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Operator: Hello, everyone, and thank you for joining us today for the LCI Industries First Quarter 2026 Earnings Call. My name is Sami, and I'll be coordinating your call today. Before we begin, I would like to remind you that certain statements made on today's conference call regarding LCI Industries and its operations may be considered forward-looking statements under the securities laws and involve a number of risks and uncertainties. As a result, the company cautions you that there are a number of factors, which may -- which -- many of which are beyond the company's control, which could cause actual results and events to differ materially from those described in the forward-looking statements. These factors are discussed in the company's earnings release, Form 10-K and in other filings with the SEC. The company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements are made, except by -- required by law. In addition, during today's conference call, management will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are available in the company's earnings release and Investor Relations presentation, which have been posted on the Investor Relations section of the company's website and are also available on Form 8-K filed this morning with the SEC. On the call from management today are Jason Lippert, President and Chief Executive Officer; Lillian Etzkorn, Chief Financial Officer; and Kip Emenhiser, VP of Finance and Treasurer. [Operator Instructions] With that, it's my pleasure to turn the call over to Jason Lippert. Please go ahead. Jason, please go ahead. Jason Lippert: Hello, and thank you to everyone for joining us on our Q1 2026 earnings call. We are energized by the momentum we have built in recent quarters as well as by the current strength of our performance in 2026 as we begin the new year with solid results despite continued sluggishness across both retail and wholesale leisure markets. Before diving into the details, I want to recognize the exceptional work our teams have done over the past decade to diversify our business. Against a very challenging industry backdrop, the diversification has clearly proven its value. Our well-balanced portfolio continues to deliver strong results even in cyclical markets like RV experience volume pressure. Achieving this balance has taken time, discipline and continuous refinement of both our teams and our strategy. Our European operations delivered the strongest quarterly results we have seen since building that platform. And our transportation business continues to perform very well as we integrate Freedman Seating and Trans/Air climate control systems. Altogether, our diversified performance meaningfully contributed to LCI achieving an 11.5% EBITDA margin in our Q1 in what we call a pretty turbulent quarter. For the first quarter of 2026, revenue grew 4% year-over-year to $1.1 billion. We expanded profit margins by nearly 100 basis points and grew adjusted diluted EPS by a robust 18%. This outperformance reflects our ongoing investments and the strong execution of our teams as we continue to focus on operational excellence, manufacturing optimization and self-help initiatives. These efforts include significant plant optimizations, disciplined G&A cost reductions and continued volume gains across the increasingly diverse end markets we serve, all while maintaining a strong focus on innovation and customer service, which remain core pillars of our success. Looking at performance by segment, OEM net sales increased 4% to $853 million. RV OEM revenue declined 4% due to lower North American travel trailer and fifth-wheel shipments, which is a strong outcome considering RV wholesale shipments are down more than 12% through the first quarter. At the same time, we grew our Adjacent Industry OEM sales by 17%, driven primarily by higher demand from North American marine OEMs as well as from bus and utility trailer OEM share growth. In addition, Freedman Seating and Trans/Air continue to outperform plan on both integration and synergy realization. As I previously mentioned, our European business also contributed meaningfully following extensive restructuring efforts over the last 18 months that have positioned the region for improved bottom line performance. In housing, sales were flat year-over-year, outperforming a down market due to continued strength in our residential windows, which helped offset lower manufactured housing demand. As we move through 2026, we expect to further accelerate content gains and expand across our 4 OEM markets while continuing to outperform the broader RV industry. We now expect RV wholesale shipments to be in the range of 315,000 to 330,000 units, which reflects a reduction of 20,000 units at both the high and the low end of prior expectations. For the marine industry, we continue to anticipate flat to low single-digit OEM growth this year. Innovation remains a cornerstone of LCI's long-term success and has driven a significant increase in towable content of 73% since 2020. Recent product introductions, including anti-lock braking systems, Touring Coil Suspensions, SunDecks, Chill Cubes, and our 4000 series windows continue to gain traction as customers look to enhance the end user experience. Towable RV content increased 13% over the past year to $5,826 per unit, representing the largest year-over-year increase in our history as we close on the $6,000 content per unit mark. Our 5 most recently launched products are now generating an annualized revenue run rate exceeding $270 million. Looking ahead, we expect approximately $140 million in incremental annualized run rate gains from new product placements during this 2027 model change as well as from market share expansion in the RV space. Our newest product launch is the next-generation leveling and stabilization system for travel trailers that will be more affordable than past generations. It will also be featured as standard equipment across all Brinkley travel trailers at this year's model change. Brinkley's Model I trailers rank among the industry's top 5 trailer brands, which will provide strong visibility for this product. We believe this launch represents a $100 million total addressable market opportunity for LCI and a natural for customers as we are the standout leader in leveling systems for towables and motorhomes. This ongoing innovation, combined with our scale advantages, advanced manufacturing technologies and deep expertise in complex mission-critical components has created customer loyalty that continues to differentiate LCI. Our customers consistently look to us to help them stand out in their respective brands. Turning to Aftermarket. The same customer loyalty continues to drive consistent outperformance. Auring the quarter, Aftermarket net sales grew 7% in a down retail environment for both automotive and RV. Over the past decade, we have embedded more than $15 billion of replaceable content into RVs that will ultimately enter the service and repair cycles. Over the next 3 years, approximately 1.5 million of these RVs are expected to do so, each requiring LCI parts and service solutions across key categories, including chassis, leveling systems, slide-out systems, awnings, suspensions, windows, furniture, doors and appliances, all of which are critical components. Our RV and Marine Aftermarket Care Center and technical teams, now more than 400 team members strong, has been built from the ground up over the past decade. Today, our team support thousands of dealer service and repair locations nationwide and manage more than 2 million customer interactions annually. As a result, LCI remains one of the most visible and trusted brands in the RV aftermarket. A recent milestone in our growth is the launch of our first in-store Lippert product setup within Blue Compass RV, the second largest RV dealer in the country. As we expand these in-store concepts, we create incremental sales opportunities for both LCI and our great dealer partners. The Lippert upgrade experience delivered through our brand-new Lippert factory service centers continues to gain traction by providing consumers and dealers direct access to advanced upgrades such as Touring Coil Suspension, anti-lock braking systems and other advanced Lippert products. As for mobile service and in-factory upgrades, we are now performing more than 200 service appointments each week, and we expect this initiative to become increasingly impactful as it continues to scale. Our automotive aftermarket business is benefiting from a market disruption as First Brands, previously our largest competitor in the hitch and towing space, moved through bankruptcy. We are actively working to capture displaced OEM and Aftermarket demand, representing an estimated $70 million incremental annual revenue opportunity. Our automotive aftermarket business is currently trending up high teens year-over-year in the second quarter of 2026, reflecting early success in capturing this share as well as great incremental growth in this category given where retail demand is. We are also expanding our Aftermarket infrastructure with the addition of 2 major facilities that we've mentioned on previous calls. Our new 600,000 square foot distribution center in South Bend came online last quarter, significantly increasing our national distribution capacity. And the second facility, approximately 400,000 square feet is expected to be completed by year-end and will consolidate several less efficient manufacturing operations that support Ranch Hand-branded products in Texas while also positioning us in a more favorable labor market in Seguin, Texas. Profitability remains a key highlight. Operating margin improved to 8.7% from 7.8% a year ago, driven by efficiency, improved product mix, plant optimization and continued G&A discipline. We continue to evaluate divestiture opportunities for select lower-margin businesses. As a result, we continue to target 70 basis points to 120 basis points of operating margin improvement in 2026 as we progress toward our long-term goal of achieving double-digit margins. Our balance sheet remains very strong, supported by more than $250 million of operating cash flow over the last 12 months and total liquidity exceeding $700 million at quarter end. We remain disciplined in our capital allocation, prioritizing investment in operational excellence, innovation-driven diversification and complementary M&A. Over the past 25 years, we have completed 77 acquisitions and our pipeline of smaller tuck-in opportunities remains active. Most importantly, returning capital to shareholders remains an important priority, which has been supported by a dividend yield above 3.5% and opportunistic share repurchases. With regards to the discussions with Patrick, our Board has determined that the best path forward is to continue executing our strategy as a stand-alone company, a strategy we feel has and will continue to position us and our stakeholders well into the future. In summary, we are confident in our ability to perform through a wide range of macro environments. Our innovation-driven content growth, higher-margin Aftermarket platform, expanding presence across adjacent OEM markets and disciplined execution continue to strengthen our competitive position. Most importantly, none of this will be possible without the dedication and talent of the incredible people of LCI who continue to drive our long-term success. With that, I will turn it over to Lillian to walk through our financial results in more detail. Lillian Etzkorn: Thank you, Jason, and thank you all for joining us. We're off to a strong start in 2026. In the first quarter, LCI delivered revenue growth, margin expansion and significantly higher earnings per share. This performance comes despite weaker industry fundamentals and a full year RV unit outlook that has deteriorated in recent months. Our results reflect the strength of our operating model and the tremendous efforts of the LCI team as we continue to execute on our strategic initiatives to drive growth and profitability. Taking a closer look at quarterly results, consolidated net sales grew 4% year-over-year to $1.1 billion. OEM net sales also grew 4%, driven by a 17% increase in Adjacent Industries OEM. This growth was fueled by strategic investments and stronger sales to North American Adjacent Industries OEMs. These gains more than offset a 4% decline in RV OEM net sales. The RV OEM performance reflects lower North American travel trailer and fifth-wheel shipments, partially offset by price increases to cover increased material costs, a change in our RV sales mix towards higher content fifth-wheel units, growth in our North American motorhome RV unit shipments and progress in our ongoing efforts to take market share. Content per towable RV unit remains a tailwind for us, increasing to $5,826, which was up 13% year-over-year and 3% sequentially. This year-over-year increase was driven by approximately 3% organic growth from innovation and recent product launches, an improved mix of higher content fifth-wheel units and increases in selling prices to cover increased material costs. Content per motorized unit increased 6% to $3,970. In our Aftermarket business, net sales increased 7% year-over-year to $238 million. Growth was driven by price increases to cover higher material costs as well as contributions from strategic investments. Consolidated operating profit totaled $95 million, up a robust 17% over the prior year period with operating margin expanding 90 basis points to 8.7%. OEM operating profit margin expanded 150 basis points to 9%. This improvement was driven by higher prices on targeted products to cover increased material costs as well as our ongoing efforts to enhance operating efficiencies through footprint optimization, material sourcing strategies and other operating initiatives. Aftermarket operating profit margin was 7.8% compared to 8.7% in the prior year period, primarily reflecting higher material costs related to tariffs and steel as well as investments in capacity and distribution to support continued growth in the Aftermarket segment. We were able to partially offset these factors by raising prices for targeted products in response to a higher material cost, along with sourcing initiatives and favorable sales mix. Adjusted EBITDA for the quarter was $125 million, up 13% year-over-year with the margin expanding 90 basis points to 11.5%. GAAP net income increased 27% to $63 million, resulting in GAAP EPS of $2.53. Adjusted diluted EPS was $2.59, reflecting a $0.06 accounting adjustment for dilution related to our 2030 convertible notes. We remain very well positioned from a balance sheet perspective. Cash and cash equivalents of $142 million at quarter end. Revolver availability was nearly $600 million and total liquidity exceeded $700 million. Net debt to adjusted EBITDA was 1.9x, within our targeted range of 1.5 to 2x and reflecting a quarter end outstanding net debt of just over $800 million. Our approach to capital allocation remains balanced and disciplined. First quarter capital expenditures totaled just under $10 million, in line with the prior year. We also look to opportunistically buy back shares under our $300 million repurchase program, and we maintained our quarterly dividend of $1.15 per share with $28 million paid during the quarter. Finally, we continue to seek thoughtful and complementary investments as part of our balanced capital allocation strategy. Turning to our updated full year outlook. RV wholesale shipments are now expected to be 315,000 to 330,000, as Jason mentioned. Marine industry deliveries are still expected to be flat to up low single digits. Despite the subdued industry backdrop, driven by our self-help initiatives and growth platforms, we continue to expect full year revenue of $4.2 billion to $4.3 billion and an operating profit margin in the range of 7.5% to 8%. Reflecting our strong first quarter performance, we are tightening our full year guidance and now expect 2026 adjusted EPS of $8.75 to $9.25. Looking ahead, some of the key growth drivers include continued innovation and increasing content per unit, Aftermarket growth that's benefiting from the growing number of RVs entering the repair and replacement cycle, housing growth benefiting from our growing number of residential window products and increased automotive aftermarket demand. Our adjusted EPS range, representing up to 24% annual growth at the high end is supported by continued margin expansion. We expect to continue our footprint optimization and address another 8 to 10 facilities this year, alongside ongoing efficiency and cost containment initiatives. Rounding out our updated full year outlook, we expect capital expenditures to be $55 million to $75 million for the year, focused primarily on business investment and innovation. In closing, we are off to a strong start in 2026 with our team focused on executing strategies that drive growth, profitability and enhance shareholder value. With that, operator, we'd be happy to take questions if you could please open up the line. Operator: [Operator Instructions] Our first question comes from Nathan Jones from Stifel. Nathan Jones: I guess I'll start with my first question on the Adjacent Industries OEM growth at 17%. Maybe you can give us a little bit more color on where you saw the strength and weaknesses in that segment given that the growth there was so strong? Jason Lippert: I think a big piece of that came from the -- we haven't lapsed the Freedman and Trans/Air acquisitions completely yet. That's part of it. All the adjacent markets are growing a little bit, but that lapse created some additional increase. Lillian Etzkorn: Yes. Nathan, specifically, the revenue from the acquisitions was $47 million in the quarter. So that contains a good chunk of it. Nathan Jones: Fair enough. I guess second question then on the margin performance. It was obviously also very strong. Can you talk about some of the contributors to that? I know you had -- you obviously had some inflation going through the business this quarter and pricing going through it was price cost positive to that or neutral to that? Just any color you can give us on the contributors to the margin expansion. Jason Lippert: Well, I think the biggest piece of the 100 bps or near 100 bps there is the -- all the self-help we're doing with the G&A improvements, all the facility consolidations and things we're doing there. And that's obviously going to continue on through this year. When we talked about the 8 to 10 facility consolidations we have this year, there's some big ones wrapped up in there. We'll be able to give more color at second quarter because really, we're waiting for July shutdown. There's usually a decent time shutdown during the 4th of July, where we can take the time and shut some of these facilities down and consolidate them with others that are still standing. Nathan Jones: And on the price cost equation, are you able to fully offset the inflationary costs, tariff costs with price? Or is there a lag to that? And then I guess just the last one, the changes in tariffs, any incremental impact from those? And I'll leave it there. Jason Lippert: Yes, there's a lot of puts and takes happening at the moment, obviously. I mean, with the new tariff stack after the Supreme Court struck down the old tariffs, there's a little bit of a stack on top of where we were before. We'll be dealing with that over the next months. But our assumption is we're not going to have any different approach or results to dealing with the tariffs that we did in the last few years that we've been dealing with it. So same strategy, going to continue to work on our strategic sourcing, make sure that we're buying from places and buying from countries strategically so that we're not overpaying on tariffs. And if we've got to pass some things along, we're going to do that and do that carefully with our customers. And there will be -- there always is just a little bit of lag as we sort these things out, but it's not meaningful. Operator: Our next question comes from Daniel Moore from CJS Securities. Dan Moore: Looking at the revenue guide unchanged despite obviously a softer RV outlook. Just in terms of where you see the opportunity to make it up. It sounds like you raised the Aftermarket opportunity for First Brands. Are there other things that are trending stronger, be it pricing, content, adjacent markets? Where is the kind of the makeup there? Jason Lippert: Yes. So First Brands and the Aftermarket piece is a piece of it, obviously. We mentioned in the prepared remarks that revenues for our automotive aftermarket division are mid-teens for the second quarter. We've obviously got good visibility in April and May. So we feel comfortable about that. I think the other big piece is the product placement that we've done on the RV side and the marine side for model year change that's coming up here in June. For just the RV piece alone, it was $140 million of new product placement. So that's new products that we've launched and put in the model year change cycles and also some market share improvements in different areas in the business. And we're winning in some of the other diversified adjacent businesses, but the $140 million piece from June forward annualized is probably the other big piece to offset any kind of softness in RV. So... Dan Moore: Yes, really helpful. You mentioned the obvious momentum in Aftermarket. April revenue as a whole down 4%. Just talk about the cadence of revenue entering May and expectations for Q2 more generally that's kind of embedded in your '26 revenue guide. Lillian Etzkorn: Sure. So, as you know, Q2 historically is probably the strongest quarter for us in any given year, and that is what we're expecting for this year as well. So despite April being a little bit softer, we are expecting sequentially to be up and also to be up year-over-year for the second quarter. And then I would say really just normal seasonality as we move through the balance of the year. Third quarter, we tend to have more of the shutdowns, Europe has shutdowns and then fourth quarter, we taper off. But yes, second quarter, we're expecting it to be nice and strong. Dan Moore: Really helpful, Lillian. Last one for me, a little long-winded, I apologize, but you're clearly incurring incremental costs from tariffs, from steel, aluminum, still maintaining 7.5% to 8% margin for the year. Given that a lot of these will likely be passed on with a little bit of a lag and the ongoing facility consolidations throughout the year and lower fixed cost absorption, let's say, we entered the year -- ended the year at kind of that midpoint, 7.75%, what would that imply on a run rate basis entering fiscal '27, assuming inflationary pressures start to level off? Lillian Etzkorn: Yes. So with that, again, kind of from the seasonality perspective, the fourth quarter in terms of a jump point in absolute terms is always going to be the lightest quarter. So I wouldn't necessarily use the fourth quarter as the run rate into next year just because that is the low point. What I would say, and I think it's reasonable to assume is, as you're seeing the year-over-year improvement in margin by quarter to continue to see that improvement kind of as that delta year-to-year as your start point for the following year, I think, is reasonable. And I think the other thing to point out, just in terms of the self-help, yes, it's a lot of the cost activities that Jason is highlighting. But I would also say just from efficiencies and how we're operating within our facilities, the team has done a really nice job of executing on that in some really difficult environments right now from an industry perspective. Jason Lippert: We feel there's a lot of pent-up demand out there. We're obviously not seeing it in the beginning part of the year here on the retail side, although used seems to be up pretty heavy, much bigger than what new is. New seems -- obviously, it's flat to down in most places, but used is up anywhere from high singles to mid-teens on most counts where we're taking those points and talking to dealers. So, yes, I think it really depends a lot on where retail falls and if we can get new going again, we're certainly going to be working with our customers to make sure that we're giving them every opportunity to get at affordability because that's the biggest headache out there when it comes to some of the sluggishness on the new purchases. Dan Moore: Yes. I guess my thought was given the lag in some of the pricing and some of the initiatives, you'd probably be entering '27 at an even higher level on an annualized basis, but I'll take the rest offline. Operator: Our next question comes from Joe Altobello from Raymond James. Joseph Altobello: I want to just follow-up on that line of question along operating margin and the improvement you're seeing this year. Obviously, it sounds like most of that is not volume dependent and it's largely in your control. You're talking about 8 to 10 facilities closures this year. How much runway do you see into '27 on that self-help side? Jason Lippert: Yes. So, obviously, we've got flow-through from all the changes we made last year that are kind of happening throughout this year, and we've got some carryover from that. And then like I said, these 8 to 10, we're literally just getting ready to start making these moves and changes and consolidations in July. So you can anticipate the benefits from all those moves to impact our P&Ls from July of this year through July of next year. And then we've got more self-help initiatives and some other facility consolidations on tap for next year already lined up. So the way I'd categorize what we've done here is, we started thinking really hot and heavy about this in the middle of '24 and started making changes just in the event that things didn't get better and the environment didn't improve. I'm glad we did that. I think a lot of people were thinking that they come into '26 and that volume would have to get better because it's been such a long depressed period of low retail and wholesale activity. But as we've dug into these self-help initiatives and around G&A specifically and around our plant consolidations and optimization specifically, we just continue to find more and more things. I mean the low-hanging fruit, we're kind of taking care of this year, but there's still some things we can do next year, and that will continue to benefit us through '27 and maybe even into '28. Joseph Altobello: Well, that's sort of what I was getting at, which is, if the industry looks next year like it does this year, you still see some pretty good margin expansion. Jason Lippert: Yes. Lillian Etzkorn: Yes, I think that's reasonable. I mean, Joe, as we've talked before, we've put out there the target of double-digit EBIT margins and really a lot of the self-help that we're doing puts us on a nice glide path towards that. Obviously, as we've spoken before, we do need to see some industry recoveries for the markets that we participate in. But we feel real good with the actions that we can take independent of the industry movements to put us on continued progression from the margin aspect. Jason Lippert: And I think the self-help and the consolidations and optimizations are helping a lot more than what we thought. We've had to rip the Band-Aid off in some spots and get uncomfortable. But at the end of the day, we're starting to scratch double digits without the improvement in the market right now. So I think that that's a good sign. Joseph Altobello: Got it. And maybe last one for me. Jason, I'm not sure how much you want to comment on the discussions with Patrick, but maybe talk about what initially attracted you to the deal. And I don't know if you want to talk about why it ultimately fell apart. Jason Lippert: I mean, as you know, I mean, we've done, as we said in the prepared remarks, 77 acquisitions over the course of at least my last 20 years or so in the seat. And we're looking at stuff all the time. And our Board is always challenging us to look at everything from small tuck-ins to large transformational deals. And this just happened to be one that you heard about that got into discussions. But at the end of the day, I mean, of the 77 we've done, we probably talked to 400 people, and there's been 300 that haven't gotten done. So we're always looking at these things, and we're always looking to -- whether it's transformational or small tuck-ins, these things pop up, you just don't necessarily hear about all of them. So that's about all we're willing to comment on, Joe. Operator: Our next question comes from Patrick Buckley from Jefferies. Patrick Buckley: I think you called out strong European results in your prepared remarks. What's driving that improvement over there? Is the broader consumer environment showing signs of improvement from what you're seeing? Jason Lippert: So I would tell you that we've been over there since 2016, starting to accumulate a platform over there. We bought several businesses and put them together to create a little consolidated supply business over there. Since we've been over there, the market doesn't ever grow big or drop fast. It's pretty consistent. So I wouldn't say it's market conditions. About 18 months ago, we decided to completely restructure the business over there, really decentralize it and took away a bunch of a corporate structure we had put together. And then, again, done some of the same self-help initiatives and plant consolidations and optimizations over there that we've done here in the last 18 months and are starting to show through on results really nice. Patrick Buckley: Got it. And then on the Lippert factory service, could you talk a bit more about the size of that today and what you view as the ultimate size and growth potential of that opportunity and maybe the time line there? Jason Lippert: Yes. So it was more of a thought we had last year. We kind of implemented this concept last year to say, "Hey, look, there's just -- as long as we've been in the business, service continues to be a pain point for the consumer." So we decided to put a few of our own up. We have had one here in Goshen for a long time, but we moved out to Howe right off the toll road, bought a bigger facility with some camping spots and things like that. So it's just more of a destination for people to come to. And we've added 2 more facilities at the beginning of this year, tail end of last year. So it's small today. It's not bigger than $10 million, but we've got, like I said, 200 appointments per week right now, and that's continuing to grow as we get the word out and advertised about this, and we're really taking really good care of consumers that come. So our hope is that over the next several years, we can grow this into a bigger platform that's more meaningful, and we'll continue to give you updates as we move along quarter-to-quarter. Operator: Our next question comes from Scott Stember from ROTH Capital. Scott Stember: A lot of facility consolidation going on over the last 6 to 9 months. I know that there was a bunch that took place in 4Q and another 8 to 10 for this year. Can you maybe size up the actual benefit that we'll see down to the bottom line this year just from that because that's a huge part of the story for your results this year? Lillian Etzkorn: Yes. No, that is a key part of the story for the results. And you're seeing it in the first quarter, and we had 80 basis points improvement from cost enhancements. So a good portion of that is going to be from the consolidations that we've done. And like Jason was saying, we expect that to continue as we progress through this year in the second half, similar to last year. Second half is really where you'll see more of the consolidation activity and the benefits starting to realize, call it, towards the end of this year and more so materially as we get into 2027 is where you'll see the greater impact from our actions in 2026. Scott Stember: Got it. And then, Jason, you made some comments about -- I jumped on the call late, so I'm not sure if I heard everything, but some comments about how the Aftermarket is trending currently for you, I think, in April and May. Can you maybe just talk about that again? And then also with used RVs outperforming new, could you maybe just remind us of how much of a benefit that could be for LCI in the Aftermarket with refurbishing, reconditioning units? Jason Lippert: Yes. So first, what I mentioned earlier was that the auto Aftermarket is trending revenue, Q2 up mid-teens from last year. And as you know, we've got 2 key components to our Aftermarket business. We've got the automotive Aftermarket, which is roughly half of our Aftermarket business, and then we have the RV and marine piece, which RV is a big piece of that. I would say the RV side is still -- it kind of follows new units. So if there's less used units, there's a little bit of sluggishness on the Aftermarket side for RV. But with respect to the used units, and Wagner says it best, I mean, every time they sell a lot of used units, they're always refurbishing and creating more value in those used RVs by whether it's repairing and fixing things or just upgrading some things. So there is a little bit of that. It's just hard to quantify because it's just really hard to track. But used units, new units going up, it's good for our Aftermarket business, and we'll continue to see benefit from that as this goes along. But I think the big piece as we keep talking about is, these COVID units that are going to continue to need repair and replacement over the next several years. I mean there is a slug of those, obviously, to the tune of 1.5 million units. And as those start coming in for repair and replacement parts, a lot of that business is going to come our way. Scott Stember: And on the auto side of the Aftermarket, what is driving that demand? And do you think that's sustainable for the balance of the year? Jason Lippert: Yes. Yes, for sure. I mean the big piece, as we keep mentioning is the First Brands kind of that whole bankruptcy that's creating issues. I mean they have not solved the problem. They've not moved any of those businesses to other businesses that have bought those. So the people that were buying First Brands hitches and towing products basically had to go find new suppliers over the last few months. So this is kind of broke loose. And as the second -- is really the largest player in that space, we're the beneficiary of a lot of that new business. So we're trying to take on as much as we can, given our -- given what capacity we have, and we expect that to continue through the long term because there's -- it doesn't appear that there's anything going to happen with First Brands. Operator: Our next question comes from Tristan Thomas from BMO Capital. Tristan Thomas-Martin: Jason, could you update your retail assumption for the year? Jason Lippert: Yes. I'd say we're kind of -- yes, down mid-single digits probably is probably where we're at, somewhere in there. It's hard to say. I think we'll have a really good feel in a few months after we get through the summer selling season here, obviously, but that's our best guess right now. Tristan Thomas-Martin: Okay. And then just looking at Slide 21, your mix of single axle versus multi-axle fifth-wheels, flat year-over-year in the quarter. Do you expect -- is that surprising? I'm curious if you expected that to maybe be a little bit richer. Jason Lippert: Yes. Yes, it is a little surprising. I mean we obviously talk to a lot of dealers. We talked to a lot of the OEMs. Their commentary to us on the single-axle units is they fully expect that to start trending downward at some point in the near future. They said that there's just too much inventory out there. The good news is it slowed down. I mean, for the last several years, it's been going up. So we've seen it flatten out and peak at this point in time, and we expect it to go down on the flip side. We've seen fifth-wheels -- as you know, we build a lot of chassis, and we get to see a lot of these ratios, 1 for 1 and fifth-wheels are up a little bit right now, which is a good sign. We obviously put a lot more content into fifth-wheel units than we do tandem or single-axle travel trailers. So that's kind of what we're seeing right now. Tristan Thomas-Martin: Okay. And then I'm going to sneak in one more. Just how do we -- from kind of a modeling standpoint, I think you called out $140 million from new model year '27 kind of share gains. Does that include the $100 million opportunity from the travel trailer leveling and stabilization system, the one you called out for Brinkley? And then also kind of the $140 million, how much of that falls in calendar '26 versus calendar year '27? Jason Lippert: Yes. It's not a big piece of that. Tristan, the $100 million is a TAM, is the total addressable market for leveling systems of that type. So we're just launching that, and we expect that once Brinkley gets it out there and people start seeing it that they'll want to get a piece of that, at least we're trying to find leveling systems that fit into the lower price point trailers, some of the lower price point trailers. We've already got leveling systems for trailers, for travel trailers that are a little bit more expensive. So our plan is over like any product launch and innovation, we -- 3 to 5 years, we want to penetrate at least 50% of the market. That's kind of our gold standard for product launches. So we've got -- we're off to the races with a really good customer and brand, and we'll get some good visibility, and then we'll see what happens as it makes its way into the market. But a lot of that $140 million is all sorts of products. Obviously, we've been talking a lot about our Chill Cube and our AC movement. I mean, 3 years ago, we were 15% of the AC market. Today, we're close to 60%. We're making a lot of headway with appliances and our TCS, our Touring Coil Suspensions and our ABS suspension products. So suspension appliances, air conditioners are getting a big piece of that $140 million. But we're also making progress with windows and furniture and chassis and some of our other core products. Operator: Our next question comes from Brandon Rolle from Loop Capital. Brandon Roll?: Just first, just digging in on the second quarter, are you expecting operating margin -- sequential operating margin expansion versus that 8.7% you had in the first quarter? Lillian Etzkorn: Yes. Again, the way I probably think about is think of the year-over-year improvement. Second quarter, again, tends to be a pretty strong quarter for us, just given the seasonality. So typically, you would expect to see that sequential improvement and that year-over-year improvement continuing as well. Brandon Roll?: Okay. Great. And then just on the overall industry recovery for the RVs. Clearly, retail is underwhelmed year-to-date. Is there a scenario where you potentially have to start absorbing some of the raw material price increases because the prices are too much to the end consumer or OEMs just begin to push back a little bit there? Or do you feel comfortable you'll be able to push through price regardless of industry fundamentals? Jason Lippert: Yes, absolutely. I mean there's a couple of strategies. One is, obviously, good, better, best. So we're working with our customers all the time on good, better, best products. So trying to find the most affordable options for people to still offer the consumers the best possible RV they can offer them, even if they've got to go from a good product or a better product to a good product or from a best product to a better product. So that's obviously part of the strategy, and we're always having those conversations and making -- running changes with our customers on those types of things. And then the second thing is, we are working with our customers right now on special floor plans and doing some special deals so that we can get some more affordable product into the marketplace on really popular floor plans. So there's not a single large OEM that we're not having those conversations with right now. And we'll continue to work with them as we get through this retail season and see how things are going. But we've got some -- as you know, we've got a little bit of tariff refunds hopefully coming. We don't have visibility on that yet. But if that does flow through and the refunds come through as the government has promised, then we'll be giving back to the large OEMs what they -- what we had to increase them back when those things first came out. So that will give some additional relief, hopefully. But affordability is the key issue right now, and we need to do everything we can as a supplier in the OEM community to give the dealers products that are priced right for the consumers. Operator: Our next question comes from Alice Wycklendt from Baird. Alice Wycklendt: Just want to circle back on the content per unit. Obviously, really strong organic growth of that up 3%, but the other bucket is a big contributor. I think the bulk of that is the index price adjustments. Can you provide a little bit more detail there? And I'm curious on what was the timing of some of those increases and the expected duration of that tailwind for content per unit? Lillian Etzkorn: So yes, so again, just in terms of the breakout for the content improvement, 3% was organic growth, really driven by the innovative products continuing to get traction in the marketplace. And then as we look at that other, it's a combination of the mix. So as we've had greater fifth-wheel units coming into play, that's benefited us. And then probably proportionately as well are those sales price increases to cover the material costs. And really, those started coming into play, I'd say, last year, call it, into Q2, Q3-ish really around the summertime is when we started to see that. So those impacts will continue to benefit on that content unit as we're moving forward. But the unit mix was also an important part of that increase as well just because we have more content on those larger, better equipped units. Alice Wycklendt: And then just maybe want to take a step back. It sounds like integration of Freedman and Trans/Air is going well. But what does the M&A pipeline look like today? And maybe what are you focused on? Jason Lippert: Yes. As always, we've got a lot of names on the list, Alice. And we're -- at any given point in time, we're talking to 4 or 5 different tuck-in opportunities, and those range anywhere from early discussions to LOIs, and we're -- we'll just keep you posted as we get close to getting these done, but the pipeline and multiples really haven't changed much in the last couple of years since we started looking at M&A again. Operator: We currently have no further questions. I'd like to hand back to Jason for some closing remarks. Jason Lippert: Yes. Well, I think the headlines are -- a lot of the self-help that we've been doing is starting to come into play and have a great impact on the results. And after 10 years of really focusing on diversifying the business in all these different areas, all the acquisitions and organic growth we've done there is really starting to play into our results as well, and we're excited to update you on our Q2 results in a few months. Thanks, everybody, for tuning in. Operator: This concludes today's call. We thank you for joining. You may now disconnect your lines.
Aapo Kilpinen: Ladies and gentlemen, dear Remedy investors, welcome to the webcast for Remedy's Q1 Business Review of 2026. My name is Aapo Kilpinen from Remedy's Investor Relations. Joining with me today are Remedy's new CEO, Jean-Charles Gaudechon, also known as JC; and then our CFO, Santtu Kallionpaa. JC will briefly introduce himself and then guide us to the quarter. Santtu will then do a deeper dive on the financials of the quarter. We'll then look at the outlook for the year, and then we'll end with a Q&A session at the end of the webcast. [Operator Instructions] But without further ado, JC, please, the stage is yours. Jean-Charles Gaudechon: All right. Thank you, Aapo, and hello, everyone. Welcome to Remedy Q1 2026 Business Review. I guess I need to start by saying a few words about myself. So let me start with, I think, something that really defines me is my past as a software engineer. I think that's really what shapes how I think about games, how I think about running studios, companies like Remedy, and how we approach game development in general. Over the past 25 years, I've had a chance to work on games across many roles on all platforms really and across North America, Asia and Europe, so quite global. That has given me a good overview of our craft and now I have the immense privilege of bringing that experience to Remedy. One of the boldest, most original studios in gaming with some of the best talents in the industry, which is excellent. You know what Remedy has achieved is rare. Over more than 3 decades, this studio has built a voice unlike any other, supported by a strong and engaged community, which is extremely rare, as I said, and a great asset now and for the future. More broadly, in our industry today, I think the creative craft is under real pressure. Games with a genuine soul, games that take risks, that have a point of view are getting harder to find. And those are exactly the games that Remedy makes. My mission is not to change what Remedy is. My mission is to protect and grow that soul and to help this studio grow without losing what makes it Remedy. All right. Enough of me, let's go through our business performance together. Q1 2026 was a good start to what I believe is going to be a very exciting and pivotal year for Remedy. Revenue increased, driven by game sales and royalties that nearly doubled for the comparison period. EBITDA came in ahead of the same comp period at EUR 2.9 million and EBIT was positive at EUR 1 million. Operating cash flow was on a healthy level. So good signals as we start that year. And a good share of that performance is being driven by our back catalog, which continues to find its audience. That is very encouraging, especially as we are building the self-publishing muscle at Remedy. We have a number of exciting projects in development, but the most immediate focus for Remedy, the one closest to our players' hands with the 2026 launch is CONTROL Resonant, obviously. So let's cover that. Our goal with CONTROL Resonant is to deliver a great melee action in RPG. Again, that honors the Control universe but also expands it, and that players will truly appreciate because in the end, that is what really only matters. So we're doing that for players in our fan base. A lot of interest was captured with our December 2025 announcement, and the leading indicators are on track. Looking ahead, we will ramp up the marketing campaign leading up to release, and we expect the momentum to significantly intensify. We have an ambitious global campaign and a sizable marketing budget for execution. The reception has been incredible so far. We're extremely happy about traction. During Q1, we released 2 new trailers. The first was our gameplay reveal trailer featured in the PlayStation State of Play. As you know, one of the highest profile venues in the industry for a reveal like this one. And putting our gameplay in front of that audience -- in front of you all for the first time was a very important moment for us and for the game at Remedy. The second was produced with our long-term partner, NVIDIA. This partnership shines a spotlight on the technical ambition behind CONTROL Resonant. And of course, on our very own Northlight, our proprietary engine, which is what allows us to push the game's performance and cutting-edge graphics, extremely important for Remedy games, as you know. Beyond the trailers, sorry, we released a developer diary for our community called Beyond the Oldest House. This is the kind of content that really matters, we believe, to our most dedicated fans, direct access to the people making the game, our dev team speaking in their own voices, speaking honestly about what they are building. Remedy's community has always liked authenticity. And I think that's really what we've been doing here and what we want to keep doing. We also hosted an exclusive showcase for media and creators. We had over 70 outlets that attended, generating more than 140 articles and around 2 billion impressions across global media, which we believe are good numbers at this stage of the campaign and more importantly, the coverage was not just broad and just volume, it was also quality and it was positive, which obviously, for us, is very encouraging and kind of how we want to land the product. Outlets like Edge, Polygon, GAMINGbible, IGN, just to name a few, I don't want to hurt anyone in the process, but have all come away from their previews with a clear message, to be clear, this was a hands-off preview, but still very encouraging. And people really said, this is a Remedy game that takes risks and has its own identity. And that's always what we want to make at Remedy. And you'll see that more and more as I talk strategy moving forward, it's very, very important that these games feel Remedy and are more Remedy than ever. There are, of course, fair questions being raised. Action RPG is a new genre for Remedy, and the press, the fans are right to scrutinize how the gameplay holds up. We welcome that scrutiny, but we are also confident that as players and press get their hands on the game, they will see kind of how serious we are about earning our place in the action RPG space. I have the chance to play the game daily, and I can tell you that it's coming very well together. I'm very happy. All right. So beyond the press, the broader signals heading into launch are healthy, sentiment among fans and content creators has held up globally, which is great to see. That audience is sizable. The Control universe has been played by close to 20 million people over its lifetime. We are also making a deliberate push beyond our traditional strongholds, the U.S. and Europe. This time around, Asia and Latin America are real priorities for this launch. And we have invested in localization at a level we have never done before. Our thinking here is simple, Remedy's voice deserves to reach further, and we are giving it the means to do so. All right. So turning over to our games currently in market. Alan Wake 2 became available on Amazon's Luna service during Q1, alongside Alan Wake Remastered, generating a platform deal royalty. The game also continued to perform across other platforms throughout the quarter, and Santtu will explain a bit more how that impacted Q1 positively. Happy to -- I'm very happy to announce that the game has passed a 6 million benchmark in lifetime copies sold. Control retained its solid sales momentum in Q1. In fact, Control actually sold better than the comparison period driven by promotions and added visibility from CONTROL Resonant, obviously. This is a dynamic we plan for at attractive price points. Control is a great vehicle for new players to enter the world of Control ahead of the sequel. All right. FBC: Firebreak. The last major update, Open House was released in March, and the game has moved to maintenance mode after that. The game will remain online and a Friend's Pass feature was introduced to support the player base. It is very important for us at Remedy to let players enjoy the game for as long as they can and as long as they want. The game remains available on PlayStation Plus and Xbox Game Pass, sorry, and can be purchased on PC and console platforms. All right. Our development pipeline has 3 active projects. CONTROL Resonant, obviously, in full production. We already discussed about this one at length. Max Payne 1 and 2 remake is also in full production in partnership with our partner, Rockstar Games. And you know how close to our heart is Max Payne. So something that we're putting a lot of effort on also. And we have a new project currently in proof of concept, which unfortunately, I cannot tell much more about today. So building on what I shared earlier, 3 areas where we are sharpening our focus. One, focus on core strength. Remedy is exceptional at building single player narrative experiences on core platforms. This is what we do best, and we need to double down on that expertise. We cannot take it for granted, not our craft and certainly not our players. This does not mean we stand still. We will innovate and we will explore new ways of reaching players when the case is right. But every step beyond our core has to build on what we already do best. Franchise expansion as the second pillar. Today, we tend to think about our games one after another. I want us to evolve that mindset, managing more franchises. I think our IPs today can really give a lot more than what they already do. We need to think as long-term strategies that let us be bolder to connect the dots further within and between our world. That is something very important to me for the future of Remedy. And three, self-publishing. I think this is a unique opportunity to hone the whole chain. No one can really speak about Remedy games better than Remedy. I want our publishing voice to be as unique and distinctive as our games themselves. It's a chance to be heard like never before. And we are not going to play safe, you will see that with the CONTROL Resonant campaign. With that, I will hand over to Santtu to walk you through the Q1 financial results. Santtu Kallionpaa: All right. Thank you, JC, and good afternoon also on my behalf. Let's start reviewing the financials from the revenue. So in Q1 2026, our revenue was EUR 13.1 million, which is 2 percentage lower than in the comparison period. Game sales and royalties almost doubled from the comparison period being EUR 5 million for the first quarter. This was driven by the royalties from Alan Wake 2, which include also the onetime royalty accrual from the game becoming available in Amazon Luna. Also, Control games has performed well in Q1 and partly drove the game sales and royalties above previous year. Q1 2026 also includes revenue accruals from FBC: Firebreak's subscription service deals, which we didn't have last year Q1. Development fees, they decreased from the comparison period and still made over half of the total revenue for Q1 2026. Development fees were for the projects, Max Payne 1 and 2 remake and CONTROL Resonant. Revenue was impacted negatively by weak USD rate. With the FX-neutral revenue, we would have had a growth of 0.2 percentage. Then looking at the longer perspective, the share of game sales and royalties of the total revenue has started to increase during 2025. Alan Wake 2 started accruing royalties in the end of 2024. And as said, during the first quarter 2026, Control games and sales related to our older game titles were on a higher level than in Q1 2025, and FBC: Firebreak started accruing revenue from Q2 2025 onwards. Development fees have remained roughly on a similar range for the last 4 quarters, but there has been also a variation between the quarters due to the development milestones of CONTROL Resonant and Max Payne 1 and 2 remake. Then moving on to profitability. So the operating profit in Q1 2026 was EUR 1.0 million positive, being EUR 0.3 million less than in the comparison period. This decrease is mainly due to higher depreciation and investments to self-publishing in Q1 2026. EBITDA improved from the comparison period and was EUR 2.9 million positive. Growth from the comparison period is largely due to the decrease of external development expenses. Then let's look at the costs in more detail for transparency. So unnetted external development and personnel expenses in total decreased by 11 percentage from EUR 11.5 million in Q1 2025 to EUR 10.3 million in Q1 2026. External work