and marketing are paying off. So the investments are going into enterprise servers. They're going into commercial PCs. They're going into mid-market, small and medium business. These are places where AMD traditionally didn't invest, but now that we have a much broader portfolio, both on the server CPU and on the commercial PC side, it makes sense for us to invest because that's sort of the very best part of those markets. Matthew Ramsay: All right. Thank you very much, everybody, for joining and your interest in AMD. John, you can go ahead and close the call now. Thanks. Operator: Thank you. And ladies and gentlemen, that does conclude the question-and-answer session, and that also concludes today's teleconference. We thank you for your participation. Please disconnect your lines, and have a wonderful day.
Operator: Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Westlake Corporation First Quarter 2026 Earnings Conference Call. As a reminder, ladies and gentlemen, this conference is being recorded today, May 5, 2026. I would like to turn over the call to today's host, Jeff Holy, Westlake's Vice President and Chief Accounting Officer. Sir, you may begin. Jeff Holy: Thank you, Crystal. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our first quarter 2026 results. I'm joined today by Albert Chao, our Executive Chairman; Jean-Marc Gilson, our President and CEO; Steve Bender, our Executive Vice President and Chief Financial Officer; and other members of our management team. During the call, we will refer to our 2 reporting segments: Performance and Essential Materials, which we refer to as PEM or Materials; and Housing and Infrastructure Products, which we refer to as HIP or Products. Today's conference call will begin with Jean-Marc, who will open with a few comments regarding Westlake's first quarter performance. Steve will then discuss our financial and operating results, after which Jean-Marc will add a few concluding comments, and we will open the call up to questions. During the first quarter of 2026, we agreed to pay $67 million to settle certain legal claims in our pipe and fittings business. We also incurred expenses of $18 million related to the shutdown of facilities undertaken last year. We refer to these expense items, which in aggregate were $85 million as the identified items in our earnings release and on this conference call. References to income from operations, EBITDA, net income and earnings per share on this call all exclude the financial impact of the identified items. As such, comments made on this call will be in regard to our underlying business results using non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to GAAP financial measures is provided in our earnings release, which is available in the Investor Relations section of our website. Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. These risks and uncertainties are discussed in Westlake's Form 10-K for the year ended December 31, 2025, and other SEC filings. We encourage you to learn more about these factors that could lead our actual results to differ by reviewing these SEC filings, which are also available on our Investor Relations website. This morning, Westlake issued a press release with details of our first quarter results. This document is available in the Press Release section of our website at westlake.com. We have also included an earnings presentation, which can be found in the Investor Relations section on our website. A replay of today's call will be available beginning today, approximately 2 hours following the conclusion of this call. This replay may be accessed via Westlake's website. Please note that information reported on this call speaks only as of today, May 5, 2026, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay. Finally, I would advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our web page at westlake.com. Now I would like to turn the call over to Jean-Marc Hilson. Jean-Marc? Jean-Marc Gilson: Thank you, Jeff, and good morning, everyone. We appreciate you joining us to discuss our first quarter 2026 results. During the first quarter, we delivered $2.7 billion in net sales and EBITDA of $235 million by supporting our customers' supply needs, managing our costs, executing our 3-pillar profitability improvement plan and driving long-term value creation. While the first 2 months of the quarter saw PEM sales reflect lower sales prices and continued soft global industrial and manufacturing activity, Sales improved significantly in March as the conflict in the Middle East brought about a significant disruption to global supplies of oil, chemical feedstocks and polymers from the Persian gas. Commercial conditions for Westlake and our industry changed dramatically with the outbreak of the Middle East conflict. Industry consultants estimate that this conflict has disrupted approximately 10% to 15% of global polyethylene supply and approximately 5% of global PVC resin supply. Furthermore, up to 20% of global oil supply is disrupted, which has reduced the availability of chemical feedstocks such as NAFTA for much of the global chemical industry. creating further declines in the global supply of polyethylene and PVC. The associated sharp increase in global oil and chemical fixed stock prices has significantly steepened the global cost curve for many of the material that PAM cells, which is supporting higher selling prices and margins for cost-advantaged producers in North America, such as Westlake. In response to the reduction in global chemical and polymer production created by the Middle East conflict and significantly higher feedstock cost in much of Asia and Europe, customers around the world thought supply from producers and affected by the production disruptions caused by the conflict, which drove increased demand for our polyethylene, PVC and epoxy resin and increased prices for our products. Our advantaged asset footprint in North America using gas-based feedstocks positions Westlake to benefit from the pricing momentum and expected associated margin expansion since the contract began. The evolving situation in the Middle East drove a significant improvement in PEM sales volume and earnings towards the end of the first quarter. PEM delivered net sales of $1.7 billion and EBITDA of $36 million and 3% sequential volume growth, excluding the impact to volumes from our 2025 plant shutdowns. While the conflict in the Middle East remains fluid, and we hope for a peaceful resolution, we expect the supply disruptions could persist throughout 2026. Turning to our hip segment. Sales volume and EBITDA were impacted by the unusually cold weather conditions in the first 2 months of the quarter. However, performance improved in March as the homebuilding season began along with the onset of milder weather. Excluding the impact of the SCI acquisition, HIP delivered 10% sequential sales volume