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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.
Hiroshi Hosotani: I am Hiroshi Hosotani, CFO. I will now provide an overview of the business results for the fiscal year 2025. Page 4 shows the highlights of business results for fiscal '25. Foreign exchange rates were JPY 150.5 to the U.S. dollar, JPY 173.8 to the euro and JPY 99.2 to the Australian dollar. Compared to the previous fiscal year, the Japanese yen appreciated against the U.S. dollar and Australian dollar, but depreciated against the euro. Net sales increased by 0.7% to JPY 4,132.8 billion. Operating income decreased by 13.7% to JPY 567.3 billion. The operating income ratio was 13.7%, down 2.3 points. Net income attributable to Komatsu decreased by 14.4% to JPY 376.4 billion. Net sales reached a record high for the fifth consecutive year. ROE was 11.3%, down 2.9 points from the previous year. We plan to pay an annual cash dividend of JPY 190 per share, the same as the previous year, resulting in a consolidated payout ratio of 45.9%. Page 5 shows segment sales and profits for fiscal '25. Net sales in the Construction, Mining & Utility Equipment segment increased by 0.2% to JPY 3,806 billion. Sales exceeded the projection announced in October, as demand was higher than expected. Segment profit decreased by 18% to JPY 491.1 billion. The segment profit ratio was 12.9%, down 2.9 points. Retail finance sales increased by 2.4% to JPY 126.1 billion. Segment profit increased by 24.4% to JPY 36.6 billion. Industrial Machinery and Others sales increased by 6.8% to JPY 238.8 billion. Segment profit increased by 38.5% to JPY 37.9 billion. I will explain the factors behind the changes in each segment later. Page 6 shows the sales by region for the Construction, Mining & Utility Equipment segment for fiscal '25. Sales to outside customers for the segment increased by 0.2% to JPY 3,796.1 billion. Details of regional changes will be explained by Mining and Construction Equipment, respectively, on the following pages. Page 7 shows the sales by region for mining equipment within the segment for fiscal '25. Mining equipment sales decreased by 0.6% to JPY 1,904.4 billion. In Asia, sales decreased due to a decline in demand following low coal prices in Indonesia and demand decline. However, sales increased in Africa and Latin America, where demand for copper mines remained strong, keeping overall sales flat. Page 8 shows the sales by region for Construction Equipment within the segment for fiscal '25. Construction Equipment sales increased by 1.1% to JPY 1,891.7 billion. In real terms, excluding FX impact, sales increased by 0.2%. In Asia, sales decreased as it took time to adjust distributor inventories in Indonesia. Sales increased in North America, driven by demand for infrastructure, rental and energy and in Europe, where infrastructure investment is on a recovery trend. Page 9 shows the causes of difference in sales and segment profit for the Construction, Mining and Utility Equipment segment for fiscal '25. Sales increased by JPY 7.8 billion as price improvement effects outweighed the negative impact of decreased volume. Although we focused on improving selling prices, segment profit decreased. The negative effects of decreased volume, product mix and higher costs due to U.S. tariffs and production costs outweighed the price improvements, resulting in a JPY 107.8 billion decrease in profits. The segment profit ratio was 12.9%, down 2.9 points from the previous year. The impact of tariffs in fiscal '25 amounted to JPY 64.2 billion. Page 10 shows the performance of the Retail Finance segment for fiscal '25. Assets increased by JPY 238.3 billion from the previous fiscal year-end due to an increase in new contracts and the depreciation of the yen. New contracts increased by JPY 75.8 billion, mainly due to higher finance penetration in North America and Europe. Revenues increased by JPY 2.9 billion, mainly due to an increase in outstanding receivables. Segment profit increased by JPY 7.2 billion, mainly due to lower funding costs. Page 11 shows the sales and segment profit for the Industrial Machinery & Others segment for fiscal '25. Sales increased by 6.8% to JPY 238.8 billion. Segment profit increased by 38.5% to JPY 37.9 billion. The segment profit ratio was 15.9%, up 3.6 points. For the automotive industry, sales of large presses increased. For the semiconductor industry, sales and profits increased due to higher maintenance sales of excimer lasers with high profit margins. Page 12 shows the consolidated balance sheet and free cash flow. Total assets reached JPY 6,423.9 billion, an increase of JPY 650.4 billion, primarily due to the impact of the yen's depreciation. Inventories increased by JPY 195.2 billion to JPY 1,601.9 billion, affected by both the weak yen and U.S. tariffs. The shareholders' equity ratio was 54.7%, down 0.3 points and the net D/E ratio was 0.26x. Free cash flow for fiscal '25 was an inflow of JPY 249.7 billion, a decrease of JPY 56.8 billion from the previous year. From Page 13, I will explain the progress of the strategic growth plan. The current strategic growth plan, driving value with ambition, which started in fiscal ' 25, set 3 pillars of growth strategy, create customer value through innovation, drive growth and profitability and transform our business foundation. Under create customer value through innovation, we began operating a power agnostics truck at a copper mine in Sweden as part of our efforts to address various power sources. We also conducted a POC test of a hydrogen fuel cell powered hydraulic excavator at a highway construction site in Japan. As part of our efforts for advanced automation and remote control, we are advancing the development of SPVs for next-generation mining equipment in collaboration with applied intuition. We are also promoting the practical use of autonomous driving technology for Construction Equipment through collaboration with Tier 4. Next, under drive growth and profitability, we received the first major mining equipment order in the Middle East for the Reko Diq Copper Gold Project in Pakistan. We began deploying AHS in the U.S. and delivered the 1,000th unit globally. We will also strengthen our remanufacturing business through the acquisition of SRC of Lexington in the U.S. We have initiated the establishment of a training center in Côte d'Ivoire, and we'll work to strengthen our marketing and service capabilities in the Africa region. Lastly, regarding transformer business foundation, in addition to embedding risk management through ERM and strengthening our supply chain through cross-sourcing and multi-sourcing, we accelerated human resource development for innovation and business transformation through the utilization of AI and digital transformation. We succeeded in improving scores in our employee engagement survey. Also, our global brand campaign led to high recognition at international creative awards. Page 14 shows achievement of management targets in the strategic growth plan. Net sales for fiscal '25 increased by 0.7% year-on-year as improvement in selling prices offset the decline in sales volume. On the other hand, profit decreased year-on-year as the negative impacts of volume reduction and cost increases outweighed the effects of price improvements. Regarding management targets, in terms of profitability, the operating income ratio for fiscal '25 was 13.7%, a 2.3 point decrease from the previous year. Despite efforts to improve selling prices, the results were significantly impacted by volume decline, inflation-related cost increases and higher costs due to U.S. tariffs. In terms of efficiency, ROE was 11.3%, achieving our target of 10% or higher. For the retail finance business, we achieved our targets for both ROA as well as the net D/E ratio. Regarding shareholder returns, we expect to maintain a consolidated payout ratio of 40% or higher. Also, we executed the repurchase of JPY 100 billion of our own shares. Regarding the resolution of social issues, we have set 30 KPIs, and progress in fiscal '25 has been broadly in line. Among these, for the reduction of environmental impact, we achieved our target for CO2 reduction from production ahead of schedule. Reduction of CO2 emissions during product operation and the renewable energy usage ratio are also progressing largely as planned. That concludes my presentation. Operator: With that, fiscal year 2026 forecast of the business, and that will be explained by Mr. Hishinuma. Kiyoshi Hishinuma: This is Hishinuma, the GM from Business Coordination Department. I'd like to walk you through our forecast for fiscal year '26 in our primary markets. Page 16 summarizes the impact of the situation in the Middle East and the U.S. tariffs as well as the underlying assumptions that have been factored into the fiscal year 2026 earnings forecast. And then the fiscal 2026 forecast incorporates items for which estimates can be made based on information available at this time. Regarding the situation in the Middle East, assuming the turmoil in the Middle Eastern countries and soaring oil prices and supply chain disruptions will continue throughout the year. We have factored in a decrease in sales of JPY 90.1 billion and an increase in cost of JPY 18.8 billion. However, regarding the impact on production due to shortages of crude-oil-derived materials, while there is a risk, the situation is unclear at this time. Therefore, it has not been factored into the fiscal 2026 outlook. Now on to U.S. tariffs. Based on assumptions of Section 122, additional tariffs will apply throughout the year and the revised steel and aluminum tariffs will apply from April 6 throughout the year. We have factored in additional costs of JPY 67.8 billion. However, we have also factored in JPY 30 billion in refunds, resulting in a net cost increase of JPY 37.8 billion. Page 17 provides an overview of the outlook for fiscal year 2026. We anticipate exchange rates of JPY 150 to the U.S. dollar, JPY 170 to the euro and JPY 106 to the Australian dollar. We project net sales of the JPY 4,118 billion, a 0.4% year-on-year decrease and operating income of the JPY 508 billion, a 10.5% year-on-year decrease. Net income is projected to be JPY 318 billion, a decrease of 15.5% year-on-year. Furthermore, at the Board of Directors meeting held today, a resolution was passed to repurchase treasury stock up to a maximum of JPY 100 billion or 25 million shares and to cancel all repurchase shares during fiscal year 2026. ROE for fiscal '26 is projected to be 9.1%. The dividend per share is planned to be JPY 190, the same as previous year, and consolidated dividend payout ratio is projected to be 53.8%. In addition, when the JPY 100 billion share buyback announced today is included, the total payout ratio is projected to be 85.4%. Page 18 presents the revenue and profit forecast for each segment. Revenue for the Construction Machinery and Mining Equipment and Utilities segment is expected to decrease by 0.4% year-on-year to JPY 3.79 trillion, while segment profit is expected to decrease by 10.4% to JPY 440 billion. Revenue for Retail Finance is expected to increase by 1.1% year-on-year to JPY 127.5 billion, while segment profit is expected to decrease by 1.6% to JPY 36 billion. Revenue for Industrial Machinery and Others is expected to increase by 0.1% year-on-year to JPY 239 billion, while segment profit is expected to decrease by 2.5% to JPY 37 billion. We'll explain the factors behind the change in each segment later. Page 19 presents the regional sales forecast for the Construction Equipment and Utilities sector for fiscal '26. Sales of this segment are projected to decline by 0.5% year-on-year to JPY 3,778.2 billion. Details of the year changes by region are provided on the following pages, broken down by Mining Machinery and General Construction Machinery. Page 20 presents the regional sales forecast for Mining Machinery within the Construction Equipment and Utilities segment for fiscal '26. Sales of mining equipment are expected to decline by 2.4% year-on-year to JPY 1,858.5 billion. Sales are expected to decline in Asia and Middle East due to sluggish demand for coal and impact of situation in the Middle East. In North America and Oceania, demand is expected to decrease as mining companies complete their equipment renewal cycles, leading to a decline in sales. Page 21 shows regional sales forecast for general Construction Equipment within the Construction Equipment and Mining Equipment Utilities segment for fiscal '26. Sales of general Construction Equipment are forecast to increase by 1.5% year-on-year to JPY 1,919.7 billion, while sales expected to decline in Middle East and Asia due to regional situation. Overall sales of general Construction Equipment are projected to increase year-over-year, driven by growth in North America, where demand for infrastructure energy project remains strong and in Latin America, where public investment is robust. This page outlines the factors contributing to the projected changes in sales and segment profit for this segment. Although we are striving to improve selling prices, sales are expected to decrease by JPY 16 billion year-on-year due to negative impact of lower sales volume caused by situation in the Middle East. Segment profit is expected to decrease by JPY 51.1 billion year-on-year, although we will strive to improve selling prices. This is due to the negative impact of lower sales volume, the expanding impact of tariffs and rising procurement cost. The segment profit margin is expected to decline by 1.3 percentage points year-on-year to 11.6%. Page 23 presents the outlook for retail finance. Assets are expected to increase by JPY 23.6 billion compared to the end of the previous fiscal year as new lending exceeds collections. New lending volume is expected to increase by JPY 5 billion year-on-year as we anticipate a high utilization rate continuing from the previous year. Revenue is expected to increase by JPY 1.4 billion year-on-year, primarily due to an expansion in outstanding loan balance. Segment profit is expected to decrease by JPY 0.6 billion year-on-year, primarily due to higher costs. ROA is expected to decline by 0.1 percentage points year-on-year to 2.3%. Page 24 presents the sales and segment profit outlook for Industrial Machinery and Others. Sales are projected to increase by 0.1% year-on-year to JPY 239 billion, while segment profit is expected to decrease by 2.5% year-on-year to JPY 37 billion. In the Semiconductor Industry segment, sales are expected to increase due to customers ramping up production amid the market recovery. However, for the automotive industry application, revenue is expected to rise, while segment profit is expected to decline due to factors, such as decreased sales of large presses and automotive battery manufacturing equipment as well as rising procurement costs resulting from the situation in the Middle East. The segment profit margin is expected to decline by 0.4 percentage points year-on-year to 15.5%. Starting on Page 25, we will explain the demand trends and outlook for the 7 major Construction Equipment categories. The demand figures for the 7 major Construction Equipment categories include the mining equipment. The figures for the fiscal year '25 are preliminary estimates based on our projections. Demand for fiscal '25 appears to have increased by 5% year-on-year. For fiscal year '26, we anticipate a year-on-year decline in demand ranging from 0% to negative 5%. In addition to decline in demand in Indonesia, we expect a decrease in demand in Middle East and neighboring countries due to the deteriorating situation in the region. Page 26 outlines the demand trends and forecast for the North American markets. Demand for the 2025 fiscal year appears to have increased by 3% year-over-year. Demand remains strong in sectors, such as data centers and other infrastructure, rentals and energy. The demand forecast for '26 fiscal year is expected to remain on par with the previous year. We anticipate the infrastructure and energy sectors will continue to drive demand as we go forward. Page 27 shows the demand outlook and demand for European markets. The demand units for 2025 fiscal year is expected -- was expected to increase by 4% previous year. And the demand outlook for '26 is expected to be 0% to positive plus percent -- positive 5%. And Germany and the U.K. public investment demand is expected to lead overall demand, and we are expecting to see the robust demand. Page 28 covers demand trends and outlook for the Asia market. Demand for '25 fiscal year appears to have increased by 5% year-on-year. In Indonesia, although the demand for mining machinery declined due to sluggish coal prices, overall demand increased due to rising demand for general construction machinery, such as food estate projects. In India as well, demand increased driven by aggressive infrastructure investment. The demand outlook for fiscal '26 is projected to be a decrease of 5% to 10%. While demand in India is expected to remain robust, demand in Indonesia is forecast to decline significantly due to the government's policy to reduce coal production and the impact of the introduction of the B50, which is biodiesel fuel regulations. Page 29 outlines the trends and outlook for demand in the Japanese market. It appears that demand for the 2025 fiscal year declined by 13% compared to the previous year. We expect demand for '26 to remain at the same level as the previous year. Although nominal construction investment is increasing due to inflation, real-time growth -- real-term growth is stagnant due to soaring material and labor costs, and there are currently no signs of recovery in demand. Page 30 presents trends and outlooks for the prices of key minerals related to demand for mining machinery. We expect copper and gold prices to remain at high levels going forward. While both low grade and high-grade thermal coal are currently trending upward, we will continue to monitor future developments closely. Page 31 shows the trend in demand for mining machinery. It appears that the number of units in demand for fiscal '25 decreased by 10% year-on-year. Overall demand declined due to a significant drop in demand for coal-related machinery in Indonesia. The demand forecast for fiscal '26 is expected to be a 10% to 15% decline. Although demand for copper and gold mining equipment is expected to remain at a high level, overall demand is projected to decline due to weak coal-related demand and the completion of the replacement cycle in North America and Oceania and the impact of the situation in the Middle East. Page 32 presents the sales outlook for the construction machinery, mining equipment and Utilities segment, including equipment, parts and services. In fiscal '25, parts sales increased by 0.4% year-on-year to JPY 1,055.2 billion. The aftermarket segment as a whole, including services accounted for 52% of total sales. Excluding the impact of ForEx, total aftermarket sales increased by 1% year-on-year. For fiscal '26, parts sales are projected to increase by 2.2% year-on-year to JPY 1,078.5 billion. The aftermarket overall sales ratio, including services, is projected to be 53% and aftermarket sales, excluding ForEx effects are projected to increase by 3.1% year-on-year. The Page 33 presents outlook for capital expenditures and other investments for fiscal year '26. Excluding investments in rental assets on the left, capital expenditures are expected to increase year-on-year due to investments in production and sales facilities as well as the reconstruction of the head office. Research and development centers shown in the center are expected to increase year-over-year due to focused investment in adapting diverse power sources and automation. Fixed costs shown on the right incorporate the effects of the structural reforms. However, they are expected to increase year-over-year due to wage increases and higher R&D expenses. Next, I'll explain the main topics. Page 51 now. Komatsu has acquired a remanufacturing business for construction and mining machinery components and parts from SRC of Lexington through its wholly owned subsidiary, Komatsu North America, Komatsu America Corp. In 2009, Komatsu transferred its North American remanufacturing business to SRC Lexington, and since then, has continued to do business with the company as one of its most important suppliers for Komatsu's North American remanufacturing operations. With this acquisition of SRC of Lexington's remanufacturing business, Komatsu will further expand this operation by establishing a new dedicated manufacturing facility in North America, one of the largest markets for construction and mining equipment. Page 52. In December 2025, Obayashi Corporation, Iwatani Corporation and Komatsu conducted demonstration test of hydrogen fuel cell power hydraulic excavator during rockfall prevention work on the Joshin-Etsu Expressway. The test confirmed several benefits, including operational performance equivalent to that of conventional diesel-powered models and reduced operator fatigue due to the absence of vibration. At the same time, we reaffirm the challenges facing practical implementation, such as the need for higher capacity and the faster hydrogen supply and refueling systems. The three companies will continue to conduct the studies and verification tests aimed at practical implementation. Page 53. Komatsu exhibited at CONEXPO International Construction Machinery Trade Show held in Las Vegas, U.S.A. from March 3 to 7. The company showcased a new generation of vehicles, including bulldozers and hydraulic excavators equipped with the latest features, such as intelligent machine control as well as articulated dump trucks designed to further improve operational efficiency. Komatsu highlighted its initiatives to leverage data from vehicles and digital solutions to enhance customer productivity and safety while reducing total cost of ownership. Page 54. Komatsu has acquired Malwa Forest, a forestry machinery manufacturer through its wholly owned subsidiary, Komatsu Forest. By acquiring technological capabilities and product lineup for lightweight compact cut-to-length forestry machinery, specifically designed for thinning operations, a segment in which Komatsu previously had no presence, the company will contribute to value creation across the entire circular forestry process. Page 55. We have reached a cumulative total of the 1,000 units for our ultra-large autonomous dumb truck equipped with autonomous haul system, AHS, for mining operations. Since introducing AHS for the first time in the world in 2008, the cumulative total haulage volume has exceeded 11.5 billion tons. That concludes my presentation. Operator: Now we would like to move on to the Q&A session. So first, we would like to take any questions from the people here. Maekawa-san from Nomura, please. Kentaro Maekawa: This is Maekawa from Nomura. I have 2 questions. First, regarding tariff impact and price increases. Hosotani-san, you mentioned this in your presentation, but last fiscal year, JPY 64.2 billion was the cost impact. I think originally, you were expecting JPY 55 billion and about JPY 120 billion, which is 4 quarters -- a quarter multiplied by 4, what's going to be your expectation for fiscal '26? So what kind of changes did you experience in reaching your results for fiscal '25? Can you confirm that first? And what have you accounted for, for this fiscal year? Kiyoshi Hishinuma: This is Hishinuma speaking. Regarding U.S. tariffs, there are no major changes on a dollar basis. While we were converting it at JPY 140 before, but now it's at JPY 150 against the dollar or to be more exact, JPY 150.5 against the dollar. Therefore, on a U.S. dollar basis, it's not different. It hasn't changed. It's just because of the FX impact. For fiscal '26, the impact will materialize on a full year basis. So it was about around JPY 600 million before, but it should reach around JPY 900 million. Other than that, we have accounted for refunds as well, which is equivalent to the reciprocal tariffs that are likely to be refunded. So that's what we have accounted for. Kentaro Maekawa: So if it's $900 million, it's about JPY 135 billion. For steel and aluminum, how much of an increase? How much of a decrease are you expecting from reciprocal? And the JPY 30 billion refunds are also included in the JPY 135 billion. So when you look out at March '28, is it going to become JPY 165 billion? So can you break down the JPY 135 billion? What has been going up, what has been coming down? Or can you talk about how it's going to rise from the JPY 64.2 billion? Kiyoshi Hishinuma: Well, regarding the period, before, it was from the middle of the year. So at the beginning of the year, we did have inventory from the previous year. So we started paying the tariffs at a later timing from a payment point of view. From a P&L impact, we had year-end inventories. So it was relatively low. But in fiscal '26, from the beginning of the fiscal year, we are making payments. So there is a period difference. And regarding the details, reciprocal tariffs may be gone. But for steel and aluminum, we used to calculate the content in order to reduce the level of tariffs paid. But now it's at 25%. So the impact is greater. So that is one reason why it's greater than before. From that point of view, for the refunds, that's about last fiscal year's portion. So for fiscal '27, we won't have deferrals from the previous fiscal year. Therefore, we will see full impact. So if nothing changes, it's likely to be JPY 165 billion. Next year, of course, that 10% or Article 122, when that's going to end is a question mark. But well, if we're working off the assumption that the same thing is going to materialize for the next year, that's what we're accounting for, but we are not sure. In that case, it's JPY 135 billion, for next year, the following year, if sales and production is not going to change, it should be about JPY 130 billion for fiscal '27 as well. And this year, it's JPY 30 billion less, or excuse me, for the results for fiscal '25, we already said that it was JPY 64.2 billion. And for fiscal '26, originally, we were guiding JPY 130.7 billion or JPY 130.8 billion. But because of the refunds that we were explaining, which is worth USD 200 million, which we view as JPY 30 billion in terms. So when you account for that, it should be a little bit over JPY 100 billion of an impact on our P&L. Kentaro Maekawa: Got it. For price increases, and on Page 22, when you look at the projections for selling prices, it's plus JPY 68.9 billion. So hypothetically, even if you don't get the refunds at JPY 130 billion, you should be able to make up for it through price increases. Are you making progress? And have you gained visibility already? Can you also speak to that? Kiyoshi Hishinuma: This is Hishinuma speaking. Regarding pricing, we did a bottom-up approach looking at the business plans of our subsidiaries, but price increases are also accounted for, for the U.S. But Caterpillar is not raising prices, and those are the circumstances. So there may be a risk. However, for the tariff increases in the U.S., we won't be able to absorb it completely just with the U.S. So global price increases need to happen. So that's what we're accounting for. Kentaro Maekawa: Understood. My second question is for this fiscal year and your view on volume. Also going back to Page 16, in light of the Middle Eastern conflict, you have reduced sales by JPY 90.1 billion. And last year, when there were some tentative assumptions for GDP as much as you can see, what can you see, what can you not see? So what are the assumptions that led you to JPY 90.1 billion? Because in mining, when energy prices are high, I think that may also serve as a positive. So I was wondering how you view this situation. Kiyoshi Hishinuma: This is Hishinuma. First, regarding demand for the Middle East, a 60% decline is expected. So that has been accounted for, 6-0 percent. And also due to the impact from the Strait of Hormuz, we believe that costs are likely to increase and especially negative impact on countries in Asia. So we are expecting sales to decline. But when it comes to higher coal prices, there is a chance that they may stimulate demand. But when you look at countries like Indonesia, it's true that what originally used to be $40, $50 a ton are now reaching $60 a ton. But even so, we are seeing a higher idle standby rate of equipment, and we're not sure if this is going to continue or not in the future. So demand has not really picked up. So currently, people are still on the sidelines waiting and seeing. There may be an opportunity, but so far, we have not accounted for that in our expectations. Takuya Imayoshi: Just to add a comment to that. Last year, U.S. tariffs just started. So it was hard to account for it in our guidance. But based off IMF predictions and so forth, we have viewed how much GDP is likely to decline and what's going to happen to demand. And that is why we accounted for JPY 50 billion decline in sales. But the global economies have not yet fallen, but we try to account for risk as much as possible to the extent that we can calculate. And also the Middle Eastern crisis, we don't really know its impact clearly yet, but our way of thinking is the impact from the Strait of Hormuz is likely to continue. That's the assumption we have. But then because we are dependent on crude oil as well as LPG, like -- in regions like Africa as well as Asia are likely to be affected. So like Hishinuma-san explained, we are expecting a demand decline in Asia as well as in the Middle East, leading to a sales decline in turn. And also accounting for our gut feeling that we have experienced from the past, we have accounted for a JPY 90 billion impact. And also due to higher crude oil prices, we are already seeing material prices increase that are crude-oil-derived, and that impact is JPY 18.8 billion. So this is purely looked at as a cost increase. So JPY 90 billion of volume decline and JPY 18.8 billion of a cost increase SVM-wise is what we've assumed due to what I've just explained. On the other hand, of course, the impact may be greater than our assumptions or the crude-oil-derived goods may fall to a shortage, which may affect our production, but that is still not known. So we have not accounted for that negative impact. Operator: I would like to move on to the next one, Sasaki-san from UBS. Tsubasa Sasaki: This is Sasaki from UBS Securities. I've got several ones, but the first question is the figures I always ask you. Page 22, this waterfall chart and volume product mix and also the cost variance. Looking at the Page 9 and Page 22, the plan and actual performance, and there have been some figures related to tariffs, but could you please give us the details around those factors? And this volume mix has been negatively contributed to your performance. So the negative JPY 32.2 billion, that's in your plan, but what gets you to that number? Hiroshi Hosotani: This is Hosotani speaking. First, Page 9. Page 24 and Page 25 variance. First in segment profit, JPY 72.6 billion of the volume mix and product mix difference, just hold on a moment. I'm sorry on this one. First, JPY 25.8 billion for the volume difference, and that was a negative. And also product mix, JPY 25.1 billion, that's included. Now factors for this, is that as we explained, electric dump truck, as we explained those up until the last fiscal year, and it's not that they were able to enjoy the higher profitability, but the mix increased for this electrical dump truck. And also Chile contract business margin declined slightly. And also regional mix had negatives here. And among the region, the highest profitability comes from Indonesia. And sales volume significantly decreased in Indonesia market. And that's why regional mix has seen the impact from that and JPY 19.6 billion approximately. Now moving on to the right and production cost, JPY 81.6 billion negative. Let me give you the breakdown for that, which includes the U.S. tariff cost increase, JPY 64.2 billion. This is only applicable to the Construction Equipment of the JPY 64.2 billion and other ones, like the variance coming from industry others, Industrial Machinery and Others. And also cost variance, let me give you the breakdown for that. From third party, we purchased components, the major components, and those costs started to inflate. So that's why there is the major variance of cost of goods. And fixed cost variance, fiscal '24 to '25, the labor cost significantly increased. Apology, you talked about the volume variance, apology, hold on a moment. For fixed cost, JPY 20 billion comes from the labor cost and the SGP projects were underway. And also the variance in comparison between '25 and '26, JPY 31.8 billion of the volume that's been included here, and of which the volume mix amounts to JPY 40 billion. JPY 40 billion, the big chunk comes from Indonesia. Hold on a moment. Other than volume mix, the regional mix and product mix are written here. Fiscal '25, the losses we have to make were all gone for '26. So JPY 31.8 billion included volume mix and that amount to JPY 40 billion. That's all from me. Tsubasa Sasaki: What about the variance of cost of goods? Because I guess the cost increases comes from the conflict in the Middle East. Hiroshi Hosotani: Yes. Fiscal '25 and '26, JPY 49.6 billion for production. The U.S. tariff's impact is included here in this number. About JPY 67 billion is included here, but at the same time, the JPY 30 billion of the refund is included. So the net it all out, the JPY 37 billion of cost increase is included here. And also other cost of goods variance, JPY 10 billion-some is also included. Tsubasa Sasaki: My second question, let me take this opportunity to ask this question of Hosotani-san. You took office as CFO. Give us your commitment as a CFO as we look ahead. For example, as a Komatsu, the capital efficiency improvement and the better margin, I mean, there could be a number of the lists that you want to attain, but you're succeeding Horikoshi-san and took office as CFO. And as one of the members of the top management team, what are the things would you like to achieve? I mean this is your first time to be here in a financial briefing. Do you have any commitment would you like to make? That's my second question. Hiroshi Hosotani: Well, you set the high bar for me actually, but let me try to answer. My predecessor, Horikoshi-san, mentioned this too. But basically, we always have to be mindful of the shareholders in running the business. And I would like to be contributing to the way we run the business. So shareholder returns and balance sheet and ROE, those indicators are the things I always look. For example, in comparison '25 to '26, the net income -- I mean, volume declined because of the conflicts in the Middle East. So net income declined. Business size and the revenue size need to expand from our perspective. And to that end, we are engaged in various activities. As we expand the business size, I would like to be of a support for the better decision on the management level so that we are able to have a better top line. I'd like to engage in those activities as CFO. Tsubasa Sasaki: Is it more like a better top line? Is it one of the things, which you like to commit? That's what I get from your message. What made you think that way? Hiroshi Hosotani: Well, for example, as we look at the current status, the conflicts in the Middle East and there are impacts from that. It takes time until the situation will go back to where it has been. So in the longer term, this is the one-off factor. But the U.S. tariff is concerned, some say this is a one-off factor, but at the end of the day, this is about the balance of the export-import of the United States and other countries and try to correct this imbalance. So these costs are permanently are subjected to occur. So that's why we need to continue to contribute to the cost, but net profit size need to be secured to an extent, which means that we are able to -- we need to have a better top line. Operator: Let's take the next question from SMBC Nikko, Taninaka-san. Satoshi Taninaka: This is Taninaka from SMBC Nikko. Regarding mining equipment, mainly, I have 2 questions. For metal prices, including coal prices, they are rising lately. And in the new fiscal year, when you add up the after services, you're only accounting for about 3% growth year-over-year. I think you're being conservative when you think about the underlying trends. And when you look at the underground mining equipment manufacturers' results, their growth rates look stronger. So can you talk about the backdrop to how you derive these assumptions? Kiyoshi Hishinuma: This is Hishinuma speaking. For mining equipment, as you rightly said, prices have been going up for, obviously, copper and gold and so forth. But on the other hand, for equipment and the way we look at demand, the replacement cycle is pretty long. So there's ups and downs. And also when you look at it by region, there are regions where we're expecting higher demand and other regions where we're expecting lower demand. That's for equipment. And the growth we're expecting for the aftermarket business may look small. However, we did see drop-offs that were quite significant in Indonesia and also in the Middle East, including reman, we have been growing the business, but all in all, the numbers may not look as dynamic as you were expecting. Satoshi Taninaka: My second question is with respect to the replacement cycle and you talked that it has run its course. From 2011 through 2013, demand for mining equipment grew quite substantially. And then you have a replacement cycle. And are you trying to say that the message was that the replacement cycle is over? Or are you saying that over the short term, there are ups and downs and replacements are at a standstill at this moment? So for March '28, are you trying to imply that demand is going to go down even more? Kiyoshi Hishinuma: Well, the cycle we're referring to is not about the 2011 cycle. It's more about whether we have big deals or not in recent years. For example, in North America, in '24, '25, in North America, there were some big deals. And we have been explaining that some big deals have been absent in 2025 because there were more in 2024. So they were less in 2025. And in 2026, we are expecting at this moment less of large deals. But regarding the share volume of general deals, we are actually seeing an increase. So it's just a matter of whether or not we are carrying large deals or not. For example, in the case of Australia, in fiscal '26, we're not expecting that much of big deals, so to say. That's what we were referring to. But for super large dump trucks that we manufacture in North America, when you look at our production plans and compare '25 with '26, production volume is not going to change that substantially. Even if the sales may not be recognized in 2026, there is a possibility that it's going to go into 2027 sales. And rope shovels are being produced at 100% capacity. And we are also working on fiscal '27 already. And because copper is doing well, we're not really expecting that much a decline. However, we need to monitor closely the trends in Indonesia. Operator: I would like to take a question from Adachi-san from Goldman Sachs. Takeru Adachi: This is Adachi from Goldman Sachs. I have 2 questions, too. The first one, the mining equipment. As Hishinuma-san shared, Asian market, usually coal prices are on the rise, which is positive, but diesel prices and operating costs have been boosted, which is negative and negative outweighed the positive and the dormant that populated the vehicles is increasing. And what are the changes that you have seen for dormant and idle vehicles? And I think up until Q1 last fiscal year, there was a last minute demand was very strong and that sub demand in Q2. But as you look ahead, Q1, you see the sales can drop from the fiscal year, but do you think that, that will be flattish after Q2? Or do you think that Q2 and beyond, do you think the moderate decline continues, especially for the Indonesia mining equipment market? Kiyoshi Hishinuma: For Indonesia, as you raised a number of the points, the idle vehicles ratio and what are the historical trends? For example, 2024, the end, 5%, they used to be 5%. Then fiscal '25 in June, 8.5%. And then that was up to 9.6% in January and 10% afterwards and 17% in January. So the coal prices goes up and even the workload increases, and they are able to handle the increase in volume with the coal prices with the current volume. So B40 and now start in July, it starts B50 and production volume, 800 million tonnes, 600 tonnes -- 600 million tonnes. And there are some talks of increasing the volume. Throughout the year, we are not 100% confident that there are bound to increase. So fiscal '26, I believe that we are seeing this as a cautious note. Takeru Adachi: As Tanigawa-san and yourself discussed a bit, Indonesian coal and precious metal have been pretty strong in prices and the production plan is at full, as you said. In order to accelerate it, would you like to accelerate further on that point? Kiyoshi Hishinuma: In North America production capacity ramp-up, rope shovel might be at full. The electric dump truck production plan for fiscal '26 and '25 will be equivalent, I said. But versus what it has been in the past, there are some time where we produce more. So at the full capacity, if we produce them, and there could be some more availability. So in North American market, we are not -- we haven't gone to the point where we are dealing CapEx. Takeru Adachi: Okay. Next one is cash flow and the buyback is announced. And the previous year and two years ago, like those 2 years, you have announced JPY 100 billion. What are the decision-making process like? And behind that, free cash flow assumption were -- would have been calculated. How much free cash flow you're expecting, JPY 160 billion is expecting, I guess. So how much of the operating cash flow and the working capital level? And what are the production assumption to the working capital? Maybe you can have a breakdown approximately. Do you have any up and down of your planning for production? Hiroshi Hosotani: This is Hosotani speaking. For free cash flow, fiscal '24, free cash flow, JPY 300 billion-or-some. That's fiscal '24. And it's been a few years, the JPY 250 billion to JPY 300 billion of the free cash flow. That's our track record of the free cash flow. Now with this amount, dividend and buyback of the JPY 100 billion, we have enough excess capacity to do that with this amount because it amounts to JPY 300 billion. Now for fiscal '26, free cash flow or as planned of the JPY 250 billion plus and deposits and others, I mean, sales were not growing and profits declined, but the working capital is expected to improve. So as a result, so we are able to generate equivalent level. JPY 300 billion plus of the free cash flow are our commitment. So that will continue for 3 years. And M&A portion excluded, then JPY 1 trillion. And that's a commitment and goal we set ourselves. Operator: There are people raising their hands on Zoom. So we would like to take that question from [ Otake-san ], please. Unknown Analyst: Can you hear me? This is Otake speaking. Operator: Yes, we can. Unknown Analyst: Just wanted to confirm again. First question is regarding the impact from U.S. tariffs, please let me sort it out. For the year ended in March 2026, the impact was JPY 64.2 billion on your P&L. Is that correct? Hiroshi Hosotani: That is correct. JPY 64.2 billion for Construction Equipment. That's for Construction Equipment. But for Industrial Machinery, there are -- there is a bit of tariff's impact as well that has been incurred. Unknown Analyst: Up until the previous results, according to the materials, you were saying JPY 55 billion of impact from tariffs. So does this include Industrial Machinery as well on top of Construction Equipment? Kiyoshi Hishinuma: It's only several hundreds of millions of yen attributed to Industrial Machinery. So the level doesn't really change. There was about JPY 400 million of an impact from Industrial Machineries and Others. Unknown Analyst: Got it. And for -- from the assumption of JPY 55 billion, the reason why it increased to JPY 64.2 billion is due to FX impact, right? Kiyoshi Hishinuma: Yes, exactly. Unknown Analyst: No differences on the U.S. dollar basis, broadly speaking. It's just due to the differences in conversion FX rates. So for this fiscal year, for the year ending March '27, excluding refunds, you're expecting JPY 130.8 billion. Is that correct? Hiroshi Hosotani: That is correct. Unknown Analyst: Got it. And the impact amount, the reason why it's higher, you were saying that the content calculation has been abolished and that has had an impact. Can you walk me through what that means and entails? Kiyoshi Hishinuma: Regarding content, for steel and aluminum content, you calculate how much is included for -- as part of your product prices or cost. And that is subject to steel and aluminum tariffs and the rest to reciprocal tariffs. So by calculating the content, we have been able to reduce its cost. And even for derivatives, it is 25% now. So when we were calculating the content, it was less than 25% basically. Unknown Analyst: Or by doing a precise calculation of content, you have been explaining from before that you are able to reduce the cost. But I guess that is not possible anymore. Then in order to reduce tariff impact going forward, such as reviewing our supply chain or logistics, I think that will be key, but with respect to these measures, in order to reduce the negative impact, what are you focusing on? Or what would you like to focus on going forward? Takuya Imayoshi: Well, last year, in April, we shared with you various types of countermeasures we were planning for. For the products that used to go through North America that went to ultimately Canada or Latin America, by shifting to direct shipments instead and shipping out to Canada directly, we will be able to alleviate the impact, and that is fully contributing already. And there are some parts that are going through the U.S. as well. But by directly shipping and also creating warehouses in Panama, we are trying as much as possible to reduce the impact. And for countermeasures, for steel and aluminum tariffs, not by simply just paying for it, but by calculating the content, we had been trying to minimize the tariff impact. However, now it's going to be 25% across the board. So that countermeasure is no longer viable. However, reciprocal tariffs are now gone. So on a net-net basis, the actual amount of payments are slightly up. You referred to the P&L, but the impact on '25 and the impact on '26 because of more inventory impact, it's going to become a greater impact. And the difference in tariff rates have also been impact -- are expected to impact us as well. Unknown Analyst: I see. So you are working on various initiatives. But in order to mitigate tariff impact even more, one kinds of feels that it may be challenging. But what would you like to do additionally? Or do you feel that you will be able to reduce its impact? Takuya Imayoshi: Of course, increasing production in the U.S. is something we are considering. But from a cost point of view, it is also challenging, which is preventing us from doing so. So I think it's more of a buildup of various improvements. And hopefully, we could raise prices to make up for it globally or reduce costs globally as well so that we can ensure that we are profitable. And sorry for going on, but for price increases, you were talking about Caterpillar and that they are not raising prices recently, but currently, in the U.S. as well as in other regions. Unknown Analyst: When you look across the competitive landscape, how are the price increase trends from your point of view? How do you view the market? Takuya Imayoshi: Well, we have been communicating this from before. But from several years ago, in accordance with higher steel prices, we have been increasing prices, but our competitors have been more bullish in raising prices. So we were a little bit behind. But in order to catch up, we have continued to steadily raise prices. But now steel prices have calmed down and price increases just limited to higher tariffs is not really happening, and that is why we are seeing difficulty here. Unknown Analyst: My final question is about the Middle East and its impact. JPY 18.8 billion of a cost increase is what you're expecting. Can you break it down? How would it look like? Can you share it with us as much as possible the breakdown? Kiyoshi Hishinuma: It's -- costs are rising and parts are rising due to oil-derived products and also logistics, transportation costs because of higher fuel costs, that has been accounted for as well. The majority is because of higher parts prices and cost increases. Takuya Imayoshi: Meaning fuel, oils, paint, gas that are oil-derived, material prices have already been going up quite a lot. So that has been accounted for as a cost increase. Unknown Analyst: I see. So procurement cost increases is about maybe 80% of the cost increase and maybe 20% to 30% associated with seaborne transportation. Takuya Imayoshi: Maybe it's like a 70-30 split. Operator: I would like to take questions from anyone joining us online. BofA, Hotta-san. Kenjin Hotta: This is Hotta from Bank of America. I have 2 questions, too. First, with the conflicts of the Middle East and that has impacts on volume and other mix. On the production front, you have uncertainties, so you haven't incorporated them into the guidance, as you said. But if possible, on production front, how much impact do you think that there is? You said there is nothing for now, but given the current situation, how much potential impacts you might have to suffer from? Or are you saying that you have enough inventory, so you are able to have the muted impacts from that on the production front? Give us the details around production areas, if there's anything you can share with us. Kiyoshi Hishinuma: Well, first on production area or production front. First, we try to sustain production work, and we try to work with suppliers. We try to secure enough works and components. And how far we are able to secure them? It's not to say that we are able to secure them for 6 months and 1 year ahead. So we always have to cement where we are, and we try to secure production. To the worst-case scenario, naphtha and other materials could have issues in the future. And if and when, if we can secure some of the materials from plants for any of the one single supplier and the production itself could be impacted. But when would that happen? We're still not sure. That's why we haven't incorporated the potential factors into the guidance this time. Kenjin Hotta: Okay. My second question is the mining equipment. You said replacement cycle. And you said that there is a completed replacement cycle now, but fuel is on the rise. So a little bit outdated equipments. Needs to have -- needs to be a newer ones so that, that uses less oil or less fuel. Is that kind of the replacement demand that you're seeing? Kiyoshi Hishinuma: Well, it's not going to be a replacement cycle you're going to see in the passenger cars. Kenjin Hotta: Okay. But to stay on the same topic of the fuel prices, if you look at the Australian market, diesel shortages is very dire and SMEs mining companies started decide the shortage of diesel and they need to compromise the utilization ratio recently. And BHP has no issue whatsoever because they are big enough. But Australian market is primarily a market where the utilization ratio for the machine is declining. Is that something you're saying? Or isn't there any impact on your operation whatsoever in terms of the diesel shortage? Takuya Imayoshi: Well, we haven't witnessed any of the specifics, be it suspension of the operation itself, but there are risks, yes. Operator: There's another question from online, McDonald-san from Citigroup Securities. Graeme McDonald: Can you hear me? Operator: Yes, we can. Graeme McDonald: This is McDonald speaking. I have a question about Page 26 in North America. Looking at the right-hand side for Q4, for the 7PLs, it was plus 7%. And going back, I think for the first time in several occasions, it was a good number, maybe several years, where you're seeing an uptrend even so for this fiscal year. For volume, you're expecting flattish demand compared to fiscal '25. The non-housing space, when you look at the segments like mining, energy, road construction and data centers and so forth, for this fiscal year, I kind of think that you're conservative in your projections for North America this year. Of course, I'm sure you have a lot of concerns in your heads. But why are you guiding flattish demand? Shouldn't you be guiding having an assumption that is more positive? That's my first question. Kiyoshi Hishinuma: Thank you for the question. For North America, as you said, what we show in the material for Page 26, at the bottom right, we show the breakdown of demand by segment, divided into rental, energy, infrastructure that are performing positively across the board. It was only housing as well as government-related that was negatively contributing. So all in all, the trends are positive. And after completing fiscal '25, we saw plus 3% growth in demand. So when you listen to what customers are saying even, they have about order backlog of 6 months to 2.5 years. Therefore, we do believe the market is quite strong. So our assumptions are flattish, but we're not really anticipating any major negatives. Therefore, yes, you can say that we are being conservative. Graeme McDonald: Well, from a regional point of view, Indonesia apparently had the highest profitability in the past, but if you're so bearish about Indonesia, the highest profitability as a market, I guess, is coming from North America in the non-housing segments. Do you think that's true that it has the highest margins? Kiyoshi Hishinuma: If you just look at SVM, excluding fixed costs, the procurement cost inclusive of tariffs is quite big. So no, the margins are not the highest in North America. Graeme McDonald: Okay. So it will continue to be challenging. So I just wanted to confirm another thing about Page 9, I think. In your comments, Hosotani-san, for last fiscal year and the negatives from product mix was EDTs. Is this one-off? Or for electric dump trucks and its profitability, is it relatively low? I just wanted to confirm that point you made. Hiroshi Hosotani: This is Hosotani speaking. Our dump trucks is because of our dump truck mix. Globally, we sell -- the regions where dump truck margins were high was Indonesia. For Indonesia, we have been selling rigid dump trucks mainly. And for electric dump trucks are being made in the U.S. on the other hand, compared to rigid dump trucks, the costs are greater due to its structure. And sales in Indonesia, especially for mining has been dropping off. So product mix-wise, rigid went down, whilst EDT composition has increased. So from a product mix point of view, because of more electric dump trucks, average margins have come down slightly. Graeme McDonald: I see. So we shouldn't be that concerned, I guess. Hiroshi Hosotani: Correct. Graeme McDonald: Finally, I have a quick question on topics on Page 50, you talked about AHSs and reaching 1,000 units in volume. I think that's great. Going forward, do you have any numerical targets as to how to grow the business even more? That's my final question. Kiyoshi Hishinuma: Well, in the strategic growth plan and our targets, it was 1,000 units in fiscal '27. That was our original target, but we have been able to reach it beforehand. So we have been -- we are thinking about raising the target up to 1,200 units instead. So compared to the pace we saw back in fiscal '25, it looks like it's going to decelerate. However, new customer implementation is likely to increase. And in that case, the rate of increases is going to look like it's decelerating, but we will continue to work on its implementation. Graeme McDonald: How about margins? Compared to rigid dump trucks, is it lower? Kiyoshi Hishinuma: Well, we talked about electric dump trucks earlier. So that in itself is not that high, but this is an AHS system, and we receive income from subscriptions as well. So that is a positive. Operator: We are counting down some time. Anyone who has questions here? Okay. I'd like to take a final question from the floor. Issei Narita: Narita from Mizuho Securities. Sorry, I'm repeating myself, but Page 28, here in Indonesia, mining equipment demand doesn't look like it's declining so much. And yes, I do understand that there is a declining market, but the Chinese manufacturers try to make inroads into mining equipment more and more. And against the hard work in Latin America, the Indonesia and those smaller kinds of smaller dumps were utilized in those Indonesia. So other than the market, there have been anything that you can share other than the competitive landscape? And also, you said Indonesia, it has the highest margin, whereas coal prices will give you the headwind. And that might be changing in the future, but with your self-effort, do you see any capacity to increase further overall performance in Indonesia? Takuya Imayoshi: Well, as you see the bottom right, Page 28, you see the demand trend, and that might be misleading, but you see by sector here. So in terms of the size, the smaller equipment for mining are included here. And then fiscal year '25, we are shipping a lot of those smaller ones and 100 tons demand is on a decline. So that sounds like that doesn't add up. But the demand for 100 tons, the customer try to hold back the purchase. That's why we are struggling. And fiscal year '26, the coal production volume is going to be struggling, but we work with the distributors to secure enough volume here. Operator: So finally, Tai-san from Daiwa Securities, we would like to take your question remotely. Hirosuke Tai: Yes, I'll keep my question brief. I have a question for Imayoshi-san. With respect to the Middle East and tariffs, that was the main topic for today's call. Even if you add back those numbers into your guidance, profitability is expected to be about the same as last year or a little bit down, whether it be on a company-wide basis or for the C&ME segment. And I think it all comes down to inflation, maybe. But how about striving to raise profitability by making up for it? Do you have that intention? Or are you fine with this kind of margin? And would you like to instead raise top line? Because you have just started a new fiscal year. So Imayoshi-san, of course, can you talk about some themes that you're considering as a company? Of course, countermeasures for the Middle Eastern conflict may be one, but I was hoping that you could share 1 or 2 things on your mind. Takuya Imayoshi: Well, as stated in the strategic growth plan, we want to have profitability and growth rates that exceed industry levels. So it's not just about growing top line, but also profitability as well. Overall, demand-wise, we are at a juncture where it's broadly flat. It's not just tariffs impact, but Indonesia's drop-off is also a negative when it comes to profitability, but we will steadily implement the measures that we're stating in the strategic growth plan. We will work on product development as well as we'll think about ways to grow the aftermarket business. So we would like to ensure that we're able to generate results so that we can also enhance profitability. Operator: Thank you very much. This concludes the Q&A session.
Operator: Good morning, everyone, and welcome to the Knife River Corporation First Quarter Results Conference Call. [Operator Instructions] Also, today's call is being recorded. At this time, I would like to hand things over to Dara Dierks, VP of Investor Relations. Please go ahead, ma'am. Dara Dierks: Good morning, everyone, and thank you for joining Knife River Corporation's First Quarter Results Conference Call. With me today are President and Chief Executive Officer, Brian Gray; and Chief Financial Officer, Nathan Ring. A question-and-answer session will follow their prepared remarks. Today's discussion will contain forward-looking statements about future operational and financial expectations. Actual results may differ materially from those projected in today's forward-looking statements. For further detail, please refer to today's earnings release and the risk factors disclosed in our most recent filings with the SEC, which are available on our website and the SEC website. Except as required by law, we undertake no obligation to update our forward-looking statements. During this presentation, we will make reference to certain non-GAAP information. These non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in today's earnings release and investor presentation. These materials are also available on our website. I would now like to turn the call over to Brian. Brian Gray: Thank you, Dara. Good morning, everyone, and thank you for joining us. We had a strong start to the year, and I look forward to discussing our first quarter in more detail. Also today, we'll spend some time highlighting key components of our growth strategy and what we see ahead in 2026. Starting with our first quarter results. I'm pleased to report we improved revenue by 16% and adjusted EBITDA by 16% year-over-year, while expanding adjusted EBITDA margins by 290 basis points. We saw increased activity in our markets, which helped drive double-digit volume growth across our product lines. Combined with our efforts to lower costs and optimize pricing, we realized margin growth for aggregates, ready-mix and asphalt. On the contracting services side, revenues were up, and we have secured record quarter backlog of $1.2 billion. We are just now entering the start of our construction season, and we're doing so from a position of strength. Lastly, we completed 3 aggregates-based acquisitions during the quarter. We expanded into Utah with a platform operation in Salt Lake City, and we strengthened our footprint in Montana. I'll talk more about our acquisition opportunities in a few minutes. We are growing. Our competitive edge initiatives are working, and we believe we are well positioned for another successful year. We're excited about 2026, and we're confident in our ability to deliver continued growth. Supporting that confidence is a clear improvement strategy that we believe makes us the employer, supplier, acquirer and investment of choice. Turning to Slide 4 in the deck, you can see the 4 pillars of Knife River's growth strategy. First is our midsized higher-growth markets. Second is vertical integration. Third is the opportunity for self-help to improve margins. And fourth is our Life at Knife culture and relentless drive for excellence. We recently conducted a perception survey that provided a lot of encouraging feedback, including that investors value our strategy and want to learn more about it. Today, I will spend more time discussing 2 aspects of our strategy, our markets and vertical integration. Starting with our unique footprint, we believe our strong position in midsized, higher-growth markets presents a competitive advantage. Over the past decade, population growth in Knife River states has outpaced that of non-Knife River states, and this trend is expected to accelerate. From 2025 through 2050, our states are projected to grow 2x faster than that of non-Knife River states. More people equates to more demand in our markets on essentials like transportation, housing, water and energy infrastructure. You can see that demand already this year, as our states are investing in road and bridge infrastructure faster than other states. Collectively, DOT budgets in Knife River states increased approximately 15% this year compared to flat in non-Knife River states. With this strong funding environment and clear need to continue repairing the nation's roads, we expect state and federal infrastructure funding to continue increasing over the long term. This represents a significant opportunity as Knife River states collectively include over 3 million lane miles of roads. That is almost 40% of all U.S. lane miles. Further, roads in our states are exposed to harsh conditions. As a result, they require routine maintenance, creating ongoing demand. In addition to public infrastructure, heavy materials demand across our markets is supported by a diverse set of structural drivers. Some of these drivers include energy projects, military spending and data center development. We believe midsized markets like ours present an increasingly attractive opportunity for data center growth. We have some of the lowest cost industrial power in the country, greater availability of land and water and attractive livability and affordability to support an expanding workforce. Over the last 2 decades, GDP in Knife River states has grown at roughly twice the pace of non-Knife River states, highlighting a proven track record of outperformance and a strong foundation for continued growth. Lastly, an important reason we like our markets is our position within them. Nearly 90% of our aggregates volume comes from markets where we have a leading position. This scale, in addition to our aggregates reserves and vertical integration gives us a competitive advantage and enables better purchasing, pricing and reliable supply chain. To put our unique footprint into context, we thought it would be helpful to take a closer look at our 3 geographic operating segments and how they support our overall strategy. Starting with the West on Slide 6. This segment includes California, Oregon, Washington, Alaska and Hawaii. Over the next 25 years, this market is expected to grow its population by approximately 12%, which we believe will support sustained infrastructure investment and commercial activity. In 2026, state DOT budgets across the segment are approximately $34 billion, reflecting a 13% year-over-year increase. In addition to population growth and robust funding for public infrastructure, the West benefits from military spending, the build-out of data centers and other market-specific growth opportunities. We are a preferred materials vendor for a data center and hyperscaler that is active in this region, and we continue to work with them on a number of ongoing developments. Also throughout the Pacific Northwest, we are a premier supplier of prestressed concrete products, including the data center projects for multiple repeat customers. In Hawaii, we are currently working on a large Navy project at Pearl Harbor, and the state is also seeing increased private investments on Maui and Oahu. In Alaska, we continue to see elevated levels of military and airport investments. We are supplying materials up to the North Slope, where energy and mining-related projects are driving our optimism for growth in Alaska. Taken together, increased federal spending and improving economic activity across the West underpin our confidence in long-term demand in this segment. Turning to the Mountain segment. This includes Idaho, Montana, Wyoming and our recently added operations in Utah. This segment benefits from some of the strongest demographic trends in the country with population expected to grow 26% by 2050. These states are among the most desirable places to live in the U.S., supported by strong inbound migration and in the case of Utah, one of the highest growth rates in the nation. This growth drives long-term demand fundamentals. Mountain has long been a leading asphalt paving market for us, and this segment also represents one of our strongest commercial construction profiles. It benefits from significant investment in wind and solar, data center development and military infrastructure, along with advanced manufacturing growth. In Idaho's Treasure Valley, large-scale semiconductor investments are helping establish Boise as an emerging technology hub. With our strong footprint and local capabilities, we are well positioned to support these growth projects. Finally, turning to our Central segment. This includes Iowa, Minnesota, North Dakota, South Dakota and Texas. This segment is also benefiting from strong population growth with our states expected to grow 21% over the next 25 years. Texas, North Dakota and South Dakota rank in the top 10 in birth rates in the nation. This sustained expansion is driving broad-based growth across private and public markets. From an infrastructure standpoint, the Central segment has a large and expanding public funding footprint. For 2026, total state DOT budgets across the region are approximately $31 billion, a 16% increase from last year. In North Dakota, the state's construction budget for 2026 is more than double that it was in 2025. With our strong operating presence, we are well positioned to capture increased opportunities. Meanwhile, Texas also represents an exciting opportunity within Knife River. Our operations are strategically positioned within the Texas triangle, giving us strong exposure to the high-growth markets between Dallas, Houston and San Antonio. Our triangle within the triangle enables us to serve some of the fastest-growing midsized markets in the nation. Development in these high-growth corridors is accelerating, and infrastructure demand is expanding beyond established urban boundaries. Overall, the Central segment combines strong demographic tailwinds with a well-funded infrastructure pipeline. It has attractive growth opportunities across energy, commercial and transportation sectors. We expect the region to remain an important contributor to our long-term value creation. The final point I'll make about our markets today is that we see substantial runway for growth through M&A. These markets are still highly fragmented with vertically integrated family-owned businesses, creating hundreds of potential opportunities at attractive multiples. Knife River has completed nearly 100 acquisitions. We are well known, well respected and trusted. When a family-owned business decides it wants to sell, they often contact us first. They value our people-first culture and our commitment to the communities where we live and operate. We believe this combination of culture, credibility and capabilities makes us the acquirer of choice. We are well positioned to continue expanding our distinct footprint through disciplined value-accretive acquisitions. Moving from our markets to vertical integration, this is another part of our strategy that makes Knife River unique. We believe our aggregates-based end-to-end operating model drives value creation. First, it enhances our financial performance by being a profit multiplier. This is achieved in 2 significant ways. One, we are able to capture higher margins on the pull-through of upstream materials to our construction projects. And two, being vertically integrated creates meaningful synergies across business units, including equipment utilization, overhead absorption and labor efficiencies, all of which contribute to industry-leading margins on our downstream product lines. Our balanced mix of aggregates, ready-mix, asphalt, liquid asphalt and contracting services also supports resiliency across economic cycles. It enhances our ability to flex between public and private work and gives us more opportunities to provide our products and services. For our customers, vertical integration represents a one-stop shop that translates into greater supply chain reliability, improved coordination at the job site and more consistent execution across multiple projects. Moving to Slide 11. You can see how vertical integration also gives us more opportunities to win profitable work. On any given construction project, we can have over a dozen distinct pathways to capture profit. This can be as a general contractor or as a subcontractor that performs asphalt paving, site development, grading or other construction services or it can be by supplying materials directly to ourselves, to the project owner, to another prime contractor or to a competing producer of downstream materials. Every one of these entry points gives us another chance to compete and another way to create value. Vertical integration also gives us flexibility to adapt to our markets and position ourselves where we have the most opportunity for growth, both organic and through M&A. On the organic growth side, we can expand our market position by adding complementary products and services to an existing footprint. In Texas, for example, we greenfield our Honey Creek quarry near Austin a few years ago as a means of providing high-quality aggregates to our downstream product lines and to third parties. Today, that investment makes it possible for us to support our newly expanded asphalt plant in Bryan, where we have added capacity to serve a large paving job on Highway 6. Honey Creek is also providing materials for our recently acquired Texcrete ready-mix operation in College Station, allowing us to expand our operations in this dynamic market. On the acquisition side, being vertically integrated also gives us more opportunity as we aren't limited to a single product line to grow. While our M&A strategy will continue to be focused on aggregates-based opportunities, we have a healthy acquisition pipeline that includes all product lines, including aggregates, ready-mix, asphalt, prestressed concrete and contracting businesses that we believe would enhance our portfolio and support long-term growth. Thank you for letting me provide more detail on our strategy, in particular, why we're confident in the markets where we operate and the advantage of the vertical integration. Next, I'll quickly recap the quarter results for our segments. Starting with the West, the segment benefited during the quarter from higher private market activity, which drove increased aggregate volumes. For the third straight quarter, Oregon continued its recovery, meeting our expectations for the start of the year. We expect this trend to continue and believe the segment is well positioned for ongoing growth. Performance in the Mountain segment benefited from higher available backlog, better weather and solid execution. The team delivered improved cost discipline across all product lines while optimizing material pricing. In addition to strong organic performance, the Mountain segment completed 3 acquisitions during the quarter, Morgan Asphalt in the Salt Lake City market and both Sparrow Enterprises and Donaldson Brothers Ready-Mix in Montana. Performance in the Central segment reflected impacts from acquisitions completed in 2025. The addition of Texcrete helped the region nearly double its ready-mix volumes. These benefits were partially offset by 2 additional months of expected seasonal losses at Strata in January and February. During the quarter, we continue to make meaningful progress on strengthening operational execution, and we ended the second quarter with strong backlog, positioning the business for further growth as the year progresses. Lastly, turning to Energy Services. Favorable market conditions in our Western states supported higher sales volume and improved fixed cost absorption during the quarter. We also continue to capture synergies by merging our West Coast operations and ended the quarter with a 40% improvement in EBITDA. All in all, we had a strong performance in the first quarter and continue to be well positioned for growth in 2026. With that, I'll turn the call over to Nathan to walk through our product line financial results. Nathan Ring: Thank you, Brian. As mentioned earlier, we are off to a good start and very pleased with the momentum carried forward from last year. That was evident in our product lines as we achieved volume, revenue and gross profit improvement in aggregates, ready-mix and asphalt. Starting with aggregates, our 26% volume growth, coupled with price increases and cost controls, drove strong margin improvement. Oregon led the way on volumes with an increase in third-party sales related to more commercial, industrial and residential construction. Mountain also positively contributed to our volume increase with continued favorable weather providing the opportunity to work on record backlog, creating pull-through demand of aggregates. Importantly, we also reduced our per unit production costs by more than 10%, a direct result of process improvements and last year's investments in our operations. As reported, pricing was up 1% compared to last year due to geographic mix. The Mountain region had nearly 70% higher aggregates revenue than last year, had pricing and costs meaningfully lower than other regions. Normalizing for geographic mix, pricing was up 4.1%. We remain confident in our full year guidance of mid-single-digit pricing improvement on an as-reported basis and at least 200 basis points of aggregate margin expansion. Ready-mix saw a 33% increase in volumes for the quarter. The acquisition of Texcrete was the largest contributor to this increase with our Texas operations more than doubling their first quarter volumes. Consolidated pricing and margins were up for the quarter as the price/cost spread continues to improve for ready-mix. We see these contributions continuing into this year with expected full year volumes up mid-teens over last year. Turning to asphalt. Activity levels were positive with volumes increasing 42% year-over-year. As a reminder, the first quarter accounts for less than 5% of full year volumes, so the majority of our work is yet to come. We continue to maintain our guidance of mid-single-digit volume growth. Contracting services delivered higher revenues during the quarter with contributions coming from all segments. Central saw the largest increase, led by our Texas and North Dakota operations. Margins were down for the quarter, but similar to asphalt, the first quarter historically represents a small portion of annual contracting services revenue. Therefore, project timing, type of work and geographic mix can have a disproportionate impact on first quarter margins. Turning to backlog. First quarter levels were strong at approximately $1.2 billion, with about 75% expected to be completed in 2026, providing good visibility into future activity. As we work through our backlog, we continue to expect higher gross margins in contracting services in 2026, supported by increased self-performed asphalt paving. This type of work can drive margin gain through successful project execution and the bonuses that get paid to contractors for quality performance. In addition, the increased asphalt paving in our backlog also provides the benefit of pulling through our higher-margin upstream materials, positively impacting product line gross margins. We are excited about the year ahead, and we'll continue our focus on cost controls across our business. Regarding energy costs, we are utilizing a number of mitigating activities in our materials and services product lines, including the prepurchase of diesel, energy escalation clauses in construction contracts and fuel surcharge clauses in material deliveries. These efforts, along with dynamic pricing, help reduce the potential impact associated with oil prices and position us well to maintain our margins. Moving to SG&A. We continue to expect the full year to be comparable with 2025 as a percent of revenue and then begin trending lower in future years as we scale and fully capture synergies from recent acquisitions. Switching to capital allocation. We are committed to our disciplined approach, including maintaining fixed assets, improving operations and growing the business. In the first quarter, we spent $42 million on maintenance and improvement CapEx, largely on the replacement of construction equipment and plant improvements. Additionally, we spent $209 million on growth initiatives, including $174 million on the 3 acquisitions mentioned earlier and $35 million on aggregate expansions and greenfield projects. We continue to maintain our focus on having a strong balance sheet with capacity available to support these growth initiatives and future investments. Keep in mind that as we enter the second quarter, we will reach the peak of our annual borrowing needs as we build working capital for the construction season. As we look to the full year, we expect to end 2026 with no borrowing on our revolving credit facility of $500 million and have cash on hand, resulting in an anticipated net leverage near our long-term target of 2.5x. Turning to our guidance. As we have indicated in the past, we generally do not make revisions until the construction season gets into full swing. Therefore, we are reaffirming the guidance we presented in February. Based on our good start to 2026 as well as the addition of 3 aggregates-based acquisitions, we are confident in our guidance and currently expect 2026 to trend toward the upper half of our revenue and adjusted EBITDA ranges for the year. With that, I'll now turn the call over to Brian for closing remarks. Brian Gray: Thank you, Nathan. We are off to a strong start this year, building on the momentum we established in the second half of 2025. We are just now entering the construction season, and we are doing so with record backlog and a proven growth strategy. We are meeting increased demand across our unique growing markets with disciplined cost control, pricing optimization and the benefits of vertical integration. Our competitive edge initiatives are driving real improvements. Our acquisition strategy continues to enhance our results, and our teams are performing at a high level. I'd like to thank our 7,400 team members for their commitment to working safely and advancing our growth efforts. We believe the progress we're making today positions Knife River to generate profitable growth in 2026 and well beyond. We are excited about the opportunities ahead, and we are focused on creating value for our shareholders. Thank you for your time today, and we'll now open the call for questions. Operator: [Operator Instructions] We'll take the first question from Trey Grooms, Stephens. Trey Grooms: Congrats on a great start to the year. So I guess, Brian, maybe to begin, can you talk about some of the puts and takes around the aggregates pricing in the quarter? You mentioned some pretty significant mix headwinds there. But if you could maybe go into a little more detail, is it geographic, product? Is it both? And then kind of reiterating that mid-single-digit pricing guide for the year on reported ASP. Can you talk about maybe the trajectory there and how we should be thinking about how you kind of get to that mid-singles for the year given the tougher start out of the gate? Brian Gray: No, I'd be happy to, Trey. I'm actually very pleased at where we're at and what I'm seeing with pricing and the impact it's having on our overall margins in the aggregates group. So we reported just slightly 1% -- prices were up about 1% for the quarter. And as you know, our average selling price, it includes freight, it includes delivery and includes other revenues. And so if you just normalize just for one thing, which is the segment mix, our average selling price would be up 4.1%. So when I talk about geographic mix, I mean, we have 3 geographic regions that sell aggregates, the West, the Mountain and the Central. In the Mountain region, because it was favorable weather and the amount of backlog they've got there, aggregate revenues for the quarter in the Mountain region were up 70 -- almost 70%, 69%. And in the Mountain region, their cost structure is much lower than it is in the other regions, therefore, has a much lower pricing structure as well. And the reason that is, is that the downstream operations, the ready-mix plants, the asphalt plants, they are sitting on our aggregate reserves, and we have very little to -- practically no materials transfer in that mountain region compared to other regions like the Central, we're railing materials to aggregate yards and to downstream product lines. We're doing that in North Dakota. We do that some in Oregon by barge and rail. And so the cost structure in those other regions is bigger than it is in the mountain. And so because they have such a lower cost structure, their prices are also lower. And when you sell 70% more in the quarter, that alone would bring our average selling price up if you just make that one adjustment to 4.1%. The other thing that we do in the Mountain region is the type of work that we do there, they consume and utilize a lot more unprocessed materials. They literally -- they use about 2x annually the amount of pit run or bar run for large heavy civil fill type of projects. That also has an impact in product mix. And so, I look at our sales dashboards frequently, and I can tell you and reassure you that what I see for the same product coming out of the same plant that I'm very comfortable guiding to mid-single digits. Frankly, we saw mid-single digits this quarter if you make those adjustments. Trey Grooms: Yes. Okay. Got it. That's all very helpful. As my follow-up, with the 200 basis points of margin improvement in ags that you're targeting, especially with the diesel headwinds is particularly impressive. So any additional color on how you're kind of navigating these higher costs? And what gives you the confidence to reiterate that 200 basis points of margin improvement, especially given how much diesel inflation we've seen? Brian Gray: Yes. It's really the continuation of the good work that our PIT Crews are doing and some of the benefits that we're now beginning to realize weighs into this initiative with our PIT Crews. We enjoyed -- our gross profit margins in aggregates was up 390 basis points for the quarter. And we didn't really begin to see those energy headwinds until later in the quarter, really in March. But as Nathan mentioned in his prepared remarks, I mean, we have had existing mitigation practices in place for years, and those practices are working. The fuel surcharges that we charge on materials delivery, we've got the escalation clauses in construction contracts, which also can come back and help us on aggregates. And so where we don't have protection, Trey, we do a good job at doing some fixed forward contracts on diesel. And probably the most important tool that we've got in our toolbox, and this is relatively new for a big part of our company, that's dynamic pricing. And so we are able -- we don't need to wait for a midyear increase to come out. We are literally pricing diesel costs, current diesel costs into our current bids going out on a daily basis. And so -- we do feel comfortable. To put it all into perspective, the amount of diesel that we use in a year, a full year is about 20 million to 25 million gallons of diesel. And that diesel is used primarily in 2 different ways. One is for on-road vehicle deliveries or vehicles. That's about 50% of that. And the other 50% is used in the yellow iron, either at the aggregate sites or out on construction projects. And if you take a look at all of that, we feel like we are protected through one of our mitigation practices on about 80% of that diesel. And so that kind of maybe helps you put it into context of the potential exposure we have on a full year. Operator: The next question today comes from Kathryn Thompson, Thompson Research Group. Kathryn Thompson: I wanted to shift gears and focus on M&A. And if you could clarify the -- how we should think about the contribution and cadence of the recently acquired companies that you've announced? Brian Gray: Yes, Kathryn, we're very excited about the 3 acquisitions we completed in the first quarter. They were all aggregates-based operations. They had downstream materials. And in the case of Morgan Asphalt, it came with the services downstream opportunities as well. All 3 of those deals are very -- they look very similar to how we've done deals in the past. They were negotiated deals directly with the owners and that we were able to negotiate high single-digit multiples on those 3 acquisitions. And so, if you look at that contribution on a full year, that would suggest it was towards the upper half of our current guidance. I want to just touch a little bit on the importance and how excited we are on the Morgan Asphalt operation in Salt Lake City, Utah. This is not a new market for us. We've done work in Utah out of our Boise, Idaho group for years. We've been looking very closely for an opportunity to enter that market with an aggregates-based platform operation that we can continue to build from. And Morgan Asphalt fit that bill through a key, very good cultural fit, very strong reserve position, with a team that is very good at asphalt paving. And so, very excited about all 3 acquisitions. Really the most meaningful, the largest of the 3 would be the Morgan Asphalt opportunity in Salt Lake City. Kathryn Thompson: Okay. And then following up on that, maybe [indiscernible] about how these play into your kind of the profit multiplier thesis that you discussed and how this -- how we should think about that going forward? And also what reasonably should we expect in terms of synergies, either be from cost or from revenue? Brian Gray: Yes. So I mentioned the profit multiplier in my prepared remarks as it relates to vertical integration. And so I'll use 2 examples on that. Texcrete, the operations that we bought late last year, down in College Station, Texas and in that area, more than doubled our ready-mix volumes for the quarter out of Texas. They were purchasing a lot of third-party aggregates before we purchased -- acquired that company. And because we're vertically integrated in Texas, we now are able to rail materials into College Station and self-supply that, which is just an opportunity to, again, earn more profit on that acquisition through the profit multiplier by being vertically integrated. Morgan is probably even a better example of that. Morgan comes with a very high-quality, strategically positioned reserve. We will bid materials on any kind of DOT type of project. We'll bid aggregates to subcontractors. We will self-perform and use those own aggregates. We'll sell aggregates to other non -- to other producing competitors downstream. And so we have an opportunity to win work on the aggregate side. But most likely, we're going to sell those aggregates to ourselves and to another profit center, which is our asphalt -- our hot mix asphalt plant. And then we will sell that hot mix asphalt to, again, either ourselves or to a competitor on the job and allow them to go do the paving themselves. But likely, we would self-perform that work as a subcontractor or as a prime contractor. And so that being vertically integrated really does allow us to have multiple opportunities to earn profit. On the synergies, I'll let Nathan touch on the synergies from the acquisitions. Nathan Ring: Kathryn, good to hear from you. We've probably talked about this a little bit in the past as we bring in these operations, and there's multiple ways in which we can get synergies as they become a part of Knife River. First, we've talked about purchase price power, and that can relate to cement, oil, equipment. And so as they become part of Knife River, become part of a larger organization, they get to take a part of that or advantage of that. The other is on the operational side. These are good companies. We're proud to bring them into Knife River, exciting for us. But just like with Knife River, we have PIT Crew out there that are looking to make Knife River better. And as these acquisitions come in, there's an opportunity for us to share the Knife River PIT Crew, the EDGE initiatives with them and improve their operational efficiencies as well. And then the last thing I did mention it in my prepared remarks, as they come on board and bring their SG&A, I talked about us last year building our SG&A to grow the company. And as we grow, as we build the scale, we see an opportunity for synergies combining the 2 companies on the back office side of the equation as well. So I think there's a number of things we look at when they come in throughout the first year, sometimes within the first week as they become part of Knife River that we can capture some of these synergies. Operator: Up next is Garik Shmois from Loop Capital. Garik Shmois: I was hoping you could provide an update on where you stand on dynamic pricing, where you think you are within your different regions. And I asked that just because of the higher oil-based costs that are coming through and certainly one of the levers that you have to offset. Just curious as to the ability to push through additional pricing in some of the regions that have lagged in the past? Brian Gray: Yes, Garik, our commercial excellence teams have done a fantastic job of training and implementing dynamic pricing through all of our legacy operations. And so we are in the later innings at this point in time, which is coming to be a very good benefit with the current energy situation that we're able to price not just aggregates, but also ready-mix and asphalt at current cost structures and provide daily pricing out for those materials. And so we have a number of different dashboards that we're currently using and technology that helps our sales teams manage through that process. Where we don't have full implementation of dynamic pricing would be in our recently acquired companies. And as we've talked about in the past, we honor their current quotes. And in anything that's new, we quickly get them on track to start utilizing the dynamic pricing. And we're currently doing the training as it relates to dynamic pricing with those recently acquired companies. But that would be the only place right now that we have some limited exposure. Garik Shmois: Great. That's helpful. Follow-up question is just on the comment you made that you expect to be at the upper half of revenue and EBITDA guidance for the year. I just want to clarify, is that solely because of the acquisitions that you spoke to earlier? Or is there anything organically that you're pointing to that's tracking towards the mid-to-upper end of the range that's giving you confidence right now? Brian Gray: Yes, there's a number of things that give me confidence in that upper half of the range. I mean -- and the acquisitions certainly are part of that. But our volumes and our backlog right now, I really like the position that we're in. The record backlog of $1.2 billion, up 25% from last year, and that backlog has a lot of asphalt paving in it. And with that comes the ability to pull through higher-margin upstream materials. So, that gives me a lot of -- good confidence. That's a very visible contracted work that we've got that we'll be outperforming that work this summer. And so that gives me good confidence. And then frankly, I just -- I continue to see traction that we're getting with our PIT Crew. You saw some of that early in this first quarter, even though our volumes are very low relative to the full year. We can't dismiss the work that the PIT Crews are having in all of our product lines. So that gives me good confidence on that upper half of our current range. Operator: Your next question is from Timna Tanners, Wells Fargo. Timna Tanners: I wanted to follow up on the discussion just now of the dynamic pricing and also the ability to have energy escalation. Do you have a sense of -- in your discussions with customers that how this compares with some of the competitors and how they're handling energy costs? Just curious if there'll be any challenges if some of the peers are taking a different tactic? Brian Gray: Yes, Timna, as you know, a lot of our competitors and our unique markets are some of -- more family-owned operations. We have some overlap with some of the larger national peers. But a lot of our competitors are local, regional-based family-owned operations that also have margin expectations. And I can tell you that I believe that we've pre-purchased and managed our energy costs better than our local competitors and that they, too, are going to need to do something. And so, I think most of them are passing along their fuel costs through similar fuel surcharges on delivered materials. And so I think it's -- I don't think we are out of the norm when it comes to fuel surcharges and collecting that compared to our competitors. Timna Tanners: Okay. Helpful. And then if I could follow up on the M&A strategy, clearly off to a strong start and in line with the comments on not expecting an extended revolver by the end of the year. What does that mean for further M&A this year? What do you think you have the bandwidth for as we look out for the rest of the year? Brian Gray: I'll let Nathan take that. I'll just preface it with, our pipeline is strong. And we mentioned the pipeline 3 months ago that it looks to be similar to last year's type of pipeline. And so we're off to a good start this year and we feel like we certainly have opportunities in the pipeline and that Nathan has a balance sheet that also allows us to continue to grow. So, I'll let you talk about that, Nathan. Nathan Ring: Yes. Thanks, Brian. Timna, just as he said, I mean, we do focus on maintaining that strong balance sheet so that we do have the bandwidth and the cash flows coming from our operations, which are strong as well. So, first, just what I'll reiterate here is that we have about $190 million, almost $200 million of available liquidity when you look at our revolver. That's important from the standpoint that allows us to react quickly if an opportunity does come up. The other thing is not to forget the cash flows that we get from our operations. We have about a 2/3 conversion rate, which means from EBITDA to cash flow from operations, we convert about 2/3 of that to cash flows from operations, which we put to work in the company. The thing that I stated in the prepared remarks that's probably important for your bandwidth question is our balance sheet capacity or net leverage. I indicated on the call there that as we get towards the end of the year and pay down that revolver, have those cash flows comes in, we think we're going to be at or below that net leverage of 2.5x. That creates bandwidth for us because as I talked about before, Timna, for a short duration for the right deal, we'd be willing to be close to near 3x for a while. And so we do have the liquidity, the cash coming in from operations and the bandwidth on the balance sheet to continue to support the -- our growth program that Brian talked about. So I think we're in a good position. Operator: Your next question is from Ivan Yi, Wolfe Research. Ivan Yi: First, what was the organic or mix-adjusted aggregates volume growth in 1Q? And I get that you don't normally adjust guidance after the first quarter. But after such a strong growth in 1Q, why not raise the full year aggregates volume guidance at all? Are you sensing any weakness at all or is it just conservatism? Brian Gray: No, I think we're being prudent. We still have 90% of our construction season in front of us. And so it's very early. And so, unless we saw something just jump off of the page, Ivan, I mean, you're going to see us most likely after the first quarter continue to reaffirm that guidance. I like where we're at with the volumes and what we're seeing in the markets. And that volume increase, in particular, on aggregates, over 1 million tons of aggregate volumes, which is up 26% for the quarter. Half of that came from legacy and the other half came from operations that we acquired in the last -- since this time last year. In other words, Texcrete and Strata's 2 months of operations that were new to us, 2 months of Strata and then the Texcrete acquisition, which is ready-mix, but because we're self-supplying those aggregates, that was very positive for us. And so, about half of that increase is coming from legacy operations, the other half from Texcrete and Strata specifically. And we'll continue to update you as the year progresses on that -- on the volumes. Ivan Yi: Great. Very helpful. And then my follow-up, we've seen several states declared gas tax holidays and there's proposed legislation for federal suspension of the gas tax through October. What impact would this have on future infrastructure spending? And how material would this be to you all? Brian Gray: Ivan, you broke up a little bit at the very beginning of that question, and it was pretty low. I couldn't hear it exactly. So could you repeat the beginning of that? Ivan Yi: Yes. Just on the gas tax holidays that have been mentioned about, how material of a headwind would that be if the reduction in infrastructure spending that would come with that? Brian Gray: Yes. I think with -- I would say that's immaterial, and that's not something that we're concerned about. We've got record backlog, $1.2 billion, 25% up over last year. We continue to look at the strong DOT budgets, up 15% year-over-year in our markets. And with that comes the bid letting schedules, and what I'm seeing at the local state level, really no concerns around the gas tax holidays. Operator: [Operator Instructions] Up next is Garrett Greenblatt from JPMorgan. Garrett Samuel Greenblatt: I was wondering if we could just dive a little more into the regional disparity between aggregates, how aggregate margins in each region trend or if you rather grow in gross profit per ton? And then maybe the organic pricing growth per region that got you to the underlying 4.1% consolidated? Brian Gray: Yes. I'll start with -- at a high level, and I'll let Nathan add if there's any other additional detail. But, Garrett, what I'd tell you is that if you -- I talked about the differences in our cost structure and our pricing structure as it relates to transferring materials around and having rail yards, redistribution aggregate sales yards, having downstream plants sitting either on the site or off-site where you have to rail or barge. That does change our cost structure, therefore, creating a different pricing structure as well. But if you actually look at the margins over the last 2 years for each one of those regions, they're very similar. They're not that different. And so they're doing a good job. Even though they may have lower pricing, what we look at, obviously, is the price/cost spread. And I think that we're pretty close in each region. Now each state is different, and that's going to depend on the market positions that we've got, the type of materials that we're selling and the amount of market share that we have, just different things have changed there by each state. But generally speaking, if you look at the last 2 or 3 years, for aggregate margins specifically, they're very similar in all 3 different states. Nathan, is there anything that you want to add to that? Nathan Ring: You mentioned the most important thing, Brian, is that over the course of the year, they're comparable. I would just remind folks that at the beginning of the year, there can be some differences in margin: West, you have more activity; Mountains had a good first quarter here, so that's improved their margins; Central is still in the early season and not getting started. So if you were looking at just the first quarter here, you might see some differences, but it's more important to look at it the way that Brian shared from that full year margin perspective. Garrett Samuel Greenblatt: Great. And then can you talk a little bit more of the margin contraction in contracting services and how we should think about that trending for the rest of the year? Brian Gray: Yes. Nathan, do you want to take that one? Nathan Ring: Yes, there is a couple of things with that. I mean, first of all, just for the first quarter and I'm starting to sound too similar here, but I mean, it is just similar. I mean, for contracting services margin in the first quarter, it's about 10% of our full year revenue. So you can have some -- like I said in my prepared remarks, you can have some geographic mix. You can have, for example, this year, we did do some more revenue in the Central, but that is the first part of the year, like as it pertains to Strata, where that revenue is not enough to cover some of the overhead or indirect costs. So that's what you've got going on in the first quarter. As you look to the full year, it's just important to remember that we are saying that our contracting services margins will be higher. And we talked about this back in February that a lot of that has to do with -- we're anticipating more paving work in 2026 than we had in 2025. Now that can start off at the beginning of the year that you're getting moved, you're getting ready. But as that work progresses through the year, we start to see improvement in margins related to our performance, very good at paving. Two, we see it in terms of incentives that come along with the project and bonuses. So, as we do more paving work in the year than we did last year, we anticipate those margins to increase because of that. And then like we talked about, the add-on benefit that Brian talked about in our prepared remarks with the profit multiplier that, that has pull-through demand to have liquid asphalt, asphalt, aggregates. And so we look forward to what it will also do for the upstream product lines as well. Operator: The next question is from Rohit Seth from B. Riley Securities. Rohit Seth: Can you provide us an update on the Oregon DOT issue? Brian Gray: Yes. Fortunately, Rohit, that situation, I believe, is stable. So we have baked into our current guidance that the measure that's being voted on in Oregon on May 19, most likely is going to fail. I think everyone is expecting that. And -- but the good thing is the DOT already has an existing budget, and it's 2% lower than it was year-over-year, but that's the total budget. The construction budget is actually up a little bit. And so we have taken all those things into consideration into our current guidance that Oregon stabilize and looks to be broadly in line with last year's results. Rohit Seth: Okay. Great. And then on the EBITDA guidance, could you maybe provide a cadence for the year, second quarter, third quarter, fourth quarter, given what's going on with the energy shock, I just want to understand your expectation for 2Q. Brian Gray: Yes, I'll let Nathan take that one. Nathan Ring: Yes. I can give you an idea of, from a seasonality perspective, how we look at each quarter from a revenue basis, which I think will help you with your modeling. And so like we've talked about a few times this morning, the first quarter, generally around 10% of revenues. Second quarter, we get into maybe about 25%. And then as we all know, the third quarter is where we see a higher amount of our revenues and then fourth quarter, depending on how long fourth quarter goes, that will be the higher part. So the latter half of the year would be where we see the higher portion of revenues. So that's kind of the breakout or anything else with seasonality. Rohit, does that help kind of give you an idea of how -- the cadence of the year? Rohit Seth: That was on revenue, but does EBITDA follow the same sort of... Nathan Ring: Yes. For the most part, other than -- I mean, the first -- there are some peculiarities, right? In the first quarter, we do experience a seasonal loss. And so then you would anticipate as you get to that third quarter, you would anticipate a higher amount of EBITDA coming as that's the main part of the season for us. Brian Gray: Yes. Because a lot of our backlog is asphalt paving, that work is typically done in the summer months. And when you start to close out those jobs is when you would get paid those job site incentives and quality bonuses, which often would come late in the third quarter or the fourth quarter. So that would impact EBITDA positively without necessarily the revenue to go in line with that later in the year. So I can -- that would be the only nuance as it relates to EBITDA, I think, for contracting services. Operator: And everyone, at this time, there are no further questions. I'd like to hand the call back to Mr. Brian Gray for any additional or closing remarks. Brian Gray: I appreciate everyone joining us today. We're very excited about the year ahead, and we look forward to speaking with you guys again in the next quarter. Thank you. Operator: Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.