expenses were EUR 1.9 million in Q1 2026, being 44 percentage lower than in the comparison period. This was driven by lower external development needs in the game projects. The unnetted personnel expenses were EUR 8.4 million in Q1 of 2026, increasing by 3 percentage from the comparison period. This growth matches the growth of average number of personnel during the reporting period, which also increased by 3 percentage. The amount of capitalized development expenses at EUR 3 million was on a similar level than in the previous year. The amount of capitalization is higher than in the previous quarters, mainly due to increased efforts on CONTROL Resonant. In Q1 2026, depreciation expenses in total were EUR 1.9 million, of which EUR 1.2 million were related to game projects. These included Alan Wake 2 and FBC: Firebreak depreciations. Q1 depreciations are on a lower level than in the previous quarter, and this is due to the depreciations following the level of game sales of the games, which we are depreciating. Currently, a major part of Remedy's intangible assets is from capitalized development costs of CONTROL Resonant. Also, the remaining capitalization of Control's publishing and distribution rights has been mainly allocated to CONTROL Resonant. Once the game is launched later this year, the depreciations related to CONTROL Resonant will start, which will impact the quarterly depreciation levels. So at the end of Q1 2026, our total cash level was EUR 34 million, including EUR 14.4 million in cash and EUR 19.6 million in short-term cash management investments. During Q1 2026, the cash flow from operations was EUR 8.3 million positive. Besides the cash flow from operations, our cash position was affected by a EUR 3.2 million negative cash flow related to investments and EUR 0.3 million negative cash flow from financing. Cash flow from investments, that includes payments related to capitalized development costs and machine acquisitions. Cash flow from financing includes IFRS lease liability payments. The cash position improved in relation to both the comparison period, Q1 2025 as well as to what the situation was at the end of year 2025. Then if you look at the cash flow from operations closure, there has been variation in timing of payments from quarter-to-quarter. Q1 2026 cash flow from operations was EUR 14.9 million higher than in the comparison period. Our outflowing operative payments were 23 percentage higher than in the comparison period. Due to timing of sales payments, we, at the same time, received significantly more inflowing sales payments than a year ago. Timing of development fees -- fee payments are agreement based, and there is difference compared to revenue accruals. Royalty and game sales-related payments follow the revenue accruals with delay. So in overall, year 2026 started with a profitable quarter for us with both EBIT and EBITDA being positive. This is, of course, ahead of marketing ramp-up and related spend to support the launch of CONTROL Resonant during 2026. And now, JC will continue with outlook. Jean-Charles Gaudechon: Thank you, Santtu. All right. Our outlook for 2026 is unchanged. We expect our full year revenue and EBITDA to increase from the previous year. And then handing it to Aapo for Q&A. Aapo Kilpinen: Thank you, JC. Thank you, Santtu. Let's move on now to the Q&A. [Operator Instructions] We already have a couple of good questions in the pipeline, so let's begin with those. JC, the first question is related to you. What are the short-term goals from the new CEO? And will those goals affect how Remedy operates? Jean-Charles Gaudechon: Yes. Good question. I mean, so I've been here for a few months, and I spent a lot of that time listening and getting to understand people, the studio where we're at. And honestly, the priorities are very clear. Today, it's to execute on CONTROL Resonant. We can have all the strategies in the world, if we don't make an incredible game, what's the point? So I think to me today, it's really to give the studio the support, the direction, the inspiration to really kind of get CONTROL Resonant across the finish line in the best possible way now. It now is, of course, the biggest one, but we have other great games in the pipeline, which also needs and deserves attention and support. So this is very much the focus right now. The strategy pillars I talked about, we'll surely get into it, get into that vision, but today, let's focus on product execution. Aapo Kilpinen: Excellent. Thank you, JC. The next question is on CONTROL Resonant. Can you give more color on the leading indicators that you're tracking on the game? Jean-Charles Gaudechon: So unfortunately, right now, we cannot yet. Of course, we're still being -- a lot of that is happening behind closed doors, and we apologize. I know both present players are antsy to hear and learn more about the game and trust us, it's going to come. But today, I can't say a lot more. What I can say, as I said in the presentation, we're happy about how it's tracking. We're getting the momentum we want to gain. We're getting the traction. The game is landing the right way. The message, what we're hearing back is very much in line with what was planned. So happy about that. Apologies that I can't go much deeper into details, into numbers, but that's what I can say today. Aapo Kilpinen: Very good. Next question is on China and broader Asia. Is there a local partner model with a distribution arrangement? And how does the economic split compare to core markets? Jean-Charles Gaudechon: So good question. And you know I spend quite a bit of time in Asia myself. So that allows me also to hopefully get a bit better understanding of that region, even though you can't make any generalities and it's a daunting market, but also a very attractive one. We're going to have a local strategy. We're going to have a local partner. I can't announce any of that just yet or have any more details, but there is a strategy around how to approach China specifically. I think for me, what's most important today is how do we position the product to be a success with Chinese gamers. I think action RPG is something that resonates well in China. And I believe Chinese gamers will, I hope, Chinese gamers will appreciate CONTROL Resonant, and we're going to do everything on the way to get there. It's tough to say how much this is going to play in economics of the game. But what I can tell you is we're going to push really harder. Also on the localization front, I touched on it earlier. It's pretty much the biggest localization investment Remedy has ever made. And we're very happy to tell our Chinese gamers that the game and in China, but across the world, Chinese speakers that the game will be both kind of text and audio localized, which I think will be great. Aapo Kilpinen: Super. Next question is to Santtu. With CONTROL Resonant nearing completion, how should we think about the development fee trajectory through the rest of 2026? Santtu Kallionpaa: Yes. So the general rule regarding the development fees is that they follow the agreed milestones of the game development and the contracts. And good assumption regarding, for example, CONTROL Resonant is that the development fees will continue to accrue as long as the development of the game takes. Aapo Kilpinen: Excellent. Continuing with the finance question, Santtu. Are there still some B2B payments accrued for the coming quarters in relation to FBC: Firebreak? Santtu Kallionpaa: Yes. I think we have said earlier that the B2B deal accruals continue as long as the B2B deals regarding the game being in the subscription services continue. So it's based on that. We have also said that the major part of the cash flow impact from these agreed deals for FBC: Firebreak, that's already in our balance sheet. Aapo Kilpinen: Excellent. Then back to JC. I would like to hear more about the social media marketing efforts in China and how big of a share of the CONTROL Resonant sales do you see coming from Asia? Jean-Charles Gaudechon: I think I've kind of already answered this one and the last one. Not much more to say that we're going to be present. We are present and we're going to intensify our presence on the Chinese social media, and in general, kind of try to create our voice, getting a share of voice in China. Aapo Kilpinen: Very good. Next question on CONTROL Resonant's budget, ahead of CONTROL Resonant's launch, does the estimated development budget of approximately EUR 50 million still hold? Jean-Charles Gaudechon: So I'm not going to -- this is Santtu already looking at me and saying, don't say it. It's -- what I can tell on the budget is the team has done and the studio has done excellent work to stay on track, has done excellent work to build a AAA game on a relatively short or small budget. And that's something we've seen from Remedy before. That's something we'll see again from Remedy because honestly, there's something pretty incredible about the way being -- the games are being built at Remedy the way they've been thought through and managed. So it's been -- it's not has always been the case. I know that. We've had some hiccups in the past, but I can tell you that the team has done incredible work on control resonance. Aapo Kilpinen: Very good. Next question then is in relation to Remedy's headcount. Remedy's head count is increasing. This seems to be counter to what is happening in many other game studios. What is the thinking behind the increase? Jean-Charles Gaudechon: I mean good segue from what we just -- the previous question. And let me answer it by telling you again that the studio has made incredible games on relatively small actually team size, a relatively small budget size. And I think that happened because, well, it's a studio that has its own engine that has its own kind of tools and ways of building it, which I've seen for the past 2 months, and I understand why they were able to pull it off that way. I think also one thing you can see about Remedy is Remedy has always been smart of not going too fast, too quickly, which you've seen in other parts of the industry, unfortunately. And when you get to that, then that's when you take the risk of potentially having to downsize. What I can say today from the size of the team, the size of Remedy and the games we're making, I think we're pretty much rightsized for it. Aapo Kilpinen: Excellent. Next question, again, on organizational topics. As you've gotten to know the company, do you see areas in Remedy's operating model or organizational structure where changes may be needed? Jean-Charles Gaudechon: I think you can always make improvements, and we will make improvements. Yes, I've seen parts of Remedy, which I think can be improved at many different levels. Today, what's really important is to keep a balance on what you can improve and when you do some of these improvements. And as I said right now, the studio is in full execution mode. You need to be cautious with that. We need to give the right support. And a lot of this is gradual anyway. So today, it's more about protecting, supporting, making sure that we stay on the right tracks, but not necessarily disrupt any of that. But yes, there will be changes here or there, kind of internal cuisine type of thing, which will help, I think, the studio even perform better in the future. Aapo Kilpinen: Perfect. Next question is about the new projects. Is there any information you can share about it? Will it be under the Remedy connected universe? Or will it be a completely new title, spin-off? Anything that you can communicate at this point? Jean-Charles Gaudechon: It's tough. I keep having to say that I can't say much. But unfortunately, no, I can't reveal anything about this new project, except that it's going to be yet again an incredible Remedy game. Aapo Kilpinen: Very good. The next, Remedy has always been a contender for the Game of the Year in TGA. So is winning Game of the Year with CONTROL Resonant in your playbook? Jean-Charles Gaudechon: It always is. This team, and I've seen it now, we know it from before, right? This team is always going for the highest possible quality. And I think CONTROL Resonant is not different on that front. So we're going to push hard. I heard that this is going to be a pretty hard year, but I'm not sure exactly what's coming out this year, but there's going to be competition. But I think we'll be up there fighting for it. Aapo Kilpinen: Excellent. Then would you consider adding a preorder option for the games you publish? Jean-Charles Gaudechon: So I can't say much once again on CONTROL Resonant specifically. Me personally, I think preorder is a good way to judge traction, to judge success of the game ahead of launch. So I think it's a good thing. Aapo Kilpinen: Yes. Super. Then I think the final question, might there be any collaboration with Epic Games to bring Jesse or Dylan Faden or maybe even Ahti the janitor to Fortnite to promote CONTROL Resonant like what was done with Alan Wake 2? Jean-Charles Gaudechon: I mean we're big fans of crossover. I think we've showed it in the past. I think it helps us expand our universe, our worlds, and that's something that I mentioned in some of the pillars in the presentation just now. And this is something we're going to keep doing because I believe strongly in RPs in our worlds, and they should even get deeper and connect the dots more, as I said before. So I can't, of course, say anything about whether we do something with Epic or Epic is a strong and close partner. So we're always talking to our partners about potential opportunities. And these are, again, a great opportunity to look into. Again, as I said, one filter we will, I think, use more and more is, is it building on our core strength? As I said, as the first filter -- first pillar, sorry, this is going to be something we do a lot. And I think you define the vision of a studio not by just saying yes, but also saying no, which is what we don't go after, what may not really help compound that culture and build on the core strength of Remedy. So this is the filter we'll be using moving forward on the crossover, et cetera. But so far, we've been really happy with it. Aapo Kilpinen: Very good. One final question came through. In what way do you think the rapid development of AI will impact Remedy's operations, perhaps regarding product price or game development costs? Jean-Charles Gaudechon: So you're casually dropping an AI question at the end, excellent. Of course, it's a big topic these days. We've had a clear stance as Remedy with AI. Today, we're not using generative AI to create any user-facing content or in general. I would also say, good luck trying to make Alan Wake with AI. I would love to see that happen, but I think that it's going to be very, very hard. So today, I would say it's a bit of a non-topic. Of course, we need to make sure this is framed. There is adoption here or there happening like in gaming in general, you can never really stop someone to tinker with it. But it's really important that we have a clear frame, and it's very important that this does not replace any parts of the creativity coming up in our games. And that's something that, to me, I'm going to be fearless about. Aapo Kilpinen: Thank you, JC, very clear. Excellent. Thank you so much for the questions. Excellent questions once again. If there are any additional questions you didn't have the chance to present, feel free to send those over to the e-mail address now visible on the screen. We'll be back next time with our half year financial report that will be on August 11. But until then, bye-bye from us.
Operator: Greetings. Welcome to Apple Hospitality REIT First Quarter 2026 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Kelly Clarke, Vice President, Investor Relations. Thank you. You may begin. Kelly Clarke: Good morning, and welcome to Apple Hospitality REIT's First Quarter 2026 Earnings Call. Today's call will be based on the earnings release and Form 10-Q, which we distributed and filed yesterday afternoon. Before we begin, please note that today's call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions, and as a result, are subject to numerous risks, uncertainties and the outcome of future events that could cause actual results, performance or achievements to materially differ from those expressed, projected or implied. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including in our 2025 annual report on Form 10-K and speak only as of today. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com. This morning, Justin Knight, our Chief Executive Officer; and Liz Perkins, our Chief Financial Officer, will provide an overview of our results for the first quarter 2026 and an operational outlook for the remainder of the year. Unless otherwise stated, all changes in performance metrics refer to year-over-year changes for the comparable period. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to Justin. Justin Knight: Good morning, and thank you for joining us today for our first quarter 2026 earnings call. We are pleased to report a strong start to the year with comparable hotels RevPAR growth of more than 2% despite challenging year-over-year comparisons to the first quarter of 2025. Underscoring the strength of the quarter, approximately 2/3 of our hotels delivered RevPAR growth. And on a same-store basis, RevPAR grew nearly 3% with margin expansion. The efficient operating model of our hotels, combined with our prudent management of expenses, enabled us to deliver meaningful flow-through of top line improvements to bottom line performance, resulting in growth across comparable hotels adjusted hotel EBITDA, adjusted EBITDAre and modified funds from operations. Demand momentum has continued into the second quarter. Preliminary reports for the month of April indicate comparable hotels RevPAR growth of over 4%, supported by continued strength in demand and the benefit of favorable year-over-year comparisons related to the negative effects of DOGE, Liberation Day and the resulting general macroeconomic uncertainty. While the ongoing conflict in the Middle East and its effects on global energy markets adds to an uncertain geopolitical and economic backdrop, our broadly diversified rooms-focused portfolio continues to demonstrate demand resilience. Improving occupancy and forward booking trends give us confidence heading into the summer months. Reflecting our year-to-date outperformance, we are raising our full year RevPAR guidance 100 basis points to 1% at the midpoint. The revised range maintains a measured view of the year ahead, and we believe it could ultimately prove conservative. Transient demand has been stronger than anticipated. Early summer performance may benefit from incremental leisure travel tied to the FIFA World Cup, and we are beginning to lap periods negatively affected by reduced government spending, tariff-related disruption and last year's government shutdown. Taken together, these factors represent potential upside not fully reflected in our updated outlook. Disciplined capital allocation has been central to our success over decades in the lodging industry. We prudently balance near- and long-term investment decisions to capitalize on current opportunities while positioning for the future. Over time, this approach is designed to deliver compelling total returns to our shareholders through durable earnings growth and long-term capital appreciation. In April of this year, we completed the sale of our Hampton Inn & Suites in Rochester, Minnesota for approximately $9 million. The sales price represents a 5% cap rate or 14.5x EBITDA multiple before CapEx and a 4% cap rate or 19.6x EBITDA multiple after taking into consideration an estimated $3 million in anticipated capital improvements. We continue to see opportunity to selectively prune our portfolio through transactions that enable us to reinvest proceeds in ways that enhance returns for our shareholders. Recent acquisitions have performed well despite headwinds in several markets. The Embassy Suites in Madison, Wisconsin saw meaningful improvement as the hotel completed its first full year of operations. The AC Hotel in Washington, D.C., also acquired in 2024, produced full year 2025 RevPAR of $205 and a 43% house profit margin, solid results given the meaningful pullback in government travel and weaker convention calendar last year. The Nashville Motto, which recently received Hilton's New Build of the Year Award for the Motto brand, continues to ramp well with average RevPAR approaching $200 over recent weeks. And the Homewood Suites Tampa-Brandon acquired last year continues to produce strong yields in advance of a full renovation and repositioning planned this summer. Turning to out-year commitments. We continue to have forward contracts for 2 projects in early stages of development, an AC in Anchorage, Alaska and a dual brand AC and Residence Inn located adjacent to our SpringHill Suites in Las Vegas. The AC in Anchorage has broken ground and is expected to be delivered in late 2027. Construction has not yet begun on the Las Vegas project. The dual brand AC and Residence Inn are currently expected to be completed in the second quarter of 2028. The current transaction environment does not yet support accretive opportunities relative to our cost of capital, and we do not currently have any agreements for acquisitions in 2026. Consistent with our disciplined approach, we remain actively engaged in the transaction market, evaluating potential hotel acquisitions relative to other uses of capital with a focus on maximizing long-term value for our shareholders. As we have continuously demonstrated over the years, the flexibility of our balance sheet and our reputation for strong execution puts us in a position to act quickly when market conditions shift to be more favorable. We also continue to strategically reinvest in our portfolio, ensuring that our hotels remain competitive within their respective markets and maintain a strong value proposition for our guests. For the full year, we expect to reinvest between $80 million and $90 million, including major renovations planned at 21 hotels. The scale of our portfolio, efficient design of our rooms-focused hotels and our experienced in-house project management team enable us to maintain our assets with average annual CapEx spend of approximately 6% of revenues, significantly lower than full-service portfolios. Combined with stronger operating margins, this efficiency translates into substantial free cash flow from operations, which we use to fund shareholder distributions and strategic investments. For the quarter, capital expenditures totaled approximately $27.5 million. Supported by strong cash flow from our diverse portfolio of hotels, we continue to return capital to shareholders through attractive monthly distributions, which contribute to total returns. During the first quarter, we paid distributions totaling approximately $57 million or $0.24 per common share. Based on Friday's closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 7.2%. Together with our Board of Directors, we will continue to evaluate these distributions in the context of portfolio performance, capital needs and other accretive opportunities to create long-term shareholder value. Throughout our 26-year history in the lodging industry, we have refined our strategy with intention. We invest in high-quality of hotels that appeal to a broad set of business and leisure customers. We diversify our portfolio across markets and demand generators. We maintain a strong and flexible balance sheet with low leverage. We reinvest strategically in our portfolio, and we work closely with the experienced management teams who operate our hotels. We own one of the largest, most diverse portfolios of upscale rooms-focused hotels in the United States, 216 hotels with almost 30,000 guest rooms diversified across 83 markets in 37 states and the District of Columbia. Travel demand for our portfolio has remained resilient with meaningful growth in recent months, reinforcing the merits of our strategy. We continue to believe that historically low supply growth from new hotel construction in our markets materially reduces the overall risk profile of our portfolio, limits potential downside and enhances potential upside. At quarter end, 57% of our hotels did not have any new upper upscale or upper mid-scale product under construction within a 5-mile radius. We have confidence in the outlook for the hospitality industry and in the strength and positioning of our portfolio. As we look ahead, we will continue to focus on the things within our control, operational execution, disciplined capital allocation and an uncompromising commitment to integrity. Above all, we are committed to creating lasting value for our shareholders. It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter and outlook for the remainder of the year. Liz Perkins: Thank you, Justin, and good morning. The first quarter was a strong start to the year with our portfolio demonstrating the durability of our operating model. We are especially pleased with our performance relative to initial expectations that Q1 would be our weakest quarter in the year. With a strong finish to February and acceleration into March, we ended the quarter with RevPAR growth exceeding the high end of our initial full year guidance range. For the quarter, comparable hotels RevPAR was $115, up 2.2%. ADR was $157, up 0.1% and occupancy was 73%, an increase of 2.1%. Performance improved as we moved through the quarter. In January, comparable hotels RevPAR was down 1.6%, reflecting a challenging comparison to the same period last year, nearly half of which was attributable to wildfire-related recovery business in early 2025. Excluding our California hotels that saw benefit, first quarter RevPAR grew 3%. In February, comparable hotels RevPAR increased by 1.5%, supported by strengthening business and leisure demand despite some weather disruption. March performance was particularly noteworthy with comparable hotels RevPAR growth of 5.8%, well ahead of expectations and indicative of broad-based demand strength across the portfolio, extending beyond the early effects of policy-driven demand headwinds experienced last year. For the quarter, comparable hotels total revenue was up 4.3% to $337 million, supported by continued strength in other revenues, which were up 10%. The efficient operating models in our hotels, combined with disciplined expense management, drove strong flow-through from top line growth to bottom line results. For the quarter, we delivered comparable hotels adjusted hotel EBITDA of $108 million, up 3.6%, and an adjusted hotel EBITDA margin of 32.2%, a reduction of just 20 basis points. Results reflect the ongoing ramp of our recently opened Motto Nashville Downtown and the seasonal impact of Hotel 57, both of which weighed on overall comparable hotels results. On a same-store basis, which excludes the impact of the Motto Nashville Downtown, the transition of Hotel 57 and our recently acquired Homewood Suites Tampa-Brandon, RevPAR grew by 2.8% for the quarter. Same-store total revenue grew 3.1%, supported by continued strength in non-room revenues, which grew 6% in the quarter. Strong top line growth, combined with disciplined cost management, drove same-store adjusted hotel EBITDA growth of 4.2% and 30 basis points of adjusted hotel EBITDA margin expansion. These bottom line results are especially encouraging given the ADR headwinds we faced during the quarter and the disruption and transition expenses associated with converting our Marriott-managed hotels to franchise. As we move into seasonally higher occupancy months, stabilize recently transitioned hotels and see greater contribution from rate growth, we would expect even stronger flow-through to the bottom line. As highlighted in January, we completed the transition of our 13 Marriott-managed hotels to franchise, consolidating management with third-party management companies who, in most instances, were already operating hotels for us in market, enabling us to realize incremental operational synergies. While still early, we are encouraged by the initial results and remain confident these transitions, together with a select number of additional market-level management consolidations, will further drive operating performance for our portfolio. The transition also provides us with additional flexibility and enhances the marketability of these hotels as we evaluate select dispositions in the future. The broad-based strength across our portfolio was noteworthy during the quarter. As Justin highlighted, approximately 2/3 of our hotels delivered RevPAR growth year-over-year despite several markets having challenging comparisons, including wildfire-related recovery business benefiting our California hotels in early 2025 and the inauguration in D.C. This reflects both the diversification of our portfolio and our team's continued focus on hotel and market level execution. Several of our markets stood out as top RevPAR performers in the quarter. Pittsburgh grew 23%, benefiting from multiple sporting events and a strong convention calendar. Alaska grew 21%, driven by strong leisure demand in market, further aided by incremental crew business. Seattle grew 18% with the return of Boeing production business and additional project-related business at a nearby shipyard. Palm Beach grew 16%, continuing to flourish with both strong leisure and business transient demand. And Memphis grew 14%, capturing incremental medical personnel and airline crew business amid increased government demand in market. Based on preliminary results for the month of April, comparable hotels RevPAR increased by over 4%. Despite the ongoing benefit in 2025 from the wildfire recovery business in Southern California, we continue to see broad demand strength across our portfolio and additionally benefited from favorable comparisons over a challenging April 2025, which experienced disruption from government policy-related announcements. Turning back to the first quarter, weekday occupancy was up 170 basis points and weekend occupancy was up 270 basis points. Weekday occupancy followed the same monthly pattern as overall results, down 200 basis points in January, up 200 basis points in February and up over 400 basis points in March. Weekend occupancy was positive throughout the quarter, up 100 basis points in January, 200 basis points in February and nearly 500 basis points in March. ADR trends also strengthened as we moved through the quarter. After negative ADR growth in January and February, weekday ADR turned positive in March, up 1.4%, finishing the quarter up 30 basis points. Weekend ADR was up 3.5% in March and up 70 basis points for the quarter, a meaningful positive inflection that contributed to the broader RevPAR gains. Excluding our L.A. and D.C. markets, which faced challenging comparisons year-over-year related to wildfire recovery and inauguration business, both weekday and weekend ADR grew over 1% for the quarter, indicative of our ability to drive rate growth alongside occupancy in our portfolio. Looking at same-store room night channel mix, the quarter illustrated improvement in transient trends. Brand.com remained our largest channel at 39% of room nights, up 40 basis points year-over-year, while OTA bookings were up 170 basis points to 13% of mix. Property direct declined 90 basis points to 26% and GDS bookings declined 90 basis points to 18%. Turning to segmentation. Transient trends improved each month, while group business remained strong and provided a strong base that helped us grow overall occupancy. Bar led the way with impressive room night growth, particularly in February and March, growing 120 basis points to 34% of our occupancy mix in the first quarter. Other discounts were more steady, declining 50 basis points to 27% of mix. Corporate and local negotiated declined 130 basis points to 17% of mix, but showed steady improvement throughout the quarter and contributed to overall March results. Government grew 20 basis points to 6% of mix, largely driven by comparisons to disruptions in March 2025. Group business mix improved 30 basis points to 17%. Turning to expenses. Same-store hotels total hotel expenses grew 2.6% in the quarter, down slightly to last year on a CPOR basis. Expense discipline was a meaningful contributor to our margin performance in the quarter. Same-store variable hotel expense per occupied room grew just 0.3% year-over-year. Total payroll per occupied room was $43, up just 1%. We also continue to see reduced reliance on contract labor, which fell to under 7% of total same-store wages, a decline of 80 basis points or 7% year-over-year. Non-payroll variable expenses declined 10 basis points on a per occupied room basis and fixed same-store hotel expenses declined 1.5%, driven by a favorable property insurance comparison and property tax appeals. For the quarter, we achieved adjusted EBITDAre of approximately $101 million, up 2.2%, and MFFO of approximately $80 million or $0.34 per share, up 1.9% and 3%, respectively. Turning to our balance sheet. As of March 31, 2026, we had approximately $1.6 billion of total debt outstanding, approximately 3.4x our trailing 12-month EBITDA with a weighted average interest rate of 4.6% and a weighted average maturity of approximately 3 years. At quarter end, approximately 63% of our total debt was fixed or hedged. We had approximately $8 million of cash on hand and $559 million of availability under our revolving credit facility, providing meaningful liquidity. At the end of the first quarter, we had 207 unencumbered hotels in our portfolio. Conversations are ongoing with our unsecured lenders regarding the scheduled debt maturities for this year, and we are confident we are well positioned to address those maturities on attractive terms. Building on our strong first quarter, we are raising our full year outlook. Consistent with the measured approach we took when we initiated guidance, we have continued to be thoughtful in our expectations for the balance of the year, recognizing the economic and geopolitical uncertainty in the broader environment while remaining confident in the underlying strength of our portfolio. For the full year, we expect net income to be between $143 million and $169 million, comparable hotels RevPAR change to be between 0% and 2%, comparable hotels adjusted hotel EBITDA margin to be between 32.9% and 33.9% and adjusted EBITDAre to be between $436 million and $458 million. We have assumed for purposes of guidance that total hotel expenses will increase by approximately 3% at the midpoint, which is 2% on a CPOR basis. We remain confident in our operating model and the ability to manage expenses and are pleased to share we achieved a favorable property insurance renewal last month, which will generate incremental monthly savings compared to our initial expectations. As a reminder, effective January 1, 2026, the company began excluding from the calculation of adjusted EBITDA and MFFO the expense recorded for share-based compensation as it represents a noncash transaction and the add back to net income is consistent with the calculation of adjusted EBITDA for the company's financial covenant ratios under its credit facilities and consistent with the presentation of other public lodging REITs. Demand for our broadly diversified rooms-focused hotels have proven resilient. With recent stronger-than-anticipated transient demand, early summer potentially benefiting from incremental leisure travel related to the FIFA World Cup and easier comparisons to periods adversely impacted by cuts in government spending, tariff announcements and the government shutdown in 2025, we acknowledge that our revised guidance could continue to prove conservative. Our outlook is based on our current view, which is limited and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions. Recent improvements in occupancy and booking trends highlight the resiliency of travel demand overall and the strength of demand for our hotels specifically. Our recent capital allocation decisions and portfolio adjustments have enhanced our portfolio positioning and performance, and our solid balance sheet continues to provide us with stability and meaningful flexibility to pursue accretive opportunities in the future. We are confident with the experience, discipline and agility of our teams, the broad consumer appeal of our portfolio and the strength and flexibility of our balance sheet. We are well positioned to successfully navigate changing market conditions and capitalize on emerging opportunities to deliver growth and maximize total returns for shareholders over time. That concludes our prepared remarks, and we'll now open the call for questions. Operator: [Operator Instructions] Our first question is from Austin Wurschmidt with KeyBanc Capital Markets. Joshua Friedland: It's Josh on for Austin. So to the extent that you do see more ADR growth moving forward, does the margin guidance assume RevPAR growth is driven entirely by occupancy? Or is it a composition of the 2? And if it was entirely driven by ADR, what would that imply for flow-through? Liz Perkins: That's a good question. And I think generally as we think about guidance, we are looking at the most recent trends and speaking to the impact of ADR headwinds from last year impacting our margin performance in the quarter. And as we lap those comps from last year, specifically related to the L.A. wildfires, we anticipate we'll be able to drive more rate. That is not entirely built into the guide. When we look to revise guidance for Q1, we, given how close in proximity it was to when we reported at year-end and the fact that we're still early in the year, took a more measured approach and really, for the most part, exclusively incorporated the outperformance of Q1 and some improvement in April as well. And so the balance between occupancy and ADR for the remainder of the year as far as guidance goes at the midpoint is still a split, very similar to what we had anticipated at the beginning of the year. But should trends continue and should we continue to see more broad-based demand improvement, we do anticipate, as we lap those comps, an ability to drive rate as we've demonstrated if you exclude those comparisons from even actual results through Q1 and into April. Joshua Friedland: Okay. That's really helpful. And then my second question is around the price sensitivity around the consumer. So I guess what are you seeing from that perspective? And then with the macro risks that are currently out there, what could a potential impact on the consumer look like from a demand perspective within your portfolio? Or I guess more broadly, like what are the possible scenarios that you consider at the low end of guidance? And I'd also be curious to know the flip side of that around what you assumed at the high end. And that's all for me. Justin Knight: Sure. We are not currently seeing significant price sensitivity with our customers. As Liz highlighted in her prepared remarks, as we move through the quarter, we were able to grow both occupancy and rate. And the primary weight on overall ADR growth for the portfolio was the year-over-year comps with both the inauguration, which is a high rate event in D.C., and wildfires, which drove rates in the L.A. area. I think as we look forward to the remainder of the year, as Liz highlighted, we've taken a very conservative approach to guidance for the remainder of the year. And really, what's implied there is very limited growth either in occupancy or in rate. And we recognize that, that is counter to our most recent experience and likely conservative. As we think about how things play out for the remainder of the year, we will be moving shortly into higher occupancy months and anticipate that growth during those months will come increasingly from rate, which will drive incremental margins. And really given the price point for our hotels and perceived value associated with them, we don't anticipate absent a meaningful pullback in demand, broadly speaking, any challenges related to our ability to drive rate on the margin. Operator: Our next question is from Jay Kornreich with Cantor Fitzgerald. Jay Kornreich: You're referencing a lot about how guidance could be conservative, and you mentioned some of the additional components of lapping the easier government demand comps from last year as well as tariffs in addition to some of the potential upside from the World Cup leisure demand. So I guess in those specific areas, I wonder if you could just unpack those a bit more in terms of, I guess, what your potential upside could be from those? And within the government demand, I think that was really your main headwind last year. So as that came back strongly in 1Q, do you see that continuing to be strong throughout the year? Liz Perkins: We're certainly encouraged by the improvement in government demand that we've seen as we lapped the most or the earliest comps from last year from the impact of DOGE and Liberation Day. So we are hopeful that we'll see that continue. Remembering too that as we move into higher occupancy months, should there be broader-based demand or special event compression, we could choose to yield that out, which could make some of our year-over-year comparisons hard to draw meaningful conclusions from if we choose to yield it out. But at this point, given where occupancy levels were for the first quarter, particularly once we entered March and then April, we were able to take incremental government demand and saw improvement around 13% and from a mix perspective approached around 6%. So encouraged from a government perspective. As we move through the year, we did see government steadily improve. And when I say that, the decline year-over-year decreased as we moved into the summer months and then, of course, increased when we had the government shutdown in the fourth quarter. And so I think that the comps as we move throughout the year will be a little bit fluid. But again, encouraged initially by seeing that improvement in group. Justin Knight: And remembering, again, when we issued guidance in the beginning, we anticipated that first quarter would be our most difficult quarter and that we would see improved performance after that. I'm certainly incredibly pleased with how we performed in the first quarter. And our current guidance does not include potential upside from World Cup, though we have seen strong bookings, especially in some of our smaller markets, which we do anticipate would be incremental to the strong demand trends that we're already seeing. Jay Kornreich: Okay. I appreciate that. And maybe just following up on your last comment, Justin, just about some of the World Cup bookings you've already seen. Is that largely coming from where you have exposure to markets where games are being played? Or I think as we've talked about before, the potential for international travelers extending stays, traveling in the U.S. for a week or 2 and maybe some additional markets where you have exposure to. Just any lens of insight into where you expect that and where you've already seen some demand? Justin Knight: It's difficult to determine specifically what's driving demand in markets outside of markets that will benefit from FIFA games. That said, when we look at current bookings, a very small percentage of our current bookings are international. That's consistent with past experience. The bulk of what we have on the books now is domestic, and we continue to anticipate that will be a primary driver. Should we see, as we get near to the games, an uptick in international bookings, that would be incremental. Operator: Our next question is from Aryeh Klein with BMO Capital Markets. Aryeh Klein: Justin, you talked a little bit about, obviously, the conservative nature of the guide, but also that you're seeing positive forward booking trends. Curious if you can just unpack a little bit more about what you're seeing from a forward booking standpoint. It doesn't seem to be reflected in the guide, but it would be helpful just to get a sense of what you're seeing. Liz Perkins: I mean, very consistent with what Justin said. As we look forward, we are beginning to see -- we typically look 90 days out or sort of rely more on what's closer in than further out. And within the 90-day window, you're starting to see certainly some impact from the advanced bookings around World Cup, which is positive. And as we -- even as we enter June, thinking about May outside of the calendar shift, that looks positive as well. So from a forward bookings perspective, we are continuing to see improvements around occupancy and rate as we look forward. Aryeh Klein: And then maybe just on the transaction market, can you just talk a little bit about what you're seeing there and maybe what you need to see to get more active on the trans acquisition front? Justin Knight: Absolutely. I think debt markets have been supportive of transactions for some time. With improving fundamentals, we are beginning to see more interest in the space. And I think for some time there has been a lot of product on the market that would be attractive to us. The challenge has been a meaningful gap between seller expectations and what we would be willing to pay. We've spoken about this in the past, but our acquisitions model runs a comparative analysis to alternative uses of capital, including share repurchases. And as we look at the environment today and pricing for individual assets relative to the implied value or implied multiple in our stock, our stock still screens better. I think as we think about an environment where we would get more aggressive from an acquisition standpoint, it would be an environment where that reverses. And that could happen either as a result of continued improvement in our share price or a reduction in expectations from sellers. And the most likely scenario is a combination of both. And as I highlighted in my prepared remarks, given our history in the space and the flexibility that we have with our balance sheet, as the environment shifts, we're poised to move very quickly. Operator: [Operator Instructions] Our next question is from Michael Bellisario with Baird. Michael Bellisario: My question is for you on the cost side. So 2 parts here. One, could you quantify the insurance savings and/or how much that's boosting your outlook? And then also just with expenses still at plus 2% per occupied room, is the right way to think about it now we're sort of in a steady state? Or are there other puts and takes looking at that, that might cause that 2% number to either inch higher or inch lower? Liz Perkins: Okay. I'll answer the first part. Related to the property insurance renewal, what we assumed beginning in the second quarter through the end of the year was about a $900,000 improvement to the forward guidance for the last 3 quarters. So that's a little less than half of the incremental bottom line impact outside of truing up year-to-date. The other portion comes through April improvement on the top line and flow through there. And then from an expense perspective, we've guided to how the properties have been operating from a cost control perspective. We've gotten very granular from an individual line item perspective and believe that what we've provided is a good run rate. Now certainly if the environment was to shift and a cost line item or something was to materialize differently than what we've anticipated, that could potentially impact how we thought about expenses. But we've had a good trend of very good cost controls and see some improvement on the property insurance line for several years now. And outside of the fixed cost real estate tax comps from last year have seen some good appeals and some steady run rates there too. So we're encouraged about what we've seen from an expense management perspective, and that's certainly factored in here. Operator: Our next question is from Ken Billingsley with Compass Point. Kenneth Billingsley: I have a question. I'm going to follow up on the M&A side, maybe from the opposite side. I know you talked about targets necessarily not fitting what you're looking for. But can you talk about maybe inbounds and what you're seeing in requests for properties you would be interested in selling? Justin Knight: Certainly. And I think for clarification, we've spoken to this at some length in the past. But we're continually in market, both underwriting potential acquisitions and testing potential dispositions. And since -- well, over the past several years, we've tested the market with both individual assets and portfolios looking to gauge pricing and have executed where we've been able to achieve pricing that's most attractive to us relative to alternative uses for proceeds from those sales. I think in any environment we also -- from time to time we see inbounds. I can tell you as we test the market today, we're generally seeing an increased number of potential buyers. So increased interest with a large number of people signing confidentiality agreements, seeking data for the individual assets. And really, I think absent the war or the conflict in the Middle East and fears related to potential impact on energy prices, we would be seeing an even more active market with buyers interested in assets. Should we continue to see growth industry-wide and specific to our portfolio, like we have year-to-date, my expectation is that the market would get meaningfully more active with buyers beginning to stretch for individual assets. And in that environment, we have in our portfolio prioritized assets for potential sale and could act quickly on that side as well as get more aggressive from an acquisition side. Kenneth Billingsley: Is that mix of buyer evolving? Justin Knight: I would say yes. Where we have been executing or successful in executing over the past several months, maybe even a couple of years, has been primarily with local owner operators who have the capacity to drive incremental margins because of their presence in market and lower operating -- cost operating model. Those buyers have tended not to be cap rate bidders. Instead, they're looking more closely at value relative to replacement costs and bidding based on a revenue multiple, which is a very different type of buyer and pricing process and has enabled us to sell at relatively low cap rates and redeploy at a meaningful spread either into our stock or into additional assets. As the market becomes more active, we would anticipate and are beginning to see signs of increased interest from smaller private equity shops with dedicated hotel practice. And then certainly to the extent we're able to sustain the momentum industry-wide that we've seen recently, our expectation is that, that would broaden to some of the larger players as well. Kenneth Billingsley: And lastly, I just want to ask about Pittsburgh and get an idea of on what your expectations were versus -- I believe you said it was 23% RevPAR growth in first quarter '26. But with the NFL draft exceeding expectations, can you talk about how your expectations were met or exceeded? Liz Perkins: Generally -- and it's not unique to Pittsburgh. I think we were encouraged about how many markets performed relative to our initial expectations. So I think general demand was stronger in many markets, and certainly Pittsburgh performed well relative to expectations as well. Justin Knight: Yes. But when you look across our portfolio -- and Liz highlighted a number of markets where we saw strong double-digit growth. For Anchorage, which had an amazing year last year, to again move up double digits in the first quarter was equally -- equally surprised us to the positive. So I think the demand strength across our portfolio was much stronger than we anticipated through the first quarter, and as Liz highlighted, has carried forward into April. Kenneth Billingsley: What I was trying to get at -- and that's good to hear. What I was trying to get at is trying to understand if the consumer is going to travel to these events. And even though we have high expectations that they are resilient and maybe more people are likely to get out to go to these unique events that we're going to see through the remainder of the year. Justin Knight: I think early indications are positive on that front. Operator: Our next question is from Chris Darling with Green Street. Chris Darling: Just following up on the capital allocation discussion, where is your head at in terms of incremental development takeout transactions? And how is the opportunity set for those types of deals evolving? Justin Knight: It's interesting, and we've been fortunate in our ability to find deals that meet our underwriting criteria. But I'll tell you, as we look across the country and as we evaluate development takeouts, the same factors that are limiting new supply in our markets make underwriting development difficult. Meaning I think in most markets cost of construction have increased faster than fundamentals for hotels have improved. And as a result, there are a very few markets where development pencils broadly speaking. That said, I think our appetite for new development has always been limited, meaning we've generally targeted within $100 million a year of new development acquisitions. And so should we consider additional development projects, we would be looking beyond 2028 to future years. And we don't currently have any deals pending in that area or that regard. I think as we think about capital allocation opportunities in the near term, we continue to be focused on the existing assets and our shares. And in an answer to an earlier question, I highlighted how we evaluate those. Given that the forward commitments really are a long ways out, we have a tremendous amount of flexibility in the near term to allocate capital to accretive opportunities and then I think to fund those acquisitions as they are completed. Remembering again the structure of our development deals is such that the developer carries the project on their balance sheet and then our only cash outlay is at the time of completion. Chris Darling: Okay. That's helpful context all around. And then one more for me. Hoping you could elaborate on the early operating trends for your formerly Marriott-managed hotels. And if you could -- I think it's 13 total properties. Can you quantify what percent of overall EBITDA those hotels represent? Justin Knight: I will let Liz work on the second piece. We are very pleased with our progress in the transition. As Liz highlighted in her prepared remarks, there were transition-related expenses. And I think we were somewhat disappointed with sales efforts by the prior Marriott -- by prior Marriott management immediately prior to our takeover of the properties. That said, the new managers have come in and moved quickly and really established themselves in the properties in a way that we think will drive positive results this year. The 13 assets, because of their location, a portion of them are meaningful. A number of them are in California markets that are higher rated markets. And we may have to get back to you with the exact percentage. Liz Perkins: Percentage, yes. I'll have to pull it for you. Chris Darling: No, no worries. I didn't mean to put you on the spot with that one, but I appreciate the thoughts. Justin Knight: Absolutely. Operator: There are no further questions at this time. I would like to turn the conference back over to Justin Knight for closing remarks. Justin Knight: We appreciate you joining us for our first quarter earnings call. We're incredibly pleased with the way our portfolio performed during the first quarter and excited about carrying that momentum through the remainder of the year. As always, as you travel, we hope you'll take an opportunity to stay with us in one of our hotels. And we look forward to meeting with many of you as we begin interacting at some of the upcoming conferences. Operator: Thank you. This will conclude today's conference. You may disconnect at this time and thank you for your participation.