growth, which drove net sales of $1 billion and EBITDA of $186 million. Hip sales and EBITDA in the first quarter were driven by continued solid infrastructure-related growth and seasonally stronger residential housing demand. as compared to the fourth quarter of 2025. In addition to the intra quarter earnings improvement from supply disruption in the Middle East and weather normalization, our first quarter results benefited from our 3-pillar profitability improvement plan, including delivering approximately $150 million of EBITDA uplift from footprint optimization and cost savings actions. While we still have some work to do to get our plant reliability, all the way to where I would like it, I'm pleased with the progress that we have made to date and the trajectory of our reliability initiatives. Overall, we remain confident that our 3-pillar profitability improvement plan will deliver. the targeted $600 million EBITDA uplift in 2026. Before I turn the call over to Steve, I want to provide some thoughts on our CFO transition. As you may have read on April 20, we announced that on June 15, John Baksht will join Westlake Corporation and Westlake Partners LP as Senior Vice President and Chief Financial Officer. John brings experience from the oil and gas, packaging and building products industries as well as investment banking to Westlake, and we look forward to him joining the company. On June 15, Steve Bender will transition to the role of special adviser and will continue to report to me as it supports the transition. We anticipate that Steve will participate in the second quarter earnings call in August. And with that, I would now like to turn our call over to Steve to provide more detail on our financial results for the first quarter of 2026. Steve? M. Bender: Thank you. Thank you very much, Jean-Marc, and good morning, everyone. In the first quarter of 2026, Westlake reported sales of $2.7 billion and a net loss of $100 million or $0.77 per share. which compares to a net loss of $33 million in the first quarter of 2025. Before I discuss the details of our segment results, I want to provide some high-level thoughts on the quarter. The decisive actions we took last year to improve our profitability begin to meaningfully deliver results in the first quarter of 2026. Our footprint optimization actions significantly reduced PEMs fixed cost and returned our Epoxy business to profitability for the first time since 2023. As a reminder, prior to these actions, the Epoxy business was generating EBITDA losses of more than $100 million annually. In addition, we achieved substantial structural cost savings in the first quarter while also taking action to improve plant reliability. Taken together, our 3-pillared profitability improvement plan benefited first quarter earnings by approximately $150 million. That said, we did face several headwinds during the first quarter, most of which we view as transitory. Despite a favorable mix shift away from export volumes, our average PVC resin sales price declined sequentially from the fourth quarter of 2025 due to price resets that occurred late in 2025. In addition, North American natural gas prices spiked in January and remained elevated through February as a result of unusually cold weather across much of the United States, creating an approximately $45 million EBITDA headwind for PIM compared to the first quarter of 2025. That same weather also delayed the start of the homebuilding season contributing to a year-over-year sales volume decline in our hip business. Moving to the specifics of our segment performance. HIP did see the effect of solar start to a homebuilding season with net sales in our housing and Infrastructure Products segment of $1 billion, which were in line with the first quarter of 2025 as the January acquisition of ACI offset a 2% decline in average sales price and a 2% decline in sales volume, excluding the acquisition. Pipe and fittings continue to see strong sales volume driven by the infrastructure sector that was more than offset by declines in our exterior building products businesses and global compounds. HIP EBITDA of $186 million decreased $17 million from the first quarter of 2025 due to a slight decline in EBITDA margin largely due to lower average sales prices. When compared to the fourth quarter of 2025, HIP segment sales of $1 billion rose 10% by a 15% sequential increase in sales volume, including the ACI acquisition. that more than offset a 5% decrease in average sales prices. The sequential sales volume growth was driven by seasonal higher demand for exterior building products and solid growth in global compounds. Housing product sales of $788 million in the first quarter increased $21 million due to seasonal sales volume growth, particularly for Siding and Trim and roofing. Infrastructure products sales of $205 million in the first quarter of 2026, increased $71 million from the fourth quarter of 2025, primarily due to solid growth in global compounds, and the ACI acquisition. Moving to our PIMS segment. First quarter EBITDA of $36 million decreased by $9 million from the fourth quarter of 2025, largely as a result of a 34% higher natural gas price due to the impact of cold weather early in the quarter. Compared to the fourth quarter of 2025, PIM average sales price increased 3%, reflecting improved price realization for olefins, polyethylene, caustic soda toward the end of the quarter, while sales volumes increased 3%, excluding volumes associated with the 2025 plant shutdowns, while higher North American natural gas costs impacted the early months of the first quarter, by the end of March, natural gas prices declined to their lowest levels since 2024, where they remained during April. As a result, we don't expect the transitory impact to PIMS first quarter sales -- first quarter margins from higher natural gas prices to impact second quarter earnings. For the first quarter of 2026, our utilization of the FIFO method of accounting resulted in a favorable pretax impact of $37 million compared to what earnings would have been reported on the LIFO method. This is only an estimate and has not been audited. Now turning to the balance sheet and cash flow statements. We continue to maintain financial flexibility with a strong balance sheet as well as our long-standing commitment to a solid investment-grade credit rating. As of March 31, 2026, cash and investments were $2.5 billion and total debt was $5.6 billion with a staggered long-term fixed rate debt maturity schedule. In April, we provided a notice to call the remaining $500 million of debt in the second quarter of 2026 that otherwise was scheduled to mature later this year. For the first quarter of 2026, net cash used for operating activities of $94 million includes approximately $50 million of cash outlays associated with the footprint optimization actions that we announced in 2025. Our strong