Operator: Good morning, and welcome to IPG Photonics' First Quarter 2026 Conference Call. Today's call is being recorded and webcast. At this time, I'd like to turn the call over to Eugene Fedotoff, IPG's Senior Director, Investor Relations for introductions. Please go ahead with your conference. Eugene Fedotoff: Thank you, and good morning, everyone. With me today is IPG Photonics CEO, Dr. Mark Gitin, and Senior Vice President and CFO, Tim Mammen. On today's call, Mark will provide a summary of our first quarter results as well as the overall demand environment and then walk you through the progress we are making on our long-term strategy. After that, he will turn it over to Tim to provide financial details. Let me remind you that statements made during this call that discuss our expectations or predictions of the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties are detailed in our Form 10-K for period ended December 31, 2025, and our reports on file with the Securities and Exchange Commission. Any forward-looking statements made on this call are the company's expectations or predictions as of today, May 5, 2026 only, and the company assumes no obligations to publicly release any updates or revisions to any such statements. During this call, we will be referencing certain non-GAAP measures. For more information on how we define these non-GAAP measures and the reconciliation of such measures is the most directly comparable GAAP measures as well as additional details on reported results, please refer to the earnings press release, earnings call presentation and the financial data were posted on our Investor Relations website. We will also post these prepared remarks on our website after this call. With that, I'll now turn the call over to Mark. Mark Gitin: Thanks, Eugene. Good morning, everyone. First quarter revenue exceeded our expectations, increasing 17% year-over-year. We continue to see improved demand for our laser solutions, particularly in battery manufacturing and medical applications, which drove our strong performance in the quarter. We maintained a disciplined focus on our growth initiatives across all of our markets, delivering solid first quarter results and building momentum for future growth. Before looking more closely at our first quarter sales performance, I would like to highlight our updated revenue reporting framework, which better aligns with our strategic growth initiatives, making it easier to understand and track our progress. It also provides a clear separation between our industrial and nonindustrial revenue streams, giving better visibility into our focus areas and splitting the business into 2 distinct buckets, with unique performance and growth profiles. This reporting combines applications into 2 categories: Industrial Solutions and Advanced Solutions. Today, most of our business is in industrial solutions where we are building on our strong foundation, expanding our addressable market by displacing incumbent technologies and enhancing our value proposition by offering differentiated system and subsystem solutions. This includes applications such as cutting, welding, cleaning and additive manufacturing and other industrial offerings. In the first quarter, Industrial Solutions revenue accounted for 86% of total sales increasing 21% year-over-year as our design wins took hold and general industrial demand improved, welding, cutting, marking and cleaning applications drove higher revenue. Welding and cutting, our 2 largest applications posted double-digit growth benefiting from solid demand and new orders from battery manufacturing. Sequentially, Industrial Solutions revenue was relatively flat and outperform typical seasonality driven by business wins in cutting and additive manufacturing. In Advanced Solutions, which is another important driver of our future growth. We are applying our laser technologies and applications expertise, solving challenging problems for customers. Advanced Solutions serves markets such as medical, defense, micromachining, semiconductor manufacturing and others that present strong growth opportunities and collectively represent a $5 billion TAM. We've already established a solid presence in these markets and are excited about the opportunities that lie ahead. Advanced Solutions represented 14% of our revenue in the first quarter and declined modestly year-over-year. Revenue growth in medical and semiconductor applications was offset by lower micromachining sales due to cyclical demand in solar cell manufacturing. Sequentially, revenue declined due to lower medical sales following an exceptionally strong fourth quarter of 2025. We were particularly encouraged by increased sales in semiconductor applications as we gain traction with large equipment manufacturers. Total bookings were strong in the quarter with book-to-bill firmly above 1 for the second consecutive quarter. This gives us confidence in our outlook it points to robust demand for our solutions despite elevated levels of macroeconomic uncertainty. We see the strong demand to remain focused on executing our key growth initiatives across Industrial Solutions and advanced solutions, building upon our strong foundation and industrial innovation, expanding our leadership in laser technology into new high-growth applications such as medical, micromachining and defense. While our initiatives target a wide range of opportunities, our path to success is consistent, leveraging differentiated laser technology and deep applications expertise to deliver clear performance advantages that incumbent approaches cannot match. Together, these initiatives represent compelling opportunities to meaningfully expand our addressable market and support sustained long-term growth. In Industrial Solutions, welding revenue is growing, driven by our advanced capabilities for battery manufacturing across both electric vehicles and stationary storage applications. Global stationary storage deployment is growing rapidly to support data center energy requirements and is gaining increasing share of battery manufacturing. These batteries use larger cells with thicker bus bars, requiring higher power lasers, process monitoring. This aligns directly with our strengths. Our unique combination of adjustable mode beam lasers, advanced beam delivery and real-time process monitoring ensures well quality and sets us apart from the competition. Beyond lasers and subsystems, we continue to make meaningful progress in our systems business, which posted another strong quarter. We're moving up the value chain by integrating our fiber lasers into differentiated complete systems which, together with our applications expertise enables us to tackle complex problems that incumbent technologies cannot address. This approach allows us to deepen our partnerships with customers across a wide range of markets from welding to cleaning. Turning to Advanced Solutions. We continue to make progress with our growth strategy by targeting opportunities across defense, medical and micromachining applications. In February, we announced that Lockheed Martin placed a $10 million follow-on order for Crossbow our scalable, cost-effective, high-energy laser defense system for countering Group 1 and Group 2 drone threats. Shipments for that order are expected to begin in the second quarter. We also showcased Crossbow at the 2026 AUSA Global Force Symposium in Huntsville, Alabama, where we engage with defense industry leaders on how our solutions can address escalating drone threats at a significantly improved cost exchange ratio. Crossbow continues to generate interest from potential customers we're gaining traction on converting that interest into orders. In Medical, revenue grew significantly year-over-year driven by sales to a new customer as our solutions continue to deliver clinically meaningful outcomes. We are advancing our innovation road map and expect several new product approvals and introductions in 2026 and in 2027. We have a very strong backlog for 2026, giving us excellent visibility into full year revenue that points to another good year in medical. In semiconductor, revenue grew this quarter as we ramped up new lithography, metrology and inspection business with large semiconductor equipment manufacturers. This market is being driven by the accelerating adoption of AI, which is fueling demand for GPUs and high-bandwidth memory chips. We continue to advance our product development and are working closely with customers on design and opportunities, supported by the clear performance advantages of our solutions. Our strategic progress is enabled by the organizational changes and investments we have made. We have streamlined operations, strengthened decision-making and accelerated product development, translating into better performance and greater consistency across the business. While our entrepreneurial and innovative spirit remains at the heart of IPG, we are building the operating discipline required to scale these capabilities effectively. In summary, our team delivered another over-year growth. Customer demand for our differentiated laser solutions continue to strengthen across our markets. We are making meaningful progress on our strategic objectives, outperforming the market and creating lasting value for our customers and our shareholders. With that, I will now turn the call over to Tim. Timothy P.V. Mammen: Thank you, Mark, and good morning, everyone. My comments will generally follow the earnings call presentation which is available on our Investor Relations website. I will start with revenue trends by application on Slide 5. Industrial Solutions revenue increased 21% year-over-year in Q1 and driven by growth in welding, cutting, cleaning and marking. This was partially offset by lower revenue in additive manufacturing. On a sequential basis, revenue was basically flat, down 1% and as lower revenue in welding and additive manufacturing was largely offset by growth in cutting and marking. Cleaning revenue is flat. Advanced Solutions revenue decreased 5% compared with last year as growth in medical and semiconductor was offset by lower revenue in defense and micromachining. Revenue is down 13% quarter-over-quarter on lower medical sales from a very strong fourth quarter. Micromachining, semiconductor and scientific revenue all improved sequentially. Sales of our emerging growth products continued to increase and accounted for 53% of total revenue in the first quarter, consistent with the prior quarter. Following our annual review, we made a slight adjustment to the product list. Many of these products are benefiting from growth in battery manufacturing and the medical market. Moving to revenue performance by region on Slide 6. North American revenue increased 27% compared with last year, driven by growth in welding, cutting, additive manufacturing and medical applications. Sequentially, revenue was down 4% due to declines in Cleaning and Medical, partially offset by strength in welding, cutting, additive manufacturing and micro machining. European sales were up 4% year-over-year, driven by cutting and down 13% sequentially versus a strong fourth quarter due to lower sales in welding, cleaning and additive manufacturing. Revenue in Asia improved 14% year-over-year driven by strong demand in welding, cutting, marking and cleaning applications, which primarily benefited from capacity additions for battery manufacturing. Revenue is flat quarter-over-quarter. Moving to the financial performance review on Slide 7. Total revenue was $265 million, up 17% year-over-year, marking our second consecutive quarter of double-digit sales growth. Foreign currency benefited revenue by approximately 4% this quarter compared to the same period in the prior year. GAAP gross margin was 37.5%, and adjusted gross margin was 37.8%. Adjusted gross margin came in close to the midpoint of our guidance range and improved sequentially. Gross margins benefited year-over-year from lower inventory provisions due to improved inventory management. While product margins have been stable over the last few quarters, we did experience headwinds from tariffs compared to the first quarter of 2025. We continue to target improvement in product margins based on pricing and cost reduction initiatives that are starting to take hold. Underabsorbed expenses continue to run at a higher level than we are targeting in the medium term. And we have specific initiatives underway to improve our operational efficiency. We expect the impact from tariffs to persist in 2026 and continue to work on ways to offset their impact, including cost reduction and pricing initiatives. Total GAAP operating expenses were $107 million. This includes a $13.5 million payment and license related to an agreement with TRUMPF Laser System technique, settling all parts of litigation between us worldwide. The license will have an immaterial impact on our future results. Excluding the settlement payment, litigation expenses, amortization of intangibles and other acquisition-related expenses, adjusted operating expenses were approximately $91 million, as we continue to invest in our strategic initiatives to drive future growth. GAAP operating loss in the quarter was $8 million, and GAAP net income was $2 million or $0.04 per diluted share. Excluding onetime items, FX and amortization, adjusted operating income was $9 million, and adjusted net income was $13 million, with adjusted earnings per diluted share of $0.29. Adjusted EBITDA was $35 million. Both adjusted EPS and adjusted EBITDA came in above the midpoints of our guidance ranges. Moving to a summary of our balance sheet and cash flow on Slide 8. We ended the quarter with $813 million in cash, cash equivalents and short-term investments. We had $71 million in long-term investments and no debt. Cash used in operations was $5 million. The first quarter is typically weaker for cash generation, as it is impacted by annual bonus payments. During the first quarter, we spent $16 million on capital expenditures, below the expected run rate given our CapEx budget of $90 million to $100 million this year due to the timing of investments in our major fiber manufacturing facility in Germany. Excluding the German investment, underlying CapEx is running at about 5% of revenue and we expect to maintain this level going forward. Moving to our outlook on Slide 9. Orders remained strong with book-to-bill staying firmly about. For the second quarter of 2026, we expect revenue of $260 million to $290 million, and we expect adjusted gross margin between 37% and and 40%, including an ongoing impact from tariffs of about 150 basis points. We estimate adjusted operating expenses in the range of $92 million to $95 million in the second quarter and anticipate that these expenses will increase moderately during the year to support opportunities to further accelerate our key growth initiatives. For the second quarter, we expect to deliver adjusted earnings per diluted share in the range of $0.25 to $0.55 and with approximately 43 million diluted common shares outstanding. Our adjusted EBITDA is expected to be between $32 million and $48 million. In summary, we are pleased with our first quarter results with both bookings and revenue moving in the right direction. The underlying strength of the business is good to see, but we'd like to remind you that we do face tougher comparisons in the second half of 2026 relative to a strong second half in 2025. Although first quarter gross margin was a little light given the level of revenue, we continue to strive for margin increases through cost reductions, pricing initiatives and reducing underabsorbed costs. While we are monitoring freight costs that may be influenced by geopolitical developments in the Middle East, our direct exposure to petrochemicals and energy markets is limited and our vertical integration provides resilience against potential adverse impacts arising from conflicts in the region. I will now turn the call back over to Mark. Mark Gitin: Thanks, Jim. As Tim said, we are pleased with the strong start to the year, reflecting robust demand for our solutions despite elevated macroeconomic uncertainty. While we are closely monitoring current geopolitical events and have yet to see an impact on demand for our solutions, we remain cautiously optimistic in our outlook. We focus on what we can control executing on our growth strategy, supported by operational excellence and an innovation engine that continues to unlock significant areas of incremental opportunity. This foundation gives us confidence in our ability to achieve above market growth and deliver lasting value for our customers and shareholders. With that, we will be happy to take your questions. Operator: [Operator Instructions]. Our first question comes from Ruben Roy with Stifel. Ruben Roy: Tim, I guess I'll start with one of your last comments on the margin structure. And maybe if we just think about sort of medium to longer term, you've sort of talked about mid-40s as a structural area that the business can run from a longer-term perspective. And if you think about the tariff regime, higher input costs, sort of the puts and takes on product improvements, et cetera. I'm just wondering if you still think that mid-40s target is valid on a multiyear basis? Or has the structural feeling moved around at all based on what you're seeing at this point? Timothy P.V. Mammen: In general, that's a target we're still striving to get to. We are starting to see some of the cost reduction initiatives and some of the pricing that we talked about last year paid through. The other critical aspect of that, Ruben, is really balancing the fixed cost manufacturing structure with the total level of capitalized absorbed costs so that we can get absorption down as a percentage of sales, and we've certainly got room to drive overall gross margins up. I think relative to the mid-40s when we gave that guidance, the only real headwind at the moment is the tariffs impacting that by 150 basis points or so. But that tariff regime is obviously pretty fluid right now. And I think, overall, for Q2, the guidance at the top end of the range reflect some of that momentum on gross margin that we want to continue to drive forward with. Ruben Roy: Right. Okay. That's helpful. And then I guess a higher-level question for Mark. I get the new framework here with Industrial Solutions and Advanced Solutions, I think that makes strategic sense the way you've been sort of managing the business and looking at the business. So glad to see that. Maybe, Mark, if you could maybe talk through in a little more detail some of the drivers across some of the businesses that you discussed in your prepared remarks. As you think about Q2 and maybe the rest of the year, that would be helpful, given that you're bringing this out differently. So I mean, -- if we think about some of the moving parts in medical, for instance, which you've been pretty excited about, it sounds like there is a little bit of a sequential decline with unevenness and customer ordering. Is that a scheduling dynamic? Is that related to product timing? And maybe if you could talk about some of the other bigger parts of the business, cutting and welding and how you're seeing sort of backlog against those big pieces of the business playing out now? And sort of do you have any extended visibility, that would be helpful for us. Mark Gitin: Yes, absolutely. Good to talk to you, Ruben. So first of all, we continue and we expect to see continued growth in both of the areas, both Industrial Solutions and Advanced Solutions. And of course, we saw overall the business strongly quarter -- year-over-year, we saw a 17% growth. We saw that across a wide range of areas in both the -- in both the industrial as well as the advanced. If we look at the particular areas in industrial, we saw growth and continue to see growth in in Welding, specifically in the battery area. We've seen good growth actually in cutting as we also start to start to impact some of the plasma cutting area with our new RAC integrated lasers at very high powers, with new cutting heads. We're also making good progress in additive manufacturing and cleaning all of that Industrial Solutions area. And then as we look at the areas of advanced -- we've seen year-over-year strong medical. We've also seen growth in semiconductor, an area that we're starting to make impact on, as I mentioned in the call, in some of the areas of inspection, metrology, lithography areas. And then you specifically asked about the quarter-on-quarter about on medical. We just had a very strong quarter in medical -- we have a strong backlog in Medical in the year 2026. So we continue to expect to see growth in that specific area as well. Ruben Roy: Got it. Mark, if I could just sneak in one follow-up question. Congrats on the Lockheed Martin follow-up order. Can you just help me think about the revenue recognition profile on that cross program? Is this sort of spread over multiple quarters, I would assume it would be. And it sounds like you're going to be shipping for revenue in Q2. So is that starting this quarter for sort of the initial orders that you had -- or does that just reference the follow-on order and you've been shipping for revenue. Maybe you could just help us frame the scale production ramp for that program that I all had. Mark Gitin: Yes, sure. Sure. No, we're making great progress in Crossbow -- as we've talked about, obviously, we launched that at the end of last year. We brought that to a number of key shows -- we have a very strong pipeline. Lockheed was a first mover in that area. And yes, we did ship initial systems to them. So they have done a considerable amount of work with that. And then we got the $10 million follow-on order. And yes, we are beginning to ship that here in Q2, and that will be delivered over multiple quarters. And I can tell you that we have great interest from a number of key customers that we're working through the funnel, very excited about it. The they're really understanding the benefit of the IPG system. The Crossbows, as we mentioned in the past, this is based upon our high-power single-mode lasers, which IPG is the strongest at. We've demonstrated and shown lasers up to 8 kilowatts single mode, which is tremendous, and we have we're making very, very good progress with customers as we launch this forward. Operator: [Operator Instructions]. Our next question comes from James Ricchiuti with Needham & Company. James Ricchiuti: Something to get maybe some additional color on the booking strength that you saw, whether there's much variability by geography perhaps in the 2 business categories that you're now presenting to us. Mark Gitin: Yes. Jim, I'm happy to talk about it. I can talk about it for you regionally. We're not breaking it out by the 2 areas for bookings. But in the regional standpoint, we were very strong in North America and Asia, especially in China and Japan. Europe was a bit more stable. James Ricchiuti: Okay. And Mark, just on the strength in China. I wanted to -- it looks like you had a pretty good quarter in China, yet there seems to be a couple of moving pieces in China. I think Tim alluded to Ablative being a little weaker, but is the strength that you saw year-over-year or you're seeing in China, is that coming from the battery side of the business? Mark Gitin: So Jim, we're actually seeing strength across the board. Sometimes there's a little bit of movement quarter-to-quarter, but we've been quite strong in welding, especially in the battery area because we have very strong differentiation there, as you know, with our adjustable beam lasers, combined with the combined with the scanning and beam delivery as well as the process monitoring that we have. And that's very critical in that battery area, we're seeing significant growth and that's not just EV, but actually the bigger grower right now or a similar grower is actually the stationary storage for for the data center work. And those take the thicker bus bars because they are higher capacity batteries and that really zeros in on our solution. So that area of battery plus the additive and there are some areas of micromachining also where we're strongly differentiated in China, and we've seen some of that growth. And actually, when I talk about the battery, I can tell you also that, that's happening, we're seeing some of that globally. In fact, in the U.S., we're actually seeing some of the battery factories convert from EV to stationary storage, which is good for us as well. James Ricchiuti: Got it. And maybe a related strong growth in systems the last couple of quarters. And I know there are a couple of moving pieces in that as well. Anything in particular stand out? Mark Gitin: We've had some -- yes, thanks for the question. We've seen strong growth in cleaning is one of the key areas, the whole area of systems is a strength for us now because, again, it combines the laser capability plus the applications capability that we have and the ability to deliver that in subsystems and systems and really deliver a solution and cleaning is 1 of those key areas, and we're bringing out some new products in that area as well. So excited about the growth in systems. James Ricchiuti: Got it. And just one final quick one for Tim. Tim, any way to think about OpEx as we look out to the back half of the year? Any major changes that we would assume. Timothy P.V. Mammen: Yes. We sort of got maybe a moderate pickup in OpEx in the second half of the year with continued investments in the organizations and really driving these growth initiatives forward. But pretty moderate from where we are today. We know we need to we know cognizance of having invested significantly in OpEx to get the company turned around and we need to manage that cost base as we go forward and ensure getting the growth coupled with those investments. Operator: [Operator Instructions]. There are no further questions at this time. I'd like to turn the call back over to Eugene Fedotoff for closing comments. Eugene Fedotoff: Okay. Thank you for joining us this morning and for your continued interest in IPG. We will be participating in several investor events this quarter. And I'm looking forward to speaking with you again soon. Have a great day, everyone. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good day, everyone, and welcome to Pfizer's First Quarter 2026 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Francesca DeMartino, Chief Investor Relations Officer and Senior Vice President. Please go ahead, ma'am. Francesca DeMartino: Good morning, and welcome to Pfizer's earnings call. I'm Francesca DeMartino, Chief Investor Relations Officer. On behalf of the Pfizer team, thank you for joining us. This call is being made available via audio webcast at pfizer.com. Earlier this morning, we released our results for the first quarter 2026 via press release that is available on our website at pfizer.com. I'm joined today by Dr. Albert Bourla, our Chairman and CEO; and Dave Denton, our CFO. Albert and Dave have some prepared remarks, and we will then open the call for questions. Members of our leadership team will be available for the Q&A session. Before we get started, I want to remind you that we will be making forward-looking statements and discussing certain non-GAAP financial measures. I encourage you to read the disclaimers in our slide presentation, the press release we issued this morning and the disclosures in our SEC filings, which are all available on the IR website on pfizer.com. Forward-looking statements on the call are subject to substantial risks and uncertainties, speak only as of the call's original date, and we undertake no obligation to update or revise any of the statements. With that, I will turn the call over to Albert. Albert Bourla: Thank you, Francesca. Good morning, everyone. Thank you for joining our call. It's a wonderful day here in New York. We've had a strong start to the year. Our business continues to perform well, and we are making strategic progress. One of our great strengths is the ability to execute. And we are delivering on our financial commitments while we also invest to strengthen Pfizer for future growth and impact. In the first quarter, we exceeded expectations for both total revenues and adjusted diluted earnings per share. We have made progress so far this year in delivering our 2026 critical R&D milestones, including 3 positive Phase III readouts and encouraging mid-stage readouts for both approved and investigational medicines. We are keeping pace with our robust agenda of approximately 20 planned pivotal study starts this year. We also had 2 significant legal developments that improved our growth profile post-2028 and of course, our cash flow outlook. Our recent settlement agreements resolving infringement of patents related to Vyndamax have the potential to change the growth profile of the company significantly post-2028. This gives us greater confidence that starting in 2029, we will enter a 5-year period of high single-digit revenue CAGR. Additionally, we view the recent Belgian court ruling regarding Comirnaty contracts with EU member countries as a positive for future EPS and cash flow. The improved visibility into our cash flow provide is a positive for our longer-term capital allocation priorities, including, of course, our ability to preserve and support the dividend. As we look to the rest of the year, we are clearly focused on our most impactful opportunities to create value for patients and our shareholders. We previously shared our strategic priorities for 2026, and I will walk you through the progress we are making on all 4. Our launched and acquired products had a tremendous start to the year with 22% growth. Three of our business development transactions represent about 8% of the invested capital in recent years, and they are all progressing very well. Oncology represents our most advanced and concentrated area of research and commercial focus and our Seagen acquisition is a central reason why. Since beginning -- since bringing the company to Pfizer, we have transformed our oncology organization, unifying our team, expanding our commercial portfolio and advancing a leading ADC platform. The 20% year-over-year operational revenue growth in the quarter of our Seagen products shows that we have made good progress in deepening our presence within the oncology community. We continue to strengthen physician engagement and drive greater recognition of the clinical value of our medicines. We are also executing with focus to maximize the value of our Metsera acquisition. This underpins the strategy intended to position Pfizer as a leader in the next generation of obesity therapies. We intend to advance 10 Phase III studies this year, and we are targeting a first approval in 2028 from a portfolio that includes ultra-long-acting peptides with the potential, if successful, developed and approved for competitive efficacy and tolerability with a differentiated monthly maintenance dosing schedule. The success we have achieved with Nurtec since our Biohaven acquisition shows the power of our leading field force and commercial capabilities at work. Nurtec contributed in the first quarter with 41% operational growth driven by robust demand and both -- for both acute and preventive migraine treatments. We continue to see a meaningful growth opportunity in the oral CGRP class of medicines for patients with migraine. Of course, 2026 is a pivotal year for R&D, and I'm pleased with our early progress this quarter. While we have a large active pipeline, we rely on a rigorous and disciplined approach to focus resources where we see the greatest potential. We are targeting approximately 20 pivotal study starts, 8 key data readouts and 4 regulatory decisions this year. Our critical R&D milestones reinforce how we are concentrating investment in key areas such as oncology, metabolic disease and vaccines, where we have existing commercial infrastructure, scientific expertise and significant opportunity for competitive differentiation. Roughly half of our anticipated key data readouts and regulatory decision in 2026 are expected to come from oncology where we are advancing multiple programs across areas such as breast, [ genitourinary ] thoracic, gastrointestinal and blood cancer. During the quarter, we presented notable EV-304 study findings for Padcev at ASCO GU. The results show that Padcev and pembrolizumab reduces the risk of recurrence or death by nearly 50% in patients with cisplatin-eligible muscle-invasive bladder cancer. Combined with the recent compelling data from the EV-303 trial, this highlights the potential for this regimen to become the new standard of care for patients with muscle-invasive bladder cancer, regardless of cisplatin eligibility. Bladder cancer is diagnosed in more than 600,000 (sic) [ 614,000 ] patients each year globally, including an estimated 85,000 in the U.S. MIDC represents approximately 30% of all these bladder cancer cases. The positive top line results we shared last week from the Phase III MagnetisMM-5 study of Elrexfio represent a meaningful step toward our goal of reaching more patients earlier in the course of their disease. In this study, Elrexfio significantly improved progression-free survival for double-class exposed patients with relapsed or refractory multiple myeloma who received at least one prior line of treatment. This is a significant opportunity to address patient need. Multiple myeloma, an aggressive and currently incurable blood cancer, is the second most common type of blood cancer worldwide with over 36,000 new cases each year in the United States and over 187,000 new cases globally. During the quarter, we also shed randomized Phase II data for atirmociclib, our potential first-in-class CDK4 inhibitor, in patients with HR2/HER2 negative breast cancer who received prior CDK4/6 inhibitor-based treatment. These data suggest that atirmociclib has the potential to differentiate from the CDK4/6 inhibitor class with improved efficacy and tolerability, reinforcing our confidence in the molecule. Looking ahead, we remain focused on accelerating this investigational medicine's development in first-line and early breast cancer, where it may provide even greater impact for patients. We view this as an important opportunity to deliver a next-generation backbone therapy, building on Pfizer's long commitment to patients with breast cancer. In vaccines, we have been working with regulators on the pathway for expanding coverage through our next-generation pneumococcal conjugate vaccine to extend our leadership in this competitive space. Yesterday, we initiated our Phase III program for our 25-valent pediatric vaccine candidate with increased valency and next-generation serotype 3 technology. I'm also pleased to provide an update on our strategy in the adult market. We have decided to advance directly to our fifth-generation adult vaccine candidate. And, today, I am proud to share for the first time that it includes coverage for 35 serotypes. We believe this gives us the strongest opportunity to maintain our current market leadership in the adult market over the long term, and we expect to enter clinical development this year. In I&I, we announced a positive readout in March from a Phase II trial of tilrekimig, our investigational trispecific antibody, in atopic dermatitis. We intend to advance a broad clinical development program for this investigational medicine, which was discovered in-house at Pfizer and is currently being evaluated in atopic dermatitis and also in asthma and COPD. We remain on track with our commitment and our continued focus on what matters most: maximizing the long-term value of our pipeline for patients and shareholders. We are investing with strategic discipline and focus to build a foundation supporting our aim of high single-digit 5-year revenue CAGR. It's vital that our R&D organization has the resources to advance our robust pipeline, including both internally discovered programs and opportunities we have added through strategic moves such as our acquisition of Metsera and our in-licensing agreements with 3SBio and YaoPharma. Our commercial teams are the leaders in translating scientific progress into real-world impact. We are furthering investments to provide them with capabilities, technology and support helping our medicines reach the right patients at the right time so we can deliver sustained value. We also remain deeply committed to our shareholders. We intend to maintain and over time, grow our dividend as we continue to delever and build long-term value. Embedding the use of artificial intelligence across our company is a key strategic priority, and we are driving continued progress in R&D, commercial, manufacturing and core enterprise functions. We are empowering our colleagues to accelerate innovation by pairing frontier AI tools, tailored to function and role, with comprehensive and continuously updated training. One of the areas where we see the most substantial promise is the discovery, development and delivery of new medicines and vaccines. Leveraging the power of AI to compress timelines and improve decision-making is central to our innovation strategy. We are embedding AI into each functional line of R&D. Pfizer has a vast repository of small and large molecule, translational and clinical data and AI is creating the opportunity to unlock insights that could drive a significant impact on how we discover and develop medicines and vaccines. So with that now, I will turn it over to Dave to speak about the financial performance of the company. David Denton: Great. Thank you, Albert, and good morning. Let me begin by highlighting that our strong first-quarter performance reflects the continued disciplined execution across our strategic priorities, and importantly, continued progress in repositioning the company for sustainable growth. We are making targeted investments today to drive revenue growth later in the decade and beyond. Looking ahead, Pfizer is entering a new phase. Our launched and acquired products, combined with the strengthening pipeline, are positioning the company with the ability to deliver growth towards the end of the decade. While we remain focused on managing near-term LOE headwinds, we are actively building the foundation for durable long-term value creation. And with that as context, I'll review our first quarter results, discuss our capital allocation priorities, and conclude with an update on our '26 guidance, which we are reaffirming today. In the first quarter of '26, revenues were $14.5 billion, exceeding our expectations and representing an operational increase of 2%. Excluding our COVID products, the underlying business delivered approximately 7% operational revenue growth, reflecting solid demand across key brands and continued strong commercial execution. On the bottom line, first quarter reported diluted earnings per share was $0.47, and adjusted diluted earnings per share was $0.75, also exceeding our expectations. In addition to our strong revenue, this outperformance also reflects our ongoing commitment to managing our cost base and to drive productivity across the organization. Our results this quarter demonstrate the effectiveness of our refined commercial strategy. We saw solid contributions across our product portfolio, primarily driven by Padcev, Eliquis, Nurtec, Lorbrena and the Vyndaqel family, each reflecting focused execution in our key therapeutic areas. Our launch and acquired products delivered $3.1 billion in the first quarter revenues and grew by approximately 22% operationally. These results demonstrate the early impact of our portfolio transition and our investment strategies. We continue to invest behind these product groups to support their growth, which we expect will enable the company to partially offset upcoming LOE headwinds over the next several years. Adjusted gross margin for the first quarter was approximately 76%, primarily the result of product mix during the quarter and ongoing cost control measures. I do want to note, accrued royalty expense was higher this quarter and dampened gross margin compared to the first quarter of last year. With that said, strong cost management across our manufacturing footprint remains a top priority. As a reminder, over the past several years, our adjusted gross margins have generally remained in the mid-to-upper 70s when excluding Comirnaty, which is a 50-50 profit split with our partner BioNTech. We continue to expect approximately $700 million in savings from our Phase I of our manufacturing optimization program this year with approximately $175 million realized in this quarter. Total adjusted operating expenses were $5.5 billion for the first quarter of '26, an increase of 4% operationally versus the first quarter of last year. And now looking at the components. Adjusted SI&A expenses decreased 5% operationally, primarily reflecting lower marketing and promotional spending on various products from more targeted investments and ongoing productivity improvements, as well as lower spending in corporate enabling functions. Adjusted R&D expenses increased 11% operationally, primarily driven by an increase in spending in certain oncology and obesity product candidates. First quarter 2026 adjusted operating margin was strong at 38% and above pre-pandemic levels, demonstrating effective cost management as well as revenue performance. We have already made meaningful progress on our productivity initiatives and remain on track to deliver the majority of the anticipated $7.2 billion in total net cost savings by the end of '26. And looking ahead, we will continue to identify opportunities to further enhance efficiencies while prioritizing investments that support future growth. Turning to the bottom line. Q1 reported diluted earnings per share again was $0.47, and our adjusted diluted earnings per share was 75% -- $0.75, which benefited from our strong non-COVID revenue and efficient operating structure. Now with that, let me turn to our capital allocation strategy. Our strategy is designed to enhance long-term shareholder value while preserving flexibility. It includes reinvesting in the business at appropriate returns, maintaining and over time growing our dividend and preserving optionality for future value-enhancing actions, including share repurchases. In Q1, we invested $2.5 billion in internal R&D, returned $2.4 billion to shareholders via the quarterly dividend and our completed business development activity was minimal. We closed on the sale of our stake in ViiV in the second quarter, providing us with approximately $1.65 billion in net proceeds, after taxes and customary closing costs. Our BD capacity, when including the ViiV proceeds, is approximately $7 billion. First quarter '26 operating cash flow was $2.6 billion and leverage ended the quarter at approximately 2.8x. And as just a reminder, given the LOE headwinds over the next few years, we expect leverage to remain around the current levels or even slightly higher through the transition period. I will also mention that we made our final TCJA repatriation tax payment of approximately $2.6 billion in April. Based on our performance to date and continued execution, we are reaffirming our full year '26 guidance today. We continue to expect total company revenues in the range of $59.5 billion to $62.5 billion and adjusted diluted earnings per share in the range of $2.80 to $3 a share. This outlook reflects our expectation of strong contributions across our product portfolio, adjusted gross margins in the mid-70s range, disciplined cost management and continued investments to support growth by the end of this decade. As a reminder, sustained low disease levels of COVID will likely continue to weigh on Paxlovid utilization over the next several months. And additionally, our plan assumes that the majority of Comirnaty sales will occur towards the end of the year and consistent with the vaccination season. And as always, we continue to monitor currency fluctuation as the year progresses. In closing, over the next several years, our focus remains on investing in key assets while managing upcoming LOE events, primarily from this year through 2028. As we look towards the end of the decade, growth is expected to be driven by our advancing R&D pipeline and the continued progress of our launched and acquired products. Following the Vyndamax settlement, we now have a clear line of sight to a high single-digit 5-year revenue CAGR post-2028. Furthermore, this event, combined with our legal win in the Belgium court regarding the EU Comirnaty contract will enhance our cash flow post-2028. We continue to position Pfizer for durable long-term growth and shareholder value. And with that, I'll now turn the call back over to Albert to begin the Q&A session. Albert Bourla: Thanks, Dave. Nice quarter. Now operator, please assemble the queue. Operator: [Operator Instructions] And our first question today comes from Vamil Divan with Guggenheim. Vamil Divan: I'll keep it to one. I think a lot of focus on the upcoming ADA meeting. Just curious if you can just kind of clarify exactly what we should expect to see. I know we obviously see VESPER-3, but any other data that we should expect from a Pfizer perspective? And I think hosting an investor event in conjunction with [indiscernible]. So curious if there's any other details you can share around that? Albert Bourla: So Chris, the question is for you. How much of the data we're going to disclose in the ADA? Chris Boshoff: Thank you very much for the question. It's obviously a very important program. We're excited with the progress. And since the close of Metsera, as you know, we had exceptional execution, not only in the clinical development, but also on the commercial development side and as well as CMC and on the pharmaceutical sciences as well as the devices. Detailed data from VESPER-3 will be shared, the top line data we presented last time at the 4Q '25 earnings. Data from VESPER-1, the open-label extension, will be shared as well as data from VESPER-2, which is weekly [ danuglipron ], our new name for GLP-1, with or without titration in participants with type 2 diabetes will be shared. We will not share yet at ADA data on amylin mono. We expect 24 weeks monotherapy and 28 weeks combination with the amylin and GLP-1 that will be shared in the second half of this year. Operator: Our next question comes from Dave Risinger with Leerink Partners. David Risinger: So my questions are on your oncology readouts this year that could move the needle for the company. Could you comment on your expectations for SV and Mevro pivotal readouts this year? And then separately, if you could just please provide an update on your restructuring of corporate strategy and business development operations at the company? Albert Bourla: Thank you very much, Dave. Let me take the second one and then Chris will address the SV and Mevro. We did some changes in our organizational structure that are aligned with our constant effort to simplify. We have reduced the members of my executive team by 4 over the next couple of years -- over the last 2 years. So the business development moved under Chris Boshoff because most of the business development are right now related with R&D pipeline and choices. We see significant improvement in any friction that could exist and how smooth things could work by doing that. We also moved the commercial development, which is all the commercial strategies that we're sitting in that group into the global marketing of the organization. And that creates also a significant amount of synergies by having global and new products, global market with new products and with our old products. That went under -- Alexandre took over the responsibility to manage the portfolio management team. He's the new Chair, and he is focusing on prioritizing the pipeline. And then the strategy group moved to my Chief of Staff, so in the office of the CEO, where I can have also better supervision. So this is the change that happened into our organization. And we feel that they are consistent with everything we were planning, which is simplification of our business. Chris? Chris Boshoff: Thank you very much. So to start with SV, important program for us. Integrin B6C is a highly differentiated target overexpressed in 90% of lung cancers and little expressed in normal tissue in the lung. And we were encouraged by the first-line data, which we -- I mean, the Phase I data, which we shared, albeit a single-arm experience with a median overall survival of approximately 16.3 months. The second-line study, just a reminder, is focused on non-squamous based on the signals we've seen and Phase III study against docetaxel. The study is statistically powered should it be positive for overall survival. It will also be clinically meaningful. Just a reminder, we also have an ongoing Phase III trial in the TPS high, TPS more than 50. And data will be shared at ASCO from the Phase I experience. This is pembro versus pembro plus SV. A reminder that last year, we shared data for that combination in PD-L1 high handful of patients, but everyone responded in that population. So it was 100% response rate in a small population. And for mevrometostat, again, an important differentiated, highly specific differentiated EZH2. The first study that will read out is MEVPRO-1, which is in patients post abiraterone of significant unmet need and enzalutamide versus -- sorry, enzalutamide plus EZH2 versus physicians' choice of enzalutamide or docetaxel. And that should read out middle or second half of this year. Operator: Our next question comes from Chris Schott with JPMorgan. Christopher Schott: Maybe 2 for me. First, maybe for Dave or the broader team. I know you typically don't raise guidance with 1Q, but does seem like a very solid start to the year from a revenue perspective. Can you just talk generally about the business trends versus your expectations and just how you're thinking about the year progressing from here? And then second question for me was on BD capacity. You mentioned $7 billion. I guess just given the Vyndamax clarity, could the company look at larger transactions if the right deal were to present itself? Or is the focus still much more on the internal pipeline and maybe small tuck-ins from here? David Denton: Yes. Chris, Dave here. Thank you. Yes, I think to your first question, company is off to a really solid start in Q1. If you look kind of up and down and across the board from a product perspective, we exceeded expectations on top line and bottom line and really strong cost control and cost management and very disciplined execution. So yes, setting ourselves up really well for delivery for the balance of the year. As you well know, Chris, I have a philosophy of not really adjusting in Q1. I think as you well know, if you look at our COVID franchise, it will always be back half weighted because of the seasonality of this. And so we are, if anything, have derisked delivery on that without raising guidance. So absent that, we probably would be raising guidance. How is that? So again, strong performance. Secondly, as I said, we do have $7 billion in BD capacity. Obviously, this development from a legal perspective actually gives us more confidence in our cash flow delivery over the next several years. And we constantly look at BD and understand what is appropriate strategically to do from a BD perspective to support the needs of the company and deliver long-term value. Operator: Our next question comes from Kerry Holford with Berenberg. Kerry Holford: Just on Comirnaty, I wonder if you can just talk a little bit more about the vaccination rates you're expecting this year within the U.S. and international regions? And then just coming back to the international region, can you talk a little bit more about the existing European contracts, remind us of those existing phase payments. And in the context of that recent Belgian court decision, the 2 items together, how should we think about the evolution of ex-U.S. sales for that vaccine? Albert Bourla: Okay. Let's start with international, and then we move to with Alexandre and then Aamir will speak about the vaccination rates in the U.S. Alexandre de Germay: Yes, good question. Just to put context, the decline that you see in Q1 on Comirnaty has nothing to do with vaccination. It's really the effect of last year. We shipped our last contract elements of our contract with the U.K. So we don't have that contract anymore in 2026, and that's why you have a reduction. But it doesn't really talk about the vaccination rate. Actually, we went through the vaccination numbers in Europe in 2025 and mostly stable versus 2024. Of course, you have differences. For instance, in France, the vaccination rate is around 25% in adult. In Spain, it's going to be around 35%. But those rates are stable, and we see government's willingness to continue to invest and increase awareness of their older and at-risk population to get vaccination. In 2026, we will work with those governments across the European Unions to actually continue to execute our contract the same way we did in previous years. Now with regard to the legal case and the court judgment on April 1, 2026, the court judgment is very clear, and we've started to work with the governments in Poland and Romania to actually execute the judgment and we're discussing the best path forward to implement that judgment. Albert Bourla: Thank you, Alexandre. So Aamir, what about the U.S.? Aamir Malik: Vaccination rates in the U.S., obviously, is very different for every segment. In COVID with Comirnaty, there was a narrowing of the label. So we did see a shrinking of the market a bit. In the case of RSV, we obviously now going past our third season with a tougher to activate adult population, but growing on the maternal space, and there's population dynamics with infants and adults. So we see ups and downs in the vaccination rates as a result of those dynamics. But what I feel very good and very confident about is the way that we're executing in that market. So if you look at every single one of our teams, we have market-leading positions. [ Prevnar ] more than 60%, Comirnaty more than 60%, [ Abrysvo ] now at 84% and [ Prevnar ] adult, even after many months of competition from Merck holding share steady at 70%. So I feel very good about the way that we're executing in a slightly turbulent market. Albert Bourla: Thank you for the confidence, Aamir. Operator: Our next question comes from Umer Raffat with Evercore ISI. Umer Raffat: And I appreciate some of the comments you made around maintaining the dividend. I just thought I would approach it from 2 different angles, if I may. First, I guess, what's the likelihood that Pfizer entertains a transformative M&A in near or medium term, which could end up impacting dividend as we've seen in history? And then secondly, Albert, I guess, how are you personally, but also the Board thinking about your tenure at Pfizer and how it ties to dividend integrity beyond? Albert Bourla: Look, we never say never, and we always look at every business -- possible business combination for an M&A. If you are asking me if right now, we think that we are going to go for something very big, a big merger, no. We think that right now, in the next few years, it is the time to execute on AI transformation of these organizations. And that requires not the disruption of mega merger. So I would say that we are open to everything and we are looking at everything that can create shareholder value, but it is not right now very high in our list to find something like that. The second question, how I see my tenure? I see it like continuing. And I said multiple times that I was very proud of what we were able to achieve with COVID. But then if you are spoiled with this feeling of satisfaction, you want to do it again. So I'm planning to do it again and hopefully, with cancer and obesity and vaccines. Operator: Our next question comes from Asad Haider with Goldman Sachs. Asad Haider: Albert, just going back to last December's guidance call, you highlighted $17 billion of annual revenue impacted by LOEs by 2030. And now with the [ Vyndamax ] patent settlement extending that to mid-2031, your comments that you are aiming to achieve high single-digit 5-year revenue growth starting in 2029. Just if you could double-click on that a little bit more, just looking at the pipeline and the current BD aperture that you just described, just level set us on any updated thoughts on bridging the gap around how we should be thinking about the levers to drive this growth against the stacked LOEs? And then just related, embedded in this high single-digit CAGR, what are the assumptions around your base business such as COVID and the current oncology products? Albert Bourla: Yes. It is easier, of course, to forecast the base business because it's a constant. So that it is following the normal trend that we expect based on product by product. The LOEs also are easy to predict because they have the certainty of occurrence. Right now, you're right, with this 2.5 years delay of the LOE of a product that is $6 billion plus, it is providing significant, as you can understand, opportunity for cash flows, EPS and change the growth profile. So that's why we spoke now because with this uncertainty going about our projections about the growth profile, which we said it is starting in '29, it's a 5-year high single-digit CAGR. How that is built is built with the current portfolio with the decline through the LOEs and with the additions of pipeline that they are heavy risk adjusted. So it's not that we are having [ binary ] events. So the pipeline are multiple, as you know. We have a series of readouts right now that will affect the revenues in the '29. And so I think when -- I feel confident about that because when it is a large number of pipeline assets risk adjusted, statistics usually work. And those that will fail will fail and those that will succeed will succeed, but the risk adjustment takes into consideration about that. So very confident about the growth trajectory of the company starting in '29. And I'm also very confident that we navigate the LOEs, as you saw right now, very well starting already this year, the LOEs. I also want to emphasize that always the strategy for LOEs was new and acquired products to do well because they were launched and acquired to offset the LOEs. They are growing 22% this year. They are already on $3.1 billion in a quarter. If you -- without saying that that's the guidance, but if you multiply by 4 just to give you [indiscernible], we are talking about over $12 billion this year and growing. And the $17 billion of LOEs now after [indiscernible], they are more $14 billion to $15 billion rather than $17 billion. So I think it's manageable. Operator: Our next question comes from Evan Seigerman with BMO Capital Markets. Evan Seigerman: I really want to touch on capital deployment, specifically when it comes to share repurchases. Dave, I know that, that's been a method that you wanted to employ now with clarity on [indiscernible] and the CAGR post-2028, what other -- what else do you need to see to potentially start buying back shares, especially at these levels? David Denton: Yes, Evan, great question. We always look at our capital allocation strategy of balancing between the 3 options that we have. At the moment, our focus is really on investing in our R&D platform and in business development to drive long-term value. With the development in these court cases, that does give us a bit more confidence in our cash flow over time. So you'll see us the capital allocation share repurchase level will come back into greater consideration going forward. So great question. Something we always look at, and we're always looking to do what's best for the company and shareholders long term. Operator: Our next question comes from Courtney Breen with Bernstein. Courtney Breen: I just wanted to probe a little bit more on [ sigtolimod vedotin ] and positioning in that frontline setting, all comers relative to the Symbiotic-Lung-01 study that you've already started with the PD-1 VEGF. I also note that you've got kind of a Phase I/II running combining these 2 assets. And can you help us contextualize that new Phase III all-comers that you intend to start this year for SV first line and how that may be positioned relative to Symbiotic-Lung-01? Albert Bourla: All right, Chris? Chris Boshoff: Thank you very much for the question. Lung cancer is obviously a very significant unmet need and having a number of shots on goal now with a very differentiated portfolio gives us confidence that we can continue to play an important role in lung cancer beyond just in the targeted therapies like [ lorlatinib ]. For SV, we are very encouraged by the data we've seen for the combination of pembrolizumab plus SV in the PD-L1 high population, where we've previously chosen a small number -- a small cohort of patients that they all responded in the PD-L1 high to that combination. So the Phase III study that's ongoing of pembrolizumab versus pembrolizumab for SV, that study is recruiting well in the first-line setting, and we're confident for the readout for that study. And ongoing also is the second-line study, which is against docetaxel, which was encouraged by the previous data we've seen obviously in a single-arm experience with a median overall survival of 6.3 months. So that study should read out midyear. That's docetaxel versus SV second line powered for -- obviously, for overall survival. And if it's positive, as I said earlier, it will be clinically meaningful. And then ongoing studies being planned also for the broader population in combination with chemo plus pembrolizumab, and we will share some of the data later this year for the early data for that combination. In terms of 4404, at ASCO, we will share the Phase II data of 4404 monotherapy in first-line PD-L1 expressing non-small cell lung cancer. As you know, we recently shared data at AACR, where we repeated the preclinical and early data generated by [ Bio China ]. So we're really confident that this is a differentiated molecule. And the binding against VEGF is -- we've shown at AACR is better, is higher affinity than what's seen with [ bevacizumab ]or that's seen with competitive VEGF/PD-1 molecules. So confident in the molecule. We'll share more data later this year with a broad program starting, including in combination with chemo. And just a reminder at ASCO, we will also share data and with 4401 plus chemo in first-line advanced recurrent endometrial cancer, another program that we plan to start a Phase III program. Operator: Our final question comes from Louise Chen with Scotiabank. Louise Chen: I wanted to ask you, which key products do you think will drive the reacceleration of your growth in 2029 and beyond? And then regarding the international obesity opportunity, just curious what you've learned from the launch of your GLP-1 in China? Albert Bourla: Alexandre, let's start with you again this time because of visiting international has, of course, the Lilly numbers have surprised how big the international market is. And then also speak about key products that will drive your growth in '29. And then Aamir, U.S. key products that will drive growth in '29, please? Alexandre de Germay: So a good question on the ecnoglutide launch in China. Of course, it's very, very early day. We really launched the product Monday last week. So I mean, it's only a week, so I can't really talk to you about the penetration of ecnoglutide in China. But what is really interesting is actually the incidence of chronic weight in China is quite high, 15% of the Chinese population. And considering the size of the China population, that makes it one of the larger market for chronic weight management. And that's the reason why we decided on March -- on February this year to actually do this collaboration with Hangzhou Sciwind Biosciences for the commercialization of ecnoglutide in China. And since then, we got the approval and commercialized these assets. Ecnoglutide has a very interesting profile. And actually, its demonstrating in a placebo-controlled study, a 15.1% weight loss at 48 weeks, which is in par with the best GLP-1. With this biased mechanism of action of GLP-1, we think that we have -- we are bringing to market a very effective asset with a good tolerability profile. And of course, we're going to leverage our very strong primary care capabilities in China that puts Pfizer China as one of the leading in primary care. So the combination of a very attractive clinical profile plus our knowledge in this area, we believe matters a leader in this category. And we're not coming very late into the market because remember, Lilly really introduced their asset in -- at the beginning of last year. So it's not like we're coming many years after the introduction of those assets. So as I said, I'm very optimistic, both due to the profile of this asset and the capability that we have developed in China. Now when it comes into the growth engine of the international, there are -- I just want to step back one second. If you look at the quarter and the fact that our non-COVID primary care grew double-digit growth, we delivered $2 billion this quarter. Remember, we closed last year with a double-digit growth on primary care. Now if you look at the Specialty Care, about $1.5 billion this quarter, we're delivering a double-digit growth again. That was on the back of a double-digit growth last year. And there are assets in those different areas that will continue to power our growth. I come back to Primary Care, our vaccines are growing very strongly. And the reason why we are growing very strongly on vaccine is because both on [ pneumococcal ] and on RSV, we have a large population. If you look at -- as you know, in [ pneumococcal ], this is a very -- this is -- it's a very large population and 2/3 of our vaccine business come from pediatrics. And of course, we have a large pediatric population to continue to grow so both in maternal immunization and [indiscernible]. So the vaccines have a potential to grow in pediatric and in adults. Of course, a big growth in the -- at the end of the decade will come from the Metsera access in chronic weight management because there are 2 elements of that. One, it's an underserved category with a large epidemic across the world, right? In some of the emerging markets, we have a very high prevalence in Saudi, in Brazil, in Mexico of obesity. And our presence in those markets will -- with a strong primary care will allow us to actually tap this potential. But also, it is a cash market, which also is a big advantage in Europe, in Japan and other developed markets where right after approval, we can introduce those products, which is not the case today in many of our categories because it takes a lot of time for reimbursement negotiation with the payers. So you see we have an in-line asset that will continue to power the growth, and we are bringing assets like the Metsera that will go straight to market. And of course, the oncology asset will come, but it will take longer for reimbursement negotiation. Albert Bourla: Thank you, Alexandre. Aamir, now your thoughts for U.S.? Aamir Malik: Louise, thanks for the question. There's many things that give us confidence about driving growth in the U.S. in '29. If you take the first category, we have products that are on the market today that have a lot of upside to them. So if you think about Padcev, all of our recent growth has been primarily driven by LAM UC. We're at the high 50% penetration there. And we've got lots of upside in MIDC, 303 and 304. So there's a lot of headroom for growth there. Secondly, you look at products like Nurtec, we've got a lot of tailwind behind us now, but only 60% of people who write a triptan have yet to write an oral CGRP. So there's a lot of headroom for growth, and we're executing really well against that. Second, you look at some of our existing large franchises. We have a lot of confidence in what's going to happen with [ Vyndamax ]. Now with 5 years of additional exclusivity gives us the opportunity to invest and to continue to grow diagnosis. And we are doing a great job defending our existing patient base as well as ensuring that it is the choice -- the top choice for new patient starts. And so we think we have a lot of momentum on franchises like that as well. And then just to complement what Alexandre was saying, if I think about new areas of growth, we talked a lot about the oncology assets already, but obviously, we're very excited about what we have to bring to the market in obesity. The assets speak for themselves, but what I'm particularly excited about is the fact that we have unique capabilities as a company to win in this area, both in terms of our ability to activate consumers and patients in very different ways as well as our legacy in this space and the fact that almost 60% of physicians who are going to write these products we already touch today through a combination of our field forces. So those combinations are just some examples of what gives us confidence to grow in '29 and beyond. Albert Bourla: Thank you, Aamir, and thank you, everyone, for your attention. Our strong performance in the quarter reflects the impact of our continued focus and disciplined execution. We are engaging with precision to maximize the value of our commercial portfolio, and we are seeing the results in our financial performance. In R&D, we are making meaningful progress with a robust slate of critical milestones ahead in 2026 that we believe will further demonstrate the strength and breadth of our pipeline. I want to thank my Pfizer team. I believe we have the best team Pfizer ever had. They are dedicated to our purpose, continue to deliver and embrace our commitment to creating long-term value for patients and for our shareholders. Thank you for joining the call today, and thank you for your interest in Pfizer. We look forward to sharing further updates as we execute our priorities throughout the year. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the First Quarter 2026 Sequans Earnings Conference Call. My name is Howard, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Mr. David Hanover, Investor Relations. David, you may begin. David Hanover: Thank you, operator, and thank you to everyone participating in today's call. Joining me on the call from Sequans Communications are Georges Karam, CEO and Chairman; and Deborah Choate, CFO. Before turning the call over to Georges, I would like to remind our participants of the following important information on behalf of Sequans. First, Sequans issued an earnings press release this morning, and you'll find a copy of the release on the company's website at www.sequans.com under the Newsroom section. Second, this conference call contains projections and other forward-looking statements regarding future events or future financial performance and potential financing sources. All statements other than present and historical facts and conditions contained in this release, including any statements regarding our business strategy, cost optimization plans, strategic options, the ability to enter into new strategic agreements, expectations for sales, our ability to convert our pipeline to revenue and our objectives for future operations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended. These statements are only predictions and reflect current beliefs and expectations with respect to future events and are based on assumptions and subject to risks and uncertainties and subject to change at any time. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. Given these risks and uncertainties, you should not rely on or place undue reliance on these forward-looking statements. Actual events or results may differ materially from those contained in the projections or forward-looking statements. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission. And now I'd like to hand the call over to Georges Karam. Please go ahead, Georges. Georges Karam: Thank you, David, and good morning, everyone. I'd like to begin with a brief update on our capital allocation strategy, including how we are approaching the management of our digital asset holdings alongside the continued execution of our IoT semiconductor business. Our priority remains clear. We are focused first and foremost on executing our IoT strategy, scaling our product business and advancing our 5G road map in a disciplined way to create long-term shareholder value. In parallel, we have continued to manage our Bitcoin holdings with a pragmatic and opportunistic approach. In light of current market conditions, we made the decision earlier this year to eliminate all debt-related risk by negotiating an early redemption agreement with our debt holders. This allows us to fully redeem the $94.5 million of convertible debt by June 1, 2026, funded through the sale of Bitcoin that had been held as collateral. As of today, we have already redeemed approximately 62% of this debt, and the remaining balance will be redeemed in the coming weeks. By June 1, we expect to have a near debt-free balance sheet with at least 600 Bitcoin held as unencumbered asset. Looking ahead, we do not intend to further pursue our treasury strategy. Instead, our objective will be to monetize these holdings over time in a disciplined manner, balancing market conditions with our broader capital needs. Importantly, we remain focused on maintaining a strong cash position to support operations, invest in our 5G IoT road map and provide stability as we scale the business. Turning now to the operational side of the business. Our IoT semiconductor business continues to demonstrate solid underlying momentum. For the first quarter, we generated $6.1 million revenue. This performance is broadly in line with our expectations and reflects continued strength in product revenue despite supply challenges, partially offset by variability in the timing of services revenue. Looking ahead, we continue to benefit from a strong backlog, which provides good near-term visibility. Our order backlog continues to build with approximately $22 million in revenue, primarily product-related, already secured for the year, along with early indications of orders extending into the first quarter of next year. This provides us with increasing confidence in the trajectory of the business as we move through 2026 and confirms the healthy nature of our design-win pipeline and related KPI we track. Our full year outlook continues to be supported by an increasing number of design-win projects transitioning to production. We entered the year with more than $300 million in potential 3-year product revenue from design-win projects. Of these, 44% had already reached the production phase and are generating revenue. During the first quarter, 3 additional design-win projects transitioned into production, and we expect additional projects to follow in the second quarter. As a result, we continue to anticipate that more than half of our current design-win pipeline will be in production by the end of June, representing approximately $150 million in potential 3-year revenue. We are also seeing strong momentum with the new customer engagements. In the first quarter, we engaged more than a dozen new customer projects with 6 already confirmed as design wins. These programs are expected to contribute to growth, beginning in 2027 and beyond. Our product pipeline remains primarily driven by our 4G, CAT-M and CAT-1bis technologies. It also includes our RF transceiver product, which supports a wide range of software-defined radio applications, including defense and drone use cases. In addition, we have initiated early engagements around 5G eRedCap, which will be the future successor to 4G and cellular IoT deployments. Smart metering, telematics and asset tracking continue to represent our strongest verticals, followed by security, e-health and medical and other industrial applications. Turning now to product ramps and key drivers. Cat-M continues to be a meaningful growth driver in 2026, led primarily by asset tracking and smart metering deployments. This business is scaling in line with expectation, supported by strong visibility and steady ordering patterns as many Cat-M design-win projects are now in production with key customers deployment underway. CAT-1bis is positioned for a breakout year, supported by multiple customer ramps across telematics, security and some metering use cases. We are already seeing revenue contribution from several design wins with additional projects expected to enter production in the second half of the year. We're also seeing incremental opportunities driven by current market dynamics, which are creating opening for Sequans to gain share. In our RF transceiver business, we continue to see stable demand from existing customers, supported by committed backlog, and we expect additional contribution in the second half of the year. At the same time, we are engaging with a number of new prospective customers, particularly in defense and drone applications, and we expect to begin securing some of these opportunities in the near term. We are also advancing discussions around licensing and collaboration opportunities, which could further expand the reach of our RF portfolio. More broadly, our product pipeline continues to mature with several design-win programs progressing towards production. We are also seeing new generation product opportunities with existing customers, which provide incremental upside with our installed base. At the same time, we are actively preparing for the next major transition in IoT connectivity, which is the migration from 4G to 5G. Market demand for our 5G eRedCap solution continues to strengthen, particularly as mobile network operators look to refarm 4G spectrum and accelerate broader 5G deployment. Importantly, IoT applications represent the final phase of this 4G to 5G transition. And these applications require long device life cycle, often 10 years or more, making a seamless and future-proof migration path essential. Unlike the 4G era, where the market became fragmented across multiple cellular technology categories, we expect the 5G IoT landscape to be more streamlined, centered around eRedCap as the primary standard. This creates a more efficient and scalable ecosystem for both customers and suppliers. Sequans is well positioned in this transition. We already have an established customer base across our 4G portfolio, and we expect to leverage these relationships as we introduce our 5G solutions. In many cases, customers will be able to transition using solutions designed to be compatible with existing deployments, enabling a smoother upgrade path. We continue to make strong progress on our 5G eRedCap program. During the quarter, we received our first engineering test chips, which are now in-house and under evaluation. This represents an important milestone as we advance toward customer sampling, which we continue to target for the second half of 2027. Looking ahead, we believe 5G IoT will represent a significant long-term growth opportunity, both in terms of market size and value per device, supporting improved pricing dynamics relative to 4G. Now turning to services and licensing. Our services and licensing business continues to represent an important source of high-margin revenue, although timing of revenue recognition can vary from quarter-to-quarter. On this front, we have several ongoing discussions that could contribute to revenue over the course of 2026. These include engagements with large global partners, licensing and collaboration opportunities, leveraging our RF and 5G IP portfolio as well as a range of smaller service agreements. These opportunities provide potential upside to our product-driven revenue base while also expanding our reach into new markets and applications. We remain focused on converting these discussions into revenue while managing expectation around time. On the supply chain side, we continue to operate in a dynamic cost and supply environment. We are seeing significant increases in memory pricing, which are impacting the cost of both our chips and modules. We are actively working to address these cost pressures while ensuring we can meet customer demand. At the same time, we have taken proactive steps to secure supply, including multi-sourcing across key components such as memory and packaging. Based on our current plan, we believe supply for our 2027 baseline demand is secure, although we continue to monitor potential upside scenarios. Overall, while cost pressures and supply challenges are real, they are manageable and consistent with the broader industry trends. As we move through 2026, we remain focused on disciplined cost management and reducing cash burn. Our objective continues to be reaching a breakeven run rate by the end of the year as revenue scales. We implemented the cost reduction plan at the end of last year. And while the full benefits will not be realized until midyear, we are confident in achieving our expense targets in the second half. Working capital dynamics will continue to evolve alongside growth, particularly as we support production ramps and manage supply chain requirements. These dynamics may create short-term variability, but they are aligned with long-term revenue growth. Overall, our performance underscores the progress we are making in strengthening our core IoT business, improving financial discipline and maintaining flexibility in our capital strategy. Regarding our outlook for the second quarter, we currently expect revenue to be in the range of $6.8 million to $7.4 million, driven predominantly by product revenue, with potential upside if new licensing deals are closed. Based on our backlog and continued momentum across our design-win pipeline, we expect revenue to build sequentially throughout the remainder of the year. We also remain focused on reducing cash burn and continue to believe we can approach cash flow breakeven by the end of the year as the business scales. Looking ahead, we continue to evaluate strategic alternatives that could accelerate profitability and unlock additional value for shareholders. What's clear to us is that we are operating from a position of strength. We have a solid balance sheet, a growing and increasingly productive IoT business and a differentiated 5G and RF IP portfolio that we believe will be a key driver of long-term value. As we discussed earlier, the transition from 4G to 5G in IoT represents a fundamental shift in the market. With eRedCap expected to become the primary standard, we believe this will create a larger, more unified and more scalable market than what we saw in the 4G cycle. Sequans is uniquely positioned to benefit from this evolution. We expect to leverage our existing 4G customer base as a natural entry point into 5G, enabling a more efficient transition for our customers while accelerating our own time to market. Combined with the expected premium pricing and expanded market opportunity, we believe this positions us to drive meaningful long-term growth and improved profitability. In parallel, we will complete the redemption of our debt by June 1 and continue to manage our capital allocation with discipline, maintaining a strong cash position while preserving flexibility to act opportunistically as conditions evolve. Overall, we remain focused on scaling our IoT business, advancing our 5G road map, developing our new RF transceiver business and executing against the key drivers that we believe will unlock the full value of Sequans over time. With that, I will now turn the call over to Deborah to review our financial results in greater detail. Deborah? Deborah Choate: Thank you, Georges. Hello, everyone. I'll begin by reviewing our first quarter financial results and then provide an update on our balance sheet and digital asset holdings. During the first quarter, our financial results continued to reflect the underlying momentum in the IoT business, along with the impact of actions taken earlier this year to strengthen our balance sheet and simplify our capital structure. For Q1 2026, total revenue was $6.1 million compared to $6.9 million in the fourth quarter. As Georges mentioned, revenue in the quarter was primarily driven by product sales with ongoing variability and licensing and service revenue timing. Gross margin for the quarter was 37.7% compared to 41.4% in the fourth quarter and reflects the ongoing impact of supply chain dynamics and especially revenue and product mix. Operating expenses in the quarter, including R&D and SG&A expenses, were $11.8 million compared to $12.3 million in the fourth quarter. We continue to make progress on our cost reduction plan and remain on track to achieve lower operating expense levels in the second half of the year. During the quarter, we recorded $29.3 million of noncash charges related to the mark-to-market valuation of our Bitcoin holdings compared to a loss of $56.3 million in the fourth quarter. As a reminder, these charges are driven by market price movements and do not reflect underlying operating performance. We also recorded $11.7 million of realized losses on the sale of Bitcoin during the quarter compared to $6.1 million of losses in the fourth quarter, primarily associated with the ongoing redemption of our convertible debt. As discussed previously, the convertible debt and associated embedded derivatives continue to be remeasured each reporting period, resulting in noncash impacts to the P&L. In addition, IFRS accounting requires us to recognize noncash interest expense associated with the 0% coupon instrument. Reflecting these factors, we reported an IFRS net loss of $54.3 million for the quarter compared to an IFRS net loss of $76.4 million in the fourth quarter. On a non-IFRS basis, excluding significant noncash items, we reported a net loss of $20.7 million or $1.42 per ADS compared with a non-IFRS net loss of $16.2 million or $1.04 per ADS in Q4. The comparative numbers for Q4 and Q1 2025 have been adjusted from the unaudited figures published in February 2026 and May 2025. In finalizing the 2025 audit, we made adjustments related to the timing and amount of revenue recognized, the accounting for the compound financial instruments issued in July 2025 and related embedded derivatives, finalization of the ACP purchase accounting and other adjustments attributable to normal year-end closing procedures, audit adjustments and the completion of management review. We are currently still finalizing with our auditors the documentation and disclosure of the impairment test for ACP, goodwill and other acquired intangibles on the balance sheet. The ongoing discussions regarding determination of the cash-generating units to be evaluated and the most appropriate valuation models resulted in delays in issuance of the audit report, and therefore, we filed a statement indicating we would need to extend our filing deadline. We expect to file our Form 20-F this week. Turning to cash flow. Normalized cash burn for the quarter was just under $10 million compared to approximately $7.7 million in the fourth quarter, including working capital movements. As Georges mentioned, working capital can fluctuate as we support production ramp and secure supply. During the quarter, we continued to execute on our balance sheet strategy. As of March 31, 2026, we had redeemed $28.3 million of the $94.5 million face value debt that was outstanding on December 31, 2025. As of April 30, we had redeemed approximately 62% of this convertible debt, funded through the sale of 800 Bitcoin, leaving a balance of approximately $35.9 million due, which we expect to redeem in full by June 1, 2026. At the end of Q1, we held cash and cash equivalents of approximately $10.6 million compared to $13.4 million at the end of 2025. As of the end of Q1, we held 1,514 Bitcoin compared to 2,139 Bitcoin at year-end 2025. And as of April 30, we held 1,114 Bitcoin and expect that we will hold at least 600 Bitcoin after full redemption of the debt, all of which will be fully available for sale. Following completion of the debt redemption, we expect to have a near debt-free balance sheet with a simplified capital structure and increased financial flexibility. Overall, our financial results for the quarter reflect continued progress in scaling the IoT business, improving cost discipline and strengthening the balance sheet. Before turning the call back to Georges to conclude, I'd like to cover a few housekeeping matters. We expect to conclude the final audit procedures with our auditors this week and be in a position to file our annual report on Form 20-F. Since we filed an extension notification last week, as long as we file by May 15, we will still be considered a timely filer. We are currently preparing for our Annual Shareholders Meeting on June 30, 2026. You should expect to see voting materials by early June. Most of the resolutions will be our normal recurring resolutions that you see each year. One of these resolutions is to ask for authorization for a capital increase. This year, we will ask for authorization to issue up to 7.5 million ADS, including up to $15 million in the form of convertible debt. We would like to clarify that we are asking for this authorization only to provide flexibility in the event that we have a strategic opportunity that would require issuance of convertible debt or equity. We currently have no plans to do any equity raise to finance operations. In fact, the shelf registration statement and ATM program that we filed in August 2025 were filed when we had the market cap to be an accelerated filer and were automatically effective. Upon the filing of the 2025 annual report on Form 20-F, we will no longer satisfy the requirements for using an automatic shelf, and therefore, we can no longer issue equity under that August shelf registration or the ATM program. With that, I'll turn the call back to Georges. Georges Karam: As we close, I want to reiterate that our primary focus remains on executing and scaling our IoT business and expanding to software-defined markets such as drones and defense. We are seeing solid momentum across the portfolio, supported by a growing backlog, a maturing design-win pipeline, an increasing number of projects transitioning into production and several advanced licensing and services deals. With continued strength across Cat-M, Cat-1bis and RF transceivers, and with early engagement around 5G eRedCap, we believe the business is well positioned to drive sequential growth while maintaining a clear path towards cash flow breakeven. At the same time, we have taken decisive steps to simplify and strengthen our balance sheet. By eliminating our convertible debt and transitioning away from the treasury strategy, we are increasing financial flexibility and sharpening our focus on the core business. Going forward, our priority is to monetize our remaining Bitcoin holding in a disciplined way while ensuring we maintain the liquidity needed to support operations and invest in our 5G road map. Overall, we believe we are entering an important phase for the company with a stronger financial foundation, improving operational visibility and a clear path to long-term value creation. Thank you for listening. We can move now, operator, to the questions, if you don't mind. Operator: [Operator Instructions] Our first question or comment comes from the line of Luke Horton from Northland. Lucas John Horton: This is Luke on for Mike Grondahl. Just wanted to touch kind of on the 5G road map and pipeline you have there. And I guess, specifically with RedCap, I guess, how large do you expect this opportunity to be relative to the existing kind of Cat-M, Cat-1 business? Georges Karam: Yes. Luke, I mean, just not to be confused, you said RedCap, I'm talking about eRedCap. eRedCap is really the standard that's going to replace literally CAT-M and CAT-1bis. When you look to the 4G -- the 4G IoT, we had like 4 technology used in 4G: NB-IoT, mainly in China, but you have some in Europe and even in Australia and other place; Cat-M, mainly U.S., Japan and half of Europe, I would say; CAT-1bis is -- and CAT-1, which is the fourth one. And as you see, this is really because IoT -- cellular was for the first time entering IoT and for the good and the bad, they ended by having almost competing technology, not 100% competing, covering some application, but there is also a piece of it competing. And this fragmented the market. Obviously, now the carriers, starting in the U.S., and obviously, this will be followed by other region of the world, the carriers, they would like to finish their deployment of 5G. And in other words, they need to refarm the 4G spectrum to use it on 5G and one day switch off the 4G. To do this, you can do it today for all applications on the phone, but you cannot do it for IoT because all the IoT runs on 4G. That's why there is a push to come with the IoT -- 5G IoT, and this is the eRedCap. So eRedCap, by definition, will come and replace [indiscernible] all those Cat-M, NB, CAT-1 and CAT-1bis. You will have like kind of supporting low speed and medium speed. The same technology is able to do this. And because it supports 5G, it will have a little bit higher ASP. And because it supports the low speed and the high speed, so it will be really benefiting from the continuation of the IoT business in cellular and it will be expanding over time as well increasing in the price and increasing the size. So definitely, the opportunity will be, let's say, at least the sum of the 4 opportunity of Cat-1, Cat-1bis, Cat-M and NB-IoT today, plus some premium, let's say, 10%, 15% related to ASP increase because of the 5G. Lucas John Horton: Okay. Got it. I appreciate the color there. And then I guess on the kind of $300 million pipeline that you called out with about 50% of that expected in the next 3 years. And then also just kind of given the sequential growth acceleration, kind of quarterly cadence throughout this year, I guess, where does that confidence come from? And could you provide any other color around those? Georges Karam: Yes. Sure. Luke, I mean, the $300 million, this is what we had, let's say, on January this year as design win in hand, and we said like first 4% of them were in production, which means generating revenue. And we expect to be, by June, 50% of them in production, which will be $150 million. In other words, if you take $150 million in average over 3 years, this is $50 million yearly revenue in average. Obviously, there will be a ramp depending on the project, year 1, year 2, year 3. And the confidence there continues to build. And literally, when you look to our backlog, if you compare this to beginning of the year, this year in Q1, as I'm speaking, we have backlog securing close to $22 million for the year, this year, in product revenue. And we have even portioned, like $2 million, $3 million already in hand for Q1 next year. This backlog is coming from existing design win in production. And this means all our analysis on the fact of our design-win pipeline is really true and accurate, if you want, reflected in the ramp of our customers. So that's why we have really strong confidence on this. Now obviously, we need to continue the conversions from design win to full mass production. That will happen in the second half of the year, I would say, in June and beyond June, let's say, for the second half of the year. And to some extent, if you look to Cat-M business, Cat-M business today is really -- versus our target, we feel almost secured. I don't want to say 100%, but maybe 90% of our plan is already in hand. Why? Because on the Cat-M is really -- a big portion of the Cat-M is design win in production. The Cat-1bis, we have design win, not all of them in production, and this is the piece where we're still working on to ensure the ramp is going to continue in the second half of the year in terms of product revenue. Lucas John Horton: Okay. Great. And then just lastly for me on the digital asset strategy after the June 1 redemption, how do you think about Bitcoin holdings on the balance sheet and kind of capital allocation strategy, I guess, kind of specifically in different crypto market situations, like if there were to be another bull run in crypto versus kind of digital asset pricing pulling back again? Georges Karam: Yes. I mean, Luke, I mean, we went through digital asset thinking seriously that we can develop this business and we can trade above NAV. And then after this, maybe separate the 2 business, which is the core business, IoT from the digital assets because they cannot live together forever. I mean it was really -- my plan was if the 2 -- if digital asset is working in addition to the IoT, knowing that IoT will be working, we'll have, at some time, to separate them and do something there. Unfortunately, for many, many reasons, the digital assets didn't work in a sense like we were not able really to create -- to benefit from the leverage of the debt and be able to get our NAV higher than [ 1 ] , allowing us to keep scaling. So any digital asset strategy needs to have the ability to scale in number of Bitcoin and so on. And unfortunately, because we realized on top of this, the pressure on the Bitcoin, put us almost at risk. And I believe many people were nervous at the beginning of the year if this can hurt the IoT business as well. For all those reasons, we decided really to take out the risk by redeeming the debt. And obviously, from there, have a balance sheet which is clean, no debt. We'll have there, obviously, Bitcoin after -- in June 1. From there, the question becomes, are we going to go and buy Bitcoin? I don't believe so today. This is what I'm clear on it. Now we will have a holding, more than 600 Bitcoin. Are we going to sell them on June 2? I don't believe we'll be doing this on June 2, but we will be taking our time to monetize those Bitcoin in the coming, I would say, couple of quarters, knowing that the purchase price of this Bitcoin, I mean, is higher. And obviously, the trend we are seeing today that the Bitcoin is going into the right direction. So we would like to benefit from this if we can. But in any case, we'll not sacrifice IoT. And in other words, we secure enough cash on the balance sheet to be sure that the company can operate independent of the variability that you could see on the Bitcoin. Operator: Our next question or comment comes from the line of Scott Searle from ROTH Capital Partners. Scott Searle: Maybe just to dive in, Georges, on the RF business, it sounds like there's a lot of momentum building. Could you calibrate us in terms of where that is from a current revenue standpoint, what the backlog and opportunity looks like as you think about '26 and '27? And then as it relates to the RedCap -- eRedCap licensing opportunity, it sounds like there are a number of opportunities in the pipeline. I wonder if you could provide a little bit more color in terms of the magnitude and time line that you could see some of these deals materializing maybe a little bit in terms of how you're thinking about different vertical markets on that licensing front? Georges Karam: Yes. Scott, thanks for the questions. Indeed, as you know, one of the nice surprise we saw this year, which is we acquired the ACP and by acquiring ACP, the original goal was there to get the IP of the RF and accelerate our 5G eRedCap road map. And this is really executed on. As I said, we have already a chip in-house, and this has all the RF and all the analog and everything is working well as we are speaking. So this is -- we did it. But at the same time, we have, let's say, as a bonus on top of this, a product -- RF product that can be sold on stand-alone to existing customer. And when we dig in, we realized that this product is really a great product to go to drone market and defense market where you have very high ASP, very high margin and the market is booming. From this, we obviously secure the existing customer we have. And I could say today, around those customers, we could be doing close to, maybe this year, $5 million or $4 million, $5 million. They are not -- they are -- I'm putting inside this as well the royalty we collect with our Chinese RedCap. But let's call it, outside of this regular IoT business, we have around $5 million almost secured for the year and maybe we can do a couple more, depending, in the second half, if the backlog will confirm versus forecast. But the good news as well there is like we expanded to go to this defense market and drone market. And here, since we announced the Iris family, this product, we had like a dozen of leads across the world, really from many, many countries. And we realized that we have really great product, very competitive in terms of feature set, and people are really happy to use it and test it and engage projects. And as I'm speaking, I have at least several -- a few of them very advanced to consider it a design win. I don't qualify it yet a design win, but a few of them are there. So the potential of this RF business, honestly, could be -- when we're talking about the market, it's very hard to size this market around defense and drones, if you take only the transceiver business, but we are talking about maybe $100 million plus per year potential market. And as you know, this is really very high margin. We're talking about 99% gross margin. So we believe like it makes sense for us to capture a nice market share from there, whether 20%, 30%, we'll see how good we are. but this is really a very nice potential for the company, coming almost with very minimum investment. The only investment we are doing is really in support, marketing because the R&D is already done. So this is on the RF. And then if I look to the licensing and in general, those opportunities, licensing remains very important for us, specifically if we want really to achieve our cash flow breakeven in Q4. Even if the product revenue is really growing nicely, and if you look to our number in Q1, 90% plus is product and my guidance for the Q2, same. So we are really moving to almost product revenue, but we still have several deals under discussion, maybe more than 5 of advanced discussion covering RF covering the eRedCap or let's say, the modem portion as well as the protocol for satellite communication. So on those, we are advanced with many of them. We hope we'll close something in Q2. We're not -- timing sometimes, it's not obvious how much revenue you can take it if you close at end of June. But we are looking to close at least 1 deal this quarter and maybe another 1 or 2 in the second half. And those deals, they vary. I mean there is -- obviously, we have some smaller ones. I'm not mentioning this. It could be a few hundred thousand dollars, but those are really associated with the product revenue in general. But pure service revenue, we're talking about deals here, they could be from a couple of million dollars up to $15 million, 1-5, that we are contemplating there. So potential is big. But obviously, they are binary. I mean, if you get them, you get the $15 million, if you don't get them, you get 0. But we have, as I said, several of them quite advanced. So that's why we are optimistic that we can secure something this year that can help us support -- that add to the product growth in the second half of the year. Scott Searle: And then, George, looking to the second half of this year, you're talking about getting cash flow breakeven. That obviously implies that the product revenue ramps considerably in the second half of this year. Could you expand a little bit on your confidence level on that front? Certainly, that $300 million pipeline is helping, but it sounds like new wins are starting to ramp as well. And could you give us an idea about where you expect product to ramp to by the end of this year? The backlog supports some of that current visibility. But just kind of maybe help us out a little bit with some end markets and the competitive landscape as well. Cat-1bis is very, very hot right now. Kind of where you guys stand from a win rate on that front? Georges Karam: It's really -- the confidence is coming with the maturity of the design win, means those design wins are already in production. Everything which is in production today, and we start to have a sizable number of projects, and as I mentioned, mainly in metering and tracking. These are the 2 markets where we are very good at in a matured way. All those are coming, scaling. Last year, we did some number. This year, we plan to do something that's already secured. So the confidence level is really coming very strong from everything in production. So if I look to my ramp for everything in production, I'm more than 90% sure about it. Everything really shipping. It's really good. We have backlog and we have forecast from customers, and we should have no big surprise in the second half on this. The other piece, which is really where really the risk is or, let's say, where we have a little bit of challenge of timing, not to lose the customer. But if we are planning, obviously, and mainly in the Cat-1bis space because the Cat-M is much more mature today, more than 90% of the Cat-M -- of our Cat-M plan this year is already done, as I said, while maybe in terms of Cat-1bis, we are at 30%, let's say, if I give it a number. Why? Because the Cat-1bis is a product that we introduced after the Cat-M, which means the design wins we have there came later and those guys are not yet all in full production. Some are in full production, and we continue to win in security and telematics and they start moving and we start getting order. But obviously, we're expecting to have more in the second half. So this is the risk really or, let's say, the point to observe if those Cat-1bis projects come on time in terms of moving to production in the second half of the year. But we are optimistic because they are happening and the customer is serious, the projects are moving. And if there is a shift, it will be really minor delay with the customers taking a month or 2 delay, but this will happen at the end of the day. And then if I look to the RF, I told you already, I mean, we are in good shape there because all what we have in hand, we secured maybe 60% power plant in RF already. Still the remaining needs to happen in the second half based on forecast, not yet an order, but based on forecast. So all this give us strong confidence, to be honest. And when you compare to the last year, it has nothing to do -- I mean the company really now -- we talk about many, many customers, many projects, repeating order, established customers to whom we ship -- we ship to them maybe in the last 2 years already, maybe a little bit and growing. And some we started shipping last year and now growing strongly this year. So that's why we are really very, very positive on the ramp of our product revenue in the coming quarters. Scott Searle: Very helpful. Georges, maybe just quickly, the competitive landscape right now for Cat-1bis and kind of what your win rate is. And Deborah, if you could remind us, I know that there -- you've got cost reduction efforts, but there are a lot of moving parts in the world today with currency fluctuations, et cetera. What should we be thinking about in terms of where that OpEx is in the second half of this year and therefore, the breakeven? Georges Karam: Yes. I mean on the competitive landscape, there is not a big change, to be honest, Scott. It's the same thing. Even if -- I saw in the Cat-1bis, Nordic announcing a product, I believe they got it through IP licensing from somewhere, without saying more on this. But you need to understand that Cat-1bis in the U.S. is closed. There is no more certification of new module in Cat-1bis. So any new Cat-1bis will be coming more to address Europe and not in the U.S., not North America. And there, if you go to North America, it's left between Qualcomm and us, to be straight on this. And the challenge of all this, again, you need to imagine that starting in 2029 and maybe not that far, maybe 2030, if this shifts a little bit, you're going to see all the market will be pushing to get eRedCap support, 5G support and you will not be able to deploy new product with 4G without having the 5G. So -- and here, obviously, the competitive landscape is who has 5G technology. And as you know, we benefit from all the investments we have done in the 5G, and we believe we'll be leading in the eRedCap in the market and take a strong position there. Deborah Choate: Yes. And on operating expenses, we expect those to keep coming down. We're targeting to have cash operating expenses below $10 million, targeting $9 million by the end of the year. Operator: Our next question or comment comes from the line of Jacob Stephan from Lake Street Capital Markets. Jacob Stephan: Maybe first, I want to touch on the balance sheet, kind of post June 1. Obviously, $10.6 million in cash. Just kind of help walk us through that a little bit. I know you're going to have roughly 600 Bitcoin, but the collateralized number of 817 that you guys cited in the press release, I guess when you kind of subtract the current holdings from that number, you get like 300. So can you kind of walk us through that a little bit? Georges Karam: Yes. I mean, Jacob, you're right. I mean it's a little bit tricky because we have some Bitcoin already free. We have around 300 Bitcoin in hand that they are free. They are not part of the 800 that Deborah was mentioning. When we talk about the 800, we're talking about the piece which is in the collateral. And obviously, the deal we have with our debt holders is we're keeping all the amount of Bitcoin in collateral until we redeem all the debt. So obviously, once we redeem all the debt, we get all what's left in there. So the more than 600 -- we'll be at least 600, I believe, we should have more. Mainly if the Bitcoin stays where it is today, maybe we'll have a nicer number. It's just only the fact that you pay what's left -- you sell the Bitcoin, you pay what's left. And then when you combine what's left from the collateral plus what we have already in hand, free Bitcoin, we'll end above 600 Bitcoin. So in a very simple way, don't matter the detail there. On June 1, we'll pay all the debt. We'll have more than 600 Bitcoin. And we'll have almost debt-free company, maybe we have $1 million or $2 million. Deborah Choate: The only remaining debt after that will be related to government, like R&D funding that's 0 or low interest. Georges Karam: More short-term debt. Jacob Stephan: Got it. So the actual collateral, the $62 million or so is really just security for the $36 million of debt. But once you pay the $36 million of principal off, that's the remaining. Deborah Choate: Yes. Jacob Stephan: Okay. I got you. Second, I just want to touch on the supply chain. I know you guys talked a lot about it with the memory costs increasing, but what's kind of your confidence level you can procure any additional supply, should any of the kind of upside opportunities that you mentioned to the full year present themselves? Georges Karam: Yes. I mean the -- you're absolutely -- you're mentioning a good point, Jacob. On one side, what I said, like for our, what I call it, baseline, we are good today. We were not -- last quarter, we were a little bit worry about Q4. Now we are fine. I mean maybe we'll not -- however, we are short in terms of covering upside, depending how big is the upside, right? I mean if we have a big deal and we need to serve it in Q4, we'll be short if I look to the number today. However, we have capacity to increase, we will be paying more in reality. So there is always some supply capacity that will cost you more, like you lose on margin and so on. So we are contemplating this. We are working on those angles. We believe there is a potential of upside that we can cover it, but maybe this will come with a reduced margin if we have to get it because we'll be paying more. And on the memory supply, as you know, this is an industry problem today and mainly driven by AI demand. But just to make it very simple, for me, even if there is -- even if AI is taking all the capacity of memory, if this is true at the end of the day, AI will not work neither, right? Because you cannot have all the electronic only running with the AI processor, right? I mean you need a lot of things around it, some communication and so on, and you need memory. So there is availability of memory, just only people benefiting off the cycle. And I can tell you, you have crazy price increases. We're not talking in percentage. You talk about multiple -- you can talk about 2x, 3x, some memory, sometimes more than this. So that's what we are seeing. And obviously, this is the industry trend. We cannot fight for it. But however, we have good relationship with the supplier, and we are securing our capacity. So we are not missing capacity. We also introduced some second sources on some of them. We have one memory, which was really key. We have already a second source already available and shipping to some customers, not to everybody. And obviously, over time, this gives us a chance as well to secure supply, but also keep pressure on the pricing not to pay -- at least to pay based on what the market is setting as a price for memory. Operator: Our next question or comment comes from the line of Fedor Shabalin from B. Riley. Fedor Shabalin: Georges, Once the convertible debt is fully redeemed, how should we think about the preferred use of the proceeds from the sale of remaining Bitcoin? How would you rate funding operational expenses versus maybe share buybacks? Georges Karam: Yes. Fedor, I mean, it's a good point to mention on this. Obviously, we still have the share buyback plan in hand, and we can execute on it. And in Q1, we did some share buyback already. Honestly, we don't need all this money on our balance sheet. And as I'm speaking, we'll be turning -- we don't need it in a sense for operation, for cash burn. Our cash burn should be reduced and be limited, and this will put the company in a very strong position in terms of balance sheet. The option of buying opportunistically, we could be looking to this. We're not giving up on this, making some buyback. Obviously, it depends on the business evolution in the second half, on the licensing deal we secured, let's assume we secure a big licensing deal and we add -- because maybe on revenue, we will not take all the deals now, but this can add a lot of cash because in the licensing deal, you have always some upfront payment that could be significant. There, maybe we feel like we have enough cash to -- and if the share is not performing, to come and support the share and make some buyback. So this is really on the agenda of the Board, and we can execute on it opportunistically, based on the market condition. Fedor Shabalin: That's helpful. And my follow-up is about -- you did a great job outlining revenue pipeline and timing and cadence for 2026, and the same for operating expenses. I would like to dig a little bit deeper into details on operating expenses side. You mentioned that you would expect decrease in OpEx for the year. And I remember you mentioned $9 million, something like that, the number by the end of 2026. Where most of the savings come from on the OpEx side? That's the question. Georges Karam: Yes. I mean, Fedor, last year -- to be honest, now the company is in, I would say, efficient mode. But as you remember, last year, with all the movement of the company with the deal we did with Qualcomm and we had the acquisition of ACP, and we have a lot of even exceptional items related to Bitcoin, digital strategy in general as well. So all this, let's say, got cleaned, we cleaned it in Q4. Some of it was not effective in Q1. So -- and some will be effective in Q2. And for sure, by end of Q2, we'll get the full benefit of what we have. And we continue watching this. But in general, the focus was really -- we have our -- if I take in terms of R&D, our 4G product is maturing. There is only need for support on the 4G product. So in other words, we moved all the spending in 5G -- sorry, in R&D to 5G and with very minimum 4G, just all what we need for the support. This was an angle of saving. The investment into the 5G was aligned with time to market. We could go much faster if we want. We can go slower. And this was the decision based -- we need to be just in time. We don't want to be, with our eRedCap, 1 year ahead of time because this will not benefit for the company. And we don't want to be late. So -- and this also give us a variation, if you want, that a level -- a variable that we can play with. And obviously, in general, I would say all the G&A spending... Deborah Choate: Yes. I don't think -- there's not one particular item, but across the board, we've had some planned headcount reductions, basically people leaving that we're not replacing. We have -- we work with a certain number of contractors that gives us leverage there when we are -- to reduce that number as different R&D projects finish. We've also looked at just the overall structure in terms of rent, basically, overall, all of the G&A expenses are being reduced across the board. Operator: I'm showing no additional questions or comments in the queue at this time. I'd like to turn the conference back over to Mr. Georges Karam for any closing remarks. Georges Karam: So thank you all for joining the call and for all your questions. Looking forward to see you in the near future. Bye-bye. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.
Operator: Good morning, ladies and gentlemen, and welcome to the UL Solutions First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. It is now my pleasure to introduce to you, Yijing Brentano. Please go ahead. Yijing Brentano: Thank you, and welcome, everyone, to our first quarter 2026 earnings call. Joining me today are Jenny Scanlon, our Chief Executive Officer; and Ryan Robinson, our Chief Financial Officer. During our discussion today, we will be referring to our earnings presentation, which is available on the Investor Relations section of our website at ul.com. Our earnings release is also available on the website. I would like to remind everyone that on today's call, we may discuss forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, among other things, statements about UL Solutions results of operations and estimates and prospects that involve substantial risks, uncertainties and other factors that could cause actual results to differ in a material way from those expressed or implied in the forward-looking statements. Please see the disclosure statement on Slide 2 of the earnings presentation as well as the disclaimers in our earnings release concerning forward-looking statements and the risk factors that are described in our annual report on Form 10-K for the year ended December 31, 2025, and subsequent SEC filings. We undertake no obligation to update any forward-looking statements to reflect events or circumstances at the date hereof, except as required by law. Today's presentation also includes references to non-GAAP financial measures, a reconciliation to the most comparable GAAP financial measures can be found in the appendix to the earnings presentation, which is posted on the Investor Relations section of our website at ul.com. With that, I would like now to turn the call over to Jenny. Jennifer Scanlon: Thank you. Good morning, everyone, and thanks for joining us. Let me start off by saying that we had an excellent quarter. We entered 2026 with strong momentum and the first quarter results confirm the trajectory we saw building throughout last year. We are executing with greater precision expanding our margin profile and positioning ourselves to grow with structural mega trends that are propelling our industry's long-term growth. Our resilient business model continues to serve us well as we innovate with our customers while they embrace rapid technological change. Of course, I also want to recognize the incredible team behind these results. executing consistently at this level across geographies and service lines with the backdrop of ever-changing conditions takes real skill and commitment. Our nearly 15,000 employees are both and I don't take that for granted. The decisions we have made to refine our portfolio, optimize our cost structure and allocate capital to growth areas are paying off. Before Ryan walks through the detailed financial results, I'll cover 3 areas: first, highlights of our first quarter performance; second, notable achievements in strategic development since we last reported, including the anticipated acquisition of Eurofins Electrical & Electronics or E&E business; and third, some perspective around the macro and geopolitical factors impacting our end markets. Let me start with the quarter. Our results were excellent. We delivered consolidated revenue growth of 7.5% as compared to the prior year period with organic revenue growth of 5.7%. Adjusted EBITDA grew over 22% and adjusted EBITDA margin expanded 320 basis points. Adjusted diluted EPS increased 31.5% year-over-year. These results exceeded our expectations. Importantly, this performance was not the result of a single factor or a onetime tailwind. It reflects operating efficiency that is increasingly embedded in our business model. The benefits of disciplined expense management higher utilization across our engineering and lab teams and the accelerating impact of our previously announced restructuring program. We are moving quickly on durably improving our costs, and it is showing up in our results. Each of our 3 segments: industrial, consumer and risk in compliance software delivered strong organic growth and several hundred basis points of adjusted EBITDA margin expansion in the quarter. Now let me turn to our milestones achieved and strategic actions from the first quarter and in recent weeks. First, in our core business, we granted our first ever global safety certification for a robot operating in a public environment, certifying Simbe's Tally, an autonomous shelf-scanning robots deployed in retail stores. Tally earns certification to the UL 3300 standard for service robots operating in dynamic spaces where they encounter unpredictable human behavior. As robots expand in the grocery stores, airports, hotels and even homes at scale, we expect the need for rigorous independent certification will continue to grow, and we are a trusted leader in that space. We also issued the world's first certifications for AI-enabled products under the UL 3115 AI safety certification program awarded to Qcells for its data center energy management system and to Omniconn for its smart building platform. Both systems were independently evaluated for robustness, reliability, transparency and degree of human oversight as their operations become increasingly autonomous. As AI moves into critical infrastructure at scale, independent certification is essential to public trust, and we are positioned as a leader. Next, in keeping with our renewed focus on M&A. Last month, we announced a definitive agreement to acquire the Eurofins Electrical & Electronics business, including the MATLAB certification mark. This carve-out is a compelling strategic transaction that we expect to extend our capabilities in key geographies, including EMEA and Asia Pacific, and it will help drive continued growth in the consumer segment. by bringing together a global infrastructure of complementary electrical testing and certification services to meet customer needs. We expect it to close in the fourth quarter of 2026, subject to applicable regulatory approvals and customary closing conditions. The stand-alone business is expected to generate approximately $200 million in revenue for the full year 2026. The transaction is anticipated to be accretive to adjusted diluted EPS in the first full calendar year after closing, excluding intangible amortization and integration costs. We look forward to welcoming the E&E team when the time comes. These are highly skilled colleagues who share our mission of working for a safer world. And we are excited about what this combination means for our customers, and for the long-term growth of UL Solutions. Now let me offer some perspective on the macro environment and what we are seeing across our end markets. The global backdrop is more complex than it was a year ago. but our business is navigating it well. The leading demand drivers of our business remain durable, electrification of products, data center build-outs, advanced product development, fire safety and building construction, supply chain compliance software and the ongoing certification services that support the products carrying the UL mark. We do not view these as cyclical tailwinds. These are structural and they align directly with our capabilities. The characteristics that make us resilient remain strong, recurring revenue, global diversification, long-term customer relationships and a mission-critical role in the product development life cycle. Based on the strength of our first quarter and our visibility into end markets, we are raising our full year 2026 adjusted EBITDA margin outlook. Now I'll turn the call over to Ryan for a detailed review of our first quarter results. Ryan Robinson: Thank you, Jenny, and hello, everyone. I also want to thank all of our team members for delivering a strong start to 2026. The first quarter results reflect the work that has been done to improve our efficiency and earnings quality, and that work is increasingly visible in our numbers. I also want to highlight that Q1 2026 marks the first quarter in which we are reporting under our updated segment structure. As we noted previously, the primary change is the reallocation of certain activities formerly reported in software and advisory into industrial. The remaining software business is now reported as a segment called Risk and compliance software. Recast historical financial data is included in our earnings material and should provide a helpful view of the underlying performance and trajectory of each segment. Now let me walk through the quarter in detail. Consolidated revenue of $758 million was up 7.5% over the prior year quarter, including organic revenue growth of 5.7%. The organic revenue growth was led by our industrial segment, supported by solid contributions from consumer and risk and compliance software. Adjusted EBITDA for the quarter was $197 million, an improvement of 22.4% year-over-year, outperforming our expectations. Adjusted EBITDA margin was 26.0%, up 320 basis points from Q1 2025. Adjusted net income increased 33.8% year-over-year, resulting in a 35.1% increase in adjusted diluted earnings per share. Expenses were well controlled in the quarter. The combination of higher revenues, improved productivity and higher utilization, prudent head count management and restructuring savings contributed meaningfully to our operating leverage. In Q1, revenue benefited by $13 million or 1.8% from FX, and this was offset by higher expenses from FX as local expenses were translated to USD. These changes reduced adjusted EBITDA margin by roughly 40 basis points. Now let me turn to our performance type segment, beginning with Industrial. Revenues in Industrial were $375 million, up 10.3% in total and 8.2% on an organic basis from the first quarter of 2025. Growth was led by ongoing certification services and certification testing with particular strength in energy and automation and materials. Adjusted EBITDA for Industrial increased 20.6% to $123 million in the quarter. Adjusted EBITDA margin improved 280 basis points to 32.8%, driven by operating leverage from revenue growth and disciplined expense management. Turning to Consumer. Revenues were $318 million, up 4.6% in total and 3.0% on an organic basis from the first quarter of 2025. Growth in the first quarter was driven by certification testing and ongoing certification services with particular strength in consumer technology, appliances and HVAC. We noted when we first provided full year 2026 guidance, we expected Q1 to be the most challenging year-over-year comparison period for consumer, given the elevated demand in Q1 2025. In addition, as part of the restructuring program that we announced in November, we exited nonstrategic lines of business with lower profitability. These exits reduced consumer organic revenue growth by about 1% and Considering these dynamics, the underlying consumer growth trajectory remains solid. Consumer adjusted EBITDA increased 25.0% to $55 million. Adjusted EBITDA margin improved 280 basis points to 17.3%, driven by operating leverage, higher employee productivity and expense management, including the head count reductions from the restructuring point. Moving to our Risk and Compliance Software segment. Revenues were $65 million, an increase of 6.6% in total and 4.9% organically from the prior year period. This was led by increased demand for supply chain insights for the retail industry. Adjusted EBITDA for risk and compliance software was $19 million in the quarter, up 26.7% year-over-year with adjusted EBITDA margin expanding 460 basis points to 29.2%. This improvement was primarily driven by operating leverage and higher employee productivity. I want to note that our risk and compliance software segment will look different beginning in Q2 as we completed the divestiture of our EHS software business on April 1. EHS software contributed revenue and profitability to Q1 results and its absence will affect year-over-year comparisons and margin profiles of this segment going forward. We will provide further context when we discuss our outlook. Turning to cash generation and the balance sheet. For the trailing 12 months ended March 31, 2026, we generated $665 million of cash from operating activities and $450 million of free cash flow. During the first quarter, capital expenditures were higher year-over-year, consistent with the commentary we provided on our Q4 2025 earnings call regarding the timing of certain investments from the back end of last year. Our balance sheet remains strong, supported by our investment-grade credit ratings, including Moody's recent upgrade of our rating to Baa2. This provides efficient access to capital to fund both organic investment and strategic M&A. This includes the financing of the E&E acquisition which we expect to fund through a combination of portfolio management activities, cash on hand and available capacity under our credit facility. Approximately 45% of the purchase price is anticipated to be funded through our portfolio management activities. This includes the sale of the EHS software business. In addition, just last week, we signed a definitive agreement to sell our shares in DQS Holdings GMBH for approximately EUR 105 million in cash. We expect the sales to close in the second half of 2026, subject to the receipt of applicable regulatory approvals and satisfaction of closing conditions. The sequencing of our portfolio management actions reflects our deliberate strategy to sharpen our focus on TIC and risk and compliance software while redeploying capital into businesses that extend our core capabilities and global reach. Now turning to our 2026 full year outlook. While the macro environment is more complex today than when we set our original guidance, we have remained focused on our customers. Our execution has been strong, and our performance has been largely unaffected to date. These reasons, among others, have strengthened and allowed us to strengthen our adjusted EBITDA margin guidance. We continue to expect 2026 consolidated organic revenue growth to be in the mid-single-digit range versus full year 2025, anticipating contributions from all 3 segments. As a reminder, the EHS software business accounted for approximately $56 million of 2025 revenue and had margins roughly similar to our consolidated margins. The revenue impact of the EHS software divestiture which was pretty similar each quarter last year will be reflected in the acquisition and divestiture portion of our revenue change starting in Q2, and we do not expect it to affect our organic revenue growth rate. At this time, the forward FX forecast implied an approximately 1% tailwind on revenue growth for the year, and we would anticipate that to be offset with an expense increase from FX. Based on our strong performance in Q1 and the above considerations, we are strengthening our expectation for 2026 adjusted EBITDA margin to be approximately 27.0%, assuming current forward FX rates that I just mentioned. This margin outlook reflects progress on our continued improvement in productivity and restructuring efforts. Q1 was outstanding, and we expect to continue to improve margin. Our capital expenditure outlook for 2026 remains a range of approximately 7% to 8% of revenue. Our current tax rate expectation for the year is approximately 26%. We now expect our remaining expenses related to the previously announced restructuring program to be approximately $3 million as compared to the $5 million to $10 million previously communicated. We anticipate achieving the expense reduction targets we previously communicated. Overall, we are pleased with the start to the year and we believe that we are well positioned to deliver on our objectives while continuing to invest in long-term growth. Now let me turn the call back to Jenny for some closing remarks. Jennifer Scanlon: Thanks, Ryan. For this quarter's highlights some interesting things going on here at UL Solutions, I want to talk about some great events that have been taking place. UL Solutions continues to host data center infrastructure Summit, a series of in-person and virtual events that bring together key stakeholders to align on critical issues surrounding these globally proliferating facilities. Our events began last September at our Northbrook campus and has been a huge hit with our customers and other interested parties around the world. In the first quarter, we hosted our third event in Silicon Valley. This one alone drew more than 150 attendees from 41 different companies. These well-received events really underscore the importance of data center infrastructure and how our customers are looking to us for leadership and help in navigating the complex data center landscape. To close, we are proud of our Q1 results, and we remain dedicated to carrying out our focused strategy on behalf of our customers, our employees and our shareholders. With that, let's open the line for questions. Thank you. Operator: [Operator Instructions] Our first question comes from Andrew Nicholas of William Blair. Daniel Maxwell: This is Daniel on for Andrew this morning. Just curious if you're seeing any notable changes in customer behavior yet, that's attributable to the conflict there on? And then should we think about that similar to how the tariff narrative has played out? Or is it more of a get pressure that can't be resolved by changing factory locations? Jennifer Scanlon: Thanks, Daniel. And we appreciate the question and certainly, in some areas of the world, but everybody is paying attention to. But for us, our demand drivers in the Middle East are a very small portion of our EMEA. And what we're seeing on customer behaviors continues to be what I would term a normal reaction to the uncertainty that they're facing, but no material effect on our business at this point. Of course, we're paying very close attention to the safety of our employees in the region. Operator: The next question comes from Andrew... Jennifer Scanlon: Hold on, I think there was a second part to that question, Daniel? I just want to make sure we got it all. Daniel Maxwell: Yes. It was just how that compares to the tariff impact and whether it would be sort of a similar reaction process from customers or wonder it's something that's a little less avoidable by restoring operations. Jennifer Scanlon: Yes. I think in this situation, again, with regard to comparing it to tariffs. As I always say, our customers just continue to make ongoing decisions that are the smart right answers for their business around where they want to conduct their research and development and where they want to manufacture and how their supply chains all fit together. So we're not, again, seeing anything unusual we're seeing just normal logical decision-making out of customers, and we're positioned to follow them wherever they go. But again, the Middle East for us is a very, very small portion of our customer base amount revenue. Operator: The next question comes from Andrew Wittmann with Baird. Andrew J. Wittmann: Yes. Great. So I guess the question that I wanted to ask about was about the AI adoption, the UL 3300 standard. I'm glad you brought it up, Jenny, because I think this should be an opportunity for the company. And I just -- just given that this is a new standard and kind of rolled out there and its importance, I just was hoping you could give us a little bit more context about where the standard sits relative to the innovation curve of the industry against competitive standards that might be being made other places. I want to get a sense of how well bought into the industries that are making robotics are into this standard versus other things, what may be industry organizations have signed up to use this one as a standard, just kind of the competitive positioning overall for this? And anything you can give us about your outlook in terms of what this means financially over the next couple of years would obviously be helpful as well. Jennifer Scanlon: Yes. Thanks, Andrew. It's a fun topic, and it's certainly an interesting topic. And actually, what it highlights, and I'm going to kick out for a second here, is the confluence of the UL 3300, which is robotics, and safety of robotics in areas where there's a lot of human interaction. And UL 3115, which is really the transparency and the bias and the use of AI when it gets embedded in products. And it's just a perfect example of the confluence of technologies and the complexity that our customers are looking to us to help them address and solve. So certainly, specifically on robotics, what we're seeing is service robotics, that sector has had steady growth. And it is becoming more complicated raising the bar for that safety and that reliability. So we are -- and in particular, our consumer sector, working very closely with a series of customers. This will continue to play out in that space. And it also brings together other service elements that UL provide such as our EMC wireless safety or cybersecurity safety and, of course, just embedded software and functional safety of these products. So it's always hard to point to one trend to say this is how that affects growth and opportunity. But certainly, it's the perfect example of the type of digitalization and megatrends that we've been pointing to. Operator: The next question comes from [ Ryan Rivera ] of Bank of America. Unknown Analyst: I was wondering on the software business, post the EHS divestiture and the move of advisory into industrial. How should we think about the underlying run rate growth of the remaining compliance and risk business? Ryan Robinson: Yes, I would say, overall, we're excited about Risk and Compliance Software. We think the focus in being more transparent about the underlying economics of the software business will be helpful for people. the portion that we divested -- to be divested is slightly slower growing than the remainder of the portfolio. So all things to consider it should mix up a bit more. We don't give specific segment-level revenue guidance, but we would anticipate continued growth in that segment, both based on underlying factors, but our continued efforts to improve our go-to-market sales processes. Operator: The next question comes from Seth Weber of BNP Paribas. Seth Weber: Ryan, I wanted to ask about the strength in the free cash flow in the quarter, unusually strong here. Anything that you'd call out attribute the strength to? And just maybe bigger picture, your view towards larger M&A, your appetite to do a bigger deal and kind of thoughts on leverage. Ryan Robinson: So first of all, we're pleased with our continued growth in cash flow from operations and free cash flow, I think it's more appropriate to look at it on a longer-term basis, and we quote some trailing 12-month figures. In the first quarter, we did have particularly strong cash flow from operations that was driven by our increases in net income margin, but also we had some working capital items like accounts payable growth that can occur in a short period of time like 1 quarter. So we're pleased with the continued growth in free cash flow, and particularly over a longer time period. So we're pleased to be able to fund the Eurofins E&E acquisition relatively easily from portfolio management activities, cash on hand and modest draw on our existing credit facility. We do continue to be very well capitalized and have capacity to do more. It is important for us to maintain a robust capital structure, and we're targeting continuing of metrics that are consistent with investment-grade credit ratings, but that leaves us a lot of flexibility and capacity to do other things. Operator: Our next question comes from Seth (sic) [ Jason ] Haas of Wells Fargo. Jun-Yi Xie: This is Jun-Yi on for Jason Haas. You guys have previously talked about seeing more EBITDA margin improvement to occur in the second half of '26. Is that still the expectation? Or have you seen some of the restructuring initiative improvements been pulled forward into 1Q given the outperformance? Ryan Robinson: Yes. Increase margin comparisons as we progress in the year. And I would expect it to be relatively smooth for the remainder of the year. We continue to make progress on some of the restructuring initiatives that we discussed. We're not free of those. So we expect those to continue to provide some additional benefits. Jennifer Scanlon: Is there a follow-up? Operator: Sorry. I've lost you there, the line had fade its way. The next question comes from George Tong of Goldman Sachs. Jinru Wu: This is Anna on for George. My question is, we're actually hearing a lot about manufacturing capacity looks back to the U.S. in government budget increases for U.S. manufacturing, Along the trend, are you seeing any higher utilization rate of industrial TSC services driven by U.S. specific regulatory that your consumer [indiscernible]? Jennifer Scanlon: And the second half of your question cut out, but I think we got it. But can you just repeat after you said, are we seeing anything affecting industrial? And then... Jinru Wu: Yes. So just with the onshoring trends also impact your consumer segment demand as well from the end market perspective? Jennifer Scanlon: Thank you. I think what we're seeing is continues to be consistent. We're not seeing a dramatic shift on reshoring to the United States, but certainly, there's movement. There's movement all over the world. The places where we're seeing the most movement is across Asia. And again, this is just -- we're able to track where our ongoing certification services are performed. So the areas that we're seeing the greatest increase, but remember, off of a low base are areas like Southeast Asia, Vietnam, India, Malaysia, Indonesia, as well as some miles increase off of a large base in the United States and a mild slope increase off of a large base in China. So as far as affecting our 2 businesses, we test wherever our customers need us to test, and we will perform ongoing certification services wherever they need it. Operator: The next question comes from Stephanie Moore of Jefferies. Stephanie Benjamin Moore: I wanted to touch on the margin performance in the quarter and just to make sure I'm understanding correctly. So obviously, very strong performance at the start of the year. And note, this is with 40 basis points of FX headwinds. I just want to confirm that the actual underlying performance was actually better. So as you think about just the margin expectations for -- as you progress through the year, maybe just talk about your level of confidence just given the momentum in the first quarter and really the decision to still raise our guidance and maybe opportunity for additional upside as the year progresses? Ryan Robinson: Thank you very much for the question, Stephanie. And I'll start with FX just mechanically and then go more deeply into the fundamentals. So yes, you're correct. The first quarter revenue increased by about 1.8% due to translation of non-U.S. revenue in the U.S. dollars, but also expenses that are non-U.S. dollar denominated translated in group. So it had an offsetting effect in our earnings, but because revenue went up, it reduced our reported adjusted EBITDA margin by about 40 basis points. The comment we made in outlook is be volatile, but the current rates would estimate a similar effect by about 1% and have that 1% offset. So some margin headwind as a result going forward. In regard to the underlying we're pleased with the performance in the quarter, and it's 1 quarter. So that allowed us to raise the range from 26.5% to 27.0%, and we're pleased with the progress, and we'll continue to monitor it through the year. We did have some changes. We're divesting that EHS software business that started April 1. We're having a more fulsome impact of some revenue that we're exiting. As a reminder, with our restructuring initiatives, we're stepping out of some service lines that collectively have about 1% revenue impact and we'll continue to monitor the business as we go forward. But we're pleased with the progress so far, and that collectively, 1 quarter in gave us confidence to at least raise the bottom end of the range. Jennifer Scanlon: And let me just add, I want to give a shout out to our 15,000 employees around the world. I'm really pleased with the ways in which they are embracing opportunities to improve productivity is the right use of tools and process improvements. And I'm also really pleased with the way that we've approached our cost discipline. So it put us in a position to move guidance upward. Operator: The next question comes from Josh Chan of UBS. Joshua Chan: Jenny, Ryan, congrats on the quarter. I was wondering about the growth rate in Q1. I guess, you were lapping some tougher compares in at least consumer. So Q1 was supposed to be the lowest growth quarter of the year? Do you think that will still be the case? So how are you thinking about sort of the performance in growth after the strong Q1? Jennifer Scanlon: Yes. There's a lot of nice things that we saw in growth in Q1. And as we look forward, we continue to believe that the trends that we've seen will be consistent. If you look at our industrial growth, as Ryan mentioned, our power and automation opportunities continue and that hits both ongoing certification and certification testing. In consumer, we were certainly pressured by excess of certain typically non-certification testing growth. But again, these were areas that were nonstrategic and lower margin for us. So that will continue to suppress consumer growth year-on-year as we exit those businesses. And then in Risk and Compliance Software, as Ryan indicated, the exit of EHS, while it was a nice margin contributor was on the lower growth side of Risk and Compliance Software. So we're not seeing really any -- as we look at our outlook, it's grounded in fundamentals, and we very confident in our mid-single-digit guidance here. Operator: The next question comes from Arthur Truslove of Citi. Arthur Truslove: The first question I had was just around the the margin development. So essentially, you managed to grow revenue organically by 40 million organic expenses up by just also down by 3. I was just wondering if you could sort of explain how you've had so little cost pressure in there. So I guess, with that in mind, it'd be interesting to know what proportion of the organic revenue growth was pricing versus volume? And ultimately, how you managed to grow revenue so much with so little incremental cost pressure? Jennifer Scanlon: Yes, I'll start, and then I'll let Ryan comment on pricing and volume. But really, when you look at the approach of the messages that we've been delivering, we do see operating leverage off of a stable cost base and continue to have opportunities to better use capacity and have our teams focus on productivity based on the trends and processes that they continue to use and to improve. We did see the restructuring begin to flow through. So that has certainly been beneficial. And then we've been very focused on the value that we provide our customers and increasing the billable utilization in both of our lab teams as well as our engineers. And what's exciting about that is that's the technical leadership that our customers want. And so making sure that we're getting the value from that technical leadership is really important. So I would say those are the kind of the headlines on where we're focused on this margin expansion, and then Ryan can talk about pricing volume. Ryan Robinson: Yes. Thank you for the question, Arthur. So as we said, we report 4 revenue categories, the 2 that are most amenable to looking at price and volume, our certification testing and non-certification testing and other services. So together, those grew 7.1%. And in the first quarter, more of that growth was actually from volume than price. And we're encouraged by that. We believe volume growth reflects real underlying demand for new products. We're expanding in new geographies and there's healthy new activity regarding product introduction. Pricing remains constructive, and the cost of our services is just a small fraction of the total product development costs for manufacturers. We also had growth of 8.2% in ongoing certification services. And in that case, there were meaningful contributions from both price and volume. Operator: And does that conclude your questions, Arthur? Ladies and gentlemen, with no further questions in the question queue. We have reached the end of the question-and-answer session. I will now hand back to Jenny Scanlon for closing remarks. Jennifer Scanlon: Thank you, everyone, for joining us today. We, as always, appreciate your support, and we look forward to updating you on our progress next quarter. Operator: Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.