Operator: Good day, and welcome to Angel Oak Mortgage REIT First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. KC Kelleher Please go ahead. KC Kelleher: Good morning. Thank you for joining us today for Angel Oak Mortgage REIT's First Quarter 2026 Earnings Conference Call. This morning, we filed our press release detailing these results, which is available in the Investors section on our website at www.angeloakreit.com. As a reminder, remarks made on today's conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our most recent SEC filings. During this call, we will be discussing certain non-GAAP financial measures. More information about these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are contained in our earnings release and SEC filings. This morning's conference call is hosted by Angel Oak Mortgage REIT's Chief Executive Officer, Sreeni Prabhu; and Chief Financial Officer, Brandon Filson. Management will make some prepared comments, after which we will open up the call to your questions. Additionally, we recommend reviewing our earnings supplement posted on our website. Now I will turn the call over to Sreeni. Sreeniwas Prabhu: Thank you, KC, and thank you all for joining us today. First quarter unfolded in a global environment that was largely supportive to uneven economic growth and geopolitical tensions, including renewed conflict in the Middle East weighed on investors towards the end of the quarter. Inflation showed gradual improvement, while labor markets cooled modestly, and the Federal Reserve maintained a measured data-driven approach to policy decisions. Uncertainty weighed on risk sentiment at times, but also reinforced the values of discipline, liquidity and steady execution. Within this setting, our platform performed well, supported by our focus on credit quality, funding discipline and repeatable processes. Despite broader macro pressures, securitization markets remained open through the quarter. Investor demand continued to favor high-quality collateral and experienced issues even as spreads reflected global headlines, rate volatility and a period of reduced risk appetite. We were pleased to complete the AOMT 2026-2 securitization shortly before the onset of the conflict in the Middle East, taking advantage of favorable market conditions and underscoring the benefits of our methodical, repeatable securitization approach. We remain selective in our use of these markets, staying focused on sound structures, conservative leverage and economics that meet our return thresholds. Our first quarter results reflected our established operating growth trend with another consecutive quarter of net interest income expansion and prudent expense management. The positive earnings trend helped offset unfavorable valuation impacts during the quarter, which were driven by rates and spreads increasing and becoming more volatile. Looking forward, the need for non-QM lending solutions remains durable, and we see value in maintaining a cautious but active posture. Our priorities remain consistent, growing earnings, executing reliably in capital markets and positioning the portfolio to perform across a wide range of economic outcomes. With that, I'll turn it over to Brandon, who will walk us through our first quarter financial performance in greater detail. Brandon Filson: Thank you, Sreeni. First quarter results from an interest income and expense perspective were in line with expectations and reflected contributions from assets added in the quarter and in prior periods, along with a continued focus on cost control. To that end, as Sreeni mentioned, we continued our earnings growth trajectory established in 2025 with another consecutive quarter of net interest income growth. Interest rates were generally stable throughout the quarter, supporting consistent mortgage market activity and enabling continued purchases of accretive non-QM loans. Execution of the AOMT 2026-2 securitization in early March, which I will detail shortly, was strong and well timed, and we expect to continue our trend of 4 securitizations per year or roughly 1 per quarter. While spread widening and rate increases associated with global pension drove a decrease in book value of our portfolio, underlying fundamentals remain supportive and strong operating earnings mitigated the impact of valuation decreases, which we believe are temporary due to the ongoing conflict in Iran. In the first quarter, we had a GAAP net loss of $7.4 million or a loss of $0.30 per common diluted share. Loss was driven by unrealized valuation changes on our securitized and unsecuritized loan portfolios, largely tied to macroeconomic market volatility towards the end of the quarter, which offset positive operating growth. Comparatively, in the first quarter of 2025, we had GAAP net income of $20.5 million or $0.87 per diluted common share. That income was attributable to unrealized valuation gains of our securitized and unsecuritized loan portfolios as well as operating income. Distributable earnings for the quarter were $4.6 million. Differences versus GAAP results were primarily driven by the removal of the unrealized fair value movements just described. Our securitized loan portfolio and residential loan portfolio combined for $13.1 million of unrealized losses, which were offset by $1.6 million of net unrealized gains in our trading securities and hedge portfolios. In the first quarter of 2025, distributable earnings were $4.1 million. Interest income for the quarter was $40.7 million and net interest income was $12.1 million. This compares to interest income of $32.9 million and net interest income of $10.1 million in Q1 2025, showcasing 24% and 20% growth, respectively. Compared to the fourth quarter of 2025, interest income and net interest income grew by 4% and 11%, respectively. Performance has been supported by targeted asset purchases, growing net interest margin and consistent securitization market access during all of 2025 and specifically Q4 '25 and Q1 '26. Operating expenses for the quarter were $5.2 million. Excluding noncash stock compensation expenses and securitization costs, first quarter operating expenses were $3.4 million. The increase compared to a year ago and prior quarter is due to increases in professional service fees and loan diligence fees associated with a larger overall balance and consistent purchases of target assets. Going forward, we expect to maintain similar operating expense levels, and we'll continue to be as efficient as possible with our expense structure. Loan purchases during the quarter totaled $246.2 million and continue to reflect conservative credit profiles, moderate loan-to-value ratios and current market coupons that we believe remain attractive on a risk-adjusted basis. The weighted average coupon of loans purchased during the quarter was 7.3%, the weighted average CLTV was 67% and the weighted average credit score was 759. Our credit underwriting metrics have continued to improve over time as we target our desired credit and return profile. As of the end of the quarter, our loans and securitization trust portfolio carried a weighted average coupon of 6.1% with a weighted average funding cost of approximately 4.5%. We intend to continue to access securitization markets through our disciplined, methodical securitization strategy. As mentioned, we are able to take advantage of favorable market conditions with our AOMT 2026-2 securitization in March just before the onset of the renewed conflict in the Middle East. We were the sole contributor to AOMT 2026-2, which had a $272 million unpaid principal balance and a weighted average coupon of 7.1%, a weighted average non-zero credit score of 757 and a weighted average CLTV of 70.7%. The AAA rated senior bonds priced favorably at 113 basis point spread over the treasury yield curve. As of quarter end, GAAP book value per share was $10.31. Economic book value, which fair values all nonrecourse securitization obligations was $12.28. Compared to the end of 2025, GAAP book value per share decreased 4% and economic book value decreased 3.3%. Changes in book value during the quarter were reflective of operating income, offset by our quarterly dividend payment and the previously discussed market-driven valuation decrease within the portfolio. While the market continues to display volatility tied to geopolitical tension, we estimate that as of today, book value has increased slightly since the end of the first quarter due to continued accretive asset purchases and incremental earnings generation. Balance sheet remained well positioned with cash of $42 million and recourse debt to equity of 1.3x. We aim to maintain liquidity and available financing capacity to provide flexibility to respond to changing market conditions. We ended the quarter with unsecuritized residential whole loans at a fair value of $245.5 million financed with $192.2 million of warehouse debt, $2.2 billion of residential mortgage loans and securitization trust and $238.3 million of RMBS, including $25.7 million of investments in co-mingled securitization entities, which are included in other assets on our balance sheet. We finished the quarter with undrawn loan financing capacity of approximately $1.1 billion with 4 high-quality lending partners. Credit performance continued to be solid with portfolio-wide 90+ day delinquency at approximately 2.7%, which is inclusive of our residential loan, securitized loan and RMBS portfolios. This is materially flat compared to Q1 of 2025 and represents an increase of approximately 50 basis points from Q4 '25. Despite the increase compared to the prior quarter, performance across the Angel Oak shelf remains strong, and we believe that the performance of our collateral relative to the non-QM securitization market is a key differentiator of our platform. We expect our differentiated credit performance to translate into lower losses than comparable non-QM platforms across the full credit cycle. This view is supported by our proactive migration of credit spectrum, conservative LTVs and disciplined underwriting approach, which we believe position the portfolio to perform consistently even in more challenging environments. 3-month prepay speeds on our non-QM RMBS and securitized loan portfolios were 12% as of the end of the quarter compared to 11.2% in the fourth quarter of 2025. As we have mentioned in previous quarters, we expect prepay speeds to increase as rates decrease and homeowners are incentivized to refinance. With that said, we model our returns based on historical prepayment speeds of approximately 20% to 30%. While prepay speeds are likely to tick upward if newly originated coupon rates continue to decrease, the majority of our portfolio still has coupon rates that are below newly originated coupon rates, and we expect that mortgage rates would need to fall meaningfully in order to produce a significant impact to the returns on our portfolio. Lastly, the company declared a $0.32 per share common dividend payable on May 29, 2026, to common shareholders of record as of May 22, 2026. For additional details on our financial results and portfolio composition, please refer to the earnings supplement available on our website. Sreeni? Sreeniwas Prabhu: Thank you, Brandon. The proven well-established Angel origination, purchase and securitization platform provides us with confidence to perform well in a variety of macro environments. The fundamental backdrop of our business is positive. And while risk remains, we will continue to focus on what we can control, expansion of earnings, consistent securitization market activity and disciplined credit selection and management. With that, we will open the call for your questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Marissa Lobo from UBS. Ameeta Lobo Nelson: On HELOCs, you participated in one securitization in 2025 and you guided to about two a year. So how is the HELOC pipeline building relative to non-QM? Brandon Filson: We are building our current HELOC pipeline right now. After the securitization '26-2, we went bought some HELOCs as well. We kind of have enough to co-mingle with some other Angel Oak entities. So we're looking forward to another HELOC securitization in the coming months. But I think that the pacing is still about correct. Ameeta Lobo Nelson: Okay. Great. And then just looking at the loans and securitization trust, noticed the 2024 vintages picking up in speeds about '23, up a bit from last quarter. Delinquency a little bit up. So how should we think about that? And how is that impacting the valuation of the retained tranches on those deals? Brandon Filson: I think the -- yes, I think the speed increase is a little bit expected as rates started to come down. So the '24 deals had a lot of loans that were generated with much higher coupons. So the increase isn't necessarily a surprise to us. We expect to model the 25 to 30 CPR kind of over the life of the securitizations and like a normal kind of rate environment. The return profile seems about the same during that period from certainly what we model. The delinquencies are something we're monitoring, but nothing that's sticking out to us. And if you remember, some of the retained tranches we have, we have a little bit of a hedging effect on our retained positions because we have the interest-only bond and then we have the junior unrated equity piece. And as speeds increase, obviously, the valuations or anticipated returns of the IO would start to decrease, but the B3 or unrated bond and the bonds directly above it start to -- the valuation increases as it's expected, they'll get paid off soon. Operator: Your next question comes from the line of Matthew Erdner from JonesTrading. Matthew Erdner: In prior quarters, you've talked a little bit about calling legacy securitizations, kind of the '21s, '22s. As of last quarter, you guys kind of intended to call two of those throughout the year. Is that still the plan? And then what are you guys seeing there in terms of resecuritization that you could achieve? Brandon Filson: Yes. That's something we're literally monitoring every day. As you probably have good visibility to that decision based a lot on what the funding cost of the deal you're calling, what -- how they are levered, what's left in the stack and current funding cost, which over -- if we're talking in the middle or late February, that answer is a little different than it is today, but it's something we're monitoring. So what we probably have to see is a little cessation or dramatic reduction in some of the volatility in the rate markets for that go/no-go decision to effectively be accretive to call the deals. Matthew Erdner: Got it. Yes, that's helpful. And then as a follow-up to that, what kind of ROEs are you guys seeing in the market? I think it was mid-teens last quarter, trending a little bit lower. Is that still kind of the expectation and then low 20s on HELOCs? Brandon Filson: Yes. I mean I think that's our long-term expectation. If we were to do a deal today with the increase in treasuries and increase in the spreads, we'll be looking maybe lower teens to high 12s. So it has taken a little bit off, but we're not necessarily in the market right now with the securitization. We hope that when things come back into play for us to securitize, we're back up to that 15% to 20% number. Operator: Your next question comes from the line of Timothy D'Agostino from B. Riley Securities. Timothy D'Agostino: Regarding operating expenses, it seems like this quarter, it was elevated a little bit at about $1.7 million. I was wondering if there's anything in particular in that line item that increased it. Brandon Filson: Yes. Mainly, that's going to be professional service fees and loan diligence fees as we continue to buy loans. Our professional service fees in this instance are really related to our ATM program that we have out there that we didn't issue any shares on this quarter. So we had -- we expensed those costs versus putting it through like a contra equity account. Timothy D'Agostino: Okay. Great. And then I just want to touch on the securitization costs as well. If you do one securitization a quarter for the non-QM space, is the pricing on that generally going to be around $1.5 million? Or would it be less? And then the price for a non-QM or the cost for non-QM securitization, how does that differ to HELOC securitization? Just trying to understand that expense line item better as well. Brandon Filson: Yes. I mean securitization expense, there's a decent amount of fixed costs that go into that, and then there's obviously some variable costs. So it's kind of sensitive on how big the deal is, especially on the HELOC securitization, how much of the HELOC securitization we are participating in because we'll take our pro rata share of the deal cost. But really, you can kind of back into like a basis point percentage on securitization based on the amount that we securitized in the quarter, which typically is somewhere around 50 basis points. It could be a little less, could be a little more. But certainly, if we got a larger deal out, it would be a little less than that and about as small as we've been doing lately, $300 million or so it's about 50 basis points. Operator: [Operator Instructions] Your next question comes from the line of Doug Harter from BTIG. Brendan Matthew Greaney: This is Brendan Greaney on for Doug. How did whole loan pricing of non-QM loans hold up in March versus securitization spreads? Brandon Filson: Yes. I mean the whole loan pricing decreased quite a bit. That's really where most of that valuation decrease we have and the losses we had on the unrealized during the quarter. We lost about 1 point off of our whole loan pricing in Q1, and that's really just a reflection of where the current spreads are and the current treasury base rates. Brendan Matthew Greaney: Okay. And where are spreads today on AAAs and securitization? Brandon Filson: It'd probably be about $135 million to $145 million depending on the exact timing and exact collateral that was out there. Operator: Thank you. There are no further questions at this time. I would like to turn the call back to Mr. Brandon Filson for closing comments. Sir, please go ahead. Brandon Filson: I would like to thank everybody for your time and interest in Angel Oak Mortgage REIT. As always, if you have any further questions or comments, please feel free to give us a call and reach out. Otherwise, we look forward to connecting again with you next quarter. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. For optimal sound quality, we ask that you silence your electronic device. Star zero, and a member of our team will be happy to help. Good morning. My name is Stephanie, and I will be your conference operator today. Welcome to the Ecovyst Inc. First Quarter 2026 Earnings Call and Webcast. Please note, today’s call is being recorded and should run approximately one hour. Currently, participants have been placed in a listen-only mode to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I would now like to hand the call over to Gene Shiels, Director of Investor Relations. Please go ahead. Gene Shiels: Good morning, and welcome to Ecovyst Inc.’s first quarter 2026 earnings call. With me on the call this morning are Kurt J. Bitting, Ecovyst Inc.’s Chief Executive Officer, and Michael P. Feehan, Ecovyst Inc.’s Chief Financial Officer. Following our prepared remarks, we will take your questions. Please note that some of the information shared today is forward-looking information, including information about the company’s financial and operating performance, strategies, our anticipated end-use demand trends, and our 2026 financial outlook. This information is subject to risks and uncertainties that could cause actual results and the implementation of the company’s plans to vary materially. Any forward-looking information shared today speaks only as of this date. These risks are discussed in the company’s filings with the SEC. Reconciliations of non-GAAP financial measures mentioned in today’s call with their corresponding GAAP measures can be found in our earnings release and in the presentation materials posted in the Investors section of our website. I will now hand the call over to Kurt. Kurt J. Bitting: Thank you, Gene, and good morning. Consistent with the positive outlook for 2026 that we shared in our fourth quarter earnings call in late February, our first quarter results provide an excellent start to the year, with strong growth in both our regeneration services business and for virgin sulfuric acid. Sales for Regeneration Services were up on a double-digit percentage basis compared to 2025, reflecting high refinery utilization, favorable alkylation economics, and lower planned customer downtime compared to the year-ago quarter. First quarter sales for virgin sulfuric acid were also up significantly, benefiting from increased mining demand and the contribution from the Wagaman sulfuric acid assets that we acquired last May. As a result of the strong volume growth and positive pricing in the quarter, we reported adjusted EBITDA of $40 million, which is up 87% compared to 2025. During the quarter, we also maintained our focus on the implementation of our long-term strategic plan to accelerate growth and enhance value for our stockholders. During the first quarter, we repurchased approximately $36 million worth of our outstanding shares. And with regard to the pursuit of inorganic growth opportunities, our efforts over the course of the first quarter led us to last Friday’s announcement that we had reached an agreement to acquire the Calabrian sulfur dioxide and sulfur derivatives business from INEOS Enterprises in a transaction that will broaden our portfolio and further position Ecovyst Inc. for attractive growth in end uses we currently serve, such as mining and water treatment, and new end uses, including pharma and food processing. Kurt J. Bitting: As we move to the next two slides, I want to provide a brief overview of the Calabrian business and highlight the details and strategic merits of this transaction. What makes the Calabrian acquisition so compelling is how closely the business aligns with Ecovyst Inc. strategically, operationally, and commercially. The combination directly leverages our core competencies in sulfur chemistry and extends our platform into highly complementary adjacent chemistries. Just as Ecovyst Inc. is a leading provider of virgin sulfuric acid and sulfuric acid regeneration services, Calabrian is a leading provider of sulfur dioxide and sulfur-based derivatives. It is the sole on-purpose producer of sulfur dioxide in North America with a significant supply share, a leading producer of sodium bisulfite alongside Ecovyst Inc., a leading producer of sodium thiosulfate, and the sole North American producer of sodium metabisulfite. These products are critical inputs into a range of attractive end uses that overlap meaningfully with the markets we serve today, reinforcing the natural fit between the two businesses. Looking at a rough breakdown of Calabrian’s 2025 sales, nearly one-third of sales were to the mining sector, where we have well-established and long-standing relationships. Roughly a quarter of Calabrian’s 2025 sales were in water treatment, a market that we currently participate in with our virgin sulfuric acid, sodium bisulfite, and aluminum sulfate sales. Approximately 15% of sales were into specialty chemical applications and the balance of 2025 sales included sales into food preservatives and other applications. Similar to Ecovyst Inc., Calabrian has longstanding customer relationships with blue-chip customers, significant long-term contracts, and sales visibility. In terms of the strategic fit with Ecovyst Inc., I will first say that Calabrian has a seasoned and engaged management team, and we look forward to leveraging their expertise and enthusiasm as we move forward on a combined basis. Equally as important, Calabrian provides us with a very attractive opportunity to expand our reach and product offering in sulfur-related chemistries while leveraging our existing supply chain and manufacturing infrastructure. In doing so, it provides an opportunity to diversify our sales mix and increase our penetration into high-growth industries such as mining, water treatment, pharma, and food processing. Calabrian has two manufacturing locations: Port Neches in Texas, situated in the middle of our existing Gulf Coast infrastructure, and the Timmins site in Ontario, Canada, which we expect to broaden our exposure to Canada’s growing mining sector. Given our existing footprint in the Gulf Coast region, the acquisition provides opportunities to leverage our existing supply chain and manufacturing infrastructure. Finally, the financial profile is equally compelling. Calabrian brings attractive growth prospects, strong margins, and a track record of high cash conversion. On a trailing twelve-month adjusted EBITDA of approximately $24 million, the $190 million purchase price represents a multiple of approximately 8x, stepping down to roughly 7x as we capture synergies over the next three years. The transaction is expected to close by the end of the second quarter. We plan to fund the acquisition through cash on hand and a new debt offering, with specific allocation to be determined as we move towards closing. At this time, we expect that our pro forma net debt leverage ratio at close of the transaction will be approximately 2x. Before I hand the call over to Mike to review the details of our first quarter, I want to comment on our expectations for near-term demand trends and our confidence in the longer-term outlook for Ecovyst Inc. While the geopolitical and global macroeconomic environment remains dynamic, our outlook remains very positive. As a leading provider of products and services that are essential to our North American-based customers, we expect demand trends to remain favorable, underpinning our growth expectations for 2026. We see U.S. refinery utilization remaining high in 2026, with far less planned and unplanned customer downtime than we experienced in 2025. As such, we continue to expect higher volume for our Regeneration Services in 2026 with favorable contract pricing. We also expect volumetric growth for virgin sulfuric acid in 2026 with increased sales into mining, and a full year of contribution from the Wagaman sulfuric acid assets we acquired last year. Sales into the nylon end use are expected to be generally in line with 2025, and we anticipate relative stability across the broader range of industrial applications. Looking beyond 2026, we believe the long-term outlook remains extremely favorable. We expect that high refinery utilization will continue to support demand for our Regeneration Services business. And for virgin sulfuric acid, we believe we are positioned for growth, with sales into mining applications benefiting from multiyear expansion projects, growth in industrial applications associated with onshoring, and the prospect for continued sales recovery in the nylon end use. I will now turn the call over to Mike, who will review our financial results. Michael P. Feehan: Thank you, Kurt, and good morning. We are very pleased with our results for the first quarter and believe that we are off to a great start to the year, as stable demand and favorable pricing helped deliver solid results. Our sales were up 50% compared to the first quarter of last year. Higher sales volume for both virgin sulfuric acid and Regeneration Services, as well as positive pricing, translated into adjusted EBITDA of $40 million, up $19 million compared to the prior-year first quarter and ahead of our previously provided guidance range. Our favorable earnings compared to our guidance range were driven by higher-than-expected volume and pricing. We realized stronger-than-expected volume in Regeneration Services and, to a lesser extent, Treatment Services compared to our original expectations. With a significant spike in the cost of sulfur, we also realized a temporary benefit associated with the timing between when we incur the cost of our sulfur purchases and when we pass through those costs to our customers. Adjusted free cash flow for the first quarter was $4 million. Our net debt leverage ratio at quarter end was 1.2x, unchanged from year end, and our available liquidity remained strong at $237 million as of March 31. As we look at the first quarter financial results, sales were $215 million, up $72 million. Excluding the $33 million impact of higher sulfur costs passed through in price, sales were up nearly 27%. Regeneration Services volume was driven by less customer downtime compared to 2025. Sales volume for virgin sulfuric acid was also higher year over year, reflecting the contribution of 2025 and higher overall demand, including into nylon and mining applications. Average selling prices were higher, driven by virgin sulfuric acid pricing and favorable contract pricing for regenerated sulfuric acid. Adjusted EBITDA of $40 million was up $19 million, or 87%, driven by higher sales volume and favorable pricing, partially offset by higher manufacturing costs driven by higher turnaround costs, the impact of general inflation, and increased transportation costs. Favorable price-to-cost ratio at the contribution margin level remains evident in our first quarter. As previously mentioned, the pass-through effect of higher sulfur costs on sales was approximately $33 million, with the pass-through having no material impact on adjusted EBITDA. Excluding the sulfur pass-through, the price-to-cost uplift in the first quarter was approximately $11 million, largely driven by the net price impact, including favorable variable costs. Higher sales volume, including the contribution from the Wagaman assets, accounted for nearly $15 million of the period-over-period increase in adjusted EBITDA, and this was partially offset by higher manufacturing costs, including the incremental cost of the acquired Wagaman assets, as well as higher SG&A and other costs. Turning to cash and debt, adjusted free cash flow for the first quarter was $4 million, up compared to a use of cash of $13 million in 2025. The lower-than-average free cash flow for the first quarter reflects the normal cadence of cash generation, with the first quarter typically low primarily due to timing of working capital. During the quarter, we repurchased $36 million of our common stock at an average price of approximately $11 per share, and we have $146 million remaining under our existing authorization. We ended the first quarter with a strong liquidity position of $237 million, comprised of cash of $163 million and availability under our ABL facility of $74 million. With net debt of $234 million at quarter end, our net debt leverage ratio was 1.2x, unchanged from December 31. Turning to our 2026 outlook, note that the guidance included in our materials and discussed on this call does not include any contributions from the recently announced Calabrian acquisition. Our previous guidance provided in late February anticipated higher sulfur costs in 2026. However, disruption associated with the Iran conflict has resulted in further increases in sulfur costs. We now expect the impact of higher sulfur cost pass-through in price to be $30 million higher than previously guided, resulting in full-year 2026 sales to be in the range of $890 million to $970 million, up from our previously guided range of $860 million to $940 million. With a strong start to the year and having one quarter under our belt, we are revising our adjusted EBITDA guidance by tightening the range, now expecting full-year 2026 adjusted EBITDA to fall in the range of $180 million to $195 million. Similarly, we are tightening the range for adjusted free cash flow to be $40 million to $55 million. While we are not changing our guidance due to the announced Calabrian acquisition, we do intend to finance a portion of the acquisition through a debt offering along with cash on hand. As a result, we would expect cash interest to increase an additional $4 million to $5 million on a full-year annual basis. As we provide directional guidance by quarter for the balance of the year, for the second quarter, we continue to expect higher year-over-year sales of Regeneration Services, with favorable contractual pricing. We also continue to expect higher volume of virgin sulfuric acid driven by mining demand and the contribution of the acquired Wagaman assets, along with stable pricing for virgin sulfuric acid. Turnaround costs are expected to be lower than in the year-ago quarter. As a result, we project second quarter 2026 adjusted EBITDA to be in the range of $50 million to $55 million. For the third quarter, we continue to expect higher sales of Regeneration Services compared to 2025, and we currently project that virgin sulfuric acid volume will be slightly lower than the year-ago quarter, driven by the timing of our sales into nylon applications. With higher projected turnaround costs than in 2025, we expect third quarter 2026 adjusted EBITDA to be in the range of $50 million to $55 million. Finally, for the fourth quarter, we continue to expect higher sales of Regeneration Services compared to 2025, with favorable contractual pricing. We are currently expecting lower virgin sulfuric acid volume than in 2025. We also are anticipating that sulfur costs will ease from the current historic highs. As a result, we expect that sulfuric acid pricing, excluding the pass-through effect, will be lower due to the overall customer mix and timing between when we incur the cost of our sulfur purchases and when we pass through these costs to our customers. Lastly, we expect higher turnaround costs compared to 2025. As such, we currently anticipate that the fourth quarter adjusted EBITDA will fall in the range of $40 million to $45 million. I will now turn the call back to Kurt for some closing remarks. Kurt J. Bitting: Thank you, Mike. We had a great start to the year, and we are energized by the positive momentum we see as we move into the second quarter. While the global macroeconomic landscape continues to evolve, we believe Ecovyst Inc. remains well positioned to deliver on our objectives. Moreover, we are extremely pleased with our progress on strategic implementation as we maintain our focus on growth and on value creation for our stockholders. The disposition of our Advanced Materials and Catalyst segment at year end was a transformational event that resulted in a strengthened balance sheet and a robust liquidity position that provides us with the resources and flexibility to execute on multiple capital allocation alternatives, including the funding of organic growth projects, the pursuit of attractive inorganic growth opportunities, and the return of capital to our stockholders. During the first quarter, we returned $36 million in capital to our stockholders through share repurchases. As previously indicated, to support organic growth this year, we are investing in the expansion of our Gulf Coast storage and logistics capabilities that will further enhance our ability to serve our customers’ growing needs. Building upon last year’s successes, we also expect further contributions and network optimization benefits from the acquisition of our Wagaman site, as we continue to leverage the site’s capacity to meet the growing needs of our customers. With regard to our stated objective to pursue attractive inorganic growth opportunities, we are excited about the agreement that we have reached to acquire Calabrian, which will broaden our portfolio of sulfur products that we can offer to growing end uses. We look forward to the completion of the Calabrian acquisition and to providing you with updates on our ongoing progress as we move throughout the year. At this time, I will ask the operator to open the line for questions. Operator: Thank you. At this time, we will open the floor for questions. We will take our first question from John Patrick McNulty with BMO Capital Markets. Please go ahead. Your line is open. John Patrick McNulty: Yes, good morning. Thanks for taking my question, and congrats on a really solid start to the year. I wanted to dig into the changes since your last guide, both in the virgin acid markets and the scarcity around sulfuric acid on a global basis, maybe a little less so in the U.S., and also the strength of U.S. refining, which seems to be even better now given what has gone on in the Middle East. How have your expectations changed and how is that woven into the guide? I am a little surprised, with a couple of things being reasonably better, that you were not ready to raise at least the upper end of the guide. Can you help us think about that? Michael P. Feehan: Yes, John, thanks for the question. I think the first way we would look at that is there were some things that did change positively for us during the quarter. Certainly compared to the guidance that we had provided, we saw some strength in Regeneration Services and some positivity on the virgin pricing, but that is a little bit more based on timing. As we talked about, we expect to give some of that timing back in the fourth quarter. That Regeneration strength is clearly a tailwind for us, but we also are tempered with some of the other potential macroeconomic items that are going on. So we want to continue to keep our guide relatively where we were. We did raise the bottom end of it, so our midpoint is up to $187.5 million. We believe that there is strength in the numbers of what we have seen but want to be tempered with what we are expecting for the rest of the year. John Patrick McNulty: Okay, fair enough, and I understand it is a fluid situation. Maybe just speaking to Calabrian, can you give us some color as to how that business has grown over the past few years and what the longer-term growth outlook is? Kurt J. Bitting: Yes, sure. Thanks for the question, John. Calabrian has been in its current form since the 1980s with the site in Port Neches. They built a site in 2017 up in Timmins, Ontario, which is primarily used to service the mining sector in Canada. A lot of the growth in the Calabrian business has been from mining, and that backstops gold, which at current gold prices has been very healthy. So their business has grown from that. There has also been some growth in pharma, food, and other industrial applications. We look at that business as probably GDP to GDP-plus type growth, with some end uses moving faster than others, like mining and industrials. They are the only on-purpose North American producer of sulfur dioxide and the only producer of sodium metabisulfite in North America. They have a strong position and proprietary technology that is completely different from how competitors produce it. We are very happy with the acquisition and confident in its future potential. Operator: Thank you. We will take the next question from Patrick David Cunningham with Citigroup. Please go ahead. Your line is open. Analyst: Hi, everyone. This is Rachel Li on for Patrick. Adjusted EBITDA margins were meaningfully stronger than you expected this quarter, driven by higher volumes and incremental pricing above the sulfur pass-through, despite some other headwinds from transportation and manufacturing costs. As we look through the balance of the year, how should we think about the net price-cost dynamics? Michael P. Feehan: Thank you for the question. Yes, the margins were favorable. As we have discussed in the past, the pass-through of the sulfur cost is relatively neutral to EBITDA, so it does lower the margin percentage, but we did see positivity around overall pricing and volume that dropped straight through to the bottom line. That provided us with the higher margin. The price-to-cost ratio was positive in the quarter, and we expect that to continue throughout the year. We have been consistent over several quarters where we are making more EBITDA on a per-ton basis comparatively. So while the margin percent will look lower because of the sulfur pass-through, the earnings benefit is intact, and we expect that to continue through the rest of the year. Analyst: Great, thank you. And on the Calabrian acquisition, could you provide more detail on the contract structure and the level of visibility you have into forward sales and earnings? Michael P. Feehan: Yes. The business is similar to the general construct of the Eco Services asset business, where there are long-term agreements or certainly long-term customers with blue-chip users, whether in mining, industrials, pharma, food, and so forth. The contracts also have a high pass-through component, given it is a sulfur-based chemistry, so passing through sulfur is very important, and they have a similar dynamic to the Eco Services business. In terms of visibility, the customers tend to have very steady offtake. The products they purchase from Calabrian are critical to their processes, and there is generally very good visibility in terms of forecasting and readability of volume. Operator: Thank you. We will take our next question from Laurence Alexander with Jefferies. Please go ahead. Your line is open. Daniel Rizzo: Good morning. This is Dan Rizzo on for Laurence. Thanks for taking my questions. Looking at prices and structural change, oil analysts now expect about a 5% structural risk premium for oil due to what is going on in the Middle East. Do you expect a similar structural reset in sulfur prices over the long term that will flow through to your business, or should we view the sulfur spike as a net negative because it hurts industrial volumes? Michael P. Feehan: For our business, sulfur is at all-time highs right now, and the run-up in sulfur actually started well before the conflict in Iran. A lot of that is due to the need for the sulfur molecule and sulfuric acid to produce copper and other metals. We do feel there is definite demand for sulfur that will support higher prices. I do think right now we are in an extremely high situation given the geopolitical conflict. Long term, we continue to have the ability to pass through sulfur to our customers. Unlike fertilizer, which is very heavily dependent on commoditized markets where sulfur impacts demand a lot, our customers’ use of sulfuric acid tends to be a small component of their overall cost. While it is not ideal that sulfur prices increase, it remains a small component, so we are able to pass it through. Daniel Rizzo: Thanks, that is very helpful. On the most recent acquisition and synergies, should we think mostly about supply chain and procurement synergies as opposed to production and revenue, and will you quantify later? Michael P. Feehan: When we look at synergies, there are certainly some cost-based synergies, including procurement across sulfur chemistry, and we have a large supply and manufacturing infrastructure that should provide synergies, especially with the Port Neches site sitting in the middle of our Gulf Coast footprint. We also see revenue synergy upside, given the ability to leverage our sales force across sulfur products, one of which we already sell, sodium bisulfite. So we see a nice mixture of both cost and revenue synergies, stemming from the fact that we are both in sulfur chemistry and the products are closely related. Operator: Thank you. We will take our next question from Hamed Khorsand with BWS. Please go ahead. Your line is open. Hamed Khorsand: First, on the acquisition, you were talking about potentially selling into Canadian mining. Would these be relationships that Calabrian brings to the table? Kurt J. Bitting: Yes. We will be selling sulfur dioxide to Canadian mines, and these would be new mining relationships. Ecovyst Inc.’s mining relationships are primarily focused in the southwestern part of the U.S. Hamed Khorsand: And on the refinery side, is the increase in activity and utilization more about the current environment, or is it more of a normalization given where Q4 was? Kurt J. Bitting: The answer is both. Coming into this year, and as we guided on the previous call, we expected healthy refinery utilization due to significantly less planned and, hopefully, unplanned maintenance outages in the U.S. refining complex. Utilization was expected to be high. The current conflict has certainly added a tailwind—margins are high right now, not only for oil but for refined products, and U.S. refineries can take advantage of that. For us, the alkylation units that we service with regeneration are expected to run at very high rates this year, and really in all years, outside of maintenance. They do not have the ability to flex up a tremendous amount given the margin climate, but the current environment provides a tailwind for everything to run as hard as it can. Hamed Khorsand: Thank you. Operator: At this time, I would like to thank everybody for joining today’s event. You may now disconnect.
Operator: Good morning, and welcome to Vivid Seats' First Quarter 2026 Earnings Conference Call. Following management's prepared remarks, we will open the call for Q&A. I would now like to turn the call over to Austin Arnett. Austin Arnett: Good morning, and welcome to Vivid Seats' First Quarter 2026 Earnings Call. I'm Austin Arnett, Vivid Seats' General Counsel. I'm joined today by Larry Fey, Chief Executive Officer; and Joe Thomas, Chief Financial Officer. By now, everyone should have access to our earnings press release, which was issued earlier this morning. The release as well as supplemental earnings slides are available on our Investor Relations website at investors.vividseats.com. Today's call will include forward-looking statements within the meaning of federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our projections, including the risks discussed in our earnings release, our most recent annual report on Form 10-K and our subsequent filings with the SEC. Today's call will also include references to adjusted EBITDA, a non-GAAP financial measure that provides useful information to our investors. To the extent reasonably available, a reconciliation of adjusted EBITDA to its most directly comparable GAAP financial measure can be found in our earnings release and supplemental earnings slides. And now I'll turn the call over to Larry. Lawrence Fey: Good morning, everyone, and thank you for joining us today. We entered fiscal year 2026 with a clear focus and road map to enhance our market position and financial trajectory. With that focus, we delivered measurable progress in the first quarter, resulting in meaningful improvements across our business. Our first quarter results came in at the high end or above guidance. On a sequential basis, we delivered growth in GOV, adjusted EBITDA and our cash balance relative to Q4 2025. This momentum and sequential improvement support our confidence in returning to year-over-year growth in the second half of fiscal year 2026 and beyond. Our long-term strategy centers around Vivid Seats foundational strengths, leading technology and product innovation, operational excellence and a differentiated value proposition for our customers and partners. Pairing a seamless user experience with a differentiated value proposition is central to our mission. Vivid Seats strives to be the most rewarding ticketing company, and we are increasingly aligning our product, pricing and messaging around that core idea. We deliver value through competitive pricing, seamless user experiences and meaningful rewards that deepen customer loyalty over time. We are currently focusing our product innovation efforts on the core customer journey. We are improving funnel efficiency, enhancing conversion and delivering a faster, more intuitive experience. We recently deployed an upgraded app checkout experience, delivering a streamlined flow to accelerate the customer journey while improving conversion rates. We are encouraged by the early results and are excited about the pipeline of enhancements to both our app and web properties that will be deployed in Q2 and Q3. Our enhanced app value proposition continues to deliver encouraging results. In Q1 2026, Vivid Seats app GOV was up 20% year-over-year. This growth led to Vivid Seats app share of GOV exceeding 40% for the quarter. Increasing app adoption reflects the combined impact of the Vivid Seats Reward program, our lowest price guarantee and continued product improvements. Together, these investments represent a highly differentiated value proposition. App users are more engaged, return more frequently, convert at higher rates and touch paid performance marketing channels less often. As volume shifts into the app over time, we anticipate more efficient customer acquisition alongside enhanced customer retention and growing lifetime value. Alongside our app progress, we are continuing to invest in innovation across customer acquisition by working closely with leading AI platforms. This includes our recently launched ads on ChatGPT. While still in the early stages, we believe these efforts will help us capitalize on the long-term opportunities AI presents within the ticketing ecosystem. In tandem with the encouraging trends we are seeing with Vivid Seats branded properties, we were pleased to launch a significant new private label partner during Q1 with performance already exceeding our expectations. We also recently extended our agreement with a large existing private label customer, underscoring the value proposition we deliver to our private label partners. We are pleased to see the private label business deliver sequential revenue growth in Q1 2026 and believe this trend supports our expectation of a return to growth in the second half of the year. With that, I'll turn it over to Joe to walk through our first quarter financial results in more detail. Joseph Thomas: Thank you, Larry, and good morning, everyone. As Larry mentioned, our first quarter performance landed at or above the top end of our guidance, underscoring strong execution across the business. We achieved meaningful sequential increases in GOV and adjusted EBITDA compared to Q4 2025. This improvement is encouraging as we pursue a return to growth in fiscal year 2026 and beyond. Q1 2026 Marketplace GOV was $612 million compared to $581 million in Q4 2025, reflecting quarter-to-quarter growth of $31 million or 5.5%. This is particularly encouraging as the fourth quarter typically represents the highest GOV quarter each year due in part to robust sports volumes with all major leagues in the season. Q1 2026 consolidated revenue was $126 million, essentially flat with $127 million in Q4 2025. Within consolidated revenue, private label revenue grew 20% quarter-to-quarter, highlighting a meaningful growth trend in the channel despite continued year-over-year private label declines as we lap the 2025 loss of a large customer as previously disclosed. Marketplace take rate was 15.9% in Q1 2026 compared to 16.8% in Q4 2025. The lower take rate primarily reflects mix shift as private label revenue tends to come with lower take rates. We continue to expect near-term take rates to remain around 16% on a consolidated basis. Q1 2026 adjusted EBITDA was $9.5 million compared to $1 million in Q4 2025. Adjusted EBITDA grew $8.5 million, marking substantial improvement on a sequential basis and highlighting the benefit of a material reduction in operating costs relative to a growing GOV and revenue base. Cash increased over $40 million in the first quarter to $144 million. Cash flow benefited from improved profitability alongside seasonally strong working capital dynamics. Our first quarter results show significant progress across our operational and financial goals. Accordingly, we are reaffirming our 2026 outlook. For fiscal year 2026, we continue to expect marketplace GOV in the range of $2.2 billion to $2.6 billion and adjusted EBITDA in the range of $30 million to $40 million. This outlook reflects continued execution of our operating plan and financial profile. I will now turn the call back to Larry for closing remarks. Lawrence Fey: Our first quarter results indicate our strategy is working, and we are moving in the right direction. We are excited about our momentum in the Vivid Seats app, where improving conversion and increasing engagement are supporting double-digit GOV growth. We are also encouraged by the sequential trends in our private label business as we seek to return to year-over-year growth later in the year. As we move through the year, we are confident that our core strengths, leading technology and data, operational excellence and a differentiated customer value proposition will shine through. We are excited to continue executing against our strategy and to deliver long-term value to all stakeholders. With that, operator, please open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Cameron Mansson-Perrone with Morgan Stanley. Cameron Mansson-Perrone: Larry, last quarter, you highlighted that you're seeing some encouraging trends in terms of the competitive environment kind of rationalizing. Wondering if you're continuing to see that and whether there's any event category where you're seeing more or less industry competition for activity and whether competitive intensity from an event-specific angle is -- whether the rate of change is better or worse in any specific category? I appreciate it. Lawrence Fey: Yes. Thanks, Cameron. I think the moderation that we saw started in Q4 from StubHub on the paid search side has continued. That's been somewhat counterbalanced by continued aggressiveness in that channel by some other players. But no question, they've stepped back from their peak spend that we saw early middle of 2025. On the marketing spend side, I think perhaps a little surprising to us in the last few weeks, we've seen them shift to some price testing, price competitiveness. And so we continue to see, particularly in sports across the ecosystem, competitiveness across pricing, while the marketing landscape seems to have really stabilized and moderated a bit. Cameron Mansson-Perrone: Got it. Anything to follow-up on that, anything that you could add on. I think the benefits on the push to kind of drive activity in-app probably makes you a little bit more insulated in terms of the vagaries of competitive intensity in the industry. Any additional color on kind of how you think about that and what the opportunity could be as more activity shifts to in-app? Lawrence Fey: Yes. I think that's exactly right in terms of the goal and the strategy. We're happy to have exceeded 40%. I think implicitly though, at 40%, we still have exposure to the wins of paid search and marketing expense. But the objective is very much to control our own future, bring folks into the ecosystem once and then have it more about building a long-term relationship with those customers versus continually needing to go back into the pond and acquire folks. But we do benefit when things moderate, right, given the remaining piece of the business that's still out there. So we're pleased to see that. But the surface area of that exposure has shrunk quite a bit relative to what it was 2 years ago. Operator: Your next question comes from the line of Ryan Sigdahl with Craig-Hallum. Ryan Sigdahl: Larry, Joe, nice job on the sequential improvements and stabilization. I want to start on industry volume and curious what you guys saw in Q1 and then Q2 quarter-to-date, acknowledging I know April was a very tough comp, but just curious to try and compare your results relative to the industry and what you saw there. Lawrence Fey: Yes. In Q1, the data we're seeing was -- industry was probably up a smidge, so low single-digits, started pretty nice in January and then it moderated