balance sheet provides us the financial flexibility to invest in growth initiatives such as ACI, and we have entered into a nonbinding letter of intent to acquire a PVC and VCM plant in Billman Germany. This facility, which is located on the North Sea Coast benefits from its advantageous logistical infrastructure. We remain focused on pursuing additional opportunities to strategically deploy our balance sheet in order to create long-term value. Now let me provide guidance for your models. Given the slower-than-expected start to the homebuilding season and the significant increases in transportation and raw material costs, particularly for PVC resin. We now expect 2026 revenue and EBITDA margin are HIP segment to be towards the lower end of our previously communicated range of $4.4 billion to $4.6 billion of revenue with EBITDA margin between 19% and 21%, excluding identified items. While we expect to pass these cost increases through the timing of changes in cost and sales prices could create a headwind in the near term. Expected 2026 total capital expenditures for the company are still expected to be $900 million, which is approximately $100 million lower than last year and in line with our annual depreciation. We continue to expect cash interest expense to be approximately $215 million. Now with that, I'll turn the call over to Jean-Marc to provide a current outlook for the business. Jean-Marc? Jean-Marc Gilson: Thank you, Steve. The impact of the conflict in the Middle East and global feedstock and energy cost serves as a powerful reminder of 1 of Westlake's foundational strength. Our globally advantaged feedstock and energy position in North America, where approximately 85% of our products are manufactured. The strategic value of our North American production capacity and globally advantaged cost position has arguably never been greater. In addition, the combination of investments, major turnarounds and restructuring actions that we made are now positioning us to benefit from more reliable production to capture the current upturn in PAM profitability and better serve our customers. While the commercial environment for PEM has improved significantly since our last earnings call in February, we remain laser-focused on achieving the full benefits from our profitability improvement plan. We are pleased with the progress that we have made to date, improving our profitability, but we recognize that we must remain disciplined with respect to cost in an increasingly inflationary environment. Turning to our outlook for sales volume and pricing. We have a constructive view on near-term trends. As I discussed earlier, global supply chain disruptions and elevated global energy prices are driving meaningful price increases for polyethylene, PVC resin and other products in our PEM segment. Concurrently, supply concerns are prompting global customers to source more material from North America in response to the conflict, which is supporting higher PAM sales volume and improved plant operating rates. Shifting to HIP, mortgage rates and increased building costs could place additional pressure on housing affordability. While it is too early to fully assess how this dynamic will impact HIPs building product sales volume, forward-looking indicators such as single-family housing permits and start add to the uncertainty. In this housing market, our Building Products business continues to benefit from a diversified product offering and broad national distribution. which provides builders with the products they need, when and where they need them. In Global compounds, we are pleased with the performance of the recently acquired ACI business. which has strengthened our position in the fast-growing high-voltage wire and cable market. This market is seeing significant demand growth driven by electric vehicles and data centers. Meanwhile, HIPs pipe and fittings business continues to deliver double-digit sales volume growth, supported by sustained strength in infrastructure spending. Beyond traditional municipal infrastructure demand, we are seeing increasing contribution to sales volume growth, driven by cooling what a need from the data center build-out underway across North America. We expect this trend to continue through the rest of the year as an offset to uncertainty in the North American new residential construction market. On the cost front, we are aggressively working to pass through the increases in costs being driven by Middle East supply disruption and elevated fuel prices. Longer term, continued infrastructure investment combined with over a decade of housing and the building continues to support a compelling growth outlook for HIP. Taken together, our outlook for the company's 2026 earnings has improved meaningfully since our last earnings call. While the conflict in the Middle East could result in global supply change disruptions extending to the end of the year or beyond, we will remain focused on controlling what we can control. including delivering the full $600 million of EBITDA uplift from our 3 pillar profitability improvement plan. And we will maintain our disciplined approach to capital allocation, while preserving our investment-grade rated balance sheet. Thank you very much for listening to our first quarter earnings call. I will now turn the call back over to Jeff. Jeff? Jeff Holy: Thank you, Jean-Marc. Before we begin taking questions, I'd like to remind listeners that our earnings presentation, which provides additional clarity into our results is available on our website. and that a replay of this teleconference will be available approximately 2 hours after the call has ended. We will now take questions. Operator: [Operator Instructions] Our first question comes from the line of Patrick Cunningham from Citi. Patrick Cunningham: Can you help us unpack a little bit more the PEM results down sequentially? You had material benefits from the profitability improvement plan, PE and caustic prices were up. I guess, first, can you help size the headwind from PVC price margin declines and whether or not there was anything else going on with operating reliability or any stranded costs from some of the closures? M. Bender: Yes. Patrick. And I would say that certainly, the price resets that we saw at the end of the year were certainly impactful across the product stream. And so I would say, and particularly, the increase that we've seen in PVC resin have not been fully catching up with some of the increases that we've seen in associated costs, especially, I would note the elevated natural gas cost that we saw in January and February. So while we've seen price increases in polyethylene epoxy and PVC, I would say certainly looking to continue to capture the value that we think that PVC represents and we certainly have not had the chance to fully recognize that throughout the entire quarter. But I would say that we've seen