Operator: Good morning, and welcome to the Sotera Health Company First Quarter 2026 Earnings Call. All participants will be in listen-only mode. To ask a question, you may press star then 1 on a touchtone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Vice President of Investor Relations, Jason Peterson. Jason, please go ahead. Jason Peterson: Good morning, and thank you. Welcome to Sotera Health Company’s first quarter earnings call. Today’s press release and supplemental slides are available on the Investors section of our website at soterahealth.com. This webcast is being recorded and a replay also will be available on the Investors section of the Sotera Health Company website shortly after the call. Joining me today are Chairman and Chief Executive Officer, Michael B. Petras, and Chief Financial Officer, Jonathan M. Lyons. During today’s call, some of our comments may be considered forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to Sotera Health Company’s SEC filings and the forward-looking statements slide at the beginning of the presentation for a description of these risks and uncertainties. The company assumes no obligation to update any such forward-looking statements. Please note that during the discussion today, the company will present both GAAP and non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, tax rate applicable to adjusted net income, adjusted net income, adjusted EPS, adjusted free cash flow, net debt and net leverage ratio, as well as constant currency comparisons. A reconciliation of GAAP to non-GAAP measures for all relevant periods may be found in the schedules attached to the company’s press release and in the supplemental slides to this presentation. The operator will be assisting with the Q&A portion of the call today. Please limit yourself to one question and one follow-up. For further questions, feel free to reach out to the Investor Relations team. With that, I will now turn the call over to Sotera Health Company Chairman and CEO, Michael B. Petras. Michael B. Petras: Good morning, everyone, and thank you for joining us today. This morning, we announced a strong start to the year with 6.5% constant currency revenue growth and 6.9% constant currency adjusted EBITDA growth, driving over 20 basis points of margin expansion compared to the first quarter of last year. Sterigenics delivered 6.1% constant currency revenue growth in the quarter, while Nordion grew constant currency revenue 25.8% and expanded margins by over 290 basis points. Nelson Labs results were in line with the expectations we outlined on our last earnings call. Today, we are reaffirming our 2026 outlook provided during our February earnings call. As a reminder, we expect total company revenue to increase to a range of $1.23 billion to $1.25 billion, representing constant currency growth of 5% to 6.5% versus 2025, and adjusted EBITDA to grow to a range of $632 million to $641 million, or 5.5% to 7% constant currency growth. As we reaffirm our full-year outlook, I want to reiterate the strength and resiliency of our business model. We provide mission-critical regulated services that are deeply embedded in our customer supply chains. More than 70% of our revenue is supported by multiyear contracts servicing long-tenured customer relationships through a global network of facilities. Our commitment to customers is a core company value, and in 2025, we delivered substantial improvements in our customer satisfaction scores across both Sterigenics and Nelson Labs. Our business model has demonstrated its resilience over time, delivering consistent revenue growth for the past two decades across multiple economic cycles. We sit in a unique position in the healthcare supply chain and take our mission of safeguarding global health very seriously. Jonathan will get into the financial details in a moment, but first, I want to take the time to highlight some events that took place during the quarter. On the governance front, in addition to adding Rich Kyle to our board of directors in February, we are excited to welcome Ken Krausz, who joined our board in March. Ken’s leadership and proven track record of creating shareholder value as a public company chief financial officer for over ten years, combined with his extensive experience in strategy, finance, and governance, will be tremendous assets as we continue to grow. I would also like to thank Dean Meehos and Robert Canals, two of our private equity board members, for their service and contributions to Sotera Health Company. Dean recently completed his board service and Rob will transition off the board later this month. Both have provided valuable perspective and guidance, and we sincerely appreciate their impact over the years. In March, the private equity shareholders completed another secondary sale of existing shares, bringing our public float to approximately 90% of outstanding shares. Lastly, I want to briefly comment on some positive legal developments in Georgia. As a reminder, eight bellwether personal injury cases were selected into Phase 1 and Phase 2 causation proceedings where the court focused on the science. On 03/30/2026, the Georgia State Court dismissed the remaining five bellwether cases, as the plaintiffs could not prove general causation in the Phase 1 proceedings. As a reminder, the court dismissed the other three bellwether cases in October in the Phase 2 specific causation proceedings. All eight bellwether cases have now been dismissed and are subject to appeal. Although the March 30 order applies directly to the five Phase 1 pool cases, the court’s rejection of plaintiffs’ general causation theories is a critical issue common to all other personal injury cases. We believe this order underscores the lack of reliable scientific support for those remaining claims and should inform how the remaining cases are evaluated. We will continue to put sound science at the center of our defense as we stand behind the safety and importance of Sterigenics operations. As a reminder, developments related to EO can be found on our investors website. Now Jonathan will take us through the financials in more detail. Jonathan M. Lyons: Thank you, Michael. I will begin by covering the first quarter 2026 highlights on a consolidated basis and then provide some details on each of the business segments. I will then wrap up with additional details on our 2026 outlook. For the first quarter on a consolidated total company basis, revenues increased by 10% to $280 million, or 6.5% on a constant currency basis compared to the first quarter 2025. Net income on a GAAP basis for the quarter was $27 million, or $0.9 per diluted share. Adjusted EBITDA grew 10.5% to $135 million, or 6.9% on a constant currency basis, while adjusted EBITDA margins expanded over 20 basis points. Interest expense for Q1 2026 improved by $6 million to $35 million compared to the prior-year quarter. Approximately half of the improvement was driven by the term loan repricing and debt paydown completed late in 2025, with the remainder driven by lower interest rates. Adjusted EPS increased to $0.18 per share, an improvement of approximately 29% from the prior year. It was a strong first quarter overall, with results largely in line with our expectations, aside from some favorable timing in Nordion. Now let us go through the segment results. Sterigenics delivered 9.7% revenue growth to $186 million, or 6.1% on a constant currency basis. Favorable pricing of 4.5%, a foreign currency benefit of 3.6%, and improved volume/mix of 1.6% drove revenue growth for the quarter. Localized weather impacts in the U.S. during Q1 resulted in a 1.7% headwind to Sterigenics volumes versus the prior-year quarter. Segment income grew 9.6% to $96 million, or 6% on a constant currency basis, driven by favorable pricing, a foreign currency tailwind, and improved volume/mix, partially offset by higher costs. Nordion’s first quarter revenue increased 29% to $42 million, or 25.8% on a constant currency basis compared to the same period last year, driven primarily by increased volume/mix of 23.7% due to the timing of Cobalt-60 harvest schedules, along with foreign currency tailwinds of 3.2% and a pricing benefit of 2.1%. Nordion segment income increased approximately 36% to $24 million, or 33.1% on a constant currency basis, with segment income margins expanding more than 290 basis points to 56.4%, driven by higher volume/mix, foreign currency benefits, and favorable pricing, partially offset by inflation. Nelson Labs revenue declined 0.7% to $52 million, or 3.8% on a constant currency basis. Pricing benefits of 2.8% and a foreign currency benefit of 3.1% were more than offset by the change in volume/mix. Segment income decreased by 11.5% to $15 million, or 15.1% on a constant currency basis, with margins of 28%, reflecting lower volume/mix partially offset by favorable pricing and a foreign currency tailwind. Now I will touch on the balance sheet, cash generation, and capital deployment. In the first quarter, we generated $29 million in positive operating cash flow, inclusive of a $34 million payment for a previously disclosed legal settlement. We had positive adjusted free cash flow, which will accelerate throughout the year. Capital expenditures for the quarter totaled $46 million as we continue to make progress on our Sterigenics greenfield expansions, EO facility upgrades, and Cobalt-60 development projects. The company’s liquidity position remains strong; as of Q1 2026, we had over $900 million of available liquidity. Finally, we finished the quarter with a net leverage ratio of 3.2x, nearing our long-term target range of 2x to 3x. As Michael mentioned, we are reaffirming our 2026 outlook. To recap, we expect the following as compared to 2025: total company revenue to grow to a range of $1.233 billion to $1.251 billion, representing 5% to 6.5% constant currency growth and an estimated 100 basis point foreign currency benefit. We expect adjusted EBITDA to improve to a range of $632 million to $641 million, representing 5.5% to 7% constant currency growth and an estimated 100 basis point impact from foreign currency. The foreign exchange benefit is expected to be fully realized in the first half of 2026, with the second half impact expected to be approximately neutral versus the prior year. Total company pricing is expected to be approximately the midpoint of our 3% to 4% long-term range. For 2026, we expect Sterigenics to deliver mid- to high-single-digit constant currency revenue growth year over year, with the second quarter year-over-year growth similar to the first quarter of 2026. As a reminder, Q2 was our strongest quarter of growth in 2025. We expect Nordion to grow constant currency revenue in the low- to mid-single digits in 2026. Nordion’s first-half revenue is expected to represent approximately 40% to 45% of full-year 2026 revenue. For Nelson Labs, we expect full-year 2026 constant currency revenue growth to be in the low single digits, with a slight return to growth in Q2. Segment income margins at Nelson Labs are expected to improve throughout the year, resulting in full-year margins in the low- to mid-30s. Based on the current forward rate curve, we expect interest expense between $135 million and $145 million. We are projecting an effective tax rate applicable to adjusted net income in the range of 27% to 29%. We expect adjusted EPS in the range of $0.93 to $1.01. We continue to expect depreciation to increase in 2026, consistent with the step-up we experienced in 2025. On a weighted average basis, we expect a fully diluted share count in the range of 289 million to 291 million shares. Capital expenditures are expected to be in the range of $175 million to $225 million. We anticipate further net leverage ratio improvement in 2026. Finally, as usual, our guidance does not assume any M&A activity. Now I will turn the call back over to Michael. Michael B. Petras: Thank you, Jonathan. It has been my privilege to serve Sotera Health Company as CEO and Chair since 2016. With the company on strong footing after a decade of progress, I believe the time is right for a leadership transition that supports Sotera Health Company’s continued evolution. Following a thoroughly planned, board-led succession process, the board has appointed Alton Shader as Sotera Health Company’s new Chief Executive Officer, effective May 2026. Alton is a seasoned healthcare executive with significant experience leading and growing global healthcare organizations, including Viant Medical, Hillrom, and Baxter. In my new role as Executive Chair and as a meaningful investor in this company, I look forward to working closely with Alton to ensure a smooth and deliberate leadership transition. We have already started discussing priorities and the path forward for Sotera Health Company. I also will continue to be actively involved in investor relations and commercial and litigation strategies. As I transition to my new role, I want to thank our board for its guidance and support over the past decade. I want to thank our 3,100 employees for working with me and our leaders in continuing to make this company really special and a great place to work. I also want to thank our investors for your support since we took the company public in 2020. Rest assured, I continue to believe in and will remain engaged and committed to the long-term success of our company. With that, Operator, I would like to open it up for questions, please. Operator: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then 1 on a touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Sean Dodge with BMO Capital Markets. Please go ahead. Sean Dodge: Hey, good morning. This is Thomas Keller on for Sean. First off, congratulations on the ten years, Michael. Thank you for taking the questions. I wanted to start off on Sterigenics and the realignment of the business around higher-growth end markets. Where are you all in that strategy? I imagine it takes some time to get the pieces in place internally for that, and then to win and onboard new business. Was there any benefit here from a volume or mix shift standpoint in Q1? Or is there anything contemplated in the full-year guide? Thanks. Michael B. Petras: Yes, thanks, Tom. That is something that we are focused on as an organization. As we look at our cross-business unit activity and our strategic selling activity, we are focused on those key segments. In the quarter, Sterigenics put up 1.6% volume and mix growth, and remember, we also had an impact from weather. We are happy with the first quarter. The beginning of the quarter started off slow with the weather, which we signaled when we talked last time, but it finished strong, and we are optimistic on the outlook as we go forward based on how March finished out and how we are starting out the second quarter. Sean Dodge: Okay, that is great. And then, from a capacity standpoint, where is the business in terms of utilization across different modalities, maybe versus historical averages? And with remaining expansions, do you have what you need to support potentially higher levels of growth for the next several years? Thanks. Michael B. Petras: Yes, thank you. We are in a good spot on capacity. By modality and by geography you will have some pinch points at a given point in time, but we target approximately 80% utilization and we are in a good spot. The teams have done a nice job operationally trying to get more out of our existing capacity. We have a facility that we will start to bring online later this year in the X-ray modality, and then we have another one scheduled for late 2027, early 2028, that we feel good about. Overall, our capacity situation is in a good spot. We are well situated and have been servicing our customers very well. I also referenced on the call that we continue to see good satisfaction scores. We just got the results for 2025, and we saw significant improvement year over year in both Sterigenics and Nelson Labs. We are going in the right direction and are encouraged by what we see going forward. Operator: The next question comes from Brett Fishbin with KeyBanc Capital Markets. Please go ahead. Brett Adam Fishbin: Hey, good morning, everyone. Just a quick question on Sterigenics. Q1 was generally expected to be the lightest quarter for that segment, and you somewhat exceeded expectations. Do you still see Q1 as being the lightest quarter of the year? And then as a follow-up, can you speak a little bit to what you are seeing within core med devices and bioprocessing volumes, specific to Sterigenics? Michael B. Petras: Yes, we saw a nice quarter out of Sterigenics. We would like to have seen it a little bit better, but we cannot control the weather. Last year we had a significant second quarter, as we have talked about in the past. We will see a good quarter here in the second quarter and consistent with the guide that we just provided. We are expecting similar constant currency growth to the first quarter. Med device had a solid quarter, and across all the end markets we serve, med device was solid. Bioprocessing was up significantly year over year again, but remember, it is a small portion of our total business, though it was significant growth over the prior year. Brett Adam Fishbin: Alright, thank you very much. That is helpful. Operator: The next question comes from Patrick Donnelly with Citi. Please go ahead. Patrick Bernard Donnelly: Hey, guys, thanks for the question. Michael, congrats on the move and the transition. On Sterigenics, can you talk about what you saw as the quarter progressed on the volume side and the visibility there? It feels like you are in a pretty good spot, but talk through the different markets and what you saw as the quarter progressed, and the expectations here going forward? Michael B. Petras: Yes, Patrick, January and February were a little softer, particularly weather related, but as the quarter progressed, March was the best month on volume we have had in the last three or four years. One month does not make a year, but we are optimistic about that, and April started out strong. We feel very comfortable in the guide we have given, and we are seeing nice growth. We expect that to continue as the year progresses with some of the things we have coming online. We have that X-ray facility coming online, we will see some growth from that, and we have a customer conversion that we have talked about previously that will start to impact late in the year. Overall, the level of engagement with our customers and some of the commitments that we see coming forth from them make us feel good about how Sterigenics is positioned coming out of the first quarter. Patrick Bernard Donnelly: Okay, that is helpful. And then on the margin side, can you talk through the moving pieces? Pricing is always a good lever for you. Any changes on that front? And how should we think about margins as we work our way through the year? Jonathan M. Lyons: Thanks for the question, Patrick. We feel good about the margins, as the guide implies. We saw margin improvement in the quarter, and we expect margin improvement for the year. That is really going to be driven by Sterigenics, where we expect to get some good operating leverage in the business, and really stable margins in the other segments. We are optimistic about the opportunity to see another year of margin improvement on the heels of our strong margin improvement last year. Operator: The next question comes from William Blair. Please go ahead. Analyst: Hi, good morning, and thanks for taking our questions. I will try to hit on the Sterigenics question another way. Excluding the weather impact, you did about 8% constant currency in Q1. You said you expect similar constant currency growth in Q2, even though April is off to a strong start and you do not have that weather piece. Is that slowdown relative to the 8% ex-weather just a comp issue? Is it conservatism? Or are there other factors we should be thinking about for Sterigenics in the second quarter? Thank you. Michael B. Petras: Thanks. The big thing, and I alluded to it in my prepared remarks, is that Q2 of last year was our strongest quarter of growth, so it is really a comp issue versus anything else. Analyst: That is helpful, thanks. And then one on Nelson Labs. You said it was in line with your expectations for the quarter. Can you help us think through testing growth versus Expert Advisory Services and, in particular, how much of a headwind the latter represented in Q1? And then on margins, they stepped down pretty significantly year over year, so help us understand the drivers behind that and the outlook for margins for that segment over the balance of the year. Michael B. Petras: As we communicated, Nelson Labs came in as we expected. Expert Advisory Services is the last quarter we had that headwind that we are lapping over. Testing volumes were down a little bit over prior year, but routine volumes are coming back, and our service has been outstanding in that area. As sterilization volumes go up, we will continue to see that correlation and strength on the routine testing side. It is not always one-for-one, but there is a correlation. On the validation side, we are starting to see some pipeline in some of the longer-term projects start to build as we go into the latter parts of 2026. We signaled that we see the margins coming to the low to mid-30s, which is consistent with what we have been talking about for the last many quarters around this topic. Analyst: Got it. Thanks again for taking our questions. Operator: The next question comes from Piper Sandler. Please go ahead. Analyst: Hey, everyone, and congrats on the announcement, Michael. I am going to attack Sterigenics from a slightly different lens. Growth and margins in Q1 were impressive, even in spite of the weather-related headwinds. As we look at the broader inflationary backdrop, can you help us think about the durability of Sterigenics margins through the year, and whether sustained cost inflation actually creates an opportunity to take incremental price throughout the year? Michael B. Petras: Thanks. We are not seeing significant inflation in that business. We continue to manage that well. Our key inputs are really around labor and then gas and cobalt, and we are in a good spot there. We have set pricing in such a way that we make sure our value get is positive. In the quarter, Sterigenics had about 4.5% price, which is slightly above the 4% that we have guided toward. We continue to see that business in a good spot and being rewarded for the value it brings to our customers, and we are not concerned about anything material on the inflation side as we sit here today. Analyst: Got it, thanks. And on that large customer onboarding that should come on this year, is there any more detail you can provide about sizing or how to think about the ramp through the rest of the year, and is that part of the guide? Michael B. Petras: Yes, that is assumed in our guide. It will come late in the year. It is a meaningful customer, but it is not outsized. We are not building a facility for that business. It is a significant win for us from both a morale standpoint and reinforcing the company’s value proposition. We have that built into our outlook for the rest of this year, and you will see it late in the year. Operator: The next question comes from Barclays. Please go ahead. Analyst: This is Sam on for Luke. Thanks for taking the question. Michael, congrats on the ten years with the company and best of luck as Executive Chair. I wanted to talk about the administration’s announcement to potentially scale back some of the ethylene oxide emissions regulations. Can you talk about the different scenarios that might come out of that and what the implications might be from a top-line perspective? That has been talked about as a potential opportunity with higher regulations on some smaller players in the industry. How might that affect CapEx spend in the near term and the long term? Michael B. Petras: Thanks, Sam, for your comments and questions. We are executing. We have spent approximately $200 million in Sterigenics over the duration on general facility enhancements for EO activity. The team is doing a very good job executing on that, and we should have the vast majority complete in 2026. There is a rule out there today that has another couple of years before requirements must be met, and now there is a new proposed rule out there. We are proceeding as if the rule that is in place is going to be the requirement, and our engineering teams are executing along those plans. I am not exactly sure how the administration will rule on this. Our job is to make sure we are operating in a safe and compliant manner and taking all actions to put the facility in the best place possible. We will provide comments, as many others in the industry will, on the new proposed rule. Based on what we saw in the proposed rule, they are still going to be tough restrictions. They are a little easier than the rule that was recently put out, but still tough and challenging. We feel very well positioned to meet those requirements. As far as creating opportunities for us, depending on the final rule and timing, that will determine how much opportunity. We have a couple of opportunities: one customer we referenced who is converting over to us, and some other smaller ones where we continue to have dialogue and see opportunity. That activity slowed a little over the last several quarters with uncertainty on the timing of the new rule requirements, but we feel very well positioned for whatever the rule may be, and we will continue to operate in a safe and compliant manner for all our stakeholders, employees, and communities. Analyst: Thank you. Maybe an unrelated follow-up on Nordion pricing. I think that came in slightly below the usual at about 2.1%. Anything significant to call out there? Michael B. Petras: No. We have a long-range guide for the company of 3% to 4%. We said Nordion would be on the low end of that, around 3%. It is just a matter of timing and customer mix on which customers got shipments within the quarter. We are fine on price execution in Nordion and across the business. Operator: The next question comes from J.P. Morgan. Please go ahead. Analyst: Hi, this is Jayden on for Casey. Could you walk us through your pricing assumption for 2026 and highlight if anything has changed by segment? I know you just mentioned Nordion, but anything else would be helpful. Thank you. Michael B. Petras: Nothing has changed from what we communicated previously. Price would be in the 3% to 4% range overall. Nordion will be on the low end of that range, Nelson will be on the low end of that range, and Sterigenics will be on the high end of that range. We do not see anything changing in our outlook on that. Analyst: Alright. Thank you. Operator: The next question comes from RBC Capital Markets. Please go ahead. Analyst: Hey, this is Kevin on for Ryan. Two quick ones for us. Was there any extra selling-day benefit in Q1 2026? If so, how much did that impact your growth rates? Michael B. Petras: No, very minimally. Analyst: Awesome, thanks. In 2025, you talked about your XBU customers growing ahead of total company growth. Can you comment on how XBU is performing in 2026 at this point and any opportunities you have to further accelerate that XBU penetration? Michael B. Petras: Thanks for the question. We had a good first quarter in that area and saw growth again. As I mentioned earlier, our customer satisfaction scores were very positive with significant improvement as well. Overall, the work is going very well in the XBU. Remember, there is a lot of strength around the embedded labs within Sterigenics, the Nelson Labs that coexist there. We continue to execute well in that area, so XBU is well situated. Analyst: Gotcha. Thank you. Operator: The next question comes from Wolfe Research. Please go ahead. Michael K. Polark: Good morning. Hey, Michael, congrats and good luck. I would have thought if you were making a transition you would have shed the investor relations hat so you did not have to deal with folks like me and my clients, but I was surprised to see that is still part of your ongoing commitment. Michael B. Petras: Trust me, I was trying to shed the litigation, but the board would not let me on that. You can imagine more fun things than defending multistate toxic tort cases. But yes, thank you, and please go ahead. Michael K. Polark: Two for me. In the quarter, appreciate the weather callout for Sterigenics. If I recall, part of the Q1 guidance also considered excess EO maintenance downtime. Would you flag that as a significant item in the quarter on Sterigenics volumes? And then for the rest of the year, what is the maintenance schedule across the network? Anything unusual we should think about for Q2, Q3, Q4? Michael B. Petras: One point to add is that the number of downtime days in the second half will be lower. Jonathan M. Lyons: I would not add anything other than to reiterate that point. Downtime days are a headwind year over year in the first half and a tailwind in the second half. Michael K. Polark: Helpful. And the second one: for Nelson Labs in the second quarter, you said “slight” return to growth. Is that about 1%, or something better? Michael B. Petras: I would think in that range or below. Michael K. Polark: Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference over to Michael B. Petras for any closing remarks. Michael B. Petras: Thank you. As we move through 2026, we are encouraged by our momentum and strengthened financial position. We remain confident in our ability to drive long-term growth, strong cash flow, and shareholder value. Our leadership in a large and growing market, global scale, regulatory expertise, accelerating free cash flows, and disciplined capital allocation position us well for sustainable growth. We look forward to seeing many of you at the conferences coming up this spring and early summer. Thank you for your continued support, and have a good day. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good afternoon. My name is Stephanie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Hercules Capital First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I will now turn the call over to Michael Hara, Managing Director of Investor Relations. Please go ahead. Michael Hara: Thank you Stephanie. Good afternoon everyone and welcome to Hercules conference call for the first quarter of 2026. With us on the call today from Hercules are Scott Bluestein, CEO and Chief Investment Officer; and Seth Meyer, CFO. Hercules financial results were released just after today's market close and can be accessed from Hercules' Investor Relations section at investor.htgc.com. An archived webcast replay will be available on the Investor Relations web page following the call. During this call, we may make forward-looking statements based on our own assumptions and current expectations. These forward-looking statements are not guarantees of future performance and should not be relied upon in making any investment decision. Actual financial results may differ from the forward-looking statements made during this call for a number of reasons, including, but not limited to, the risks identified in our annual report on Form 10-K and other filings that are publicly available on the SEC's website. Any forward-looking statements made during this call are made only as of today's date, and Hercules assumes no obligation to update any such statements in the future. And with that, I'll turn the call over to Scott. Scott Bluestein: Thank you, Michael, and thank you all for joining the Hercules Capital Q1 2026 Earnings Call. In the first quarter of 2026, Hercules delivered another strong quarter of record originations, record total investment income and stable credit performance. During the quarter, we navigated through a period of significant market volatility. This was driven by a sharp pullback in certain parts of the equity and credit capital markets, macro concerns largely centered around the conflict in the Middle East as well as industry-specific concerns surrounding across private credit and the long-term impact from AI disruption. Since our first origination over 21 years ago, Hercules has maintained a disciplined credit first model that has served our shareholders and stakeholders well through a variety of market conditions and multiple cycles, and that will remain our focus going forward. Our balance sheet and liquidity position is strong. Our portfolio credit performance remains stable and our investment portfolio continued to generate net investment income in Q1 that comfortably covered our base shareholder distribution by 120%. Coming off a record-breaking year in 2025 for both originations and fundings, our momentum accelerated in Q1 with all-time record originations of over $1.81 billion. This is consistent with the guidance that we provided on our Q4 earnings call in February and the release that we put out in early April. The strong new business activity in the first quarter helped to deliver a new record for total investment income despite operating in a declining rate environment since late 2024. Driven by the growth of both the public BDC and our private credit funds business, Hercules Capital is now managing approximately $6.1 billion of assets. An increase of 21.8% from a year ago. To manage our growing asset base and expanded platform. We currently have 65 investments in credit professionals, over 25 finance and accounting professionals and 120 dedicated full-time employees in total at Hercules. As we entered 2026, we noted on our last earnings call that we continue to expect higher-than-normal market and macro volatility, and it certainly has played out that way. Aside from the general market volatility experienced year-to-date, largely from AI disruption fears and the conflict in the Middle East, the results have been enhanced focus on liquidity and redemption across the broader private credit space. These particular issues are concentrated largely in the non-traded BDC segment where the investor base is predominantly retail and the shareholders hold quarterly redemption rights. Hercules is different. 100% of the equity capital that we manage in the publicly traded BDC is true permanent capital that is not subject to redemption. Our investment adviser subsidiary manages exclusively institutional GP LP funds with predetermined long-term or evergreen investment periods, no retail investors, no non-traded BDCs, no near-term redemption risk. This capital structure is deliberate and we believe it allows us to execute a long-term strategy through cycles without unpredictable redemptions and without forced asset sales. We remain confident in the strength and stability of the Hercules platform and our ability to continue to generate strong operating results irrespective of the market backdrop. With the expansion of our platform capabilities over the last several years and our expectation for continued market volatility, we continue to expect a robust new business environment for Hercules in 2026. Our platform scale, balance sheet and liquidity allow us to play offense during market volatility, which should position us to see a robust pipeline of high-quality companies throughout the year. As we have done over the last several years, we will continue to manage our business and balance sheet defensively, while maintaining the flexibility to take advantage of market opportunities. This includes continuing to enhance our liquidity position as needed, further tightening our credit screens for new underwritings, staying focused on asset diversification and maintaining our higher-than-normal first lien exposure, which was approximately 89% in Q1. Let me now recap some of the key highlights of our performance for Q1. In Q1, we originated record total new debt and equity commitments of $1.81 billion and gross fundings of over $706 million, which led to $298 million of net debt investment portfolio growth. We generated record total investment income of $141.5 million and net investment income of $88.1 million or $0.48 per share. We generated a return on equity in Q1 of 16.9%, and our portfolio generated a GAAP effective yield of 12.8% and a core yield of 12.2% and which was consistent with our guidance. We expect core yield to remain relatively flat in Q2, given that the Fed is holding interest rates steady. As we have consistently communicated throughout 2025, we have increased leverage to support our continued growth and return effectives, allowing us to continue to focus on what we believe are high-quality originations versus chasing higher-yielding assets with more risk. While delivering record new originations in Q1, we still maintained a conservative and defensive balance sheet. Consistent with our objectives, GAAP leverage increased to 115.4% in Q1, up from 104.4% in Q4. Our Q1 GAAP leverage was at the high end of our typical historical range of 100% to 115% but still below the average of our BDC peers. We ended Q1 with over $1 billion of liquidity across the Hercules platform. The current market volatility is creating a very favorable capital deployment environment for Hercules and we want to ensure that we are positioned to opportunistically take advantage of that for the long-term benefit of our shareholders and stakeholders. The focus of our origination efforts in Q1 and was on maintaining a disciplined approach to capital deployment while emphasizing diversification across the asset base. Our Q1 commitments and fundings activity was weighted slightly towards life sciences companies. which reflects a more defensive posture. In Q1, approximately 56% of our commitments and 60% of our fundings were to life sciences companies. while approximately 44% of our commitments were to tech companies. We funded debt capital to 34 different companies in Q1, of which 13 were new borrower relationships. During the quarter, we were again able to opportunistically increase our commitments and fundings to several portfolio companies that have continued to demonstrate strong performance. As it always has been, being able to continue to support our portfolio of companies as they scale is an important part of our business and a key differentiator of our expanded platform capabilities. Our available unfunded commitments increased slightly to $397.4 million from $385.6 million in Q4, still maintaining a more defensive positioning of the portfolio. Coming off a record Q1, we expect originations to moderate in Q2 and be more back-end weighted. Since the close of Q1 and as of May 1, 2026. Our investment team has closed $79.2 million of new commitments and funded $32.3 million. We have pending commitments of an additional $506.1 million, in signed, nonbinding term sheets, and we expect this number to continue to grow as we progress in Q2. We will maintain a high bar for new originations. Our investment teams are continuing to update our modeling assumptions, structuring and underwriting criteria given the rapid pace of change that we are seeing across the technology ecosystem. The volume of deals that we are screening and passing on remains elevated, and we intend to continue to remain disciplined, patient and focused on the long term while being aggressive where we believe it makes sense. Early loan repayments of $225.8 million came in at the higher end of our guidance for Q1. For Q2 2026, we expect prepayments to increase materially and be in the range of $350 million to $500 million, although this could change as we progress in the quarter. The increased guidance on prepayments in Q2 is being driven largely by M&A. And we believe that this positions us well to redeploy this capital in what we expect to be a more favorable originations environment. Our net asset value per share in Q1 was $11.90 a decrease of 1.9% from Q4 2025. We had $31.1 million of net unrealized depreciation from debt investments during the quarter approximately $23.2 million or 75% of which was attributable to market yield adjustments associated with the general market volatility. In addition, we had $12.3 million of net unrealized depreciation attributable to valuation movements in publicly and privately held equity positions. Again, largely associated with the general market volatility experienced during the quarter. We ended Q1 with solid liquidity of $454.5 million in BDC and over $1 billion of liquidity across the platform. With healthy liquidity, a low cost of debt relative to our peers and 4 investment-grade credit ratings we remain well positioned to compete aggressively on quality transactions, which we believe is prudent in the current environment. Credit quality of the debt investment portfolio remained strong quarter-over-quarter. Our weighted average internal credit rating of 2.11 was stable relative to the 2.20 rating in Q4 and remains within our normal historical range. Our Grade 1 and 2 credits increased to 70.5% compared to 66.6% in Q4. Grade 3 credits decreased slightly to 28.6% in Q1 versus 31.7% in Q4. Our rated 4 credits decreased to 0.8% from 1.7% in Q4 and we had 1 rated 5 credit at 0.1%. Our loans rated at 4 and 5 as of Q1 were a combined 0.9% which is the lowest that we have reported since Q2 2022. In Q1, the number of companies with loans on nonaccrual remain the same with a single loan on nonaccrual with an investment cost and fair value of approximately $10.7 million and $3.7 million, respectively, or 0.2% and 0.1% as a percentage of our total investment portfolio at cost and value, respectively. As of the most recent reporting that we have, 100% of our debt investments that are on accrual are current with respect to the payment of scheduled principal and interest. With respect to our broader credit book and outlook, we generally remain pleased by what we are seeing on a portfolio level but our portfolio monitoring remains enhanced given the continued volatility in the markets. We believe that our conservative underwriting and ensuring appropriate structural alignment on the deals that we do will continue to serve us well. Our asset base is intentionally diversified with approximately 50% of our assets in our life sciences vertical, and approximately 50% of our assets in our technology vertical. No single subsector makes up more than 25% of our total investment portfolio and our bet investments are spread across 139 different companies. Consistent with our historical experience as of the end of Q1 -- the average loan duration across our debt portfolio was approximately 21 months. While we remain pleased with the exit activity that we saw in our portfolio during the quarter, we are seeing that in certain parts of the market, there appears to be some ongoing pricing and process discovery. The sharp pullback in equity valuations year-to-date in certain technology sectors has slowed some ongoing M&A discussions as buyers look to establish what the new norm may be for exits, particularly with respect to valuation and exit multiples. This is something that we will monitor over the coming quarters. In Q1 and Q2 quarter-to-date, we've had 4 new M&A events in our portfolio, which included 1 life sciences company, and 3 technology companies announcing acquisitions. We also had 2 portfolio companies file registration statements for their IPOs with 1 of those companies completing their IPO in April. We view this as a positive sign for our ecosystem. Based on current market conditions and volatility, we continue to expect M&A exit activity to accelerate in 2026, although with more uncertainty with respect to valuations and process timing. In Q1, PIK declined meaningfully as a percentage of total revenue. falling to approximately 9.1% from 10.5% in fiscal year 2025. And we expect that figure to continue declining in the near term as loans pay off and accrued PIK is collected in cash. The most important point on PIK, however, is its source. Approximately 91% of our Q1 PIK income came from PIK that was part of the original underwriting, not of the result of any credit or performance-related amendment. This is PIK by design, not PIK by distress. Reinforcing that point, more than 98% of our Q1 PIK income came from loans rated 1, 2 or 3 and excluding a single convertible loan, every loan with a PIK component on accrual status is also paying cash interest. Cash collections support the same conclusion. We collected $15.3 million in cash payments on accrued PIK during Q1. And because the majority of our PIK bearing loans were originated in 2024 and 2025, we expect strong cash collections to continue throughout 2026 as those loans approach their expected duration. We continue to use PIK judiciously and where we do, it is typically a small component of the overall deal economics. Our investment and credit teams continue to monitor the impact of AI on our portfolio and the broader markets. The pace of change is rapid and we expect the disruption we are seeing to play out over several years. Our most recent reporting and our ongoing dialogue with our companies and their investors continue to be constructive. Many companies across our portfolio have been embracing AI as a competitive differentiator and are experiencing tailwinds from AI adoption, greater operating efficiency and faster cycles of innovation and go-to-market. Those companies that are more aggressively integrating AI into their core product offerings are benefiting from increased adoption and AI acceptance. We continue to expect AI to disrupt numerous industries over time and that there will be both winners and losers. Over the coming years, business models will change, margin profiles may change and in many cases, companies may actually become more efficient and innovative. Our investment teams will continue to pursue software transactions as part of our origination efforts, and we will remain disciplined and conservative in terms of our approach to financing the sector. Venture capital investment activity in Q1, again, paralleled what we experienced in our deal flow and originations. Q1 2026 investment activity was the highest quarter on record at $267.2 billion according to data gathered by PitchBook and VCA. While the aggregate data remains strong, it again needs to be noted that the deal value was extremely concentrated and that over 88% of the Q1 deal value involved AI and machine learning companies. Q1 fundraising improved and totaled $47.8 billion, across 172 firms. The capital was heavily concentrated among a few established managers. M&A exit activity remained consistent with Q4 but exit value in Q1 was extraordinary at $311.7 billion compared to $143.9 billion for all of 2025. Consistent with the aggregate data for the ecosystem. During Q1, capital raising across our portfolio reached an all-time high with 21 companies raising approximately $3.4 billion in new capital. Despite the market volatility year-to-date, we have not observed a pulled portfolio. Subsequent to quarter end, we have had an additional 10 companies raised over $900 million in new capital. Given our strong sustained operating performance, we exited Q1 with undistributed earnings spillover of $149.1 million or $0.80 per ending shares outstanding. For Q1, our net investment income covered our base distribution by 120% and our full distribution, including our $0.07 supplemental distribution by 102%. This is our 23rd consecutive quarter of being able to provide our shareholders with a supplemental distribution in addition to our regular quarterly base distribution. Finally, I would like to highlight our recent announcement on May 4 regarding the expansion of our leadership team. Effective May 18 and Seth will become President of Hercules. Seth and I will continue to work closely on scaling our platform and enhancing our operational capabilities to ensure that we continue to deliver long-term value for our shareholders and stakeholders. Succeeding him as CFO will be Andrew Olson, who is returning to Hercules after working most recently at Revelation Partners, and prior to that, SVB Capital. Andrew's experience and track record in finance, alternative assets and private credit is strong, and I welcome him back and look forward to working with Andrew again. To continue to build on our success and position Hercules for its next phase of growth. As we set our sights on the continued growth and scaling of our platform, I believe that this expansion of our leadership team will best position us for continued long-term success. In closing, our scale institutionalized lending platform and our ability to capitalize on a rapidly changing competitive and macro environment continues to drive our business forward and our operating performance to record levels. Our continued success is attributable to the tremendous dedication, efforts and capabilities of our 120 employees and the trust that our venture capital and private equity partners place with us every day. We are thankful to the many companies, management teams, and investors that continue to make Hercules their partner of choice. I will now turn the call over to Seth. Seth Meyer: Thank you, Scott, and good afternoon, ladies and gentlemen. Q1 2026 was another all-around strong quarter for Hercules Capital, building on the record-setting pace established in 2025. As communicated by Scott, our strong business momentum continued into the first quarter as we delivered all-time records for both new originations and total investment income. We delivered strong growth across both the BDC and our wholly owned RIA managed private credit fund business, which continues to provide us with significant capital flexibility and capacity. Notwithstanding a more volatile and challenging market backdrop in Q1, the Hercules platform delivered strong and stable financial results. We continue to maintain strong available liquidity of $454.5 million as of quarter end in the BDC and more than $1 billion across the platform, including the advisers funds managed by our wholly owned subsidiary, Hercules Adviser LLC. As previously disclosed, during the quarter, we strengthened our liquidity position even more by issuing $300 million of institutionally backed 5.35% unsecured notes due in 2029. In addition, we raised over $50 million in accretive capital via our ATM to help support our nearly $300 million of net debt portfolio growth during the first quarter. Finally, based on the performance of the quarter, Hercules Adviser delivered another quarterly dividend of $2.1 million to HTGC which, when combined with the expense reimbursement of $4.6 million resulted in approximately $6.7 million of NII contribution to the BDC for the quarter. These points in mind, we'll review the income statement performance and highlights, NAV, unrealized and realized activity, leverage and liquidity, and finally, the financial outlook. Turning first to the income statement performance and highlights. Total investment income in Q1 was a record $141.5 million, an increase of 3% quarter-over-quarter and 18.4% year-over-year, supported by our continued debt portfolio growth. Core investment income, a non-GAAP measure, increased as well to a record $134.9 million compared to $133.3 million in Q4 and was up 16.8% on a year-over-year basis. Core investment income excludes the benefit of income recognized because of loan prepayments. Net investment income was $88.1 million or $0.48 per share in Q1, an increase of 1.3% quarter-over-quarter and 13.8% year-over-year. Our effective and core yields were 12.8% and 12.2%, respectively, compared to 12.9% and 12.5% in the prior quarter. The decrease in core yield was near the midpoint of our communicated range, in line with our guidance and driven by the continued impact of rate reductions in the second half of 2025. Although as noted previously, this impact has been progressively muted. As of quarter end, more than 75% of our prime-based loans were at the contractual floor and thus the impact of any future rate reductions will continue to be muted. First quarter operating expenses were $58.1 million compared to $54.9 million in the prior quarter. Net of costs recharged to the RIA, our net operating expenses were $53.4 million. The increase in operating expenses was largely driven by increased compensation tied to record quarter for new originations. Interest expense and fees increased to $30.8 million compared to $28.2 million in Q4 due to the growth of the business and corresponding increase of leverage to support our record origination activity. SG&A increased to $27.2 million, just above my guidance on the growth of the business. Net of costs recharged to the RIA, the SG&A expenses were $22.6 million. Our weighted average cost of debt remained stable at 5.1%. Our ROAE or NII over average equity increased to 16.9% for the first quarter compared to 16.4% in Q4, and our ROAA or NII over average total assets was 8.1% compared to 8.2% in Q4. Switching to NAV unrealized and realized activity. During the quarter, our NAV per share decreased by $0.23 to $11.90 per share or 1.9% quarter-over-quarter. The main driver was net unrealized depreciation on investments, primarily reflecting broad-based increases in market yields during the quarter. Our $45 million net unrealized depreciation was primarily attributable to $31.1 million -- excuse me, of net unrealized depreciation on debt investments, approximately $23.2 million of which was attributable to market yield adjustments associated with market volatility in the quarter. There was also $7.9 million in fair value markdowns of 2 previously impaired loans. Additionally, $12.3 million of net unrealized depreciation was attributable to valuation movements in publicly and privately held equity and $1.9 million of net unrealized depreciation was due to reversals of previous quarter appreciation upon a realization event. This was partially offset by $0.3 million of net unrealized appreciation attributable to valuation movements in public and privately held warrants. Hercules had unrealized losses or net realized losses of $0.6 million in Q1, primarily due to losses on legacy equity investments. Turning next to leverage and liquidity. In line with our previous guidance, our GAAP and regulatory leverage increased to 115.4% and 99.7%, respectively, compared to 104.4% and 88.6% in the prior quarter due to the growth in the balance sheet being financed primarily by leverage to support our record originations activity. Netting out leverage with cash on the balance sheet, our net GAAP and regulatory leverage was 113.5% and 97.8%, respectively. We ended the quarter with $454.5 million of available liquidity. As a reminder, this excludes capital raised by the funds managed by our wholly owned RIA subsidiary. Inclusive of these amounts, the Hercules platform had more than $1 billion of available liquidity as of quarter end. The strong liquidity positions us very well to support our existing portfolio companies and source new opportunities. As previously disclosed, the quarter -- during the quarter, Hercules Capital raised $300 million of institutional 5.35% unsecured notes due in 2029. As a final point, we continue to opportunistically access the ATM market during the quarter and raised approximately $52 million in the first quarter, selling 3.5 million shares. The ATM usage was driven by our record new business originations and which drove very strong net debt portfolio growth in Q1. Finally, on the outlook points. For the second quarter, we expect our core yield to again be in the range of 12% to 12.5%. As a reminder, 98% of our debt portfolio is floating with the floor. And as of today, more than 75% of our prime-based portfolio is at the contractual floor. Although difficult to predict, as stated by Scott, we expect $350 million to $500 million in prepayment activity in the second quarter. The expected elevated prepayments in Q2 will provide us with significant flexibility and optionality and with respect to liquidity and capital raising. We expect our second quarter interest expense to increase compared to the prior quarter based on the debt portfolio growth. For the second quarter, we expect SG&A expenses of $27.5 million to $28.5 million and an RIA expense allocation of approximately $4.5 million. Finally, we expect a quarterly dividend from the RIA of approximately $2 million to $2.5 million per quarter. In closing, we have started 2026 with record-setting momentum, delivering all-time highs in originations and total investment income while navigating meaningful market volatility. Our balance sheet, liquidity position and credit discipline positions us well to continue scaling our platform and capitalizing on opportunities throughout the year. As Scott noted, effective May 18 I will be transitioning to the role of President at HTGC where I will continue to work closely with Scott and the rest of our senior leadership team to further scale and diversify the Hercules platform. During my 7-plus years at Hercules, the company has delivered exceptionally strong operational and financial performance as well as record platform growth. And this expanded leadership team positions us for continued success. I look forward to working closely with Andrew and the rest of the Hercules Capital team in my new role. I will now turn the call all over to the operator to begin the Q&A portion of the call. Stephanie, over to you. Operator: [Operator Instructions] We'll take our first question from Brian McKenna with Citizens. Brian Mckenna: Okay. Great. Hope everyone is doing well. And congrats, Seth, on the new role. So given your focus on the venture market, it's not shocking you have more exposure to "software" but your portfolio is really one of the best, if not the best performing BDCs in the market today based on ROE and credit quality. It would be helpful to get your perspective on why there's such a big disconnect between the reality and fundamentals of your business relative to perceptions? And then from your seat, what are the biggest drivers of your portfolio delivering such strong results despite all the recent volatility. Scott Bluestein: Yes. Thanks for the question, Brian. I think it's sort of consistent with what we talked about on the last call that we did in February. Underwriting and venture in growth -- in growth -- venture in growth stage market is fundamentally different than traditional underwriting. If you look at how our investment teams underwrite software loans specifically, and we talked about this extensively on the last call, we are generally targeting to be under 1x debt to ARR. We are generally targeting to be sub 20% LTV. We are generally targeting to be debt to invested equity of less than 30% so there is significantly more equity cushion beneath our debt across the majority of our software companies. We've also said consistently we are very confident in our portfolio. We're not perfect. We've made mistakes before. I'm sure we will make mistakes again. But from everything that we are seeing to date, we continue to feel pretty good about how our portfolio is holding up. I would also emphasize that our portfolio is highly diversified. 50% of our investment portfolio is in our life sciences vertical, and then a significant portion of our technology portfolio is not in software companies. Many of the non-software industries are performing incredibly well in the current environment, and that gives us confidence that the portfolio as a whole will continue to perform well. Brian Mckenna: That's helpful, Scott. And then I appreciate the commentary around prepayments for the second quarter. I mean, it is a significant amount of capital coming back to you and ultimately, that's going to get redeployed. Two questions here. How should we think about fee income in the second quarter? And then how do all-in yields and spreads on new deals today compare to the investments tied to the prepayments? Seth Meyer: Sure. So a couple of things there. On the prepayment side, we did increase our guidance pretty significantly for prepayments in Q2. I want to emphasize that we view that as a positive indicator of the quality and strength of our portfolio. The majority of that increased guidance is coming from known M&A events that have either already happened or that we expect to happen in Q2 and that gives us confidence in the overall portfolio quality that will lead to slightly higher fee income in the quarter. We're not going to give any specific guidance on what that will be because that still has to play out? And then with respect to the second part of the question on spreads, I would say a couple of things on this. So first, in the midst of the most volatile parts of the last 4 months, which I would sort of highlight as late February and early March, we did see probably 50 to 75 basis points of spread widening on new originations. I would caveat that by saying that over the last 30 days or so as the volatility has decreased -- we've seen some of that come back in. So while we are seeing some spread benefit, I would sort of say 25-ish basis points relative to where we were at the beginning of the year. I think the most important thing that I would highlight is actually not on the spread, but it's the fact that we are very focused on enhancing structure across the underwriting on new loans. And that will continue to be our priority going forward versus pushing or fighting for an incremental 25 to 50 basis points of spread. Operator: We'll take our next question from Crispin Love with Piper Sandler. Benjamin Graham: This is Ben Graham on for Crispin Love. I'm just wondering if you could discuss the deployment backdrop for 2026. I know you've touched on how market volatility can create a favorable backdrop for you and just wondered if that's continued for the most part. And if there's been heightened deployment in any particular sector such as tech or life sciences? Scott Bluestein: Sure. Thanks, Ben. So with respect to just deployment, a couple of comments. Number one, we're going to continue to focus on diversification. We think having a diversified portfolio on the asset side has been critical to our historical success and we think that it will be critical to our go-forward success. So continuing to try to find the right balance between life sciences and technology. From a big picture perspective, I would tell you that we continue to be very optimistic about originations in 2026. Our Q1 activity was a record-breaking for us at $1.8 billion of commitments. We've closed an additional approximately $79 million of commitments quarter-to-date, and we have another $506 million of signed nonbinding pending commitments. And as I said in my prepared remarks, based on the current pipeline, we expect that number to continue to grow. And our investment teams are continuing to stay very focused and patient and disciplined with respect to capital deployment. But given the volume of deal flow that we are seeing given how we've positioned our business in terms of having appropriate liquidity and conservative balance sheet, we feel pretty optimistic about what that will translate into for 2026 capital deployment. Operator: We'll take our next question from Cory Johnson with UBS. Cory Johnson: I was wondering if you can maybe square '08. So you guys have had or having quite a bit of M&A in your portfolio when the M&A market is a bit slow, I guess, at the moment. So I guess what maybe are you seeing in your portfolio, what type of companies are you seeing the M&A market where you're able to see the success and have upcoming higher prepayments and such? Scott Bluestein: Thanks, Cory. I think honestly, the credit goes to our investment teams. I've said this consistently over the last several years. I think our investment teams do an incredible job at identifying, selecting and underwriting deals for the best companies that are out there. And they've done a great job over the last few years, finding companies that we think are very attractive M&A targets for both strategic and financial buyers. Year-to-date, we've had, as I mentioned in my prepared remarks, we've had 4 new companies announced M&A events that covers both life sciences companies and technology companies. I would also emphasize that we are aware of several additional companies in our portfolio that are in active M&A discussions and so I think that gives us confidence that we'll see continued strong M&A activity for the remainder of 2026. I would sort of caveat that statement by saying and reiterating what I said in my prepared remarks is that we are seeing some, I would say, increased variability with respect to timing and valuation, and that's something that we'll continue to monitor over the coming quarters. Cory Johnson: And then just one other thing, going back to the structural changes that you mentioned that you've been able to see in the terms of your underwriting. You also had mentioned earlier about how there was a significant decline in PIK. Is that decline in PIK that you're expecting, is that just to do with the payoffs? Or are you sort of more leaning a way towards PIK. Is that something that's possibly changing in the terms that perhaps you might not have to give as much on that end as perhaps you did before to win deals? Seth Meyer: Sure. Great question Cory. And I would sort of say 2 specific things. So first and foremost, the majority of the deals that we underwrote with PIK occurred in 2024 and 2025, and that was consistent with our public guidance about moving into larger, later-stage, more mature companies where PIK is a little bit more prevalent. Given the fact that our average loan duration has tended to be roughly 18 to 24 months over the last several years, we expect, and we're currently seeing many of those loans now come up for prepayment. As those loans prepay, the accrued PIK is satisfied and paid in cash. So we saw significant activity related to that point in Q1 and we expect to continue to see significant activity over the next several quarters in that regard. The second element is also what you just asked, which is we are intentionally deprioritizing PIK on new investments. And so it's really a combination of those 2 things. But the largest driver of the decrease has to do with the fact that we had significant cash collections, and we expect that to continue in 2026. Operator: We'll take our next question from Casey Alexander with Compass Point. Casey Alexander: First of all, congratulations, Seth, on the new posting. And Andrew, welcome back to the publicly traded BDC marketplace. I'm struck by -- that's a really healthy amount of prepayments that you're suggesting. And to my knowledge, at least one of them is a really good-sized software prepayment and I'm just wondering, this gives you -- does this give you a chance to kind of influence and restructure the portfolio a little bit and move off of software some or Hercules' history has been to kind of fly into the wind when things get turbulent, and that's where better results have come from? Seth said, there's higher optionality coming from these repayments. And I'm just kind of curious as to how you think you might use that optionality to influence the portfolio? Scott Bluestein: Yes. It's a great question, Casey. And again, we did increase the guidance pretty considerably, and we feel very confident with that increased guidance because of either already occurred or known M&A events and you identified one, which is a large software loan that has already repaid as a result of M&A. We view it very favorably and it does give us the opportunity to reposition the portfolio on a go-forward basis. That does not mean we are deprioritizing software. That does not mean that we are running from software companies. And I said that specifically in my prepared remarks, our team is continuing to look at, evaluate, identify what we think are very strong, attractive software loans, and we're going to continue to pursue that. Having said that, all of that recycling gives us the ability to also redeploy that capital into other parts of our technology book, space tech, defense tech, network communications, business services, et cetera. And so I would expect to see a repositioning of the portfolio as that capital comes in from payoffs and as our teams get to redeploy it. We are focused on identifying what we think are the most attractive debt opportunities irrespective of specific subsector allocation. Casey Alexander: Okay. Great. My follow-up to that is, I would imagine that if there's a software deal being done, that spreads are considerably wider, but most participants that we've heard from thus far have said that as health and happens, when there's volatility and considerable widening of spreads deals just kind of dry up in that sector. Is there stuff that can actually be done? Are there deals that are actually getting done that are out there because some of the other participants in the market have said that it's really short. Scott Bluestein: Yes. So it is certainly less than it was, but it has not dried up. So we are continuing to see, we are continuing to evaluate, we are continuing to talk to venture and growth stage software companies. I would say that the volume right now is lower than it was, for example, in the second half of last year, but I would absolutely not characterize it as having dried up. The ones that we are speaking to in our team's opinion, are of a very high quality and deals that we would feel very comfortable underwriting. Whether we can get to a point where a deal makes sense for us and them is still TBD, but that's certainly not slowing down our capital deployment, as evidenced by the fact that we have between closed quarter-to-date and pending quarter-to-date over $580 million of signed term sheets. Operator: We'll take our next question from John Hecht with Jefferies. John Hecht: I think this is just sort of an extension of the last discussion, and that is when you are getting to the table to do a new debt deal or with a software company or somebody that might be in the thesis of vulnerable to changes from AI. What are -- you guys are getting consistent terms well covered, which is consistent with what you guys have had forever. What are the -- I'm interested in the other side of that equation are the venture capitalists, when they're adding more capital to the businesses, are they taking a different approach to valuation or how they think about deploying their capital back into these businesses? Scott Bluestein: Yes. Thanks for the question, John. A couple of things. First, with respect to new investments, I want to emphasize again -- as we think about underwriting in this environment, we are choosing to prioritize structure over pricing. So rather than pushing for an additional 20, 25, 30 basis points of yield, our teams are pushing for tighter structure, stronger covenants and better overall underwriting. Whether you ultimately close a deal with a 12% yield or a 12.25% yield, not going to make a big difference. You closed the deal that's not structured appropriately and it results in a loss it's going to make a big difference. So that's what we are emphasizing. That's what we are prioritizing with respect to new originations. John Hecht: Okay. And then -- you mentioned -- I mean this is consistent with what everything you would say, but a little bit more in bioscience and less in tech and the time frame given what you just said. Anything worth calling out in life sciences that is an interesting development that you guys are sort of following and think could be the big new wave of opportunity? Scott Bluestein: Yes, it's a great question. I think the key for us is portfolio balance, right? We tend not to overreact to a material degree in either direction. For the last several quarters, we have been slightly more weighted towards life sciences, but we're talking about 55%, 60% allocation versus our sort of traditional 50-50 target. We're seeing high-quality opportunities on both life sciences and technology. I think specifically on the life sciences side, I would sort of note a couple of things that we think are ultimately tailwinds. Number one, there's obviously been a fair amount of disruption and turmoil with the FDA. I think that has caused a lot of what we believe to be very strong companies to want to be positioned from a balance sheet strength perspective. And so we're seeing companies that maybe historically where the FDA was a little bit more sort of consistent and reliable. We're seeing those companies want to strengthen their balance sheet and get ahead of that. So I think that's working in our favor. Obviously, we're watching the developments at the FDA pretty closely. But we have continued to see companies produce strong positive clinical results. We have continued to see companies get drugs approved. So we're very optimistic about what the life sciences ecosystem looks like on a go-forward basis. And I do just think these companies right now, given some of the FDA uncertainty and volatility want to strengthen their balance sheets and get ahead of that, and that's working in our favor. Operator: We'll take our next question from Christopher Nolan with Ladenburg Dolman. Christopher Nolan: Scott, on your comments on prioritizing structure over yield, given AI right now is everything is in flux for these companies, and it could result in replacing a lot of headcount. Is the structure about expense -- income statement related items, more so than in the past? Scott Bluestein: Yes, Chris, I certainly appreciate the question. I'm not going to give our road map on a public call, just given that we're doing some very specific things right now on the underwriting and structuring side, and we want to keep that internal and proprietary. I will say that we have made some changes with respect to how we are thinking about structuring these deals that involves duration that involves structure that involves covenants. It really involves the totality of things. And there's no one size fits all. There's no cookie cutter for us. We try to custom tailor a solution for each individual company that we think gives us the best risk-adjusted returns. Christopher Nolan: Great. And then as a follow-up on the increased M&A activity, how much of this is being driven by AI just companies looking to exit? Scott Bluestein: Very little of it, to be honest. There's a balance -- our increased guidance reflects the balance of life sciences and technology companies. In the majority of those, there's really no correlation at all to AI. On a couple of the larger M&A events, you could argue that strategics are trying to get ahead of the AI curve, but we would not attribute the increase to anything specifically with respect to AI. Operator: [Operator Instructions] Our next question from Ethan Kaye with Luca Capital Markets. Ethan Kaye: I'll keep it relatively short here. You mentioned, just a follow-up on the PIK conversation. You mentioned you're deemphasizing pick on new investments. I guess I'm just curious what's the motivation for doing that? We've heard kind of many peers over the last several years defending the virtues of PIK usage. I guess I'm curious whether something has changed in your view on that topic? Scott Bluestein: It's a good question. Nothing has changed outside of -- we were pretty consistent that we did not want PIK to become a significant part of our income. Towards the end of last year, our PIK as a percentage of revenue increased to approximately 10.5%. That was close to sort of the self-imposed limit that we have put internally. So I think naturally, we just want that to slowly work its way down. And I would also say in the current environment, we are not finding a need to use PIK as frequently as we were over the course of '24 and '25. And all else being equal, we would certainly prefer cash versus PIK income. Operator: I'm showing no further questions. I would like to now turn the call back to Scott Bluestein for any closing remarks. Scott Bluestein: Thank you, Stephanie, and thanks to everyone for joining our call today. We look forward to reporting our progress on our Q2 2026 earnings call. Thanks, and have a great rest of the day. Thank you. Operator: This does conclude today's Hercules Capital First Quarter 2026 Financial Results Conference Call. You may now disconnect your lines, and have a wonderful day.