a bit into February and March. So net growth, but single-digits. And then Q2 thus far, I'd say, is roughly flat, got off to a slower start with Easter timing, but April picked up with a couple of meaningful concert on sales in the last 2 weeks. So we're back to roughly flattish. I think at the moment, generally continue to subscribe to what we had put forward at the outset of the year of modest industry growth. I think we've all seen the increase in some cancellations of certain tours over the last few weeks. I think most recent was The Pussycat Dolls, we also saw Zayn Malik, a couple of others Post Malone delayed, which I think on some level is reflecting either mispricing or some cap on potential for growth for the year. Ryan Sigdahl: Then just on market share, how that looked for you guys looking at SkyBox data on a sequential basis for the marketplace? And then secondly, on the market share, what you guys are seeing from SkyBox from your ERP customers? Lawrence Fey: Yes. So our share has been sequentially steady in our data when we look at Q4 into Q1 into Q2. As we've started to lap our most difficult comps last year, which started around now with the, call it, peak spending in the performance marketing channels, we've seen in our data, our share shift to being up year-over-year, not dramatically, but up, which is refreshing. And as you probably heard our theme throughout the call, I think we're well situated to return to growth in the back half of the year, and those are the types of metrics that you love to see flipping green in advance of that. Ryan Sigdahl: Great. Then maybe just on SkyBox too, if you're willing to comment specifically to the ERP customer market share? Lawrence Fey: Yes. There continues to be competition for those customers, but we have not seen any meaningful defections in recent months. So we're vigilant. We're continuing to reinvest and refocus on upgrading the platform to defend those relationships. But we've seen alongside our stabilizing and improving share in volumes, improvement in that dialogue and discourse with all of our sellers. So excited about the outlook on the SkyBox front. Operator: Your next question comes from the line of Ralph Schackart with William Blair. Ralph Schackart: Two, if I could. Just first on the macro environment and sort of the reads on the consumer now that we have some elevated oil prices. Larry had said that maybe there's some cap on prices. I'm not sure if those are related, but just any comments as it relates to that? And then I have a follow-up. Lawrence Fey: Yes. We -- there's nothing we could point to in terms of the kink in the curve where the Iran conflict started, oil prices moved and you can see a discernible shift in demand or purchasing in any clear way. As we touched on earlier, with some of the concert tours being canceled, perhaps that's a reflection of at least some subset of the market being tapped out. It also may just be part of the natural oscillation of some artists misprice the tours, which is, I think, the leaning at the moment. We have seen some weakness. The lower end of the Vegas market has probably been the most palpable place where we've seen the impact of potential consumer weakness. I think that's a comment I've really seen a number of the local operators reinforce, and we have continued to see that continue into the year. So in Vegas, we're really looking ahead to 2027 when supply tailwinds arrive with the reopening of the Mirage. But I think for this year, it's going to be more of a blocking and tackling type year in Vegas. Ralph Schackart: Okay. Great. And just maybe kind of switching gears to the app and some of the improvements you talked about in conversion rates. I think you said you're above 40% traffic now on the app. Maybe just kind of a sense how that's trended over the last year or so? And just any thoughts on where you think that you could take that rate over time? Lawrence Fey: Yes. We've seen really nice increases in the share of GOV coming through the app. And ultimately, the GOV function is how do you get more people into the app and how do you drive higher conversion. So our activities are centered on both of those. A lot of effort in the back half of last year on how do we make folks who see the app want to download and keep it through better messaging, the better value proposition, reinforcing the value proposition. The focus this year has shifted to the conversion side of things, how do you optimize the product experience? How do you collect more data to have better personalized information appear in front of folks, have a pretty exciting deployment calendar over Q2 and Q3 on the app side of things. So we're north of 40% in Q1. I think the ambition is for a majority of the business to come through the app. I think realistic timetable for that would be at some point in 2027 to achieve that on a run rate basis, but that's what we're aspiring to deliver. Operator: Your next question comes from the line of Brad Erickson with RBC Capital Markets. Bradley Erickson: So in terms of the return to growth, you pointed to, I think, the new private label partner giving you some added confidence there for the second half. Can you remind us any other items that could go -- kind of go right this year that gets you back to that growth in the second half of the year or at a high end of the guide type scenario? What would those drivers be? Lawrence Fey: Yes. I think as we frame why second half is where we draw the line for when we expect to flip back to growth. We lost the large private label customer in July of last year. So July and really August will be the first true clean month without that customer in there. Subsequent to losing that customer, as we noted, we brought a new meaningful private label customer on in Q1, which enabled sequential growth from Q4. I think within private label, the path to incremental upside is twofold. There's always the option of winning and bringing additional customers on. There's an interesting stick or 2 in the fire on that front. And then the other piece that we've redoubled efforts is how do we make sure our product and our support of our partners to maximize their organic performance is where it needs to be, and we're seeing encouraging progress on that front as well. With one of the big changes being any product enhancement that we are developing for the Vivid Seats marketplace, we want to make sure we make it configurable and available to our partners in short order. And some of the upgrades that get us excited on the Vivid side that they get pushed to our private label platform, I think provide an opportunity for organic outperformance in the second half of this year, but probably more prominent as you think about growth into 2027 and full year impact. Beyond that, I think the concert calendar and supply slate is largely baked at this point. So upside from here, I think, will largely be driven by fundamental performance, right? So can these new product releases that we have upcoming in Q2 and Q3 deliver the type of conversion uplift that we anticipate or event mix. And I think the World Cup is probably the elephant in the room. If you get some great matchups in the quarter finals, semifinals, finals and you have a series of Super Bowl size events, that would be a wonderful tailwind. We'll see. Bradley Erickson: Got it. And then just bigger picture, as you continue to have conversations presumably with the LLM companies, I don't know, have you seen any indications or just any updates you can give us on how you're thinking about their desire, ability, et cetera, to potentially grab economics of bringing the booking kind of closer to the 4 walls of the LLM. And then just generally, when you think about the risks related to that, remind us like what do you point to as kind of the specific points of insulation where the ticketing sector can maintain all of its economics within kind of an LLM booking environment? Lawrence Fey: Yes. I'd say on the AI journey broadly, we've actually seen to date, quite little progress on the top of the funnel disruption and quite a bit of progress on optimizing the way we operate the business on our side. So not to say it can't change, but everything we've seen to date has been more in the camp of the tools and capabilities allow us to be much more efficient and effective on a series of parameters to deliver a better customer experience, whether that's building the software more quickly, automating processes, better information sharing. It really has been a nice tailwind on the operational side, including specifically our customer service experience. If you look longer-term, nothing that we've seen indicates that the premise of like a fully captive transaction where the marketplace is boxed out is likely in the near-term or the focus of the LLMs in the near-term. I think the biggest barrier is this idea of when you have dynamic inventory in a deep vertical search category where you have a ton of individual preference. You need a lot of data. And they don't have -- the LLMs don't have that data across every subcategory that they service. So they're ultimately reliant on the folks like Vivid Seats or our competitors who have aggregated the inventory, have built the seat maps, have the dynamic real-time pricing. And so unless we compile all that information and provide to them, they won't have it. And then it's incumbent on us in the industry to make sure that we don't just give away the farm without being properly compensated. But that, I think, is at least what we're seeing today. That's a multiyear journey and not one we're seeing progress being made on the LLM front at the moment. Operator: Your next question comes from the line of Steven McDermott with Bank of America. Steven McDermott: I was wondering if we could shift a little bit to your partnership with United, kind of any updates there? And is that really driving any incrementality that you're seeing? And then I have a follow-up after. Lawrence Fey: Yes. United is a great example of one of the, call it, many partnerships and partners we have across the ecosystem. It's been a nice tailwind throughout the year. It's not an explicit needle mover of results. So it's been great to add them, excited to continue to grow the partnership and iterate on how to maximize it, but I would not consider that a primary influence on the results that you're seeing in Q1. Steven McDermott: Got you. And then as we look at your cost position after your recent reductions, do you feel as though you're kind of in a comfortable position to return to growth? And to that, can we expect a more aggressive OpEx spend in the second half of this year? Lawrence Fey: Yes. I think the cost side of the equation continues to be a bright spot. I think first and foremost, the cost reductions that we've actioned are flowing through. So they are real. Second, we have not seen any loss in productivity or capability. And in fact, I think I've actually seen our productivity and deployment rates increase alongside the efficiency gains, and that's one part optimizing and getting the right people in the right seats and one part utilizing some of these AI capabilities I was alluding to earlier. So as we sit here today, our objective is operating leverage. So as we grow, disproportionate amount of that growth flows through to the bottom line. And I think we have more opportunity to capture on the expense side as we move into next year. So there are some variable costs, right, as you complete transactions, even including in our G&A line, right, some software that's per dip and that type of thing. But I think our objective is even as we return to growth, our expenses remain steady on the G&A side. Operator: Your next question comes from the line of Thomas Forte with Maxim Group. Thomas Forte: Great. So first off, Larry and Joe, congrats on the quarter. Larry, sorry about the Illini and at least OKC is playing the Lakers in this round. My first question is more exciting. My second question is a little boring. On the more exciting front, what gives you confidence you can maintain your share and capitalize on World Cup this year? And if you're able to do that, how might World Cup contribute to your numbers this year? Lawrence Fey: Yes. I think World Cup has been a pretty meaningful tailwind. I think broadly consistent with what we've touched on in prior quarters where we framed the opportunity as something larger than an A-List concert tour, but perhaps less than Taylor Swift. What we've seen in terms of volume flowing through to date, the World Cup first went on sale in November. So we've been selling for 6, 7 months now with a couple of months to go as we approach the start of the games. It's tracking to those levels, right? So if a typical A-List tour is 1% of GOV for the year, Taylor Swift, more like high single-digits, it looks like overall, the event will be low to mid-single digits as a percentage of full year GOV. So we've had really nice performance and strength to date. These are high AOS events. And what we've generally found is that value proposition matters quite a bit when you're talking about these high AOS events. And so incumbent on us to continue to get the message out that our app is the place to purchase these high AOS tickets. And if we're able to continue doing that, I think we'll get our fair share a little bit better as we enter the playing phase of the tournament. Thomas Forte: Great. And then for my boring one, now that we're a quarter in, do you want to give your updated thoughts on cash conversion for adjusted EBITDA for '26? Lawrence Fey: Yes. I think largely consistent where if anything, our CapEx is maybe coming in a little bit lower than we had previously estimated. But directionally, net interest expense in the $20-ish million range, CapEx, cap software in the low to mid-teens and then a smidge of taxes relating to our international operations. So if you get to EBITDA in the $35 million to $40 million range, you'll be cash flow positive before considering working capital. And as we have outlined, we feel pretty good about our volume trajectory and that overall working capital will be a source of cash on balance over the course of the year. And so believe that we're tracking, assuming we continue to deliver against the numbers and guidance for a cash flow positive year. Operator: Your next question comes from the line of Kunal Madhukar with DB. Kunal Madhukar: A couple, if I could. One, on the app side, I wanted to understand how the app user demographics differs from the regular customers that you have on the website in terms of maybe age, in terms of their interest, in terms of engagement, in terms of geography, in terms of the type of tickets, concert versus sports that they are buying? And then I have a follow-up. Lawrence Fey: Yes. I think the biggest delineation between app and web users tends to be that the most frequent live event attendees, those who repeat most often are the ones intuitively, who would download an app for buying live event tickets. And that generally corresponds to the categories that have the highest recurrence, which would be sports, right? The highest recurrence example would be Major League Baseball, right? There's 81 home games. If you go to baseball game a year, there's a decent chance you'll consider going to 2 or 3. In contrast, Taylor Swift goes on tour once every 5 or 6 years. So the fact that you bought a Taylor Swift ticket might mean that you're interested in buying a Sabrina Carpenter ticket. But the fact that you bought a Cubs ticket means you're really likely to be interested in buying another Cubs ticket. So the biggest element that we see across the app is folks repeat more often, right? So if you buy on our app, the prospect for you buying again is higher. The second is that you over-index to sports because of the inherent recurrence within sports. Beyond that, there is not a lot to flag across our geography or demographics that I would say is of note. It's really more the frequency profile with a bit more sports orientation. Kunal Madhukar: Got it. And then when I was doing basic back of the envelope math, given app grew 20% and is now over 40% of the overall GOV, that suggests that the non-app GOV probably declined about 40%. And then you mentioned that we should expect that by 2027, app GOV on a run rate basis should be a majority of the business. So what kind of growth rate should we expect on the app side versus the non-app side for the remainder of the year? Lawrence Fey: Yes. First, definitionally, when we reference app GOV, that's of our Vivid Seats properties. So we're not speaking across the entire GOV footprint of the business, namely Vegas and Wavedash and our private label would not be part of that definition. So I would tweak the math a bit. I don't think we're in the business of forecasting or projecting by device type explicitly. But I think implicitly, we're expecting the business to grow, app to grow disproportionately. As we start lapping some of the most competitively intensive periods, I think we expect that we can get web back to growth. But whenever you're looking at these aggregate GOV numbers, you just have to fully decompose it, right? You have to pull private label out. We lose private label partner that is different than competitiveness in the web, competitive landscape lens us versus StubHub versus SeatGeek. So yes, it's an implicitly true statement that app was up and other parts of the business were down, but decomposing is pretty important. Operator: Your next question comes from the line of Andrew Marok with Raymond James. Andrew Marok: One, with this quarter's results coming in nicely and the reiteration of the guide, is the business just kind of becoming a bit more visible in your view? Are you able to maybe have a little bit more forecasting confidence than you have had in the past? And then I have a follow-up. Lawrence Fey: Yes. Thanks, Andrew. I think I would agree with the statement overall. Certainly, as we move through a year, right, as we get to Q4 where the concert on sale calendar solidifies and crystallizes it through the back half of Q4, first half of Q1, we sit here with a pretty good sense of what the supply side of the calendar will look like. I think the fact that we've really tightened up our expense base lowers the bar, if you will, which helps mute impact. And then the last piece is we've reduced the surface area and exposure to paid search. It's still present, but we've reduced it. I think that helps diminish volatility from things that are exogenous, namely competitive or competitor posture. So there will still be variance, right? Event mix is still a real thing, right? If we have great World Cup matchups or bad World Cup matchups, long series, short series, more concert cancellations, right? Those are all exogenous and can introduce volatility. Competitor behavior, competitor posture can still introduce some volatility. But in terms of the controllables, I think we've dialed them in quite a bit and feel better about putting outlooks in place. Andrew Marok: Appreciate that. And then maybe as it relates to the app business, I think you mentioned this a little bit in your prepared remarks, but I just kind of want to ask it directly. There's kind of this meme out there for older people, especially where big purchases are done on the desktop, right, like ticketing, hotel bookings, flights, et cetera. How do you sort of combat that to drive app growth? Is it purely demographic? Or are there kind of nudges that you can give your consumers to get them to buy on the app? Lawrence Fey: Yes. Thanks, Andrew. It's a great question because I guess this probably reveals where I sit on the age bucket. But I will do that as well, right? When you're in discovery mode, you want to be able to either consider a bunch of different events or a bunch of different seating areas. Sometimes I'll actually do some searching on the bigger screen. But I think the objective we have is to make sure folks know that there's a better value proposition available in the app. And so if you want to transact on desktop, that's great. And we're going to deliver the optimal experience for that. But if you also wanted to discover on desktop and then download the app, properly messaging that the lowest price guarantee and typically our lowest prices will be available in the app. Increasingly, we're going to have our rewards program prominently appear in the app and less so on web. So there will be material inducement to transact in the app, but we, of course, want to support people wherever their workflow wants them to transact. Operator: Your last question comes from the line of Maria Ripps with Canaccord. Maria Ripps: First, I just wanted to follow-up on your private label business. So you mentioned a new customer addition there, which is encouraging. But how should we think about that segment going forward beyond sort of returning to growth? Do you think sort of it can return to the run rate you had the business at about a year or 2 ago? Lawrence Fey: I think in absolute size, it's unlikely that we'll in the near-term, reclaim where we had been before the large customer loss. What I think we aspire to deliver is that the segment will grow at or above the broader marketplace and at or above industry rates. And so I think the 2 paths there would be enabling our existing customers to organically outpace the industry. And then what gets exciting is you have the option and the opportunity to add new customer wins on top of that organic growth. And so we're seeing all of those signs pointing in the right direction where we can have both happening in parallel, which could lead to some nice sequential growth and starting in Q3 set us up for delivering sustained year-over-year growth. But from an absolute standpoint, I don't think returning to the pre-customer loss levels that we saw in 2024 or early 2025 is a near-term target that we think we can deliver. Maria Ripps: Got it. That's helpful. And then just a quick follow-up. Can you maybe update us on your international strategy? And how important is it kind of on the list of your investment priorities at this point? Lawrence Fey: Yes. We continue to be encouraged by the international opportunity. I think we mentioned in our last call or 2 that we've achieved -- we're positive on the contribution margin standpoint in 2025. We grew GOV triple-digits in 2025. We've continued to see GOV grow into 2026. But in the spirit of focusing our efforts on the highest impact priorities, what we're focusing on are upgrades that benefit not only international, but also North America. And so as you think about things like our checkout, irregardless of your location or your geography, that will benefit the business. So the near-term road map is really focused on that type of improvement. And then as we get through these universal upgrades that will benefit international, but also benefit North America. We do have an interesting road map of international upgrades queued up. It's just a matter of if we can get to it in the next quarter or the next couple of quarters. Operator: Thank you. I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to KKR's First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the call over to Craig Larson, Partner and Head of Investor Relations for KKR. Craig, please go ahead. Craig Larson: Thank you, operator. Good morning, everyone. Welcome to our first quarter 2026 earnings call. This morning, as usual, I'm joined by Rob Lewin, our Chief Financial Officer; and Scott Nuttall, our Co-Chief Executive Officer. We would like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release as well as our SEC filings for cautionary factors about these statements. So first, beginning with our results for the quarter. Fee-related earnings per share came in at $1.13. That's up 23% year-over-year. Total operating earnings of $1.47 are up 18% year-over-year and adjusted net income of $1.39 per share is up 20% compared to 1 year ago. All of these figures are among the highest we've reported in our firm's history. Now going into a little more detail. Management fees in the quarter were $1.2 billion. That's up 30% on a year-over-year basis. driven both by continued fundraising momentum alongside deployment activity really across the platform. Excluding catch-up fees in both periods, management fee growth was strong at a touch north of 20%. And as we've highlighted previously, our fee base continues to be diversified with private equity, real assets and credit each contributing approximately 1/3 of total fees over the trailing 12 months. Total transaction and monitoring fees were $253 million in the quarter. Capital markets fees were in line with last quarter at $224 million, driven by activity across PE, infrastructure and credit. And fee-related performance revenues in the quarter were $24 million. Turning to expenses. Q1 fee-related compensation was again right at the midpoint of our guided range or 17.5% and other operating expenses were $195 million. So in total, fee-related earnings were over $1 billion or the $1.13 per share figure that I mentioned a few moments ago, up 23% year-over-year. And our FRE margin increased slightly quarter-over-quarter to approximately 69% at March 31. Insurance segment operating earnings were $260 million. Now as a reminder, we report the insurance investment portfolio largely based on cash outcomes. So to give you a sense of the embedded profitability as we've done in the last couple of quarters. Our insurance operating earnings would have been slightly north of $300 million in Q1 if we included the impact of marks on investments where a significant portion of the return relates to appreciation rather than cash yield. And as a reminder, Insurance segment operating earnings alone do not capture the full economics of GA to KKR. Page 22 of our earnings release details the management fees under our investment management agreement, fees from IV-related vehicles, where we have over $60 billion of AUM that wouldn't exist without GA. Alongside GA related capital markets fees. When you take all of that together, total insurance economics over the LTM were $1.9 billion. That's net of compensation, up 14% versus the prior period. Strategic Holdings operating earnings were $48 million in the quarter, and we continue to track nicely towards our expected $350-plus million of operating for 2026 with earnings here expected to be more back-end weighted over the course of the year. So altogether, total operating earnings, which, as a reminder, represents the more recurring components of our earnings streams, were $1.47 per share, up nearly 20%. And over the last 12 months, 85% of total pretax segment earnings were driven by these more recurring earnings streams demonstrating in our view, the durability that you're seeing across our business model. Moving to investing earnings within the Asset Management segment. realized performance income was over $750 million and realized investment income was approximately $120 million, bringing total monetization activity to around $880 million, up over 50% versus Q1 of 2025. This activity was driven by a combination of public secondary sales and strategic transactions alongside of dividends and interest income. After interest expense and taxes, adjusted net income was $1.2 billion for the quarter, or $1.39 per share. Turning to investment performance. Page 10 of the earnings release details performance we're seeing across asset classes, both this quarter and over the last 12 months. Broadly, you're seeing healthy investment performance on behalf of our clients across asset classes, including through this recent period of heightened volatility. And given investment performance, importantly, total embedded gains that's comprised of gross carry together with the gains that sit on our balance sheet across asset management and strategic holdings were $18.3 billion at $331 billion. That's up 11% compared to 1 year ago and remains elevated even as we've been generating healthy monetization activity. Now as you can imagine, we've been filling a lot of questions on direct lending, so we've added a couple of pages to our earnings release. First, just to level set, if you turn to Page 20, you see the size of our direct lending platform. In total, direct lending is $39 billion or 5% of our AUM. It's an important business for us, but in the framework of KKR, it's of modest size. And with a lot of focus on redemption activity in the wealth space, we note the size of our private BDC footprint in the second bar from the right. It's even smaller, around $3 billion of AUM or 0.4% of our AUM in total. In terms of our public BDC, FSK is a little less than 2% of our AUM. FSK reports its Q1 earnings next week. We're not going to get ahead of that. It's important, though, not to conflate FSK's portfolio with other pools of capital. So looking at Page 21, you see investment performance across our institutional strategies as well as our private BDC, all vintages since 2017. You see very consistent outperformance versus benchmark. We thought the more granular framing of investment performance here across the direct lending platform would be helpful context for everyone. And then finally, consistent with historical practice, we increased our dividend to $0.78 per share on an annualized basis beginning with this quarter. This is now the seventh consecutive year we've increased our dividend since we changed our corporate structure increasing our annualized dividend over this time frame from $0.50 per share to $0.78. And with that, I'm pleased to turn the call over to Rob. Robert Lewin: Thanks a lot, Craig, and thank you, everyone, for joining our call this morning. I'm going to cover 4 topics today. First, our continued momentum around capital raising; second, our monetization activity, which has been increasing at a healthy pace in spite of the recent market volatility. Third, we have been making some important decisions around capital allocation. And finally, I'm going to go through how we think about the earnings power of our business. So let me start with capital raising. We raised $28 billion of new capital in the quarter with demand really widespread across asset classes and geographies. A real bright spot for us this quarter was in credit where we raised $15 billion across our platform. That momentum was driven by our asset-based finance business, which represents over $90 billion of AUM today. Given the current sentiment around private credit, it may be surprising that when you look at new capital raised, so this is excluding GA, this was one of our larger credit fundraising quarters. Inflows here more than doubled quarter-over-quarter, and our capital raising pipelines remain strong. Most recently, over the last few weeks, we've received meaningful inbound interest from institutions around our direct lending business with several viewing the current dislocation as an interesting entry point, given the redemption activity that exists today in the private BDC space. Another milestone for us this quarter was the final closing of our North America 14 fund at $23 billion, eclipsing the prior $19 billion fund. Across the most recent vintages of KKR's flagship regional funds, so that's Americas, plus Europe, plus Asia, we have $46 billion of total capital to invest across this vintage. We are the clear market leader in private equity. And finally, in wealth, across all of our asset classes, our K-Series suite brought in $4 billion of capital in Q1. Redemptions totaled around $250 million and AUM now stands at over $38 billion. Our performance, deployment and capital raising continue to be in line or ahead of our expectations. Given all the market noise, we were candidly surprised by the strength of flows in Q1. But we also do expect a slowdown in Q2, consistent with what we saw after the tariff announcements last year. We're still operating off of a relatively low base of AUM. And we continue to believe that this channel will be a long-term source of meaningful growth for our industry and us. Turning now to monetizations. As we have explained on prior calls, we are very pleased with the performance of our portfolio, and we are seeing the benefits of our focus on linear deployment and portfolio construction. You can see our continued monetization activity in our financial results. As Craig noted, we generated around $880 million of monetization revenue in the quarter. Realized carried interest was $720 million. That is up 120% year-on-year, and we have a healthy pipeline of realizations across strategies and regions. Over the past month or so, we have announced several encouraging transactions including the closing of the sale of OneStream Software for 4.5x our cost and the sale of CoolIT Systems, a global leader in liquid data center cooling for almost 15x our cost. We have also agreed to sell 2 of our 2021 investments despite the more challenging vintage year, 1 in infrastructure, which would generate approximately 2x multiple of money and 1 in traditional private equity at nearly 3x our cost. And most recently, we completed a secondary of our remaining shares in Hyundai Marine Solution in Korea, resulting in a 7-plus x multiple of capital for the full life of that investment. I'd like to next shift to capital allocation. It is an area of critical importance to our long-term performance and we have been making some important and deliberate decisions. As a reminder, we have focused on 4 key tools available to us to allocate our cash flow. Strategic M&A, insurance, share buybacks and strategic holdings. Each of these tools takes full advantage of the KKR ecosystem, and as a result, have the potential for high ROEs. Importantly, we do not have a framework that assigns a specific amount of capital spend into any one of these areas. Our approach here is all about how we take our marginal dollar of cash flows and drive the most amount of recurring durable and growing earnings on a per share basis. That is the mindset we have consistently taken to capital allocation, and it is one that is highly aligned with our shareholders given employees here own roughly 30% of our stock. We believe that we have delivered a lot of value to our shareholders through strategic capital allocation, and we are very confident in our ability to continue to do so in the future. So starting here with strategic M&A. This morning, we announced the closing of our acquisition of Arctos. As a reminder, Arctos is the leading investor in professional sports franchise stakes and a leader in GP solutions with approximately $16 billion of AUM and $10 billion of fee-paying AUM. If we are able to achieve our objectives in partnership with the Arctos management team, and we are confident that we will, it is hard to find a better allocation of capital. Next, in insurance. In the first quarter, we continued to see increased levels of competition here, particularly in the retail channel. Given that backdrop, alongside tight spreads on the asset side, we were disciplined around pricing and a lot more selective in that channel. That said, as spreads have widened a bit more recently, we are starting to see a more attractive entry point. On the other hand, an area where we leaned in this quarter was share repurchases where we saw attractive risk-adjusted returns given the volatility across our sector. We repurchased or retired $317 million of stock this year through May 1 at an average price of approximately $91. And our Board recently authorized an increase to our share repurchase program by an additional $500 million. Taking a step back, there is clearly a lot of noise in some of the markets where we operate. But from our seats, there is a big disconnect between perception and our long-term prospects across our diversified business model. That's why we have been leaning into buying back our stock. And you would have also seen our co-CEOs and a number of our directors buying stock personally in the quarter. Whether it's our performance in Q1 or the long-term earnings power of our franchise, our positioning stands in contrast to some of that market noise. Looking at Q1 in particular, we've grown our headline profitability metrics FRE, total operating earnings and ANI, all on a per share basis, each around 20% year-on-year. It's actually the second highest quarter we have reported in our history for FRE and OE and the third highest for ANI. And we continue to feel great about the durability of our model and the earnings power that we continue to create, which provides us with significant visibility into future earnings growth. Over 90% of our capital is perpetual or committed for 8 years or more. Today, we have $125 billion of committed but uncalled capital, nearly as much as we've had at any point in our history. Looking at our management fees and fee-related earnings over the LTM, we've grown at a high teens CAGR over the last 3 years. Alongside this growth, the quality of these fees has significantly improved as we've diversified by strategy, and geography. And finally, our embedded gains, which Craig mentioned, stand at over $18 billion, one of the highest levels in our history, and they provide a lens into the strength of our portfolio, and our ability to create meaningful outcomes in the future. So we benefit from real stability and durability of our earnings and increased visibility on how they will grow. Finally, before I'm going to hand it over to Scott, I did want to provide an update on our 2026 guidance. First, based on the underlying momentum that we are seeing across the business, we continue to feel very confident in our ability to exceed our targets for fundraising, strategic holdings operating earnings and FRE on a per share basis. Turning to ANI. As we said last quarter, following our bottoms-up budgeting process, we entered the year expecting 2026 ANI to reach $7-plus per share, assuming a constructive and more normalized monetization environment. At that level, earnings growth would be approximately 45% year-over-year. So it's clearly an ambitious target, but one that we did have line of sight to achieving. That said, the operating environment 4 months into the year has, of course, bit more challenging than what was embedded in our plan. Importantly, we are still seeing healthy monetization activity. Gross monetization revenues in Q1 were up more than 50% year-on-year. And when we look at exit since March 31 as well as signed transactions expected to close in the coming quarters, that represents over $1.2 billion of gross monetization revenue for KKR. Notably, that is the largest forward monetization figure we've discussed on a call in our history. So while we continue to generate very strong outcomes, we do have modestly less visibility today than what our budget would have suggested at this point in the year. As a result, if you were handicapping our ability to reach $7 per share, we do think it is more likely that we land below that level. Importantly, if that were to happen, any delayed monetizations that impact 2026 would not be lost as we would expect them to shift to 2027 and beyond. And stepping back, the broader portfolio remains in very good shape. Embedded gains are at or near record levels. The earnings power of the firm continues to grow at an attractive rate, and we feel extremely well positioned for the future. With that, I'm going to hand the call off to Scott. Scott Nuttall: Thank you, Rob, and thank you, everybody, for joining our call today. The first thing I want to do is welcome the Arctos team to KKR. Our new partners highly creative and entrepreneurial, and we could not be more excited to work together to build a $100 billion-plus AUM business. KKR had its 50th birthday last Friday. We are very proud of this milestone. As a firm, we are not very good at celebrating. We are, however, good at gratitude. So it was nice to be able to thank all our clients for their partnership and trust and all our people for their dedication and hard work. We would also like to thank you, our shareholders, for your partnership. We have been a public company for about 1/3 of our 50 years, a period of time that has seen significant evolution and growth in our firm, all of which happened with your support. Thank you for helping us get to where we are. So let's talk about how we see things. We asked our team to pull together some slides recently to help frame the current volatility in our stock relative to our results. simple. Just multiple years of AUM, fee paying AUM, FRE, total operating earnings and ANI on 5 pages. All of which metrics are steadily up and to the right with growth rates generally between 10% and 25% per year for the last several years. We then overlaid our stock price on those same charts, picture worth a thousand words approach. What do you see when you do that? Our operating metrics are very steady with consistent growth over a long period of time. The fact is perception of the volatility of our business and industry, is disconnected from the lived experience. And that's okay. We are focused on what we can control and executing our plan. And as we do that, we'll continue to prove out the durability of our business model, and we're confident that the volatility in our stock will come down over time. If you step back, the first quarter was no exception to our long-term trend. All of our key metrics grew about 20% in the quarter relative to Q1 last year. We raised a lot of capital, deployed a lot of capital and monetized multiple investments. And as you heard, the volatility in our stock gave us an opportunity to adjust our capital allocation priorities and buy our shares back at what we believe is a significant discount to intrinsic value which is why Joe and I had bought more stock as did multiple members of our Board. So our suggestion is don't trust the headlines. Stay focused on the fundamentals and how we are executing. That's what ultimately matters and how we are spending our time. This approach has served us well for the last 50 years, and we expect will continue to for the next 50. With that, we're happy to take your questions. Operator: [Operator Instructions] Our first question today will come from Craig Siegenthaler with Bank of America. Craig Siegenthaler: My question is on General Atlantic. So one of the big public annuity competitors pulled back in that business in 1Q and actually cited increased competition. And we know the [ alt ] models, including GA, have gained a lot of share versus the legacy players in the U.S. fixed index and fixed indexed annuity markets. So I was curious if you could update us on competition, underlying ROE potential and how we should think about the growth trajectory, especially with the institutional funding market potentially a little softer near term? Robert Lewin: Craig, it's Rob. Thanks a lot for the question. We are seeing that competition. Competition on the liability side is very high. And we know on the asset side, spreads are as tight as they've been in a very long time. And so the combination of those 2 things is putting some increased competitive pressure on ROEs. That's why you saw us also pull back on the origination front in Q1 as well. Now with that said, we think it's best to look at insurance businesses through the cycle. And where we're spending a ton of time at both Global Atlantic and KKR is making sure when there is increased levels of volatility. And by the way, when that happens, 2 things will happen simultaneously. We believe liabilities will become cheaper. And definitionally, you're going to see spreads come out on the asset side and so the ROE potential is outsized. And so what we're spending our time is how do we make sure we are best positioned for that environment. And one of the real competitive advantages that we have on our platform relative to the broader insurance space is the fact that we sit on $6 billion of dry powder equity that we can draw down to invest into that dislocation, much like you would in a private equity fund. And as a reminder, that $6 billion of equity, we think translates into $60-plus billion of buying power on the liability side. So a lot of effort here making sure we're ready to go when that volatility does come. But today, we are seeing those increased levels of competition. We also know that that's not going to last forever. Scott Nuttall: Yes. The only thing -- Craig, it's Scott. Hope you are well. The only thing I would add, I think that the narrative is exactly right in the U.S., call it, retail market, where there has been significant competition I think the recent move we've seen in spreads and kind of some of the volatility is maybe dissipating some of that a bit. So opportunities are looking a bit more interesting, as Rob mentioned in the prepared remarks. But two things I'd mention. Remember, our business has a good balance to it. We have a retail business and an institutional business. This block does flow some PRT. Not all of those markets are seeing that same level of competition that we're seeing in the retail side. So it's nice to have that diversification across the platform. And then the other thing we've talked about in prior calls, one thing that makes us a bit different is by virtue of being able to marry our origination franchise with the -- on the investment side with the origination franchise and liabilities we are emphasizing a more longer duration liabilities. And I think it's harder for other people necessarily to be able to generate the returns we think we can with those longer-duration liabilities matched with assets that we can originate. So I wouldn't pay everything with the same brush, but I think your overall comment is well placed. Robert Lewin: Yes. I'm going to jump in with one last point on the -- on gating our liabilities because I think it's an important one to get across. If you look at our Q1 originations across the franchise, approximately 80% of those originations had 7 years of duration or more. Just to contrast that relative to full year 2024. So that's the year where we made the pivot around elongating our liabilities for that full year, we were 37% 7-plus year duration. So we've almost doubled or we have doubled rather our exposure to those longer duration liabilities. Operator: And next, we'll move to Glenn Schorr with Evercore. Glenn Schorr: So I'm curious that the -- you've had better DPI and better monetization than most. You mentioned the over $18 billion of embedded gains in the markets at all-time highs. So I'm curious on the attribution of what changed and what holds back the timing and the ability to get to the ANI targets now. Is it as simple as there's a war there and it delayed things? I don't know if you can give us any attribution of parts of the portfolio that despite having these huge embedded gains, the market is just not ready to accept. Robert Lewin: Yes. Thanks, Glenn. It's Rob. I think it's all a matter of degree is the reality. And so there's a lot of really good things going on across our business today as we went through on the prepared remarks. Our monetization guidance of $1.2-plus billion is higher than it's ever been at any point in our history. But at the same time, 3 months ago, we were on this call, we said we would be very transparent on our quarterly calls around where we stood on the $7. And if we were handicapping it now, and when you look at some of the volatility that we have experienced over the first 4 months of the year, we tell you on balance that we're going to be on the other side of $7, and we wanted to share that as we noted we would and keep you all updated on our progress. Scott Nuttall: Glenn, it's Scott. The only thing I'd add, overall, as you heard, the portfolio is in great shape. I think we're seeing real benefits of our focus on portfolio construction and linear deployment diversification, all the things we've talked about on this call for the last several years. And that discipline is really coming through in the results. And so the value is there. To your point about the embedded carrying in gains, this is really a question of when do you want to monetize it. And so the IPO market feels good. We've got several companies in the pipeline. But obviously, an IPO isn't necessarily an exit per se. It can be a partial exit in the beginning of one. But another way that we exit is obviously through strategic sales. And so the one thing to your comment if you've got an asset that you've built value in for 5, 7 years. And if the backdrop in terms of war energy prices, et cetera, is a bit uncertain or uncomfortable I'm not sure you'd want to necessarily sell that wonderful asset into that environment if it's a strategic buyer and give them a little bit more time for the world to write itself. And so that's really what's happening on the margin. You heard from Rob, it didn't really impact anything in the first quarter. This is more of an expectation that if things go on for a longer period of time, there may be some things that we delay the launch of a sales process because we want that clarity in the market for the buyer on the other side. That's all we're talking about. But this is just timing. This is in magnitude. Operator: Our next question, we'll hear it from Alex Blostein with Goldman Sachs. Alexander Blostein: So really nice momentum on fundraising, obviously, despite what's been a tough backdrop and management fee growth north of 20% normalizing for catch-up fees is all good. As you think on the forward, it might be helpful just to get a mark-to-market on your expectations for fundraising for the rest of the year given the bulk of the larger flagships are now in the run rate. particular how you're thinking about Asia, I think that one is about to start. But I guess, more broadly, your confidence in maintaining this type of fundraising outlook for the rest of the year, which I think is what embedded in your FRE growth assumptions. Craig Larson: Alex, it's Craig. Why don't I start on that. And thanks for the question. I think it's probably worth beginning on the breadth and diversification of fundraising. So if you look over the last 12 months, as Rob noted, we raised $127 billion in total. So $35 billion of that roughly is from GA within our credit platform, around $35 billion in real assets, around $35 billion is the non-GA portion within credit and the balance of $20 billion, a little over that in private equity. So you're seeing a very healthy balance and diversified result in terms of our fundraising. Rob talked about that in terms of our management fee growth, where, again, you're seeing real breadth and diversification in management fees as a result of that. And I think the other point that kind of highlights this relates to flagships. So flagships were around 15% of new capital raised in the quarter, 12% over the trailing 12 months. Again, that number was very different at KKR 5-plus years ago, as I know you'll remember. And then I think on the go-forward, look, there's lots of opportunities for our fundraising team across strategies, across geographies. I think if we look in the strategies where we expect to be active in the next 12 to 18 months. In private equity, that includes Asia private equity, our private equity, tech growth, health care growth. We've got our K-Series. And then we have Capital Group as well. Within Real Assets, Global and for core infra, we have a climate strategy, Asia Infra as well as K-Series infrastructure, opportunistic real estate credit. Again, just big -- a wide group of opportunities in real assets, credit, across direct lending, leverage credit, asset-based finance. Again, you heard Rob note in our prepared remarks some of the momentum that we're feeling and seeing last quarter as it relates to high-grade ABF in particular, Asia private credit, Asia leverage credit, crack capital solutions, CLOs, K-Series as well. And then insurance, again, reinsurance co-investment opportunity. So I think that breadth of opportunity that we have is what you're hearing in the confidence when we talk about the go forward from a fundraising standpoint, what that then can mean in terms of management figure out. And again, what ultimately that can mean in terms of FRE growth. Scott Nuttall: Alex, it's Scott. I would say -- I mean, if you can't tell from Craig's list there, the fundraising feels really good. I'd say we had a lot of momentum on a number of fronts. It's global including the Middle East, which I would very much put in the business as usual category, pensions, sovereign wealth funds, insurance companies, high net worth, wealth. So it all feels really strong right now. And some of the things we've talked about on prior calls, for example, this consolidation theme that we see more and more clients wanting to do more with fewer partners is absolutely playing out, especially as they see more dispersion of results. We're heading towards more of a K-shaped industry. And so we think there's opportunity for us to continue to take share and we think the addition of Arctos to the family only adds to that as another set of asset classes, which are able to generate differentiated kind of returns. So bigger relationships and partnerships would be another theme I would point to on the back of that consolidation. But hopefully, that gives you a bit of color. Operator: And next, I'll move on to Bart Dziarski with RBC Capital Markets. Bart Dziarski: Congrats on the CoolIT realization. And I noticed you implemented a employee ownership program at acquisition. So could you maybe speak to how that program contributed to the successful outcome of that deal? And then maybe more broadly on KKR's ownership program at the portfolio company level? Robert Lewin: Bart, it's Rob. Thanks for bringing that one up. CoolIT was obviously an awesome outcome for our investors. It is not often that we exit a business at almost a 15x multiple of money. And as you noted, CoolIT is one of 85 KKR portfolio companies globally now that are part of our broad-based employee ownership programs where every employee, so it's not just senior management our equity owners. And in the case of CoolIT, most tenured employees there are going to receive roughly 8x their annual base salary at exit. So a really meaningful outcome. And deservingly given the progress and the returns that we were able to generate at CoolIT. So more broadly, if you look at those 85 businesses that I referenced, we now have approximately 200,000 nonmanagement equity owners in those businesses. And we're really proud of this initiative. We know for sure that it drives better outcomes at our portfolio companies. We see it in the numbers. You've got higher engagement scores. You've got higher retention rates, working capital efficiency is up, margins are up, and ultimately, profitability is up. And so we have developed this program in a way where we've got the full employee base at these companies feeling like owners in the business, and they're delivering better results. And because of that, they're able to share in those results. So we think it's great, and we're really proud of that across our firm. And then maybe finally, while we're on this point, I do think it's worth mentioning that we are also a founding member of ownership works. This is a nonprofit that our partner, Pete Stavros, who co-runs our global Private Equity business founded a number of years ago. And we now have greater than 100 partners alongside of us in this effort. And that's really what it's all about. We want this to become a movement beyond what we're doing at KKR. And so a big focus of what we're doing across the portfolio. And then one that we're excited to be able to hopefully share results like this with you all in the future. Operator: And next, we'll move on to Steven Chubak with Wolfe Research. Steven Chubak: So wanted to ask on strategic holdings and AI risk more broadly. Certainly encouraging to hear the operating earnings target