improved reliability and operability of the business. And so I'm improved. We're not to where we'd like to be at this stage, but we're making good progress as we move forward. Patrick Cunningham: Understood. And then just on the underlying outlook for the hip business, what are your expectations for pure price this year given some of the higher-priced PVC you're going to be pulling through -- have you gone out with additional pricing ahead of the construction season? And is any of that baked into your outlook? M. Bender: Yes. So good question. We have announced price increases to not only offset the increase in PVC resin, but also transportation costs. Certainly, fuel costs have also risen. So our price increases that we have already announced in the HIP segment have already reflected the cost that we expect to incur for PVC resin as it works its way through the manufacturing process and also to reflect elevated transportation costs driven by higher fuel prices. But nevertheless, that will take a little while, a few months, let's say, to work its way fully through each of the various material product streams. Operator: Our next question comes from the line of Bhavesh Lodaya from BMO. Bhavesh Lodaya: Just back to the PEM segment, you called out transitory impacts that happened in the first quarter. If you look at, again, the fourth quarter and the first quarter difference, there was a $150 million benefit which you saw from your actions, which did not show up -- would you say that transitory impacts are roughly equal to that $150 million. And in other words, is the base level of earnings for 2Q, is the starting point closer to, call it, like a $200 million level from which you will see additional benefits from margin improvements? M. Bender: Yes. So I guess what I would say is certainly recognizing with the elevated cost that we had in natural gas in the first quarter of a $45 million headwind was significant, but transitory. And I would say the price increase that we've seen in all of our products from be it polyethylene, PVC and Epoxy should have significant benefits as those have been announced in the first quarter, but the full effect of those really translate into real value in the second quarter. As I mentioned earlier, we've seen improved reliability as we've made progress on our 3-pillar strategy. the $150 million benefit that we achieved in the first quarter. Certainly, it was largely attributable to PEM, but not exclusively so. So we've made cost reductions, of course, that affect both segments of the business. Certainly, the optimization of our footprint certainly is directly attributable to the PEM segment. And certainly, some of the improvements we've seen in operability also are attributable to the PIM segment. But I would say we do see significant benefits accruing as a result of these price nominations and realizations that we expect in the second quarter. Bhavesh Lodaya: Got it. And then particularly on your PVC outlook, you have leveraged both from higher operating rates as well as pricing from PVC here. Could you share an outlook on these 2 metrics? How much could weights move higher in 2Q or 3Q? And what are your expectations for PVC pricing from here? M. Bender: Yes. As a result of some of the optimization actions that we took last year, we certainly have elevated the operating rates of our plants. Certainly, we had some planned maintenance at 1 of our units in the first quarter. But I would say operating rates throughout the first quarter were in the mid-80s, and we expect that as the construction season begins to start now with better weather, and I do expect that we'll see elevated demand levels for PVC and construction activities. that in the context of recognizing that housing starts have been somewhat lower than had been earlier forecast by the consultants. But we do expect that with the price initiatives that we've taken in PVC and the increase in construction and repair and modeling activities that we do expect to see improvements across only the core Vinyls chain but across the entire FM segment. Operator: Our next question comes from the line of Vincent Andrews from Morgan Stanley. Vincent Andrews: Wondering if you could just give us a little bit of direction on HIP for 2Q, just sounds like there's going to be a little bit of a lag between the higher PVC and so forth costs coming through versus your ability to price. So if you could just give us a sense on what that's going to do on the margin side. And then maybe also help us understand there was a mention about the season getting off to a slow start. So how did April go? And how does the order book look so far for the second quarter so that we can hopefully get our numbers in a good place for 2Q. M. Bender: Yes. So good question, Vincent. And I would say that the order book looks very good as we see the second quarter begin to start from a volumes perspective. But to your point, with the elevated PVC pricing we see coming through the channel and while we've announced price increases in our HIP segment to address those higher PVC resin prices as well as transportation costs, there could be a month or 2 lag between the realization of those price nominations that we've made in the market and the roll forward of PVC resin prices. So there could be some headwind in that second quarter as we see the price that we've announced in PVC in the first quarter worked their way through into the PIMS segment before they get full traction of their price announcements made in the first quarter, but them fully worked in, in the second quarter. Vincent Andrews: So is it fair to say then that we'll see the lowest margin in 2Q? And then by 4Q, you'll be high enough to get yourself back to the low end of the margin guidance for the full year. Is that the right way to think about it? M. Bender: I would say the fourth quarter seasonally is typically a slower season, but I would say that the front half of the second quarter will see the full impact of some of the lag in the back half of the second quarter, we'll see the benefit of some of the benefits of the price increase that the HIP segment have announced. I think we get the full benefit of all that in the third quarter, but the fourth quarter typically has a seasonal slowdown just because of the weather dynamics and is typically 1 of our lower margin and volume quarters. Operator: Our next question comes from the line of David Begleiter from Deutsche Bank. David Begleiter: Jean-Marc and Steve. Just on polyethylene, you got the $0.30 in April. What's your confidence level in getting some portion of all of the announced $0.20 per pound increase for me? Jean-Marc Gilson: Well, I'd say that, David, that we certainly have been able to achieve that $0.30, as you noted in April, and it's still early days in May. If you think back, the market has been able to absorb very, very significant price increases