Operator: Hello, everyone. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coupang 2026 First Quarter Earnings Conference Call. [Operator Instructions] Now I'd like to turn the call over to Mike Parker, Vice President of Investor Relations. You may begin your conference. Michael Parker: Thanks, operator. Welcome, everyone, to Coupang's First Quarter 2026 Earnings Conference Call. I'm pleased to be joined on the call today by our Founder and CEO, Bom Kim; and our CFO, Gaurav Anand. The following discussion, including responses to your questions, reflects management's views as of today's date only. We do not undertake any obligation to update or revise this information except as required by law. Certain statements made on today's call may include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and in our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings. As we share our first quarter 2026 results on today's call, the comparisons we make to prior periods will be on a year-over-year basis, unless otherwise noted. We may also present both GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures are included in our earnings release, our slides accompanying this webcast and our SEC filings, which are posted on the company's Investor Relations website. And now I'll turn the call over to Bom. Bom Suk Kim: Thanks, everyone, for joining us today. I'd like to cover a few things where we stand in the recovery from last quarter's data incident, how we see the path forward on growth and the nature of the temporary dislocation in margins and how we think about it over the longer term. Starting with where we are. Customer obsession, operational excellence and disciplined capital allocation have guided us since our inception, and they're the same principles guiding us through this period. As we shared previously, January marked the low point in our Product Commerce revenue growth rate. Each month since has improved on a year-over-year basis and the pace of improvement strengthened through February and March. Our recovery is powered by the same drivers that have shaped our business since we launched Rocket Delivery over 10 years ago, a relentless focus on [ WOW-ing ] customers across selection, price and service. That experience was built or many years and billions of dollars of investment and one which we believe continues to widen its lead in the market. The customer behavior we've seen since the data incident reinforces this. For example, the vast majority of WOW members never left, and they have continued to compound their spend at double-digit rates throughout this period. Of those who did leave, the majority have come back and picked up where they left off, resuming the levels of spend they were at before the incident, and they're now compounding alongside the members who stayed. Through the end of April, we've closed nearly 80% of the decline in WOW memberships that followed the incident through a combination of those returning members and strong new sign-ups. New WOW sign-ups and churn have returned to historical stable levels. Across the board, customers are reengaging in ways that reflect the conviction they've long placed in the Coupang experience. It's worth to spend a moment on how this recovery shows up in the reported numbers in Product Commerce. Year-over-year growth will take time to fully reflect the underlying recovery. The months of pause compounding from the effective period continue to weigh on the comps even as customer behavior normalizes. Our revenue growth rate trajectory from January to March is running ahead of historical patterns, and we expect the year-over-year comps to continue improving throughout the year. Turning to margins. Two distinct factors are pressuring profitability this quarter, and I want to describe them separately because they behave very differently going forward. The first is the customer vouchers we issued in response to the incident. These are onetime in nature. The bulk of the impact is contained to Q1, with a modest tail into the first part of Q2. The second is a set of temporary inefficiencies in our network. Our capacity build-out and supply chain commitments are all made well in advance, calibrated to a demand trajectory we project based on a stable, predictable customer pattern. That's how we manage cost to serve efficiently, and that's the path we were on before the incident. When an external event of this kind disrupts that pattern, actual demand falls short of what those commitments were sized for, and we carry the cost of underutilized capacity and inventory secured through the period. As demand returns to a predictable curve, we expect our capacity and supply chain to come back into balance and the inefficiencies to work their way out. We're adapting our network and supply chain through this period as we did when we came out of COVID, and we expect those adjustments will show up progressively in the P&L. Stepping back from the near term. We believe the long-term drivers of margin expansion at Coupang remain intact and continue to improve. We expect operational efficiencies across our network, supply chain optimization, ongoing investment in automation and technology and the scaling of our margin-accretive categories and offerings to drive further margin expansion over the long term. We expect annual margin expansion to resume next year, and we have strong conviction in the underlying margin potential of the business over the long term. Beyond the recovery, the work of building the business continues. Selection remains the primary lever for unlocking the underlying growth potential in our Product Commerce segment. A meaningful portion of what customers want to buy is still not available on Rocket. And we believe the combination of our first-party catalog and Fulfillment and Logistics by Coupang is the path to closing that gap at scale. Automation and AI across our services, including our Fulfillment and Logistics network, continue to improve service levels and lower cost to serve in parallel, and we expect them to be meaningful contributors to both the customer experience and margin expansion in the years ahead. Turn to Developing Offerings. In Taiwan, we're building the foundation for a truly differentiated customer experience. Our own last-mile delivery network, which guarantees next-day delivery now covers the vast majority of our volume and that coverage continues to expand. We're still in the early stages of bringing the full Rocket Delivery experience to Taiwan customers. But even at this stage, the response from customers has been remarkable. Cohort retention behavior is reminiscent of what we saw in the early years of Product Commerce in Korea. Our conviction in the long-term opportunity, both to WOW customers and to generate attractive returns on the capital we're deploying grow stronger each quarter. Given that conviction this year, our focus in Taiwan is on building the foundation for an unparalleled customer experience and durable growth over the long term. That means deliberate long-term investments in network design, last-mile logistics build-out and supply chain improvements, the kind of foundation that takes time to lay, but that will define the customer experience and competitive position of the service for years to come. In Eats, as I mentioned, the recovery is following a similar path to Product Commerce, which speaks to the strength of the customer value proposition we are building across both services. In Developing Offerings, our approach is unchanged. We start with small investments, test rigorously and deploy more capital only into opportunities we believe can generate lasting customer WOW and durable cash flows. We remain disciplined capital allocators taking the long view. Our recovery is ongoing, and we have more work ahead. We're focused on continuing to build and improve on the experience that brought customers to Coupang in the first place across Product Commerce and Developing Offerings. I'll now turn the call over to Gaurav to walk through the financials in more detail. Gaurav Anand: Thanks, Bom. As we guided coming into the year, Q1 reflected the impacts from last quarter's data incident, and our results are consistent with the trajectory we outlined in February. The underlying business has continued to strengthen as we have progressed through this period, and we expect the impacts on Product Commerce to diminish as we now move further from the affected quarter. I will first walk through the segment operating results and then speak to our consolidated performance. In Product Commerce, we reported segment net revenues of $7.2 billion, growing 4% on a reported basis and 5% in constant currency. As we look at each month within the quarter, the constant currency growth rate adjusted for timing of holidays reached its low point in January and accelerated sequentially in February and March, consistent with the recovery that we had described earlier. Product Commerce active customers for the quarter were 23.9 million, growing 2% year-over-year but down 3% over last quarter. The sequential decline reflects the lagging effect of the data incident on the metric because active customers are measured on a trailing 3-month basis and the incident occurred late in Q4. The affected period is more fully reflected in this quarter's count than in the last quarter. The most recent trend is the more meaningful signal. We have seen stabilization and improvement in the underlying metrics this quarter with encouraging momentum in account reactivations and new customer growth. The recent positive momentum in WOW membership, we spoke to last quarter has also accelerated over the past few months. As we noted, the vast majority of our members never left, and through the end of April, we have closed 80% of the decline in WOW membership that followed the incident. And the majority of WOW members who left have returned and they have resumed the levels of spend they were at before the incident. Product Commerce gross profit for the quarter was $2.2 billion, with a gross profit margin of 30.3%. This represents a contraction of approximately 100 basis points year-over-year and 160 basis points quarter-over-quarter. The decline in gross profit margin is the result of near-term factors tied to the data incident, including the impact of vouchers we issued in response to the incident and the temporary inefficiencies in our network such as excess capacity and supply chain commitments positioned against our pre-incident demand curve. We believe the long-term drivers of margin expansion at Coupang remain intact and will continue to compound, including operational efficiencies, supply chain optimization, ongoing investment in automation and technology and the scaling of our margin-accretive categories and offerings. We expect them to resume driving margin expansion and their underlying impact to become more evident as we move past these temporary inefficiencies. Segment adjusted EBITDA for Product Commerce was $358 million for the quarter, resulting in an adjusted EBITDA margin of 5%. This represents a contraction of roughly 300 basis points year-over-year and 270 basis points quarter-over-quarter, driven primarily by the gross profit dynamics I just described, along with the near-term pressure from operating costs that were sized for a pre-incident demand curve. We expect this to normalize as we work through those commitments, and we make adjustments. Turning to Developing Offerings. We reported segment net revenue of $1.3 billion, growing 28% on a reported basis and 25% in constant currency. The growth is primarily driven by the hyper growth rate in Taiwan, along with a continued high growth rate in Eats and Rocket Now in Japan. We generated $123 million in gross profit for the quarter in Developing Offerings, down 25% over last year as we continue to make investments in response to the encouraging customer engagement we are seeing across these early-stage offerings. Segment adjusted EBITDA losses were $329 million, consistent with our expected cadence of investment, underlying our full year guidance of between $950 million and $1 billion in segment adjusted EBITDA losses that we communicated last quarter. On a consolidated basis, we reported total net revenues of $8.5 billion for the quarter, representing growth of 8% on both a reported and constant currency basis. This is consistent with the 5% to 10% constant currency growth rate range we guided to last quarter. Consolidated gross profit was $2.3 billion with a gross profit margin of 27%, a contraction of approximately 230 basis points year-over-year and 180 basis points quarter-over-quarter. This margin compression reflects the temporary impact that I outlined in Product Commerce from the data incident along with the increased level of investment in Developing Offerings. OG&A expense was $2.5 billion or 29.9% of total net revenues, roughly 250 basis points higher than Q1 of last year. The year-over-year increase largely reflects 2 dynamics. Much of our cost base was sized for the demand trajectory we were on before the incident, which creates a near-term gap between cost base and current revenue. And the increase in operating costs within Developing Offerings consistent with the levels of investment we are making to support those growth initiatives. Our losses before income taxes was $255 million and we incurred income tax expense of $11 million. Our effective tax rate this quarter was elevated because the losses in our early-stage operations in Taiwan and Japan don't generate offsetting tax benefits at the consolidated level. We anticipate an effective tax rate of between 75% to 80% for the full year. We continue to expect this to normalize closer to 25% over the long term. We are reporting an operating loss for the quarter of $242 million and net loss attributable to Coupang stockholders of $266 million, resulting in a diluted loss per share of $0.15. Consolidated adjusted EBITDA was $29 million, resulting in an adjusted EBITDA margin of 0.3%. This represents a contraction of approximately 450 basis points year-over-year and 270 basis points quarter-over-quarter, driven primarily by the Product Commerce gross profit dynamics from the data incident and the increased level of investment in Developing Offerings. On cash flow, for the trailing 12-month period, we generated operating cash flow of $1.6 billion and free cash flow of $301 million. The year-over-year decrease in trailing 12-month free cash flow is primarily driven by the increased losses in Developing Offerings as well as higher levels of CapEx. This quarter, we also repurchased 20.4 million shares of our Class A common stock for $391 million. Our Board of Directors has recently approved an additional $1 billion to be added to a stock repurchase program as part of our broader capital allocation strategy to generate meaningful returns for our shareholders. Now a few final comments on our outlook. For Q2, we anticipate consolidated constant currency revenue growth of 9% to 10%. We also expect our top line growth rates to continue improving over the course of the year as the impacts from the data incident diminish. We also expect consolidated adjusted EBITDA margin year-over-year contraction of approximately 300 to 400 basis points for Q2, primarily reflecting the near-term factors from the recent data incident. As we have noted, the long-term drivers of margin expansion remain intact. As we work our way through the temporary inefficiencies in our network, we expect margins to improve throughout the year with annual margin expansion resuming next year. The levels of service and value we are able to consistently provide to customers and the response we increasingly see from those customers give us confidence that the recovery will continue to build through the year, and we remain intensely focused on delivering moments of WOW for our customers every day. Operator, we are now ready to begin the Q&A. Operator: [Operator Instructions] The first question is from Eric Cha with Goldman Sachs. Minuh Cha: I have 2 questions. First one is, would you say, given the returning WOW members and probably higher demand visibility into the second half, the timing difference of demand and investment could be somewhat resolved in second half. And if so, would the 2027 margin would have profitability expansion over 2025 level? So that's the first question. And the second question is, did the Developing Offerings guidance you gave previously, did that include the voucher impact? And I don't think it is, but any likelihood the annual guidance may be revised higher, given the annualized loss in first quarter was a bit higher than expected. Bom Suk Kim: Eric, thanks for your question. I think it's worth going a little bit deeper into the margin point that you raised. I mentioned earlier that some short-term factors are in play, like customer vouchers as well as temporary inefficiencies. On the latter point, let me take a moment to explain how our cost structure works because I think it's important context for understanding both this quarter and the path forward. A meaningful portion of our cost base is fixed and built in advance. That includes our fulfillment centers, logistics network, supply chain commitments we make to partners as well as headcount we secure to operate all of it. And none of these decisions are made on a quarter's notice. A new fulfillment center takes substantial time to plan, build and bring online. Supply chain commitments are negotiated with significant lead times. And as you can imagine, hiring and training our people is something we do well in advance of when we need them. And we size all of these against the projected demand curve. That's what we expect customer demand to look like quarters and in some cases, even years from now based on the trajectory we're on. When demand follows that curve, our fixed cost base operates at the utilization we plan for and our cost to serve looks the way it should. And that's how we've consistently expanded margins over time. When an external event temporarily disrupts that curve, demand falls short of what those costs were sized for. The fulfillment centers are still there. Supply chain commitments are still in place. The teams are still on payroll, but the volume flowing through is lower. So our utilization of those costs is temporarily below target. And that underutilization shows up directly in our gross margins and our adjusted EBITDA. It's the same dynamic that played out when we came out of COVID, when capacity built for one demand curve, we're suddenly serving a different one. And when this happens, we have typically 2 choices. The first is to make dramatic changes in the short term to try to hit some short-term number, close facilities, reduce head count and so forth. That option is available, but we believe it's the wrong one for our business and our customers in the long run. We'd be unwinding capacity that we know we'll need again as the recovery continues and unwinding now to rebuild it later, especially with the lead times so that some of these things have is not only disruptive but highly inefficient. And the second choice that we have is to absorb that temporary underutilization knowing that as growth recovers demand catches up back up to the cost base and the utilization returns to target. And that's the choice we're making. And we're making this -- we're managing this period actively. We're adapting our network where appropriate, much like we did coming out of COVID. But our overarching posture is that the cost base we've built is the right one for the path we're on, and we're not going to dismantle it for a temporary dislocation. And as the recovery progresses, utilization rebalances and the margin pressures work their way out. And that's the mechanism that gives us confidence in resuming annual margin expansion next year. Gaurav Anand: Eric, on your question regarding the DO losses, the $329 million loss in Q1 is in line with what we had expected. And our full year Developing Offerings investments remain tracking to the $950 million to the $1 billion range we had given. It includes a voucher program that we have provided. So Developing Offerings, again, is in early foundational building stages with lots of moving pieces across initiatives and a lot of decisions being made at regular intervals. We are watching -- continue to watch it closely, and we'll continue to update you as the year unfolds, if anything changes. Operator: Our next question will come from Jiong Shao with Barclays. Jiong Shao: I have 2. I'd like to perhaps ask one at a time if that's okay. I was just wondering, firstly, would you able to sort of sort of help us quantify a bit about the voucher impact in Q1 on revenue or EBITDA for Product Commerce and to deal given some vouchers for [indiscernible] some vouchers for Product Commerce or to whatever degree you are willing to share? That's my first question. Gaurav Anand: Sure. Let me take that. So regarding the $1.2 billion voucher program, our primary objective has been to ensure that our customers felt valued and supported during this challenging period. The redemption levels were consistent with our internal expectations. And from an accounting perspective, the vouchers are netted against the revenue. So they did have an impact this quarter on both revenue growth and margins. So as we noted earlier, with the voucher utilization period extending into the first few weeks of April, we do expect there to be a modest impact in Q2 also. Jiong Shao: Gaurav, if I may, just follow up on that. I believe your vouchers are expiring in about 10 days, so the impact for Q2 should be much smaller. But at the same time, you are guiding your Q2 EBITDA to be down 3 to 4 points year-over-year. Was that just because of the sort of the scale of the operation Bom talked about earlier, like you sized that up for certain scale. Now there's a lot of fixed cost? Are there other reasons that's driving the 300 to 400 basis points decline year-over-year on the group EBITDA for your Q2 guide. Gaurav Anand: Yes. Jiong. As Bom mentioned earlier, we had planned fixed capacity, both that shows in gross margin and our OG&A to be at the levels which were higher than the current trends that were created by this event. So because of that, the continued margin Q2 guidance is what we said it is. Jiong Shao: Okay. Okay. My second question is that we have seen some media reports -- my apologies if they're not final or official, that Bom has been designated as a head of the [ Jabil ]. For those of us who are not super familiar with this sort of thing in Korea. I don't know. Could you talk about like what does that mean? Does that mean anything different for shareholders for corporate governance if that matters at all? Gaurav Anand: Sure. We are aware of the recent designation in Korea and are carefully reviewing it. As always, we continue to be committed to complying with all regulatory requirements in all the jurisdictions where we operate. We'll continue engaging consecutively with all our regulators and work through all our obligations as needed. That's as much we can share at this time. Operator: [Operator Instructions] Our next question comes from Stanley Yang with JPMorgan. Stanley Yang: I have 2 questions. First question is, you mentioned already about the WOW members trend. So when do you expect your WOW users to be recovered to your pre-data bridge level? And what would be the normalized annual addition of WOW users after your full recovery? My second question is, is there any change in your Developing Offerings loss mix between Taiwan and Japan. When or at which scale do you expect Taiwan loss to pick up and start declining? I also would appreciate your comment on the operating trend of the Rocket Now in Japan? Bom Suk Kim: Stanley, thanks for your question. In terms of specific dates, I think we're focused more on the trajectory and the underlying customer behavior more than on any date for recovery. I think there are some very helpful and informative signals that we're seeing in the customer behavior that's worth noting around our WOW membership. And as we mentioned, not only is WOW membership numbers being driven by new sign-ups, but it's also driven by members who are returning. The vast majority of our WOW members never paused in the aftermath of the incident. They continue to compound at double-digit rates, the same way they have for years. And the minority who did pause are returning rapidly. And the majority of them have returned in a very short period of time. And just as importantly, they're resuming their prior levels of spend, not splitting that share of wallet with the alternatives. And we've now closed nearly 80% of the decline in WOW memberships that occurred after the event with a combination of those returning members and strong new sign-ups, which are along with churn back to historical levels. And I think what's helpful to know is that all of those patterns are consistent with an event-driven disruption working its way out, not with a structural shift in our position. And the fact that our -- the vast majority of the customers never paused, they continue to compound at double-digit rates, and the members who paused are returning rapidly and picking up their spend right where they left off and continuing to compound is confirmation of our view that we're returning to the same drivers that have been powering our growth for years in the past. Those customers continue to value the Coupang experience and are not finding that value proposition somewhere else. And that's what we believe will continue to power our growth in the years ahead. Gaurav Anand: And regarding your question on Taiwan and investment. Taiwan continues to grow at hyper growth rates. We are very excited about it and the future that it holds for us. The investments, we were not splitting out investments between different initiatives. Right now, we allocate capital, just based on where we see the opportunities are the strongest. And each initiative is at a different point in the life cycle. But... Bom Suk Kim: In Taiwan, as I mentioned earlier, we're prioritizing, building the foundation for an unparalleled customer experience. We're excited to be entering a lot of these very exciting foundational building -- foundation-building stage of the journey, such as network design, supply chain improvements. We now have provided access to our next-day delivery experience to a majority, a vast majority of consumers in Taiwan, and it already represents the vast majority of our volume, and we're continuing to strengthen that last-mile delivery network, not only to increase access, but to improve the levels of service that we provide. And we're also investing to expand aggressively the selection that customers can purchase on that network across more categories. Operator: Our next question will come from Seyon Park with Morgan Stanley. Seyon Park: I also have 2 questions. First is just on the macro picture overall. I think industry-wise, we've started to see a bit of the acceleration in e-commerce growth. And just given the K-shaped economy that we're kind of seeing, I kind of wanted to get your views as to whether we are seeing any signs of slowing for the e-commerce industry overall or whether it's some seasonal factors that are also impacting it, given Coupang is now a big chunk of that e-commerce. Clearly, the impact that we've seen from the data breach may also have impacted the growth of the overall industry as well. So I just kind of wanted to get management's view on how they see just the overall industry growth. There seems to be a lot of conflicting data. Obviously, GDP was also stronger. So any views there would be much appreciated. The second question is really on the buyback. You announced that another $1 billion has been approved. It does seem like the cadence of the buyback is starting to accelerate. And hence, just wanted to get some guidance or any comments as to whether we should see a higher cadence of buybacks in the coming quarters? Bom Suk Kim: Seyon. I think from our perspective, we're always much more focused and obsessed with our customers, how our customers are behaving. And we ultimately believe the biggest drivers of customer behavior are -- is the experience that we're providing. We've seen that consistently through ups and downs in the macro over the many years that we've served our customers and the markets that we operate in. I think there's some important, again, things to maybe point out again that we've always seen for years our customers compounding their spend, and the vast majority of customers who remain with us and did not pause continue to compound at double digits, very healthy rates. The customers who have returned, the majority of customers who -- of the minority that paused, who've returned have picked up exactly where they've left off and are now also compounding alongside them. So I think a lot of the behavior that we're seeing is still very strong on that front. I do think it's also important, maybe you are seeing some discrepancy also in the underlying behavior that I'm talking about and the numbers you may be seeing this quarter and -- because the year-over-year growth rate this quarter doesn't move in lockstep with that underlying customer behavior that I'm pointing out. And maybe I'll take this opportunity to explain also how growth at Coupang normally compounds. Each month, our existing customers grow their spend with us and new customers join and start building their spend over time. Both of those streams add to our base and keeps getting larger. That's the engine that has produced our historical growth rates. That's been remarkably consistent for us. And I think we've shared [ core ] data in the past. We shared it regularly. That's really an important health metric for us. And through again, ups and downs on the macro, that engine of existing customers continue to compound, new customers joining and building their spend over time, those 2 streams are really the engine that produces our growth rate. Now when an external event interrupts that cycle for a period, 2 things happen. First, the customers who pause stop adding to that base for the months that they've paused. And the new customers who would have joined during that period don't join at the usual pace. And second, this is the subtle part, we lose the months of compounding of that customer spend that we typically observe with both streams. And once a month is gone, you can't get it back. And now even if everything underneath fully recovers, past customers come back at prior spending levels, new acquisitions return to historical pace. The year-over-year comparison still carries the weight of those lost months. And this year's revenue is now missing the months of compounding that didn't happen during that affected period, while last year's revenue also included -- sorry, the last year's revenue included all 12 months of uninterrupted compounding. So the 2 sides of the comparison are no longer symmetric. And this effect works its way out as we've lapped the affected period. And after we've lapped the affected period, that's the point at which the comp returns to being apples-to-apples. And this also probably gets to a little bit to Eric's earlier question as well about our growth rate this year. While we see very encouraging and positive signs in our customers returning, picking up their spends where they left off, growing and compounding. We see very healthy compounding behavior underneath because of the lost months of compounding. You'll see our Y-o-Y growth lag and will be behind the demand curve that we projected for our fixed cost. And a lot of the -- that's the earlier point that I made about cost dynamics. So some of the things that Eric was asking about, I think, are -- can be gleaned from -- or some of the things that we want to point out can be gleaned from what I'm sharing here. But hopefully, this gives you a fuller picture of how we think about growth and the drivers of growth. Operator: We will now take our last question from the line of Wei Fang. Wei Fang: I have 2. First one is a follow-up on an answer to the prior question on your 2Q EBITDA guidance. I don't think you mentioned any impact from the fuel inflation. Just want to understand if that's included there and also if you can help quantify for us? And the second question is on competition. I understand that some Chinese e-commerce players are now growing their MAUs nicely in Korea as well. I think they combined maybe more than 10 million of already in terms of users. I know maybe the spending levels is not there yet, but can management give us some overview on the landscape, maybe today versus a year ago, anything has changed. And maybe anything -- any comment you can give in terms of like a 3P take rate in the business? Bom Suk Kim: Wei, thanks for your question. We've always operated in a in highly competitive markets. And we've had many new entrants, many players. It's one of the most dynamic spaces and industries that you can operate in. And over many years, what we've learned over and over again that kind of what matters most is the customer experience and staying relentlessly focused on customers and not what any set of competitors or individual competitor does. The markets that we're operating in are large. We represent just a small share in each of them, and there's room for many winners. I think what we believe ultimately drives growth is the differentiated value we provide to customers, the combination of selection, price and delivery that no one else offers. I think we're very encouraged, as I mentioned, that the customers who -- the vast majority of customers who stayed with us through the affected period over the last couple of quarters have continued to compound at double-digit rates as they have for years. The customers who've come back have not split -- have returned to their old levels of spend and have not split that spend with other alternatives. That's also, we think, a good sign that they really value what we're providing, the Coupang experience and not finding that value proposition elsewhere. And that value proposition is really the engine of our growth. It's really what we're focused on making even more valuable for our customers every day. And that's what we believe will really determine our success in the years ahead. Gaurav Anand: Yes, I'll take the -- I'll respond to your question on the impact of oil prices. So with the increase in fuel prices, not going really into effect until late Q1, we saw a very small impact on our operations this quarter in Q1. We benefit from the efficiencies created by our end-to-end owned supply chain and logistics infrastructure and processes. And looking into the near future, we keep our focus on continuing to create the best experience for consumers, while we also are driving operational excellence. We don't see this -- the oil prices having a significant or material impact in Q2 so far, and we'll continue to monitor it. On Q2, again, even though we guided our margins to where we did, there is no structural change in our entitlement and over time, what we see. Operator: This concludes today's conference call. Thank you, and you may now disconnect.
Operator: Ladies and gentlemen, welcome to the Q1 2026 results conference call and live webcast. I'm Moritz, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. [Operator Instructions] At this time, it's my pleasure to hand over to Christian Stohr, Senior Vice President, Investor Relations. Please go ahead. Christian Stoehr: Good morning, ladies and gentlemen, and welcome to our first quarter 2026 results presentation. Hosting our conference call today is Yves Muller, CFO and COO of HUGO BOSS. Before we begin, please be reminded that all revenue growth rates will be discussed on a currency-adjusted basis, unless stated otherwise. In addition, starting with Q1, we have adjusted our sales reporting structure. BOSS Menswear and BOSS Womenswear are now reported jointly under BOSS, while digital sales are included within retail and wholesale. As usual, during the Q&A session, we kindly ask you to limit your questions to 2, allowing for an efficient discussion. With that, let me hand over to Yves. Yves Muller: Thank you, Christian, and a warm welcome from Metzingen, ladies and gentlemen. Thank you for joining us today to discuss our first quarter results. As outlined in our release this morning, Q1 marked the first full quarter of execution under CLAIM 5 TOUCHDOWN following its introduction at the end of last year. As such, the first quarter was shaped by implementation, translating strategic priorities into concrete actions across brands, distribution and operations. Accordingly, our focus in the quarter was on disciplined execution. We implemented targeted top line measures to strengthen brand equity, continued to advance sourcing efficiencies and maintained rigorous cost control across the organization. These actions represent the first concrete outcomes of our realignment and are already translating into structural progress, particularly in gross margin and cash generation, which I will come back to shortly. Overall, we are pleased with the progress made in Q1. At the same time, we recognize that there is more work ahead, and we remain cautious on the near-term visibility given a high volatile macroeconomic and geopolitical environment. Let me now walk you through the quarter in more detail. Under CLAIM 5 TOUCHDOWN, 2026 is designed as a year of deliberate realignment rather than a year of chasing volume. In the first quarter, we made progress across all 3 pillars: brand, distribution, and operational excellence. This included refining product assortments, reinforcing our focus on full price execution, and taking targeted steps to optimize our distribution footprint. As part of this progress, we closed a net 15 freestanding stores globally, largely through expiring leases. As expected, these deliberate actions were reflected in our first quarter performance. Group sales declined by 6%, driven by the intentional quality focus embedded in CLAIM 5 TOUCHDOWN, alongside continued muted consumer sentiment. EBIT amounted to EUR 35 million, reflecting the planned impact of our strategic measures, partly offset by solid gross margin expansion and rigorous cost management. While these actions have a temporary impact on our top and bottom line performance, they represent important building blocks in strengthening the fundamentals of the business and laying the foundation for improved profitability over time. Beyond these deliberate actions, the external environment also remained demanding in the first quarter. Consumer sentiment was subdued across most key markets with continued pressure on traffic levels. Over the course of the quarter, conditions became more challenging, driven by the geopolitical developments in the Middle East. In this context, let me briefly put our exposure to the Middle East into perspective. The region accounts for around 3% of group revenues and is served through a limited and well-defined store network, primarily in the UAE and Qatar. The Middle East is also a high-quality and very profitable business for us, reflecting an upper premium store portfolio, a favorable channel mix and disciplined cost structures. From March onwards, store traffic in the region declined sharply, leading to meaningful disruption to overall retail activity and weighing on regional demand. As a result, developments in the Middle East reduced group sales by roughly 1 percentage point in the first quarter. In addition to these direct effects, developments in the Middle East also contributed to increased uncertainty more broadly. In particular, we observed early signs of a softening in consumer sentiment in selected markets alongside some moderation in international travel flows, which began to affect demand outside the Middle East towards the end of the quarter. Against this backdrop, we actively steered the business while remaining fully committed to our strategic priorities within CLAIM 5 TOUCHDOWN. With that, let me turn to our first quarter performance, starting with our brands. At BOSS, revenues declined by 3%, reflecting the challenging market environment as well as deliberate strategic actions. Menswear performed comparatively better, supported by continued strong demand in casualwear and athleisure, underlying the relevance of our 24/7 lifestyle positioning. This resilience was particularly evident at BOSS Green and BOSS Camel, both of which recorded growth in the first quarter. Womenswear by contrast was more affected by intentional assortment streamlining and targeted distribution refinement, measures fully aligned with our strategic priorities and aimed at strengthening brand positioning and long-term profitability. Turning to HUGO. Revenues declined by 21%, reflecting the strategic repositioning of the brand. During the quarter, we further advanced the streamlining of HUGO's product architecture into one overarching brand line, creating a clearer, more focused brand proposition and a more consistent market presence. While these measures continue to weigh on volumes in the near future, they represent fundamental steps to strengthen brand relevance, operational effectiveness and scalability over time. Speaking about our brands, let me emphasize once more: investing in powerful brand moments remain a core pillar of our strategy. While marketing investments were below the prior year level in Q1, primarily due to phasing effects, marketing spend amounted to 7.3% of group sales, fully in line with our CLAIM 5 TOUCHDOWN target range of around 7% of sales. Also for the full year, we continue to expect marketing investments as a percentage of sales to remain broadly in line with last year's level. In the first quarter, our brand investments focused on key initiatives such as the BOSS fashion show in Milan, which ranked among the top 10 most engaging brands during Milan Fashion Week; the launch of our Spring/Summer 2026 collections; and the third, BOSS BY BECKHAM. Together, these moments generated strong social media engagement and brand visibility. Importantly, these initiatives are designed to drive long-term equity and relevance rather than prioritizing short-term volume. From a regional perspective, revenues in EMEA declined by 8%, reflecting targeted measures to enhance distribution quality as well as muted consumer sentiment across several key markets, particularly the U.K. Despite the solid start to the year, revenues in the Middle East declined by a low double-digit rate in Q1, reflecting a sharp decline in store traffic in March, following geopolitical developments, which also weighed on overall EMEA performance. In the Americas, revenues declined by 5%, largely reflecting deliberate CLAIM 5 TOUCHDOWN measures in the U.S. market aimed at improving distribution quality across both wholesale and retail channels. As a result, reported revenues were intentionally impacted in the quarter. In addition, developments around Saks weighed on our U.S. concession business. Importantly, underlying performance in our U.S. brick-and-mortar retail business remained resilient with comparable store sales up modestly in the quarter. Outside the U.S., Latin America saw a slight normalization following a strong period of strong growth. In Asia Pacific, revenues increased by 1%, marking a return to growth. This was supported by renewed growth in China, aided by a successful Chinese New Year, as well as early progress in strengthening brand positioning and enhancing relevance in the market. Modest growth in Southeast Asia Pacific, particularly in Japan, also supports our regional performance. Turning to our channels. In retail, which includes brick-and-mortar and self-managed digital, revenues declined by 3%, also impacted by a negative space effect. On a comparable store basis, brick-and-mortar sales declined by 2%, reflecting lower traffic and our deliberate focus on full price execution, partly offset by a higher average basket size. Retail performance was also impacted by developments in the Middle East. Self-managed digital on the other side declined by 5%, reflecting our continued prioritization of full price sales in support of brand equity and margin quality. In wholesale, revenues declined by 10%, reflecting our ongoing focus on enhancing distribution quality through greater channel selectivity, a more curated assortment and a stronger emphasis on strategic partnerships. Performance was also influenced by a more cautious order behavior in the current environment as well as the known delivery timing shift of around EUR 20 million into Q4 2025, which has supported our wholesale business in the final quarter of last year. Turning to profitability. Q1 delivered a notable improvement in gross margin. Gross margin increased by 110 basis points to 62.5%, primarily driven by additional sourcing efficiency, including a further reduction in the airfreight share as well as improved pricing associated with the Spring/Summer 2026 collection. A slightly more favorable channel mix provided additional support during the quarter. Importantly, this performance demonstrates that the structural margin improvement we have been driving over recent years remain firmly intact even in a lower volume environment. Turning to cost and earnings. We maintained strict cost discipline in the first quarter. Operating expenses declined by 4%, supported by lower marketing spending due to phasing effects, ongoing efficiency improvements and further optimization of our retail cost structures, including rent renegotiations and productivity measures across our store network. As expected in a lower revenue environment, operating expenses deleveraged as a percentage of sales. As a result, EBIT amounted to EUR 35 million, corresponding to an EBIT margin of 3.9%, while earnings per share totaled EUR 0.24. Overall, this performance is fully aligned with CLAIM 5 TOUCHDOWN and our full year 2026 outlook. Let me now turn to cash flow and working capital. Building on the meaningful inventory reduction achieved at the end of 2025, inventory developed more moderately in Q1, in line with expectations. Year-over-year, inventories declined by 13% on a currency-adjusted basis, reflecting prudent buying, more focused assortments and targeted inventory optimization measures. As a result, inventory stood at 22% of group sales at the end of March, while trade net working capital declined by 10% currency adjusted. At the same time, capital expenditure remained at 3.2% of sales, continuing its normalization and remaining fully aligned with our midterm targets. Supported by both the improvement in working capital and continued CapEx discipline, free cash flow before leases improved by nearly EUR 100 million year-over-year, amounted to EUR 33 million. Let me conclude with a brief look at the remainder of the year. 2026 continues to be a deliberate year of realignment under CLAIM 5 TOUCHDOWN. Following our first quarter performance, we reaffirm our full year outlook. We continue to expect currency-adjusted group sales to decline mid to high single digits, reflecting targeted brand and channel measures. Currency effects are anticipated to remain a moderate headwind for reported sales. We likewise confirm our EBIT outlook of EUR 300 million to EUR 350 million. Gross margin expansion and continued cost discipline are expected to support profitability, while operating expenses are anticipated to deleverage due to lower revenues. At the same time, we expect macroeconomic and geopolitical volatility to remain elevated with heightened uncertainties related to developments in the Middle East. In this context, we remain vigilant and continue to closely monitor both direct effects and broader implications for consumer sentiment, international travel flows and overall trading conditions. Against this backdrop, we maintain a clear focus on operational delivery and the strategic priorities set under CLAIM 5 TOUCHDOWN. We will continue to prioritize profitability, cash generation, inventory discipline and flexibility over short-term growth. Ladies and gentlemen, let me close with 3 takeaways. First, the execution of CLAIM 5 TOUCHDOWN is firmly underway. 2026 is a year focused on strengthening the fundamentals of the business and elevating its quality rather than pursuing growth at any cost. In this context, we have made initial progress in sharpening brand focus, enhancing distribution quality and structurally strengthening the earnings profile of the business, marking an important milestone in delivering our strategy through 2026 and beyond. Second, Q1 delivered solid underlying performance. Gross margin improved, cost discipline remained intact and cash generation strengthened despite intentional top line effects from our strategic measures. Third, based on our Q1 performance, we reaffirm our full year outlook for 2026. While the external environment remains demanding and volatile, we are confident in our strategic direction and our ability to translate execution into stronger brand equity, improved profitability and long-term value creation. With that, thank you for your attention. We are now happy to take your questions. Operator: [Operator Instructions] The first question comes from Thomas Chauvet from Citi. Thomas Chauvet: Two questions, please. The first one on your introductory remarks, you said that demand outside the Middle East weakened towards the end of the quarter. Can you elaborate a little bit on what that means in the various regions? And how much was retail in April compared to the minus 3% you registered in the quarter? Secondly, on your comments about the resilience of menswear, particularly with BOSS Green and B Camel positive, can you comment on whether this is due to a very different customer profile you're now seeing in the store purchasing these 2 lines that are quite differentiated, I believe, or rather you think some relative weakness perhaps of the offering of black and orange, whether that's -- I don't know -- product quality or value for money proposition or simply the creative part. That would be useful. Also that you perhaps elaborate a bit on the 2 divisions you've created with menswear and womenswear and how this new unit of menswear is helping on the creative side? Christian Stoehr: Excuse me, this is Christian speaking, but we have to quickly follow up on question one, which was obviously a long question, but the quality was really bad on our end. I'm sorry for that. There was a bit of constraining in it. I remember you asked for retail trends in April, but what was the beginning of your question, if you can recall that, please? Thomas Chauvet: Yes. Sincere apologies for that to everyone. Yes, the comment -- can you hear me better now? Christian Stoehr: Yes, I'd say so. I mean, it's still -- it's not perfect but. Thomas Chauvet: Otherwise move to another question or two. You commented on demand weakening outside the Middle East towards the end of the quarter. And could you elaborate on what that means in the various regions? And was retail overall in April very different from the minus 3% you registered in the period? Yves Muller: So Thomas, you're asking whether the retail performance in April was different from the minus 3% in Q1. Is this your question? Thomas Chauvet: Yes. You mentioned that things weakened outside the Middle East at the end of the quarter because of the war. So I suspect that the consumer may have been impacted in the U.S. and Europe. So could you comment on the various geographies in April, please? Yves Muller: Yes. So perhaps let's take the first question regarding, let's say, current trading question. So firstly, I think we have to see that, of course, our retail business and the Middle East business is -- the Middle East business itself is predominantly a retail business, was definitely affected -- ongoing in April. So I think this refers to everybody. We are not alone in this, but we see that traffic is very low. It has slightly improved over the latest weeks, but now the last 2, 3 days have been also bad. So I would say it's a very, let's say, volatile environment. Secondly, I think this is the question around what do we see in terms of consumer sentiment. I would say here, we see in some selected markets that consumer sentiment is also affected, for example, like U.K. is affected -- was already affected in Q1, especially March, and is also affected in April. And we see that actually also the international tourist flow is also coming down and affecting the business. On the other side, I think I want to make the comment in terms of our strategic priorities. I think for us, it's also important to stay on track with regards to our strategic execution of CLAIM 5 TOUCHDOWN. And this means also for us in April, which is the month of, let's say, mid-season sale that you see very often due to the summer. For the summer collections, we decided in executing our CLAIM 5 TOUCHDOWN for this year that we don't take part in mid-season sale. So that is also one of the deliberate decisions that we have taken in order to improve the quality of our business and to have this long-term focus on brand equity. So definitely, of course, we are looking at the current trends up and down. But I think for us, it's now very important to keep our compass and to keep the course of our strategic execution. And therefore, we do not participate in April. And therefore, the month itself, it's difficult to read between the different effects that we have been seeing. With regards to your second question, actually, we are very happy with the development of BOSS Camel and BOSS Green. BOSS Green was actually up mid-single digit. You can see that our 24/7 lifestyle image is really working, especially with younger consumers. And you can also see that this is the current trend of the business with, like sports kind of activities. You've also seen that we have announced now the cooperation with Australian Open for next year. So this creates BOSS. We are working on kind of tennis and golf collection. So we are really deliberately driving BOSS Green going forward. And on top of this, we also opened some BOSS Green stores, especially in the Asian markets, where you can see this kind of positive trend. And we are following this kind of trend. With regards to BOSS Camel, which is, I mean, the majority is definitely a retail business. You can really see because of the outpricing of the luxury players and luxury competitors that some of the high value, high affluent consumers are trading down to us, and that's also driving BOSS Camel in selected markets, especially also we saw this in Asian markets, but also in the U.S., where we are actually happy. So I would view this -- I would see this positively in terms of that we have a certain portfolio to offer, and price value proposition for Black, I think, is good. Please keep in mind that we also increased the prices for the Spring Campaign 2026. And we get actually good feedback for this kind of measurement, and this is also driving our business. Operator: Then the next question comes from Manjari Dhar from RBC. Manjari Dhar: I also had 2, if I may. My first question was on COGS and raw materials. I just wondered if you could give some color on how you see the outlook on the raw material side as a result of what's going on in the Middle East? And does that have any impact on your own sourcing facilities in Turkey? My second question was on tourism. Yves, I know you commented on international tourist flow weakness. I just wondered if you could give some color on sort of how much of the BOSS estate is exposed to international tourist flows and perhaps maybe some more color on how you're seeing the performance in some of those stores. Yves Muller: Yes. Thank you very much, Manjari, for your 2 questions. First of all, regarding the COGS. So taking your concrete question regarding Turkey. So we -- for the time being, we don't see any implications regarding our factory in Izmir. Regarding raw materials, please keep in mind that the majority of the products that we have are coming from cotton and actually wool. So they are not so much influenced by this kind of high oil prices. We only have, let's say, limited exposure to polyester. You see price increases there. We have to look at it whether it's -- whether the duration will be longer. But I think what remains is that we are not as much exposed as perhaps like other sports brands, for example, and we don't see major implications for the year 2026. I think we have to observe the situation, but rather from the COGS development and also -- this also includes freight. We feel that we can compensate those effects that we might be seeing and that from -- with regards to the COGS, that we see further improvements regarding sourcing efficiencies, further reduction in airfreight share, and that these developments will support gross margin also going forward, alongside -- although we know that the Middle East has somehow implications on the oil prices. Regarding tourism, we know that our business is around overall 20% to 25% is coming out of tourism flow. We have seen some implications because of the Middle East, because of the big hubs in Dubai and Doha were closed for a certain period of time, there's less traveling. I think this has impacted the business in March and also in April, and we have to see how long it will last. I think it will also be slightly compensated in domestic revenues then, because people might be staying more at home or might be traveling less. So we have to observe this kind of development. Operator: The next question comes from Grace Smalley from Morgan Stanley. Grace Smalley: The first one would just be a quick clarification, please. So you mentioned that you are -- you're starting to see some impact from the Middle East in regions outside of the Middle East. And I think, Yves, if I heard you correctly, the U.K. was the main region that you pulled out. I just wanted to see if there were any other regions where you're also starting to see an impact outside of the Middle East or it's mainly centered within the U.K. Also on the answer on current trading, appreciate it. It sounds like April is very difficult to read given the Middle East disruption, but also the changes in the seasonal sales. But just if there's anything you can say to help us with how we should think about modeling Q2 relative to current consensus? My last one would just be on marketing. I believe you mentioned that the lower marketing spend in Q1 was partially due to timing and phasing. So if you could just help us with how we should think about the cadence of marketing spend throughout the rest of the year and how we should think about marketing on a full year basis? Yves Muller: Yes, another 3 questions. Thank you very much. So regarding marketing, I think -- so first of all, like I said during my presentation, we invested 7.3%. We have had the Milan fashion show. We have had BOSS BECKHAM. We had also the HUGO campaign, Red Means Go. So we -- you can really see that we invested. I think we invested wisely, and we get more out of the euro spend. And regarding -- and actually, this is all well in line with what we have said during CLAIM 5 TOUCHDOWN. There will be definitely a focus on the second half of the year, especially in Q4, which is actually the holiday season, which, as you know, Grace, is the strongest quarter for us. So we will, in terms of phasing, focus broadly on the second half of the year and especially on Q4 where we have the commercial and holiday moments of the year and where you have also some gifting in this kind of big quarter because as we know, the fourth quarter is between 20% to 30% higher than the first 3 quarters. Regarding the comment in terms of global sentiment, I think, like I said, and I can just repeat this, that we have seen in some selective markets like the U.K., some implications of the Middle East conflict, also slightly less tourists from the Middle East coming into the U.K. So these were also some implications that we have seen. But I think it's -- I think we have to observe the situation. And I think nothing more to comment right now because it's really changing on a weekly basis. Then was the question, was that regarding Q2? What was that question again? Christian Stoehr: Yes. It was -- Grace, you got your question, right? It was a bit of a quarterly phasing question, right? How to think about Q2 in terms of modeling, but also for the remainder of the year given the current trading comments that were made. Is that right? Grace Smalley: Yes, exactly. Christian Stoehr: So I'll take that, Muller, if that's okay for you. So I think the 2 comments we can make is, Grace, one related to Q4. I start with the final quarter of the year. And that's basically a reminder of what we have already said in March, the comps are particularly difficult in Q4. So that's something you will have to bear in mind. And I'm sure you're doing that in any case. On Q2, I think only the comments we've made on the Middle East, I guess, you probably will try to find these numbers or these comments finding the way into your Q2 modeling numbers. But that's all the comments we are making. Hard to be overly precise on current trading given the volatility we're seeing in the markets, and you said it, weeks can be quite different from one week to the other. But like I said, I think the implications from the Middle East in April were pretty clear, and that is something you should bear in mind -- and then Q4, as I just alluded to. Operator: Next question comes from Anthony Charchafji from BNP Paribas. Anthony Charchafji: The first one would be on the guidance. Curious to know the breakdown between the gross margin expansion and the OpEx. I mean, we've seen that the OpEx were down 4% reported, but rather 2% at constant FX. Do you see the OpEx cut, I would say, fading and being a bit less of a tailwind going into Q4? And in terms of gross margin, just to know if you have in mind gross margin expansion to be really back-end loaded Q4. So can we see Q4 gross margin expansion above the 110 bps that you just delivered? My second question is on pricing, but also pricing net of markdowns. Do you expect it to be net positive like in Q1 in each quarter in 2026? And do you expect to do more pricing versus the one that you did beginning of Q4 of mid-single digit? Is there anything planned? Yves Muller: Yes, Anthony, thank you very much for your questions. So regarding pricing, we have done now the pricing in Q4 2025, which will prevail in due course for 2026. There will only be, let's say, some slight adjustments, but not this kind of broad-based adjustment we have made. We might do it smartly. We will observe, of course, the competition, but nothing that I would call out in terms of pricing. What I would also -- what I would call out is definitely that we will give less promotions. We have started this already. And I think markdowns will go down and will turn over the course of the year also into a tailwind for gross margin in comparison to last year. We will strictly actually execute our CLAIM 5 TOUCHDOWN strategy. This means less discounts in the online channels. This will be shorter sales period. This will mean not participating in mid-season sale, like I said. So these are several measurements that we are taking to reduce our markdowns, always with the implication to drive the long-term profitability and the brand equity of the company. So it's -- all the measurements that we are taking are directed to increase our full price sell-throughs, and this will also help the gross margin going forward. I think we have been happy with our gross margin development already in Q1, which was primarily driven by sourcing efficiencies. But I also expect that we will see a good performance regarding gross margin over the next quarters regarding gross margin. As we have the history of having the OpEx overall under control -- minus 4%. I think it's -- for us as a management team, it's important to have the costs under control and to reduce the costs. I think you have also seen kind of deleverage this year, but this was overall well expected also in our guidance, and we will focus on those things that we can control on our own. And these are definitely gross margin things and also OpEx. And you have seen the direction also in Q1, and you can expect that this will continue in the next quarters, meaning gross margin being up and costs going down. Operator: The next question comes from Andreas Riemann from ODDO BHF. Andreas Riemann: Two topics. One is the HUGO brand. So the HUGO brand is written in red letter. So my question would be what actually happened to HUGO BLUE? Is HUGO BLUE still relevant within HUGO? The second topic, the tariffs. So in the press call, I think you indicated that you expect that U.S. tariffs will be paid back. Can you help us to guess how much that might be? And linked to that, what was actually the impact from U.S. tariffs on your gross margin in Q1? You didn't mention it. So was it that small? That would be my second question. Yves Muller: Andreas, thank you very much for your questions. Well, I will start with customs. Yes, of course, like every other brand is expecting that this kind of surplus that was introduced last year will be paid back. I think this is what might be expected. We are not quite sure because as we all know, the administration in the U.S. is also very volatile. So no effects have been included in our numbers so far. And actually, we are not disclosing the exact amount of the customs that we are having, but it's not such a huge amount that you can expect. Regarding HUGO, definitely, we streamlined the assortment regarding HUGO. We have the big campaign Red Means Go in terms of HUGO, and we are integrating the HUGO BLUE products into our HUGO -- in our HUGO appearance and have a clear focus on contemporary tailoring. So this means that we're going to streamline the assortment going forward. This has been a kind of -- also kind of strategic measurement. And of course, the effect regarding the net sales at HUGO are visible, but they were more or less expected from our side. And on top of this, we are also reducing here and there some of our distribution points also with HUGO. So these are the effects that we have seen with HUGO, but I think the most important thing is that we are streamlining the assortment and integrate HUGO BLUE into HUGO. Christian Stoehr: Ladies and gentlemen, that actually completes today's conference call. There is no more people in the queue wanting to ask questions. So we leave it with that. And we thank you for your participation. And of course, if there's any further open topics or questions you have, please reach out to the Investor Relations team. Thank you for joining today. Thanks for your interest and speak to you soon. Thank you. Bye-bye. Yves Muller: Thank you. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good day, and welcome to the Peabody Energy Corporation Q1 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I'd now like to turn the conference over to Kala Finklang. Please go ahead. Kala Finklang: Thanks, operator, and good morning, everyone. We appreciate you joining us for Peabody's First Quarter 2026 Earnings Call. Joining me today are Peabody's President and CEO, Jim Grech; Chief Financial Officer, Mark Spurbeck; and Chief Commercial Officer, Malcolm Roberts. After our prepared remarks, we will open up the call for questions. Before we begin, I want to remind you that our remarks today will include forward-looking statements. Please review the full statement contained in our earnings release and consider the risk factors referenced there, along with our filings with the SEC. I'll now turn the call over to Jim. Jim Grech: Thanks, Kala, and good morning, everyone. Peabody's first quarter was marked by a number of accomplishments amid a positive time for both thermal and metallurgical coal markets. We delivered better-than-expected volumes, pricing and costs in our Seaborne Thermal segment, supported by sharply higher global LNG prices in March. Our U.S. thermal coal volumes continued at a strong pace, driven by continued strong electricity demand. And across our seaborne met portfolio, operations performed in line with expectations, with the notable exception of Centurion. Focusing on our top priority, Centurion, I'll provide a thorough update of where we are today. As you know, as part of our commissioning of equipment in February, we encountered temporary mechanical and electrical issues. While those challenges were resolved, the disruptions led to a slower cutting speed, which in turn contributed to roof control conditions. Maintaining roof integrity is critical to sustaining optimal cutting speeds. As a result, early in the ramp-up, progress was slower than we were anticipating even after resolution of the mechanical and electrical issues. Importantly, once the mechanical and electrical issues were resolved, the team implemented a comprehensive response plan centered on proactive strata management and disciplined execution with safety as a top priority. We have brought together a highly experienced group of engineering and operational personnel from across the platform to address these challenges. Since that time, we have been systematically working through what was at its core an iterative cycle of slower equipment performance affecting roof conditions. Over the past several weeks, we have taken deliberate steps to stabilize the operation by reinforcing the roof and face, realigning shields and improving overall cutting conditions. Naturally, every mine is unique with different geology, equipment and operating conditions, and it has taken some time to apply the right solutions at Centurion. While this has required a longer-than-anticipated commissioning period, it ensures that safety remains paramount as we work toward durable solutions. Our safety performance has remained strong, and I want to be clear that we have had no carbon monoxide events, no methane issues, no ignition events and no regulatory challenges. While we are not yet at full cutting speed, the key remediation steps are largely in place, and we are encouraged by what we're seeing. We believe the remaining temporary headwinds are largely confined to the second quarter, with performance in the back half of 2026 expected to reflect a return to full longwall production rates. We expect to sell roughly 300,000 tons in the second quarter, reflecting strong June production, but a traditional lag in converting production at the mine into sales at the port. Additionally, the 7-week longwall move that had been planned for the fourth quarter is now expected to shift into early 2027, which will support stronger production in the second half of this year. As a result, our full year sales outlook for Centurion is now 2.5 million tons compared to our original expectation of 3.5 million tons. With that said, we've updated full year met segment volumes to reflect the 1 million ton decrease and increased cost to a range of $123 to $133 per ton. Stepping back, Centurion remains one of the most attractive assets in our portfolio with a strong position on realized pricing, cost, structure and mine life. In addition to our coal mining and marketing business, we continue to make progress in our Peabody development initiatives in recent months, focused on unlocking additional value from our vast array of land, reserves, operations and commercial relationships. When we spoke last quarter, we had been recommended for a $6.25 million grant from the Wyoming Energy Authority, and that grant was awarded later in the first quarter. Peabody is now advancing initial plans for the pilot plant to process rare earth elements using PRB coal as feedstock. We also continue to advance additional opportunities related to rare earths and critical minerals. We have a particular focus on germanium, where we see good concentrations, strong end market engagement and favorable supply-demand dynamics. For proprietary reasons, we'll need to keep details at this level for now. I'm also pleased to note that initial test shipment is occurring this quarter for West Coast thermal coal exports. We have sent PRB coal from our North Antelope Rochelle Mine, transported by Union Pacific Rail to Mexico's Port of Guaymas, which is being loaded for export to an Asian customer. This test run reflects close coordination with U.S. and Mexican governments, port authorities and logistics partners. It demonstrates the potential of a West Coast export route for PRB coal. While this is a proof-of-concept shipment, Guaymas has infrastructure that could support additional volumes over time. More broadly, this effort underscores Peabody's ability to connect the largest coal basin in the Western Hemisphere with the largest global demand center for thermal coal imports. We would also note that recent U.S. policy actions continue to affirm the value of reliable coal supply chains and baseload generation capacity to national security and grid resilience priorities. That follows an executive order during the quarter that directed U.S. defense facilities to purchase power from coal fuel generation. We view these moves as highly constructive, both symbolically and practically for longer term coal use in the U.S. For more on the U.S. and global supply-demand fundamentals, I'll turn things over to our Chief Commercial Officer, Malcolm Roberts. Malcolm Roberts: Thanks, Jim, and good morning, all. Last quarter, I noted that we had seen strong upward moves in the past year, first in U.S. coal demand and later in the year in met coal pricing, but that seaborne thermal coal had been stuck in a middling trading range. Recent events in the Middle East, though, have changed the seaborne thermal coal fundamentals. Leading into Q1, seaborne thermal coal had been somewhat range bound with a mild winter in much of Asia suppressing burn and strong domestic production running in China and India had kept seaborne demand modest. However, 2 major forces emerged that both increased demand and constrained supply. First, the Iran conflict in late February caused a sharp re-rating of thermal coal demand and prices moved upward with March Newcastle averaging more than $20 a ton higher than pricing pre-conflict levels. At the same time, high LNG prices and limited availability pushed multiple countries to rely more heavily on coal fuel generation. We've seen both policy support and practical actions for seaborne thermal coal across Japan, Korea, Taiwan, Vietnam, Thailand and the Philippines, among others. As history has reminded us, whether it be Fukushima, Ukraine or the Middle East, coal remains by far the largest source of electricity in the world and continues to play a critical role in global energy security. Coal is abundant, transportable, storable and reliable and today still fuels more than one out of every 3 electrons worldwide, far more than any other form of generation. The second major factor impacting thermal coal fundamentals was Indonesia's directive to keep more coal domestically, which has begun to take a real bite out of supply. Indonesia exports over half of the world's seaborne thermal coal and its government has announced cuts in production that would represent about 1/4 of its exports if fully implemented. We've grown accustomed to such acclamations coming in short of original estimates over the years, but even a portion of that dramatic cut would mean a tightening of thermal coal fundamentals. I will note that not all developments in the seaborne coal markets are favorable. Freight rates have roughly increased 50% from pre-conflict levels, affecting the delivered cost of our products. While the market excitement has centered on thermal coal, seaborne met markets remain very constructive. First quarter benchmark pricing for premium hard coking coal averaged more than 25% above year ago levels and could be characterized as more mid-cycle after the temporary dip we saw in 2025. I'll note the stratification of prices across lesser grades of met coal has become more pronounced. Low-vol PCI is up a more modest 14% over a year ago, while high-vol A pricing was actually 12% lower in the first quarter than in quarter 1 of 2025.. Turning to the U.S. markets. Power demand has remained strong early in the quarter due to a very cold January. Henry Hub gas prices lagged as the quarter wore on and ultimately ran below the fourth quarter and year ago levels. Coal is still dispatched at a decent rate and U.S. coal demand was solid. We're working through the shoulder season and soft gas prices at the moment, but expect overall U.S. load growth to help balance that out as we begin to enter the strong summer burn. With that brief overview of the markets, I'll turn the call over to Mark. Mark Spurbeck: Thanks, Malcolm, and good morning, all. In the first quarter, we recorded a net loss attributable to common stockholders of $32.4 million or $0.27 per diluted share, while delivering adjusted EBITDA of $82.5 million. Results were underpinned by outstanding performance from our seaborne thermal platform, which benefited from higher realized prices and strong demand from Asian markets. The seaborne thermal platform delivered 3 million tons, exceeding expectations and increasing export shipments by 200,000 tons. Realized export prices averaged $86.25 per ton, up more than 5% from the prior quarter, driven by higher Asian demand amid elevated LNG prices in the latter part of the quarter. Higher production from both Australian thermal mines helped reduce cost to $50.26 per ton, below the low end of guidance, resulting in a 25% adjusted EBITDA margin and $48.5 million of adjusted EBITDA. Seaborne metallurgical shipments totaled 2 million tons, 400,000 tons below plan due to the longwall ramp-up challenges at Centurion and unfavorably wet weather at the CMJV, partially offset by higher-than-anticipated production at Metropolitan, where we completed a longwall move ahead of schedule. Costs were higher than our guidance at $142 per ton, largely due to lower volumes at Centurion, partially offset by realized prices that increased 13% quarter-over-quarter. The segment recorded an adjusted EBITDA loss of $7 million as an otherwise strong quarter was reduced by $80 million from the Centurion ramp-up, including $10 million of additional commissioning costs. Our U.S. thermal business delivered $61.5 million of adjusted EBITDA in the first quarter. The PRB shipped 21.2 million tons, exceeding expectations. Costs were above guidance due to sales mix, which included additional shipments of higher heat coal from NARM and timing of certain repairs and maintenance costs. Net-net, costs outpaced higher average realized prices, resulting in lower margins in the quarter and $23.7 million of adjusted EBITDA. Other U.S. thermal shipped 3.3 million tons at better-than-expected costs, demonstrating continued disciplined cost control. I'm also pleased to report that Twentymile continued to perform well in its new longwall panel. Together, the other U.S. thermal mines contributed $37.8 million of adjusted EBITDA. Moving forward, like the rest of the industry, we are keeping a close eye on oil prices. I'll share a few points here for context. Peabody uses approximately 100 million gallons of diesel fuel a year, with the majority used in the U.S. at our large surface mines. Each $10 per barrel change in oil price impacts EBITDA by $6 million per quarter, ignoring potential benefits from higher coal prices. With the continuation of the Middle East conflict, we increased expected full year PRB costs $0.50 per ton to reflect the current forward curve. We also increased seaborne thermal cost guidance by $2 per ton to reflect the current price strip. We have not experienced any disruption to imported fuel deliveries in Australia, and we are working closely with our primary supplier to monitor continued availability. While higher fuel costs are anticipated across the business, the seaborne met and other U.S. thermal segments are expected to remain at beginning of year costs. A firm resolution of the Middle East conflict may result in an improved forecast with lower costs. Looking ahead to the second quarter, we expect seaborne thermal volume of 3 million tons, including 1.9 million tons of export coal, 300,000 of which are priced on average at $64.60 per ton. 1 million tons of Newcastle product and 600,000 tons of higher ash coal remain unpriced. Costs are expected to be between $57 and $62 per ton with approximately $3.50 related to higher fuel costs as well as a stronger Australian dollar and planned repairs and maintenance at Wilpinjong. We expect seaborne metallurgical volume of 2.3 million tons with realizations of 75% of the premium hard coking coal index. Costs are expected to continue at higher than full year run rates due to lower production at Centurion before achieving full longwall volume in the second half of the year. In the PRB, we anticipate shipments of 19 million tons at cost of $13.25, reflecting the traditional second quarter shoulder season and the $0.50 adjustment to higher fuel costs. Other U.S. thermal coal shipments are expected to increase to 3.4 million tons with costs at $45 to $49 per ton, in line with full year guidance. In closing, our first quarter results highlight the value of our diversified global assets. Strong performance from our thermal segments, both abroad and here in the United States, continues to generate substantial free cash flow. Peabody ended the quarter with just under $500 million in cash and total liquidity above $850 million. This financial position reflects the resilience of our balance sheet and provides financial flexibility to navigate near-term challenges, support our shareholder return program and continue to invest in long-term value creation. With that, I'll turn the call back over to Jim. Jim Grech: Thanks, Mark. As we look toward the rest of the second quarter, priority 1 is continuing the positive momentum at Centurion and progressing toward our targeted production rates in a safe and productive manner. Beyond Centurion, we remain focused on delivering strong performance across the broader mining portfolio while maintaining a rigorous cost discipline. Finally, we'll continue unlocking additional value from our extensive asset base over time. With that, operator, we are pleased to open up the call to questions. Operator: [Operator Instructions] The first question comes from Chris LaFemina with Jefferies. Christopher LaFemina: I just wanted to ask first on the PRB cost guidance. So second quarter cost is going to be a bit higher than the first quarter. But then the full year guidance is materially lower than what your first half average would be. And I wanted to understand how you're going to get there. I understand that part of it is, I would assume, a function of higher volumes in the second half of the year, and part of it is that on the strip, diesel prices, I guess, are a bit lower, but it is a substantial drop-off in costs and I just wanted to better understand that. That's my first question. Jim Grech: Chris, you're exactly right. You kind of answered your own question there for the PRB. Costs were higher in the first quarter a little bit, going higher in the second quarter, mainly due to diesel fuel. That's probably about a 75% impact in the second quarter, $0.50 impact over the full year. So you're right, that forward strip declines. That's the biggest change there on the PRB cost. We have lower volume. I think you mentioned lower volume as well, right? I mean second quarter shoulder season, we're looking at about 2 million tons less. So a big denominator difference there as well. Christopher LaFemina: Okay. That makes sense. And then secondly, just on the balance sheet, I noticed that the restricted cash balance fell by like $33 million in the quarter. And I'm not sure I saw the offsetting decline in any associated liabilities. So I might just be missing something there, but what was going on with the cash balance? Mark Spurbeck: Yes. The restricted cash, there was just a movement in how we collateralize some of those obligations. No change in the liabilities. Operator: And the next question comes from Katja Jancic with BMO Capital Markets. Katja Jancic: Maybe staying on PRB. I know that the prices are currently locked in or mostly locked in. Do your contracts in any way allow you to potentially share some of the cost burdens from diesel right now? Or is there an opportunity for that? Malcolm Roberts: Katja, Malcolm here. Look, the majority of our contracts are fixed price contracts that don't have a fuel rise or fall. Katja Jancic: And then if this environment continues, are you potentially looking at hedging any of the diesel costs? Or do you have any hedges in place? Mark Spurbeck: Yes, Katja, we do not hedge diesel. We've looked at this over the years multiple times, whether fixed pricing with our suppliers or hedging it with derivatives is just not cost effective to hedge. Katja Jancic: And maybe one more, if I may. You mentioned the potential for West Coast exports of PRB. Can you talk a bit more about right now currently, what the opportunity could potentially be in more near term? Malcolm Roberts: Yes. Thanks for the question, Katja. Malcolm here again. Look, the potential there in terms of the coal quality is pretty much unlimited. This PRB coal quality is fantastic in terms of its sulfur level, in terms of its ash level. And what we've seen in Asia is a lot of power generating plants have been set up to burn on this type of coal. And that was originally based on Indonesian coal. Now Indonesian coal is being kept more domestically and also we're seeing grades decrease. So there's a real opportunity, particularly in terms of the environment and this high-grade PRB coal to be consumed in Asia. So it was really quite positive and exciting that we're able to work with the port operator down there and also the Union Pacific to do a trial shipment. And the potential there will be limited by the logistics in terms of the Guaymas port. But then also, you'd note that there are West Coast port opportunities currently being discussed and that is something that really encourages us as we move forward. Operator: And the next question comes from Nathan Martin with the Benchmark Company. Nathan Martin: Malcolm, maybe just sticking with you for a second. You mentioned about some of the additional seaborne thermal opportunities you're seeing in the market driven by conflict in the Middle East as well as Indonesia. So is there still demand and price out there? Or have you seen that retreat maybe some of the recent peaks? Malcolm Roberts: Look, I think we're going to potentially go to the next level over the coming months. We've -- I mean the tide that lifts all boats is the Chinese import price. And we've seen that rally reasonably strongly, and I'm hearing appeals for API 5 around $100 a ton at the moment, which is over 1 year ago levels, that's probably $25 in excess of that. Now once that tide comes up, that will also support Newcastle pricing. And LNG pricing is still at quite a multiple as a fuel cost than seaborne thermal coal. And we're just starting to move into the summer in the Northern Hemisphere. So I think there's more to come. Nathan Martin: Okay. Great. That's helpful. And then maybe going to Centurion. I know you guys obviously mentioned aiming to complete the commissioning and production ramp here in the second quarter. Can you talk a little bit more about the timing there? I think maybe Jim has mentioned, but is this kind of an end of quarter completion? How confident are you that the longwall should be up and running or fulfilled in the second half and when that might occur? Jim Grech: Nate, Jim Grech here. And we have a lot of confidence that's going to occur here in the second quarter. I'll give you a little detail around where we're at right now, how we see us getting through the month of May and then the month of June, why we have so much confidence. So right now, our plan gets us to optimize longwall automation by the end of May. And what do we mean by optimized longwall automation? That means we're all done with the commissioning of the equipment, and we are in regular production mode for our forecast. And so to get us to that position by the end of May [technical difficulty] in the coal seam. We have shared optimal position, both the floor and the horizon and the coal seam longwall face straighten level. So our goal is to get us to those conditions by the end of the month and we have made significant progress to getting to those conditions. But it is an iterative process, Nate, that we're in. We advance the shields, we align the shields. If there's any fortifying of the coal roof or face, we do that if needed. And we do another pass with the shield, we cut some coal and then we advance the shields again. So we're going through that process right now, advance the shield, align, fortify, cut, and we're having some very good success with that. And so we're going to keep repeating that process for the next few weeks until we get to this optimized longwall automation position. And then from there, we'll be running per forecast. So a lot of good progress made in the last 2 weeks. We're -- every day, we move further along with our plan. And we, again, feel very good about getting this completed by the end of May, getting out of this commissioning phase and getting into regular production mode starting in June. Nathan Martin: Okay. That's very helpful, Jim. I appreciate that. And then maybe just one more, if I can. You guys had a small update on your rare earth and critical minerals project there. Maybe can we just get some thoughts around the potential time line for that development? You mentioned previously as well as today, the possibility of building a pilot plant. Again, just any updates on time line would be great. Jim Grech: Yes. So you're referring to the grant we got from the Wyoming Energy Authority to build a pilot plant, and we're looking at building at the moment at our Rawhide mine is the site at the moment, but there are some other sites being looked at it. So we expect the development operations and so on to take about 18 months. and then you're going to have some time after that of a year or 2 to get it up to full development of the plant. So we're going to work on the siting first and then initial construction and then get it operating, hopefully, at some extent, 18 months out and then over that 18- to 48-month time frame, just keep ramping it up and with the project. So that's what we're doing on that one project. I just want to remind you, though, that we've got several opportunities that we're pursuing. We've got this option-based approach because we've got multiple feedstocks, whether it's coal or overburden and looking at other of our mines. So we have other projects underway. We're not ready to talk about them yet, but this is the one here that we're talking about at the moment. Operator: And the next question comes from George Eadie with UBS. George Eadie: Jim, your audio was muffling, I think, before, so sorry if this is a bit of a repeat. But what specifically at Centurion were the electrical and mechanical issues experienced? And were there any issues with the shields not bearing the roof weight properly due to roof conditions or undulations at all in the roof? Jim Grech: Yes, George, I'm not sure why. I'm right next to the microphone, and I think I'm talking loud enough. I'll start screaming into this. Are you hearing me okay right now? George Eadie: Yes, yes. I got you good. Jim Grech: Okay. If you hear me catching my breath because I'm talking at the top of my voice. So what we've had is a longer-than-anticipated commissioning period at the mine. So to get to the situations you talked about, during the initial commissioning, we encountered some unanticipated electrical and mechanical issues that we hadn't picked up during -- we did testing, we did a mini build on the surface to test the equipment. But once we got the equipment underground, put it together and put it under full load conditions, we started having some issues with it. So fundamentally, what happened with that is we had 8-year-old unused mining equipment. We put an updated technology in it and then we put it underground. And when I got under full load, we started having issues that we weren't anticipating electrically. And we had to troubleshoot that, order parts and repair. And once we got past the electrical issues, we had some mechanical issues with conveyors and shoots and so on. What I would call standard commissioning issues that you have with this type of situation in a new mine and equipment that's been sitting on the shelves for a while, all taking much longer than we had anticipated. So with that situation going in the longwall sitting, and what happened was the longwall was advancing very slowly during this commissioning period. So the slow progress of the longwall gave rise to some localized ground conditions where the longwall was sitting, we had moisture accumulating in some roof cavities above that, combined with the softening of the floor beneath the shield. So the roof conditions have been addressed with void fill and under control where we have the longwall right now in its current position. The floor conditions we've adjusted to, but what's happened is the -- with the floor conditions, we've got misalignment in a limited number of shields. And that really is where we are in the final stages of remediation that I had outlined to Nate is getting those shields in alignment. And the only way to do that is to advance the longwall, adjust the shields, advance the longwall, adjust the shields. And that's going to take us another week or 2 to do that. So we anticipate getting through that by the end of the month. And as we -- each time we advance, we progressively improve with our remediation. And once we get a little further along here, we get on to some fresh ground underneath those shields, we'll be going at forecasted rates. So George, did I answer the question you had asked there? George Eadie: Yes. Jim Grech: I'm assuming you... George Eadie: Exactly. Yes. No, that was great. Appreciate all that. And so are you guys like testing the shields to make sure they're carrying the roof load? Is that something you can do and are doing, I guess? Jim Grech: Yes. The shield themselves are performing well. It's just they're out of alignment, and we just have to get them straightened out between the floor and the roof. That's really what's going on here at the moment, George. George Eadie: Okay. That's super clear. And then maybe one quickly for Malcolm. Just margins in the PRB just over $1 a ton, a few questions on it before, and we've guided down there. Are there risks to margins getting back sort of $2 and higher going forward with U.S. gas prices at $2.80 and cost pressures impacting on the other end, too? Malcolm Roberts: Yes. Look, with where oil prices are at the moment, margins are being challenged and also this quarter with lower volumes being in shoulder season. But one thing that -- what's pretty evident is that electricity demand is continuing to increase. And as that -- and I think we've just seen the statistics for April. So with this increased demand, we get out of shoulder season, get into the summer. I still expect the spot market to be quite robust and for pricing as we move forward to reflect this higher cost base because I don't think anybody is on their own in terms of the dirt that needs to be moved and the cost of that diesel. So it's a function of the higher cost base being reflected in new deals and the like as we work through that. Mark Spurbeck: Yes, George, I might just add to that. If you look at the implied guidance, the costs and the additional volumes coming in the second half of the year, we're going to be back to margins rate within spinning this into a few dollars a ton. Operator: And the next question comes from Nick Giles with B. Riley Securities. Nick Giles: A lot of my questions have been answered. But just maybe on the seaborne met cost revisions, I think most of which were driven by Centurion timing being pushed out. But can you just touch on the other operations and where costs stand today at those mines? I think diesel isn't as impactful as the PRB, but I was wondering if anything has changed as far as input costs at your kind of non-Centurion operations? Mark Spurbeck: Yes, Nick, I think I'll start with the 2 changes we made to the guidance for the full year in the Thermal segment. So PRB is up $0.50 on a full year basis. That's entirely due to higher diesel pricing. Seaborne thermal as well, up $2 a ton for the full year, entirely due to higher diesel pricing. The seaborne met, that is up $15 a ton, and that's entirely due to the lower volume at Centurion. Now there is some higher diesel costs, obviously, in met and other U.S. thermal, but that's a much smaller use, about 2/3 of our oil in both regions. 