for strategic holdings get reaffirmed. Digging into the sector exposures, about 1/3 of the last 12-month EBITDA is concentrated in the business services sector. It's an area that's viewed as being more at risk of AI disintermediation. I was hoping you could speak to just how you've underwritten AI risk in the strategic holdings portfolio and even across the border universe of KKR portfolio companies? And is there any KPIs you can speak to, to help folks better handicap that risk? Craig Larson: Steve, it's Craig, why don't I start? So just look to level set, software represents around 7% of our AUM. In private equity, it's a higher percentage. It's around 15% across our credit platform in total, it's 5%. And in Global Atlantic, that number is about 2.5% of our AUM. Now I think first, why don't we -- and in terms of that percentage of EBITDA in strategic holdings, that percentage is about the same. It's -- you're correct. It's a low double-digit percentage of EBITDA in the quarter. And then why don't I first talk about Mark's and then from the one we talk about AI and from both an underwriting standpoint and then opportunities for us. But I think in terms of the quarter, probably 2 things to note. First, software companies broadly are performing. So looking at revenue and EBITDA growth, we're still seeing healthy year-over-year revenue EBITDA growth, I think high single digits. But at the same time, obviously, in the quarter, we saw weakness across equity markets in the software space. So given the way that our valuations work, this dynamic from a public market standpoint, had a negative impact on the markets, right? So when you put those 2 pieces together, really, despite the operating and financial performance marks across the software names largely declined in the quarter. Now in terms of AI and how we're approaching AI as a firm, I think from a couple of things. One, look, the implications won't be a surprise to anybody on this call from AI are really far reaching, right? Like the barriers to adoption are low gains are real. AI can be very helpful at parts of workflows. And there will be businesses where the fundamental strategic positioning is either materially enhanced or in some cases, on the flip side could be replaced. Now from an investing standpoint, AI, we look at both from a diligence lens as well as from a value creation perspective. So from an underwriting standpoint, kind of the part of the question that you focused on. Look, we're focused on AI, how it affects margins, pricing power, workflow relevance and cash flow resilience. And so the focus is not just on AI exposure, it's really on the durability of unit and business economics, and that's through trailing lines as well as on the go forward. And how does AI impact those dynamics for us. And then I think perhaps even more importantly, in terms of value creation, look, we think we're really well positioned. Like AI at this point is deployed across 150-plus companies to automate workflows, enhanced products, drive new growth. And I'm sure we have multiple AI initiatives across every one of those companies. And so as a firm, how we're focused on this is ensuring that our operational team at Capstone, we talk about Capstone a lot is helping ensure that lessons travel across our teams and our companies. What works, what doesn't work? What's easy, what's hard. And again, as I know you know, we work in a very collaborative firm. So it's very much within the framework of our culture to help each other. I don't think that's necessarily to the same degree at every firm because a really siloed firm is not going to benefit in the same way. And then on the flip side of all of this relates to the opportunity on the investment front. So digital infrastructure remains a massive theme for us. We've deployed over $40 billion of capital KKR plus our partners across a variety of digital infrastructure themes have over a 20% gross IRR return to date in terms of that activity for us. And again, obviously, we already touched on the CoolIT example. Again, an example of an investment that, again, when everything comes together, kind of shows you the art of the possible. So hopefully, that's helpful. Operator: And next, we'll hear from Bill Katz with TD Cowen. William Katz: Thank you very much for two things, the extra disclosure and Finding Your Own Data report earnings. Very helpful. Just coming back to insurance for a moment. So doing the back-of-the-envelope math, if I take your slide, you are slightly north of $300 million sort of pro forma first quarter you get just below 11% ROE for the business, if I did the math right, a, let me know if that's right. So as you think forward, just given all the puts and takes of the business, I think you mentioned spreads widening out a little bit into 2Q. What do you think is a normalized level of ROE and maybe the time line to get to that? Robert Lewin: Yes. Bill, it's Rob. Why don't I start and maybe 3 or 4 points. as it relates to profitability and ROE of the insurance business. Point one, you hit on it was the mark-to-market benefit relative to the accrued income that's a little north of $300 million. But in the quarter, given some of the volatility we actually didn't hit our targeted return from a market perspective. So our target return is low double digits. If we had achieved that targeted return in the quarter, our run rate was probably closer to $330 million, just to give you a sense of the magnitude. Point three, I hit on this a little bit but it is a competitive market today as it relates to the asset and liability side, and we know for certain that it won't always be this way. And so how do we make sure that we really capitalize on that environment where there is volatility. And we talked earlier on how we think we're incredibly well positioned to do that. And honestly, it's a big reason why we bought 100% of GA because last time this happened, we felt like we missed it. And then finally, I would point you, as always, to Page 22 of our press release of our earnings release where you could see the all-in ROE figures that we have, but I think always instructive to take a look at that page as you're thinking about the performance of our broad-based insurance business. Operator: Next, we'll move to Mike Brown with UBS. Michael Brown: So I wanted to ask on Arctos. So $10 billion of fee paying AUM, can you just talk about the current fee rate profile there? And then any fundraising expectations over the, call it, next 12 to 24 months? And then strategically, how do you view the long-term opportunity in the wealth channel with Arctos. Is that something that could kind of feed origination into [ PayPac ]? Or over time, do you think you could even have like a dedicated sports fund or a dedicated secondaries product? Robert Lewin: Great. Thanks for the question. Let me start, and I know Craig and Scott might jump in. But just as it relates to the financials, we're not planning to disclose given the size of the Arcus business relative to KKR specific Arctos' related financial information. I think we can tell you that the profile of the business is generally pretty consistent with the profile of KKR's business. You've got, we think, best-in-class teams raising third-party capital they've done in a pretty lean way on the employee front. And with fee terms that generally look like fee terms that you would expect to see across some of the private closed-end funds here at KKR. As Arctos and what we're building in broader solutions business gets bigger, it becomes a much more material part of the firm, I can certainly see a world in the future where we're disclosing that solution-specific P&L information. But for the foreseeable future, I suspect you'll see it embedded in our private equity business line in coming quarters. Craig Larson: And Mike, it's Craig. Just on the fundraising piece. First, thanks for asking about Arctos. Scott Rob and I had a head fun this morning in our internal firm call welcoming the Arctos team to the family post-close, obviously. And look, on fundraising, it's a really exciting opportunity for us. And I think our fundraising team we know is excited both to support the distribution of existing Arctos strategies. And I think in particular, if you think of the footprint that we have and the boots on the ground that we have on a global basis, we think there's the opportunity for us to be really helpful right out of the gates. And then secondly, to your question on wealth, nothing to announce specifically this morning, but certainly lots of ideas, and we're excited to develop and think through potential new wealth solutions together with the Arctos team. This could include things like an evergreen vehicle that would include sports as well as some type of secondary/GP solutions vehicles as well. So more to come over time, but just a really exciting long-term opportunity for us. We're excited to get after it. Operator: And next, we'll move on to Michael Cyprus with Morgan Stanley. Michael Cyprys: Just wanted to ask about AI deployment across portfolio companies. Curious where specifically you're seeing AI-driven revenue uplift versus AI-driven cost savings in the portfolio? And how might you quantify that so far? And curious any expectations as you look out from here, and I was also hoping you can elaborate a little bit to your earlier point on what's been easy so far? What's been hard and any sort of lessons learned from adoption? Craig Larson: Mike, it's Craig. Why don't I start? Look, we're very early in broadly what we think the opportunity set is, I think we're seeing broad adoption of AI and the next step of that is really understanding the execution and bringing the power of AI to life, both from a revenue standpoint as well as an EBITDA standpoint. I'm sure there'll be points in time or a point in time when it will make sense for us to both talk about specific progress as well as guideposts for us. To be clear, we are seeing an EBITDA uplift broadly across the portfolio. And we think there's a lot more to do. It has been interesting to see the evolution of AI to date and how it's almost started in ways that are interesting, like I think on various language applications. It's just interesting to see really begin to disrupt that part of the landscape most broadly first. But as we think about things like broad efficiencies whether that's sales force or operating efficiencies across the platforms and workers. And there's going to be even broad businesses and opportunities in things like robotics or you think of what AI can do in terms of in terms of the health care space. There's just really long-term broad opportunities for us across the spectrum of the business, and there will be more to come from us over time. Operator: And we'll move on to our next question from Brian McKenna with Citizens. Brian Mckenna: So within our private equity business, what's the typical markup on an investment when it's realized versus the prior unrealized mark? And then is there a way to think about the incremental carry that's created in this markup. And I'm just trying to figure out at the $2.6 billion of net unrealized performance income is understated in any meaningful way. Craig Larson: Brian, it's Craig. Why don't I start. Look, in our experience, when you look at the final mark of those private equity investments that we monetize, you see a healthy markup relative to the prior quarter. And that's been our experience over time. I think it does speak to the rigor of the valuation process. Again, this is an exercise that has been very similar for us for well over a decade at this point in time. We work with third-party firms as part of all of this exercise. And so I think it speaks to the rigor and if anything, mild conservative that we have as it relates to marks as we go through this process. Robert Lewin: Yes. I think that covers most of it. I think really the only things from my seat to add on here is we've been doing these types of valuations really close to 20 years now with the advent of our vehicle that was listed on the Euronext back in 2006. There is a high degree of rigor. We feel really good with how we value Level 3s across the firm, not just in private equity, but everywhere. The vast majority of our holdings, anything of any size and scale is going to be either validated or the valuation will be created and performed by a third-party valuation agent. And then as it relates to whether our accrued carry numbers understated. I wouldn't say that. I mean we feel like our valuations are very appropriate at quarter end, given all of the information that we know. Operator: And our next question, we'll hear from Brennan Hawken with BMO Capital Markets. Brennan Hawken: Wanted to follow up on Glenn Schorr's question. So -- couldn't resist, [indiscernible] sorry. So look, the struggle with the $7 is, I think, probably not that surprising, like the environment, given where it is, you can look at consensus and saw the basically it was anticipated. But the one part that I'm sort of curious about is on the realizations and the timing. I know you guys have been a lot stronger on DPI. But how is the potential for further delays in monetization and realizations going across with the LP community. This has been an ongoing delay across the industry. And so is that leading to some frustrations and how are you managing that? Robert Lewin: Yes, sure, Brennan. I mean there's obviously a lot of nuance in that question. And -- but what I'd tell you is as we entered the year, and we talked about this last quarter, we have put together really a bottoms-up budget for how we thought the year would play out based on normalized and constructive monetization environment. And as we're 4 months into the year, I think it's fair to say that through that 4-month period of time, it's been anything but a normalized environment. And so as we thought about what needed to get sold in order to achieve our target for the year and our budget for the year, we -- today, as we're mark-to-marketing it, some things have potentially been delayed. And that's all we're trying to convey because we did really want to be transparent for how we're tracking at this point of the year. That said, I think it's also important to really understand that our DPIs remain, we think, industry-leading, certainly relative to our larger competitors. And if anything, that's accelerating. You look at our realized carry in Q1, it was up 120%. I think most importantly is our forward monetization guide of $1.4 billion plus as it relates to monetization related revenue, that is the highest we've ever had in our history. And so things feel really good on that side of the ledger. But at the same time, we're also cognizant of the environment. What that can mean as Scott noted in processes. What that could mean maybe as it relates to delayed deployment and pushing back some processes that could happen and the impact across our platform. And we're trying to give you a mark-to-market balance view on where we are at May 5 of '26. Scott Nuttall: Brandon, it's Scott. Just to add a couple of things, one, thanks for the question. I wouldn't confuse the message around we may delay some strategic exits with kind of what we're hearing from the LPs. We have, I think, in the deck, the IR deck on the website, a slide somewhere that talks about how we've given cash back from our private equity fund in the U.S. or that business, we've given more back than we called 9 out of the last 10 years. So what we're hearing from the LPs is we're like best-in-class in terms of DPI and cash back, and they know that there's more coming. So the LPs are happy with us. That's why you see a record fundraise in private equity, the $23 billion that Rob mentioned, which is just the U.S. component of our private equity business. But overall, fundraising is up, and we're finding investors want to do even more with us. And I mentioned this dispersion we're seeing across our sector. There is extreme bifurcation, and we're getting a lot of very positive feedback on how we're performing and sending so much cash back relative to others. So I wouldn't confuse the 2 topics. This is helping us grow the firm faster by virtue of the performance. Operator: And next, we'll hear from Dan Fannon with Jefferies. Daniel Fannon: I was hoping you could discuss the broader kind of private wealth backdrop given the challenges in certain private credit vehicles. How do you see that impacting the lineup for the rest of your retail or private wealth products or even the road map with your partnership with Capital Group going forward? Craig Larson: It's Craig. Why don't I start? We thought we'd get a question on this topic. We think it's important just to begin to level set, and I touched on this earlier, but really the size and breadth of fundraising, right? So over the trailing 12 months, we've raised $127 billion, in K-Series it was 12% of that. So it is an important piece, certainly, but we benefit from all the strategies and geographies where we're raising capital. We're wonderfully diversified from a fundraising standpoint. And then we think it's important to take a step back and think about K-Series and the growth in that platform. So AUM across K- series at 3/31 was $38 billion. A year ago, that was $21 billion. So think of all the volatility that we've all experienced over the last 12 months, Liberation Day, all that's unfolded with the ramp. And K-Series AUM is up 80% year-over-year, actually a little north of that. It's pretty good. So I think as we look about the backdrop for wealth and what that means for us, no change in our view of the path we're on, the long-term opportunities that we see and just feel, a, very excited about how we're positioned against this opportunity. And again, recognizing that this is just one of the pieces of the puzzle that we have given the breadth and the diversification we have across the firm. Scott Nuttall: Yes. The only thing I'd add, Dan, is this is a multi-decade build for us, and it is all about performance. If we can generate performance and keep earning the trust of the advisers and the clients, we think this can be a meaningful part of the firm. And as you know, it's early products are relatively early in the development. And I think people are learning as we go here. But in terms of your question on the other -- impact on other things we're doing, I think Rob mentioned it, we were surprised by how strong and resilient flows were in the first quarter. If history is any guide, all of the media attention will likely slow things down for a bit. I don't know what a bit is yet because it's so early. But to Craig's point, this is a relatively small percentage of how we're accessing capital today. and we're working hard to earn the right for it to be a larger and more meaningful part of the firm. In terms of your question about Capital Group, also even earlier there with respect to our partnership, which is developed extraordinarily well. And overall in terms of kind of how we think about it ahead of our expectations, but we're still very much in the product development mode and just starting to deploy different products across credit and private equity, as we've discussed before. Operator: And our next question will hear from Arnaud Giblat with BNP. Arnaud Giblat: Yes I've got a question on data centers. You mentioned earlier that you're investing actively there. I was just wondering if you could flesh out a bit more. In particular, I think you've signed a $50 billion JV with Energy Capital Partners. So how far down the pipeline of investments are you? what you -- how far process coming on board. I understand there's quite a bit of capital in the space. So I'm just wondering what the prospective returns are shaping up to look like in this space. Craig Larson: Sure. Why don't I begin. Look, it remains a massive theme for us. And I think, one, there remains a lot of interest and focus on data center, no question. And look, this focus is for good reason. Like the CapEx we're seeing out of the hyperscalers continues to be massive, if anything, it feels like it continues to accelerate. And all of that builds on what's already a pretty powerful backdrop given tailwinds in cloud. So the digital impa opportunity is massive, but it's more than just data centers, as I mentioned, because again, you're going to need massive investment alongside of data centers and alongside of all of these aspects. From data standpoint, in terms of fixed line opportunities, mobile infrastructure, at the same time, again, to support the growth in data in all the consumption. And I think when we look at our firm and how we're positioned for the past 15-plus years, we've been incredibly active across all of these themes. So we've invested over $40 billion across the digital infrastructure space broadly on data center, specifically, we've got 6 global data center platforms. In terms of your question on frothiness, look, we're going to be thoughtful in how we invest. And I think you've seen lots of capital put against this opportunity. And so you should expect to continue to see us be very disciplined as we look at opportunities. We're going to care about who our counterparties are. We're going to care about location. We're going to look to continue to be thoughtful around terms. And then I think finally, part of this also gets back to one of the reasons we think we're well positioned gets back to connectivity and culture because we do invest across these themes across a number of pools across KKR depending on geography and risk return. So that would encompass global infrastructure, Asia infrastructure, our diversified core infrastructure strategy, real estate, core private equity, wealth as well as within global landing. So we've got a number of different pools, different risk return across geographies. So lots of progress and exciting for us more to come. Operator: And our next question will hear from Crispin Love with Piper Sandler. Crispin Love: The elevated redemptions wells have been highly publicized, but curious if you can detail further what you're seeing from institutions given the noise in wealth. Rob, your comments seem positive there. So I'm curious if you can dig in that a little bit deeper, how aggressively are institutions leaning into direct lending today in other areas like ABF? And then how has that evolved in recent months, just given the sentiment shifts? Was there a pause and then started to dip in further? Just curious on that trajectory and thought process from the institutions. Scott Nuttall: Great. Thanks for the question, Crispin. Very different dialogue with institutions. If anything, I would say, 12, 24 months ago, as it pertains to direct lending institutions, we're frankly spending less time. little bit of a question of the retail flows a bit ahead of deal flow. Are spreads compressing and turns a bit less attractive. And a number of them, I think, pivoted a bit to asset-based finance as another component of private credit. And as you heard from Craig and Rob, that part of our credit business is more than 2x the size of our direct lending effort. And so we definitely saw that movement. The shift we're seeing in the last several weeks has been the institution is kind of coming back to direct lending a bit and saying, okay, I see all these headlines about wealth, that should mean that risk/reward is getting better. on new deals. And therefore, I'm going to take a fresh look at it again. So we continue to have all the ABF dialogues we've been having and the pipeline is really robust there. But the shift has been the institution is actually coming back a bit to direct lending and thinking about, well, spreads are up. Fees are up, terms are better and leverage is down. And that's what we've seen in terms of our pipeline in the last several weeks. And so on the back of that, they are more intrigued. So very, very different dialogue relative to all these headlines that you're reading about in the wealth space, which are very small dollars in the grand scheme of things. Operator: And next, we'll hear from Patrick Davitt with Autonomous Research. Patrick Davitt: Follow-up to Steven's question, been a lot of focus on software actually, but we are starting to get more incoming around the potential for AI to be a problem for Indian positions in both private equity and real assets. I think India has been a big part of your Asian investment strategy. So could you update us on the exposure there? And more specifically, have you done a scrub to identify how exposed those positions are to potential AI disintermediation of things like India outsourcing? Craig Larson: Patrick, it's Craig. I'll start. Look, I think when we go through the exercise and look across the portfolios, like again, that's obviously done on a global basis. That's both with a focus on whether that's revenue or EBITDA growth, whether that's AI exposure, whether that is the investment teams and the approach to AI from a defensive and an offensive standpoint. So I don't think of that differently based on geography. We haven't disclosed any specific portions of India. I would note that I think as we think about Asia and our footprint broadly, I think we think of Asia split broadly between the developed part and then the growing part. So India is certainly an important part of our franchise as we think about our positioning going forward. Scott Nuttall: Yes. I think -- Patrick, it's Scott. The answer to your question is yes, we have scrubbed our India portfolio. No don't have any elevated level of concern there. you're right. One thing you watch is what does this mean for employment in India, given the amount of that economy that historically has been driven by what's happened with outsourcing to that part of the world, and we have seen hiring across that part of the Indian business sector come down meaningfully, dramatically. We are not exposed to that. If anything, I think right now as we sit here today, given our focus on infrastructure, electricity grids and otherwise in India. We've been getting ready for what we see as AI deployment and the opportunity set across digitalization in that market, where as you know, we have a lot of history and expertise. Operator: There are no further questions at this time. I would like to turn the floor back to Craig Larson for closing remarks. Craig Larson: Rachel, just thank you for your help this morning, and thank you, everybody, for your interest in KKR. We look forward to following up in 90 days or in the interim, if you have any questions, of course, please feel free to reach out directly to the IR team. Thanks so much. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Operator: Greetings, and welcome to Great Elm Capital Corp.'s First Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Adam Yates, Managing Director. Thank you. Mr. Yates, you may begin. Adam Yates: Hello, and thank you, everyone, for joining us for Great Elm Capital Corp.'s First Quarter 2026 Earnings Conference Call. If you would like to be added to our distribution list, you can e-mail investorrelations@greatelmcap.com or you can sign up for alerts directly on our website, www.greatelmcc.com. The slide presentation accompanying today's conference call and webcast can be found on our website under Events and Presentations. On our website, you can also find our earnings release and SEC filings. I would like to call your attention to the customary safe harbor statement regarding forward-looking information. Also, please note that nothing in today's call constitutes an offer to sell or a solicitation of offers to purchase our securities. Today's conference call includes forward-looking statements, and we ask that you refer to Great Elm Capital Corp.'s filings with the SEC for important factors that could cause actual results to differ materially from these statements. Great Elm Capital Corp. does not undertake to update its forward-looking statements unless required by law. To obtain copies of our SEC filings, please visit Great Elm Capital Corp.'s website under Financials, SEC filings or visit the SEC's website. Hosting the call today is Jason Reese, Great Elm Capital Corp.'s Chairman of the Board and newly appointed CEO. He'll be joined by Matt Kaplan, Portfolio Manager; Chris Croteau, Head of Research; Chief Financial Officer, Keri Davis; Chief Compliance Officer and General Counsel, Adam Kleinman; and Mike Keller, President of Great Elm Specialty Finance. I will now turn the call over to GECC's Chairman and CEO, Jason Reese. Jason Reese: Thanks, Adam, and thank you, everyone, for joining us today. In March, I assumed the role of Executive Chairman of GECC at an important inflection point for the company. On May 4, I was appointed CEO. The company was established to create income and protect and grow NAV. In the near term, I am reprioritizing. We will protect and grow NAV first and secondarily create income. We will accomplish this by strengthening oversight, protecting shareholder value and reinforcing accountability across the platform. We are well underway, making progress on these fronts. I noted last quarter that as Chairman and CEO of Great Elm Group, the parent company of GECC's investment manager, I bring deep familiarity with both the team and our investment process. That familiarity enables a seamless transition into my role as both GECC Chairman and CEO, and I'm working closely with management to reinforce disciplined underwriting and thoughtful capital allocation. Before turning to the quarter, I would like to thank Matt Kaplan for his leadership during his tenure as CEO. Matt will continue in his role as Portfolio Manager. Turning to results. Recent quarters have been challenging for the broader BDC sector, and GECC was not immune to the macro environment. Our NAV declined this quarter, driven primarily by unrealized losses in select investments, most notably our CLO JV and one private investment with an idiosyncratic event. Our CLO investments can exhibit volatility given their inherent leverage. Additionally, in the first quarter, the broader CLO equity market declined. Despite the volatility of the quarterly mark, CLO exposure provides additional diversification to GECC's portfolio of secured investments. Our CLO investments continue to generate meaningful cash flow, diversify our income streams and support the sustainability of our net investment income. In light of these unrealized losses, Great Elm Capital Management, GECM, investment adviser, has waived all accrued and unpaid incentive fees through June 30, 2026, marking the third consecutive quarter of fee waivers. As of March 31, 2026, that waiver amounted to approximately $2.8 million or $0.20 per share of direct benefit to our shareholders. This action is immediately accretive to NAV and underscores our alignment with shareholders. We have also taken decisive action to deleverage the balance sheet. Recently, we called and repurchased all $57.5 million of GECCO notes due later this year. Once these notes are fully retired, GECC will have no funded debt maturities until 2029. This eliminates near-term refinancing risk and enables our flexibility to deploy capital strategically. In addition, we continue to improve portfolio credit quality through active investment rotation. During the quarter, we deployed approximately $22 million across 12 investments while exiting investments we viewed as higher risk. As a result, first lien investments now comprise nearly 75% of the corporate portfolio, the highest level in the company's recent history. This reflects a deliberate shift towards senior secured investments with stronger downside protection and is a direct outcome of the underwriting discipline we have instilled across the platform. At the same time, we're expanding our proprietary sourcing efforts. During the quarter, we closed 3 transactions sourced through institutional partnerships, committing approximately $15 million to new private investments. We closed on one additional proprietary private investment in April, and we expect to close additional investments in the near future, building on this momentum as our sourcing network continues to deepen and differentiate our platform. At Great Elm Specialty Finance, or GESF, we continue to execute on the strategic transformation aimed at streamlining the platform for enhanced growth and profitability. Great Elm Commercial Finance is building a robust pipeline of asset-based lending opportunities, while Great Elm Healthcare Finance has successfully repositioned the business and recently closed on another transaction. Prestige, our invoice financing business generates durable returns, but can exhibit quarter-to-quarter variability due to the spot nature of its business. I'm pleased to say all 3 of our core verticals under GESF are profitable and generate cash distributions. Collectively, GESF is poised for continued growth and represents an increasingly important source of diversification across both assets and income. Today, GECC's high-quality portfolio is strong, composed primarily of performing cash-generative investments. We closed the quarter with less than 1% of fair value of all investments on nonaccrual, stark contrast to our peers. In addition, in the last quarter, we opportunistically purchased shares at a discount to NAV under our stock repurchase program. Through May 1, 2026, under our $10 million stock repurchase program authorized in October 2025, we have repurchased approximately 1% of all shares outstanding at an average 36% discount to our March 31 NAV, leaving approximately $9.5 million of remaining capacity under the program for future repurchases. Stepping back, GECC is well capitalized and supported by a strong balance sheet. At quarter end, we held approximately $10 million in cash, $4 million of liquid exchange-traded assets and had full availability under our $50 million revolving credit facility. With no near-term debt maturities, ample liquidity and a higher quality portfolio, we are well positioned to act decisively when compelling opportunities arise. Now I'd like to turn the call over to Keri Davis to walk through the financial details. Keri Davis: Thanks, Jason. I'll go over our financial highlights now, but we invite all of you to review our press release, accompanying presentation and SEC filings for greater detail. NII for the first quarter of 2026 was $5 million or $0.36 per share compared to $4.4 million or $0.31 per share in the fourth quarter of 2025. The approximate 13% growth quarter-over-quarter in NII was driven primarily by the benefit of the incentive fee waiver, accounting for approximately $0.20 per share. Net assets were $107.5 million or $7.74 per share as of March 31, 2026, compared to $112.9 million or $8.07 per share as of December 31, 2025. Details for the quarter-over-quarter change in NAV can be found on Slide 11 of the investor presentation. Our balance sheet remains strong and liquid. GECC's asset coverage ratio was 161.8% as of March 31, 2026, compared to 158.1% as of December 31, 2025. Our debt-to-equity ratio also improved to 1.62x from 1.72x in the prior quarter, reflecting the continued deleveraging Jason noted. As of March 31, 2026, total debt outstanding was $174 million, and we had no borrowings on our $50 million revolver. Cash and money market fund investments totaled approximately $10 million. Importantly, our Board of Directors approved a quarterly dividend of $0.25 per share for the second quarter of 2026, equating to an 18% annualized yield on GECC's May 1, 2026, closing price of $5.56. I'll now hand it over to the operator for questions. Operator: [Operator Instructions] The first question comes from the line of Erik Zwick with Lucid Capital Markets LLC. Erik Zwick: Jason, if I could start with a question for you. You mentioned in your prepared comments, some efforts to deleverage the balance sheet. I know there's no additional maturities until 2029. I guess at this point, have you kind of completed those deleveraging opportunities or efforts? Or are there still more you could do through, I guess, maybe deleveraging? Jason Reese: At the end of the -- I'm sorry, at the end of the quarter, there was still $18 million of our 2026 paper outstanding. Approximately, we called that paper. It hasn't been paid off yet, but it will be in the next few weeks. At that point, we've probably completed our deleveraging for the moment, although our 8.5s do become callable at the end of this month. Erik Zwick: Okay. So that could potentially be something that you would look at. Okay. That's helpful. And maybe switching gears a little bit just in terms of the pipeline, and maybe this is kind of a two-part question. One is, as you look at what's in your pipeline today, the opportunities there that you're seeing as you look at through kind of a risk-adjusted lens, but then also looking at the opportunity to continue using the share repurchase authorization kind of given where the shares are trading today, how do you weigh those two opportunities and choose which to -- where to deploy capital at this point? Jason Reese: So, we're obviously going to balance and look at all opportunities and look where we think the best risk-adjusted returns are. As far as our opportunities, we are much more focused on more traditional private credit deals than broadly syndicated loans right now. We think that there's better yields, actually, with less risk there right now, and we've closed a number of those transactions already this year, and we're working on a number more. As for looking at share repurchases or debt paydown versus investments, I mean, we're constantly looking at what the return is. Obviously, paying down debt is riskless for us, and so that's important. But we're very serious about rebuilding NAV, as I've tried to say. And as you've seen with us waiving for 3 quarters our investment (sic) [incentive] fee, and by actually buying back shares, which a lot of BDCs don't do, we're looking to rebuild that NAV piece. Did that address your question? Erik Zwick: Yes. No, it does. And maybe just a follow-up on that as I try and kind of look at the future run rate of earnings and think about that incentive fee waiver. And you mentioned that the priority #1 now is protecting and growing NAV. So, is it safe to assume that you would potentially continue considering waiving the incentive fee if the kind of run rate of earnings without the incentive fee waiver is less than the current level of the dividend, the new kind of $0.25 per share level? Jason Reese: We will continue looking at what's in the best interest of the shareholders for sure. And yes, we definitely want to be covering our dividend. So, I'm just changing emphasis, right? We've done a pretty good job of generating income and covering our dividends. We haven't done as good a job as protecting our NAV. And so, we're going to really focus on that. I think there's times when you take more risks and there's times when you take less risk in your investments. And the last couple of quarters have shown to be a time to take less risk. Erik Zwick: Got it. And then just in terms of trying to get kind of a better understanding of the CLO cash flow timing. I know that depending on when you made those and the scheduled payments that can be a little bit kind of bumpy quarter-to-quarter. To the extent that you have some visibility over the next few quarters, anything you can communicate there in terms of expected timing of cash flows? Jason Reese: We will be getting cash flows every quarter now. I mean, in part, when you first make CLO investments, there's a lag, and that's created a lot of the variability, but it will also depend on how those CLOs continue to perform. I mean we're very comfortable about the cash flows we're going to receive over the life of those equities. But like in the first quarter, obviously, the broadly syndicated loan came down. But we expect -- we've already received $2.5 million this quarter, which is kind of at the same rate as the first quarter. That's probably a reasonable number for you to look at going forward, but they will vary. Erik Zwick: Okay. And so if you -- correct me if I'm wrong, I don't think you made any new CLO investments in the last quarter or 2. So some of that kind of initial as it goes through the warehouse period and then makes its first distribution, most of that should be in the past, barring any new investments you might make? Jason Reese: Correct. There should be less volatility going forward than there has been in the past unless we decide to make new investments, which we, at the current moment, are not looking at making any new CLO equity investments. We're pretty happy with where our position is. Operator: [Operator Instructions] Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the floor over to Jason Reese for closing comments. Jason Reese: Thank you again for joining us today. Our priorities remain clear: Protect capital, methodically rebuild NAV and generate sustainable net investment income. During the quarter, we advanced each of these objectives. GECM again waived incentive fees to the direct benefit of GECC shareholders. We took action to retire all near-term funded debt, and we increased first lien exposure to its highest level in recent periods. We have instilled greater rigor, transparency and accountability across the platform, and I am encouraged by both the trajectory of the portfolio and the strength of the team executing on our strategy. As we move through the second quarter, GECC's solid foundation and strong liquidity positions us to deliver more consistent and durable returns over time. We remain focused on disciplined execution and long-term value creation. We appreciate your continued support and look forward to updating you next quarter. Thank you. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Marriott Vacations Worldwide First Quarter 2026 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Neal Goldner, Vice President, Investor Relations. Thank you. You may begin. Neal Goldner: Thank you, and welcome to the Marriott Vacations Worldwide First Quarter Earnings Conference Call. I am joined today by Matt Avril, our Chief Executive Officer; Mike Flaskey, our President and Chief Operating Officer; and Jason Marino, our Executive Vice President and Chief Financial Officer. I need to remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, which could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the press release as well as comments on this call are effective only when made and will not be updated as actual events unfold. Throughout the call, we will make references to non-GAAP financial information. You can find a reconciliation of non-GAAP financial measures in the schedules attached to our press release and on our website. With that, it's now my pleasure to turn the call over to Matt. Matthew Avril: Thank you, Neal, and good morning, everyone, and thank you for joining us. Each quarter, I will address our prior commitments, progress made and what lies ahead. Let me start this morning from where we left off on our February earnings call. During that call, we laid out a clear set of priorities and how we expected the year to unfold. Our focus was on improving profitability and cash flow, accelerating growth, taking actions to lower costs and monetizing non-core assets. We also stated that 2026 would be a first half, second half type year. Let me begin by updating you on where we stand against those commitments. We talked about aligning our organizational structure and leadership team, reduce the scale of our Asia business, which we've done, benefiting our current year capital spend and future margins, take actions to lower costs, monetize non-core assets and most significantly, initiate our commitment to revenue growth and operational excellence. In the last 2 months, we've made demonstrable progress. We've made significant changes across the executive team and in key leadership roles to better drive overall performance, grow revenues, EBITDA and cash flow. In particular, the process began with hiring Mike as President and Chief Operating Officer, and in turn, we've added experienced leaders across sales and marketing. We have also successfully added direct frontline talent in our sales galleries. The leadership decisions taken were deliberate and a priority set when I stepped in early in the year, and they are already beginning to show results in the business. I undertook a full assessment of where we needed to build on the best of our company and also the need to infuse it with new experience and talents from outside. These actions are about positioning the business for more consistent performance and stronger growth over time, now and ongoing, including the initiatives Mike will discuss shortly during the call. We also implemented the workforce reductions we committed to on our last call, and we completed those in the middle of March. They will benefit the balance of the year and are contemplated in our guidance. We closed on the sale of the Westin Cancun hotel in January and listed additional non-core assets targeting more than $125 million gross in additional proceeds this year. We remain on track to generate $200 million to $250 million from asset sales by the end of 2027. With that context, let me turn to the first quarter. Our first quarter was a period of significant transition. We stated in February that we expected contract sales and adjusted EBITDA to be down in the first quarter, and our results were consistent with that expectation. Adjusted EBITDA declined 16% to $161 million. Contract sales were down 2% versus last year with VPG increasing 1%. Tours were down 3%. Owner sales increased 3% compared to the prior year, driven by a 4% lift in VPG. Marketing and sales costs increased 300 basis points year-over-year as a percentage of contract sales, reflecting the in-flight operating strategies from late 2025. Product costs increased 110 basis points on the same basis and was in line with our expectations. Finally, we generated $114 million of adjusted free cash flow, resulting from our deliberate actions to improve our cash generation and capital discipline. Our focus remains unchanged, consistent execution, improving profitability, strong cash flow generation, disciplined capital allocation and a clear emphasis on near-term and sustainable growth in contract sales, EBITDA and cash flow. Our financing and management businesses continue to generate stable, recurring high-margin revenue and cash flow, underscoring the durability of our business model. Importantly, given the nature of our product, our owners have already purchased their future vacations. This provides a high level of visibility for our future tours that fuels our direct-to-consumer sales model and allows us to drive demand on site. Our forward-looking indicators remain healthy. Resort occupancy is expected to be 88% to 90% in Q2 and for the full-year. 96% of our expected owner utilization for the second quarter is already on the books. We expect owner occupancy to increase as our new initiatives we are implementing begin to drive higher owner arrivals. These compelling occupancy levels reflect our strong commitment to delivering outstanding hospitality services and overall memorable vacation experiences to our owners. Lastly, the nature of our preview packages provides a highly predictable source of future tours totaling approximately 110,000 for 2026 arrivals. We are confident in what is ahead. We have executed on capital discipline initiatives, taken steps on our cost and operating structure and more recently, implemented a series of hires in sales and marketing that are already driving results. During today's call, Mike and Jason will detail these initiatives and how they are reflected in our expectations and our April contract sales results. In accepting the appointment to CEO in February of this year, it was important that I identify clear priorities and actions to be taken with respect to them. Principal among those have been the ongoing evaluation of our operating structure and personnel that started day 1 when I stepped in last November. I very much believe the best companies are able to benefit from continuity and experience in their organization and at the same time, being able to attract talent with different experiences and additive expertise to the business. I have also been committed to driving improvements in our operating culture. Being able to act with speed and commitment and decisiveness is an imperative for our organization. We have dramatically improved the cadence of our decision-making. We have added talent. We are generating improved results as you will hear more of today. It was also clear that there would be a period of transition, and that was evident in our first quarter earnings. Looking forward, we are very pleased by the significant traction we are seeing in April, during which our contract sales were up 8% year-over-year. We are increasing our contract sales guidance based on our recent trends and the impact of new initiatives underway. As we work through the first half of the year, there are certain expenses being incurred as we transition to our new operating priorities, principally in sales and marketing. Accordingly, we believe it is prudent to reaffirm our existing EBITDA guidance. With respect to our future, I'm incredibly excited about what lies ahead for the company. Game-changing initiatives are underway. They are returning us to a path of revenue growth, product enhancement, energy and optimism that now exists inside our company. Momentum is an incredibly powerful force in either direction. I will say unequivocally, there is a tremendous positive momentum inside our company. People are energized and committed. It is being built both with the infusion of new talent as well as the reinvigoration of our many associates in the workforce at Marriott Vacations Worldwide. We have long had the opportunity to represent the best brands in vacation ownership and unbelievably loyal and broad-based customer profile. The company has long enjoyed a premier position in the industry, and we look forward to reasserting that position. With that context, I'll turn the call over to Mike. Michael Flaskey: Thanks, Matt, and good morning, everyone. I joined Marriott Vacations about 3 months ago. Since then, I have spent my time diving into the business, the team and the opportunity in front of us. I've been in the field with our associates and in many of our sales centers. I've also spent time speaking with investors. What's clear to me is that we have a strong team, tremendous brands with very meaningful upside. What's encouraged me most is how much of the opportunity ahead of us is within our control, and we have already implemented several initiatives that are driving improvement. At a high level, our new operating framework is centered on improving contract sales by growing the right tour flow and strengthening our operating discipline. Expanding demand from new sources and driving incremental tours from our existing infrastructure, all while increasing average sales price. As we look at the opportunities in front of us, we bifurcated them into both near term and long term. In the near term, we have a clear focus on improving our core operations, which are already impacting our results. First, we are building a high-performance organization designed to drive revenue growth by strengthening our sales processes and talent. To achieve that, we hired a new Chief Sales and Marketing Officer with a demonstrated track record of success that I've also worked with for years, and we have several other powerful sales and marketing leaders that we have added to the team. We are also seeing a resurgence of top sales talent returning to the organization alongside exceptional new talent desiring to join us. Our transformation has the company excited, and we are seeing it across the organization. Second, we reorganized our sales and our field marketing organization, positioning us to move faster and more effectively as we execute our growth initiatives. On May 1, we restructured our sales and marketing leadership compensation packages, aligning their incentives to revenue growth and net operating income, which better aligns their compensation with the company's revenue and adjusted EBITDA performance. Third, we launched a new data-driven tour logistics initiative designed to better align tour flow with the right salesperson, improve conversion and enhance the overall selling experience through more effective use of sales center technology. We are already seeing results from this initiative. I am very happy to report that global contract sales were up 8% in April on a year-over-year basis, as Matt mentioned, powered by North America, where we were up 11%. This is very encouraging on many levels, in particular, North America, which is offsetting our planned reductions in Asia. This is a significant indicator that our strategy has taken hold. We also have several initiatives that will enable long-term sustainable growth that will meaningfully impact EBITDA in the second half of the year. For example, on May 1, we announced changes to our owner loyalty levels, adding 2 new tiers at the high end of the Marriott program. By the end of May, we will also be introducing a new buyer incentive called Dream Vacation Packages. Through these initiatives, we expect to drive a higher close rate and more predictable and quantifiable pipeline of future tours and higher VPGs company-wide. On June 22, we plan to launch our experiential event marketing program to be called Inner Circle. In my experience, this type of event platform has proven to drive higher quality incremental tour flow and VPG, while strengthening engagement across the owner's life cycle and the team that we now have introduced this concept to our industry. We feel very confident in our ability to execute on it. Importantly, Inner Circle supports our broader lifetime value strategy by enhancing the customer journey, extending owner longevity and creating opportunities for increased wallet share over time. Let me pause on this for just a moment and explain what this means. The totality of these 3 programs incentivizes our owners to return to our properties and our sales galleries in a more predictable and managed way, driving higher tours and VPGs through increased average transaction size, thereby driving higher and more profitable contract sales. Finally, we are building a national and local partnership marketing capability to expand our reach beyond our existing databases to drive incremental tour flow. This will also allow us to grow tours through affiliations with the proven Marriott Bonvoy and World of Hyatt loyalty programs. Some of these initiatives are more transformational and will take time to ramp up with meaningful benefits expected to begin later this year and into 2027. Through the launch of these new initiatives, we are focused on growing our average transaction size and VPGs. We also have a unique opportunity with our points product to create multi-week vacation packages supported by our transformed owner benefit levels and powered by our world-class brands. To support these initiatives, we are applying data-driven tour logistics to better match the right guests with the right sales executive and upgrading our programs to create more compelling reasons for owner engagement while on vacation. Particularly through initiatives like the Dream Vacation Packages and Inner Circle. To wrap up, to say I'm very encouraged by what I've seen so far is an understatement. We have a clear pathway to significantly improve our commercial performance in both the near term and the long term. The power of the talent that we've added to the company and the reenergized disposition of the existing team has improved operational execution across the board. Along with our new owner loyalty levels, the Dream Vacation incentive and our Inner Circle event platform, they have us set up nicely for a predictable and sustained growth trajectory. With that, I'll turn it over to Jason to walk through the financials and provide more detail on the quarter. Jason Marino: Thank you, Mike. This morning, I'll walk through our first quarter results, then touch on the balance sheet, cash flow and our outlook for the year. First quarter contract sales declined 2% year-over-year to $411 million. Owner sales increased 3%, offset by lower sales to first-time buyers. Tours declined by 3%, driven primarily by our planned actions in Asia, which was restructured at the end of January to improve profitability and cash flow as well as our decision to reduce tours to consumers with FICO scores below 640 starting last year. Excluding Asia Pacific, contract sales declined 1%. Development profit declined $24 million year-over-year to $55 million due to lower contract sales, lower reportability and higher product costs, all of which were in line with our expectations. In addition, marketing and sales costs increased year-over-year, primarily due to increased training costs and higher salaries, which are being addressed with the initiatives Mike mentioned. Sales reserve was 12.3% of contract sales in the quarter, lower than Q4. 