going back to the beginning of this year. And I would say it's still a little bit early days in May to call the May increase. But if you think about where the price levels are today relative to recent history going back to '21 or so, we're still below those price increases we had in 2021. And the market was able to absorb those prices in '21. So what we're looking for is to see where demand levels are. But I would say we're watching the market, but we're still pushing forward with price increases that we see that are reflective in the marketplace. David Begleiter: Very good. And just on PVC, are you increasing your export activity levels to take advantage of some of the spot opportunities we've seen in the marketplace? Jean-Marc Gilson: Yes, good question. The -- you are right. Price increase in PVC, I mean, we've seen a steady increase in PVC export prices. they kind of went to a peak a few weeks ago. They're now coming down a little bit, but still much higher than what they were last year. So you are correct. I mean we are with increased operational -- operating rates. And we are now increasing as much as we can PVC supply to take opportunities and to sell our volume in export markets where there is some good deal to be made. Operator: Our next question comes from the line of Frank Mitsch from Premium Research Eros. Frank Mitsch: Thanks Steve, let me offer you some early birthday wishes. And perhaps the second quarter starting out as a very nice birthday present for your last quarter as CFO. And again, thanks for all your help in that regard. I was wondering if you could offer some qualitative commentary with respect to the operating rates that you were able to realize in the PEM business in the first quarter and how your facilities are operating so far here in the second quarter? M. Bender: Yes. So Frank, thank you very much for those comments. I would say that in the polyethylene business, we're running full rates, as you would guess, demand levels seem to be very good. And even though we've seen significant price increases, operating rates are operating at full rates. In the PVC space, PVC rates are beginning to raise simply because we've optimize the operating rates having shuttered a number of sites last year and moved that production opportunity over to other existing sites. So operating rates in the PVC space were in the mid-80s. And I expect that to begin to kind of elevate as we work our way through into second quarter and third quarter, which is more peak wide construction season and some of our operating rates in our caustic and chlorine operations to support PVC. Frank Mitsch: Terrific. And as you think about higher pricing levels having an impact on working capital, what's your -- what are you working at capital expectations and impacts on free cash flow in 2026? M. Bender: Yes. Well, certainly, I do expect some of these higher prices, we'll see an increase in the receivables side. But when you recognize that gas and ethane remain very moderate and frankly, at pretty low levels. I do expect the second quarter to generate free cash flow as a result. Operator: Our next question comes from the line of Josh Spector from UBS. Joshua Spector: Two things I want to just clarify here is first, just on the cost savings points. I think the $150 million you're characterizing that as year-over-year -- can you talk about what that is sequentially? And does that build sequentially? Or are we at the full run rate today? M. Bender: Yes. That $150 million is a year-over-year result. And certainly, when we think about the contribution that we've seen, they're coming from all 3 of those respective pillars. So if you recall, we generated a significant amount of savings in the fourth quarter. So the $150 million full year result is well over $100 million above and beyond what we generated in the fourth quarter. Joshua Spector: Okay. But does that sequentially improve then into 2Q? Or are we just saying $150 million times 4, that's the $600 million that you're at -- and I did want to ask a follow-up just related with the pricing side on PVC. I mean, considering we're talking about pretty decent lags in pricing, I assume now in early May, you have a pretty good idea of the PVC price you're going to realize in 2Q. Can you give us some guidance about what that increase would be since there seems to be a pretty stark disconnect with some of the indexes that we're watching. M. Bender: Yes. Back to your earlier portion of your question on the cost savings initiatives in our 3 forward strategy, we do expect that we'll be able to achieve a relative portion over the course of the remaining 3 quarters of the year and fully achieve that $600 million savings. As it relates to the pricing initiatives, you're right, we announced a series of price increases, both in PVC as well as in polyethylene. And as I say, we expect that those will be very impactful in the second quarter. So in the first quarter, we achieved in PVC, a total of $0.01 in January, $0.02 in February, $0.03 in March. We've announced and achieved $0.05 in April, and we have $0.04 nominated out from May, still looking to achieve the full $0.10 that we had earlier nominated, $0.05 achieved in April and $0.04 right now, but looking with customers to achieve that full $0.10 that we announced earlier in the month of March for April and May. Operator: Our next question comes from the line of John Roberts from Mizuho. John Ezekiel Roberts: Are you seeing any shift in the destinations for U.S. export caustic and export vinyls? And do you think the pushback in pricing that you're seeing is some demand destruction going on? M. Bender: I'd say that what we've seen, John, is actually reasonably good demand levels for caustic just to remind you, we announced 2 price increases, 1 in December last year. 1 in January of this year, totaling $140 million -- $140. And so I'd say that to date, I'd say we've achieved the greater portion of that first announcement that we announced in December. And the indices that we track seem to indicate we'll get a greater -- a pretty good portion of that second price increase. So I'd say that demand continues to be reasonably good at this stage of the quarter. And as I say, demand fundamentally is stable. And I would say, ramping up. From a destination perspective, as you would imagine, logistics have been jocking around as a result of the conflict in the Gulf and many of our customers are being well served, but I can't speak specifically to all those individual customers. Operator: Our next question comes from the line of Kevin McCarthy from Vertical Research Partners. Kevin McCarthy: Can you elaborate on your letter of intent to acquire Vyova's vinyls plant in Germany? Maybe you could just talk a little bit about potential cost timing and the fit with your existing assets, including the legacy Vinnolit assets? M. Bender: Yes. Well, good question, Kevin. And