2/3 of the U.S. oil or diesel is used at the PRB and about 2/3 of Australian fuel is used in the Seaborne Thermal segment. So the seaborne met and the other U.S. thermal, much smaller impact from diesel, and we were able to maintain those original cost guidance ranges. Nick Giles: Got it. Very helpful. I appreciate that, Mark. And then maybe just one on the Centurion product itself. Can you just talk about how the commercial process has gone to date with customers? How much is contracted? How much could -- is left to still be contracted? And then do you feel that with the higher freight rates globally that Centurion has become more competitive? Or how are you thinking about kind of percentage realization in terms of PRB? Malcolm Roberts: Yes. Thanks for the question, Nick. Look, generally, discussions have gone very well because this product is the highest quality premium hard coking coal at around an 8% to 8.5% ash. And in terms of where it's being sold, traditionally, North Asia has been a big customer when this mine was producing last decade. There's strong demand there. But really, the main focus is on India, and we've concluded a number, probably 8 or 9 contracts there. In terms of how contracted I am for the year, I'd like to treat that as commercially sensitive. So -- but there's plenty of demand there for that product. Hopefully, that answers your question. Operator: And the next question is a follow-up from Christoph LaFemina with Jefferies. Christopher LaFemina: Just one quick follow-up. If you look at the -- like the outlook for the business, if you hit your operational targets, you're going to be generating lots of free cash flow in second half of this year and into 2027. Your balance sheet is very strong. Your share price has been under some pressure, but it really seems like it's a timing issue on the cash flow rather than anything more structurally problematic. And yet you have an opportunity in the market to buy back your stock at a relatively inexpensive level. So I was wondering how you think about the share price weakness and how you can defend the stock? Maybe that's the way to think about it, but can you take advantage of an opportunity here where the market is not pricing in the cash flow that you guys are going to generate and maybe the opportunities for you to buy back your stock at this relatively inexpensive level? Mark Spurbeck: Yes, Chris, we share your outlook for the business, certainly when [indiscernible] comes back online or gets online at full production rates in the second half of the year. There will be a substantial amount of free cash flow in that second half of the year. I think there are a couple of opportunities, buying back shares is one, but also looking at our 2028 convert that's outstanding and addressing maybe some of the dilution there as well. Operator: And next question is a follow-up with George Eadie with UBS. George Eadie: Jim or Malcolm, when will we get some details on this PRB West Coast opportunity, I guess, chasing potential tons you could ship washing, cleaning costs, CapEx and sort of time lines and all the various factors for us to potentially model it up? Malcolm Roberts: Look, I'll start and maybe Jim could give some further details. Look, this cargo is going to go out in May, and we'll get customer feedback. We have another customer visiting our PRB mines next -- I think it's next week or the week after. We're in a detailed qualification process there. And we'll discharge trains and the first one is discharged down in Mexico this week, and we'll see how that goes. We'll load it on the ship and see how that goes and then get the ultimate feedback from the customer. One thing is for sure is that there are opportunities and people are really focusing on this and the railway, particularly Union Pacific, is working with us really constructively. That's encouraging. And then you're also hearing about other West Coast port opportunities. But exactly where we go with the Port of Guaymas, that's going to be a little bit of a suck and see. Let's see how the port performs and the like. But this is more of a proof of concept and the like. In terms of CapEx and the like, we'll be leaving other promoters to develop ports and do those things. We'll be a user of those ports and the like. So I hope I haven't set out a light here. I'll just check with Jim if there's anything he'd like to add. Jim Grech: No, Malcolm. I think the thing to take from this, George, is Malcolm said proof of concept, and most importantly, is there a market for this coal? And as Malcolm pointed out, there's a significant almost unlimited market in terms of what the PRB can produce and move as far as demand because of the comparably -- very favorable comparison to Indonesian quality coal, which is big on the export market. So the opportunity is significant. And the proof of concept is us working with the Union Pacific Railroad. We have been very good to work with the U.S. government, the Mexican government. Can we then do the logistics to move the coal to this very large market? And we've done that. So the next steps are how do we scale this up? How do we get significant tonnages? And whether that's through Guaymas or other ports that are being looked at on the West Coast that are being looked at actively. And I think there's some great opportunity there for those ports to move those Western coal. So there's a lot more opportunity to come. Is it on the horizon like in the next 3 to 6 months? No, there's nothing significant because you need to get to port capacity there. But the demand is there. The demand is not going away. The ability to work with the rail carriers and the U.S. government to develop these opportunities is there. So there's a lot of good potential for us out into the longer term, but not just in the near term. George Eadie: Yes. Okay. Great. And just on that, what is the port capacity you guys could tap here? Is it sort of 5 million to 10 million tons? Is that the right range for me to think? Jim Grech: Well, I think it's what's the port capacity potential. Guaymas could get to those ranges or slightly higher and other ports that are being looked at on the West Coast would be at the upper end of that range. Operator: And this concludes the question-and-answer session. I would like to turn the conference back over to Jim Grech for any closing comments. Jim Grech: Thanks to everyone for your time today as well as your long-standing support. We're going to get back to work and look forward to keeping you apprised of our progress. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good day, everyone. Welcome to Kosmos Energy First Quarter 2026 Conference Call. As a reminder, today's call is being recorded at this time. I would like to turn the call over to Jamie Buckland, Vice President of Investor Relations. Jamie Buckland: Thank you, operator, and thanks to everyone for joining us today. This morning, we issued our first quarter 2026 earnings release. This release and the slide presentation to accompany today's call are available on the Investors page of our website. Joining me on the call today to go through the materials are Andrew Inglis, Chairman and CEO; and Neal Shah, CFO. During today's presentation, we will make forward-looking statements that refer to our estimates, plans and expectations. Actual results and outcomes could differ materially due to factors we note in this presentation and in our U.K. and SEC filings. Please refer to our annual report, stock exchange announcement and SEC filings for more details. These documents are available on our website. And at this time, I will turn the call over to Andrew. Andrew Inglis: Thanks, Jamie, and good morning and afternoon to everyone. Thank you for joining us today for our first quarter 2026 results call. I'll start today's call by reviewing progress against the four goals for 2026 that we laid out with our full year results in March. I'd then like to spend some time talking about the current market dynamics and how Kosmos is uniquely positioned to benefit by being priced of premium benchmarks before focusing on each business unit and the operational progress we've made year-to-date. I'll then hand over to Neal to talk about the financials before I wrap up with closing remarks. We'll then open up the call for Q&A. Starting on Slide 3. Two months ago, we released our full year 2025 results, and I focused on four key objectives for Kosmos in 2026, which is shown on the slide. This year, we are targeting production growth from our core assets, continued progress in cost reduction with a particular focus this year on operating costs having made significant reductions in CapEx and overhead last year, meaningful net debt reduction, and advancement of our high-quality growth portfolio with minimal CapEx this year. I'm pleased to say we're making excellent progress against all these goals. Compared to the same quarter last year, production is up around 25% and absolute operating costs are down around 22%. In addition, we've reduced net debt by around 7% from year-end 2025. I'll go into more detail on each as we move through the slides. Starting with production on Slide 4. With the ramp-up of GTA and Jubilee production, we posted record quarterly production in the first quarter, as can be seen on the top chart on the slide. This record production has come at a time when we've seen record high pricing and also record high differentials. The dark blue line on the left axis of the bottom chart shows Dated Brent pricing year-to-date. Dated Brent is the benchmark used for pricing our Ghana cargoes. In times of market tightness, Dated Brent can trade at a premium to Brent futures, reflecting the strong near-term demand for the barrels in the physical market. Dated Brent hit an all-time record high in early April and has continued to trade at a premium to Brent futures. Also worth noting are the differentials we see on those barrels. The barrels we sell typically include a differential, which is either a discount or premium to the benchmark such as Dated Brent. That discount or premium depends on factors such as crude quality, location and regional market conditions. The red line on the chart shows an illustrative differential for West African crude year-to-date. Through January and February, those differentials were slightly negative but started to grow through March into April as the Middle East conflict continued. While the data on the chart is illustrative, we've seen those differentials rise to a meaningful premium through this period of market tightness. Turning to Slide 5. This slide looks at how our barrels are priced in different geographies and the time lag we see between production and revenue. Our three core production hubs, Ghana, GTA and the Gulf of America, are all priced of premium benchmarks. In fact, across the U.S. E&P sector, Kosmos is one of the most exposed companies to international prices as a percentage of sales. Around 50% of our production, primarily Ghana is priced off Dated Brent, the dark blue line on the chart. Since the Middle East conflict broke out, the Dated Brent premium over WTI has more than tripled. Ghana cargos are typically priced off an average 5- or 10-day period before or after the cargo loading. Our March Jubilee cargo had already been hedged, so we didn't benefit from the rise in prices seen in the month, but we do have a growing amount of unhedged production as we move through the year that should capture additional upside. In the Gulf of America, we sell most of our barrels against Heavy Louisiana Sweet or HLS, which generally trades at a small premium to WTI, the red line on the chart. Production in the Gulf is typically sold on a 1-month trailing average, so we'll start to see the benefits of higher prices as we move into the second quarter. On GTA, the gas production is priced off ICE Brent, the green line on the chart, which also generally trades at a premium to U.S. prices. Production is priced at a 3-month historical average price, so we'll start to see the full benefit of higher prices in 2Q. However, the lag effect also means we'll continue to see firmer GTA pricing beyond any future price declines. So, in summary, we've seen record production, record prices and record differentials. But given the pricing structure we have in our various sales contracts, we won't see the benefit of higher prices that started in late 1Q until the second and third quarters. I'd now like to talk about each of our business units in more detail. Turning to Slide 6, which looks at the progress we're making in Ghana. This is a slide we've used for the last two quarters and has been updated for recent activity. As the operator discussed in our full year results last week, the 2025-'26 drilling campaign continues to perform strongly. The J74 well came online in early 2026, followed by the J75 well at the end of the quarter. Both wells are performing in line with expectations and gross Jubilee production for the first quarter was around 70,000 barrels of oil per day. The plots on the chart have been updated slightly since last quarter and reflect the partnership's decision to enhance efficiency by drilling a series of wells before completing them simultaneously. This means there will be a gap in new production additions during the second quarter with 2Q production expected in the mid-70s. Three new producer wells are due online in relatively quick succession in June and July as previously communicated by the operator. Each of these wells has been drilled and completion operations start shortly. Based on the logging results, these 3 wells should drive a material uplift in production of around 20,000 barrels of oil per day gross in aggregate before some natural decline is expected in the fourth quarter as the drilling campaign concludes. Year-to-date performance and the upcoming activity set continues to support the upper end of our 70,000 to 80,000 barrels a day gross oil production guidance for Jubilee this year. Looking at the bottom right of the slide, we're pleased to see the operator announce their refinancing earlier in the year, which was accompanied by a commitment to drill in '27 and '28. The partnership is aligned on securing a rig for a program of up to 10 wells, with drilling targeted to restart around mid-2027. As we previously discussed, this regular drilling program is key to sustaining the improved performance we've seen from Jubilee this year. Also worth noting is the value creation from the current drilling program, with well paybacks in a mid-cycle price environment of around six months, and a lot shorter in the current environment. Turning to Slide 7. GTA has continued to perform strongly this year, with around 2.85 million tons per annum, equivalent gross produced in the first quarter, in excess of the floating LNG nameplate capacity of 2.7 million tons per annum. 9.5 gross LNG cargos were lifted during the quarter, in line with guidance. For the year ahead, our gross cargo guidance of 32 to 36 LNG cargos is unchanged. One gross condensate cargo was lifted in the quarter, which went to BP. The second and third condensate cargos later in the year, including one this quarter, are expected to be assigned to Kosmos and the NOCs. Due to some seasonality that we flagged in the past, daily LNG production is expected to fall from higher winter levels as the sea and air temperatures warm up through the summer months. Volumes should then pick up again later in the year as cooler temperatures return. On costs, we remain on track to deliver our 50% reduction target for OpEx per mmbtu this year and see scope for further cost reductions in 2027. On the Phase 1 expansion, which should materially enhance project returns, there's been good progress on the ground in Senegal year-to-date. Approximately 50% of the land has been cleared for the onshore section of the northern segment of the pipeline, with the remaining 50% expected to be done this quarter. This northern segment will connect to the 250-megawatt Gandon power station being built near Saint-Louis. The onshore pipelines are expected to be exported from China in May, with arrival in Senegal scheduled around middle of the year. The West African Development Bank has been appointed as the mandated lead arranger to raise approximately $270 million to finance the infrastructure. The Board of Directors of the bank approved at the end of March, the first tranche of around $90 million. Turning to Slide 8. Production in our Gulf of America business unit for the first quarter was in line with expectations, with continued solid performance from our Odd Job and Kodiak fields. In April, the Winterfell-2 well was shut in pending a future intervention, and full-year Gulf of America production is now expected toward the lower end of our guidance. On the growth side of the business, we were pleased to take the final investment decision on the Kosmos-operated Tiberius project alongside our 50-50 partner, Oxy. With an expected development cost of around $10 per barrel and operating and transport costs of around $20 per barrel for the first phase, this is a low-cost, high-margin development. The first phase will be a single well tie-back that will produce into Oxy's nearby Lucius platform. CapEx is planned largely to be spent in 2027 and 2028, with first oil expected in the second half of 2028. We have commenced a farm-out process to reduce our working interest to around a third. As mentioned with our full-year results in March, we recently entered into a strategic exploration alliance with Shell in the Gulf of America and exchanged interests across multiple blocks across the North Pole play, which houses several material exploration prospects. We expect to drill the first of these, Tiberius, in the first half of 2027. Tiberius is targeting around 200 million barrels of oil equivalent gross resource. I'll now turn to Neal to take you through the financials. Neal Shah: Thanks, Andy. Turning now to Slide 9, which looks at the financials for the first quarter in detail. Production year-on-year was around 25% higher, driven by both GTA ramp-up and new wells coming online at Jubilee, resulting in record production of 75,000 BOE per day for the quarter. Realized price was slightly lower year-on-year, reflecting the changing production mix, with more gas volumes from GTA. As Andy mentioned earlier, due to the lag in pricing, we don't expect to see the full benefit of higher prices until the second and third quarters this year. OpEx of just under $20 per BOE was in line with our guidance and marks a decrease year-on-year of 47%, reflecting the continued progress we're making this year in reducing costs, having focused on CapEx ad overheads last year. Most of the other line items came in within our previous guidance ranges, except tax, which was impacted by the large mark-to-market change in derivatives. Looking ahead to Q2, we have included the usual guidance in the appendix to the slides. Q2 production is expected to be slightly lower than 1Q, largely due to seasonality on GTA we talked about, and lower Gulf of America production on the back of Winterfell-2. In Ghana, we're guiding to three to four cargos in Q2, which also includes a TEN cargo in the quarter. This also drives higher Q2 OpEx as a result of the accrued TEN FPSO lease payments prior to the agreement to purchase the vessel. OpEx is expected to normalize in the third and fourth quarters. One jubilee cargo is expected at the very end of the quarter, which is the reason for the three or four cargo range for Q2. For the full year, guidance remains unchanged. One area that we continue to monitor is tax as we incorporate higher oil prices into our actuals, and we will provide further updates through the year. Just a reminder that we only pay cash tax in Ghana at the moment, given net operating losses in the US and cost recovery at GTA. Turning to Slide 10. We've had a busy start to the year on the financing side, completing several important objectives that set us up well for the year ahead. In January, we completed a $350 million Nordic bond and repurchased $250 million of 2027 notes with the proceeds. We also paid down $100 million of the bank facility with the remainder of the proceeds. In March, we took advantage of the strong share price rally this year to raise around $200 million of equity, which was also used to accelerate our debt paydown. The company exited the quarter, with around $500 million of liquidity, post these transactions, with additional liquidity to be created from the EG sale and from free cash flow going forward. On the reserve-based lending bank facility, the banks approved a covenant waiver through the mid-year, and we are already seeing leverage drop sharply on the back of the equity raise and strong operational progress. We expect this to continue as we start to see the full benefits of higher production and higher pricing coming in over the coming months. The lending banks have also approved the sale of our producing assets in Equatorial Guinea, which we expect to close around the middle of the year, with the proceeds used to further pay down the facility. On hedging, we continue to be active, targeting more hedges in 2027 at higher floors and higher ceilings than our existing 2027 hedges. Last week, we were pleased to see Fitch upgrade our corporate rating to B-, a positive move to reflect the progress we have been making so far in 2026, but discussion ongoing with S&P as well. Despite the higher pricing we have seen so far in 2026, our capital allocation for the year remains unchanged. We remain focused on increasing our financial resilience and utilizing our free cash flow to accelerate debt paydown with deleveraging. With that, I will hand it over to Andy Andrew Inglis: Thanks, Neal. Turning now to Slide 11 to conclude today's presentation. As I said in my opening remarks, we have four key objectives for 2026: grow production, lower costs, reduce debt, and advance our quality growth portfolio with minimal CapEx in 2026. This slide highlights the targets we've set against those objectives. On production, we now expect to complete the sale of EG around the middle of the year, making that adjustment for the second half, we still feel we can achieve production growth close to that 15% target. On costs, based on year-to-date performance so far, we feel confident that we can meet and potentially exceed our 20% operating cost reduction target. So, in aggregate, we're on track to deliver a reduction of around 35% in operating cost for BOE year-on-year. On debt with the EG sale, equity raise and higher pricing, we're doubling our debt reduction target from 10% to around 20% by year-end and have made significant progress already. And we are advancing our growth portfolio with Tiberius FID, progress on GTA expansion and the exploration alliance with Shell in the Gulf of America. We look forward to delivering on these objectives to support long-term value creation for our investors. Thank you. And I'd now like to turn the call over to the operator to open the session for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Charles Meade with Johnson Rice. Charles Meade: I want to ask the first question on Jubilee. The OBN seismic shoot that you guys did at the end of the year last year, is that, are the results or insights from that, are those already informing this '26 drilling program? Or is that something where we're really going to see more of the benefit in the '27, '28 program? Andrew Inglis: Charles, no, the OBN is really going to have an impact on the '27, '28 program, yes. So, the '26 program, though, is leveraging the 4D NAS that we shot ahead of the OBN. And so, we've got the product from that, and that did influence the selection of the '26 drilling program, which is going well. So, I think the objective then is to build the results from the early products of the OBN and then the later products of the OBN into the '27 program, match that with the NAS. And so, you're getting a continuous upgrade in the quality of the seismic and therefore, the opportunity to derisk the future drilling programs. And as I said in my remarks, the, we're seeing the impact of a continuous drilling program on Jubilee in '26. Carrying that through into '27, '28 is clearly important. And these are economically good wells. In my remarks, I talked about a 6-month payback in a mid-cycle price environment. Clearly, we're doing better than that. So, a lot of, as you know, there's a lot of opportunity in Jubilee and the seismic upgrade through the 4D NAS and then the follow-on of the OBN is continuing to make a difference. Charles Meade: Right. That's what I was aiming to get at. And then the follow-up on Tiberius in the Gulf of Mexico. I think you have a point in your slide that you expect a farm-out proceeds to cover any '26 CapEx? That maybe in broad strokes, it seems to me that the farm-out proceeds to you will be on the same order of magnitude as what the dry hole cost, proportion of dry hole cost would have been. And so, it doesn't look like there's a big premium that you're looking for on this farm-out, but maybe you can tell me if that's the right read. Andrew Inglis: Yes. Obviously, I don't want to disadvantage ourselves in the process that's ongoing at the moment. Look, I think it's a great time to be in the farm-out. We clearly have a project that's underway. FID has been taken, strong alignment between ourselves and Oxy. And therefore, there's been significant interest in the opportunity. So, we're obviously looking to maximize the farm-out proceeds, and we may do a little better than we'd anticipated. Operator: And your next question comes from the line of Lydia Gould with Goldman Sachs. Lydia Gould: You target a 20% reduction in operating costs this year. Could you expand on some of the key strategic initiatives that are in place across the portfolio to meet this target, particularly at GTA? Andrew Inglis: Yes. Lydia, yes, look, it's a combination. And I think I want to emphasize the fact that we've used the opportunity to high-grade the portfolio and address some of our highest cost assets. And those highest cost assets were in Equatorial Guinea, where clearly, we are selling the asset. And also, it was on TEN because of the lease cost on the FPSO. So those, both of those are making a significant difference. Then on top of that, there is an ongoing reduction in GTA. There's an absolute reduction in operating costs as you take out some of the additional costs that were in last year because of the start-up process. But clearly, you're seeing a big impact on the per BOE number or MMBTU number because of the ramp-up in production. But the combination of those sort of ongoing processes and the asset high-grading delivers that 20% reduction in absolute operating costs that we're seeing in '26 versus '25. And I think there's ongoing opportunity. We haven't stopped there. I think there's ongoing opportunity in Ghana in '27 as you look at the ability then to sort of, you'll have the operator than having the operations of both FPSO. I think there's opportunity to create synergies there. And then there are different operating models in Mauritania and Senegal for GTA, which are being explored by BP. So, I think this is just the start of a journey of continuing to drive cost down and the big step in '26 comes from that underlying activity, but also the high grading of the portfolio. Operator: And your next question comes from the line of David Round with Stifel. David Round: A key theme in recent years has been around this cost reduction and capping CapEx actually specifically. I'm just interested in whether this commodity backdrop makes that harder to achieve and how you're thinking more generally about CapEx in '27 and beyond, please? Andrew Inglis: Yes. David, yes, good questions. We go through price cycles, yes. And I think you do see some tightening. I think it's very hard to predict today what the long-term effect is on the inflationary environment. I think it's too early to say that. But I think the things that we're doing now are just not about smarter procurement, if you like. It's about underlying changes in how you do activity. And I think that means that the cost reductions that we're targeting and the ongoing cost reductions we would target in Ghana and GTA are about changing the way you do business. Therefore, the activity changes, therefore, the cost comes down. So I think those are enduring. I don't think they sort of are simply about the procurement cycle you're in. And clearly, the high grading of the portfolio is independent of that. So I think that opportunity remains, and I don't think the magnitude may vary a little, but the opportunity remains. And then I think on CapEx, we've clearly targeted CapEx hard in both '25, '26. I think that we're focused again on ensuring that we're being very, very rigorous about the allocation of capital. I think we've been clear around the growth opportunities that we're pursuing. It is Tiberius. It is the GTA expansion, trailblazer exploration. In a timing sense of the spend flowing through, I think Tiberius is relatively low spend in '27. The biggest spend is really in '28, probably if it's $100 million on Tiberius net, it's probably 1/3, 2/3 in that sense. The GTA, it's probably overall for Phase 1 plus there really isn't any expenditure on the facilities. You can move from 430 to 630 production through the FPSO with no spend. Therefore, it's about the additional wells that will sustain the portfolio beyond the end of the decade. And therefore, the spend for that will really be in '28, '29. So we take all of that, I don't think you'll see a significant, it's early days yet, but the capital for '27 is going to be pretty tight, maybe a little higher than today for '26, maybe around $400 million. But underneath that, you've got the sustaining CapEx that we're spending today in drilling in Ghana and the Gulf. That will sort of be pretty similar in '27. And then you've got a little more growth CapEx. But that allows you then though to continue to move forward these high-quality prospects. David Round: Okay. That's very clear. A very quick follow-up then, actually, if I might. Can you just remind us if there is a specific leverage target, please? Andrew Inglis: I'll pass it over to Neal. Neal Shah: Yes. And so David, we've always talked about getting to sort of 1.5x in a normalized oil price environment. And again, I think what you'll see this year is we said we'll take off around 20% of the debt. We started this year at $3 billion, which we get into sort of the mid-2s. And then with higher oil prices, you can continue to flex that down. And then the EBITDAX of the business jumps quite largely. So last year, we did something in the $500 million to $600 million range, which should be north of $1 billion this year in terms of where we get to. And so that leverage ratio compresses quite quickly. But I think, again, from, Andy said, the capital has continued to stay a bit tight in '27, but that allows us to advance the projects and at the same time, generate free cash flow to pay down the debt. So the goal is to do both at the same time and get leverage, what we'd like to see is sort of the net debt fall below $2 billion first in terms of a milestone. So we'll make a good dent in that progress this year. And again, we're seeking to sort of maximize every dollar in terms of debt paydown. Operator: [Operator Instructions] And our next question comes from the line of Bob Brackett with Bernstein Research. Bob Brackett: I'd like to talk a bit about Senegal and GTA. You mentioned the Phase 1 plus, which I expect is a 300 million cubic feet a day gas pipeline that brings ultimately molecules up to that Gandon Power Station. Can you talk about how to think about the unit economics? You mentioned it's reducing OpEx. How do we think about the volume? Is it your 27%? And how do we think about price? Andrew Inglis: Yes, Bob, good questions. I think that the first thing is it's somewhere that the expansion of GTA, I sort of think about it being sort of $200 million rather than $300 million, yes. You can go from today, we're pushing about 430 million standard cubic feet through the FPSO. You can get to 630 million without actually spending any capital on it. If you want to go up higher than that, there is an increased demand. There are incremental spend on capital to get there, relatively modest. But if you think about the first wave being sort of $200 million, the first piece of that domestically, piece of it will be used in Mauritania, a piece of it will be used in Senegal. The first piece in Senegal will flow to the Gandon Power Station, as you said. Then the RGS, which is the pipeline company in Senegal, we'll continue to build that pipeline south from Saint-Louis to Dakar. There's actually four phases. You can look online and see what they're doing and ultimately allows you to build out that sort of power station infrastructure down towards Dakar. So it's going to be a phased process that will start to build through '27, '28, '29 and to the end of the decade. So actually, in terms of unit economics, the capital spend for us is very low, sort of de minimis is the way to think about it for that 200 million standard cubic feet. There is capital spend to sustain the profile at the back end of the decade, which is associated with more wells to keep you at that sort of 630 million, 650 million standard cubic feet. But ultimately, it is a very low-cost expansion. And therefore, the margin that you're getting from it is high. You're almost, from an operating cost perspective, there is no FLNG lease. And therefore, your margin on those versus the export is higher. Neal Shah: And again, I think the easy way to think about it, Bob, is just, again, we've said sort of Phase I OpEx is around sort of $5 to $6 per MMBTU. That's fixed cost essentially. The costs don't change with the expansion on the operating cost. And therefore, you get a sort of multiplying effect in terms of reducing that to sort of the sub four type area. So again, I think every incremental molecule helps bring down that breakeven even faster. Andrew Inglis: And then for the domestic gas, you're not paying the FLNG cost, which is part of that sort of $4. Bob Brackett: A follow-up, please. I'm seeing mixed messages in the press around Yakaar-Teranga. Can you give us an update on what's happening there? Andrew Inglis: Yes. I don't think it's sort of mixed messages, Bob. I think that the key message out of it is around the importance of domestic gas for Senegal's growth, relatively large population, growing population, reducing the cost of power, electricity is a key priority for the government. And therefore, their goal is to ensure that they can advance those projects and do that in a timely way. But at Kosmos, it was about saying we want to invest in GTA. We want to enable that source of domestic gas to be our focus. And therefore, we did relinquish Yakaar-Teranga. The government has picked it up. Petrosen, I believe, will lead that development, and it will be another source of gas for the country. But given the scale of the economic growth, I think, that can be seen basically from population growth, then it needs all the gas that the country needs all the gas that it can take. Mauritania is a slightly smaller population. So the pull for domestic gas will be lower and can be fed by GTA. So this is good for both countries. ?And clearly world events today are all about how do you create security and affordability and the extension now of both GTA and Yakaar-Teranga will enable Senegal to achieve those goals and we are fully supportive of it. Operator: Our next question comes from the line of Mark Wilson with Jefferies. Mark Wilson: I got a question from an investor to start off with. It's probably more for Neal. Just wondering about the derivative cash losses in Q1 and what we should expect in 2026. And obviously, this speaks to this maximizing of deleverage. Andrew Inglis: So yes, the cash derivatives, Neal? Neal Shah: Yes. Yes, it's clearly a large mark-to-market change. And again, we came into the year with an asset of about $50 million, and then there's a $250 million market-to-market loss, just given we got payout in January and February on those hedges, and then clearly, the market moved. From a cash perspective, it cost us about $30 million and not a ton of cash, actually. But clearly, the implied shift in the forward curve has an impact on the derivative side. Our hedges are largely sort of yes, focused on sort of the first half of this year. So we talked about we have 6 million barrels left for the rest of the year, about half of that matures in Q2, and the other half over the second half of the year. And so there's a larger exposure in Q2 and then sort of less, and then that sort of steps down again in Q3 and Q4. And so again, it will ultimately depend on sort of what the actual realized Dated Brent price is. But we feel okay with our exposure on '26 and have really been working on adding some additional downside protection in '27. And so again, I think we're good in terms of where we are. We'll have more physical exposure from a pricing perspective, as we talked about in the call in 2Q. And so there's a bigger, call it, unhedged volume that we'll be able to realize in the second quarter, with more physical volume being sold versus the hedges. So again, I think Q2 is sort of shaping up quite nicely, and then the hedging exposure comes down at least more access to the upside from the physical sale. Mark Wilson: Okay. And Andy, a slightly bigger picture question. I'm just wondering what contact you've had with, if at all, with the new management setup at BP, given Tortue is performing so well. I'm just wondering if there's any commentary you could give there. Andrew Inglis: No. Look, things change, and they don't change. For us, clearly, and for BP, ensuring that GTA runs both efficiently from a cost perspective, but equally well from a production perspective. We deliver on the cargo forecast, et cetera. So that's all going well, Mark. And we sort of see no change. Clearly, Meg, the new CEO, has significant experience of Senegal from her experience at Woodside with Sangomar. So as we bring, it's great, somebody who has deep industry knowledge and very specific knowledge actually of the, of that Pacific geography. So the real sort of answer is, as you'd expect is that we're focused on the operational side at the moment and ensuring that we deliver on the targets we've set. And actually, that's exactly what we're doing. Mark Wilson: Okay. And then just one last point, just checking on the Jubilee guidance. Is there any scheduled downtime on the vessel in the rest of the year, maintenance or anything? Andrew Inglis: I think you've asked that question before. You do like that question. The honest answer is no, okay? So none in '26 and '27. I think that's what the operator told you last time. So, no, the answer is no scheduled maintenance. And look, if I go to the essence of your question, right, are we comfortable with our guidance? The answer is sort of yes. And why? As we started the year, we were unclear about forecasting yet. But of course, now, sort of getting close to the middle of May, you have a lot of extra information. The field started the year at, we ended the year '25, at 57,000 barrels of oil per day. We've stabilized it. We've added two wells. It's delivered at 70,000 barrels of oil per day. year-to-date. So very strong performance with two wells added. We have now drilled three wells. We have all of the logging information, pressure data, et cetera. So, we're confident we're adding wells that will add an additional 20,000. So, you built a base of 70,000, and you add another 20,000. And you can see on our plot, which we showed in the presentation, the resulting production profile. So, I think to the point really, to add is, look, we're further down the process. We've clearly delivered strongly in the first 4 or 5 months of the year. We've got additional data from the wells that we've drilled, and we're now starting that completion process. So, I think as every month goes by, we're more confident that we can deliver on the guidance that we've given with no shutdowns in '26. Operator: And your next question comes from the line of Stella Cridge with Barclays. Stella Cridge: I just wondered if I could ask you for a bit more color or comments on how you're thinking about the debt profile going forward. You have taken many actions year-to-date to address many different parts of the capital structure. The RBL discussions, you said, are going to commence around a bit midyear. Could you give us any sense of what you think the lenders will be looking for there? Would it be sort of the visibility around Jubilee, for instance, in this supportive oil price environment? Neal Shah: No, I'm happy to do that. And then if you have another question, we can follow up. But yes, like I said, we've been quite busy on the financing front. And again, what we wanted to accomplish is pretty clear in terms of clearing out the near-term maturities and bolstering liquidity, sort of stabilizing the ratings and continuing to reduce the absolute amount of debt. So again, as I say, we're well on track to deliver all of that. We've cleared the '26s and most of the '27s at this point. Liquidity is $500 million and growing. And we're on our way down on the debt paydown to get into the low 2s from a leverage standpoint by the end of the year. So again, I think all that's on track. And that leaves sort of, as you referenced, sort of the next financing objective for us to work on is the extension of the RBL. Just to recall, this would be the sixth RBL extension that we've gone through or that I've been through here at Kosmos. And so again, normally, it's a 7-year facility, it doesn't amortize for 3 years, and then you end up extending the tenure every 3 years. And so, I met with the banks recently. Again, they continue to be really supportive. They are looking for Jubilee performance to continue to improve. But again, I think that process is well underway, as Andy noted. And otherwise, again, I think they want to see the same thing that our creditors and equity holders want to see, which is for us to bring the leverage down. So as we execute the plan, again, I feel pretty good about going into that process in the middle of this year. And then that will basically kick, the ultimate maturity from sort of '29 to sort of the 32, 33 time frame. Stella Cridge: And just want to ask, I thought it was very interesting in the report that they were talking about potentially you're trying to get down into the $800 million to refinance a smaller amount in the RBL. Is that something you could comment on as well? Neal Shah: Yes. And so we exited 1Q with about $1 billion drawn on the facility, with the EG proceeds coming in around $150-ish million free cash flow. Again, I think naturally, the RBL will reduce into that range from a drawn perspective. From a total facility size perspective, though, which is what will generally extend, I wouldn't expect much change. We were at a sort of $1.3 billion facility size. We probably don't need that much just because we're bringing down, the absolute amount of both bonds and bank within the capital structure. So maybe it's 1.25-ish in terms of facility size. I wouldn't expect the size to change dramatically, although again, I think the bigger focus on our side is just reducing, the actual drawn amount. Operator: Since there are no further questions at this time, I would like to bring the call to a close. Thanks to everyone for joining today. You may disconnect your lines at this time.
Operator: Hello, everyone. Thank you for joining us, and welcome to the ADM Q1 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to introduce your host for today's call, Kate Walsh, Director of Investor Relations for ADM. Ms. Walsh, you may begin. Kathryn Walsh: Welcome to the First Quarter of 2026 Earnings Conference Call for ADM. Our prepared remarks today will be led by Juan Luciano, Chair of the Board and Chief Executive Officer; and Monish Patolawala, our Executive Vice President and Chief Financial Officer. We have prepared presentation slides to supplement our remarks on the call today, which are posted to the Investor Relations section of the ADM website and through the link to our webcast. Some of our comments and materials may constitute forward-looking statements that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These statements and materials are based on many assumptions and factors that are subject to numerous risks and uncertainties. ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this presentation and the materials. Unless otherwise required by law, ADM assumes no obligation to update any forward-looking statements due to new information or future events. In addition, during today's call, we will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available in our earnings press release and presentation slides, which can be found in the Investor Relations section of the ADM website. I will now turn the call over to Juan. Juan Luciano: Thank you, Kate. Hello, and welcome to all who have joined the call. Please turn to Slide 4, where we have outlined this quarter's performance highlights. Today, ADM reported adjusted earnings per share of $0.71 and total segment operating profit of $764 million for the first quarter of 2026. Our trailing fourth quarter adjusted ROIC was 6.4%, and cash flow from operations before working capital changes was $442 million for the quarter. Operating performance was robust during the quarter as our team advanced our company priorities, and our crushing and ethanol businesses benefited from an increasingly constructive commodity and margin environment. In particular, soybean crush and ethanol margins strengthened meaningfully as the market anticipated the finalization of renewable volume obligations for 2026 and 2027, which the EPA published on March 27. We commend the administration and the EPA for advancing our renewable volume obligation that strengthens markets for American farmers and enhances America's energy security. The RVO drives demand for corn, soy and other domestic feedstocks, and it supports a reliable domestic fuel supply chain that offers consumers dependable choices in their daily lives. I also want to thank our team for delivering on our plan in a complex and rapidly changing environment. Based on our expectation that we will continue to successfully advance our priorities throughout the remainder of the year, combined with the expectation that the constructive margin environment we are in continues, we are raising our earnings guidance range for 2026. Our full year adjusted EPS guidance range is now $4.15 to $4.70, up from our previous range of $3.60 to $4.25. Please turn to Slide 5. As we look at our strategic priorities for 2026, we remain focused on continuing to reduce our manufacturing and transaction costs, generating strong cash flows, investing in our growth platforms, and further developing and expanding our deep bench of talent to support our strategic priorities. Based on these priorities, we achieved notable progress in a number of areas during the first quarter. Here are several highlights. Our Ag Services business achieved higher North American export activity, which included increased shipments of soybeans and sorghum to China, and the continuation of a strong corn export program. We demonstrated the ability to capture underlying margin opportunities in crushing and refined products and other subsegments. We also delivered strong soybean meal sales during the quarter, driven by robust global consumption. Our team capitalized on the constructive margin environment for ethanol, with strengthening ethanol margins more than offsetting the continued softness in starches and sweeteners volumes. And our Nutrition business achieved higher flavor sales, and we're seeing momentum built around natural colors and flavors. Also, we are seeing the benefits of our strategic portfolio actions taking hold. From a manufacturing standpoint, we made solid strides in increasing throughput and decreasing unplanned downtime across our production footprint. During the first quarter, our team delivered strong global crush volumes, with oilseeds tonnage increasing 2% compared to the prior year quarter, and we achieved the best overall global site crush production on record. For Nutrition, the team continued to improve operational execution, and we are seeing substantial progress with the continued recovery of our Decatur East plant and animal nutrition operations. As we look ahead, we're also targeting a meaningful reduction in transaction costs across our global footprint, including further automation and use of AI in workflows to reduce manual touch points, errors and cycle times. These initiatives also extends to our supply chain management and freight and logistics networks. We continue to pursue high-growth opportunities that are designed to generate enduring returns. We recently created a new senior innovation and growth leadership role responsible for accelerating projects in this area across the enterprise. A number of the initiatives underway are already generating revenue, and we are encouraged by the progress we are making. I'll talk more about this on the next slide. All of this is bolstered by the development we are doing around our workforce talent and capabilities. We're strategically focused on making sure we have the right people and skills for both our business needs today and for the future. For example, we recently established the ADM capability center in India to build and maintain deep technical and functional experience in priority areas. In summary, our team is executing well against our plan, and we're taking advantage of market opportunities while consistently strengthening the performance of our operations. Looking through to the rest of 2026, we have clear priorities that are centered around ensuring we have the right talent and capabilities in place to drive growth, margin expansion and cash flow, while remaining steadfast in our discipline around cost management and capital allocation. And to that end, we remain committed to returning value to our shareholders with the dividend we paid in first quarter representing our 377th consecutive quarterly dividend. Please turn to Slide 6. We're making disciplined investments today in the platforms that will drive our growth for tomorrow. Our next wave of value creation is grounded in 5 key pathways that span both near-term opportunities already contributing to growth today as well as long-term initiatives that will continue to scale over time. Importantly, these are areas where we understand the markets and the customer needs and where we believe we are well positioned to win. I'll take a few moments now to discuss our growth pathways in a little more detail. Starting with advanced nutrition, we are developing innovative solutions as customers shift from artificial to natural ingredients, particularly in colors and flavors in North America. We are expanding both capabilities and capacity to meet growing demand for healthier products that deliver on appearance, texture and taste. Within functional health, we continue to build on our leadership in digestive and metabolic health and immune support, with a growing pipeline of solutions targeting stress, mood and sleep. For biosolutions, our initiatives are centered on valorization or the unlocking of new markets for our existing products, essentially doing more with what we already produce. A concrete example of this is a starch-based component we developed for fabric softeners, for which we were recognized earlier this year with the best innovation contributor award by Henkel Consumer Brands. In precision fermentation, we see significant opportunities at the intersection of biology and engineering. Advances in technology are enhancing the efficiency and scalability of our existing fermentation assets and we're expanding our portfolio of cleaner, simpler and more sustainable solutions. For example, during the quarter, in animal nutrition, we successfully completed a trial for a scalable animal-free protein for pet food. And in the human nutrition space, we progressed the development of a novel enzyme with widespread functionality in food applications. And in decarbonization, we are leveraging our existing carbon capture and storage footprint to develop a broader portfolio of solutions. This includes serving customers with high purity CO2 needs, expanding renewable natural gas operations and advancing pathways to convert ethanol into sustainable aviation fuel. During the first quarter alone, we sequestered approximately 300,000 metric tonnes of CO2, a milestone that underscores our leadership in this space. Taken together, these platforms represent a compelling set of value creation opportunities that leverage our core business and provide meaningful expansion into new markets for years to come. With that, let me hand it over to Monish to share a deeper dive into our first quarter financials and full year outlook. Monish Patolawala: Thank you, Juan, and I wish you all a very good morning. Please turn to Slide 7. AS&O segment operating profit for the first quarter of 2026 was $273 million, down 34% compared to the prior year quarter. Included in the first quarter of 2026 is approximately $275 million of net negative mark-to-market and timing impacts, of which roughly 70% were attributable to the crushing subsegment, and the remaining balance was 2/3 attributable to refined products and other and 1/3 attributable to Ag Services. In the prior year quarter, the net negative impact of approximately $22 million were mainly related to Ag Services. The Ag Services subsegment in the current quarter generated operating profit of $200 million, representing an increase of 26% compared to the prior year quarter. The increase was driven primarily by higher export activity in North America, which was supported by increased trade with China and a strong corn export program. Additionally, prior year quarter results were pressured by certain export duties. For the crushing subsegment, we reported an operating loss of $79 million for the quarter, which represents a decrease of $126 million from the prior year quarter. The decrease was driven by net negative mark-to-market and timing impacts. The team executed well during the first quarter of 2026, with planned productivity improving compared to the prior year quarter. Additionally, soybean meal sales remained strong throughout the quarter as a result of strong global demand. For the refined products and other subsegment, operating profit was $86 million, down 36% compared to the prior year quarter, primarily driven by net negative mark-to-market and timing impacts. Equity earnings from our investment in Wilmar was $66 million for the quarter, down 8% compared to the prior year quarter. Turning now to Slide 8. For the first quarter, Carbohydrate Solutions segment operating profit was $356 million, representing an increase of 48% compared to the prior year quarter. The period-over-period increase was primarily a result of strengthening ethanol margins, supported by effective risk management and policy incentives. In the starches and sweeteners subsegment, operating profit was $229 million, representing an increase of 11% compared to the prior year quarter. The increase was driven by stronger results from ethanol in our corn wet milling plants in North America, and was partially offset by lower global liquid sweeteners and starches volumes and margins due to similar trends to what we saw last year. In the vantage corn processors subsegment, operating profit was $127 million, representing a $94 million increase from prior year quarter. ADM's corn dry milling ethanol operations benefited from strengthening ethanol margins, supported by effective risk management and policy incentives. Overall, base ethanol EBITDA margins for the quarter were higher both sequentially and compared to the prior year quarter. Now turning to Slide 9. For Nutrition, segment revenues in the first quarter were $1.8 billion, down 1% compared to the prior year quarter. Human nutrition revenue increased by 3% year-over-year, driven primarily by higher flavor sales and inclusive of foreign exchange gains. Animal nutrition revenue decreased by 5% year-over-year, with the decrease primarily attributable to our previously disclosed portfolio exits and the formation of the animal feed joint venture with Alltech, which was partially offset by foreign exchange gains. Nutrition segment operating profit was $135 million for the first quarter, representing an increase of 42% compared to the prior year quarter. Human nutrition operating profit was $104 million, up 39% compared to the prior year quarter as a result of higher flavor sales and foreign exchange gains as well as the continued recovery of the Decatur East plant. Animal nutrition operating profit was $31 million for the quarter, up 55% compared to the prior year quarter. The increase was primarily attributable to benefits associated with strategic portfolio and cost optimization actions taken over the last year, foreign exchange gains and the increased focus on higher-margin product offerings. Corporate and other businesses contribution to operating profit was lower compared to the prior year quarter, driven primarily by higher claim settlements in other business, which were partially offset by lower corporate function costs. Turning now to Slide 10. For the first quarter of the year, ADM generated cash flow from operations before working capital of approximately $442 million, approximately flat relative to the prior year quarter. We continue to be very disciplined in the areas in which we invest. During the first quarter of 2026, we invested $194 million and maintain our expectations of full year 2026 CapEx being in the range of $1.3 billion to $1.5 billion. During the quarter, we distributed $254 million in dividend, marking our 377th consecutive quarter of paying a dividend. And lastly, our net leverage ratio at March 31 was 2.2x, which is higher than the previous quarter. However, this is generally in line with our expectations given the normal seasonality of our business and the impact of higher commodity prices. Our year-end net leverage ratio expectations remain at approximately 2x. Now on to Slide 11, where we have provided details on our updated 2026 outlook. Earlier today, as Juan mentioned, we raised our current outlook for 2026 adjusted EPS to a range of $4.15 to $4.70, up from the previous range of $3.60 to $4.25. There are 2 main drivers to our guidance range. First, the expectation that our team will continue to solidly execute against our plan for the remainder of the year; and second, the expectation that the improved margin environment for crushing and ethanol businesses will continue. Overall, our guidance range is underpinned by several factors. In AS&O, first quarter 2026 results include approximately $275 million of net negative mark-to-market and timing impact. Negative mark-to-market and timing impacts are the result of increasing commodity prices, and in this case, signal improving underlying market conditions for us. As a reminder, the final impact of the mark-to-market and timing impacts will be realized when the underlying inventory forward contracts and futures and foreign currency contracts are executed. Based on that, the majority of the $275 million of net negative mark-to-market and timing impacts reported in the first quarter are forecasted to reverse in the second quarter. The remaining impacts are forecasted to reverse during the second half of this year. As a reminder, we cannot and do not estimate new mark-to-market and timing impacts in our guidance, and there could still be additional mark-to-market and timing impacts in future reporting periods. In Ag Services, we are assuming that China will resume a normalized buying pattern for North American soybean. For Carb Solutions, we expect strength in ethanol margins supported by policy incentives will continue to more than offset softness in starches and sweeteners as the same consumer behavior trends we experienced in 2025 continue to pressure S&S volumes and margins. Expectations for year-over-year growth in Nutrition remains intact, with operating profit increasing primarily as a result of higher flavor sales, continued recovery in Decatur East and margin expansion in Animal Nutrition as we maintain our focus on higher-margin product lines and ongoing cost optimization initiatives. We will continue to closely monitor external factors, including consumer trends, energy costs, supply chain dislocations along with global trade and tariff dynamics, foreign exchange and ethanol industry development throughout the balance of the year. We also are progressing the cost savings program we launched last year, and remain on track to achieve our targeted aggregate cost savings of $500 million to $750 million over the 3- to 5-year period which commenced in 2025. In summary, Q1 presented a dynamic market environment, characterized by significant events that created challenges but also created opportunities, and we were well positioned to capitalize on the environment as evidenced by the underlying margins across our Ag Services and Oilseeds businesses and our ethanol operations. Beyond that, we continue to execute well in our Nutrition business, particularly in our flavors product line. In closing, I would like to recognize our ADM team members for their focus and dedication in executing against both our near-term objectives and our strategic priorities. It is their hard work that positions us well in a rapidly shifting global landscape, enabling us to continue delivering on our financial commitments and consistently returning value for our shareholders. With this, I'll hand it back over to Juan. Juan? Juan Luciano: Thanks, Monish. As we look ahead, we are increasingly constructive on our outlook for 2026. Despite the complexity of the global environment, the policy clarity we now have, combined with our team's disciplined execution, position us well to deliver meaningful growth in 2026. Beyond 2026, we have a clear road map for long-term value creation that we're actioning, one that leverages both our deep capabilities and the breadth of our operations to create enduring value for years to come. With that, we'll take your questions now. Operator, please open the line. Operator, please open the line. Operator: [Operator Instructions] Your first question comes from the line of Manav Gupta from UBS. Manav Gupta: Congrats on a strong quarter and a guidance raise. The beat and race story is always welcome. My quick question here is, obviously, sir, there's one part where the RVO is helping you, policy formalization is helping you. But there is another part where [ world ] is generally short diesel, and what we are seeing out there is globally shortages of diesel and one area where U.S. is somewhat unique is we have this level of higher renewable diesel, biodiesel production, we can do to meet some of those challenges. And I just wanted your view on it. Are you already seeing out there, producers with ideal plants who are not running that hard in 2025 already looking to run much harder in 2026? And how does that benefit ADM? If you could talk a little bit about that. Juan Luciano: Yes. Thank you, Manav. Listen, I think we said it in the previous quarter what we expected the RVO impact was going to be in the market. The first thing that we said, it was going to come in RINs coming up, and we saw RINs going up by $1. Then that created a margin for all these biodiesel plants and renewal diesel plants to come on stream. That pulled soybean oil demand and that increased crush margins, so crush rates. So if you look at on margins. So if you look at crash rates for March, we jumped 6%. So crush rates in March for North America run about 10% higher than last year. So I think that it happened in the sequence we expected. Probably, it's happened with more violence than we expected. It was faster maybe because of pent-up demand. We've been waiting for RVOs for a couple of years or maybe the effects of shortages or the perception of shortages given the Strait of Hormuz issues. But -- so we see that. We see that biodiesel traded mostly with RVOs, I would say. And we see those plans coming on stream. So yes. Manav Gupta: Perfect. My quick follow-up is on human nutrition, a very positive trend, revenue up 3%, but profit up 39% in human nutrition. Can you talk a little bit about that positive trend? And what's driving the improvement in profitability in the human nutrition business? Juan Luciano: Yes, the team did a very good job. Of course, part of the drivers are in flavors, and I think that our -- they can continue to convert our pipeline, and maximizing profitability with product mix, cost management, the normal levers you pull in these cases. I would say you also have to remember that we finally brought the Decatur East plant back. That product has always been lauded as the best quality in the industry. And now we are back with our full volume and recovering the position we lost over the last couple of years. So I think that very strong performance in both areas in human nutrition, and we expect that to continue into Q2. Monish Patolawala: Manav, as for our script, we had some foreign exchange gains that help us there, too. But operationally, the team did very well. Manav Gupta: Congrats on a very good quarter. Operator: Your next question comes from the line of Ben Theurer from Barclays. Benjamin Theurer: Congrats on a very good first quarter. Maybe just following up on some of the changes to guidance, and if you could maybe help us frame a little bit the high versus the low end of it? I mean, I guess the market was expecting some sort of a race. But just to understand what factors you're kind of like seeing that could drive you to the higher end of that new guidance versus what are the risks that keep you on the lower side? That would be my main question. Juan Luciano: Yes. Let me give you a flavor, and maybe Monish can chime in later. So we underpin the raising guidance on, of course, the continued advancement of our priorities that the team continues to execute well, and this constructive biofuels environment that we got after the clarity with the RVOs. If you think about the businesses, from an AS&O Ag Services perspective, we expect a normalization of the offtake of soybeans from China. And then we continue to expect a constructive biofuel environment going forward. We expect the majority of our -- you know the big mark-to-market, we have $275 million in Q1. We expect the majority of that to come back in Q2. But of course, margins, as they continue to climb, we may generate new mark-to-market that we don't have the ability to forecast, that is not included in our guidance. From a Carb Solutions perspective, we expect the same dynamics, a little bit of softer sweeteners and starch, with a strong ethanol dynamics to continue into Q2 and probably the rest of the year or at least the rest of the summer. And nutrition growth continued to be intact the way we see it forward with strong flavors, with still a strong recovery of specialty ingredients given by the Decatur plant being back. And animal nutrition continues to -- on a smaller scale because it's smaller than human continue to put very good year-over-year improvements based on their improvement plan, but now they are shifting to more specialty products. So all in all, we see most of our business doing very, very well. Monish Patolawala: I think, Ben, you had a question on what risks also we are watching. If you've seen the strip we had laid it out, but just again to reiterate. Of course, we'll watch all external events that play out. But energy costs, foreign exchange, input cost for nutrition, global trade policy, all of those tariffs are all things that we are watching, and we'll keep you all posted as we see things evolve. Benjamin Theurer: Okay. Fantastic. And then just quick follow-up on the sweeteners and starches business within Carb Solutions. Obviously, that continued weakness something we've kind of like seen industry-wide. What are the -- are there any specific measures that you can take to kind of like maybe stop the bleeding a little too harsh, but like stop the decline be supportive here? Are there any things around innovation or things that you can do shifting away from that business on the sweeteners side? What are like the things you're looking at in order to kind of like manage that business? Juan Luciano: Yes. We've been working for many years in the diversification of the grind that you've heard us many times saying the fight for the grind. So we produce many products and that helps sometimes soften this. You heard us saying talking about biosolutions and how we are moving some of those products into different applications, industrial applications. So we have some successes with starches in places like personal care or fabric softeners, things like that. So is a slow because, of course, those markets are smaller than a sweeteners market, and then it takes more effort, but we continue to have efforts there to diversify the grind. We can't invent that Mexico will help us with a great World Cup. Everybody will drink lots of softdrinks. Benjamin Theurer: I'm going to do my best. Juan Luciano: Help us. Operator: Your next question comes from the line of Pooran Sharma from Stephens, Inc. Pooran Sharma: Congrats on the strong results here. I maybe wanted to just focus on -- absolutely, the first question, just wanted to focus on ethanol. Can you talk about what is driving margin strength here? I think it's export demand. And there was momentum prior to the start of the conflict with Iran. So just want to understand from your point of view, what is -- what's driving this? And have you seen any incremental upside from the conflict? Juan Luciano: Yes. Listen, as you said, before the conflict, we were already seeing good margins for ethanol. I think that we had rough weather, in general, that affected some of these plans with the polar vortex in January or something. So we were coming into an environment we had strong domestic demand, given by the tightening of the RINs and the values of the RINs. Also a strong export demand. Demand for exports were about 10% year-over-year. So that was pulling on an industry that was not producing fully, and I draw down inventory. So we are going a little bit through maintenance now before the driving season anyways as well. So we expect that to do well. Don't forget that ethanol at about $2 per gallon is incredibly competitive globally. You have [ our but ] trading at north of $3.50. So there is a big incentive here to blend domestically, so we expect domestically to something in the range of 14.5 billion gallons, give or take. When you add to that, 2.4 billion gallons, that is our expectation for exports, that's almost close to 17 billion gallons. I still remember how much I was celebrating with our exports worth 1 billion gallon a few years back. So now we're talking about 2.5 billion gallon. Whether those exports are being held by maybe the conflict or the tightness, maybe there is some of that. But you see more and more countries trying to bring resilience to their fuel system by diversifying into biofuel. So you see Vietnam increasing now to E10, you see Brazil going now to B32. So you have many countries popping up into that, and they are -- all of that is helping the U.S. export. Pooran Sharma: Great. Appreciate the color there. And just really quickly, was there any 45Z incorporated to ethanol earnings? And then when we think about modeling this, should we be adding this to segment income? Or should we be excluding these from the tax line? Juan Luciano: Yes, you should be including it to segment income. And I would say, yes, we have. And of course, we continue to work on all the details that need for implementation of that. But the team has done a good job. And at this point, for the year, we are expecting an impact of about $150 million for a full 2026. Operator: Your next line comes from the line of Andrew Strelzik from BMO. Andrew Strelzik: Obviously, a very dynamic environment out there, inverted curves. I was hoping that maybe you could help us think about the kind of earnings cadence through the year, whether it's first half, back half split or however you want to frame that? And also, to what extent you have visibility for the balance of the year versus where you typically are at this time of the year, obviously, that had been a little bit of an issue in prior quarters. So curious where that is, too. Juan Luciano: Yes. Listen, I've been doing this for quite a while. So at the beginning of my mandate, I remember we were like 48.5 to 51.5 or 48-52 in our split first half, second half. Since our product mix has shifted and maybe the U.S. is not as competitive as exports of grain. Probably now we are talking about something like 49-51 type of split between first half and second half. Of course, there is a lot of uncertainty still. The visibility we have, listen, what we get to this point of the quarter, for Q3, if you will, we're probably sold about 30% in mill and about 50% to 60% in oil. So we still have a piece open there. And of course, for Q4, it's only maybe 10%. So we still have a lot to go through. In general, I would say customers are not buying that much in advance. The oil industry is normally more spot. And I would say the -- for our oil customers and for human consumption is also relatively, we don't have a huge book yet. So I think we're trying to stay open. So. Monish Patolawala: I'll add on, Andrew, for Q2, when you think about the operating -- the quarterly cadence that Juan mentioned. Just on Q2, Q2 will be stronger than Q1. A couple of things we've talked about, the mark-to-market of $275 million approximately that we took in Q1. Majority of that will reverse in Q2 and the balance in the second half. Secondly, seasonally, nutrition is higher, especially our flavors product line. So that you can factor that into. And the third one is strength in ethanol, as Juan mentioned. So that's all put together. You'll also see tax rate was a little lower in Q1, that will normalize itself over the year. And then the second piece is, as we have talked about, we've been very prudent on cost and CapEx through first quarter. And as we are starting to see the constructive environment, we will continue to invest in our growth initiatives, continue to invest in digitization, all of that setting us up for the long-term value creation for ADM. Andrew Strelzik: Okay. That was super helpful. And my follow-up is related to that. You talked about pretty tightly managing the capital spend. But as your earnings trajectory improves, in this more constructive environment, whether it's '26 or beyond, how are you thinking about capital allocation incrementally? Are there more CapEx projects on the radar? Maybe you could talk about those as -- maybe it's the buyback that's more interesting. Just how you're thinking about capital allocation? Juan Luciano: Yes. We continue to invest with our balanced framework of capital allocation that we have maintained for a few years, always our biggest opportunities in cost and growth projects, and we give priority to that. As Monish just described, we have a lot of projects related to cost savings in manufacturing, but also our low cost to serve and increasing capabilities. And we also have our fuel in 5 growth platforms that will serve us well, that we like very much because they have a balance of short-term, medium-term and long-term impact for ADM. So it gives us a good cadence going forward. So then, of course, we honor the dividend, and we will continue to try to pay and grow the dividend every year as we have done for many, many years. I think this year, we just paid -- this quarter, we paid like 377th consecutive dividend, which is an incredible record for the company. And of course, probably what is embedded in your question is what are we going to do with M&A or buybacks. And we will continue with our prudent bolt-on M&A. So we've done that when we see value opportunities are there or something that fits strategically to our developments. And yes, it is plausible that as our cash flows improve and our balanced capital allocation remains the same way, that potentially, we could do buybacks into the future. That's not out of the question. So we will continue to monitor how things evolve. Operator: Your next question comes from the line of Heather Jones of Heather Jones Research. Heather Jones: The first question is going back to what you were saying about the cadence of earnings. And if I understood you correctly, saying roughly half will be in the second half? And if I take the midpoint of your guide, that would apply only 20%, 25% year-on-year growth and would imply you get close to where second half of '24 was. So just wondering, the biofuel policy, not just in the U.S. but globally, is the most constructive it's ever been. And so just wondering, what are the things in your business that are giving you pause that would cause the year-on-year growth to not be more robust than that? Or is this just conservative? So that's my first question. Monish Patolawala: Yes. Heather, it goes back to what Juan and I have talked about in our prepared remarks as well as a few of the questions that have already been asked. When you thought about when we came into the year, we had talked about a more back-end loaded. Secondly, as everybody knows that the RVO is coming in, we pretty much called the trajectory, right? It just came in faster than we thought. And based on that, we felt that it's prudent right now based on the mark-to-market reversal, there's normal seasonality we get in nutrition as well as ethanol strength that we'll see 49% to 51% first half, second half. The other things, when you factor in the second half, right now, there is an inverted curve. And that inverted curve is for multiple factors, including some of the risks that exist in the economy right now. We also have a slightly higher tax rate that will come in, in the second half of the year, and we will invest more in R&D and digitization that I talked about. But when you put all that together, when we look at the first quarter, the team started very well. You've seen that they've been able to capture the opportunities and margins that existed. So as that curve moves through and the opportunities exist, I can tell you the team is very well geared to take advantage of that. 2Q is a very important quarter for us because we have to make sure that all these executions happen. We'll get some more clarity as the world continues to evolve. We've got policy dynamics that we are watching through. Our assumption is that China will continue to buy its normal volume in Q4, but that's to be watched. So put all that together, we raised our guidance from $3.60 and $4.25 to $4.15 to $4.70. Again, the team is executing well, good start to Q1, and we'll continue to execute over the next 3 quarters, and we'll keep you posted. Heather Jones: Okay. And then my follow-up in on ethanol. And so -- it sounds like you raised the amount that you think will -- the 45Z will benefit earnings somewhat for the full year. But I mean, it was an extremely strong quarter both in the wet milling side and dry. And European market has been strong for some time. So just wondering what changed? I mean, were there risk management -- was the risk management benefit unusually large? Or should we consider -- should we assume that the kind of strength that we saw in Q1 is sustainable throughout the year? Juan Luciano: Yes. Heather, there are so many factors to consider here in 45Z. You need to think about the carbon intensity score by every plant, the prevailing wage, the amount of carbon we sequester, the production volumes, but also the industry pricing reaction to this policy. So at this point in time, given what happened in the Q1, we are increasing the expected amount. I think we mentioned last time it was going to be 100 million. Now we're saying it's 150 million. I think that that's how we see it at this point in time. Could it be a surprise for the positive? We hope so. At this point in time, that's what we're looking at. Operator: Your next question comes from the line of Steven Haynes at Morgan Stanley. Steven Haynes: I wanted to ask on Carb Solutions maybe just in the quarter, kind of within the [ 3 50 ] or so of operating profit that you all did. Can you maybe just help us think a bit about how much of that splits out between ethanol versus the nonethanol piece? Obviously, we can see the VCP part of it, but it's harder to disaggregate within sweeteners and starches. So if you could just provide any additional color there, that would be helpful. Juan Luciano: Yes. Maybe I can provide the dynamics and maybe Monish, if you want to give more granularity later. I think we continue to see a certain weakness in sweeteners. So our sweeteners and starches volumes are down 3% and margins are down a little bit more than that. Of course, Carb Solutions, corn plants are very big energy users and chemical users. So the cost of those plants are not doing great right now with the conflict, although we continue to improve our operational performance. Energy is up and some of the chemicals are up. I think we started to see starches getting better and stabilizing in their volumes. And ethanol has been the good actor of the quarter. So we -- EBITDA margins per gallon went up like $0.18 from the same quarter last year. So driven by all the factors I think I explained before in one of the questions. So I will say, hopefully, that gives you an idea. That's our expectation, if you will, for the second quarter that those dynamics will be maintained. And the nature of the results should be similar. Of course, are easy to see in BCP. And in the wet mills, we produce about 22 different things out of a wet mill. So it's more difficult to quantify there because also, we try to optimize that mix all the time, looking at the different margins, at the different grind providers. So that's not that easy to call. But I hope with the granularity I gave you provide you enough to -- for you to build your models going forward. Operator: Your next question comes from the line of Dushyant Ailani from Jefferies. Dushyant Ailani: Maybe my first one, could you talk a little bit about the soybean meal demand? I know I think earlier in your comments, you mentioned that you use strong demand there. But could you maybe just talk a little bit about the puts and takes in terms of how that evolves through the course of the year? Juan Luciano: Yes, of course. Listen, soybean meal continues to be strong. If you look at the soybean meal versus corn ratio, that sit near 2 or below, that sustains strong inclusion in feed formulas. You see even that's more acute in China where corn prices are higher. So global soybean meal demand continues to surge driven by still healthy livestock profitability and expanding of the daily output. So the U.S. has a big book for exports on soybean meal. I think that, that was helped a little bit by Argentina. Argentina lost all the cushioning from the old crop. And now basically, their crush is limited by the harvest, and harvest was a little bit delayed by a couple of weeks because of the floods. So I think that we are exporting a lot and demand has been very good. So that has provided another strong leg of the crush. Today, soybean oil is probably like 52%, 52.5% of the crush. And that's putting -- that's probably, as much as we are crushing, we probably tighten up the meal balance because meal is so strong. So I hope that helps. Dushyant Ailani: Yes, that does. And then my follow-up question is on Decatur East. I think you said that it's basically fully up and running. I think in the prior call, you had mentioned that there were some customers that had moved away. Have you been able to recover all of them? What's the data status on that? Juan Luciano: Yes. No, of course, you won't recover this immediately. People -- our absence was long, more than a year, so people took different commitments on that. And we are rapidly trying to recover that. We have now a full -- our full volume is being offered. And as I said, I think that we trusted our good quality. The preference that customers have traditionally have for this product will bring us back. But the team is making progress, not full -- We haven't recovered our full position yet, and that will probably take a while. Operator: Your final question comes from the line of Matthew Blair from TPH. Matthew Blair: You mentioned the inverted soy crush future spur previously. Could you talk about what's really driving that? Like are there fundamental factors that are pulling on future margins? Or is this just like a matter of liquidity and less liquidity in the outgoing months? Juan Luciano: Yes, I think that there is a strong immediate demand for soy and for oil and meal. And of course, there is uncertainty about what's happening in the future in the second half where there is -- at this point in time, you have very strong demand for soybean oil, very strong demand for soybean meal and a relatively flat soybean trading in kind of a flat range, if you will. So all of a sudden, you look at the future and you need to think about, okay, what's going to happen with the trade deal and Trump visit to China? Will that move soybeans? And then you think about resolution of the conflict, crops and weather and all those things. So energy prices, so there are a lot of uncertainties in the second half. And I think that, that's I think Monish showed it or mentioned it before in the guidance. We're looking at consumer impact. We're looking at demand. We're looking at inflation. We are looking at many things. So I think the curve is reflecting that. And to the extent that we move forward and those dynamics continue, the curve may be extending forward, so -- and shifting into the future. So we are monitoring that. Operator: We have reached the end of the Q&A session. I will now turn the call back to Kate Walsh for closing remarks. Kate, please go ahead. Kathryn Walsh: Thank you all for joining the call today. We appreciate your continued interest and support of ADM, and wish you a great rest of your day. Goodbye. Operator: This concludes today's call. You may now disconnect.