120-day delinquencies were up 17 basis points compared to the prior year and were down 45 basis points compared to 2024 levels. Defaults were unchanged from prior year, and our rigorous reserve process continues to indicate that we are adequately reserved given our overall loan performance. Importantly, our more recent 2025 receivable originations are performing in line with our expectations, giving us further confidence in our reserve. As expected, rental profit declined $10 million year-over-year due to higher inventory levels and associated unsold maintenance fees. Management and exchange profit declined $2 million, largely attributable to lower profit at Aqua-Aston. Finally, excluding the change in the presentation of interest expense in our warehouse credit facility, financing profit increased $2 million. As a result, adjusted EBITDA declined 16% year-over-year to $161 million and adjusted EBITDA margin declined 370 basis points to 19%. Turning to the balance sheet. We finished the quarter with $3.3 billion of net corporate debt and leverage of approximately 4.2x. From a maturity perspective, we are well positioned with no corporate debt maturities until December 2027, providing us with meaningful financial flexibility. Our adjusted free cash flow was $114 million in the quarter, an increase of $74 million over last year, driven by lower inventory and capital spending as well as the $50 million of proceeds we received from the sale of the Westin Cancun. In April, in the midst of market volatility and increasing uncertainty, we completed our first securitization of the year, raising $460 million at a blended interest rate of 4.86% and an advance rate of 98%, further strengthening our liquidity and demonstrating continued access to the ABS market. Before turning to guidance, I want to briefly address capital allocation. We remain focused on reducing leverage over time while continuing to return capital to shareholders. As cash flow from operations and disposition proceeds materialize, we will balance debt reduction, dividends and opportunistic share repurchases within a framework to reach leverage levels below 4x. Turning to guidance. We now expect contract sales to increase 3% to 7%, which is above our original guidance, driven by the new revenue initiatives Mike discussed. We expect tours to decline in the 1% to 3% range this year, driven by the intentional reduction in Asia and for VPG to increase in the mid- to high single digits. As we highlighted in our press release this morning, we are reaffirming our EBITDA guidance for the year, reflecting our higher contract sales and higher operating expenses over the short term to support these new initiatives. We expect our operating expenses as a percent of revenue to decline sequentially over the balance of the year as we leverage growth in our revenues. In terms of quarterly cadence, contract sales and adjusted EBITDA growth remains weighted toward the second half of the year as new revenue initiatives ramp with our first Inner Circle events targeted for later this quarter. For the second quarter, we expect contract sales to be up 4% to 8% year-over-year as our new revenue initiatives start to work through the system and adjusted EBITDA to be $197 million to $202 million. Finally, our expectations for management and exchange profit, rental profit and G&A are largely unchanged from our previous guidance. From a cash flow perspective, we continue to expect adjusted free cash flow for the full-year to be between $375 million and $425 million compared to $145 million last year, and we expect free cash flow conversion this year to be in the mid-50% range. We continue to make good progress on our non-core asset dispositions, listing multiple assets that we expect to generate more than $125 million of proceeds this year on our way to disposing $200 million to $250 million in total by the end of 2027. Any proceeds from these sales will be excluded from our adjusted free cash flow. As I wrap up our prepared remarks, I couldn't be more optimistic about MVW's long-term future. The organization is energized by our new leadership team, our April sales results, the launch of new programs and culture of accountability. The transition to EBITDA and profitability growth is beginning. Our momentum is increasing, and we look forward to the second half. With that, we will be happy to answer your questions. Operator? Operator: [Operator Instructions]. Our first question comes from David Katz with Jefferies. David Katz: I feel like, quite frankly, I have about 10 questions. What I'd like to just get from the team is really just a big picture perspective on how confident are you versus where you were a few months ago when we first started talking about this in the long-term earnings power? I think that's been made clear by the incentives that you've laid out, not just near term, but longer term. What has to go right for you to achieve that long-term big picture earnings power? Matthew Avril: David, it's Matt. Thanks for the question and for joining us. I think the simple direct answer is we have to continue to enhance the experiential value proposition to our owners, drive their engagement rooted in our guidance for the rest of the year and things we're already seeing is lifting our tour flow opportunities with our owners at our properties. We have tremendous occupancy levels, and there is a lot of runway for us to do that. Secondly, as I said at the beginning of my remarks today, in any situation from my perspective, like the one when I stepped in, is you assess who and then you go assess what. I will tell you that we are, from my personal perspective, well ahead of where I could have hoped we would be a little over 2 months ago, stepping in and taking on the role in a more permanent way. We needed to have an infusion of talent, expertise and blending that into a terrific in-place workforce in order to accelerate how we put things into play in the field in our business. As we've alluded to, to see that take place in the way that it already has in April has been really gratifying and probably faster than I could have expected during that period of time. Then in terms of how you sustain that over time, there is sort of that inherent flywheel, which is as we build and create more value experientially in particular, for our owners, give them more reason for us to have more share of wallet for their travel and their vacation. It's the nature of the product that our best customers do travel and travel more, and we're committed to earning more of that share of wallet. Then over time, we'll continue to add new owners to the top of the funnel as well. The team has been assembled and is being assembled each and every day. We've been in very good shape on the team, the initiatives to add attractiveness to owning the product and experiencing it. That's the big picture that I would provide. David Katz: Appreciate it. One just a very quick follow-up. Since the Street is hyper-focused on this, and it's -- we always need something to worry about. Is there anything noteworthy with respect to loan loss or delinquencies and it may be difficult to tell at this stage in the turnaround, but just checking in. Jason Marino: Yes, David, this is Jason. Thanks for the question. Yes, at this point, we feel really good about where the portfolio is. We ran through a bunch of metrics on the call in our prepared remarks, and we feel really good with our process and what we're seeing, especially as it relates to the near-term delinquencies, which are the majority of the book in terms of the nearer-term vintages, sorry, and so we feel good. Operator: The next question comes from Patrick Scholes with Truist Securities. Charles Scholes: Question for you regarding expectations for development profit. I believe on the prior earnings call, you had expected development profit for the year to be up. It was down quite a bit in Q1. Is your -- in light of that, do you still expect it to be up for the full-year? Jason Marino: Yes, Patrick, this is Jason. That's right. As we move through the year, we expect our development profit will grow as we -- based on the implied guidance that we've given, that is the big growth driver in our business. That's what Mike is driving throughout with the higher contract sales. We expect product costs similar to the guidance we gave on the last call, we'll be up a bit year-over-year, but consistent with where we were in Q1. Then as we go through the year, we'll continue to leverage our marketing and sales costs and drive higher development profit as we move through the year, so that is our expectation. Operator: The next question comes from Ben Chaiken with Mizuho. Benjamin Chaiken: I would love to hear about some of the changes in sales and marketing, specifically on the event side. I think, Mike, you kind of suggested it actually doesn't start -- doesn't launch until later this summer. Is that correct? Then anything you can share here would be helpful. Then is it fair to say that the contract sales acceleration you've seen has not even kind of like touched that event/Inner Circle side? I guess the implication being that it's all related to changes in sales personnel. I guess I'm kind of alluding to the success in April. Then one follow-up. Michael Flaskey: Yes. Thanks, Ben. Look, from April standpoint, if you think about it, we need to be great at what we're supposed to be great at. What you saw and what Matt alluded to and I alluded to in the prepared remarks about our contract sales growth in April was from doing just that, fundamentally going in and being better at operating the business. To use an analogy like a sports team, we had to eliminate the penalties. We had to get in shape to play the fourth quarter. We had to do the basic fundamentals to win a few more games, which is what you saw. Now as we start introducing the things that we talked about like the new loyalty levels May 1, the Dream Vacation incentives towards the end of the month and then specifically your question, Inner Circle coming in June, we should really see that just turbocharge the momentum that we've already built. As you know and as you've written about, we're -- we know the event business, and we know it very well. The team that's here created the event business for the entire industry. We've never had brands like this to power it, so it's incredibly exciting, not only to our first customer, which is our sales and marketing executives, but it's also going to be a big hit with the owners. Benjamin Chaiken: Then I guess on the contract sales guidance, this is maybe a multiparter, but I guess, a, how much did you -- and I guess we can all -- we have some implication or some inference could you give us April, but how much did you bake in for these for Inner Circle specifically in broad strokes without getting like too hyper specific? Then question 2 would be, how did you think about the change in contract sales guide and no change in EBITDA? Could you maybe just help us out a little bit on that? Was there something on the cost side that you're assuming that's different than prior? Or is it just some conservatism? I know in the prepared remarks, you mentioned some sales -- some higher sales and marketing expense. If we could just open that up a little bit, I think it would be very helpful. Matthew Avril: Ben, this is Matt. Thanks again for the questions. I'll sort of do it in reverse order. From a guidance perspective, you're right in my prepared comments, I talked about sort of the word prudent. We clearly have terrific momentum, and we've got great traction raising the guidance level. I acknowledge both some of the transition costs that we're already absorbing relative to the first quarter's performance, some transition costs as we have brought on the new teams and launching the events platform, the Dream Vacations and the owner benefit levels. There's a lot of internal work that has gotten done at an accelerated rate to support those rollouts. I think our guidance being in the range simply reflects that dynamic to the degree it ultimately may turn out to be conservative. I'll tell you, we're very focused on delivering actual. The decision on guidance was simply balancing the -- what we would acknowledge is the more recent trend, but the enthusiasm and optimism and the visibility we have to what's coming on the revenue side, and we're going to work really hard on the cost side to maximize that flow-through. It was a bit of balancing those 2 competing forces, if you will. Your other question, Ben, on the front end, please remind me. Benjamin Chaiken: Yes. It was basically just how did you think about -- obviously, there's been some acceleration in contract sales from the start of the year. Then how did you balance that versus layering in the Inner Circle dynamic? I don't know to the extent how much that actually contributes to '26. Maybe it's maybe the back half. Matthew Avril: Yes, fair question, Ben. We feel like we've got a number of factors and certainly events is platform and the attractiveness of that is part of it. They all combine to drive one of our underlying metrics that are contributing to that contract sales acceleration is our increased tour flow from our owners on property and increasing the experiential aspect, those events are geared towards our best customers and our owners on site. It is embedded in that acceleration. I wouldn't do an attribution waterfall chart, if you will, this much of the increase is this, this, this. It is the totality of all of the things that we're rolling out simultaneously. Operator: The next question comes from Brandt Montour with Barclays. Brandt Montour: I apologize for my connection here. Can you just maybe break out that April metric and give us a sense of how much of that was close rate, how much of that was expanding purchase price, if there's mix benefit in terms of repeat versus new owner? Just trying to get a sense for how much of that is blocking and tackling and how much of that is mix? Michael Flaskey: Brandon, it's Mike here. Our VPGs in April were up $450, just over $450 or about 12.7% versus prior year. Our tour flow was exactly as planned with our reduction in Asia. North America tour flow was right on par. Asia was down as planned. That's kind of the mix and average transaction size is a key focus point for us going forward. In the month of April, it was actually a balance of close and average transaction size. Brandt Montour: Then maybe another one for you, Mike. You spoke about getting the right tours Take us back a little bit, when you got there, what kind of tours were you guys getting before? What kind of tours are you getting now? Why do you think it's going to be low-hanging fruit that you can use your assets to hone in on those higher hit rate tours? Michael Flaskey: Right. Well, it's a combination of things. First, by far, in my career, this is the most robust data pool that we've had to generate leads with the Marriott Bonvoy and the World of Hyatt, and we have significant runway left for first-time buyers in those databases. Let's start there. What I observed when I got here was that this company significantly underperformed versus the industry on owner arrival to tour rates, and so we have a serious opportunity to enhance that and the flow-through on those for every 1 percentage point is significant. We're very, very excited about that and that comment about the right tours was tied to that. Subsequently, when I talk about tour logistics, one of the things that we have worked diligently on in the past and that we're implementing here is kind of our proprietary model where we make sure we understand the VPG by guest type of every tour that's coming into our sales galleries and then also knowing our individual sales executives VPGs by guest type and then using logistics to match that up so that we give ourselves the highest propensity for close. That is something that really was just starting to take hold in the month of April and has significant runway for the business. Operator: The next question comes from Lizzie Dove with Goldman Sachs. Elizabeth Dove: I just wanted to see if you could expand on the new owner side of things, what you're seeing there in terms of new owner VPG versus existing and what you're kind of baking in for contract sales in terms of any mix shift in terms of new owners for the rest of the year? Michael Flaskey: I'll take the first part, Lizzie, it's Mike, and then I'll let Jason talk about the guidance. As a volume, we were at 28% in the first quarter of first-time buyers as our mix. On a contract basis, it would be higher than that. We believe that we have significant opportunity within the business to increase first-time buyer tour flow and first-time buyer sales. We're going to be very prudent about how we do that. As I just mentioned in answering Brandt's question, we have significant runway in front of us on our owner arrival to tour. It's really going to be a yield management exercise of being smart about how we grow our tour flow and balancing it as we go forward. Jason? Jason Marino: Yes, Lizzie, we ran, as Mike said, about 70% existing owner sales in Q1. We've been in that range for a bit, and so I think that's a good range, plus or minus for the rest of the year, depending on some of the things that Mike talked about with trying to drive that owner VPG and the owner capture and driving contract sales. Over the long term, we do expect to grow our first-time buyer tours, and that's something for the long term, but this year, I think that 70-30 mix is probably where we'll wind up. Elizabeth Dove: Then I just wanted to touch on Hawaii. I know there's been some inclement weather there over the last couple of months, and I think you have a reasonable amount of exposure there. Anything that you're seeing there or that we should be noting going forward on that? Matthew Avril: Lizzie, this is Matt. Thanks for the question. Certainly, the adverse weather there in the last 3.5 weeks of March was disruptive. We do have a significant presence on Maui. Candidly, just from a call perspective and how we talk about things internally, the benefit of our business model is our direct marketing and being able to bring people in. We're going to not lean on weather or disruptions or other things like that. When we talk about our results, we certainly prefer better weather. Hawaii is a tremendously important market to us, and we think there is for the reasons that Mike has outlined in our system overall are very applicable to Hawaii. We're excited about what's ahead of us in Maui and all the islands where we operate out there, and bad weather or those kinds of events are going to happen from time to time, and we get paid to work through them. Operator: The next question comes from Trey Bowers with Wells Fargo. Raymond Bowers: A couple of questions. First one, just a point of clarity. I think you guys said in the prepared remarks that the asset dispositions would not be included in the adjusted free cash flow calcs. Then there was -- it looks like there was $50 million of add-back in the adjusted free cash flow in the press release. I just wanted to make sure I understand the build of that line item. Jason Marino: Yes, Trey, that's right. Going forward, any future dispositions would not be included. When we gave the guidance for this year, we did say that we would include the sale of the Westin Cancun because that was slated as inventory in the future. That is the way that we did it for that first quarter. In connection with that sale, we also entered into a purchase commitment for future inventory in Puerto Vallarta, and that was another reason that we put in adjusted free cash flow because that inventory spend in the future will obviously hit free cash flow down the road. Raymond Bowers: Then just any update on the modernization efforts? Any change to the expectation for the dollar value there? Then maybe just if you guys could just dig in a little bit on what about those modernization efforts are transitory in nature as an operating expense? Matthew Avril: This is Matt. A couple of comments on that. As we chatted last quarter, we are incorporating benefits from modernization as well as management waking up every day how to improve the business in our guidance and in our actual results. I would say the other way to also look at modernization, there was a lot of what I would call design and architecture and trying to identify things in last year's work. This year's work is really in the implementation of those that we have identified, and that work is underway. We identify it from both an expense and capital spend perspective. We're not going to call out separately those dollars as they're showing up in our P&L, but they are benefiting our business today, and we expect them to benefit going forward. There will be other initiatives that we're layering into just call it, our project management and improve the business daily mantra. Those are a couple of brief comments I would add. There's been a big shift from assessment and evaluation to implementation on those initiatives we have emphasized and prioritized. For those that we have deferred, the benefits of that is reducing the cash flow associated with the deferred items. Operator: [Operator Instructions]. Our next question comes from Stephen Grambling with Morgan Stanley. Stephen Grambling: Actually, 2 follow-ups. First, peers have culled their management base recently in terms of their -- the properties they're managing. Do you have a similar opportunity that you're looking at? Are there any properties where you still have low occupancy or even pent-up maintenance CapEx that you could look to potentially optimize? Matthew Avril: Stephen, this is Matt. Fundamentally, that is not an area of focus or need from our perspective. In our portfolio of resorts, we're excited about all of them. We've got 1 or 2 that we'll look at from time to time, but from a systemic, we've got a clear demonstrable batch of resorts, if you will, and respecting each of us have arrived in our portfolios through different mechanisms, whether how much has been purpose-built how much people may have acquired over time, I can understand why it was a priority elsewhere. I would tell you, no, that is not a high-priority opportunity for us. Our opportunity is with the quality of our resorts that we have, the high GSS scores and the high levels of occupancy that we experienced throughout our portfolio. Stephen Grambling: Then as you're thinking about ramping up sales and trying to incentivize owners, I guess, are you changing the way that you underwrite or even as you think about the percentage that you allow people to put down, is there any change in that requirement as you look at either existing owners who maybe have built up equity or new? Jason Marino: Yes, Stephen, this is Jason. We're not changing any of our financing programs in terms of down payments. We've had the minimum debt 10% down payment now for a while, consistent with the industry, and so we're not changing anything in that regard. Owners can use their existing upgrade, again, common within the industry to use their existing equity and their existing ownership to use that as partial down payments or full down payments if they have enough in new deals, so that's not a change though. Operator: At this time, I would like to turn the floor back to Matt Avril for closing remarks. Matthew Avril: Thank you for joining us on our call this morning. It's been 6 months since I joined, and we've made significant progress executing our plans. During the first quarter, we implemented a series of actions to improve our performance. As we move forward with our plans, we will begin to see stronger contract sales, profitability, cash flow and EBITDA growth. I want to specifically thank our Marriott Vacations associates throughout the company. It has been a period of rapid and substantial change, and our teams are rallying to the vision and priorities we have. On behalf of all of our associates, owners, members and customers around the world, I want to thank you for your continued interest and support of the company. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Good morning, ladies and gentlemen, and welcome to the Sterling Infrastructure, Inc. First Quarter Webcast and Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. As a reminder, this call is being recorded on Tuesday, 05/05/2026. I would now like to turn the conference call over to Noelle Christine Dilts, Vice President of Investor Relations and Corporate Strategy. Please go ahead. Noelle Christine Dilts: Good morning to everyone joining us, and welcome to Sterling Infrastructure, Inc.’s 2026 First Quarter Earnings Conference Call and Webcast. I am pleased to be here today to discuss our results with Joseph A. Cutillo, Sterling Infrastructure, Inc.’s chief executive officer, and Nicholas M. Grindstaff, Sterling Infrastructure, Inc.’s chief financial officer. Joseph A. Cutillo will open the call with an overview of the company and its performance in the quarter. Nicholas M. Grindstaff will then discuss our financial results and 2026 guidance, after which Joseph A. Cutillo will provide some additional commentary on our markets and outlook. We will then open the call up for questions. As a reminder, there are accompanying slides on the Investor Relations section of our website. These slides include details on our full-year 2026 financial guidance. Before turning the call over to Joseph A. Cutillo, I will read the Safe Harbor statement. The discussion today may include forward-looking statements. Actual results could differ materially from the statements made today. Please refer to Sterling Infrastructure, Inc.’s most recent 10-Ks and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward-looking statements as a result of new information, future events, or otherwise. Please also note that management may reference EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, or adjusted earnings per share on this call, which are all financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in our earnings release issued yesterday afternoon. I will now turn the call over to our CEO, Joseph A. Cutillo. Joseph A. Cutillo: Thanks, Noelle. Good morning, everyone. Thank you for joining Sterling Infrastructure, Inc.’s First Quarter 2026 Earnings Call. Sterling Infrastructure, Inc. is off to a fantastic start, delivering strong revenue growth of 92% and adjusted diluted EPS growth of 120%. Adjusted EBITDA more than doubled with margins expanding over 150 basis points year over year to reach a new first quarter record of 20%. During this period of unprecedented demand, our focus remains on pursuing projects that offer the most attractive returns. We are not looking to win all projects. We are looking to win the best projects. Signed backlog at the end of the quarter totaled $3.8 billion, a 78% year-over-year increase, and combined backlog grew 131% to reach $5.2 billion. Additionally, we have visibility into high-probability future phase opportunities that now total over $1.3 billion. Together, our signed backlog, unsigned awards, and future phase opportunities provide visibility into a total pool of work approaching $6.5 billion. This has grown by approximately $2.0 billion since year end. Notably, during the quarter, we were awarded the first phase of a multi-phase semiconductor fabrication campus. This first phase, which will be executed under a joint venture, totals over $500 million and is expected to be completed in late 2027 or early 2028. The campus build is expected to span a multi-decade period and presents opportunities for additional scopes of work through 2027 and beyond. The growth in our backlog and future phase work in the quarter, combined with our visibility into our customers’ multi-year plans, strengthens our confidence in our outlook. We believe we are perfectly positioned to continue to deliver strong earnings growth and returns for our shareholders for many years to come. The Sterling Way—our commitment to take care of our people, our environment, our investors, and our communities while we work to build America’s infrastructure—remains our guiding principle as we execute our strategy and grow the company. Now I would like to discuss our segment results for the quarter in more detail. In E-Infrastructure, first quarter revenue grew 174%, including organic growth of over 100%. The data center market was again the primary growth driver in the quarter. E-Infrastructure adjusted operating income increased 177% as margins expanded, despite the dilutive impact of the CEC acquisition. Revenue for our site development operations more than doubled and operating margins expanded both year over year and sequentially. Margins continue to benefit from our strong execution on large, time-sensitive, mission-critical projects. CEC delivered 78% revenue growth compared to its prior-year first quarter, with margins performing in line with our expectations. The Texas market remains exceptionally strong, with robust award activity in early 2026. During the quarter, CEC secured several large project wins, contributing to a $1.2 billion increase in its combined backlog since year end 2025. We continue to see tremendous opportunities ahead for both electrical and site development. In aggregate, our E-Infrastructure signed backlog, unsigned electrical awards, and future phase site development opportunities now exceeds $5.0 billion, representing an increase of $2.0 billion since year end. Mission-critical work, including data centers, large manufacturing projects, and semiconductor, represented over 90% of the E-Infrastructure signed backlog at the end of the quarter. Future phase work is predominantly related to mission-critical projects. Moving to Transportation Solutions, first quarter revenue grew 10%, driven by strong activity in the Rocky Mountain region, which benefited from favorable weather conditions and some earlier-than-anticipated project starts. Adjusted operating income grew 26%, reflecting strong execution and a mix shift towards higher-margin projects. We ended the quarter with Transportation Solutions backlog at $1.04 billion, a 20% year-over-year increase. Shifting to Building Solutions, in the first quarter segment revenue grew 3%, driven by a pickup in homebuilder activity, and adjusted operating margins were 8.7%. While we are encouraged by the slight revenue increase in the quarter, we continue to anticipate that the residential market will face strong headwinds throughout 2026. The strength of Sterling Infrastructure, Inc.’s diversified portfolio and strategy to focus on high-growth and high-margin end markets enabled us to deliver another fantastic quarter. With that, I would like to turn it over to Nicholas M. Grindstaff to give you more details on some of our financial metrics and 2026 guidance. Nicholas? Nicholas M. Grindstaff: Thanks, Joseph, and good morning. I will begin with our consolidated backlog metrics. Our first quarter backlog totaled $3.8 billion, a 78% year-over-year increase, or 51% excluding CEC. Combined backlog of $5.2 billion increased 131%, or 46% excluding CEC. First quarter 2026 book-to-burn ratios were 2.1x for backlog and 3.5x for combined backlog. Moving to our cash flow metrics, cash flow from operating activities for 2026 was a strong $166 million. We expect continued strength in operating cash flow for the full year. Cash flow used in investing activities included $20 million of CapEx. For 2026, we are forecasting CapEx in the range of $100 million to $110 million, which is unchanged from prior guidance. Cash flow from financing activities was a $27 million outflow, including share repurchases of $12 million at an average price of $305.14 per share. Remaining availability under the existing repurchase authorization is $362 million. We will remain opportunistic in our approach to share repurchases. We are in great shape from a balance sheet perspective. We ended the quarter with $512 million of cash and debt of $287 million, for a cash net of debt balance of $224 million. Additionally, our $150 million revolving credit facility remained undrawn during the period. Given our strong liquidity, we are in an excellent position to continue to take advantage of both organic and inorganic growth opportunities in the years ahead. Our current backlog, visibility, and strong market tailwinds position us for an even better year than we originally anticipated. We are increasing our guidance ranges for 2026 as follows. Revenue of $3.7 billion to $3.8 billion, which at the midpoint is a 20% increase over previous guidance and represents more than 50% growth over 2025. Diluted EPS of $16.50 to $17.15; adjusted diluted EPS of $18.40 to $19.05, which at the midpoint is a 36% increase from previous guidance and represents 72% growth over 2025. EBITDA of $800 million to $831 million; adjusted EBITDA of $843 million to $873 million. I will now turn the call back to Joseph. Joseph A. Cutillo: Thanks, Nicholas. For quite some time, we have been communicating a bullish view on our markets and outlook. As we sit here today, that outlook is stronger than ever and continues to surpass our expectations. Customers are continuing to ask for more, with projects growing in size, complexity, and duration. At the same time, we are being pulled into new geographies with urgency, as customers prioritize alignment with partners who have the capability and capacity to execute over the long term. Together, these dynamics reinforce our conviction in the multi-year opportunities across our markets. Moving to our segment expectations for 2026, in E-Infrastructure Solutions, we anticipate that the current strength in data center demand will continue for the foreseeable future. We continue to have conversations with our customers regarding how we can best support their strong multi-year capital deployment programs. As part of this, we are getting pulled more rapidly into new geographies, including Texas, the Pacific Northwest, and the Midwest. In the semiconductor market, our industry-leading capabilities enabled us to be selected as the site development partner for a mega-fab semiconductor campus. This award highlights how Sterling Infrastructure, Inc.’s highly differentiated capabilities make the company the partner of choice for large, mission-critical projects in the U.S. We believe that this is just the beginning of a wave of semiconductor fabrication activity that will begin to accelerate at the end of the decade. In addition, there are still several opportunities in the broader manufacturing market that we believe could be awarded in 2026 or early 2027. We are gaining meaningful traction in our cross-selling efforts between site development and electrical services. We are currently in active construction on two data center projects where we are executing both services in an integrated capacity. These joint awards have materialized approximately six to eight months ahead of our original expectations. For the full year 2026, we expect to deliver E-Infrastructure revenue growth of 80% or higher, including the full-year contribution of CEC. We anticipate that the legacy business will grow at rates approaching 60% or higher, as several of our larger projects accelerate. Adjusted operating profit margins for E-Infrastructure are expected to be in the mid-20% range. In Transportation Solutions, we are in the final year of the current federal funding cycle, which concludes in September 2026. We have built over two years of backlog and continue to see good levels of bid activity. For 2026, we anticipate continued growth in our core Rocky Mountain market. The downsizing of our low-bid heavy highway business in Texas is progressing according to plan, resulting in some moderation of Transportation Solutions’ top line and backlog, but should continue to drive margin improvement as we move through the year. We expect Transportation Solutions revenue to grow in the low to mid-single-digit range in 2026. After the strong first quarter, we anticipate a moderation of growth rates in the remaining quarters. This is driven by three factors: the early start of projects in the first quarter that we originally expected to start in the second quarter; the allocation of resources towards E-Infrastructure projects; and the final wind-down of our Texas low-bid work. In Building Solutions, we believe the business is well positioned for growth over a multi-year period. Our key geographies of Dallas–Fort Worth, Houston, and Phoenix are expected to see population growth driving new home demand. Additionally, there is an opportunity for share gain coming out of the down cycle. We anticipate that Building Solutions revenue will be modestly down in 2026 and that adjusted operating margins will be in the low double digits. On the acquisition front, we continue to look for acquisitions that are the right strategic fit to enhance our service offering and geographic footprint. We are seeing more high-quality acquisition targets in the market today than a year ago. Our significant balance sheet firepower positions us to take advantage of these opportunities. Moving to our full-year 2026 guidance, the midpoint of our guidance ranges would represent 51% revenue growth, 72% adjusted EPS growth, and 70% adjusted EBITDA growth. We will now open the call for questions. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment for your first question. Your first question comes from Sangeeta with KeyBanc. Please go ahead. Analyst: Maybe, Joseph, you can help us understand what you think went a lot better in 1Q versus expectations, maybe on revenue and margins, since usually we consider 1Q to be a seasonally slower quarter? And then if I can ask a follow-up on the comment you made on M&A targets and the fact that you are seeing better targets now, can you tell us how you define these services as being better than what you saw before? Joseph A. Cutillo: Sure. Q1 is, and will probably be consistently, our lowest quarter. A couple of things helped us. We certainly had some very good weather through the Rocky Mountains and some of the other regions, which enabled us in the Transportation segment to start some projects a little earlier and execute projects through the winter months when we normally shut down. That definitely helped us. But more importantly, as we look at E-Infrastructure, we are really starting to see the impact of the new projects that are coming in larger and more complex, and what the added values of our vertical integration are adding to the margin profile and productivity through the build of these projects. We are far enough along—again, a little bit of history—you know, we started this journey when data centers became really data campuses. We went from 100 acres to now doing projects that are north of 1,000 acres, and the future projects coming out look like they are multi-thousand acres. The larger they get, the more complex they get, the more we can leverage our vertical integration, and our size and scope, which drives more productivity. And that is why we have said all along, and we feel even more confident as we are executing, we will continue to see nice margin growth in E-Infrastructure. On M&A, we have some significant criteria that we look at. We always say we buy people; we do not buy businesses. So it is absolutely critical on the caliber of the talent and the willingness of the key team to stay. But our primary focus is in E-Infrastructure. If we take a look in a couple different areas—either geographic expansion of capabilities that we have, more focus on the site development from a geographic expansion standpoint, and then on the electrical side, a combination of geographic expansion and incremental services or products that we can offer. I will tell you we are looking beyond electrical as well. We are looking at the whole portfolio. We really spend a lot of time with our customers and understand what are their needs and what are driving the success or the complexity of these projects. And we will constantly look for those services to add to our portfolio. It is how we moved into electrical. Analyst: Appreciate it. Thank you. Operator: Your next question comes from Noah with William Blair. Please go ahead. Analyst: Joseph, Nicholas, and Noelle, thanks for taking my questions, and great quarter. You highlighted a robust bidding environment in Texas. Can you walk us through your current presence in that state as it relates to capacity and project manager availability, and how you would characterize Texas’ data center market today versus where, say, the Atlanta or greater Georgia market is at today, and your ability to gain share over there in Texas? And then as it relates to CEC, can you walk us through your current level of assimilation with the business as it relates to what you are seeing with revenue and cost synergies? You mentioned the two active projects involving both the legacy site development work with CEC’s electrical, but how much of their collective bidding pipeline is collaborative with this cross-selling? And then what is the progress on CEC’s margin expansion opportunity? Joseph A. Cutillo: Our approach in Texas is, we have CEC located up in Dallas—call that North Central Texas—and we are attacking Texas from the west and from the east. We are using our Rocky Mountain assets and businesses to come from the west to hit western Texas, and then we are leveraging the Atlanta folks and Southeast team to come from the east. They will make it all the way to Dallas and both of those teams will meet in the middle. So we have current capabilities and capacity to do that. We are constantly looking for acquisitions in the upper Pacific Northwest and also in Texas, so that we can add capacity as we move along the way. If I look at the market, I would tell you that the Atlanta/Southeast market is more mature with a longer runway and today is probably a larger market. As I look forward the next four to five years, I think people will be shocked with the size and scope and quantity of data centers, along with some other stuff, being built in the Texas market. We are in the early innings, but the projects are extremely big, they are coming out extremely quickly, and we see not only this year and next year, but what our core customers are talking about starting in 2028–2029. These projects, on top of being large, will take longer time frames to complete. A typical project today is more like three years; these will be pushing out more like four- and five-year projects. On CEC, we call it assimilation, not integration, and we have been really happy with the progress. We really did not think we would see a joint effort take place until late second quarter or early third quarter of this year; we started those in the first quarter, which is fantastic. We have had great reception from the hyperscalers, and they quickly see the benefit of combining these together and what it does to the cycle time of the build process. On margin expansion, we are still extremely bullish that we are going to see 300 to 500 basis points of margin improvement in 12 to 18 months. There are a couple end markets and products that we knew CEC was in that have much lower margin. We are exiting those, and as we exit those, margins will come up. On the core business ex those markets, we saw really nice margin expansion in the quarter—actually ahead of what we anticipated. In addition, it has taken off so quickly that we talked about expanding our modular capabilities. We just locked down a lease to triple the size of our modular build capabilities. We are building a world-class manufacturing site to do that, and we think we will ultimately expand that to other locations in the U.S. over the next 18 months. I just wish I had 2,000 or 3,000 more electricians—we would grow it even faster. Noelle Christine Dilts: One other thing to add here is we are getting pulled into these new geographies by our customers. It is not like we are just going into these new geographies cold. They are looking for partners that can support their builds in these new areas, and that is really a continuation of the geographic expansion strategy we have had since the beginning. It is just taking that one step further. Joseph A. Cutillo: Yes, and to add to that, our customers—if you look at our geographic expansion from the beginning—we have let the major hyperscalers pull us into new markets. They are more than pulling now; they are kind of screaming to get into these markets faster with the capital spending they are going to do. Our challenge is how do we grow as fast as we can and still deliver at the same levels and caliber. It also allows us to be extremely picky on the projects we decide to do and the projects we are not going to do, which helps us long term on margins and capacity planning. Operator: Your next question comes from Manish with Camper. Please go ahead. We lost them. If you are still there, please call back in. Otherwise, I will go to the next caller. Your next question comes from Brian with Stifel. Please go ahead. Analyst: Thanks. Good morning, everybody, and congrats on the great quarter here. Just a follow-up on Texas. In your traditional site development business, how much do you expect Texas to account for as a percentage of revenue there, putting CEC aside? And can you remind us where it was last year? And then is there any notable difference in the margin profile in the site development business in Texas relative to some of your other regions? And as a follow-up on CEC, in the release you talked about approximately $600 million contribution to backlog, but a $1.9 billion contribution to combined backlog. Can you help us understand the delta here? Joseph A. Cutillo: It is really hard to say where Texas will be as a percent of revenue. I will tell you it is growing extremely quickly, but so is the Southeast, and we have been pulled into the Midwest by one of our customers. So it is hard for me to give you a number without being wrong. Margin profiles—as long as the projects are getting bigger and more complex—will be fine. We have certainly seen in some of the far Pacific Northwest projects early on, where we have a smaller equipment group and are not as fully vertically integrated as we are in the Southeast, margins are a little lower, but they would be margins everybody would love to have. Part of our acquisition strategy is to look at how we start putting in those elements, or even organically adding those elements of vertical integration. We are really seeing the benefits of these ancillary goods and services—not only from time reduction of the project because we control more of it—but that is what is helping drive these margins. Everybody keeps asking us if we are getting more price. The answer is no, we are not getting more price. This is all around effectiveness and efficiency and what we are able to drive to the execution of these projects for our customers. On the CEC backlog versus combined backlog question, it is a combination—both external and internal electrical work—and that will be on upcoming centers and existing centers. The contracts with CEC are very similar to what we have talked about in our site development where the work is phased. They will release a small phase. We know that the scope of the project—say an internal electrical package—is $300 million to $500 million generally. We know the total scope, but they will release those in small pieces along the way. That is why you see some in backlog and some in future phase work. Those are projects that we are either actively working on or getting ready to work on. Noelle Christine Dilts: Just one thing to add. Within some of that work that fell into combined backlog, the terms and conditions are already finalized on that piece of the contract that may be unsigned but would fall into combined backlog, and some of that has subsequently moved into signed here as we have moved into the second quarter—a pretty big chunk of it. Analyst: Understood. That is very helpful. Thank you. Operator: Your next question comes from Alex with Texas Capital. Please go ahead. Analyst: Thank you, and good morning. Should we think about your new work being competitively bid versus negotiated, and how has that changed or how might that change? And congratulations on the semi campus—sounds really exciting. Do you see other opportunities developing outside the data center markets this calendar year, or is that more of a 2027 event? Joseph A. Cutillo: In theory, everything is bid. In certain instances, we are asked to go work on specific projects—consider that negotiated. Our pricing—people need to understand—we have done a tremendous amount of work for customers in the past. It is not like we can raise our prices 20% or 30% even if we are negotiating it. They know what the price range is going to be. It is our ability to execute faster than anybody else and be on time every single time that gets us pulled into these jobs. As we go forward, we are looking at these multi-year programs of our core customers and the size and scope, and it is causing us to look harder at those. We will be passing up on more jobs that may be smaller in size or scope, or may have lower margin profiles because they are not as complex as some of these bigger jobs. We will keep moving assets to where the most money is. With the combination of electrical and site, it really gives us another avenue on some of these extremely large projects coming out in the future. On the semiconductor fab, this is going to be one of the bigger jobs in the U.S.—the biggest semi fab plant in the U.S. We actually participated in the process because we did not know if we wanted to do the project or not, and it was fascinating to see the differentiation we had. There was no one else in the room that was going to have a chance at this. It is the first semiconductor project we have done; it is not a market we have been in in the past. A lot of the GCs and engineering firms in that space are not people we deal with every day—now we are dealing with them every day. When we show them our capabilities, we feel confident that, just like in data centers, we will be the supplier of choice for every chip plant that comes out in the future. We do not see the huge rush of chip plants coming out until 2029–2030. We are positioned perfectly for that. Operator: Okay, thank you. Your next question comes from Julio with Sidoti. Please go ahead. Analyst: Thanks, and good morning. I wanted to ask about how your competitive positioning is evolving due to these shifting and increasing customer needs. As you said, these customers are no longer asking you to scale, but kind of screaming for you to go into other geographies. As they act with more urgency, are you realizing a better pricing environment? Are you negotiating better payment terms? Related to that, how do you maintain risk discipline and not allow these large customers to force your hand into taking on more work than you would typically handle? And as a follow-up, on expanding production capacity, how would you rank order the levers you have to pull to continue to grow—both in the near term and in the longer term? Joseph A. Cutillo: If we are going to get criticized for something, it would be that we are probably not aggressive enough on price. We have a philosophy that we have a fair price and we make our money on execution. If we take care of customers, they will have us back. There is no reason for us to try to take advantage of a situation—history says at some point that comes back to bite you. We will keep growing margins with vertical integration and productivity. On risk, the beauty of all of this coming at us is we are not afraid to say no. Sometimes our biggest customers may not like that. There may be a geography or a small job that, for the time and effort, would take away significant capacity from doing their bigger jobs. We proactively tell them which jobs we will do and which we will pass on, and in some cases help them find someone else. We are incredibly risk averse; we will not take on high-risk jobs that are going to get us in trouble. Our biggest challenge is they would like to have us in two, three, or four new markets tomorrow. We have had to say no to some of those. Over the long term, that enhances our credibility with them because we will never let them down. On capacity, electrical is very different than site development. Electrical comes down to electricians. We have the university—great—but it is a four-year program to get someone through apprenticeship into a certified electrician. They can work along the way, but it is lengthy. Second, as we get larger multi-year jobs, you can attract electricians from smaller shops who want to be on projects for 18, 24, or 36 months. Third is acquisition: can we buy something larger that gives us geographic expansion, or smaller tuck-ins with 150–200 electricians we can convert to mission-critical work. The modular strategy is another lever—anything we can build in a factory where a certified electrician does not have to do 100% of the work saves field hours and adds quality. On site development, we have a waiting list of operators; it is really about project managers. Our AI project focused on PMs and we picked up about 15% capacity. We have an internship program—hiring people in their sophomore year, running them through college and our program—graduating four or five a year into real PM roles. We are also looking hard for acquisitions, but it is challenging to find the right ones at our size and scale; many small players have limited equipment and rely on tight rental/lease markets. If we find the right ones, we will buy them, alongside our internal development. Operator: Your next question comes from Adam with Thompson Davis. Please go ahead. Analyst: Good morning, and congrats on putting up one of the best earnings reports I have ever seen. You had some large awards recently for CEC—what should our expectation be for continued awards? And as they get out of some of their lower-margin ventures, does that free up electricians that you can move back into more mission-critical work? And on the M&A side, since your electrical deal has worked out so well, where are customers asking you to add scope, and could that include something purely on the manufacturing side? Joseph A. Cutillo: We get a double benefit from the low-margin stuff we want to exit—you free up people and your margins move up significantly. We have more opportunities than we have capacity to get to with CEC, so, like everything else, we will focus more where we get joint awards, because we can really leverage that on total project scope, take out significant time, and drive significant productivity. Net margins will go up as well. It has been fun to watch CEC over eight months transform—shifting more resources and capabilities to these joint opportunities. If I had 2,000 more electricians, we could put them to work in a quarter. On scope expansion, there is a lot more to these projects than people realize. There are underground components manufactured by others that we purchase and install—that may make sense for us to do. As we look at modular, we are starting with basic stuff, but there is no reason we cannot go to whole modules being built in a factory and set on-site. We see that expanding rapidly for two reasons: electrical capacity relief and opening up other end markets we are not in today. Operator: Your next question comes from Manish. Please go ahead. Analyst: Good morning, and congrats again. Joseph, two questions for you. One is on E-Infrastructure: the margins we are seeing—are they structurally sustainable, or are they peak margins? Is there more room to be had? And how should we think about margins and risk profile between data center and advanced manufacturing work? Lastly, on Residential and Transportation segments—how should we think about those two segments long term? Are they core or non-core? Would you monetize them if you found a bigger acquisition that gives you more scale in E-Infrastructure? Joseph A. Cutillo: On sustainability—if you consider margins going higher than they are now, then they are not at a peak because they will continue to go up. Margins will improve for a couple reasons. As jobs become more complex, we drive better productivity. As we vertically integrate through the Rocky Mountains and add larger equipment suites, we get further productivity—both drive margins. As we combine the site and electrical packages, there is another element of productivity, and the inherent margin of that is better for our CEC business on top of it. When you couple all of those, and exit lower-margin end markets at CEC, we will continue to see margins tick up in E-Infrastructure. You may see some quarter-to-quarter variability due to volumes, but the margin trend line will continue to grow. On margins by end market, fundamentally the same—size matters. A 50-acre data center will not have the margins a 1,000-acre data center has; same for manufacturing. There are opportunities for some large projects either late this year or early next year with similar margin profiles. The only variance we see is geographic—historically, our Northeast region has had lower margins due to generally smaller project size and some projects mandating vertical integration with the union base. Think of it as size, not end market. On Transportation, seven years ago I might have answered differently, but today we have turned Transportation. It is like the Rodney Dangerfield of our business—it does not get enough respect. Their margins are now almost 2x better than best in class. They have done a phenomenal job. We have turned that into a cash cow that throws off great cash we use to grow our high-margin, high-growth E-Infrastructure product line. We are also shifting assets towards E-Infrastructure. For example, we started with a pilot with Meta in the Pacific Northwest using yellow iron and assets out of our highway business in Utah with project management teams out of Atlanta. They executed at very high levels, and we have five or six projects out of that with customers and GCs. We are closing down our low-bid heavy highway business in Texas, and shifting those underground assets to E-Infrastructure—helping with underground utilities and duct bank work—converting them into E-Infrastructure. It is now so intertwined with E-Infrastructure that it would be hard to break out even if we wanted to. Building Solutions has been a great cash cow business. We will look for opportunities to grow it. We evaluate strategic fit every day. Right now, we believe it still has great long-term growth potential. We are in the best three markets in the U.S., so we have no plans other than to grow it. Operator: Your next question comes from Louis with William Blair. Please go ahead. Analyst: Good morning, Joseph, Nicholas, and Noelle. Following up, is your large semi fab project for your Patillo division? And secondly, what is the timing for the expansions into the Northwest and the Midwest? I think you referenced a trial project with Meta in the Northwest—has that already started? Joseph A. Cutillo: The semiconductor fab is being done in the Northeast and by our union operation, and that would be Patillo doing that. It is an exciting project for us right in our backyard and should be a great project. On the Pacific Northwest, that is one we started two years ago—that was our foray into transitioning RLW into E-Infrastructure site development, and we have both to pull through there. We believe, based on conversations with our customers, that in 2027–2028 there will be some nice projects coming out in the Pacific Northwest. Believe it or not, the Pacific Northwest and western Texas are a lot closer than people think. From our Salt Lake City office to our West Texas job is plus or minus 200 miles difference compared to us driving from Houston. Texas is a pretty big state. So we are using those resources to come further east as well. We believe 2028 is going to be the start of some really nice projects in the Pacific Northwest, so you will see us adding capacity and capabilities in that area over the next six to twelve months. We will be able to talk more about that probably in the second or third quarter. Operator: Your next question comes from Julio. Please go ahead. Analyst: Thanks for taking a quick follow-up here. You guided to legacy E-Infrastructure growth of 60% for 2026, which I think implies some moderation of the year-over-year growth rates above the 102% that was this quarter. Given the larger order intake this quarter, which I assume has some timing variability, how would you have us think about the year-over-year legacy growth rates over the remaining three quarters of the year to get to that 60%? Joseph A. Cutillo: I have not laid it out in that level of detail. On the timing around big wins, it is all about when these kick off, when they start, and how fast they go. If we get great weather through the rest of the year and projects kick off earlier, we will be really happy and we will beat those numbers. There are just a lot of variables left from now until the rest of the year. Julio, we can lay that out exactly for you and talk more about what that does quarter by quarter; I just do not have that here. Operator: There are no further questions at this time. I will turn the call back over to Joseph A. Cutillo. Please go ahead. Joseph A. Cutillo: Thank you, Melissa. I want to thank everybody again for joining today’s call. We are off to a great start, and we are going to have an amazing year. If you have any follow-up questions or want to schedule further calls, feel free to contact Noelle Christine Dilts. Her contact information is in the press release. Hope everybody has a great day, and again, thank you very much. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.