we've entered into this nonbinding letter intent with the insolvency administrator in Germany, and we think it fits very well potentially. As I say, it's still nonbinding and so subject to a lot of contingencies, of course. But it does have access to a deep sea dock, which allows us access to low-cost potential feedstocks, which could be a significant advantage in servicing the European markets. In terms of talking about value, it's still preliminary at this stage, and so it's too early to get into evaluation at this stage. Kevin McCarthy: Understood. Then as a second question, was your PEM segment EBIT positive in the month of March. I wouldn't normally ask you about monthly trends, but I imagine March was night and day versus the prior month. So perhaps you can give us some sense for the exit velocity of earnings, so to speak, as you move through the quarter? M. Bender: Yes. It was, as you would guess, very positive. And given the pricing initiatives that we've got out in Epoxy, PVC and polyethylene, I expect the improvements to continue to be quite strong as we enter into the second quarter. with, again, the ability to recognize and realize those price announcements that we announced during the first quarter. Operator: Our next question comes from the line of Arun Viswanathan from RBC Capital Markets. Arun Viswanathan: I guess I wanted to try and maybe have a rough idea on if you could help us frame out Q2. So it looks like you'll get maybe some incremental extra cost reductions if you're expecting maybe $600 million for the year. I'm not sure if that actually does go up in Q2. Would it be kind of $20 million or $30 million higher in Q2 versus Q1? And then secondly, the PE, I think you have 2.5 billion pounds of capacity. So can we just apply that on the $0.30 for maybe $150 million to $200 million uplift there. And then PVC also on your [ 5.5 ] billion pounds, I'm getting maybe like a $75 million uplift. So HIP, I think, would be down maybe on higher costs as you flow through those items and that maybe cancel out the PVC increase. So maybe we're up sequentially on the order of $200 million to $300 million. Is that -- am I somewhere in the ballpark? Or how should we think about framing out the difference between Q1 and Q2? M. Bender: Yes. I think directionally, as you think about the price combinations and the volumes of production that we have and the demand levels that we're seeing that directionally, you're in the -- you're moving directionally in the right direction. I would say that the headwind we do expect with hip to be reflective of some of the higher PVC pricing moving through in the first portion of the second quarter. But I do think we'll get price realization in the back half of that second quarter as we've already made those announcements to deal with resin costs and transportation costs. But recognizing that we've got a number of price announcements, including PVC, polyethylene and epoxy, we should see significant traction in the second quarter. And so I think directionally, the way you're thinking about it is correct. Arun Viswanathan: Okay. And then if I could just ask, as you look into the second half, what is the durability of this pricing? Have you seen any larger-scale closures -- do you expect any -- maybe -- the chlorine chain was not necessarily impacted as much because of coal-based production in China. So -- do you expect conditions to kind of revert back to normal shortly after the straight reopens? Or what's kind of the outlook in the chlor alkali space with regards to some of these constraints? Was it just not affected as much. M. Bender: Yes, you can see from our comments that we expect the impact of this conflict in the Gulf that could persist all the way through the end of the year. And so it's unclear exactly what kind of price direction we may see as the conflict takes whatever path it chooses to take, but I would say that the PVC core vinyls chain was lesser impacted by this conflict than the polyolefins chain has been. And so we do expect to see some meaningful improvement in those chains that have been more directly impacted. Jean-Marc Gilson: Yes. I mean 1 additional thing is if you look into the chloralkali and specifically on the PVC side, and as you remember, the price was pretty much set by China last year. And it continues to be so, but in a different way, about 25% to 30% of the Chinese capacity as far as PVC is concerned, it's coming from using naphtha and the rest is a carbide base. So all the naphtha are uncompetitive now and have really reduced production level. The carbide side, on the other hand, has increased operating rates and that has put another now ceiling in terms of price increase. So that's why you saw a price ramp up very fast in China and then a little bit of a decline since probably early April, but it's stabilizing at a higher level than where it was last year, and we've seen stabilization around $900 -- $850, $900 per metric ton. So overall, we think that the price for PVC export will stay elevated. It could come down gradually over the year, but it's going to stay elevated for an extended period of time. Operator: Our next question comes from the line of Peter Osterland from Truist Securities. Peter Osterland: First, just wanted to ask on HIP. You highlighted data centers as a growth driver for pipe and fittings. Can you quantify the revenue contribution or the backlog growth that's tied to the data center market? And how does the margin profile for sales into this market compared to HIP overall? M. Bender: Yes, it's a good question. I would say in the first half, sales and orders in the first half represent mid-teens percent of our volume. and it's a growing market, as you know well. So we expect it to continue to be a nice contribution to the infrastructure side of our pipe infinians businesses. But I'd say -- as I say, the first half, both orders and the order book and sales for the first half of the year, it's mid-teens and growing. So we expect it to be a continued contribution to the pipe and fittings piece of HIP. Peter Osterland: Great. And then just as a follow-up, on the $67 million PVC pipe settlement, does this settlement resolve the entirety of your exposure to litigation related to this? Or is there a potential for any further onetime charges? M. Bender: Yes. This is tied really to the direct purchasers component of the litigation. And so there are 2 other categories of claimants that we're in conversation with. So we've got a reserve of $10 million for that second category, but there are further obviously, discussions to be had. Operator: Our next question comes from the line of Duffy Fisher from Goldman Sachs. Patrick Fischer: I was wondering, can you help me -- I'm having a hard time triangulating your hip numbers on revenue? So if you assume that PVC prices are up, you talked at least $0.10, so that's like a third