Operator: Greetings, and welcome to the MFA Financial, Inc. First Quarter 2026 Financial Results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Harold E. Schwartz, General Counsel, to begin. Thank you. Harold E. Schwartz: Thank you, operator, and good morning, everyone. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA Financial, Inc., which reflect management's beliefs, expectations, and assumptions as to MFA's future performance and operations. When used, statements that are not historical in nature, including those containing words such as “will,” “believe,” “expect,” “anticipate,” “estimate,” “should,” “could,” “would,” or similar expressions, are intended to identify forward-looking statements. All forward-looking statements speak only as of the date on which they are made. These types of statements are subject to various known and unknown risks, uncertainties, assumptions, and other factors, including those described in MFA's Annual Report on Form 10-K for the year ended 12/31/2025, and other reports that it may file from time to time with the Securities and Exchange Commission. These risks, uncertainties, and other factors could cause MFA's actual results to differ materially from those projected, expressed, or implied in any forward-looking statements it makes. For additional information regarding MFA's use of forward-looking statements, please see the relevant disclosure in the press release announcing MFA's first quarter 2026 results. Thank you for your time, and I would now like to turn this call over to MFA's CEO, Craig L. Knutson. Craig L. Knutson: Thank you, Hal. Morning, everyone. Thank you for joining us for MFA Financial, Inc.'s first quarter 2026 earnings call. With me today are Bryan Wulfsohn, our President and Chief Investment Officer, Michael C. Roper, our Chief Financial Officer, and other members of our senior management team. I will offer some general remarks on the macroeconomic and political landscapes and will then provide an update on MFA's business initiatives and portfolio activities. Then I will turn the call over to Mike, followed by Bryan, before we open up the call for questions. Moving to market conditions in the first quarter of 2026, it was very much a tale of two market environments. Fixed income markets began the year with a continuation of the strong investor demand and low volatility we experienced in 2025. The economy continued to exhibit resiliency and the labor market seemed to stabilize, particularly with a surprisingly robust January nonfarm payroll print in early February. Mortgages performed particularly well, aided also by a directive for the GSEs to purchase $200 billion of agency mortgage-backed securities in early January. Unfortunately, the party ended abruptly with the onset of a war in Iran, which spiked volatility, pushed rates sharply higher, and dramatically raised oil prices. Higher energy prices renewed fears of inflation, and markets adjusted expectations for fewer or even no rate cuts later this year. Mortgage spreads widened significantly against this backdrop and contributed to an economic return for MFA in the first quarter of negative 1.2%. However, despite the market volatility and heightened geopolitical tension, markets remained open and orderly. We priced two Non-QM securitizations in March and, while spreads were modestly wider, the market functioned normally. This is a testament to the expansion, maturity, and depth of these markets over the last four years. The second of these two Non-QM securitizations was a relever of two previous deals, which is a good example of what we often refer to as an underappreciated source of optionality—our ability to call these deals as they season and pay down, enabling us to lower borrowing costs and unlock additional capital. We grew our investment portfolio to $12.5 billion in the first quarter, adding almost $700 million of agencies, including TBAs, $471 million of Non-QM loans, and Lima One originated $219 million of business purpose loans. Our asset management team continues to work diligently to resolve delinquent loans in the portfolio. This can be maddeningly time-consuming, but our team has been working out delinquent loans for over a decade, the majority of which were purchased as nonperforming loans. They are the best in the business at this and uniquely suited to the task. Finally, our listeners will recall that we began a program in the third quarter of last year to issue additional shares of our two outstanding preferred stock issues via an ATM and use the proceeds to repurchase common shares at a significant discount to book. While this program is modest in size thus far, this is very accretive and, importantly, because we are issuing equity in the form of preferred stock, we are not shrinking our equity base despite repurchasing common stock. Finally, we continue to pursue expense reductions both at MFA and at Lima One, which Mike will discuss shortly. I will note that we have added an additional distributable earnings metric that we are introducing in response to requests from analysts and investors—distributable earnings prior to realized credit losses—and Mike will describe this in more detail shortly. We believe that this new DE metric offers a useful representation of how we think about the earnings power of the portfolio, and for those of you that follow commercial mortgage REITs, it should be a very familiar concept. Taken together, MFA has a diversified business strategy that includes multiple attractive target asset classes with a robust ability to source these assets, a reliable and proven ability to obtain durable nonrecourse leverage to generate attractive ROEs, a highly confident in-house asset management capability, a keen focus on expense management, and a demonstrated responsible capital issuance philosophy. I will now turn the call over to Mike to discuss our financial results. Michael C. Roper: Thanks, Craig, and good morning, everyone. At March 31, GAAP book value was $12.7 per share, and economic book value was $13.22 per share, each down approximately 3.8% from 2025. MFA again paid a common dividend of $0.36 and delivered a quarterly total economic return of negative 1.2%. For the first quarter, MFA generated a GAAP loss of approximately $10 million, or $0.11 per basic common share. Our GAAP results for the quarter were adversely impacted by net mark-to-market losses on the portfolio of approximately $28.8 million, driven by higher rates and wider spreads through March 31. Net interest income for the quarter was $59.2 million, an increase from $55.5 million in the fourth quarter, driven by rate cuts late last year and growth in our investment portfolio. These benefits were partially offset by interest income reversals totaling $3.5 million associated with loans moving to nonaccrual status in our transitional loan portfolio during the quarter. On the G&A front, we are happy to report that we again made significant progress with our cost reduction initiatives. In February, we entered into a series of agreements to relocate our corporate headquarters to a new location here in New York without paying any early lease termination fees. As a result of these agreements, we expect some short-term noise in our reported G&A, including $2.4 million of accelerated noncash depreciation expense recognized this quarter and an additional $5 million expected in the second quarter. Following these accelerated noncash charges, we expect to realize run-rate expense reductions of approximately $4 million per year related to the move, which is nearly $40 million in total over the remaining term of our prior lease. Including the expected savings from the relocation, we now estimate that our expense reduction initiatives have achieved nearly $20 million per year of run-rate overhead savings versus 2024 levels. Moving to our DE, distributable earnings for the first quarter were approximately $31.1 million, or $0.30 per share, up from $0.27 per share in the fourth quarter. The increase was primarily attributable to a $0.03 benefit associated with the lease modification and approximately $0.02 of higher mortgage banking income at Lima One. These benefits were partially offset by an aggregate $0.02 charge related to higher carrying costs on REO and higher realized credit losses on our fair value loans. We remain focused on growing ROEs, and we continue to expect our DE will begin to reconverge with the level of our common dividend later this year. As Craig mentioned earlier, this quarter we are introducing an additional non-GAAP measure which further adjusts our distributable earnings to exclude realized credit losses on our residential whole loans held at fair value. We are providing this new disclosure to give additional context around our distributable earnings as credit losses on our legacy multifamily portfolio continue to flow through DE. As we have noted on prior calls, because resolving NPLs does not impact our DE long after the loan has been marked down in our GAAP results and book value, these losses can potentially obscure the current earnings power of the portfolio. While credit losses are a normal and recurring part of investing in credit assets, we expect that the resolution of the legacy multifamily portfolio and improvements in processes and underwriting more broadly at Lima One should result in significantly lower loss rates across more recent vintages of origination. As a result, we believe this new metric, alongside our reported GAAP results and our existing DE disclosure, can give investors a clearer view of the underlying earnings capacity of our investment portfolio as we work through the resolution of these troubled legacy assets. While the timing of loan resolutions and resultant credit charges can be difficult to reliably forecast, we expect realized credit losses on the legacy transitional loan portfolio to accelerate meaningfully in the second quarter before beginning to normalize as we move through 2026 and into 2027. As a result, we expect that the difference between DE and this new supplemental DE measure will narrow considerably over time. We anticipate reassessing the usefulness of this new measure as the runoff transitional portfolio continues to wind down. Finally, subsequent to quarter end, we estimate that as of the close of business on Friday, our economic book value was approximately flat to the end of the first quarter. I would now like to turn the call over to Bryan, who will discuss our investment portfolio and Lima One. Bryan Wulfsohn: Thanks, Mike. We acquired over $1 billion of residential mortgage assets in the first quarter. This included $471 million of Non-QM loans, $400 million of agency securities in addition to $300 million of TBAs, and $219 million of business purpose loans originated by Lima One. Non-QM remains our largest asset class. During the quarter, we grew our Non-QM book to $5.5 billion. We added $471 million of new loans with an average coupon of 7% and an LTV of 68%. Although our portfolio has grown significantly in recent years, along with the broader Non-QM industry, we remain highly focused on credit quality and continue to review every loan prior to acquisition. Credit performance in our Non-QM book remains strong, with a default rate just above 4%. During the quarter we issued two securitizations. First, in early March, we issued our twenty-second Non-QM deal, selling $326 million of bonds at an average coupon of 5.12%. The newly originated loans in that deal carry an average coupon above 7%. Later in March, we re-securitized over $400 million of seasoned Non-QM loans that had been in two deals we issued several years ago. This relever unlocked approximately $40 million of cash and additional financing capacity. We expect this move to be accretive to our earnings moving forward. During the quarter, we continued to grow our agency portfolio, which now exceeds $3.5 billion in size. Our investments this quarter continued to focus on low pay-up spec pools. After the escalation in the Middle East unleashed a broader sell-off, spreads widened by nearly 40 basis points from the tights, and we took advantage of the volatility, establishing a $300 million TBA position in late March. Since then, we have seen spreads retrace about 10 basis points. We expect to add to the portfolio depending on market conditions and excess investment capacity. Turning to Lima One, Lima originated $219 million of business purpose loans during the first quarter. This included $145 million of new transitional loans and $74 million of rental term loans. We continue to sell the longer-duration rental loans at a premium to third-party investors. This quarter, we sold $81 million, generating $2.7 million of gain-on-sale income. Mortgage banking income at Lima rose to $7.7 million, an increase of 34% from the fourth quarter. During the quarter, Lima's monthly submissions and origination pipeline reached their highest level since 2024. With the recent opening of our wholesale channel and the relaunch of multifamily lending underway, we expect Lima's contribution to our earnings to grow from here. Lastly, touching on our credit performance, during the quarter, delinquencies rose in our residential loan portfolio to 7.8%. The increase was driven primarily by elevated default activity in our legacy multifamily book, which, as a reminder, has been in runoff mode for the past two years. We have made further progress shrinking that multifamily book and resolving nonperforming loans since quarter end. Our delinquency rate has already fallen back to 7.3%. We look forward to recycling that capital back into income-producing assets as we move through the year. In summary, Q1 was a productive quarter for our investment platform: we grew the portfolio, executed two Non-QM securitizations, saw strong momentum at Lima One, and continued to move our credit borrowings toward non-mark-to-market financing. We believe the current environment positions us well for the year ahead. And with that, I will turn the call over to the operator for questions. Operator: We will now open the call for questions. Thank you. Ladies and gentlemen, at this time, we would like to begin the Q&A session. Your first question comes from Bose Thomas George with KBW. Please state your question. Bose Thomas George: Yes, good morning. Actually, how much capital was tied up in the remaining multifamily transitional portfolio at quarter end? And just your guidance on the convergence between the DE and the dividend—does that include paydowns as well? Michael C. Roper: Hi, Bose. Yes, to answer your second question first, the forward guidance on DE reconverging by the end of the year does include anticipated paydowns of some of the troubled assets and redeploying into our target assets. To answer your question on how much capital is locked in that multifamily book, it is just over $100 million—$101 million at the end of the quarter. Bose Thomas George: Okay, great. Thanks. And then on the expenses, after the second quarter, when that noise is over with the depreciation, what is a decent run rate for expenses going forward? Michael C. Roper: Yes. So I think there is always a little bit of noise from quarter to quarter in our G&A for various reasons. For example, this quarter we had about $4 million of accelerated noncash stock-based comp charges, which is consistent with the first quarter of the past few years, and then the $2.4 million of the accelerated depreciation. So if you take this quarter and normalize for those one-timers and then about a penny a quarter—or roughly $1 million a quarter—for the lease changes, I think that is a pretty good start for the run rate of G&A. Bose Thomas George: Okay. And each first quarter will have that noncash comp piece that kind of bumps it up a little bit? Michael C. Roper: Yes, exactly. The accounting rules require us to expense awards made to retirement-eligible employees on the grant date instead of over the three-year service period. Bose Thomas George: Okay. Okay. Great. Thank you. Operator: Next question comes from Marissa Wilbos with UBS. Please state your question. Marissa Wilbos: Thank you and good morning. On the Agency MBS portfolio, how should we think about it? Is it ultimately something that you are going to rotate back into Non-QM and BPL, or is this a strategic reweighting in the portfolio? Bryan Wulfsohn: Yes, I would think we will most likely have some exposure, but the level of exposure will be wound down a bit depending on the attractiveness on the credit side. So as Lima grows its production, you could expect that agency portfolio to receive paydowns, and we could also sell bonds to help fund the growth at Lima One, in addition to Non-QM purchases as well. Marissa Wilbos: Okay. Great. And for Lima One, what is its posture on AI and automation within servicing and underwriting? Is there a cost target that you are willing to share for 2026, 2027 there? Bryan Wulfsohn: We are trying to reduce G&A there by roughly 10% plus, and we are on the way to doing that. We had some efficiencies gained in Q1. We are utilizing AI down there, utilizing the Claude and Anthropic AI infrastructure to help accelerate those moves. It is unclear if there is an exact percentage of cost reductions we can say AI will accrue to the business, but it is one of those things that we are exploring, and there will be ongoing benefits as we utilize the AI code and agents down there. Marissa Wilbos: Okay. Great. Thank you. Operator: Your next question comes from Matthew Erdner with JonesTrading. Please state your question. Matthew Erdner: Hey, good morning, thanks for taking the question. I would like to touch on the multifamily. Is there anything that specifically drove the delinquencies to increase quarter over quarter significantly? Bryan Wulfsohn: Well, the whole portfolio’s loan structure was three-year terms with two-year extensions. They are all really coming up on maturity and have been extended. So at this point, there might be some where the borrower has been out trying to get refinancing, and they realize they cannot get the same amount of proceeds that they borrowed initially, so then they call it a day, and we have to deal with the property or work out a mutual resolution. Really, I think it is the fact that as they are toward end-of-life, you see more delinquencies in certain cases where the borrower is unable to refi or sell the property timely. Matthew Erdner: Got it. And then, as it relates to that, should we expect you guys to bring some of these properties in, stabilize, and then sell? Or are you going to look for them to hit the market, see what they can get, and then move on from the asset? Bryan Wulfsohn: It is really a case-by-case basis. Some assets we will try to stabilize where it makes sense depending on the time and capital required to do so. But in some instances, it just makes sense to hit the bid and move on. Matthew Erdner: Got it. That is helpful. And then one last one for me as it relates to this. I appreciate you throwing in the adjustment there for DE. Should we expect a number kind of similar to 3Q levels? Michael C. Roper: Yes, so, as I said in my prepared remarks, it is really hard to have a reliable forecast of when exactly the losses are going to hit. Every foreclosure is different, every borrower is different, and there can be some timing differences from quarter to quarter pretty easily. I think with that said, in the immediate term—we expect this primarily in the second quarter—we are expecting somewhere in, call it, the high teens of credit losses on multifamily resolutions. Part of the reason why our guidance is the back half of 2026 is that one bad multifamily loan rolling through the next quarter can be a 3 or 4 cent swing in DE, depending on the timing of that resolution. But our base case is somewhere in the mid to high teens of credit losses for the second quarter before beginning to normalize in the back half of the year and into 2027. Matthew Erdner: Got it. I appreciate the comments. That is helpful. Thank you, guys. Operator: Your next question comes from Mikhail Goberman with Citizens JMP. Please state your question. Mikhail Goberman: Hey, good morning, guys. Hope everybody is doing well. If I could just clear up one thing: when you talk about distributable earnings converging with the $0.36 dividend in the latter half of the year, are you referring to the current $0.30 figure you printed in Q1 or the $0.34 prior realized credit losses figure? Michael C. Roper: That is referring to our $0.30 DE, or the DE with loss adjustments. Mikhail Goberman: Gotcha. Thank you for that. And in looking at the Lima One pipeline, what do you guys see as the product mix going forward? Obviously, a very good quarter to start the year. Do you see momentum picking up in Q2, Q3? And your thoughts on the product mix going forward? Bryan Wulfsohn: Right now, the mix is really split between transitional and rentals. As we bring wholesale more online, we could see growth on the rental side accelerate. But we are also seeing great growth on the transitional side. When we said the pipeline is the highest it has been in the past couple of years, that is plus or minus $200 million at the moment. In terms of what the pipeline converts to actual loans, you might be, say, 50% to 60% to 75%, depending on coupon, timing, and other factors. So that might go to roughly $100 million per month, plus or minus, in the near term, and we still expect to grow from there. One thing we have not really hit upon yet is multifamily is relaunched, but the pipeline and submissions are really not including multifamily figures. We think we are in slow growth mode there; we have looked at a lot of loans, but we have not closed anything yet. The hope is that multifamily really comes online in the back half of the year and could help accelerate growth on top of what we are doing on the transitional and rental side. Mikhail Goberman: Great. Thank you, guys. Michael C. Roper: Thanks, Mikhail. Operator: Your next question comes from Doug Harter with BTIG. Please state your question. Doug Harter: Thanks. On the transitional loans, could you just remind us at what level those are marked and how we should think about resolutions and working through that book and any impact that it should have on book value? Michael C. Roper: I will speak to the second half of your question first. We mark these loans every quarter to fair value, and that is not just what we would expect in a credit loss situation—it is what we think we could sell the loan for. There is not a huge market for delinquent transitional loans, so a loan rolling delinquent can have a pretty big impact on its fair value even if we think the LTV is good enough to be money-good on that asset. As far as the mark level, it is a story of the current loans versus the delinquent loans. The current loans, with their, call it, 10% to 11% coupon, tend to be marked just slightly below par. For the delinquent loans, it is really on a loan-by-loan basis. I think the weighted average total discount for the portfolio in multifamily is just over $50 million, and then single-family is probably closer to about $15 million to $20 million discount. Doug Harter: Great. So it just depends on the ultimate resolution, but you feel like on the delinquent loans you have been fairly conservative? Michael C. Roper: Yes, for sure. We have always taken great pride in our marks process and have extreme confidence in the level of our marks. I think we have said over the last few quarters that as we have resolved some of these delinquent loans we are generally—almost entirely—generating gains. This quarter, we resolved another $160 million of delinquent loans, and the P&L versus our prior mark on those assets generated a gain of about $14 million this quarter. So, again, all of the empirical evidence, including where we have executed loan sales in prior quarters, gives us a lot of confidence in where we have these assets marked. Doug Harter: Great. Thank you. Michael C. Roper: Thanks, Doug. Operator: Thank you. And there are no further questions at this time. I will now hand the call back to Craig L. Knutson for closing remarks. Thank you. Craig L. Knutson: All right. Well, thanks, everyone, for your interest in MFA Financial, Inc. We look forward to speaking with you again in August when we announce second quarter results. Operator: Thank you. And that concludes today’s call. All parties may disconnect. Have a good day.
Operator: Ladies and gentlemen, thank you for standing by. 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Kerri Joseph, Senior Vice President, Investor Relations and Treasury. Ms. Joseph, please begin your conference. Kerri Joseph: Thank you, operator. Good morning, everyone. Thank you for joining our first quarter 2026 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; Michael Fedock, Executive Vice President and Chief Financial Officer; and members of our leadership and Investor Relations teams. Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call in the Events and Presentations section of our IQVIA Holdings Inc. Investor Relations website at ir.iqvia.com. Before we begin, I would like to caution listeners that certain information discussed by management during this call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company’s business, which are discussed in the company’s filings with the Securities and Exchange Commission, including our Annual Report on Form 10-Ks and subsequent SEC filings. In addition, we will discuss certain non-GAAP financial measures on this call which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation. As previously disclosed, we implemented a new segment reporting structure effective 01/01/2026. In conjunction with this change, prior period segment amounts have been recast to conform to this new reporting structure. I would now like to turn the call over to our Chairman and CEO, Ari Bousbib. Ari Bousbib: Thank you, and good morning, everyone. Thank you for joining us today to discuss our first quarter results. IQVIA Holdings Inc. delivered outstanding financial results, achieving record first quarter revenue and adjusted diluted earnings per share that exceeded the high end of our guidance, reflecting solid top and bottom line performance. We are seeing continued positive year-over-year momentum across the portfolio with strong acceleration of organic revenue growth. In fact, year over year, our organic revenue growth rate in Commercial Solutions doubled, and our organic revenue growth rate in R&D Solutions tripled. On the commercial side, revenue growth accelerated as clients continue to launch new products and increase the breadth of services they utilize from IQVIA Holdings Inc. We saw particular strength in Patient Solutions, which is the part of Real World that remained in the Commercial segment, and particular strength in Analytics and Consulting, which had the highest growth we have seen in three years, as well as strength in our Commercial Engagement Services, which includes the former CSMS segment. We feel good about demand on the commercial side with pipelines growing to record levels, and we think AI has something to do with it. AI is causing our clients to have more questions. It is causing them to increase their demand for IQVIA Holdings Inc.’s differentiated AI capabilities and for the innovation we are embedding across our commercial offerings. On the clinical side, we also delivered very strong performance in the first quarter with better than expected reported and organic revenue growth. We had solid bookings with double-digit growth year over year, both as reported and as recast. In particular, we had solid growth in net service fee bookings, that is, excluding pass-throughs. Net service fee bookings growth in the quarter was solid year over year as well as sequentially, both as reported and as recast. Cancellations in the quarter were within the normal range. So why was our book-to-bill ratio 1.04 in the quarter despite solid service fee bookings growth and normal cancellations, and no, AI has nothing to do with it? What happened was that pass-through bookings were unusually low in the quarter, simply due to the particular mix of indications of the clinical trials we booked in the quarter, which included more full-service trials with lower pass-throughs than usual. I want to note that the proportion of FSP in our bookings this quarter was consistent with historic levels. Regarding the overall demand environment, forward-looking demand metrics continue to point in the right direction. Our backlog reached a new record of $34.2 billion at the end of the quarter. Noteworthy is the amount of dollars from our backlog that will convert to revenue in the next twelve months. We have $8.9 billion out of our backlog, representing nearly 8% growth year over year versus the recast numbers last year. Our qualified pipeline grew mid single digits year over year, with notable strength in EVP. RFP flow grew high single digits year over year, driven by growth both in large pharma and in EVP. All of these comparisons are, of course, apples to apples, that is, versus prior year numbers that have been recast to reflect the new segment reporting. Finally, you may have noticed EBP funding was very strong in the first quarter, reaching $25 billion according to BioWorld, which is almost double the funding in Q1 2025. Now let us turn to the results in the quarter. We delivered outstanding revenue and profit results. Total revenue for the first quarter exceeded the high end of our guidance range, representing year-over-year growth of 8.4% on a reported basis and 6% at constant currency. First quarter adjusted EBITDA was up 5.5%. First quarter adjusted diluted EPS of $2.90 also exceeded the high end of our guidance range; it increased 7.4% year over year. Let us review a few highlights of business activity. A brief update on AI: IQVIA Holdings Inc.’s AI solutions are built on our unparalleled proprietary data foundation, best-in-class compliance with the privacy, regulatory, and integrity standards healthcare-grade AI demands, and are connected to our deep life sciences and healthcare expertise. We have been integrating AI into our operations and solutions at scale for nearly a decade. It is part of who we are and what we do. We already function as an AI-native company in life sciences. A few weeks ago, we unveiled iqvia.ai at NVIDIA’s GTC conference. This is our agentic AI portal and marketplace purpose-built for life sciences. It provides clients a single access point to their purchased IQVIA Holdings Inc. AI solutions, enabling centralized control with their internal user base, while also enabling visibility to a broader AI portfolio to support future solution adoption. Our deployment of highly specialized life sciences industry AI agents is progressing as planned. To date, we have 192 agents deployed in the field covering 64 use cases across both our Commercial Solutions and R&D Solutions businesses. Nineteen of the top twenty pharma companies are already using IQVIA Holdings Inc. agents in some of their workflows, underscoring broad industry trust in our AI capabilities. Switching to client activity in Commercial Solutions, this quarter we saw clients increasingly selecting IQVIA Holdings Inc. to build AI-ready data foundations, which facilitate the incorporation of AI agents, including our agents, into their workflows. These new services expand the scope of our partnerships with clients. A few examples of wins in the quarter: a top-10 pharma client awarded IQVIA Holdings Inc. a contract to modernize performance reporting on markets and therapeutic areas using an AI-driven analytics platform. The engagement replaces hundreds of disconnected reports and dashboards from multiple vendors with a centralized, managed, AI-powered IQVIA Holdings Inc. insights solution. IQVIA Holdings Inc. secured a multiyear partnership with a midsized client to build a scalable, AI-ready data foundation. The win demonstrates IQVIA Holdings Inc.’s plug-and-play capabilities within a client’s multi-provider technology ecosystem. Pfizer and IQVIA Holdings Inc. entered into a strategic regional promotion agreement covering selected Pfizer products across 23 countries in Europe. This collaboration brings together Pfizer’s scientific leadership with IQVIA Holdings Inc.’s promotional expertise, market intelligence, and AI-supported technology to support long-term impact. We entered into a strategic, long-term collaboration with Boehringer Ingelheim to transform the global commercial intelligence foundation. Boehringer selected IQVIA Holdings Inc.’s Data-as-a-Service plus platform as the core accelerator to harmonize and upgrade global commercial operations, enabling more scalable analytics and a single version of the truth across therapeutic areas and geographies. This collaboration will support upcoming product launches and market reporting across 59 countries. IQVIA Holdings Inc. was awarded a multiyear agreement to serve as the primary patient information and analytics partner across an EVP’s full portfolio, including our Data-as-a-Service platform. This partnership is designed to drive strong visibility into existing brands, accelerate improvements in analytics, insights, and pipeline assets, and enable more intelligent commercial and portfolio decisions. Turning to R&D Solutions, our strategy has been to leverage our AI solutions to optimize trial design and execution to reduce timelines for our clients. We have been doing this for years through protocol optimization, site identification, and operational risk mitigation, and we are taking this to the next level with AI agents, which lead to much faster study execution and increased quality by reducing errors and rework. For example, the agentification of the complex database setup process in study start-up or the AI identification of tasks involved in filing multiple documents in the Trial Master File. We are increasingly embedding these AI agents in our delivery model. Recent wins on the back of these capabilities include: a top-five pharma company selected IQVIA Holdings Inc. to provide AI-enabled global medical safety and pharmacovigilance services, building on a decade-long relationship and strong performance across both FSP and clinical delivery models. The deal consolidates safety operations under a single scalable model to improve efficiency and reliability while enabling ongoing innovation. A top-10 pharma client awarded IQVIA Holdings Inc. a multiyear agreement to serve as the primary partner for delivering full-service global clinical trials. We differentiated ourselves through AI-enabled innovation that accelerates development and improves execution quality. IQVIA Holdings Inc. won a contract with a global midsized pharma to deliver a Phase 3 clinical study supporting a high-profile oncology asset, based on our experience running similar studies and our ability to deliver AI-enabled trial design, protocol optimization, and site identification. A top-20 pharma company selected IQVIA Holdings Inc. to support a late-stage clinical program in asthma in overweight patients, highlighting AI-enabled clinical solutions, including protocol and design strategy optimization, regulatory compliance, and study document filings. For an EDP, we are delivering a global late-stage clinical program that integrates clinical and laboratory services within a single operating model, with agentified analytics embedded across site feasibility and selection, enrollment, and performance forecasting. Lastly, in the quarter, we announced a strategic collaboration with the Duke Clinical Research Institute to advance clinical research in obesity and related cardiometabolic conditions. The collaboration brings together IQVIA Holdings Inc.’s global operational scale and execution capabilities with Duke’s academic rigor and scientific leadership, creating an integrated end-to-end model for large, complex clinical trials. The partnership is designed to accelerate trial start-up, improve execution efficiency, and support regulatory submissions and commercialization. IQVIA Holdings Inc. contributes deep expertise in obesity and metabolic disease, having supported more than 120 obesity trials and enrolled more than 90,000 patients, including work across all FDA-approved GLP-1 therapies to date, providing sponsors with a proven operational foundation. This partnership with Duke has already resulted in a significant pipeline of opportunities and a few wins in the second quarter. I will now turn the call over to Michael Fedock for more details on our financial performance. Michael Fedock: Thank you, Ari, and good morning, everyone. As Kerri noted earlier, we implemented a new segment reporting structure effective 01/01/2026. In conjunction with this change, prior period segment amounts have been recast to conform to this new reporting structure. Let us start by reviewing the results. First quarter revenue was $4.151 billion, up 8.4% on a reported basis and 6% at constant currency. Revenue growth includes about two points of contribution from acquisitions. Commercial Solutions revenue for the first quarter was $1.754 billion, up 11.6% on a reported basis and 8.5% at constant currency. R&D Solutions first quarter revenue was $2.397 billion, up 6.2% on a reported basis and 4.2% at constant currency. Now moving down the P&L. Adjusted EBITDA was $932 million for the first quarter, representing growth of 5.5% year over year. First quarter GAAP net income was $274 million and GAAP diluted earnings per share was $1.61. Adjusted net income was $492 million for the first quarter and adjusted diluted earnings per share was $2.90, representing growth of 7.4% year over year. Now turning to RDS bookings. To provide an apples-to-apples comparison, last year’s Q1 2025 net new bookings and backlog have been recast to reflect the Real World Late Phase and certain other Real World offerings that are closely related to the clinical trial business, which we moved from TAS to RDS. On this new basis, R&D Solutions net new bookings in Q1 2026 were $2.5 billion, a double-digit increase year over year. RDS backlog at March 31 was $34.2 billion, an increase of mid single digits year over year. Additionally, the next twelve-month revenue from this backlog was $8.9 billion at March 31, which is up high single digits versus the prior year on a recast basis. Now reviewing the balance sheet. As of March 31, cash and cash equivalents totaled $1.947 billion and gross debt was $15.833 billion, resulting in net debt of $13.886 billion. Our net leverage ratio ended the quarter at 3.62 times trailing twelve-month adjusted EBITDA. First quarter cash flow from operations was $618 million; capital expenditures were $127 million, resulting in strong free cash flow of $491 million, which represents 100% of adjusted net income, a 15% increase year over year. In the quarter, we repurchased $552 million of our shares, which leaves us approximately $1.2 billion of repurchase authorization remaining under the current program. Now turning to guidance. We are reaffirming our full year 2026 guidance for revenue and adjusted EBITDA, and we are raising the guidance for adjusted diluted earnings per share. We continue to expect revenue to be between $17.15 billion and $17.35 billion, representing growth of 5.2% to 6.4%, or 5.8% at the midpoint. This revenue guidance continues to assume approximately 150 basis points of contribution from acquisitions and approximately 100 basis points of tailwind from foreign exchange. These assumptions are unchanged from the prior guide. We continue to expect adjusted EBITDA to be between $4.05 billion and $4.25 billion, growing 4.9% to 6.3% year over year, or 5.6% at the midpoint. We are raising our adjusted diluted EPS to be between $12.65 and $12.95, up 6.1% to 8.6% versus prior year, or 7.4% at the midpoint. Turning to the second quarter. For Q2, we expect revenue to be between $4.28 billion and $4.34 billion, which represents year-over-year growth of 6.5% to 8%. Adjusted EBITDA is expected to be between $955 million and $975 million, representing growth of 4.9% to 7.1% versus prior year. Adjusted diluted EPS is expected to be between $2.98 and $3.08, which represents year-over-year growth of 6% to 9.6%. Both this guidance and our full year guidance assume that foreign currency rates as of May 4 continue for the balance of the year. To summarize, IQVIA Holdings Inc. delivered outstanding financial results with first quarter revenue and adjusted diluted EPS exceeding the high end of our guidance. We delivered strong acceleration of organic revenue growth in both Commercial Solutions and R&D Solutions. RDS net new bookings grew double digits year over year with solid year-over-year and sequential growth in net service fee bookings. We continue to make very strong progress in the deployment of highly specialized life sciences industry AI agents, with more than 190 agents deployed covering over 50 use cases across Commercial Solutions and RDS businesses, with 19 out of the top 20 pharma companies already using our agents in some of their workflows. Forward-looking indicators continue to point in the right direction for both Commercial Solutions and RDS. We repurchased $552 million of our shares in the first quarter, and we reaffirmed our full year 2026 guidance for revenue and adjusted EBITDA and raised the guidance for adjusted diluted earnings per share. We will now open the call for questions. Operator, please go ahead. Operator: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We request that you please limit yourself to one question so that others in the queue may participate as well. We will pause for a moment to compile the Q&A roster. Your first question comes from the line of an Analyst with Leerink Partners. Your line is now open. Please go ahead. Analyst: Good morning, everyone. Thanks for taking the questions. Maybe if I can dive in a little bit more on the services versus pass-through bookings that you saw in the quarter. As you think about the demand dynamic, how should we think about that conversion of what you are winning across the margin progression, Ari? I just want to make sure we all understand the push and pull on what is coming through into the backlog versus how profitable it is relative to the core business, especially if these are a lot more full-service-oriented wins within the RDS segment? Thank you. Ari Bousbib: I hope I understood your question well, but just to be clear, you understand that pass-throughs have zero profitability drop-through. That is clear. So pass-throughs are irrelevant to profitability. We have to report them because that is an accounting requirement. We had solid execution in the quarter. We booked $2.5 billion of trials in the quarter. It just happens to be that the mix of indications was such that we had full-service trials that had fewer pass-throughs than usual. In fact, if you look at pass-throughs, the first quarter was about one third lower than the historic average. It is always within a range, but it was significantly lower. Had we had a regular mix of projects consistent with long-term history and a consistent level of pass-throughs, then we would not be having this conversation. The infamous quarterly book-to-bill ratio would have been quite significantly higher. There is no impact on margins—no unexpected impact whatsoever. I want to point out that on pure service fee bookings, year over year and sequentially, we were up very significantly. Now, ignoring the pass-through issue, generally Q1 is always lower than Q4, usually by 16% to 17%. This quarter it was lower by less than that—about 13% down—so lower as always, but a little bit less than usual. Frankly, we also have the most conservative bookings policy in the industry. You only book business when it is contracted. So if we are awarded a couple of trials at the end of the quarter and the client board is only meeting on April 2 and that is when the contract is signed, then that is when we book it. It is not a first quarter win. The influence this can have on a reported book-to-bill is very significant. Again, and I said this when we reported book-to-bill ratios of 1.3, I said it when we reported 0.9, and I will say it again today: the quarterly book-to-bill metric is a bad metric to predict future growth. I can easily point to many competitors who reported great book-to-bill ratios and are now having very negative growth. Point to us: last year at this time, we reported a book-to-bill of 1.02, and if this were predictive of growth, this quarter we would be showing really poor, anemic growth in RDS, and yet we are reporting very strong 3% organic growth—over 6% reported. We have about two points from FX and about a point from acquisitions; our organic growth in R&D was 3%. Could you have predicted that from the 1.02 reported book-to-bill last year? The answer is no. Again, there is zero impact from AI in our bookings. The number of trials that we lost to anyone using any AI tool is exactly zero. And, again, no impact on margins whatsoever from the unusually low pass-throughs in the bookings this quarter. I hope that gives you enough color. Operator: Your next question comes from the line of Justin Bowers with Deutsche Bank. Your line is now open. Please go ahead. Justin Bowers: Good morning. A two-parter, maybe one for Ari and one for Mike. In terms of the wins you saw here, it is interesting to hear the full-service dynamics and that having fewer pass-throughs. Is that more of a function of how customers are deploying their clinical strategy, and are you seeing any shift there from large pharma, either in the quarter or what is in the funnel? That is number one. And then part two would be on the margins. Is that something that we would see this year, or is that more of a 2027 and beyond dynamic? Ari Bousbib: Thank you. Again, one quarter does not make a trend, and $2.5 billion of bookings that are going to convert to revenue over the next four to seven years is not going to affect our margins one bit. It is not indicative of any change whatsoever. It just happens to be that the trials that we won this quarter had lower pass-throughs. It has nothing to do with a change in customer dynamics. Some trials, like certain large vaccine trials, have an enormous amount of pass-throughs. There are certain types of large cardiovascular studies that require a lot of patients and a lot of procedures; the protocol may require more reimbursed expenses. That just was not the case this quarter. It is unusual to have lower pass-throughs, but that is what happened. I would not read anything about changing client dynamics into this. On demand, we see no change at all in the fundamental drivers of outsourced clinical development. Trial complexity is rising, the need to execute globally is rising, and the growing use of data and analytics—all of these point to the need to outsource more, not less. In the near term, we see that the environment has stabilized. Large sponsors are still taking a more deliberate approach to capital deployment, coming out of three to four years of policy-driven macro headwinds and disruptions. We have not yet returned to the decision-making speed we saw before this period started, but it is getting there and moving in the right direction. On the EDP side, funding is growing at a very nice pace, which points to renewed confidence in the pipeline. It takes a year to a year and a half before funding drives awards and into the backlog, but the demand indicators are quite strong. Michael Fedock: Just to reemphasize Ari’s point: do not draw any sort of margin conclusions from one quarter of bookings. Every dollar we book now burns over roughly five years. Some color on Q1 margins: we recorded about 60 basis points of EBITDA margin contraction, and all of that was due to non-operational headwinds—FX and pass-throughs. We have a very strong productivity program. Operationally, despite adverse mix, our productivity programs more than offset that mix, so we expanded margin operationally quite significantly in the quarter. This further highlights that you cannot correlate a quarter of bookings, or even several quarters, to future margins. Ari Bousbib: We report the book-to-bill because you want it, but it is not comparable to anyone else in the industry. Our number two competitor is part of a larger conglomerate; we know nothing about their numbers. Our number three competitor, we have no clue what their numbers are now or in the past three years. Numbers four and five are private. There is very little rationale to give so much color on bookings; conclusions people draw can be false and it is competitive information. Operator: Your next question comes from the line of an Analyst with Barclays. Your line is now open. Please go ahead. Analyst: Wanted to talk more about the upside in Commercial Solutions. You called out a few businesses that were really strong during the quarter, but it would be great to hear more about which areas were most surprising versus your internal expectations. And can you remind us on the mix of the more recurring revenue offerings within this business versus what is more discretionary? Thanks. Ari Bousbib: Thank you for the question. Our Commercial Solutions business is underappreciated. We performed very well in the first quarter. When the industry went through difficulties over the past three years, headwinds caused our large pharma clients to pause discretionary spending. Our growth rates never went negative, but they slowed to low single-digit organic growth. We then started to rebound, and a year ago in the first quarter our organic growth rate was about 2% to 2.5%. Our organic growth rate in Commercial Solutions this quarter was 5%. We reported 11.6% growth; at constant currency that is 8.5%, and when you strip out acquisitions, it is 5% organic growth—double the underlying organic growth year over year. What is driving this? On the clinical side, our AI work focuses on creating efficiency and improved execution to reduce timelines. On the commercial side, we are focused on innovation—creating new offerings—and those are gaining traction. Customers are dealing with massive amounts of data from us, from third parties, and generated by their own operations, and with disparate legacy systems. AI agentification enables clients to bypass and leapfrog systems and multiple vendors and data sources, analyze information much faster, derive insights, and make decisions at much higher speed. Our agents are healthcare-grade AI, tailor-made for regulatory requirements. Clients are very interested in these solutions. Our pipelines have reached record levels, in part influenced by these offerings. Concerns that AI would replace services are unfounded; quite the opposite, it creates new demand. The part of our commercial business theoretically most vulnerable to AI disruption—Analytics and Consulting—actually has a record pipeline and very strong growth, the best in three years, and we see this continuing. Underlying demand in Commercial Solutions is fueled by the number of new drug launches. In Q1 there were 10 new drug launches; launch activity is the bread and butter of our commercial business, and it is increasing. To summarize mix: our Info business is about 30% of the total and continues to grow low single digits, a little stronger given more demand for data that our AI agents create. The fastest growth within Commercial Solutions is Patient Solutions—the pieces of Real World that we kept in Commercial—with very strong double-digit growth. Everything else—Analytics and Consulting, Commercial Tech, and Commercial Engagement Services (including the former CSMS business), now also supplemented with AI agents—will grow mid to high single digits going forward. Operator: Your next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is now open. Please go ahead. Shlomo Rosenbaum: Hi. Thank you very much. Ari, I wanted to get a view on the market in general. Your commentary has been that it is stabilizing, but we are seeing things like Analytics and Consulting being the highest growth in three years, and that very often is a leading indicator that things are improving. Where are you seeing growth actually accelerating versus just stabilizing? And do you think your performance is indicative of market growth, or are you noticing an improvement in win rates? Ari Bousbib: I understand the question. We are coming out of a period of three to four years of significant turmoil in the industry, driven by the post-COVID deflationary environment, the biotech funding decline which constrained budgets, the IRA under the Biden administration, and announced or enacted policies under the Trump administration, plus M&A, tariffs, FDA changes, etc. All of that constrained the demand environment both on the clinical and commercial side. It is always difficult to evaluate whether we are truly out of it. Frankly, we ourselves are surprised by how well we performed in the quarter. We beat on every one of our financial metrics, and we surpassed our own expectations in both businesses. The AI disruption concerns are actually a tailwind for our business, and we are seeing it already. We feel confident that the tailwind will continue. In conversations with clients, large pharma is much more constructive on both RDS and Commercial—perhaps a little more on Commercial because large clinical trials and capital programs take more time to get started. We have not returned to “business-as-usual” speed, but we are much improved versus where we were. On the EVP front, funding reached record levels—$20 billion in the first quarter, almost double last year—which indicates renewed confidence. It takes time, but significant capital committed to specific programs is a strong indicator. Looking forward, large pharma clients tell us they plan to increase the number of molecules in their pipeline because they are using AI to identify more targets, most of which is at the discovery stage. That will increase the number of trials and the number of assets pursued, which in turn increases demand for CRO services, not the opposite. Some clients are even asking us what it would take to ramp up capacity to handle a larger number of targets, given the number of LOEs coming up in the four- to five-year timeframe and the need to replenish pipelines. On Commercial, I already commented on the strength and pipeline. Operator: Your next question comes from the line of Elizabeth Hammell Anderson with Evercore ISI. Your line is now open. Please go ahead. Elizabeth Hammell Anderson: Hi, good morning, and thanks so much for the question. Could you comment on the drivers of EBITDA margin as we move through the year? The second quarter guide implies a little bit lower EBITDA margin versus consensus. Is that a rightsizing of some of the mix impact? And how should we think about the back half of the year? Michael Fedock: Sure, Elizabeth. If you look at our EBITDA progression implied in our guide, it is pretty consistent with history—nothing noteworthy to call out there. On margins, as we mentioned when we gave our Q1 guidance, Q1 has the largest FX tailwind, and you will see that start to moderate as we go through the back end of the year. Given the strength in our productivity programs, we are very confident that reported margins will flip to positive as we progress through the year. Operator: Your next question comes from the line of Eric Coldwell with Baird. Your line is now open. Please go ahead. Eric Coldwell: Good morning. Going back to the bookings, maybe looking at it a little differently. You exited 2025 with about $10 billion of total net awards. If we use a rough 30% pass-through mix, that is about $3 billion a year of pass-through bookings, about $750 million a quarter. A third below would be about $250 million. If we add $250 million back to reported awards, as if pass-throughs were normal, that would get us to about a 1.15 book-to-bill. Is that logic consistent with what you are trying to express today? And then, can we get the constant-dollar organic growth in both segments on a recast basis? Ari Bousbib: Eric, the answer to your first question is yes. If, in addition, our RDS revenue had been what we planned as opposed to the strong burn because we converted faster in the quarter, it would have been north of that. I will let you do the math. On organic growth, from memory: RDS reported growth is 6.2%. About two points of that is FX and one point is acquisitions, so organic growth for RDS in the quarter was 3%—a year ago it was 1%. On the Commercial side, reported is 11.6%, with about three points of FX and a little more than three points of acquisitions, so organic is 5%, which is double where it was last year. So again, 3% organic for RDS, 5% organic for Commercial, and about 4% for the enterprise. Operator: At this time, I turn the call back over to Kerri Joseph. Kerri Joseph: Thank you, operator. Thank you, everyone, for taking the time to join us today. We look forward to speaking with you again on our second quarter 2026 earnings call. The team will be available the rest of the day to take any follow-up questions you might have. Thank you. Have a good day. Operator: This concludes today’s conference call. You may now disconnect.
Operator: Thank you for standing by, and welcome to Enlight Renewable Energy's First Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the call over to Limor Zohar Megen, Director of Investor Relations. Please go ahead. Limor Zohar Megen: Thank you, operator. Good morning, everyone, and thank you for joining Enlight Renewable Energy's First Quarter 2026 Earnings Conference Call. Before beginning this call, I would like to draw participants' attention to the following. Certain statements made on the call today, including, but not limited to, statements regarding business strategy and plans, our project portfolio, market opportunity, utility demand and potential growth, discussions with commercial counterparties and financing sources, pricing trends for materials, progress of company projects, including anticipated timing of related approvals and project completion and anticipated production delays, expected impact from various regulatory developments, completion of development, the potential impact of the current conflict in Israel on our operations and financial condition and company actions designed to mitigate such impact and the company's future financial and operational results, and guidance, including revenue and adjusted EBITDA are forward-looking statements within the meaning of U.S. federal securities laws, which reflect management's best judgment based on currently available information. We reference certain project metrics in this earnings call and additional information about such metrics can be found in our earnings release. These statements involve risks and uncertainties that may cause actual results to differ from our expectations. Please refer to our 2025 annual report filed with the SEC on March 30, 2026, and other filings for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Additionally, non-IFRS financial measures may be discussed on the call. These non-IFRS measures should be considered in addition to and not as a substitute for or in isolation from our results prepared in accordance with IFRS. Reconciliations to the most directly comparable IFRS financial measures are available in the earnings release and the earnings presentation for today's call, which are posted on our Investor Relations web page. With me this morning are Gilad Yavetz, Executive Chairman and the Co-Founder of Enlight; Adi Leviatan, CEO of Enlight; Nir Yehuda, CFO of Enlight; and Jared Mckee, CEO of Clēnera. Adi will provide a summary of the business results and turn the call over to Jared for a review of our U.S. activity, and then Nir will review the first quarter results. Our executive team will then be available to answer your questions. I will now turn the call over to Adi Leviatan, CEO of Enlight. Adi, please begin. Adi Leviatan: Good morning and good afternoon, everyone, and thank you for joining us to review Enlight's first quarter 2026 results. We are off to a very strong start to the year, delivering excellent financial performance and continued execution momentum across our global platform. Our results this quarter clearly reflect the strength of our operating assets, the scale and quality of our development portfolio and our ability to consistently convert projects into cash-generating capacity. Before diving into the numbers, I want to briefly address the broader environment. The first quarter once again demonstrated the resilience of Enlight's diversified platform. Despite ongoing geopolitical and macroeconomic uncertainty, our assets continue to operate reliably. Our projects advanced according to plan, and our financial performance remains strong. This resilience is the result of geographic and technological diversification and the fact that renewable energy and storage assets provide stability even in volatile conditions. Turning now to the quarter. In Q1, revenues and income increased 54% year-over-year to $200 million, while adjusted EBITDA reached $154 million, representing 58% growth year-over-year, excluding the impact of the sell-down of the Sunlight cluster. This growth was driven primarily by new projects entering operation in the U.S. alongside strong wind conditions in Israel and Europe, increased electricity trading activity in Israel and supportive foreign exchange effects. Importantly, this was organic operating growth and reflects the continued expansion of our income-generating portfolio and the future potential of advancing projects in our development portfolio over time. The U.S. became our largest geographic segment this quarter, contributing 37% of total revenues following the ramp-up of Roadrunner and Quail Ranch. This marks a meaningful milestone in the scaling of our U.S. platform. Beyond the financials, Q1 was another strong execution quarter. During the quarter, we grew our U.S. portfolio that successfully passed system impact studies by approximately 2 factored gigawatt, reaching a total of 20 factored gigawatt, significantly increasing interconnection certainty. More than 60% of our advanced development and development portfolio completed the system impact study. We expect additional projects to be safe harbored in 2026, bringing the total to 15 to 17 factored gigawatt or about 80% of our U.S. advanced development and development portfolio. Our U.S. portfolio expanded by 2.6 factored gigawatt, more than 10% sequentially and expanded in additional demand areas outside of WECC, supporting our medium- to long-term growth in the market. Last, we started construction at CO Bar 3, the 475 megawatt PV phase of the CO Bar complex, fully in line with our execution plan. These developments further reinforce our ability to deliver large-scale solar plus storage projects with speed, discipline and attractive economics and supports our growth potential beyond 2028. In Europe, the opportunity is equally compelling. While renewable generation continues to expand rapidly, energy storage deployment has not kept pace, creating a systemic need for flexibility and balancing capacity. According to Wood Mackenzie, this need amounts to 1.4 terawatts of storage capacity by 2034 globally. This gap is structural, not cyclical and supports attractive long-term economics for well-positioned storage projects. During the quarter, we continued to advance our European expansion and are now in advanced negotiations to expand our business in additional markets, including Finland and Romania as part of our strategy to deepen our presence in high potential storage markets. Energy storage remains a core growth pillar for Enlight in Europe with a vast portfolio of 14 gigawatt hour, of which 4.9 gigawatt hour in the mature portfolio fully aligned with our focus on disciplined capital allocation and attractive returns. In Middle East, North Africa, we are deploying the full scope of Enlight's capabilities, leveraging our position as a leading and trusted energy player. Israel remains a core market where we are active across utility scale wind and solar, energy storage, agrivoltaics and high-voltage infrastructure. Enlight's position in Israel, combined with our unique expertise in different energy generation applications enable us to significantly grow in Israel and develop new and innovative growth engines. In agrivoltaics, specifically, we continue to scale rapidly with dozens of land agreements signed over the past year, representing approximately 3 factor gigawatt of future solar capacity while strengthening synergies between energy generation and agriculture, enhancing food security and energy security at once. The agrivoltaics opportunity in Israel is huge. We estimate more than 120,000 acres will be needed to meet renewable energy targets by 2050 with a market size estimated at several billion dollars. At the same time, we're advancing high-voltage storage projects in Israel totaling more than 2 factor gigawatts, which enhance grid flexibility and resilience while enabling us to optimize revenue generation. Looking ahead, we believe Israel is on track to become one of the countries with the highest energy storage capacity per capita globally, and we are well positioned to take advantage of this opportunity. Across the portfolio, execution continued at a strong pace. We advanced 0.5 a factored gigawatt into construction during the quarter, mostly attributed to Phase 3 in the CO Bar complex advancing to construction and expanded our total portfolio to over 41 factored gigawatts, a sequential increase of 8%. Looking ahead, we expect approximately 7 factory gigawatts to be under construction during 2026, with over 90% of our mature portfolio either operating or under construction by year-end. This level of visibility is the outcome of years of disciplined development, extensive grid interconnection work and proactive risk management. Stepping back to the broader demand environment, we continue to see structural growth in electricity demand, driven in part by the rapid adoption of AI and data-intensive applications and the resulting expansion of data centers. Industry forecasts indicate that U.S. data center electricity consumption could triple by the end of the decade, requiring more than 300 terawatt hour of new capacity that is fast to deploy, scalable and cost effective. In this environment, solar combined with storage stands out. Compared to other generation technologies, it offers shorter time to market, meaningfully lower LCOE and the flexibility required to support modern grids. Enlight is well positioned to capture this demand, leveraging our large grid-ready sites, proven execution capabilities and deep experience delivering solar plus storage at scale. The business environment in which we operate remains extremely favorable with rising demand, constrained supply and attractive equipment costs. Recent geopolitical disruptions, together with the sharp increase in oil and gas prices have underscored the strategic importance of renewable energy as a reliable and competitive source. Turning to outlook. We are reaffirming our full year 2026 guidance. Revenues and income of $755 million to $785 million and adjusted EBITDA of $545 million to $565 million. More importantly, we continue to stand firmly behind our long-term growth trajectory. With approximately 7 factored gigawatts expected to be under construction in 2026 and the vast majority of our mature portfolio either operating or under construction, we see a clear and credible path to more than $2.1 billion of annual revenue run rate by the end of 2028. This growth is anchored in projects already in hand, supported by strong and increasing returns and executed with discipline. Before I wrap up, let me summarize the key takeaways. We delivered a strong start to 2026 with excellent financial performance and execution momentum. We continue to expand and derisk our U.S. portfolio, advancing key milestones, including system impact study completion, safe harbor progression and the start of construction at CO Bar 3. We see utility scale growth opportunities in Middle East, North Africa, a market in which we have a significant competitive advantage. We are well positioned to capture structural demand growth and systemic grid needs, leveraging the speed, cost and flexibility of solar and storage. And we remain focused on disciplined growth and long-term value creation while not compromising on returns, profitability and the strength of our balance sheet. With that, I will hand the call over to Jared. Jared McKee: Thank you, Adi. In the U.S., Clēnera continues to execute on its long-term growth strategy and remains firmly focused on disciplined construction execution, while at the same time, expanding our portfolio and customer base. This quarter, we have continued to grow and advance our development portfolio across U.S. markets, led by significant progress in PJM. We submitted interconnection applications within PJM for an additional 2,500 factored megawatts across 5 projects. PJM is a market with exceptional opportunities for new solar and storage, characterized by sustained utility demand, tight capacity dynamics and attractive power pricing that supports long-term profitability. Our operating assets continue to demonstrate the quality and durability of our portfolio. Energy generation across operating projects has been stable and predictable. We continue to monitor uptime closely. Clēnera is currently constructing 6 projects totaling 3.4 factored gigawatts. Our construction portfolio reflects deliberate investments in our internal processes, targeted hiring and retention and long-standing relationships with Tier 1 suppliers and contractors. It also demonstrates our ability to consistently deliver approximately 2 factored gigawatts annually. As a result, the construction progress we are reporting today reflects our expected baseline delivery level and our confidence in achieving commercial operations year-after-year. At the CO Bar complex in Northwest Arizona, ground clearing and other site construction activities are underway on the third phase of the project. Phases 1 and 2 are in full construction and making steady progress. Combined, these 3 phases include nearly 1.5 factored gigawatts. Initial CODs are on track for the second half of 2027 with CODs for the following phases in first half of 2028. For the final 2 phases of the CO Bar complex, CO Bar 4 and 5, we have secured a domestic source for the batteries totaling 3,176 megawatt hours. Our sourcing strategy mitigates tariff and supply chain risks for these critical phases. In Northeast Arizona, progress is steady at the construction of the Snowflake complex. The first phase, Snowflake A includes 594 megawatts of PV generation and 1,900 megawatt hours of energy storage. We are near the halfway mark of installing both the PV and battery components and remain on target for COD in the second half of 2027. The Country Acres project outside of Sacramento, California remains on schedule for COD at the end of this year. This project includes 403 megawatts PV and 688 megawatt hours of energy storage. When operational, it will generate enough energy to power over 85,000 California homes. Finally, work is underway at Crimson Orchard project located in Elmore County, Idaho. This project includes 120 megawatts of PV generation and 400 megawatt hours of energy storage. Spring weather has allowed us to make significant progress on the project's civil work and prepare the site for major equipment deliveries. Foundation work has begun for the batteries and switchyard. Our market strength has once again been confirmed with the closing of the construction financing package in March, totaling $304 million for the Crimson Orchard project. This clears the path for the project's successful commercial operation in 2027. Taking a step back from specific projects, I want to offer an update on our supply chain. Despite global disruptions in shipping due to geopolitical conflicts in the Middle East, we have seen limited exposure to availability or pricing of our materials. Looking ahead, we may see ripple effects on the supply chain and logistic inputs. Nevertheless, we continue to enhance our diverse pool of supplier resources, including U.S. domestic manufacturing to give us flexibility and resilience in the face of uncertainty. With one of the largest U.S. solar and storage construction pipelines, we are well positioned to be a preferred counterparty for our suppliers and vendors. To close, Clēnera remains firmly focused on what matters most to our investors. executing large-scale construction projects on schedule, maintaining reliable operating performance, advancing a deep and diversified development pipeline and expanding our customer base thoughtfully and strategically. I will now turn the phone over to Nir. Nir Yehuda: Thank you, Jared. Q1 '26 delivered a strong start to the year, setting the foundation for the quarters ahead. The company's total revenues and income increased to $200 million, up from $130 million last year, a growth rate of 54% year-over-year. This was composed of revenues from the sale of electricity, which amounted to $157 million, an increase of $47 million from the first quarter of '25 as well as recognition of $43 million in income from tax benefit, an increase of $23 million from Q1 '25 attributed to the new operational project Roadrunner and Quail Ranch. The increase in revenues from the sale of electricity was driven mainly by new projects, which contributed $16 million to revenues growth. It was also a strong quarter for our wind project with increased generation contributing $14 million. Electricity trade activity in Israel roughly doubled from last year, contributing $6 million to revenues growth. And finally, the appreciation of the Israeli shekel and euro versus the U.S. dollar contributed $12 million. The company adjusted EBITDA grew by 70% to $154 million compared to $132 million for the same period in '25, excluding the contribution of $42 million from the sale of 44% of the Sunlight cluster in Q1 '25 and follow-on sale of 11% of the cluster in Q1 '26, which contributed $12 million. EBITDA in Q1 '26 grew by 58% or $52 million. The increase of $70 million in revenue was offset by an additional $70 million in cost of sales linked to new projects and to the increase in electricity trade activity in Israel, while G&A and project development expenses increased by $6 million. In contrast, other income increased by $5 million. First quarter net income amounted to $38 million compared to $102 million in Q1 '25 and $21 million excluding the Sunlight cluster sale contribution. An increase of $52 million in EBITDA was partially offset by an increase of $70 million in depreciation and amortization attributable to the start of operation of new projects as well as an increase of $4 million in expense related to share-based compensation. Additionally, net financial expenses increased by $12 million, mainly as a result of the commercial operation of new projects and tax expenses increased by $4 million, net of the Sunlight sale impact. During the first quarter, Enlight continued to solidify its financial position, raising approximately $740 million, mainly from a private placement of 6 million shares to Israeli institutional investors for $422 million and $304 million from project finance. In total, our cash and cash equivalents at the topco level increased to $709 million. Additionally, we have $270 million held by subsidiaries. In addition, we have $525 million of credit facility with $360 million available and approximately $1.6 billion in LC and surety bond facility, including $1 billion available, further enhancing our financial flexibility. Our solid financial position and internal resources will continue to support our growth towards the $2 billion revenue mark and beyond. I will now turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Justin Clare of ROTH Capital Partners. Justin Clare: Congrats on the strong results. I wanted to started off... Adi Leviatan: Thanks, Justin. Nice to hear from you. Justin Clare: Yes, likewise. So I wanted to start out just asking about the unlevered returns here. It looks like the expectation for under construction and preconstruction projects increased to 13%. I think that's up from 12% to 13% last quarter and then 11% to 12% a couple of quarters ago. So just wondering if you could speak to what's driving the improvement? Is this better PPA pricing, lower equipment costs or other factors here? And then are you seeing further opportunity for improvements in the return profile, let's say, for future projects that are moving through the pipeline today? Adi Leviatan: Yes. Thanks again for the question. I will give a little bit of an answer, and I will also pass it over to my colleague, Itay Banayan, the Chief Corporate Development Officer. So we are constantly working on improving the rates of return in our projects. The projects that are currently under construction and preconstruction, we continue to do optimization work on the capital expenditure and on other aspects. Specifically, in this case, we did significant work to further improve the profitability or the -- to further reduce the CapEx on CO Bar's storage components of these projects, changing the sources of supply for the batteries to different suppliers, also making us eligible in this case for domestic content. So a double win in that sense. And we did additional moves, which we constantly again do to try to improve the economics of our projects, thereby reaching this 13% solidly. I'll pass it over to Itay Banayan, our Chief Corporate Development Officer. Itay Banayan: Justin, good to hear from you. Yes, everything that Adi said, and in general, it's something that we're very proud of. On the same slide, you see that the first 3.9 factored gigawatts that we connected to the grid over 17 years or so. And now we are in the process of the construction and preconstruction of 7.7. So almost doubling in 1 year or in 2 years, everything that we did in 17 years. And at the same time, we're improving and enjoying the economies of scale and the reduction in CapEx and the increase in the PPAs, and it's a global phenomenon. So we're not only growing, but we're constantly improving and taking a lot of -- putting a lot of attention on profitability, on cash flows, on the balance sheet and so on. Justin Clare: Okay. Great. Yes, it's good to see the improvements in the return profile here. Maybe just shifting over to the operational capacity here. It looks like the outlook for 2027 was reduced a little bit to 7.3 factored gigawatts, down from 8 last quarter, and then the ARR was stepped down to $1.4 billion from $1.6 billion. Wondering if you could just walk through that change, what potentially shifted out of the 2027 time frame? And then it does look like 2028 is -- remains intact in terms of your outlook there. So just wondering, is this a matter of just a project timing or any other factors? Adi Leviatan: Yes. And it actually relates to the previous point as well for specifically the purpose of improving further the rate of return on the CO Bar 4 and 5, the parts of the -- that are standalone storage in CO Bar, we actually did change the suppliers of the BESS, the battery energy storage system, and therefore, had to do some reengineering on site, which pushed the project's COD, like commercial operation date just from the end of '27 into the beginning of '28. And similarly, one additional project in Europe project, Bertikow which was also pushed forward just by a very short amount of time. Generally speaking, we like that these projects -- we have one chance to get them right and then they're going to be producing electricity and revenues for us for 20, 25, 30 years. So to push them out by a month or by a couple of months is something that we sometimes do in order to improve them. And they are all connecting just a very short delay, which is a natural normal course of the developer's life. Operator: Our next question comes from the line of Jon Windham of UBS. Jonathan Windham: I guess sort of a bigger picture question. Through your Clēnera subsidiary, you're going to be one of the largest customers for stationary storage in the United States over the next 5-plus years. I'm wondering, there's been a number of announcements of new entrants into the stationary storage market, namely LG Energy Solutions, General Motors and Ford. Have you had dialogues with any of these potential new suppliers? And how do you think that plays out in the supply-demand balance and pricing for batteries in the future? Adi Leviatan: Thank you for the question. I would like to ask Jared if you are comfortable taking this question forward. Jared McKee: Absolutely, Adi. Thank you for the question, and thank you for your insight into the market. We are constantly talking with potential suppliers on the battery and on the PV side. Specifically on the battery side, we welcome new domestic suppliers opening operations and manufacturing facilities in the U.S. It both adds rigidity and robustness to the supply chain and allows us to secure both domestic sources and reduce our risk overall from any sort of geopolitical occurrences throughout the world. We are engaged with multiple suppliers on the battery side. And as these battery manufacturing facilities get built out, the supply continues to grow. And so this supply is being distributed to the same amount of projects. And so we do like the supply and demand curves that this provides for us, and we expect that we will have very effective negotiations over the next period of time with our potential suppliers. It gives us the ability to leverage our portfolio, as you mentioned, we will be one of the larger customers in the United States for stationary BESS. And we intend to continue to deliver results like we shared today, where we are constantly increasing the profile of our projects and making them better. Operator: Our next question comes from the line of Corinne Blanchard of Deutsche Bank. Corinne Blanchard: The first question, can you talk about the cadence that you're expecting for the rest of the year? I think 1Q is showing a little bit of better seasonality maybe than we had anticipated. So just wondering how the rest of the year is going to shape up? And then maybe second question, can you talk about the safe harbor in your portfolio and how that has evolved during 1Q? Itay Banayan: Corinne, good to hear from you. This is Itay. What was the second part of the question? Adi Leviatan: Safe harbor. Itay Banayan: Safe harbor, okay. So with the first half of the question, in terms of the seasonality, the quarter and the year indeed started very strong and exceeded our expectations. Nevertheless, we do anticipated seasonality over the year. The first quarter is usually a very strong quarter in terms of wind, and it was even better than we anticipated. And in general, as Adi mentioned during the call, we are keeping our guidance for the year intact. It is only the first quarter. And as I mentioned, there was some -- I think there was some gap with the consensus, but our internal expectations were not that far away. And in terms of safe harboring... Adi Leviatan: We do have the opportunity to safe harbor an additional 2 to 4 factored gigawatt in the next couple of months until basically the end of June. And it is completely at our discretion. Obviously, as you know, projects that are being safe harbored, we need to then maintain like full activity, construction activity at the site from when we safe harbor them until their completion, and we need to make sure that they are connected that they arrive at commercial operations before the end of 2030. So we are taking our decisions to -- from the 2 to 4 factored gigawatt additional that we have options to safe harbor to bring the total amount to 15 to 17 factored gigawatts of safe harbor. We're taking those decisions in the next couple of months. Jared, anything to add on the safe harbor point? Jared McKee: Yes. Just that we are actively [indiscernible] the projects are being safe harbored through physical work of a significant nature, both on-site and off-site. Adi, I think you shared the numbers most accurately. And yes, we are excited to have this large portfolio of projects to be able to pull from over the next really several years of commissioning and CODs. Adi Leviatan: And I will come back just to say, Corinne, that when the One Big Beautiful Bill Act came out in May last year, exactly a year ago, there was obviously concern. And at the time, we promised or we anticipated that we would be able to safe harbor 6 to 8 factored gigawatt of projects by the end of 2028. We're now standing here towards the 16 -- sorry, 15 to 17 factored gigawatts that we would be able to safe harbor by the end of 2030. So significantly more than we predicted at the time, and we're really making the most of the safe harbor regime as long as it's in place. And we also are very confident about our ability to successfully develop and execute projects in the United States after the end of that regime, but we have enough time for that in solar projects after the end of 2030 and for storage projects even after the end of 2032. Corinne Blanchard: Right. Can I ask one more follow-up question? Can you talk about the 2028 target? It seems like you might be able to raise it or we kind of felt from the presentation like you are like $100 million ahead of the target. Can you just like give a little bit more thought on that one? Adi Leviatan: So we give the 2028 annual run rate as we forecasted today. The component that is today -- the $2.1 billion of this is already today in the mature portion of our portfolio. And then there's additional projects that are currently not yet in the mature, they're in advanced development. But nevertheless, they will make it to be connected by the end of 2028, which is why there's that $2.1 billion to $2.3 billion range. At this point, we cannot give a more accurate number, but that is the composition of the number. Itay Banayan: But Corinne, you can see that over the last couple of quarters, the percentage of the mature portfolio outside of the 2028 road map has increased over time. And with the start of construction of additional 3 factored gigawatts this year, the vast majority of the 2028 plan is going to be either operating or under construction this year, and thus reducing significantly any development risk and increasing the certainty that stand behind this road map. And again, you can see with all of the safe harboring that we're doing and the increase of the portfolio in the development and the advanced development that we are looking ahead at the growth beyond '28. And there is a lot of materials in the presentation and the earnings release when you analyze the portfolio to see that there is significant potential beyond 2028. Operator: [Operator Instructions] Our next question comes from the line of Maheep Mandloi of Mizuho. Maheep Mandloi: Maybe just like a follow-up on this safe harbor and on Slide 16. I presume like the main bottleneck for new projects is the interconnection of the completed system impact study, right? So I'm just trying to -- curious like if you could see more of the safe harbor come through before June and kind of hit this 19.9%, which you already have completed the system impact study for. Just curious like what would it take for safe harbor to ramp up to match that number? Adi Leviatan: Maheep, it's nice to hear from you. Jared, I'm going to please redirect the question to you. Jared McKee: Yes, no problem. Maheep, my apologies. I had a hard time hearing. Do you mind actually rephrasing the question? I just want to make sure I can answer it accurately. Maheep Mandloi: Yes, sure. I mean like talking to some of the developers or the industry, it looks like the interconnection is probably like a bigger bottleneck to get projects online by 2030 rather than just safe harbor. So was curious like if you have -- given you have 19.9 factored gigawatts of completed system impact study, can safe harbor ramp up to match that 19.9 by July 4 of this year? Or just curious like what would it take for safe harbor to grow from this 15, 16 -- 15, 17 gigawatts to the almost 20 factored gigawatts you have completed system impact study. Jared McKee: Got it. Okay. So just to confirm, it's really asking, is there the ability to match the safe harbor numbers with the completed system impact study that's sitting right around 20 factored gigawatts. Is that accurate? Maheep Mandloi: That's right. Jared McKee: Okay. So as you can see, one, we are very proud of the fact that we have 20 gigawatts of projects that have completed system impact study. This actually shows the success of what we are doing here in the U.S. at the Clēnera side, along with everyone at the Enlight team is to really go through and successfully go through that part of the process. On the safe harbor side, as Adi mentioned, we have optionality. What we are looking at is we are making a very strategic decision project by project to make sure that invested dollars into safe harbor and the work of significant nature is for projects that have ability to advance and COD by 2030. There are going to be some projects out of that 20 factored gigawatts that have time lines due to interconnection or other criteria that is going to be beyond the 2030 time frame. And so we probably won't see the safe harbor number go up to 20 gigawatts because there is going to be some projects. But as Adi mentioned, we are already significantly farther along on the safe harbor process for the majority of our portfolio than we had previously announced. There is some opportunity to hit that top end and maybe even a little bit more of the safe harbor on that 15 to 17 that Adi mentioned. The likelihood that it gets up to the 20 from a strategic standpoint is not completely likely just due to the fact that some of those 20 factored gigawatts are going to come online after 2030. Maheep Mandloi: Got it. Helpful. And are you seeing any interest from customers to have behind-the-meter solar, presumably that might not require interconnection study, right, I think. The limit over there would be how much would be able to safe harbor, right? So curious if you're seeing any customers ask about Island [indiscernible] behind-the-meter solar for you? Jared McKee: Yes. We've definitely seen this in the marketplace. I think our focus has been we have enough projects that are already through the system impact study that the projects that we are looking at by 2030 are those that are going to be connected to the grid, but we have seen interest in the marketplace, both from large load customers to really look at behind-the-meter solutions. We are always actively looking at ways to expand and to grow. And so we are looking at those types of opportunities. But our focus is really on our core business, which is very, very robust projects through the interconnection balanced by utilities that we can deliver on, and we have 20 factored gigawatts of projects that we can choose from. And out of that 20 factored gigawatts, we have another 15 to 17 that were going to have safe harbor. And so that is a very robust pipeline through the next 4 years. Maheep Mandloi: I appreciate that. And just one last one, just on cash sources, if you can kind of comment on how much of the current cash or what you might have in years can support growth beyond this 12 to 13 factor gigawatt post 2028. Itay Banayan: Maheep, so to remind, we have very strong access to capital globally, both at the assets level with project finance from Tier 1 lenders and at the corporate level with the access both to the Tel Aviv Stock Exchange and the NASDAQ, which we're seeing an improved liquidity -- significantly improved liquidity in the past year. At the moment, and there is -- there are details in the earnings release on the sources that we have on hand. At the moment, we have significant amounts to support the 2028 plan and beyond. So we don't need any outside resources of capital in order to support the 2028 plan and a significant factored gigawatts beyond it. Operator: Thank you. I would now like to turn the conference back over to the CEO for closing remarks. Madam? Adi Leviatan: Thank you. We highly appreciate your questions and also participating in our 2026 Q1 earnings report. We hope that you can also join us on May 19 for the investor conference where we plan to share more exciting content about our strategy going forward, and we highly appreciate you joining us here today. Thank you so much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the ONE Gas First Quarter Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Erin Dailey. Please go ahead, Ms. Dailey. Erin Dailey: Thank you, Regina. Good morning, everyone, and thank you for joining us on our First Quarter 2026 Earnings Conference Call. This call is being webcast live, and a replay will be made available later today. After our prepared remarks, we are happy to take your questions. A reminder that statements made during this call that might include ONE Gas expectations or predictions should be considered forward-looking statements and are covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities and Exchange Act of 1934, each as amended. Actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. This call will include financial results and guidance with respect to adjusted net income and adjusted net income per share, which are non-GAAP financial measures as defined by the SEC. A reconciliation of the company's GAAP net income and GAAP earnings per share to adjusted net income and adjusted net income per share, along with additional disclosures required by Regulation G are available in the earnings release we issued yesterday. Joining us this morning are Sid McAnnally, Chief Executive Officer; Chris Sighinolfi, Senior Vice President and Chief Financial Officer; and Curtis Dinan, President and Chief Operating Officer. And now I'll turn the call over to Sid. Robert McAnnally: Thanks, Erin, and good morning, everyone. We're glad to be with you to discuss our first quarter results and to affirm our guidance. We delivered strong results in the first quarter with adjusted EPS growing 6% year-over-year despite one of the warmest winters in the history of our service territory, 25% warmer than the first quarter last year. Our performance reflects disciplined execution of our long-term plan, advancing our regulatory strategy, driving operational efficiencies and supporting growing customer needs. We continue to meet our growth targets while maintaining a strong focus on customer affordability, which was particularly important during a volatile winter. While conditions were historically warm across Kansas, Oklahoma and Texas, we did experience Winter Storm Fern in January, a brief isolated cold event that temporarily drove higher gas prices across our service territory. Our 20% increase in storage capacity since Winter Storm Uri allowed us to shield customers from price volatility and save $98 million relative to purchasing gas at spot prices. Ultimately, this performance reflects the same focus that guides our business every day: safe, reliable and affordable service to our customers and long-term value creation for our investors. Safety remains a priority for our company. Our strong performance in 2025, especially in the areas of workplace safety and safe driving continues to place ONE Gas among the safest natural gas utilities in the nation. The Safety Achievement Award is given each year by the American Gas Association to companies who experienced the fewest number of serious injuries when compared to peers. Last month, AGA named ONE Gas as the winner of this award for 2025, the ninth consecutive year ONE Gas has received the Safety Achievement Award. We are grateful for the commitment and dedication of our entire workforce to operating safely as we serve our customers and support our coworkers. Now I'll ask Chris to discuss the details of our financial performance and regulatory activities. Chris? Christopher Sighinolfi: Thanks, Sid, and good morning, everyone. As Sid noted, we delivered strong first quarter financial performance, demonstrating the resilience of our business model during a historically warm winter. This was largely due to new rates taking effect and the impact of Texas House Bill 4384. We are affirming our financial guidance which includes adjusted net income of $306 million to $314 million and adjusted earnings per diluted share of $4.83 to $4.95. Adjusted net income for the first quarter was $133.4 million or $2.11 per diluted share compared with $120.1 million or $1.99 in the same period last year. First quarter revenues reflect an increase of approximately $27 million from new rates. Depreciation and amortization expense was down 6% year-over-year and interest expense was down 9%. Texas and Oklahoma experienced their warmest winters since 1895 when regional temperature tracking began. Kansas had its second warmest winter in that period and its warmest of the past 34 years. While we have effective weather normalization mechanisms that tempered the earnings impact, we were not completely insulated. Along with earnings impact, cash flows were affected as we monetized less gas in storage than we would have under normal conditions. Higher spring storage balances mean we will inject less this refill season. We expect the storage-related cash flow impact to normalize as we move through the remainder of the year. First quarter O&M expenses increased approximately 8.6% year-over-year compared with 1.9% year-over-year growth in the prior year period. The increase was primarily driven by employee-related costs. We also experienced elevated line locating activity. In particular, more fiber installations, led to an increase in line-locating tickets. Quarterly O&M naturally fluctuates due to the timing and the nature of our operations, and we continue to expect compound annual O&M expense growth of 3% to 4% over our 5-year plan. Other income net decreased by $2.6 million compared with the same period last year, in part due to decreases in the market value of investments associated with our nonqualified deferred compensation plan. Excluding amounts related to KGSS-I, interest expense was $3 million lower year-over-year in the first quarter, due in part to the impact of Texas House Bill 4384 and 2025 Federal Reserve rate cuts, a reminder that our 2026 guidance did not assume any rate reductions. Turning to liquidity. During the first quarter, we executed forward sale agreements under our at-the-market equity program for approximately 237,000 shares of common stock. We also have roughly 269,000 shares remaining to be issued under a forward sale agreement executed in May of last year. Had all shares under forward sale agreement been fully settled as of March 31, net proceeds would have totaled approximately $41.5 million. We will continue to be opportunistic about issuing equity as we meet our remaining needs. Our balance sheet remains strong. Our adjusted CFO-to-debt ratio was 19.1% for 2025 and supporting our A- credit rating and stable outlook from S&P and our A3 rating and stable outlook from Moody's. Our financial plan supports similar performance going forward. Yesterday, the ONE Gas' Board of Directors declared a dividend of $0.68 per share, unchanged from the previous quarter. I'll now turn to our regulatory activities. Oklahoma Natural Gas filed its annual performance-based rate change application in February, seeking a $28.7 million adjustment with rates expected to go into effect in late June. In March, Texas Gas Service made its gas reliability infrastructure program filing for all Texas customers seeking a $36.9 million revenue increase that is expected to take effect in July. Kansas Gas Service has not yet made a 2026 Gas System Reliability Surcharge filing. The GSRS was amended by statute effective July 1, 2026. The amendment expands the qualifying infrastructure investments eligible for recovery to include all state-specific utility plant investments. It also increases the maximum monthly residential surcharge to $1.35 from $0.80. Filings can be done once per calendar year, and we expect to make ours in the third quarter. As a reminder, we do not have any full rate cases planned until we file the Oklahoma rate case in 2027 as required by tariff. And now Curtis, I'll turn things over to you. Curtis Dinan: Thank you, Chris, and good morning, everyone. I'll start with an update on growth and capital deployment. We completed $170 million worth of capital projects this quarter, relatively in line with the same period last year. We are on schedule with final system design and acquiring right of way for the Western Farmers project that was announced late last year. This project, which includes the construction of a 43-mile 24-inch pipeline in Southern Oklahoma is on track to be in service in 2028. Our teams have also completed construction of the 1.6-mile 12-inch pipeline serving the advanced manufacturing facility near El Paso. Commissioning of the pipeline and final installation of the meter set are on schedule to be in service early in the third quarter, meeting our customers' needs. This project required multiple complex crossings including 5 irrigation canals and was executed in close coordination with local authorities and other stakeholders to ensure safe, timely and successful completion. We continue to see steady residential customer growth, even with slower new housing starts due to macroeconomic conditions. Through April, we've installed over 6,300 new meters with Oklahoma City and El Paso showing the strongest growth year-to-date. Across the board, our major metropolitan areas are adding customers at a healthy rate. We are advancing opportunities to serve additional large-load customers across our footprint. Our active discussions include a range of prospects such as large manufacturing facilities, data centers and grid connected utility generation. We have 6 projects in late-stage discussion that in aggregate could support approximately 3 gigawatts of generation and up to 1 Bcf per day of demand across Kansas, Oklahoma and Texas. We recently signed a transportation agreement for one of these projects to supply 20 million cubic feet of natural gas per day to an Oklahoma data center. This is another example of how we're leveraging our existing system to support economic growth that benefits all of our customers. We will update our growth forecast as final agreements are executed. Turning to O&M. Our coworkers continue to drive improvements in workforce efficiency and safety. First quarter line locating activity increased approximately 8.5% year-over-year while damages declined 2%. This highlights the operational benefits of bringing certain work in-house. Building on that progress, we plan to begin in-sourcing the Watch and Protect function in Oklahoma this year. We will be deploying our personnel at excavation sites near transmission and critical high-pressure distribution pipelines to support safe digging practices. This initiative further enhances public safety and system integrity while supporting more proactive management of O&M expenses. We are also using AI technology to drive efficiency. One process improvement initiative has already generated more than 12,000 hours of annualized labor savings. By automating certain tasks, AI allows employees to focus on higher value work while improving consistency, accuracy and reliability. These efficiencies are not onetime gains. They are embedded in our daily operations and supported by a stable and growing technology platform. Our investment in automation reflects a deliberate data-driven approach to cost management and operational excellence while maintaining the safety, affordability and service quality our customers expect. Operator, we're now ready for questions. Operator: [Operator Instructions] Our first question will come from the line of Richard Sunderland with Truist Securities. Richard Sunderland: I realize there are a lot of moving pieces with 2026, but I wanted to start there. You called out the weather, line locates and the Kansas GSRS filing timing. I guess, a shift around that last one in consideration of the new legislation. How do just kind of aggregate in terms of line of sight to 2026? Is -- I guess is the weather putting you in a hole that you have to overcome? I'm just curious about the moving pieces here and how you see them stacking up? Christopher Sighinolfi: Rich, it's Chris. Yes, you're right. I noted in my prepared remarks that weather normalization mechanisms while effective, didn't fully mitigate the impact of the warmth that we experienced in the first quarter. There are both structural things that will be recognized later in the year that derive from that weather, and there are discretionary decisions that we'll make around managing that. So if you look at the structural, for example, in Kansas, we have capacity release of some of the pipeline capacity that we maintain in part due to how warm it was. We didn't need it in the moment, and we don't need it in terms of storage refill. We can sell that capacity. We share that capacity release with customers. You'd have to look back a decade or more to find a weather dynamic that rivals this and where you'd see that similar type of structural delayed benefit, but that's part of what is present in the back half of the year. And then also, if you recall, Rich, last year, we accelerated some O&M projects into 2025 that had originally been planned in 2026. That affords us some flexibility and optionality as we think about managing 2026. We had contemplated a sleeve of projects that we could pull forward from '27 into '26. We formerly assumed we would do them. They're not time sensitive. There's not a safety-related or integrity component to them. So we can defer those projects and create some added capacity in that way. Robert McAnnally: Rich, this is Sid. You also mentioned Curtis' reference to the Watch and Protect program. You'll recall that we've had great success in-sourcing line locating and seen an improvement not only in performance, but significant savings. We are running that same play with Watch and Protect. And so it may feel counterintuitive to speak to the plan that we have to address the impact of weather. But I think it's important to continue those programs that we know are accretive, both in the short term and the long term. They're investments that have a meaningful return. And so we'll continue to make those, but we wanted to be very clear and open with the support for our guidance because we have confidence in the plan and our ability to execute that over the course of the year. Richard Sunderland: That's all very clear. And then turning to the large-load commentary, it sounds like a lot of exciting activity there. The 6 projects referenced in late-stage discussion, are those all incremental to your current capital plan? And then any kind of order of magnitude on the capital opportunity across those 6 projects? Curtis Dinan: Yes, Rich, this is Curtis. When we talk about late stage, that means we're literally talking about final contract terms and final needs of our customers, final design, final understandings of where they will be sourcing the gas supply from because these are transport customers. They're not gas sales customers. So in terms of the scale of those projects, I gave a sense of the magnitude overall. The one that we have announced that gives you a little bit of context, that's the largest one that we've ever announced. That's the Western Farmers project that we talked about at the end of last year. So other projects are more like the one that I mentioned in my prepared remarks that we've just signed that contract. It's not a large capital investment, but it's a meaningful contribution to our operations where we make that investment, it is very immediate-accretive because it's not a large project to put into service. So that one would be, maybe on the smaller scale of some of them that we're talking about. There was another part of Rich's question? Christopher Sighinolfi: Capital plan. Curtis Dinan: The capital plan. So the way we think about that, Rich, or the way we give the guidance is in our 5-year plan in the earlier parts -- the earlier years of the 5-year plan, those projects and those growth dollars are pretty specifically identified in what they're going to. Projects in the latter part of the year are -- there's several different options of those that will ultimately get commercialized. And so we think of those as filling in the bucket ultimately. Is there the opportunity that those buckets may overrun with additional projects? Yes, that's a possibility. We'll just have to continue to see when customers decide to move forward with the projects and what the timing of that might be versus what we've assumed. And as that happens, we'll continue to update what that growth profile looks like. Operator: [Operator Instructions] And our next question will come from the line of Paul Zimbardo with Jefferies. Paul Zimbardo: And just a follow-up on the prior question. Could you quantify what that weather plus kind of the storage excess capacity, just in terms of like an EPS impact from all those kind of abnormal weather items in the quarter? And also, if you had the number, the benefit from that House Bill 4384 in the quarter as well? Christopher Sighinolfi: Paul, I don't. I'd have to follow up with you. I mean we broke out specifically for the Texas House Bill, the non-GAAP, the equity return component. But in terms of how much it impacted interest expense and depreciation, I don't have that offhand. But if you're looking for sort of a total, "Hey, how much did this impact you?" I think that's something we could probably work to provide. In terms of the weather impacts, we have weather norm that doesn't fully reflect in the quarter. What happens? There's somewhat of a delay there. In terms of the capacity release benefits that are coming, it's in the couple of million dollar territory. Paul Zimbardo: Okay. Okay. Great. That's helpful. And then also just to follow up on the large-load side. So like that 20 Mcf project, it sounds like there could be some of those. And I think you said it's decently accretive. I don't want to put words in your mouth, but just is there a way to kind of frame what that benefit could be either to shareholders and/or customers from executing on some of those capital-light opportunities? Curtis Dinan: Paul, this is Curtis. And we have not quantified that project. Probably the easiest way is if you look at what our tariff is, and I've given you what the volumes are, but we've not made a specific comment about what the total of that would be. And typically, we wouldn't on any individual projects like that. So -- but we will include it as part of our overall guidance as we update it. Paul Zimbardo: Okay. Okay. Understood. And then just the last really quick. Is there anything on the weather normalization, like lessons learned, things that you'd recommend proposing? I know this is a really extreme mild period. I don't know if there's any kind of refinements that you're looking to advocate for? Robert McAnnally: Paul, this is Sid. If you look at the way that our weather norm mechanisms have worked across the service territory, on balance, they've been very effective in achieving the goal, which is protecting all of the participants to make sure that everyone is incented to continue to focus on reliable and affordable gas service. And so there are some extraordinary situations like think about this winter, and we covered it a bit in the prepared remarks, where you have essentially no meaningful winter and then one spike that is really significant in the amount of gas that was used and the requirements on the system and then back down to no winter. So it really was an extraordinary first quarter from that standpoint. We don't have any concerns about the weather mechanism going forward. Chris just spoke to the capacity release. That's a pretty elegant solution that the Kansas Commission put in place to incent the company to be prepared. So we know that if we're oversupplied, then there's a capacity release option that's available. It supports good service to our customers, and it is all wrapped around affordability, which takes me back to your previous question. The way that we are treating data centers and large-load opportunities not only is pursuing those opportunities, but as we've said in the past, has 2 other components. The first component is what's the impact to our customers and how do we derisk our participation in those projects to ensure that our customers aren't exposed in a way that we don't think is appropriate. And we successfully have done that, and we continue to do that. The other is how does it fit with the long-term strategy that we have for our own system. So we're thoughtful about these opportunities when they come up. Does it forward the plan that we have already to build a system that's designed to serve our customers and provide economic development opportunities across our service territory? Or is it essentially an alley with a dead end that doesn't have that kind of knock-on growth potential? We're very focused on what's the long-term potential and how does it support our long-term growth profile. So kind of a long answer, but I think you have to understand that we are constantly looking at not weather norm in isolation, not large-load in isolation, not pulling projects forward or pushing them back. We're trying to maintain flexibility so we can operate the company in a way that allows us to respond to whatever the event may be, in this case, weather, but do it in a way that doesn't interrupt our long-term vision for how we support growth for the company and long-term returns for our investors. Operator: And that concludes the question-and-answer session. I would now like to hand it back to the ONE Gas team for closing comments. Erin Dailey: Thank you all again for your interest in ONE Gas. We look forward to seeing many of you at the AGA Financial Forum in a few weeks. Our quiet period for the second quarter starts when we close our books in early July and extends until we release earnings on August 4. We'll provide details about the conference call at a later date. Have a great day. Operator: This concludes the ONE Gas First Quarter Earnings Conference Call and Webcast. You may now disconnect.