Operator: Good day, everyone, and welcome to the Williams First Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would now like to turn the call over to Danilo Juvane, Vice President of Investor Relations. Please go ahead. Danilo Juvane: Thank you, [ Antoine, ] and good morning, everyone. Thank you for joining us and for your interest in The Williams Company. Yesterday afternoon, we released our earnings press release and the presentation that our President and CEO, Chad Zamarin; and our Chief Financial Officer, John Porter, will speak to this morning. Also joining us on the call today are Larry Larsen, our Chief Operating Officer; and Rob Wingo, our Executive Vice President of Corporate Strategic Development. In our presentation materials, you'll find a disclaimer related to forward-looking statements. This disclaimer is important and integral to our remarks, and you should review it. Also included in the presentation materials are non-GAAP measures that we reconcile to generally accepted accounting principles, and these reconciliation schedules appear at the back of today's presentation materials. So with that, I'll turn it over to Chad. Chad Zamarin: Thanks, Danilo, and thank you all for joining us today. We're off to a great start in 2026. Our teams delivered another quarter of growth. We advanced our critical pipe and power projects in execution, and we commercialized 3 new major projects and upsized a fourth. First quarter earnings per share grew by 22% and adjusted EBITDA grew 13% to a record $2.25 billion. Our momentum continues to build, demonstrating the scalability of our strategy, the ongoing strength of our assets and the growing contribution from our expansion projects. Our teams continue to execute high-return expansions at a steady pace while adding new projects to our robust backlog. And during the quarter, we made consistent progress across our projects in execution. Most notably, we placed the Naughton Coal Conversion project into service, a critical milestone that again demonstrates how we help customers transition to cleaner burning natural gas while maintaining affordability and grid reliability. We also kicked off construction on NESE, the Northeast Supply Enhancement project and SESE, the Southeast Supply Enhancement project. Moving these large-scale pipeline projects into the construction phase is a testament to our team's ability to navigate complex permitting to deliver the infrastructure our country so desperately needs. I'm also excited to report that we have now placed on foundation all of the turbines at our Socrates Plato South location. In addition, we've completed construction on the first phase of the Aristotle pipeline, which will serve as a natural gas energy artery for several of our power innovation projects in Ohio, including Socrates. And we aren't slowing down. We continue to sign new deals at attractive multiples that will drive growth through the end of the decade and beyond and help us achieve the 10-plus percent earnings CAGR we set out at Analyst Day. Based on the strong start to the year and our visibility into the remainder of the year, we are currently pointing toward the upper half of our full year EBITDA guidance, as John will detail shortly. Looking forward, we continue to find new ways to solve the energy challenges of today, including the massive power needs of next-generation data centers. Today, we're announcing 3 new major projects that further advance our strategy. The first project, Neo, is our fifth commercialized behind-the-meter power innovation project with a high-quality hyperscaler counterpart. Neo is the largest power project Williams has announced to date, consisting of 682 megawatts of installed capacity, a 12.5-year contract and an in-service date in the second half of 2028. Like our other power innovation projects, we expect to execute Neo at an attractive 5x build multiple and the project is expected to represent an investment of approximately $2.3 billion. Our second new project is Atlas, which consists of a gas infrastructure agreement to provide up to 164 million cubic feet per day of pipeline capacity to serve a large investment-grade customer data center in the Northeast. This project has a 13-year term, and we expect it to be in-service by the end of this year. While relatively modest in CapEx, Atlas demonstrates our ability to deliver an efficient natural gas solution for providing backup energy supply to existing data centers in lieu of diesel generation. Our third new project is Silver Spur, which is a significant expansion of our Northwest pipeline system and includes the installation of compression and the construction of a 90-mile transmission pipeline into the Idaho market that will add 275 million cubic feet per day of natural gas pipeline capacity. Silver Spur represents the first phase of our previously discussed Rockies Columbia Connector project and is one of the first major expansions of pipeline infrastructure in the Pacific Northwest in over 2 decades. We are targeting an in-service date of early 2030 for Silver Spur. Beyond the 3 new major projects, we are also announcing an upsizing of the Transco's Power Express project in response to the continually growing need for natural gas to power data centers and market growth in Virginia. With the addition of a new customer and the upsizing of an existing commitment, Power Express has been increased to 750 million cubic feet per day of new Transco capacity that is scheduled to come online in 2030. And as we continue to see very strong demand for natural gas translating into new projects and a growing backlog, we are also seeing the supply response across our footprint. In the first quarter alone, we sanctioned roughly 700 million cubic feet per day of new expansion projects across our gathering and processing portfolio. Collectively, the first quarter results further highlight our position at the intersection of incredible potential and the energy required to achieve it. By achieving another quarter of record results while commercializing and progressing key growth projects, the strategic direction is clear. Natural gas demand is rising. Our contracted project backlog is growing, and we are staying laser-focused on execution and value creation. That combination will continue to drive the higher earnings and cash flow that will deliver strong long-term return for our shareholders. And with that, I'll now turn it over to John for a deeper dive into the financials. John Porter: Thanks, Chad. As Chad shared, we've had a strong start to 2026 with record first quarter '26 EBITDA, up 13% over '25. Bridging from last year's $1.99 billion to this year's $2.25 billion, our overall financial performance continues to be led by our Transmission and Gulf businesses, which improved nearly $150 million or about 17%. It was a great first quarter with growth across every business in this segment. Transco grew about 10% year-over-year, driven by higher tariff rates following last year's rate case settlement as well as the effects of numerous expansion projects. Our Deepwater Gulf businesses grew more than 60%, reflecting the combined effects of our recent Gulf expansion projects. We also saw a 35% increase from our natural gas storage businesses. Our Northeast G&P business grew $10 million or 2% as strong growth in the rich gas areas was offset by volume declines in certain dry gas areas. The West grew $56 million or about 16%, led by our Haynesville investments, including a full quarter of service from our Louisiana Energy Gateway Pipeline. Our Sequent Marketing business had another strong start to the year with $227 million of adjusted EBITDA. And I'll note that about $15 million of the overall $72 million increase for Sequent was related to the Cogentrix investment acquired in March of '25. And as a reminder, we expect to divest our Cogentrix investment later this year. Finally, our other segment, which includes our Upstream businesses was down about $20 million, primarily due to our divestiture of the upstream Haynesville assets, which closed in January of '26. And of course, we've excluded the roughly $180 million book gain on these assets from all our recurring financial metrics. So it's a great way to start the year with 13% adjusted EBITDA growth, which also fueled a 22% increase in our adjusted earnings per share. Now before I hand it back over to Chad, I'll offer a few thoughts on our full year '26 guidance. As we've mentioned, based on the strong start we've had in the first quarter, if everything else goes according to plan, we are now guiding to the upper half of our original adjusted EBITDA guidance. As a reminder, 2026 is another year where we expect seasonally lower EBITDA results in 2Q before resuming sequential growth through the second half of the year, including the partial startup of the Socrates facility beginning in the third quarter. Shifting now to CapEx, leverage and our financing plans. We're excited to add another significant power innovation project in Neo. As a result, we're increasing our growth CapEx midpoint for '26 to $7.3 billion. With the addition of another power innovation project, leverage moves modestly above our target range of 3.5 to 4x to 4.1x. Importantly, as we've previously discussed, the balance sheet leverage tightness is primarily an issue for '26 and '27 before the historic earnings growth we expect in '28 and beyond. In the meantime, we're preserving multiple options to manage leverage while continuing to advance these projects and other opportunities on the horizon. As I previously discussed, those financing options include bringing in partners, and we continue to see robust interest from a broad group of potential counterparties. But we're not locked into any single path, and we have great flexibility based on timing, market conditions and cost of capital. I'd expect us to firm up our financing plans over the next couple of months. Overall, we're very encouraged by the strength of our first quarter results, the ongoing strong execution across our project portfolio and the continued commercialization of new business, and we feel well positioned with the flexibility to fund growth. With that, I'll turn it back to Chad. Chad Zamarin: Thanks, John. I recently had the opportunity to join an incredible group of leaders, including Secretary of Interior, Burgum; Secretary of Energy, Wright; EPA Administrator, Zeldin; and FERC Chairman, Swett as we celebrated the groundbreaking of our NESE project, the first new gas pipeline in a New York City in over a decade, a project many thought impossible. Looking out at the crowd, which included Williams employees and union workers who will support their families and communities through their work on this project, I was reminded of the role we play in a stronger, more resilient America. Not just through pipelines and power, but through livelihoods, through the meaning and purpose of the men and women who do the essential work of delivering the energy infrastructure of America. These are the real heroes of our energy and our environment. They work every day to bring affordable energy to homes and businesses, and they work every day to preserve and advance the quality of life that we are blessed to have, and they do it while advancing sustainability and a better world for future generations. As we look forward throughout 2026 and beyond, we will continue to stay focused on smart and sustainable growth and efficient and reliable operations. We will also continue to advocate for permitting and judicial reform to help America further accelerate the infrastructure needed to increase affordability, bolster reliability and enable economic prosperity and national energy security. Of course, none of the work and progress is possible without the investors who support Williams. Thank you for your support of our company and our team. I want to close by thanking our employees for their unwavering commitment to safely and reliably serving our customers and our nation. The Williams leadership team is incredibly proud to work with such a talented group during this exciting era of growth for our company. And with that, we'll now open up the line for questions. Operator: [Operator Instructions] Our first question comes from Jeremy Tonet from JPMorgan. Jeremy Tonet: Thanks for all the color today and details on the Neo project there. I was wondering if I could dive into, I guess, the power market a little bit more. If you could provide any more incremental color, I guess, on the relative level of appetite that you're seeing now versus where you were before? And I guess, how you think deal formation could proceed going forward here after this large deal? Chad Zamarin: Yes. Thanks, Jeremy. And by the way, a great job on your note yesterday. I love the May the fourth be with you theme. I would just say that we've continued to see very strong interest in our projects. We've -- I think you've seen the challenges that we're going to have as a country. We've been living the difficulty of building infrastructure on the pipeline side for some time, but we're also seeing that clearly on the data center side. And I think our ability to bring tailored energy solutions to data center projects is continually being recognized as a smart solution to balance grid reliability, affordability for consumers and the need for speed for these facilities. And so you've seen our backlog, we talked about it at Analyst Day. Neo represents the single largest project that we've announced to date. You will likely, as you do the math, also see that the cost and efficiency of our projects continues to also improve. And so we continue to see robust demand. The backlog, I'd say, remains as robust, if not more so than we discussed at Analyst Day. And yes, I'd say we continue to expect the cadence of projects to layer in as we've discussed kind of over the next several years. And so no change, if nothing else, I'd say, stronger recognition that a combination of solutions, including behind-the-meter hybrid solutions and grid complementary solutions are going to be required for not just the near term, but for a long time to make sure that we can meet the needs of data centers without compromising the grid or consumer affordability. Jeremy Tonet: Got it. And I was just curious, I guess, the industry has long talked about the need for permitting reform and the importance of gaining that to develop the needed infrastructure in the country. And as you talk to your local state senators, what do they say about the prospects for this in D.C. right now? Chad Zamarin: Yes. Look, I mean, we remain hopeful. I've spoken about last year, the House passed a bill that had many of the provisions that we'd like to see passed into law. The Senate is working on advancing permitting reform this year. And we're lucky to have a very strong delegation from here in Oklahoma, including Alan, who was appointed recently to fill Markwayne Mullin's seat. We will continue to advocate for meaningful permitting reform. The 2 primary issues that we're going to keep focused on. There are a lot of great, I think, improvements that we can see and the House bill had many of those. But the 2 primary ones are for us, addressing the 401 permitting process and making sure that, that -- when you get a FERC certificate, when you've gone through the very robust and rigorous environmental permitting process, you have your federal permit that a single state can't stop a project through the 401 process. And so we haven't asked that, that not be required, but that, that be a part of the federal permitting process. I think that's pretty reasonable. And then also, we, as a country, not just for pipelines, we need judicial reform. And so we are advocating for any bill to have strong judicial reform so that -- I've said this before, we spent 13 years in litigation on Atlantic Sunrise. We won every lawsuit along the way. All that did was delay the project and increase the cost to the consumer. Unfortunately, that's not unique to Atlantic Sunrise. That's every infrastructure project in our country. It's just too easy to tie projects up in litigation. So those are the 2 big ticket issues with a lot of other, I think, improvements that can be made. And we are hopeful that the Senate will act this year. And I know there's a lot of good effort going on across the Senate, including just recently, Senator, McCormick, from Pennsylvania released a bill. We love the effort and the leadership on that front. We think there's more that we should build upon, but we're seeing a lot of good efforts from the Senate. We'd like to see something get passed this year. Operator: Our next question comes from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: Nicely done yet again, bigger and better. Just if I can needle you a little bit on how you think about the cadence of the 6-gigawatt backlog here. First, has that been replenished here when you think about Neo folding out of that -- folding into moving forward here? How do you think about actually seeing the time line of some of this materialize? You talk about time to power. Just be very curious on what you're seeing out there. A lot of your peers talking about some pretty rapid activity out there. So again, obviously, well done on Neo, and here we are asking about the next and the time line around it. So... Chad Zamarin: Yes, I'll start. I would just say, Julien, I wouldn't try to focus on precision with the 6-gigawatt that we've spoken to. I think order of magnitude, we still see that type of robust backlog out there. I think more importantly, we're very focused on layering in projects in a way that work from an execution perspective that work from a steady and predictable growth perspective that complement the equipment and supply chain availability that we've secured in support of the projects. John spoke to, and I'm sure we'll get deeper into the financing and making sure that we are being very thoughtful and disciplined with respect to the balance sheet. And so right now, we see plenty of backlog to allow for us to effectively balance all of those factors and do more than we would hope to from a growth and performance perspective. And so the backlog remains, frankly, is robust. And I would actually say the team does a great job of high-grading the backlog to make sure that we do have this bounty of opportunities, but we're being very disciplined in making sure that the projects really fit to where we have competitive advantage and strength, but also where it fits nicely into the growth cadence that we're looking to achieve. And so I wouldn't try to do the math on the 6 gigawatts as much as to say that I think that, that is reflective of an order of magnitude that we still think is more than available for us to work through as we layer in projects. Julien Dumoulin-Smith: And actually, if I can keep going on that, you alluded to it. I mean, what about creative financing solutions here, right, for PI? Obviously, you had some latitude here on the balance sheet as is. But what are you evaluating? What are the structures? How do you think about the capacity here as it stands as you ratchet up further here? I'll pass it back to you. John Porter: Thanks, Julien. John Porter here. Appreciate that question. Obviously, we are seeing leverage temporarily move modestly above our long-term target range of 3.5 to 4x. And of course, this is really being driven by the execution now on 5 of these high-quality, fast cycle power innovation projects. So the first thing I'd really emphasize is that this is really a timing dynamic where in '28, we will see enormous earnings growth that will completely reset the leverage capacity of the company. But in the meantime, I'd say we're being very intentional in preserving financing flexibility. We're not going to rely on any single lever. We have multiple well-established options available to us. But for example, we really have seen great interest from some really terrific potential partners around these power innovation projects. And these structures are attractive. They would allow us to recycle capital while retaining our strategic and operational roles where that makes sense. So overall, we remain very focused on executing within our overall capital allocation priorities. Obviously, dividend growth stays intact, and we're committed to returning leverage to our target range over time. Stepping back, we feel really good about where we're at and our ability to fund this CapEx program efficiently and to continue to add to it. We do have multiple paths. We're not locked into any one solution. We expect the strong earnings growth profile of the business will naturally delever the balance sheet, especially as the projects come online in '27 and '28. And as I mentioned earlier in my prepared comments, I expect to hear more details on this about our specific financing plans here in the next couple of months. Operator: Our next question comes from Praneeth Satish from Wells Fargo. Praneeth Satish: Chad, I think you made a comment earlier that the project costs and efficiencies are improving for the power projects. Maybe in that context, could you provide an update of how much redundant capacity you think is appropriate for the future power projects and what you're doing for Neo? Has that evolved relative to Socrates? I think Socrates is being built with about 50% kind of redundant capacity. So I guess, are you seeing that ratio trend down with the more recent projects or kind of waiting to see how Socrates performs before making any changes on that front? Chad Zamarin: Yes. Thanks, Praneeth. I'd say a little bit of both. We are continually seeing kind of a more efficient combination of assets in order to meet the needs of the customer. But I also would say we are in the middle effectively of starting the commissioning -- or we're in the middle of commissioning of the first phase of Socrates. And I think we will learn a lot through that process. We do expect that as we bring Socrates online, we'll be able to create even more efficient operating modes and create more capacity as we, I think, prove up the fact that we've got plenty of redundancy. But it's been -- I think it's been a combination of both. I will say that the team is also doing a great job even as we've just been building out Socrates and then our follow-on projects, Aquila, Apollo, we continue to take lessons learned from each of those projects and apply them to the new projects. And so we continue to see that efficiency gain. And I expect that it's like we see in a lot of different areas. Think about the efficiency curve of the upstream producer. It's very similar. I mean these are the early days. We have to remind ourselves, we're only really about a year into this program already announcing our fifth project. And so I think we're going to continue to see pretty impressive efficiency gains over time. Praneeth Satish: Got you. And then maybe shifting gears to the transmission side. Can you talk about the opportunities that you're seeing in the Rockies and whether the Silver Spur expansion that you announced today could be the first of more projects on Northwest. I think you ran several open seasons last year. So any color on customer interest from that process and how -- and whether we should stand by for additional expansions there? Larry Larsen: Yes, Praneeth, this is Larry Larsen. I'll take that question. And yes, you are right. We initially went out with the Rockies Columbia Connector expansion open season last year. And as we kind of mentioned in the prepared remarks, the Silver Spur, it's really the first phase as we started looking at both the market needs within Idaho as well as in the Pacific Northwest in Washington, Oregon. The Idaho market was clearly mature and ready to move forward. I mean it's hard to believe that Idaho is the second fastest-growing state from a population standpoint in the nation. And the thing that they were lacking was additional infrastructure. And so excited to be able to get this first phase of what was originally the Rockies Columbia Connector project commercialized, and we're going to progress forward with that project. But yes, we still see interest both longer term in Idaho, but we're also still progressing discussions with our key customers within Washington and Oregon. And hopefully, we'll see some progress on the second phase of that expansion project this year. Operator: Our next question comes from Ameet Thakkar from BMO Capital Markets. Ameet Thakkar: Just a couple more follow-ups on Neo, if I may. Is the counterparty kind of the same that you have for Socrates the Younger and Socrates for this particular project? Chad Zamarin: Yes. I mean we're in a stage of the project where just from a confidentiality perspective, we're still not able to disclose the counterparty. But as soon as we can, we'll be sure to do that. Ameet Thakkar: And then relative to, I guess, the other projects from an air permitting standpoint and whatever kind of regulatory approvals that maybe the Public Utility Commission of Ohio would need to provide, where does that project stand relative to the others? Larry Larsen: Excuse me, which project you're referring to? Ameet Thakkar: Neo. Larry Larsen: Yes. I mean it's just in the early phases. We'll be filing for those permits here later this year as we progress forward now that we've got it commercialized. Operator: Our next question comes from Brandon Bingham from Scotiabank. Brandon Bingham: I wanted to maybe try to pry a little bit more on the financing side of things, hopefully from a different angle here. There have been a couple of deals announced recently for gas pipeline assets, and the chatter suggests the marks were quite healthy. And in the past, you've looked to take advantage of sort of the disconnect between private market valuations. So just curious if there's any consideration of doing so again in light of these deals and the potential funding needs. John Porter: I think -- this is John again, Brandon. I think right now, what we're primarily focused on is really understanding what's possible in terms of partnering around the power innovation projects. Those projects have turned out to be, I think, highly attractive to some of these potential partners just given the quality of the opportunity, the customers that are involved. We've had some very productive management presentations with, again, some really terrific partners. We're very excited about the opportunity set there. Some of those partners, I think, could even perhaps provide an opportunity to enhance our opportunity set in the space as well. So that looks like a pretty fertile area for us in terms of being able to do something at size at a very attractive cost of capital with the right governance structure and again, perhaps even an ability to add to our opportunity set in the space. So I think that's our main area of focus right now. But like I said earlier, we've got a lot of different things that we could tap into. And a lot of that just depends on how fast these projects keep coming at us and how big those projects are. We are still trying to -- myself and the Treasurer, trying to make sure we stay ahead of the commercial teams, and there's a lot out there. Chad Zamarin: Yes. And I think thematically, Brandon, it is consistent with, I think, where you were going. There is -- we are seeing a tremendous amount of interest in investing alongside us in these projects and in a way that we think will significantly enhance our economics from a cost of capital perspective. Brandon Bingham: Okay. Great. Very helpful. And then maybe just quickly looking at the Haynesville. Wondering what some of the latest and greatest commentary you're hearing from producer customers in that basin, just in light of Henry Hub sitting comfortably below $3 right now, but knowing that the Gulf Coast LNG ramp is coming in quickly. Larry Larsen: Yes. This is Larry Larsen. I'll take that one. I mean I think commentary we've kind of mentioned in the past that the producer is obviously cautious drilling into kind of the pricing dynamics right now. But I think the fundamentals are really strong. And I think as you've seen, we've announced some expansion projects of our gathering system in the Haynesville, and that's really to start building up for a potential ramp for the demand that's materializing. And so I think they're cautious right now and are going to be balancing around where they see pricing in the near term, but recognizing that there is such a huge demand pull that is continued to ramp up over the next few years. I think we're optimistic that we'll continue to see that pull from the Haynesville continue to build up with our producer customers. But I would say majority of them are somewhat cautious in the near term, but wanting to be ready for that growth that's going to be coming here quickly over the next year or 2. Chad Zamarin: Yes. We have seen, I mean, Larry -- I mean, if you look at Haynesville rig counts, they're up, DUCs are building. The natural gas curve, I mean, is still in contango. And so are the fundamentals around natural gas. I mean the amount of demand growth that we're -- clear demand growth that we're seeing, I think, is recognized. And so the Haynesville will be the most responsive gas basin in the U.S. to meet the ramping LNG demand. And we do expect another strong -- we actually had a relatively modest power load last summer, but we expect with the way supply and storage is coming into the summer, we expect a pretty robust power demand this summer. And so I think the producers recognize that the Haynesville is going to be incredibly important and needs to be positioned to meet this growing demand. Operator: Our next question comes from Spiro Dounis from Citi. Spiro Dounis: I wanted to go back to the growth cadence. Just looking back at the Analyst Day, you talked about 8% of that 10% CAGR being locked in. Just curious where that stands now. Do incremental projects from here take you beyond 10%. It just seems like these announcements are coming in faster than expected. So I wanted to level set on that Analyst Day outlook. John Porter: Thanks, Spiro. Yes, we do feel really good about how we're tracking against the long-term growth targets that we presented back in February. Again, 10% plus CAGRs for EBITDA and EPS for 2025 through 2030 is what we're targeting. And like you said, in February, I said that our current book of contracted business supported around an 8% CAGR and I'd say with these new projects that we've announced today, that base growth rate is definitely now around 9%. So we've moved it up a point with these projects. And I would just say, overall, we're feeling really good about kind of the 3 areas of focus that we're focused in on for fueling this industry-leading growth rate. And first, project execution on the projects that we currently have in flight. Project execution has been going great for Socrates and the other projects that we currently are working on, including Southeast Supply Enhancement, other important transmission projects. Second, we're feeling really good about being able to continue to win new opportunities based on what we're seeing in the commercial backlog. And then third, we've got our teams really focused on driving more value out of the Legacy businesses as well. And I talked about that a little bit at Analyst Day that we remained -- I felt fairly conservative about volumes and margins across the Legacy businesses, and we've got our teams really focused in on that component as well. But -- so overall, I think we're at about 9% now and feeling like that's still a pretty conservative look at that number. Spiro Dounis: Second question, just going back to the behind-the-meter strategy. Chad, you touched on this a bit, but seeing the landscape shift a bit here. There's some nimbyism coming in on the data center side. And I think we're also seeing a trend maybe towards bring your own power, which is a little bit different than behind-the-meter. I'm just curious how you're assessing that shifting landscape on how data centers are powered, your ability to maybe even pivot toward to bring your own power strategy and potentially even develop a CCGT at some point? Chad Zamarin: Yes. I'd say we remain focused on creative, innovative infrastructure solutions. We've lived in some of the most difficult kind of infrastructure challenging environments. So it's not unusual for us to have to deal with being thoughtful, creative, disciplined and persistent through challenging infrastructure development. I think it positions us actually really well to help hyperscaler customers figure out where to site, how to design and how to build projects. And so I do think we've always said like don't think of us as just a behind-the-meter solution provider. I mean our goal is to figure out how to bring infrastructure solutions that unlock the grid through partnering with our utility customers, but also create a larger footprint across which you could site projects by opening up the natural gas grid to become a backbone for projects as well. And that's really our focus. And so if that means bringing speed to market, bring your own power solutions that are a bridge to grid power or a complement to grid power or over time, scale with larger units with adding steam turbines and other solutions. I would just say that our team has done a phenomenal job of building the capability to explore all of those options. And we want to be recognized as an infrastructure solutions provider. And so if there is a unique set of tools that we can bring. We're not going to limit ourselves to kind of one model. We really do want to be able to help bring our expertise in building large-scale complex infrastructure in challenging environments to do it in a way where we can actually not only meet the customers' needs, but do good for the community and get the support of the communities in which we operate. And so yes, that will continue to be our focus. So I think that's a long way of saying, yes, we are exploring and prepared to provide more comprehensive solutions if needed. Operator: Our next question comes from Keith Stanley from Wolfe Research. Keith Stanley: First question, so Neo was a 12.5-year contract, which is good to see. How are discussions going on trying to lengthen contract duration further? What's achievable? And how willing are customers to do this? Chad Zamarin: Yes. I think there are still plenty of opportunities for longer contracts. I mean we've seen the extension of the 12.5-year. We do have ongoing discussions that extend well beyond that 15 to 20 years as well. And so we continue to see, I think, a growing recognition that longer-term solutions are also going to be required. And so yes, I'd say stay tuned, but we continue to see, I think, momentum towards longer commitments. Keith Stanley: Great. Second question, what still needs to happen on Constitution in order to move forward? What's the main gating items there and potential time line? Chad Zamarin: Yes. Thanks. Well, you saw we kicked off NESE, which was a great, I think, sign that New York and markets that we might have thought weren't open for business or back [ open for ] business. I think that the Silver Spur and the progress we're making on also moving that further towards Oregon and Washington are a good sign that markets recognize that natural gas is our most affordable solution. So we've got to embrace and build more natural gas infrastructure to these markets that are -- frankly, have very high energy costs. And so Constitution I think, growing real recognition that New England and New York need more gas infrastructure. I mean we've grown gas demand by 50% over the last 10 years. We've grown no pipeline infrastructure into New York and New England. And that's why they now see the highest utility prices in the country for many parts of the year. And so we are seeing strong support from the New England states. I'd say the challenge with Constitution, NESE was a single -- effectively a single customer, single state with Constitution. No one of those states are large enough to support a project on its own. And so we do have to coalesce enough critical mass to get the project moving forward. And so we continue to work. The team is very actively working Constitution. The frustrating, I'd say, part is it's not for a lack of need and desire, frankly, from the market. It's the complexity of the politics and just the fracture and fragmentation of that market that's making it harder to put together. And so it's a lot of herding cats. But we're still -- at the end of the day, I mean, we absolutely know that, that market needs energy, natural gas infrastructure. And so we're going to keep at it. But yes, that's really the challenge with Constitution, it's just a much more fragmented market and a lot of different constituencies that need to come together. And so at the end of the day, we're on file with FERC. That process is moving forward and will, I believe, be successful through the FERC process. But for -- we have to be able to show customer commitments on the project. So that is the last gating item. I don't know, Larry, if there's anything you want to add to that? Larry Larsen: No. I mean I think you hit it really well. And a lot of great discussions going on with the utilities. There's a strong recognition. I think going through Winter Storm Fern and just the fragileness of that market, I think it was really highlighted through that. And so I think all of the utilities are just trying to figure out how do they get the right support through their states as well as additional infrastructure that they want to do on their systems to be able to help build up robustness in the market area as well. So conversations are going well. It's just, as Chad mentioned, just trying to bring all of the different parties together to be able to get something that we can commercialize and progress forward. Operator: Our next question comes from Jean Ann Salisbury from BOA. Jean Ann Salisbury: Is the Marcellus gathering expansion at all driven by integration and pull-through into one of your pipeline projects or behind-the-meter projects? And I guess as my follow-up, a little bit more broadly, you obviously have some very large competitive advantages in Ohio and Utah that have helped you get the behind-the-meter projects. Can you discuss where you see yourself as having similar competitive advantages elsewhere? Larry Larsen: Yes. This is Larry Larsen. I'll take the question as it relates to the gathering expansion up in the Northeast. It's not directly related to our power projects. It's just an expansion as our producer customers are going and developing in different parts of our system as an opportunity for us to provide some additional compression and gathering pipe infrastructure to be able to get them access to market. So it's not directly related to it. But I think as you see us creating more and more demand tied back into that area, it will help us provide more solutions to be able to grow both the gathering and processing side of the business. So I think we're well positioned on that front, but it's not a direct correlation to the projects that we've announced. Chad Zamarin: Yes. And I'll start and maybe Rob add in. On power innovation projects, obviously, Ohio and Utah. But I would also say it is a layering of both our footprint and capabilities, but also in places where you can build infrastructure efficiently. And so I would think about the footprint along Transco and certainly as you move to the West, but also -- and Rob can speak to this, he spoke to it at our Analyst Day, the incredible footprint that Sequent opens up across the entire United States, but importantly, layering that on top of, I think, areas where you can still build infrastructure. And so Louisiana, the Southeast, Mid-Atlantic, you think about Ohio, Pennsylvania, you go further West, Utah. But Rob, anything else to add? Robert Wingo: Jean Ann, it's Rob. I mean I often talk about our virtual footprint. Sequent, our marketing platform, I mean, we've got capacity positions on every major pipe across the country. And that's why we've been able to bring projects to places where we don't have physical footprint but can build to interconnecting pipelines near pipelines to the extent we need to. So when you look at the data center hubs, I mean, in our earnings presentation, we have a slide that shows sort of where all the data center hubs across our virtual and our physical footprint. And you can see we can pretty much touch any data center hub in the country. And our opportunity backlog has sort of reflected that. You've seen us do projects in places where we have a physical footprint, but also places where we were able to use and leverage our Sequent marketing platform. Chad Zamarin: Yes. One thing I would also note, I mentioned it in the prepared remarks, the Aristotle pipeline, which we are commissioning now. We've introduced natural gas and it's prepared to deliver gas for Plato South. But basically, the team designed an artery that now moves across that Columbus New Albany area, which has been a very large data center corridor. And so we overbuilt the capacity of that pipeline for the purpose of being able to not just serve Socrates but be an energy artery along which other projects could be developed. And you're going to continue to see, I think, that kind of strategy play out where in Utah, we're building the pipeline that will serve the Aquila project. And that's an area of growth, both from a just demographic perspective, but also a lot of technology and power and data center. So those are areas where we're going to continue to, I think, see development. But as Rob mentioned, I think Slide 17 in our materials shows a good footprint of how we truly can touch just about anywhere. But I would also say there are unfortunately going to be winners and losers. I mentioned the lack of a gas infrastructure and frankly, any infrastructure in New England and New York, we've got 20% of the nation's population in New England and New York, and they'll see less than 2% of economic development over the next year. And so that -- there are areas of our country that frankly are going to struggle to develop projects even though the demand might be there. Operator: Our next question comes from John Mackay from Goldman Sachs. John Mackay: Let's stay on the behind-the-meter piece, I suppose. We're seeing kind of more entrants into the space, particularly from the services side, but kind of across the board. Could you just spend a minute or 2, and you've touched on a lot of these pieces, but spend a minute or 2 kind of talking about your view of your relative competitive advantage. And we'd love to hear more about kind of specifically the balance of plant and how this is more than just, "Hey, we've gotten our hands on a turbine." Maybe walk through that a little bit, if you can. Chad Zamarin: Yes. Thanks, John. I do think what we provide is fairly unique. I mean Rob talked about the Sequent footprint. We've obviously got a really robust Gathering and Processing business. So we touch every producer in the country. We've got our Transmission business. We touch effectively every major utility in the country. That positions us really well to put those pieces together and provide full value chain solutions for customers. And so I think that the ability for -- we're not just a company that's showing up with a turbine or a site that we're trying to develop. I mean our strategy is to provide energy infrastructure solutions for American consumers and companies. And so we want to be able to make sure that if there is a hyperscaler that wants to develop a project that we can help find a way to take care of all of the needs upstream of the project. And so I think that's a fairly unique at scale solution. Look, this is a really big market, and I think there's lots of opportunities for a lot of players to help solve these problems. But along our footprint across kind of natural gas infrastructure at scale, a company that can deliver projects, I think Williams is pretty unique. I mean we've been the most focused natural gas infrastructure company in our space. And so I think that serves us well. And truly, our goal is to make sure that our customers can rely on us to take care of all the complexities of getting energy to their facility. Whether that today is primarily behind-the-meter solutions or over time, working to be in complement with the grid or other solutions that come to bear. You mentioned kind of the balance of plant just on site. I mean not only are we doing power generation with turbines. Those are turbines of different size and scale. We're also providing battery storage solutions. We're working with customers on load following and understanding AI loads so that we can not only protect energy systems that are on site, but over time, protect the grid. Our Atlas project, relatively small from a capital perspective, but that's an important project that demonstrates the ability to move data centers away from diesel backup generation to natural gas generation. The natural gas grid is this massive flexible storage system. And so leveraging natural gas is a much cleaner, more affordable, efficient solution for backing up existing data centers as a solution. So we want to be able to provide comprehensive creative solutions. And that's really the focus for us. I think that's fairly unique because we can do that at scale across every part of the value chain. John Mackay: That's great. You touched on it, but my second question was just going to be on Atlas, and I think you answered it, but just to clarify, are you saying you're effectively working with the customer to swap out their diesel backup at a data center for gas? And if you could just clarify, it looks like it's relatively low CapEx, but I wanted to check on that. Chad Zamarin: Yes, I'll let Larry fill in any gaps. But basically, yes is the answer. This is some pipeline infrastructure that allows the customer to convert their backup generation to natural gas and leverages the compressibility of gas in the pipeline system to basically be a storage solution and a backup generation solution without having to have diesel on site, without having to burn diesel. But Larry, I don't know if you want to add anything to the scope of that. Larry Larsen: Yes. I think you hit it pretty well. And from a scope standpoint, you're right, it's not a large CapEx number. It's probably just slightly under $50 million but be able to provide lateral interconnection facilities and a lot of redundancy just so that they aren't having to burn diesel fuel and be able to rely on the Transco system and some of the flexibility there. So I think it's a great solution for the customer at the end of the day in a way that we're able to provide a lower emission solution and something with some really strong reliability. Chad Zamarin: And again, I'd say credit to the team, I think it's proving up what I hope and expect to be a solution that we can provide for other facilities. I mean there was an assumption that you had to have compressed natural gas or on-site liquefied gas as a storage solution. I think we're showing that the pipelines because of the compressibility of gas actually have tremendous storage capacity. We have storage across the natural gas footprint. And so yes, this is basically proving up that ability to rely on natural gas as a reliable backup solution. Operator: Our next question comes from Manav Gupta from UBS. Manav Gupta: I have 2 questions. I'll ask them together. My first one is on your Analyst Day, you also highlighted besides transmission and power, you are looking at multiple nat gas storage opportunities. So if you could elaborate a little bit how those decisions are moving ahead, how customers are looking at nat gas storage within the U.S. in terms of reliability? And then quickly, if you could talk a little bit about the upsizing of the Power Express project. Larry Larsen: Manav, this is Larry. I'll take that. Thanks for the questions. And yes, we're definitely seeing very strong interest in the storage space. I think as you see just from the volatility that we've seen through some of the winter storms, but also as you see increased demand and especially along the Gulf Coast. We've got our Pine Prairie project that's progressing through permitting. We've got another expansion of some of our Gulf facilities that's in progress. We're actively working right now to finish commercialization. Hopefully, we'll have some announcements on that in the upcoming quarters. And then we've