and you said that you're going to get priced by the back half to offset that. So that would be pretty significant price increases rolling through HIP, but yet you're guiding us to the low end of your revenue guide, which would mean that volume must be down significantly in the double digits versus what you expected. So can you just kind of tie those together, the inflation rolling through into hip, the price that you're going to get and then how that changed your revenue outlook vis-a-vis volume? M. Bender: Yes. And Duffy, good question. We're seeing kind of mixed signals right now in the markets. You've seen housing starts, the latest report show that housing starts at 1.5 million housing starts, which is meaningfully higher, but I would say permits were only 1.3%, which is trending lower. So you see mixed signals right now in the marketplace. And as we start in robustness now, the construction season now that we're in May going forward. We're just being cautious in terms of what housing starts are likely to be. Remember, half our businesses, housing starts, the other half is repair and remodeling, but those are smaller volumes. And so housing starts tend to be higher volumes. So we're just really being cautious about kind of volume we could see with the potential slowdown in housing starts in this year. Patrick Fischer: Great. And then just 1 housekeeping. How much cash do you have left to spend on your expense cost-cutting program from last year? M. Bender: You're talking about the 3-pillar strategy that when you say your cost-cutting initiatives. Patrick Fischer: Yes, exactly. How you spent cash this quarter that was already expensed, I believe, as I read through it. Is that fair? And is there more cash yet to be spent on that? M. Bender: There is. And so -- I would say in the neighborhood of $50 million remaining in '26. Operator: Our next question comes from the line of Hassan Amed from Alembic Global Advisors. Hassan Ahmed: Earlier in the call, you talked a little bit about PVC export opportunities opening up. So just curious to sort of find out where you're seeing those opportunities, particularly in light of a bunch of countries, be it India, the EU and the like already having antidumping duties in place. Jean-Marc Gilson: Yes. I mean we are continuing to see the -- you are correct. I mean the demand from India and the rest has decreased a little bit. But overall, the supply is also -- even though over -- I would say, probably February, March, you saw an uptick in supply from China. Since then, we've seen still a steady demand for export, and we are pretty much selling everything we can to the export market at pretty good prices right now. M. Bender: I would say we continue to support the Latin America, South American markets as well. Hassan Ahmed: Understood. And just carrying on with that. I've read some recent reports about the Chinese removing their VAT export drawback on PVC. Are you hearing similar things? And if that is true, what does that do to the cost curve? What does that do to Chinese exports going forward? Jean-Marc Gilson: You're talking about the fact that they removed and that it was sometime after a question whether they were removing it. M. Bender: Yes, they were -- we're moving it really in April. And I would say that we did see some increase in exports just in advance of the April date. But certainly, that creates even a higher hurdle for those who are exporting because those that do have a higher cost, especially those that are ethylene-based certainly have now had an additional higher hurdle. As Jon Mark noted earlier in his comments, those that are acetylene-based certainly are on a lower end of the curve and not seeing the challenges of higher cost from the naphtha they're coming through. But I would say that revision or that recision, I should say, of that VAT is certainly an additional headwind that all exporters out of China are now facing. Hassan Ahmed: And Steve, just for me to get the numbers right, I mean, is it fair to assume that, that headwind would be maybe like $75 a ton to maybe like $100 a ton somewhere in that ballpark? Jean-Marc Gilson: [indiscernible] Operator: Our next question comes from the line of Matthew Blair from TPH. Matthew Blair: Could we circle back to these higher natural gas costs in PEM in the first quarter? It looks like -- if I just look at a Gulf Coast indicator like Henry Hub, it did spec over $7 at certain points in January. But overall, it looks lower quarter-over-quarter in Q1 versus Q4 as do most other Gulf Coast indicators. I do see higher natural gas indicators in Europe quarter-over-quarter. So maybe could you just help us understand your headwinds in natural gas? Were there any derivative impacts like maybe rolling out hedges from last year or any other sort of onetime issues there? M. Bender: Yes, Matthew. No, we had -- I'm just looking at some of the indices here and you're right, gas in late January and through much of February was north of $7 we're a buyer on large well on a spot basis from a pricing perspective. And so it was really that $45 million headwind that I mentioned that drove -- was a headwind that drove an impact on results in the first quarter. But with the poll on natural gas globally given what's happening in the Persian Gulf, you really have seen gas prices come down significantly. And we're probably just in the $280 to $290 range today. there is somewhat of a contango curve on gas, but what we continue to see is that gas curve continues to get pushed out. And month-on-month, we've seen low prices persist in this just under $3 range. Matthew Blair: Sounds good. And then for the FIFO impact, I think you said it was $37 million. Do you have a split between PAM and HIP for that impact in Q1? M. Bender: Yes. That was all PIM related, but it was $37 million. Operator: Our next question comes from the line of Abigail Ebers from Wells Fargo. Abigail Eberts: I'm curious about your expectations for caustic soda later in the year. Obviously, you're expecting prices to increase near term in line with consultants. But I'm seeing in their forecast pricing coming down around October, which they're saying is due to demand destruction from ongoing inflation and elevated interest rates. I'm just curious about your volume and pricing outlook for caustic soda in the back half of the year? M. Bender: Yes. Good question. As I mentioned earlier, we've had 2 price announcements, and we've realized the great majority of that first price announcement already. I'd say demand right now is stable. And as we look forward into kind of the second and third quarters, I actually see because of that stability, a pretty stable price and the consultants do have some small price increases between May and July -- that represent about $30 a ton. But I'd say demand really looks pretty stable at this stage. Abigail Eberts: Okay. Got it. And then just a