Operator: Afternoon. My name is Trevor, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata Corporation 2026 First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question, simply 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 like to hand the conference over to your host today, Chad Bennett, senior vice president of investor relations and corporate development. You may begin your conference, sir. Good afternoon, and welcome to Teradata Corporation's first quarter 2026 earnings call. Chad Bennett: Steve McMillan, Teradata Corporation's President and Chief Executive Officer, will lead our call today, followed by John Ederer, Teradata Corporation's Chief Financial Officer, who will discuss our financial results and outlook. Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to differ materially. These risk factors are described in today's earnings release and in our SEC filings. Please note that Teradata Corporation intends to file the Form 10-Q for the quarter ended March 31, 2026 within the next few days. These forward-looking statements are made as of today and we undertake no duty or obligation to update them. On today's call, we will be discussing certain non-GAAP financial measures which exclude such items as stock-based compensation expense and other special items described in our earnings release. We will also discuss other non-GAAP items such as free cash flow, adjusted free cash flow, and constant currency comparisons. Unless stated otherwise, all numbers and results discussed on today's call are on a non-GAAP basis. A reconciliation of non-GAAP to GAAP measures is included in our earnings release, which is accessible on the Investor Relations page of our website at investor.teradata.com. A replay of this conference call will be available later today on our website. And now, I will turn the call over to Steve. Steve McMillan: Thanks, Chad, and thanks to everyone for joining us today. I am very pleased to report that Teradata Corporation is off to a strong start in 2026. With solid execution globally and our pivot to AI-led value, we outperformed against expectations in a number of key metrics. Recurring revenue grew 12% as reported year-over-year. Total revenue grew 6% as reported year-over-year. And non-GAAP earnings per share was $0.88, an increase of over 30% versus Q1 2025. We continued to see solid retention in the quarter, and customer interest in our hybrid capabilities drove a healthy growth rate in both total ARR and cloud ARR. We see that security-driven demand for sovereign AI is accelerating. For example, financial services and health care customers are increasingly concerned about shared infrastructure for AI workloads, and this is driving traction with our AI Factory offer. The most demanding regulatory workloads in the world run on Teradata Corporation. These are workloads that are least susceptible to disruption. The trend we see is AI moving closer to the data, not data moving to AI, and that plays directly to our architecture. Every organization is grappling with the same challenge: putting AI to work for them and becoming truly autonomous enterprises. One thing is clear. To win with AI, organizations need to operate at speed and scale that was once unattainable. This is a core competence of Teradata Corporation. Our customers have governed data estates with years or even decades of data in their Teradata Corporation environment, including codified industry knowledge, entity models, and business rules specific to financial services, health care, telecommunications, and beyond. This is their institutional memory. The analytics and reporting workflows built on top of that data have been refined over decades. The value of those workflows vastly exceeds the cost of the platform. AI multiplies the value of that institutional knowledge, and our platform is designed to execute at the speed AI requires. Our product organization is relentlessly focused on providing the strongest execution engine—reliable, high performance, and always on. Agents never sleep, and mission-critical automation requires a platform that never slows down. In 2026, we are executing against an aggressive product roadmap and are already taking new innovations to customers. We are seeing market interest in our MCP Server. It is an on-ramp to enterprise AI, providing semantic access to the enterprise data and context that can activate real business outcomes. It eliminates friction through a natural language interface that leverages AI agents. Together, the MCP Server and our agentic framework are designed to enable querying, analysis, and management of data with full context. To address the challenge organizations face of moving from isolated pilots to production-grade agents, we are making it easy for customers to build, deploy, and manage AI agents with our Agent Stack announced earlier this year. This new comprehensive platform is designed to simplify the life cycle of enterprise AI agents. Our Teradata Corporation Agent Stack can help customers reduce the complexity of finding and integrating trusted data and applying enterprise knowledge and context. It can also aid in enforcing governance and maintaining compliance across hybrid environments. In March, we added new capabilities to our enterprise vector store. We added multimodal data spanning text, images, and audio from our partnership with Unstructured, and we added more agentic features powered by LangChain integration. These announcements demonstrate another significant evolution in our enterprise AI infrastructure, unifying structured and unstructured data within a single governed platform capable of supporting billions of vectors and thousands of concurrent queries from AI agents. In April, we announced the availability of our enterprise-grade Teradata Corporation Analyst Agent on Microsoft Marketplace. This brings AI-assisted conversational analytics directly into customers' existing Azure environments. We also recently participated in the Google Distributed Cloud Air Gap Center launch. Our platform runs natively on GDC, enabling organizations to operationalize Google's AI capabilities and our own analytics entirely within the air gap perimeter. No data leaves, no sovereignty is compromised. This capability is designed to be a real value for defense, intelligence, and public sector organizations that require air-gapped sovereign AI. One of our differentiating capabilities is helping customers leverage and get value out of their environments, and that is even more important as they work to get business value from their AI investment. Here is where our AI services shine. Our AI services momentum is growing as we see customers looking to take advantage of the depth of experience that our forward-deployed teams have gained from the successful early AI engagements we have executed. We recently issued a press release outlining how our AI services helped a sample of customers from the travel and transportation industry. Every enterprise has data, and that data is the basis of their institutional memory, yet few can turn that institutional memory into action compliantly across varied environments and efficiently at scale. Here, our expertise is driving successful engagements to help customers move from experimentation to production quickly. Third-party validation this quarter reinforces our leadership position. Nucleus Research ranked us as a leader in their 2026 Data Science and Machine Learning Platform Technology Value Matrix, ahead of platforms that have built their reputation on data science. Our hybrid capabilities are also getting noticed. Constellation Research named us to their 2026 ShortList for Hybrid and Multicloud Analytical Data Platforms. We were one of only three vendors selected from a field of more than three dozen, reflecting a breadth that competitors structurally cannot match. More broadly, ISG recognised us as Exemplary, their highest designation, across seven categories in their 2026 AI and Data Platforms Buyer’s Guides. That breadth reflects that we are meeting enterprises wherever they are in their AI journey. This recognition reflects something that takes decades to build: the trust of the world's largest enterprises running workloads that simply cannot fail. Now I will walk through a few examples of the outcomes we are already helping customers achieve. One of the largest pan-European banks renewed and expanded its Teradata Corporation relationship. The goal was to address business-critical workloads like financial reporting and regulatory data model convergence, underscoring Teradata Corporation's crucial role in the bank's operations. It also launched a customer journey transformation leveraging Teradata Corporation AI capabilities, including augmented agent work, enterprise LLM integration, and AI Studio. This positions Teradata Corporation as its emerging enterprise AI platform. The engagement reflects how large financial institutions increasingly rely on Teradata Corporation as a long-term strategic platform for both regulated analytics and AI. A leading global retailer based in EMEA—a win-back for us—selected our platform to replace its existing on-prem platform. After evaluating competitors, the customer concluded that Teradata Corporation delivered the best price-performance for its analytic workloads. This reflects the durability of our value proposition for mission-critical retail analytics at scale. A leading Latin American financial institution added our AI services to encompass its enterprise AI operations. The customer recognizes they will now get continuous oversight, governance transparency, and life cycle management of AI models and agentic applications in a regulated environment. The engagement positions Teradata Corporation as this bank's long-term operational partner across the full AI life cycle. A large government agency in India committed to Teradata Corporation as it enters a new phase of digital transformation. We help unify structured and unstructured data at massive scale to deliver real-time comprehensive profiles through its online portal. Our native object store capability was chosen to simultaneously bridge structured block storage and unstructured object storage at scale—a requirement no competing platform could meet. This example underscores our differentiated position in mission-critical, high-concurrency government analytics environments. Market data reinforces what we are seeing and hearing directly from customers. In a third-party research survey of 1 thousand senior technology and data leaders sponsored by Teradata Corporation, every single organization—100%—is actively pursuing AI; 17% have deployed it beyond pilots; and 99% have already had infrastructure scaling challenges in the attempt to move from pilot to production. The barriers are not abstract: performance at scale, cost predictability, always-on agent demands, running new workloads along with existing production systems, and deploying across cloud, on premises, and regulated environments. Enterprises are not facing one infrastructure problem; they are facing all of them, all at once. That gap between ambition and execution is something we believe we are uniquely positioned to solve. On Thursday, we will be announcing a significant and broad set of innovations that address these challenges, helping our customers move into the next phase of enterprise intelligence while bringing autonomous AI and knowledge to organizations globally. We invite you to join our livestream on May 7 at 10:30 AM Eastern time. You can join directly from our teradata.com website. We are confident that our new unified platform and integrated AI workspace will help enterprises rapidly move into production AI. We are quite excited about what is coming on Thursday and hope you can attend. As I pass the call to John, I will reinforce that we are very pleased with our Q1 results. Even with the current global uncertainties, our business model is robust, demand continues for our capabilities, and we see tremendous opportunity to create incremental value for our shareholders. We have sales momentum, customer interest, and an engaged partner ecosystem. And we have a great start to our product innovation pipeline and more coming very soon. We remain focused on driving execution, increasing our differentiation, and delivering products and services that lead customers to rapidly deploy agentic AI into production. Now, John, over to you. John Ederer: Thank you, Steve, and good afternoon, everyone. We were expecting Q1 to be a strong start to the year, and it proved to be even better than we anticipated, with total revenue, recurring revenue, and non-GAAP earnings per share all exceeding the top end of our guidance ranges for the quarter. Additionally, we got off to a fast start with strong free cash flow in the first quarter. The revenue upside was driven primarily by recurring revenue and, more specifically, the upfront portion of our on-premise subscription term license business, reflecting continued interest in our hybrid platform. Non-GAAP operating margin also improved significantly by more than 500 basis points year-over-year, driven by higher recurring revenue and a continued focus on operating leverage to deliver profitable growth. During Q1, Teradata Corporation entered into a settlement agreement with SAP. From the settlement, Teradata Corporation received a gross payment of $480 million in late March. After accounting for legal fees and other expenses related to the SAP litigation and resulting settlement, the pretax net amount was $359 million, which benefited both operations and free cash flow. On an after-tax net basis, this is expected to provide a $302 million benefit to free cash flow in FY 2026. The settlement also positively impacted GAAP diluted earnings per share by $2.90. Tax payments related to the settlement totaling $57 million are expected to be paid from Q2 through Q4 2026, with approximately half expected to be paid in Q2 and the remaining half expected to be split between Q3 and Q4. For the remainder of the year, we will also refer to adjusted free cash flow to provide a normalized free cash flow measure for the business. Adjusted free cash flow will reflect adjustments for the impact from the SAP settlement by excluding gross proceeds, legal and other expenses, and taxes specific to the settlement. In terms of our detailed financial results for the first quarter, total ARR grew 3% as reported and 2% in constant currency, while cloud ARR grew 13% as reported and 12% in constant currency. First quarter total revenue was $444 million, up 6% year-over-year as reported and 4% in constant currency, which was three points above the high end of our outlook due to higher recurring revenue. First quarter recurring revenue was $400 million, up 12% year-over-year as reported and 9% in constant currency, which was four points above the high end of our outlook. The outperformance was primarily due to higher upfront revenue from term license subscriptions, which contributed five points to the year-over-year growth rate. First quarter consulting services revenue was $43 million, down 14% year-over-year as reported and 15% in constant currency. Looking at profitability and cash flow, please note that I will be referencing non-GAAP numbers for expenses and margins, and a full reconciliation to GAAP results is provided in our press release. For the first quarter, total gross margin was 63.7%, which was up 340 basis points year-over-year, driven by a higher mix of recurring revenue and improvement in consulting gross margin. Recurring revenue gross margin was 70%, which was flat with Q1 last year, but up sequentially from Q4 FY 2025. The sequential improvement was driven by the incremental upfront recurring revenue, but we are also continuing to make progress improving our cloud gross margins. In Q2, we expect lower upfront revenue to be a headwind to our recurring gross margin. Consulting services gross margin was 4.7%. This was down from a recent high point in Q4 FY 2025, but it did improve by over 600 basis points on a year-over-year basis. Operating margin improved significantly on a year-over-year basis, coming in at 27.3% versus 21.8% in Q1 last year. The margin expansion was driven from recurring revenue outperformance and favorable gross margin benefit from upfront revenue. For 2026, we continue to anticipate approximately 100 basis points of operating margin expansion. Non-GAAP diluted earnings per share were $0.88, exceeding the top end of our outlook range by $0.09. The outperformance was largely driven by higher recurring revenue and total gross margin. We generated $390 million of free cash flow in the first quarter. This amount includes a $359 million benefit due to the pretax net proceeds from the SAP settlement. On an adjusted free cash flow basis, we generated $31 million. We now have $816 million of cash and cash equivalents at the end of Q1, up from $368 million in the prior-year period. This also returns the company to a positive net cash position of $269 million for the first time since Q4 FY 2021. Finally, we continue to return value to shareholders, repurchasing approximately $34 million, or about 1.2 million shares, in the first quarter. We continue to target using 50% of our adjusted free cash flow for share repurchases, which excludes the benefit from the SAP settlement. Before turning to our financial outlook, I would like to provide some additional context regarding the use of the net proceeds from the SAP settlement. We plan to strengthen our balance sheet by deleveraging. This will maximize our optionality to make future strategic investments in AI, as well as continuing our stock buyback program. On total ARR, we continue to expect our typical seasonality, with total ARR stabilizing in Q2 and expanding over the course of the year, showing modest sequential dollar growth from Q1 to Q2. For recurring revenue, we expect upfront recurring revenue and currency to be headwinds to the growth rate in Q2. We anticipate over a 10-point impact to the recurring revenue growth rate on a sequential basis from Q1 to Q2 due to upfront revenue. And based on the foreign exchange rates at the end of March, currency is anticipated to be approximately a three-point headwind to recurring revenue growth. Now turning to our annual outlook for 2026, we reaffirm our ranges for total ARR, total revenue, recurring revenue, and non-GAAP earnings per share. For the non-GAAP earnings per share range of $2.55 to $2.65, we anticipate being at the higher end of that range. For adjusted free cash flow, given the strength of Q1, we are increasing our outlook and now anticipate being in the range of $320 million to $340 million. And to reiterate, our adjusted free cash flow range excludes the after-tax benefit from the SAP settlement of $302 million. For 2026, recurring revenue is expected to be in the range of minus 2% to flat year-over-year, total revenue is expected to be in the range of minus 4% to minus 2% year-over-year, and non-GAAP diluted earnings per share is expected to be in the range of $2.53 to $2.57. In terms of some other modeling assumptions, for the second quarter, we expect the non-GAAP tax rate to be approximately 24% and the weighted average shares outstanding to be 96.3 million. Using the currency rates at the end of March 2026, we now expect minimal impact to the full-year revenue growth rate. Also, we now anticipate FY 2026 other expenses to be approximately $22 million. In summary, we were very pleased with the start of the year and believe that we are tracking well towards our full-year targets. We significantly improved our balance sheet and generated strong free cash flow, and we are continuing to pursue our profitable growth strategy by finding margin improvement opportunities across the business while at the same time preserving investments in R&D to support future growth. Thank you all very much for your time today. We will now open the call for questions. Operator: At this time, I would like to remind everyone that in order to ask a question, press star and then the number one on your telephone keypad. In the interest of giving everyone an opportunity, we appreciate if you would limit yourself to one question and one follow-up. Your first question comes from Radi Khalid Sultan with UBS. Your line is open. Radi Khalid Sultan: Awesome. Thanks so much. First for Steve, just now that the business is skewing more heavily towards expansions versus cloud migrations, can you walk through how you position the business, both product and go-to-market, to reflect that? And maybe just how do you expect that to impact overall sales productivity throughout 2026? Steve McMillan: Yeah. Thanks for the question. We are seeing really strong interest in terms of the AI that we launched last year and also the AI capabilities that we are going to talk a little bit more about at our product launch on Thursday this week on May 7. And that is certainly driving expansion for us. I think last year, we saw the trend in terms of a headlong rush to the cloud really starting to decline as an indicator in the market for us. What we have started to see is a real interest in expansion. We focused our sales force on total ARR growth, and they can get that growth from either on-prem or from the cloud. Our strength in a hybrid environment is a real differentiator for us and is providing a growth lever when we combine that with some of our AI capabilities and the ability to operate and execute AI workloads on-premise. And that is what really some of the examples in the prepared remarks were pointing to. As we execute against that, we see sales productivity continuing to improve as well, as the sales teams have more and more things to sell and an increased value proposition to take to our customers. Thanks for the question. Radi Khalid Sultan: Awesome. And maybe just a follow-up for John. I know it is early with AI services and the forward-deployed engineering practice. Just as you think about the P&L impact from both a top line and margin perspective, in both the near and long term from that growing services practice on the AI side, thank you. John Ederer: Yeah. Sure. No, thanks for the question. You know, in terms of the AI services and the P&L impact for 2026, I would say it is pretty minimal. This is a new offering for us and something that we are ramping up this year. Longer term, I could see it contributing more to the P&L, but still, ultimately, it is going to be a services component. It is going to be complementary to what we are trying to do on the software side. I would say that I see it as a critical connection point, though, and it helps us further develop our proofs of concept that we have been doing with customers, move them into production, and then ultimately drive AI-related ARR. Radi Khalid Sultan: Awesome. Thank you. Operator: Your next question comes from Yitchuin Wong with Citibank. Your line is open. Yitchuin Wong: Hi. Good evening. Thanks for taking the question. Great to hear the team navigate the quarter across a variety of crosswinds that we saw over the past couple of months. Historically, this kind of uncertainty elongated enterprise IT cycles, as we heard from a couple of the larger customers that reported last week. However, the enthusiasm that we are seeing with agentic AI and with your recent GA vector product, agentic, and tons of new AI product announcements with autonomous event Thursday—excited for that. Are you finding the strategic urgency to deploy AI capabilities is overriding the localized macro caution, and what are you seeing around those cost screens and on your deal cycle in the quarter? Steve McMillan: Yeah. Thanks for the question, YC. I think AI is in every strategic conversation that I and my team have with customers. And we can see that with some meaningful data points. If we look at our pipeline, we see a growing proportion of our pipeline today has AI attached to it. And so that reflects that every strategic conversation has that AI or analytics edge to it. Second thing is, as we look at customers, they are having a real challenge deploying AI in production, and they see the Teradata Corporation platform, along with the announcements we have already made and the roadmap that we are going to deliver, as a platform that can deliver AI into production for them. And then third, as John was just talking about, even though we are always going to be a technology company primarily, we do have a capability in our services organization, and the set of AI services that we have launched is enabling customers to move from those pilots into production. I am not going to pivot the company towards services. It will just be a part of enabling our technology value proposition in the marketplace, but we are certainly seeing that pivot. Everybody wants to get the business outcomes from AI, absolutely focused on doing that as quickly as possible. We intend to capitalize on that. Yitchuin Wong: That is good to hear. I have a follow-up for John. The quarter sounded like hybrid continued to be a bigger driver, especially with sovereign AI—sets of things that could be driving higher demand for hardware—and we have a refresh cycle upcoming in 2H. I just want to touch on that. In Q4, we talked about you being able to stop the memory pricing impact given the long-dated contracts. Memory prices have continued to ramp significantly over the last few months. Could you walk us through any incremental impact that you are expecting, especially going into next year as well? Are you seeing customers respond to this memory crunch differently? Thank you. John Ederer: Yeah. Thanks for the question. I would say that this is definitely a dynamic that we are watching very closely and evaluating near daily, and it is becoming quite pervasive in the marketplace. I would say that for us, from a financial standpoint, it is probably more of an FY 2027 challenge and opportunity as opposed to FY 2026. We will talk a little bit more later this week about some of the new products that are coming out, including the hardware refresh. Those will become available this year, but we would really expect more financial impact to occur in FY 2027. Having said all that, from a pricing standpoint, that is the piece that we are looking at the closest. And the thing that we will focus on is to make sure that we protect ourselves from a margin standpoint as we go to market with that. Yitchuin Wong: Thank you. Look forward to seeing everyone out there. Thanks. Operator: Your next question comes from Erik Woodring with Morgan Stanley. Your line is open. Ralph Firaoli: Hi. This is Ralph Firaoli on behalf of Erik. Good evening, and thank you for taking my question. I just wanted to ask: Are we at the start of an improving recurring revenue gross margin trajectory, given you just posted 70% for the first time in a year and the strongest quarter-over-quarter recurring revenue gross margin improvement in years? Steve McMillan: Thanks for your question. I will start, and then I will hand over to John. Certainly, from an ARR perspective, we returned the company to ARR growth in 2025, and we set the expectation that we would continue and accelerate that percentage of ARR growth into 2026. We see a good path and opportunity for that to continue, based both on the expansions that we generate inside the customer base and the incredible interest that we have gotten using the platform for AI-type workloads. And then from an operating margin perspective, we have a number of initiatives in the business that we are looking at to improve operating margins as we continue forward. John. John Ederer: Yeah. Thanks for the question. So gross margins are a little complicated on the recurring side for us. You have got different dynamics at play with both the cloud side of our business as well as the on-prem. In Q1, we did see a nice spike up in gross margin at least relative to the last couple of quarters, at 70% for the recurring, and that was largely driven by the upfront revenue that we also saw in Q1. And so this was a factor of revenue recognition and ASC 606 and getting more upfront revenue related to the on-premise piece of the business. So that had a spike in margins for this quarter. As we look out over the remainder of the year, we would expect them to be a little bit more consistent with recent quarters that we saw in 2025. Now, underneath that, we are seeing improvement in our cloud gross margin, and that is a critical factor for us. I know we do not disclose that publicly, but we have been making good, steady progress on that, and we saw some nice improvement in Q1 on cloud gross margins as well. Ralph Firaoli: Great. Thanks. And if I could just ask a follow-up. Could you help us better understand demand and sales linearity in the quarter, and maybe how the Middle East conflict is impacting sales cycles versus what you are hearing at the micro level as it relates to demand for data prep, unstructured data, etc.? Just any sense of how these factors are impacting your business? Thank you. Steve McMillan: I think we are still seeing a very solid demand environment. The challenges in the Middle East have not substantially impacted our business at all, really. And the demand patterns that we are seeing really reinforce the value that organizations want to get out of the investment they are making. As I mentioned in the prepared remarks, the survey that we did showed that despite 100% of the customers that we spoke to in that survey wanting to deploy AI and get the benefit from AI, the vast majority—99%—are having their problem getting from pilot to production. So that really is altering the conversation that we are having with customers as they look at Teradata Corporation as a platform and a knowledge platform that can deliver the agentic AI workloads that they need. So that is resulting in an environment where we can deliver on the expansions that we need to deliver to make our outlooks and actually take advantage of the market opportunity that is in front of us. Ralph Firaoli: Great. Thank you. Very helpful. Operator: Your next question comes from Matthew George Hedberg with RBC Capital Markets. Your line is open. Matthew George Hedberg: Steve, as a follow-up to that earlier question, it really does seem like there is a lot of momentum in AI, and I think we will hear more about that later this week. The MCP Server interest is high. I guess I am curious: Is there a way for you to determine what the actual ARR benefit you are seeing is from these increases in AI workloads within your base? Steve McMillan: Yeah. I think what we are seeing is that helping those customers cross the chasm from pilot to production is certainly driving usage and capacity usage of the Teradata Corporation platform. One of the benefits that we have in terms of the Teradata Corporation platform is that agentic AI workloads with always-on agents are driving a tremendous volume of queries, driving a huge concurrency of queries, and complexity of queries into the respective data platforms. That is Teradata Corporation’s sweet spot in terms of how we execute and the technology that we have got. And I think we are seeing customers really take advantage of that, and there is a little bit of a shift from standard BI workloads towards more agentic-type workloads, but we also see the opportunity opening up to serve both in the cloud and on-premise those agentic workloads. And we see it as an opportunity for us to drive incremental ARR growth, especially with the new products that we will be announcing on Thursday of this week. Matthew George Hedberg: That is great. And then maybe for John, it was great to hear that retention was solid in the quarter. I guess I am curious, is there anything we should keep in mind regarding large renewals for the balance of this year? John Ederer: No. I do not think there is anything particular on that front. In general, we are seeing improved retention rates. We actually started to see that in fiscal 2025, and we are carrying that through here in 2026, and started off on a good note in Q1. So I think in general, we have done a nice job of getting closer to the customers, understanding that process better around key renewals, and making sure that we are in a good position to do that. Matthew George Hedberg: Got it. Thanks. Operator: Your next question comes from Raimo Lenschow with Barclays. Your line is open. Joe McMinn: Hi, this is Joe McMinn on for Raimo. Thanks for taking our question. During the prepared remarks, you talked about the strong start to the year. You definitely have some tailwinds—security-driven demand, accelerating sovereign AI. AI interest seems to be healthy, and I completely understand we are operating in a very dynamic environment, but could you help us understand the puts and takes and maybe any balancing factors that motivated you to maintain the full-year ARR guide? John Ederer: Well, I think that if you look at the total ARR number for Q1, on a reported basis, 3%, that is right in line with what we had guided for the full year of 2% to 4%. So I guess I view Q1 as being very consistent with our outlook for the year. And then in general, we are seeing decent demand across the product lines, and we are optimistic about some of the things that we will start to introduce later this week. Now, those will not have a material impact on FY 2026, but in general, we are seeing better demand. Joe McMinn: Understood. Congrats on a solid quarter. John Ederer: Thanks. Operator: Your next question comes from Patrick Walravens with Citizens. Your line is open. Patrick Walravens: Oh, great. Thank you very much. Could I start by asking—your comments about the trouble that clients have getting from pilot to production—can you drill down on that a little bit? Specifically, what gets in the way of moving to production? Steve McMillan: Yeah. Pat, I think it goes to the characteristics of the workload and the data platforms that organizations are using. I have used the term before that our competitors solve complexity with incremental compute. We solve complexity with great software. And that enables us to address some of these challenges that our customers are having in terms of spiraling compute costs for their data platform. They have regulatory challenges in terms of making sure that data is well governed. And across all of these different types of data problems, we have been solving them for customers for years, as they have built out some of the most comprehensive enterprise data warehouses, and then making sure that those solutions have the right context. And context is built on industry knowledge, industry data models, the codification of business rules, and we have helped customers and organizations span those challenges for years now. It is just another reinvention of that from an AI perspective to ensure that these AI agents have the right context to get the reliable answers in a production context to really solve business problems today. And that is what our whole new series of offerings and capabilities over the past few months, and including what we are planning to launch over the next couple of weeks, really brings together in terms of delivering that context to our customer organizations. Patrick Walravens: Okay. Great. And can I ask, Steve—or maybe John, I do not know who wants to pitch in on this—so other than the financial aspect of the SAP settlement, can you remind us what this whole thing was about? And is there any fundamental benefit in having resolved this dispute? Steve McMillan: Look, I think, Pat, it is always good to clear the deck from a legal perspective and make sure that we are looking forward and looking forward to what we are actually going to do strategically with that cash. It certainly is on the balance sheet now, and it gives us a lot of strategic optionality as we move forward in terms of how we deploy that. Certainly, it solidified the balance sheet, as John pointed to, but it gives us strategic options moving forward. And we certainly see it as a vehicle that is going to enable us to increase our return to shareholders as we move forward. So we are pretty excited about it and glad to put it behind us. Patrick Walravens: Okay. Thank you, guys. Operator: Your next question comes from TD Cowen. Your line is open. Analyst: Hi. This is Jared on for Derrick. Thanks for taking my questions. First, could you comment on domestic and international revenue in the quarter and maybe pick apart some of the drivers for each of those markets? John Ederer: Yeah. So in general, if I look back over the last few years, we have seen some differences in domestic versus international. And if you go back a couple of years, the impact of some of the churn was really more felt in the United States as opposed to the international markets. We have also seen some improving trends, even from a new logo standpoint, in some of the international markets. And so I think that that is one area where the hybrid story resonates even more so than perhaps in the United States. Analyst: Awesome. Appreciate that color. And off of that regulated industry commentary, can you just talk to some of the different trends you have been seeing in your regulated base versus nonregulated base? Steve McMillan: Yeah. I think—and it reflects as well in some of the workloads that we have been winning—certainly governments, financial services organizations, and health care organizations are highly regulated. We see that as a great competitive moat for us. We are uniquely differentiated to enable those organizations to run agentic AI workloads against that data, and they can do it in the cloud or they can do it from an on-premise perspective or in a hybrid environment. You know, more than 50% of our customers in the cloud also operate on-prem Teradata Corporation systems. So being able to span data across those environments, not move data into different types of solutions, has given those regulatory workloads some real benefit in terms of how they can leverage AI and agentic AI against those datasets. Analyst: Thanks for taking my questions. Operator: That concludes today’s Q&A session. I will now turn the call back over to Steve McMillan for his final remarks. Steve McMillan: Thank you very much, operator. Thanks for joining us today. We are really proud of our strong start to the year and the value we are creating for shareholders. We have the technology, the expertise, and a really strong partner ecosystem. And we believe we are bringing real differentiation to the market with our autonomous knowledge platform. We intend to keep that momentum up as we help organizations build for their edge future, moving decisively from AI ambition to sustained business impact. We look forward to updating you again next quarter. Operator: That concludes today’s conference call. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to Bumble Inc. First Quarter 2026 Financial Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Will Taveras, Head of Investor Relations. Please go ahead. Will Taveras: Thank you for joining us to discuss Bumble Inc.'s first quarter 2026 financial results. With me today are Bumble Inc.'s Founder and CEO, Whitney Wolfe Herd, and CFO, Kevin Cook. Before we begin, I would like to remind everyone that certain statements made on this call today are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of factors and risks that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in today's earnings press release and our periodic filings with the SEC. During the call, we will also refer to certain non-GAAP financial measures. These non-GAAP measures should be considered in addition to, and not as a substitute for or in isolation from, our GAAP results. Reconciliations to the most comparable GAAP measures are available in our earnings press release, which is available on the Investor Relations section of our website at ir.bumble.com. With that, I will turn the call over to Whitney. Whitney Wolfe Herd: Hello, everyone, and thank you for joining us today. This is a period of real transformation at Bumble Inc. Over the past few quarters, we have executed a deliberate reset of our member base. We made a clear choice to prioritize quality over quantity, focusing on well-intentioned, engaged members. That decision reduced overall scale but meaningfully improved the health of our ecosystem. Importantly, this quality reset was not isolated. It was the first step in a broader strategy to reestablish Bumble Inc. as the brand that sets the pace for innovation in our category. We focused first on strengthening the underlying supply of our platform, because scale without quality degrades the experience and stifles the outcome people are seeking: high-quality, relevant connections. At the same time, we continued rebuilding our technology and product platform to better serve our member demand for real dates and in-real-life connection. These moves required short-term trade-offs, but they were deliberate and necessary. Now, with healthier supply and stabilization in our member base, we are entering the next phase: activation. This phase is anchored by two innovation initiatives. First, the introduction of our new technology platform. Second, the launch of a fully reimagined experience for Bumble members, including a new interaction model and profile system. The new Bumble platform and experience will roll out over the balance of the year, beginning with the first stage of the new tech platform in the coming weeks. Our direct member engagement and our research, including our work with author and professor Dr. Arthur Brooks, reinforce a key insight: the biggest friction in dating today is not discovery; it is the gap between online interaction and real-world connection. People get stuck in that in-between. This is a central challenge faced by every scaled dating app. Everything we are building is designed to close that gap and drive real in-person dates between high-quality connections. Accelerating each member's progression toward finding that connection and getting out on a date is our priority. We have been doing foundational work on this problem ahead of introducing our new platform and reimagined experience. We have improved profiles, strengthened intent signaling, enhanced safety, and built more dynamic onboarding. These changes have helped members show up better, even within the limits of our legacy systems. We are also continuing to improve the current Bumble experience by addressing core member pain points, improving recommendations, and enhancing usability. Early tests are showing promising results, including improvements in matching behavior and monetization trends, but results are expected to be relatively limited on the legacy tech stack. We have more to do here in the months ahead. What comes next will go much further. The innovation starts with our technology platform. As we shared last quarter, we have been actively rebuilding our new cloud-native, AI-enabled tech stack. This modern platform will allow us to move faster, iterate more efficiently, and begin to unlock entirely new product experiences. Today, making meaningful changes to our recommendation engine or introducing new features can take months. This has been a real constraint on the rate of innovation. Our new tech platform is expected to eliminate this constraint. As the platform rebuild nears completion, we are ramping development of the next-generation Bumble Date application, a merging of the new back end and the reimagined member experience, launching in select markets in Q4 of this year. Between now and then, elements of our new technology platform will begin powering a parallel roadmap of incremental improvements in the existing product. With our new app experience, the opportunity is not just to improve the current interaction model but to evolve beyond it. We are designing a system that shortens the distance between intent and outcome, eliminating the friction caused by multiple steps between interest and connection. Clearer signals drive more mutual engagement and faster progression toward in-real-life connection. Early reactions to this new model have been very positive. Our AI layer, Bee, is expected to play a key role in the reimagined experience. Testing Bee in onboarding new members has been especially encouraging—not just in Bee's effectiveness, but in members' willingness to engage deeply and share richer context about who they are and what they are looking for. Bee’s ability to capture more signal and process information quickly improves our understanding of each member and will strengthen our recommendation engine. Onboarding is just the first step in how Bee will be used in the new experience. We also expect Bee to help facilitate connection and to suggest and plan real dates, among other roles. Bee is a great example of what we can accomplish on the new modern tech stack and how AI will be an important catalyst for our business. It is important to note that we built Bee separately from the legacy system. I have said a lot here. Let me summarize. First, demand for love and human connection is as vital as ever before. We have done the heavy lifting to reset our business with healthy supply that is ready to engage. We are giving members the tools to show up authentically as their best selves. Next is our new platform, which will accelerate product innovation. Right behind that will be an entirely transformed Bumble experience, which dramatically reduces friction and gets members to in-real-life connection faster. We believe this is our path to deliver what daters are seeking today. This is the path to restoring revenue growth, and we are already at work building the monetization model behind it. That is the core of the Bumble app transformation, but it is only part of the picture. Beyond dating, we are also investing in broader connection, which we see as both a critical need in the world and a competitive advantage for us. We have expanded groups on Bumble BFF and are seeing strong early traction with total group joins nearly doubling between December and March. This success is driven by Gen Z women, who comprise the largest cohort on the platform, highlighting our opportunity with this core demographic. Overall, more than 80% of BFF members are women, reinforcing the durability of our overall brand. We will continue to expand on group connection and in-real-life meetings for platonic purposes through BFF. But we are also bullish on the opportunity of romance beyond one-to-one in terms of how people come together and meet for love. We are testing new ways to bring people together for both platonic and romantic purposes, including a new product beta launching next month, which we are super excited about. Across all of these efforts, our approach remains consistent: test, learn, iterate, and do it quickly. We are data-driven, member-obsessed, and more passionate about the opportunity and problem we are solving than ever before. In terms of timing, members will first experience the rollout of our new platform, delivering a faster and more reliable experience starting in the coming weeks from a back-end standpoint. From there, we expect to introduce the initial features of our new interaction model and profile. This is our big bang. It will start to roll out to select markets in Q4, backed by a 360 marketing campaign. Then we will continue to refine the experience into 2027, including adding features like group dating and expanded access to Bee. Ahead of our upcoming unveil, we are continuing to deliver innovations in the current Bumble experience that help members show up better, more confident, and ready to engage. Not all of these improvements will be immediately visible to members. The critical signal enhancements they enable will drive more relevant connections on the back end, and the UI/UX will be on our modernized back end, which will enable the rollout of our transformed experience later this year. As we execute this transformation, we remain disciplined. We delivered a strong Q1 compared to our expectations, and we are managing our cost structure carefully while continuing to invest in product, technology, and selective marketing. Of note, we have reduced our performance marketing spend to less than 50% of pre–quality reset levels. We are starting to see the benefit of organic marketing again, including positive word of mouth, now that we have improved the member base quality. Despite tech limitations, we have been able to drive meaningful improvement, which we believe signals the opportunity ahead with a modern tech stack in place. To close, we have been hard at work rebuilding our foundation. Now we are focused on translating that into a meaningfully better product experience, which members will start seeing in the coming months. We cannot wait to reignite our brand, product, and mission as we transform Bumble Inc. and our category. We look forward to sharing more in the months ahead. Thank you so much for your time, and now I will turn it over to Kevin. Kevin Cook: Thank you, Whitney, and hello, everyone. In the first quarter, we delivered results in line with our expectations as we move past our quality reset to focus on product and technology innovation. As Whitney noted, we are seeing signs of stabilization in our member base as we enter the next phase of activation. I will review our quarterly results before turning to our outlook. Unless otherwise noted, my comments are on a non-GAAP basis, and comparisons are year over year. Total revenue for the first quarter was $212 million compared to $247 million in the year-ago period. Foreign currency exchange rates contributed $9 million to revenue in the quarter. The loss of revenue from Fruitz and Official equated to approximately one percentage point of headwind in the quarter. Bumble app revenue was $173 million compared to $202 million a year ago. Foreign currency exchange rates contributed $6 million to Bumble app revenue. Adjusted EBITDA was $83 million, representing a margin of 39%, compared to $64 million and 26% in the prior-year period. Higher adjusted EBITDA despite the year-over-year revenue decline is a function of how we have executed through our reset period, most notably with more intensive operating discipline and thoughtful marketing spend. Selling and marketing expense was approximately $20 million, or 12% of revenue, compared to approximately $60 million, or 24% of revenue, in the prior-year period. In addition to the reduced overall spend, we have increased our focus on lower-cost and higher-return organic and targeted marketing channels. This strategy brings us back to our historical marketing strengths and, we believe, also supports long-term brand health. Product development expense was approximately $25 million, or 12% of revenue, compared to approximately $24 million and 10% in the prior-year period. Our product development spending is focused on core product innovation and platform modernization. General and administrative expense was approximately $24 million, or 11% of revenue, compared to approximately $26 million, or 10% of revenue, in the prior-year period. I will now turn to the balance sheet and cash flows. For the quarter, we generated $77 million in operating cash flow, $74 million of which converted into free cash flow. We ended the quarter with $246 million of cash and cash equivalents and continue to generate substantial cash flow while maintaining a strong liquidity position. In April, we completed the refinancing of our term loan as had been previously announced. Consistent with our plans to continue deleveraging, we paid down $114 million of debt in connection with the transaction. Pro forma for the refinancing, we had $150 million of cash and cash equivalents at the end of April. Turning to the outlook, as we move beyond the quality reset, our focus is now on activating our higher-quality member base through product innovation and improved member experience. This transition will unfold over the balance of the year as we introduce our new tech platform and accelerate the introduction of new member experiences. While this work will take time to be reflected in our financials, we believe it best positions us to drive more durable engagement and monetization. For the second quarter, we expect total revenue in the range of $205 million to $213 million, including Bumble app revenue of $168 million to $174 million, and adjusted EBITDA of $65 million to $70 million, representing a margin of approximately 32% at the midpoint. As we move through 2026, we expect revenue headwinds to moderate as the most acute effects of the quality reset dissipate and we transition from stabilizing to rebuilding the member base. Adjusted EBITDA margins are expected to normalize over the remainder of 2026 as we increase investment in technology and talent to modernize our platform and drive product innovation. We also plan to increase marketing spend to support our innovation initiatives, organic member growth, and brand strength. In closing, we have made meaningful progress on our transformation and are now focused on executing the next phase of the business. Preparing a healthier, more engaged member base with a modernized platform will enable faster product innovation and more effective revenue generation over time. Operator, let us take some questions, please. Operator: Thank you. We will now open the call for questions. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question, and if you are muted locally, please remember to unmute your device. Your first question comes from the line of Eric James Sheridan from Goldman Sachs. Your line is open. Please go ahead. Eric James Sheridan: Thanks so much for taking the questions. Whitney, I want to come back to some of the comments you made in the prepared remarks and go a little bit deeper. When you think about the tech stack and how it will iterate going forward, I wanted to ask a two-parter. One, should we be thinking about the velocity of innovation and your speed in terms of going to market that will result from that as we continue to monitor the business from the outside in? And two, what do you think about your opportunity around personalization, and how much of it will be either AI-driven or non–AI-driven when you think about what the tech stack might enable you to do in the years ahead? Thanks so much. Whitney Wolfe Herd: Hey. Thank you, Eric. Great to hear from you. I will take this piece by piece. I think before we talk about the actual incredible opportunity we have ahead with this new tech stack, I want to double down on a couple of the prepared remarks I had around what we have been dealing with. We have had extraordinary tech debt. What do I mean by this? We have, frankly, not been able to make the changes that both our members are wanting, needing, and demanding, and that we have wanted to roll out. All of the results you have seen to date are done on the back end of a very legacy system, which really does inhibit the second part of your question—the personalization of the experience. So let us talk about velocity, my favorite word. Velocity is going to go up in such a way with this new tech stack. As an example, if we wanted to make a change to the recommendation engine right now—which is the algorithm, essentially—it could take us months. It is extremely clunky, cumbersome, and difficult to navigate. On this new tech stack, we are talking about being able to put tests in immediately. We can be monitoring in real time. We can have A/B tests going at levels we have never been able to access before, and, frankly, we can make changes in a matter of days or weeks versus months, or even, frankly, years. When you really start to wrap your head around the opportunity there, I think you can understand why I am personally so excited about this new system finally hitting members’ back ends in the coming weeks. Let us talk about personalization. This is the name of the game. What is the one reason why people come to a product like ours, particularly Bumble? They are not coming for entertainment or to use it like a social media platform. They are coming to meet people. If you want to meet someone, you have to be shown people you want to see and that you want to meet. With this new system and this next-gen recommendation engine—which goes side by side with the new tech infrastructure—we will be able to personalize the system in ways that we have just, frankly, never had access to. It is not lack of innovation, roadmap, or talent; it has been lack of technical capability. So you will see extreme personalization. Turning to the last part of your question—AI or not AI—no, it is a hybrid. I think it is important to end with a quick moment on how I look at AI for this business. AI should never replace human authenticity or human connection. I have been saying this for a long time, but I certainly hope the rest of the world is starting to see it the way I am, in the sense that human connection is starting to matter more now than ever before, and real, authentic human connection. For those of you that have been following and watching people fall in love with AI bots, this is not the future we want for ourselves or the next generation. This is why I am at work. I am giving it my all to make sure that we can bring people closer to in-real-life, face-to-face, human, meaningful relationships and connections. We will leverage AI to enable that, but we will not use AI to replace that. I hope that answers the question. I could talk about this for six hours, but I want to give other folks an opportunity to jump in. Thank you again, Eric, for your question. Operator: Your next question comes from the line of Shweta Khajuria from Wolfe Research. Please go ahead. Shweta Khajuria: Okay. Thank you for taking my question, and thanks for the commentary in your prepared remarks, Whitney. As we think about the timeline, could you please talk to what gives you confidence post the activation phase of the renewed tech platform in 2026 into 2027? You will start seeing potentially marked improvements in the refreshed tech platform. Could you point to what you saw in your tests that gives you that confidence, and what should we be looking for starting in Q4 into next year? Thank you. Whitney Wolfe Herd: Thanks, Shweta. It is great to hear from you. Let us talk about these different workstreams. I want to be very clear that the back-end tech rebuild is different from the forward-facing, member-facing interaction model and profile redesign. These are two separate things that will converge into each other; however, one comes before the other—that is the back-end technology migration, enablement, and rebuild. That is coming in the coming weeks for select members and will start to roll out globally and more broadly over the weeks and months following. That is the enabler of everything. That is where we can go in and make algorithmic improvements. We can start to make matching and recommendation economics better for folks and really make sure that you are seeing who you want to see. Now, very importantly, that is the back end that will start to enable everything. But very importantly, I fundamentally believe—and I feel that I am a trusted source here because I have been on the front line of this industry from its mobile explosion inception—that the interaction model is outdated, not just for us, but for the industry at large. I believe it is time to leapfrog anything that currently exists and help people break through these areas of friction where these cliffs exist. Right now, to get somebody from first sight to first date is extremely difficult. There are so many areas of drop-off where that mutuality of needing to like each other, needing to chat, needing to keep the conversations going on this double-sided format—it is quite difficult to get you to a date. Frankly, Shweta, we are a dating app. We are not a matching app or a swiping app, but have we really been behaving like that? That is the impetus of the new interaction model. We have listened to our members. We have been in the trenches with them. I personally have been on the front lines of research and deep in the data. That forward-facing, member-touching interface transition and profile redesign is what you will start to see in a major market in Q4, and then, of course, rolling out more broadly through the end of Q4 and early into 2027. To answer your precise question—when do we start to see a rebound in the numbers you are all looking for? The answer is very simple: when our technology and our next-gen recommendation engine can help better connect people more compatibly, show people who they want to see, and then get them out on great dates. That is where the magic happens. Every single thing we are doing—I am spending every waking hour of my life right now—in service of that one goal: get people out on great dates. I hope that this starts to answer your question, and thank you again for taking the time. Operator: Your next question comes from the line of Nathaniel Jay Feather from Morgan Stanley. Please go ahead. Nathaniel Jay Feather: Hey, everyone. Thanks so much for the question. I am thinking a little bit more about that pipeline from discovery to getting out on dates. What do you feel are the current real pinch points that cause people to maybe have a match but not convert that into an in-person connection, and what can actually solve that problem? You know, is there any issue from the perspective of a lot of people having different state or preference dynamics, local markets, etc.? Are there ways that you can solve those? That is the first part of the question. And second, we see really strong performance on gross margin. Can you give an update on what you are seeing in terms of direct payment adoption, and how should we think about the uplift that is driving these? Thank you. Whitney Wolfe Herd: Thanks, Nathan, for the question. I will take the first half and kick the second part to Kevin. The reality is you are right—everyone has different dating preferences. But the one thing everybody can agree on at this point is that everyone is exhausted from this passive model of just low-effort likes, low-effort interest with very little follow-through. Frankly, the industry at large—and us included—has made it too easy to express low-intent interest. We are turning that on its head. I cannot say much more. I really believe that this is going to be category-defining, and we want to keep it close to the chest. What we will tell you is the early testing has come back remarkably positive. There is very little concern that this is not the right direction. To your point, every market is culturally different, and preferences are different. We have no issue with being really agile and making sure that we test our way into the appropriate sequencing and rollout strategy to make sure that those nuances are accounted for. Listen, I am now 36. I have been doing this since I was 22. I cannot tell you how much this is needed right now for people to really feel reinvigorated with finding love. There are a few frank realities: we are on our phones more than we have ever been before—much more so than when I started this company. The need for human connection and love is greater right now than ever. We are more disconnected. Everything is working in our favor. The only thing that has been going wrong is our ability to execute on product innovation, and that is simply due to legacy tech debt. We are working extraordinarily hard. The teams are incredible, and they are so close to getting us to a place where we can finally innovate and deliver a modern product to our members so that they can continue to make meaningful connections in the real world. Kevin Cook: The improvement in gross margin is primarily a function of increased adoption of alternative billing methods and therefore reduction in aggregator fees. You are right to point out that we had very strong gross margin in the quarter—about 300 basis points higher than the prior-year period—and we continue to see strong adoption of our Apple Pay program, for example, in the U.S. That program is slightly ahead of expectation, and we expect alternative billing to be a tailwind to margin throughout 2026. Operator: Your next question comes from the line of Andrew Jordan Marok from Raymond James. Your line is currently opening. One moment. Please go ahead. Raj (for Andrew Marok): Hi. This is Raj dialing in for Andrew Marok. Thank you for taking our question. As it relates to the post-reset disclosures made today, could you update us through March and April and explain how the curves for registrations, retention, MAUs, and payer penetration trended from October until now, given that October was the first month dubbed as the post–quality reset? Which metric should best predict payer recovery going forward? Kevin Cook: Yeah. Hey, Ron. Thanks for the question. The disclosures were provided specifically as a way for us to meet a contractual obligation to prospective lenders to cleanse data that we shared with them in connection with the refinancing. That information is all for the periods provided. You can see them outlined in the specific disclosure on the website. They are all reflected in our current financials. They are out of date, stale, and have no import in terms of the business today. The only thing I can share is that the business has stabilized with respect to KPI performance. In particular, on registrations, I think you see highlighted there the steps that we took—quite intentionally—to bring the member base down to what we viewed as a healthier, higher-quality ecosystem from which, now, we can build. That is all I have for you on that. Operator: Next question comes from the line of Ken G. from Wells Fargo. Please go ahead. Ken G.: Thank you so much. As you look out a couple of years and success as you transition the business, can you talk about how you could see the financial profile of the business relative to the 2022–2024 time frame? The tech debt that built up in the past—you obviously want that to not recur. Could you talk about any changes we might see to the financial profile of the business as you get back to growth in 2027–2028? Kevin Cook: Hey, Ken. So apologies—you broke up a bit, but I believe I got the question. You are right to point out two key things. First, in the time frame you referenced, it was a marketing-led business, not a product- and technology-led business as it has been since Whitney returned as CEO. What you will continue to see is a much more efficient marketing spend. Marketing should never return to the levels that you observed in 2024 and 2025. Marketing is used in support of and as a tool to enhance product—contributing to new product introduction, launch, and, of course, to some degree, brand. You will see a higher overall rate of technology and product development spend. We are in a period of investment now. You see us beginning to gently increase product development expense to deliver all of the innovation that Whitney described and that is expected for the second half of the year. Overall, with steady revenue or revenue growth, there is substantial operating margin in the business. You should expect to see continued adjusted EBITDA margin expansion—again, so long as revenue is stable or increasing. Let me know if that answers the question. Ken G.: Yes. Thank you. Operator: At this time, there are no further questions. This concludes today's call. Thank you all for attending. You may now disconnect.