question on hip and PVC -- how do you size the weather impact on the construction -- beginning of the construction season this year, where would things be if the weather had been more cooperative, do you think? M. Bender: It's a little bit hard to say, but I would say, given the very cold weather we had in January and persisted at least through much of February, it certainly slowed down a lot of the early order intake. And as a consequence, we did not get the full benefit of that in the first quarter. And so certainly, we'll wait and see kind of how the second quarter really translates as we get further into construction season now that the weather is much more milder throughout most of the country. Second quarter is usually when we see a real pickup. But I would say, as I mentioned earlier, housing start numbers that we've seen published are certainly elevated, but permits are looking more softer. And so that's really the cautiousness that we're looking as we look at our order books. Operator: Our next question comes from the line of Jeff Zekauskas from JPMorgan. Jeffrey Zekauskas: I think early in the call, you were talking about domestic PVC price increases as being $0.06 a pound for the first quarter, $0.01 than $0.02 and $0.03, but you also talked about discounts that were given -- in general, did PVC prices net of discounts rise in the first quarter? M. Bender: So I think your discount, you're referring to the price resets that took place at the end of the year, Jeff, I believe. Jeffrey Zekauskas: Yes, that's exciting. M. Bender: Yes, because certainly those -- as we think about the price domination that we had in January and February, I would say that beginning to kind of pick up traction from where we were at the end of December. And so when you think about the March increase, most of that is going to be reflected in the second quarter and not really in first quarter results. Jeffrey Zekauskas: Okay. And then if I can ask a naive question. Chinese PVC exports year-to-date, maybe they're up 45% of being up 45% for all of 2025. And there's really no PVC materially that's made in the Mid East. And so for me, why is it that PVC prices should be up at all? Does it have to do with European ethylene inflation because there doesn't seem really to be any disruption to Asian production and there's no disruption to U.S. production. And what we're seeing, of course, is we're seeing PVC prices begin to move down pretty sharply in Asia. But what's the source of the sharp move up in PVC. It's very clear what it is in polyethylene. But can you give us an idea of what pushed previously up? M. Bender: Yes. There is -- if you look into the situation in China, as I said, about 25% of the capacity is not carbide based. And so it's really sensitive to naphtha prices. So they've been hit pretty hard with the increase in naphtha prices, and they are economically, it's really impossible for them to export. And they barely at breakeven point when you look at current prices. So -- and quite a few of them have actually dramatically reduce their operating rate. If you look at the carbide, they are mostly in China, they're not really on the coast. So all the effect of transport cost increase and everything has put an increase on to the PVC prices -- you add on top of that, the duty go back removal of about 15%, and you get support for PVC price increase. And that's why right now after a spike I went over $1,000 per ton in China early on. It's stabilizing in the 850, 950 metric ton -- per metric ton when if you look back last year, PAUSE they were down to the 500, 550 million range. So that's still a significant increase. Operator: Our next question comes from the line of Matthew Deo from Bank of America. Matthew DeYoe: So if I square off the $45 million headwind from gas quarter-over-quarter for PEM and then I back out $100 million of EBITDA from the cost cuts sequentially. I don't know, maybe the PEM was down $60 million quarter-over-quarter, all else equal from like an operational perspective. Prices moved up over the quarter, but we just kind of talked through some of the PVC role discounting that was maybe unique to Westlake versus peers. But that doesn't feel like that fully explains the whole differential to me versus what your peers explained or put up in the quarter. And so is there any reason why the calendar role would have been more punitive to you in polyethylene or with some epoxy additional headwinds that maybe we're not catching -- because it still feels like there is some idiosyncratic drag that maybe wasn't so amply felt on your peers? M. Bender: I can't -- Matt, I can't -- I guess I'm struggling with your math here because we certainly have recognized the same price nominations that I think we've seen announced by Westlake throughout the quarter, both in Epoxy and in PVC and polyethylene -- maybe part of the equation is we also did planned maintenance in 1 of our sites earlier this year in the first quarter at Placement. And so that may be part of the equation that you did not have in your individual model. And so that was impactful in terms of opportunities, but it was a planned outage that we had taken. But I think when you walk through the and walk through the model or price nominations and price realizations, I think, are the same that we that we've nominated that I think many of the others have spoken to that I've read. Matthew DeYoe: Okay. And then if I look at I don't know, maybe this during 2022, right. European electricity costs are not up nearly as much, but European caustic profitability is pretty bad right now, maybe down $20 million, sorry, $200 sorry. But it's down $200 a ton. It seems like caustic rolling in Europe. Do you see an opportunity for export window on caustic to Europe to open up, maybe not a way it in 2022, but -- is that an area for kind of upside as we look through the course of the next quarter or so when this continues? And then can you modify how much of the plaque outage was now that we just mentioned that. M. Bender: Yes, I would say it's in the $20 million range. Jean-Marc Gilson: And in terms of caustic, you are correct. I mean caustic price might indicate that there is an opportunity to ship there. But when you look at the price for transport and everything, it completely offsets the spread that there is between the U.S. and Europe. So right now, there is really no good opportunities to export caustic to Europe. Operator: Thank you. This ends our question-and-answer session. Let me turn it over to Jeff Holy for closing remarks. Jeff Holy: Thank you. Thanks for participating in today's call. We hope you'll join us again for our next conference call to discuss our second quarter results. Operator: Thank you for participating in today's Westlake Corporation First Quarter Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended. The replay can be accessed by Westlake website. Goodbye.