also got some projects out west with some of our facilities around Mountain West that we're working on. So definitely seeing strong interest. And I think we'll see some progress on a couple of projects here later this year, and I think we'll continue to look at others. We've got a pretty large footprint across the Gulf across all the different facilities and excited to see some of those commercialized. Chad Zamarin: Then Power Express. Larry Larsen: Yes. On Power Express, yes, it's a great one. I think as we've highlighted the strength of Transco and how you can kind of scale projects to meet the actual customer needs, I think as you've seen, we've moved around the scope of this project and continue to work with customers in that area within Virginia. And we had one of the customers that they firmed up their ultimate needs ended up having an upside. And then additionally, we've had another customer come to the table that fit really nicely within the scope of that project, able to keep returns and scope within something that was manageable and not impact timing of the overall project. And so I think it just demonstrates the value of the Transco system and how we can make minor adjustments to scope of expansion projects and be able to flex to meet the customers' needs. So a great job by our commercial team staying connected with those markets and finding ways to continue to upsize where it makes sense. Operator: Our next question comes from Sunil Sibal from Seaport Global. Sunil Sibal: I wanted to touch base on the LNG opportunity. It seems like with all the geopolitical events happening currently, there is an increased focus on U.S. as a LNG supplier. You obviously have a position in one of the LNG projects. So I was curious if you could give us an update on that market. Chad Zamarin: Yes, I'll start, and Rob may want to fill in. First thing I'd say is things are progressing well on the Woodside LNG project. We've taken over and now are the primary owner of Line 200, which will connect from Transco, also our Louisiana Energy Gateway system and will be the primary source of delivering gas into the Woodside LNG terminal. I think we like our position and the scale of it on the LNG front. So right now, on that project, primary focus is on execution. More broadly, I mean, obviously, I think things that are happening in the world today further reinforce the need for the U.S. to be a reliable supplier of LNG to the market. I mean saying this, we produce 40% more natural gas in the U.S. than we consume domestically. And if anyone had concerns that exporting gas in the form of LNG would impact domestic prices, I think we've actually proven that by overproducing gas, overproducing a commodity, you protect yourself from price shocks around the world, and we've certainly seen that. You see natural gas today much lower than it was price-wise before the start of the conflict in the Middle East, where on the liquid fuel side, we only produce about 3% more than we consume domestically. And you can see we've seen much higher price shocks on the oil and liquid fuel side and other things. And so we feel really good about the fundamentals that will support very strong growth in LNG, and we'll continue to look at ways to participate. And Rob, I don't know if you have anything. Robert Wingo: Yes. I mean the only thing I'll say is that we're still a few years out from first LNG. Woodside is still on track for a 2029 first cargo. And so we're a few years out from that. But we've got 1.5 MTPA. We have an option to hold on to that, but not an obligation. And we have been talking to producers and looking at trying to use that to sort of help attract more volume through our Haynesville system and help complete that wellhead-to-water strategy that we've been working on. Sunil Sibal: Okay. We'll stay tuned on that 1.5 MTPA. Changing topics. I think there were some comments in the press about power trading opportunity for Williams. I would -- wanted to see if you could clarify how are you looking at that opportunity around your existing assets or the assets that you're building? Chad Zamarin: Yes. I mean right now, I'd say the most important thing to just recognize is we're building a very significant power business and a pretty large set of diverse power assets. But our primary focus is going to be on serving the customer and then optimizing the power that we're producing. And so I'd say stay tuned on that front. But for today, we're not a -- as we are -- as we would say with Sequent, we're not a speculative trader. We're not looking to create any kind of speculative Power Trading business. But we want to make sure that we can provide the most efficient, optimized solution to the customer. And so that's really the focus of the capability that we're looking to grow so that we can be as flexible and optimized as possible for the customers as we have a fairly large fleet of power generation coming online over the next couple of years. Operator: Our next question comes from Craig Shere from Tuohy Brothers. Craig Shere: So first, I just want to kind of talk through the equity partner opportunity in power innovation. It seems like there's 3 prospective drivers for that, but you're kind of emphasizing one over the others. And in my mind, that's staying within near-term leverage targets, enjoying carried interest upside on individual deals. But then you've kind of repeatedly talked about recycling capital into potential wider range of projects. And then in Q&A, John mentioned the potential for strategic relationships that could further add to project opportunities. So maybe you want to opine a little more on that is accelerating the growth of this the primary focus? John Porter: Craig, this is John. I think the primary focus is making sure from a treasury financing perspective that, again, we can stay ahead of the wonderful kind of book of business, we see the commercial teams reviewing with us and making sure that we don't get caught limiting our abilities to continue to grow and to win that business by having any sort of financing issue. We are committed to the 3.5x to 4x leverage target. That's not -- that gives us a lot of breathing room relative to our current ratings. So that's not a ratings agency issue. That's more of an internal target that we've agreed to with the Board that we all feel comfortable, it's a good leverage range for the business. We also want to be able to continue to grow our dividend. And so I think overall, we're just trying to find ways to finance the CapEx in a very efficient manner in a way that really add value to our shareholders over the long term. And I think what we've seen with these meetings that we've been having with potential partners is very encouraging on a number of fronts, including all of those that you mentioned. So I think there's a lot of compelling reasons why that might end up being the answer. But at the same time, yes, there's a lot of different options that we could have, and we'll continue to look across the entire portfolio, too. There could even be assets that we would want to sell over time, too. So we have a number of different things we can do. We're trying to make sure we're not locked into any one path. But I feel really optimistic we're going to have a very attractive financing solution for shareholders to announce at some point in the near future. Craig Shere: And last one for me. Chad, in answer to John, I think you mentioned the energy storage component. I believe that was a major contributor to some prior project upsizings that you all had announced. I wanted to inquire about the BESS factor evolution as a part of power innovation solutions. And what exactly are customers looking for with this? Is it more second to second responsiveness? Or is there an increasing interest in longer duration backup support? Chad Zamarin: Yes. Thanks. I think primarily, it's the very rapid response to changing power loads at the facilities, right. And this is the same issue that you'll see on our grid. I mean our grid, our projects are obviously primarily rotating equipment driven, and those don't respond well to very rapid kind of millisecond changes in demand load. And so this is primarily to serve as a solution to respond to dynamic AI loads. And so we continue to look at projects from just a power efficiency perspective with batteries, but the primary for the projects that we've announced, the primary role of the battery system is to be that effectively buffer between the rotating equipment and the data center to respond to these rapid changes in load. Operator: That concludes the Q&A portion of our call. I will now turn it over to President and CEO, Chad Zamarin, for closing remarks. Chad Zamarin: All right. Well, thanks for the always robust Q&A, and thank you for your interest in Williams. We look forward to speaking with you again soon. And in the meantime, we wish you luck. Thanks. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to Corebridge Financial Inc. First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Isil Muderrisoglu, Head of Investor and Rating Agency Relations. Please go ahead. Isil Muderrisoglu: Good morning, everyone, and welcome to Corebridge Financial's earnings update for the first quarter of 2026. Joining me on the call are Mark Costantini, President and Chief Executive Officer; Chris Filiaggi, our Interim Chief Financial Officer and Chief Accounting Officer; and Lisa Longino, our Chief Investment Officer. We will begin with prepared remarks by Mark and Chris, and then we will take your questions. Today's comments may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations and assumptions. Corebridge's filings with the SEC provide details on important factors that may cause actual results or events to differ materially from those expressed or implied by such forward-looking statements. Except as required by the applicable securities laws, Corebridge is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change and you are cautioned to not place undue reliance on any forward-looking statements. Additionally, today's remarks may refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on our website at investors.corbridgefinancial.com. With that, I would now like to turn the call over to Mark and Chris for their prepared remarks. Marc? Marc Costantini: Good morning. and thanks for joining us. I'd like to formally welcome our CFO, Chris Filiaggi, to the call as well as our Chief Investment Officer, Lisa Longino, I'll begin this morning with a recap on the strategic rationale of our transformative merger with Equitable and an update on progress we've made to date followed by some observations on the current market environment and our corporate business model performed in the first quarter. I'll also spontalize some of the actions we're taking to win with customers. Turning to Slide 3, we are bringing together 3 outstanding franchises to create a diversified financial services company with leading positions in retirement, life, wealth and asset management. Together, we will have more than 12 million customers and $1.5 trillion in assets under management and administration. Our combined distribution capabilities will be formidable. We will have a large multichannel distribution ecosystem to reach the broadest possible customer base. Our enhanced scale will drive significant synergies, $500 million in expense synergies plus meaningful upside opportunities from additional revenue tax and capital synergies. Our greater scale should reduce our cost of capital to help us provide better customer solutions at lower cost, allow for greater investment and strengthen our ability to attract top talent. The transaction will allow us to further diversify our source of income, which helps provide resilient earnings across market cycles. Our growth prospects will be considerable across the combined company's businesses with our integrated model allowing us to capture the full value chain. The balance sheet of the combined company will be robust. By 2027, we expect earnings to exceed $5 billion per year, cash generation will be strong and consistent, topping $4 billion per year. The merger will be immediately accretive to both earnings per share and cash generation. both of which should increase to 10-plus percent by year-end 2028. Turning to Slide 4. The upside potential for all our businesses will be strengthened with the merger. In individual retirement and life, we will have meaningful revenue synergies. For example, our fixed and fixed index annuities will complement Equitable's annuity offerings and their variable universal life product will complement our life offerings. Together, we will be a leader in the [indiscernible] group retirement space with a large workplace distribution force. We will have more capabilities and balance sheet capacity to support our growth in institutional markets. In the combined company's asset management and wealth management businesses, Alliance Bernstein will have nearly $1 trillion in AUM and we'll have over 5,000 advisers to drive growth. We are making good progress on steps required to close this transformative transaction. We already have completed a vast majority of our regulatory filings, our Form S-4, including the shareholder proxy statement will be filed with the U.S. Securities and Exchange Commission shortly. We believe the shareholders of both companies will approve the transaction, given its compelling rationale. The executive team of the combined company has been determined and will be communicated soon. I'm confident we have the right leadership to execute on all our strategic objectives. Both companies have established integration management offices that are hard at work planning a seamless integration that captures the full value of the synergies. Finally, an important update on the timing of share repurchases. As we indicated in the 8-K filed earlier this month, we are exploring undertaking share repurchases prior to the closing of the merger including during the period from filing the preliminary proxy with the SEC until we mail the final proxy to shareholders. We also continue to expect another opportunity when we can repurchase shares after the shareholder board December, subject to normal blackout periods. Any remaining capital we plan to deploy will be facilitated post close likely through an accelerated share repurchase. Turning to Slide 5. Corebridge demonstrated strong performance driven by favorable industry demographics and sustained customer demand in the first quarter. Despite facing heightened market volatility and competition, our disciplined approach continues to deliver solid results. Our wide array of product and service offerings enable us to meet a wide variety of customer needs, enhance the stability of our financial results and allow us to allocate capital where returns are the highest. Our powerful balance sheet continues to give us financial flexibility and our disciplined execution shows up in everything we do. Our overall performance in the quarter was strong. Excluding variable investment income and notable items, year-over-year operating earnings per share were up 13% and adjusted return on equity was up 120 basis points. The foundation of our success is winning with customers and I include our distribution partners and plan sponsors in that category. We were proud to be ranked #1 by J.D. Power for partner satisfaction and annuity distribution. This validates our strategic focus on the adviser experience and our goal of being the easiest firm in the industry to do business with. We also continue to see strong momentum in our Group Retirement NPS and with planned sponsor satisfaction rising year-over-year. I'll have more to say about how we're investing in customer experience in a minute. In Individual Retirement, we delivered strong sales of $4.3 billion, while maintaining pricing discipline and consistently positive net flows. The market outlook remains positive -- the Peak 65 surge is continuing with another 4 million Americans hitting that retirement milestone this year. In Group Retirement, we continue to see the transition from a spratifee-based business. Fee-based earnings are approximately 60% of the total with advisory and brokerage assets rising to all-time highs, growing 14% year-over-year, benefiting from record levels and net inflows. In life, excluding VII and seasonally higher mortality, we continue to deliver earnings within our guided range, reinforcing a stable earnings for the company. And in institutional markets -- the underlying business continues to grow with an 18% increase in reserves. We issued $1 billion of guaranteed investment contracts in January, including our first-ever Canadian dollar-denominated GIC. The pension risk transfer pipeline remains healthy with greater activity expected in the second half of the year. I believe the key to our success will be a relentless focus on putting the customer at the center of everything we do. Our road map is simple: to deliver a differentiated customer value proposition, be the easiest company to do business with and maintain a world-class distribution. That is how we generate more value for customers and investors alike. As I said on my first earnings call 3 months ago, we're going to make the investments needed to improve the customer experience. Those efforts are well underway at Corebridge in 2026. A few highlights. We've launched a customer council steered by the executive leadership group and comprised of cross-functional senior leaders from across the company. They are showcasing key initiatives, sharing best practices, identifying quick wins and above all, ensuring we maintain a customer-first mindset. Across our retail operations, we're modernizing how new business is onboarded by further enhancing digital submissions, strengthening upfront suitability checks and improving real-time application status, all of which has removed uncertainty, delay and friction from the process. We've launched a new wealth management digital experience last month that allows clients to seamlessly navigate their product and service relationship with us and stay connected with their financial adviser. We're moving permanent life products onto our digital submission platform, and we're launching a new payroll platform that makes it easier for group retirement plan sponsors to integrate their payroll data with us. In closing, we're excited about the future of our business. Externally, powerful demographic tailwinds are creating a large market opportunity. Internally, our customer-first mindset and emphasis on operating at speed will enable us to capture a significant share of that opportunity. The result will be a company that delivers significant growth in earnings per share cash generation and shareholder value. This is true of Corebridge today and will continue into the future as a combined company. With that, I'm pleased to turn the call over to Chris. Christopher Filiaggi: Thank you, Marc. I'm excited to join today's call and will provide further color on our performance for the first quarter. Starting with Slide 6. Our results this quarter underscore the strength of the Corebridge model, consistent growth and active capital deployment balanced by expense control and portfolio optimization. Performance was largely in line with our guidance from the fourth quarter, highlighting our diverse stable earnings patterns and agility and capital management. We reported adjusted pretax operating income of $629 million and earnings per share of $1.05. The first quarter results were impacted by underperformance of our variable investment income. Excluding the impact of VII and notables, EPS increased by 13% year-over-year, demonstrating the underlying strength of our core businesses. VII returns were impacted by several components including positive alternative investment returns, offset by unrealized mark-to-market losses on investments accounted for at fair value with changes in fair value reported in adjusted pretax operating income. Adjusting for long-term alternative investment returns and notable items, we delivered a run rate operating EPS of $1.17, representing a 9% increase year-over-year. Finally, adjusted ROE was 10.6% or approximately 12% on a run rate basis. Excluding VII and notables, this reflects a 120 basis point increase year-over-year, underscoring our commitment to consistent profitable growth. Turning to Slide 7. Our businesses continue to evolve, delivering highly diversified sources of earnings and strong, stable cash generation regardless of the market environment. Our core sources of income, excluding alternatives and notable items, increased 1% year-over-year with some variation in the underlying components. Fee income increased by 9%, driven by growth in assets under management and advisory alongside favorable market tailwinds. Spread income increased by 1%, which is in line with our guidance around the earning of the majority of the 2025 fed rate cuts. To put that in perspective, had those rate cuts not occurred base spread income would have been approximately $20 million to $25 million higher. Underwriting margin decreased 2% year-over-year due to exceptionally favorable mortality in the first quarter of 2025. Lastly, general operating expenses were in line with our expectations. This reflects ongoing investments we are making in our platform, as Mark highlighted earlier, as well as typical first quarter seasonality. Looking ahead, we remain fully committed to disciplined expense management and improving our operating leverage over time. Turning to Slide 8 and looking at our capital position. Our balance sheet continues to be healthy and strong. We ended the quarter with over $1.7 billion in holding company liquidity, supported by our U.S. insurance companies distributing $925 million of dividends in the quarter and our level of liquidity exceeds the holding company's needs for the next 12 months. Capital return to shareholders reached $1.4 billion in the quarter. This included the completion of our planned capital returns related to the VA reinsurance transaction totaling $1.8 billion. Excluding those VA reinsurance proceeds, we maintained our payout target with a payout ratio of 88%. Lastly, our insurance companies remain well capitalized with capital ratios exceeding our targets. Next, I'll review a few highlights from each of our businesses. The details of which can be found in the appendix to our earnings presentation. These results exclude the impact of notable items and variable investment income. Starting with Individual Retirement, we continue to be very positive about this business. The outlook is backed by strong fundamentals and demographic tailwinds that continue to drive demand for our retirement solutions. Premiums and deposits were $4.3 billion, demonstrating growth both sequentially and on a year-over-year basis. Leveraging [indiscernible] first quarter industry projections, we maintained our market share of total annuity sales year-over-year. This includes our newer Vila product, highlighting our success with key distribution partners. Net flows into the general account remained positive at approximately $0.5 billion, contributing to continued growth in the underlying business. We saw surrender activity in line with our expectations. This reflects fixed and index annuities reaching the end of their tender charge periods. As we look at the full year, we reaffirm our estimate for big spread income to be approximately $2.55 billion. While we continue to see some spread compression, we still expect it to level off by the end of 2026, assuming the current market outlook and 2 additional Fed rate cuts. Lastly, AP TOI increased 1% year-over-year, supported by growth in spread and fee income, highlighting the growth in the underlying business. Turning to Group Retirement. We are seeing this business evolve as a growing percentage of the American workforce is reaching retirement age. This demographic shift and the steps we are taking because of it are fundamentally changing how we generate value, moving us toward a more diversified and resilient earnings profile. Continued momentum in our advisory and brokerage initiatives resulted in a record level AUMA and net flows of over $300 million in the first quarter. The strong performance is directly related to our efforts focused on the adviser experience and operational ease of doing business, which is delivering early measurable wins as we continue to invest in the platform. APT line decreased 17% year-over-year. This reflects lower spread income, partially offset by growth in fee income. This transition is intentional. As our clients move into the decumulation phase, we are seeing a natural mix shift away from the spread-based products and towards fee-based income. This aligns with our broader strategy to emphasize capital-light earnings, which now account for nearly 60% of group retirement earnings. Our Life Insurance business delivered another strong quarter, in line with the guidance we provided back in the fourth quarter, reflecting higher seasonal mortality in the range of $15 million to $20 million. This performance is consistent with both our historical experience and seasonal expectations for the start of the year. We generated $850 million in sales this quarter, in line with first quarter expectations. [indiscernible] declined 5% year-over-year. While mortality trends are favorable and aligned with first quarter expectations, they were below the exceptional mortality experienced in the prior year quarter. Going forward, we remain confident in the steady cash flow and stability this segment provides for the broader portfolio. Institutional markets continues to be a consistent growth engine with both underlying reserves and total earnings trending upward. First quarter sales included over $1 billion in GICs maintaining the consistent momentum we've seen highlighting our ongoing commitment to the GIC and FABN market. APT OI increased 15% year-over-year. This growth was underpinned by an 18% expansion in our reserves and a 13% increase in assets under management and administration. Lastly, a comment on pension risk transfer. Sales in this space are inherently episodic. While we expect volume variability from quarter-to-quarter, our pipeline remains strong. We anticipate an uptick in activity we move into the second half of 2026. Next, I'd like to take a moment to address recent headlines regarding the life insurance industry and its investment portfolios. Corebridge has a long-standing history in private placements recognizing that the vast majority of companies today are privately held rather than public. We are able to utilize this asset class to achieve diversification across our portfolio that isn't available through public issuance alone. These assets are a natural fit for our liabilities and allow us to not only capture an illiquidity premium, but to do so with the protection of financial covenants, while maintaining a high-quality investment grade profile. Corebridge maintains control over all aspects of our asset portfolio and risk profile, whether our private debt is originated internally or externally, we maintain rigorous ongoing processes to underwrite, reunderwrite, rate and model our private assets. Out of the $284 billion statutory investment portfolio, $49 billion is in private debt, which is a high-quality diversified book, where 91% of the assets are rated investment grade. To provide further context on our private debt, I'll address a couple of recent areas of focus, beginning with private credit over what we categorize as middle-market lending. Our allocation here stands at $3.3 billion, representing only 1% of our total portfolio. These investments have attractive risk-adjusted returns and we continue to expect [indiscernible] losses in the middle market lending will be yield adjustments and not credit events. Further, within the middle market allocation, our debt exposure to the software sector is less than $300 million and all of it is currently performing. Another area of focus in the financial press has been BDCs, like middle market lending, this represents a small part of our portfolio where we hold $1.7 billion of debt issued by BDCs. Our entire exposure consists of debt instruments with no equity holdings in these originations. We Generally, we are a senior lender in these investments and the average asset coverage ratio is approaching 2x, meaning significant asset impairment would be necessary to impact our position in the capital stack. Given our current exposure, robust management processes and the alignment of our liabilities, we remain very comfortable with our positioning. Our rating migration has been net positive over the last 4 years, and we routinely perform sensitivity testing to ensure we remain well capitalized across all market cycles. In clothing, we remain focused on maintaining a strong balance sheet while generating growing returns to shareholders. Our guidance laid out in the fourth quarter remains largely in place, and we continue to believe 8% to 9% is the appropriate expectation for alternative investment returns over the long term although we do anticipate continued market-driven headwinds based on the current environment. With that, I will turn the call back to Isil. Isil Muderrisoglu: Thank you, Chris. As a reminder, please limit yourself to one question and one follow-up. Operator, we are now ready to begin the Q&A portion of the call. Operator: [Operator Instructions] Your first question comes from the line of Suneet Kamath with Jefferies. Suneet Kamath: Marc, I wanted to start on distribution. Just curious what you're hearing from your distribution partners post the merger announcement, is there anything that we should be thinking about in terms of sort of limitations on how much product they want to get from any one counterparty? Or is that not really a concern? Marc Costantini: Yes. Suneet, thanks for the question. I appreciate it. It's actually a very good question because as we were going through the process with Equitable when we're looking at various levels of synergies, we did challenge ourselves in terms of what I guess I would refer to as dis-synergies. And as we announced it, and both firms obviously reached out to all of our distribution partners. I must say to to our delight, we haven't heard any, I would say, apprehension about the depth and breadth of the the presence will have across these channels. And part of it is because the suite of products, both companies are bringing to the merger are very complementary. So -- so if you even pick the largest distributors on each side, the overlap is de minimis, so and the overall volume and -- at the end of the day, we feel strongly, and this is a strong premise around this transaction that scale matters and the manufacturing depth and breadth matters. And it's easier, we feel for an adviser for he or she to learn a handful of stories and be comfortable dealing with a handful of manufacturers, but when it comes to obviously, the distribution side, but there's a servicing side as well and how they live the brand. So we feel that's value add. So the answer to your question is we haven't heard of any, and we were obviously very pleased by that outcome. Suneet Kamath: Okay. That's helpful. And then, I guess, I just want to make sure we're thinking about this right. When you talk about the $4 billion of cash and the $5 billion of earnings, mean that would sort of imply free cash flow conversion of like 80%, which seems high. So I'm assuming that $4 billion of cash is sort of before holdco expenses, but -- just wanted to get a little bit more color on how you're coming up with those numbers and what they include. Marc Costantini: Yes. Thank you, Suneet. Yes. So the short answer is, you are correct. And that's kind of the pro forma that both firms put out there when we obviously communicated this transaction a month or so ago. And so I'll leave it at that, but that's right. And that's pro forma guidance of where we expect the obviously, operating income to be in the flows, obviously, from the operating entities. And and it reflects, obviously, the very attractive synergies we'll get out of the transaction as well. Operator: Your next question comes from Alex Scott with Barclays. Unknown Analyst: First on how you envision health management strategy evolving over time? I know you're not ready to give revenue synergies, that kind of thing. But Mark, I've heard you talk about Wealth Management. I know Equitable, I think, is maybe even gotten a little further down the road with their build-out of wealth management. How do you expect to leverage that? What are you planning to do on that front, even if you could just provide something more qualitative. Marc Costantini: Yes. Alex, it's great to take here, Voice. So you're right. We -- and the collective we are very bullish on the wealth management space. I think if I objectively look at what Equitable advisers has done and what they've done with that business and the margins and the accretion and the growth of the margins over time and the volume and the AUMs, I think they have wonderful story. And obviously, they have an operating model that's proven to be successful. And they've got 4,500, 4,600 advisers, obviously, in the market. So on our side, I'm going to around about 1,000 advisers we have as part of that business. And we are investing a lot on the infrastructure there to, as you know, cross-sell and upsell, obviously, into those plan participants, and we feel there's a great opportunity there. I think we mentioned in the last call that we think that's upwards of $30 billion of upside there, and we're as Chris mentioned in his remarks, we are harvesting that opportunity right now. Having said all that, your implicit observation there that their platform is more mature and advanced is true, right? And -- so in the category of the devil is in the detail that we are working through now and between now and close that into after close, how we bring both organizations to bear and ensure that 1 plus 1 equals 3, but we are very sensitive to the fact that we're talking about individuals that are larger have clients that want to grow their own book of business opportunistically, and we are being obviously attentive to that as we bring the 2 organizations together and it's too early to tell exactly what it looks like. But we are very, very, obviously, bullish on that business as we look forward. Unknown Analyst: Got it. Helpful. Second one I had is just on artificial intelligence and investment that you're going to make there over time. I heard some of the comments in your introductory commentary around the initiatives you've already got going on some of the digital interfaces that I think you mentioned. How are you coordinating those efforts with Equitable? I mean how quickly can you start working together on AI adoption just given -- I know this transaction probably takes some time to get the closure and so forth, but that a lot of these initiatives are taking shape very quickly in the background. Marc Costantini: Yes. Thank you. That's obviously a very important topic, and I'll give you 3 perspectives. The first one is that each firm is operating independently between now and close, right? So let's assume closest towards year-end. What we do now is compare notes about the history and what we've done and not and develop plans as to how we come together and to integrate the firm, but we operate very much independently until they close. So some of the initiatives that they have ongoing will, I'm sure, continue and some of that we have, which I'll talk about in a second here, we'll definitely continue. We are being thoughtful though if there's overlap in some of these initiatives so that we identify, let's say, the go-forward platform or approach so that when we plan for integration, we reflect that. So the second point I'll make is that, yes, we are accelerating our investment and deployment of AI capabilities. And I want to highlight the point that we want to invest in differentiated outcomes. And what I mean there is that we want to invest heavily in the front end and how do we enable and accelerate the distribution of our products and services to our various channels. And I say this by wanting to arm and facilitate our distribution to provide a better service and guidance and identify faster, the better clients for the products and services that we offer and help people retire with. So that will be -- and that is a very key focus of ours. Then it's enabling a differentiated, I would say, brand and how they live our brand and that comes to the tail end servicing and claims. And I would say that a simple example of what we've deployed over the last few months is digital agents that help our group retirement plans manage their affairs. And as you can imagine, when people call and want to do certain things with their group retirement plan, there's a lot of complexity for the servicing individuals to get to the right information and get the right outcome, and we've got digital agents there now helping surface the right characteristics of every plan and contract that individual has. So that would be one example of how we've deployed it. And I think there will be more as time goes on now. The one aspect, and you've heard me say this last quarter is that obviously, winning with customers and putting the customer at the forefront of everything we do is very important. And obviously, the digitization and implementation of thoughtful AI to our platform will be a key part of getting to that outcome. Operator: Your next question comes from Tom Gallagher with Evercore ISI. Thomas Gallagher: One question on the deal then a separate question on investment exposure. The -- so my question on the deal is the revenue synergies. And Marc, I know you're you're still getting through more detailed estimates for what these opportunities represent. But the fact that you're highlighting it as one of the parts of the strategic rationale for doing the deal, is it fair to assume that this could be material to earnings. I'll define that as 5% or more as a percent of earnings when we look to 2028 and beyond in terms of the potential opportunity here. Or is it more modest? I just want to get a broader sense because I think this is part of the strategic rationale for doing the deal. Marc Costantini: Yes. So thanks for the question. I guess there will be ample revenue synergies that we expect on our transaction. I think we obviously guided towards the $100 billion of assets coming from the corporate side of the equation to AllianceBernstein over time. And that will be from the general account and obviously, the separate account assets. There's a lot of cross revenue synergies about us, corporate selling some of our fixed annuities and fixed index and the resented the accruable advisers channel, which I think -- you've heard, obviously, that there's billions there being written that we have access to. There's a VUL product on their side that was on our design table that we'll be able to introduce and then there's the cross-sell and upsell into these group retirement plans that I was just talking to [indiscernible] actually, I think it was Alex asking. So -- but -- so those now -- it's too early to put a number on it. I wouldn't want to say above or below your number and and provide guidance that we haven't worked through at this point. I think as Robin and I have been mentioning to all of you, we will have an Investor Day in the first half of next year. And at the top of the list or as part of the key aspects of that will be to provide additional guidance on this revenue synergies. So far, obviously, we've indexed on the expense synergies given they were easier to identify as we went through the process, and that's what we're guiding to. And -- but there will be obviously some capital tax and revenue synergies as well tied to the transaction, which is why -- we think this one -- this transaction is obviously appealing on across many dimensions, including this one. Thomas Gallagher: Okay. Fair point. I guess my question on the investment side is -- I appreciate the disclosure on the BDC debt, the $1.7 billion. We've gotten a number of questions on that. And can you -- can you just give a little more clarity on -- I think there's this perception out there that since a lot of the BDCs own risky debt, 10% plus yielding pipe loans, single B quality, how certain investors sort of equivocate that to that must be the risk for that exposure. And I think it's not. But can you talk about how you think about that $1.7 billion of BDC debt, is it all investment grade? I assume it largely is, but how that's very different than the underlying exposures that the BDCs have themselves? Marc Costantini: Yes. Tom, I was going to have Lisa, who's on our call and give you context there. So Lisa, please? Unknown Executive: Okay. Tom, it's nice to meet you. Thanks for the question. Look, the way we think about BDCs is, first and foremost, we look at the larger ones. We look at ones that could be public or really the majority of ours are nontraded. So given they're closed-end funds, they are regulated under the 40 Act, and they have some regulatory covenants in there that help. We view it as the portfolios are highly cash generative diversified pool, first liens with -- I mean, the conservative leverage in the low LTVs. And we spend a lot of time looking at that. And our asset managers will go in and regularly look at the portfolio monthly, how is it doing? What does the cash look like? What is picked, what trades are they doing because it is loan investments and there is leverage at the portfolio of companies, we spend a lot of time doing that. And the risk mitigants really are a significant portfolio diversity in the low LTV and even when we look at stress cases there, it does point to some solid recovery through the unsecured BDC debt because of the structuring. So -- and we really -- we constantly review the asset coverage ratio. So -- and all of this is investment grade, solid investment grade. And as Chris mentioned, we don't have any equity exposure. Operator: Your next question comes from Ryan Krueger with KBW. Ryan Krueger: I think your Individual Retirement sales were roughly flat year-over-year. And I think you said market share was pretty consistent. So that suggests that the industry was also about flat. Just any commentary on why you think sales have slowed at this point. I think the rate environment is still pretty similar to what it was. We obviously have the continued aging of the population. So I just was wondering if you had any perspective on why you think annuity sales have been slowing a bit after the big uptick in the last several years. Marc Costantini: Yes. Ryan, it's Marc. So thank you for your question. Yes, I think as you mentioned, our sales are relatively flat year-over-year and quarter-over-quarter across our individual retirement side. I would note that we continue to have very robust activity in the individual retirement side on [indiscernible] side. And as you mentioned, we continue to believe that the demographic trends are very positive and a tailwind, right? We don't have yet the Q1 market share data, right? So when we guide that we've maintained our share from our perspective, it's based on us accumulating data from our distributors and all that. But our gut tells us that actually our share will have somewhat increased, which which does mean as well, obviously, that the flows across the industry maybe have tempered a bit. I feel that, that is very temporary. And we feel, obviously, here at Corebridge that we purposely obviously have a depth and breadth of product for different obviously, solutions for the Americans as they accumulate savings for retirement and then draw on retirement income, right? And we believe there's robust demand and we don't make a quarter a trend or a conclusion as to what the direction of travel, and we feel that there's still a lot of growth in that space overall. So -- but more to come as all the actual stats come out is what I would say as well. Ryan Krueger: And then just had a question on the Japan commercial partnership you're pursuing with Nippon Life. When you think that could become operational? And how many of an opportunity do you think that could actually be for the company over time? Marc Costantini: Yes. It's a very good question. And we have a very rich and ongoing discussions with Nippon. As you know, and you -- you've mentioned here, Nippon is a very important strategic investor in our firm. There will be obviously a or investor in the go-forward firm. And that stems as well from the core manufacturing opportunities we have with them. Like -- as you've heard me say many times, like brand and distribution matters and you need world-class and they have that in spade and Japan. And -- so we are working on co-manufacturing products. Their economy there is reflating. There's a need for the same products we sell. Having said so, they have a process as well as they evaluate what goes through their distribution channels and what's right for the end consumer there. And we're trying to develop products with them that meet those needs and then they got to be filed. They got to be approved, and they got to be deployed. So I would say that if there's anything that would be announced at a through the course of 2026, if that happens, it takes at least another 9 to 12 months from then to actually have something in market, right, because of the nature of the regulatory process and the finding process and making sure it gets on the appropriate distribution shelf appropriately. So -- so that's kind of the frame I would give you. But we're working in collaboration with our -- obviously, with Nippon there, and I am cautiously optimistic that there will be something that we will do with Nippon over the course of time, but that's kind of the time line. The other thing I'll say maybe is that -- if we look post merger, we have obviously some great asset management, to Alliance Bernstein, and they have a great global presence and that is another part of the equation where we think there's great revenue synergies eventually as we partner across the world. Operator: Your next question comes from Wes Carmichael with Wells Fargo. Wesley Carmichael: First question was on individual retirement. Just on the surrender rate in fixed annuities and FIA that ticked up a little bit sequentially. So just curious if you think that's going to continue to kind of stay that level from here? Was there a bit of maybe just volatility in the quarter from product exiting surrender charge. And did you see any elevated surrender charge income come through in the quarter? Marc Costantini: Yes. Thank you, Wes. I appreciate the question. So I think as we've guided in prior quarters, there is some business that is approaching the surrender charge period across our fixed annuity and fixed connect annuity typically, those products have a 5- to 6-year kind of surrender charge period, and they're getting to the end of that point. So over the course of the '26, '27 and '28, we do see spike in that business maturing, and we would expect to see, obviously, more redemptions out of that just natural behavior and maturity of the block. And -- we do expect and always strive to have net positive flows, right? And -- to the question earlier about the $4.3 billion of flows in a quarter, I'd like to think of our business as a $5 billion of quarter gross flows through various cycles, right? So you're looking at a circa $20 billion annuity book on an annual basis. And we feel that the maturity of the block and as business flows out, that will generate a steady stream of net positive kind of flows to our book. And that's how I would think about it versus looking at any given quarter, but that's -- so we do expect a heightened. But it's natural maturity of the business, not necessarily any type of unexpected behavior from our policyholders. And -- so -- and there's no -- to your -- I think the other question you had was around surrender charge revenue. There's no unexpected, I would say, revenue or headwind tied to that in our business right now. Wesley Carmichael: Got it. That's helpful. And I guess just second question on the insurance company cash distributions in the quarter. I think that was nearly $650 million when you exclude the VA proceeds. And that's up nicely sequentially and year-over-year. Do you kind of view that as indicative of a new run rate? Was there anything in the quarter that maybe favorably impacted that? Marc Costantini: Yes. So I think I'll offer a comment, and then I'll hand it to Chris. I think we had heightened flows from the insurance companies in Q1, and I would expect the run rate to be lower. But Chris, maybe you want to give some color there? Christopher Filiaggi: Yes, sure. Thanks, Wes. Appreciate the question. So first, let me reiterate our guidance on the insurance company dividends. So our expectation was that we would have insurance company distributions at around $2.3 billion in 2026. That does include the dividend to the final $300 million from the Benra Bulls transaction. So that leaves us with about $2 billion of normalized insurance dividends. We did accelerate a portion of our dividends in 1Q. So directionally, you should expect dividends to be lower for the rest of the year, more in the $450 million to $500 million range. Operator: Next question comes from Cave Montazeri with Deutsche Bank. Cave Montazeri: Both of my questions are going to be on the Marc's comment on making [indiscernible] the easiest company to do business with. The first one is on this newly created customer council, the initiatives that they're working on -- are they mainly digital initiatives? Or does that go beyond technology? And maybe can you share some of the quick wins you've identified that you want to start working on next? Marc Costantini: Okay, Cave. I appreciate that question. And we are striving to be the easiest company to do business with. So I appreciate you spiking that out. And yes, so when we launched and rolled out the win with customers, I would say that win with customers was always part of the fabric of corporates and AIG Life and Retirement business. And I think the separation, obviously, to precedents and priorities. So it was always there in the DNA. And when we launched it internally and we communicated this broadly to our employees that we had a mentsense of excitement across the organization to to pivot to and pivot back to this kind of focus. So -- and it was as part of that, that this idea of forming a customer council is that we have a significant, I would say, members of our senior leadership for participating. So now what are they up to -- so they're sharing best practices, they're sharing ideas, they're implementing, to your point, right? And I would say that you saw in some of my prepared remarks there, that we've deployed capability and a lot of it is through digitization to answer your question, right? A lot of it is how do we make the lives of our distributors, of our plan sponsors and our customers easier when they do business with Corebridge, how do we make it more predictable. So -- and I think as you saw there, we are deploying some digital assets and new infrastructure to help employers through payroll deductions and distributions on the Group Retirement side. We are facilitating more straight through processing on the life insurance side, and we are digitizing some of the interactions on the annuity side. And that I'm getting over a cold here, but -- so that's kind of the things that we've been doing, I guess, I would say, Cave. Cave Montazeri: Great. And then my follow-up, somewhat linked to this is, and obviously, merging with Equitable is going to help you be an easier company to do business with, you have more products, et cetera, to offer. But there could also be a bit of a nightmare in terms of integrating the different platforms, IT systems, et cetera. So do you guys plan on kind of trying to run all of the back office for like a better terms separately for a while and just to make sure nothing breaks. Or is there a plan to really just integrate everything under one umbrella as quickly as possible in order to just really optimize the data that you guys have and that they have and really just offer kind of the best experience for the customers going forward. Marc Costantini: Yes, Cave, that's another very good question. And I would say when we worked very closely with our Equable colleagues as part of the identification of the $500 million of run rate synergies, kind of platform kind of what we did with the platform, how they came together and how we pick the best platform on a go-forward basis to best serve the customers was a key part of the -- some of the outcomes here. And there's a lot of dollar investments tied to that, that were planned for. And the teams right now are working through the details of that. And I think as with anything that comes with this type of territory, every business and every function and every infrastructure will be a bit different. And the idea will be to enhance the customer experience, but not be disruptive to the customers as well, right? So I think it's kind of the -- it will depend -- depending on the business and the product line, how we approach it. But the spirit of what you're saying is definitely what we're aiming to achieve over time. But it won't happen day 1, as you can imagine, given the nature and intricacy of the model we need to operate under so. Operator: The next question comes from Joel Hurwitz with Dowling & Partners. Joel Hurwitz: I wanted to touch on variable investment income. Can you just provide some color on on what flows through other variable investment income that was negative in the quarter? And then are you seeing any rebound thus far in Q2? And maybe talk about what you're expecting for VII in the second quarter. Marc Costantini: Yes, I'll have Lisa answer that one. Unknown Executive: Joe, nice to meet you. Thanks for the question. So as Chris went through on VII, we -- in the quarter, we had a bit lower in [indiscernible] in the non-- that was really just nonrecurring marks on otherwise fixed income assets that are held in vehicles. And so it gets marked through operating income versus OCI. That has reversed. So we're not expecting to see that again. In addition, as we look forward into second quarter, in general, we're seeing VII slightly better. We still think second quarter could be below expectations, just given the volatility in the market. Joel Hurwitz: Got it. That's helpful. And then just on buybacks, you have a nice liquidity cushion at the holdco versus your needs. I guess just any commentary on your willingness to significantly draw that down in this open window and particularly if AIG comes to the market with the rest of its stake? Marc Costantini: Yes, Joe, it's Marc. Thanks for the question. So as you noted, obviously, we did $1.25 billion of buybacks in Q1 before, obviously, we went quiet because of the the proceedings that took place with Equitable. As I mentioned in my remarks and as we -- as part of our 8-K filing not too long ago, as we file our proxy, and we expect to later today, we do plan obviously in concert with Equable to go back in the market to do buybacks between the, obviously, the filing and the mailing of the proxies. And we won't guide us to the amount we'll do, obviously, in the market. And -- and we can certainly not speak to what AIG will be -- I know their CEO, I guess, and as part of their year-end call said that the they would like to be out of their holdings of Corebridge by year-end, but we have no insight otherwise, to provide here and know would it be our place to do so. So -- but we -- as we said, we will be active in the market between the the filing and the mailing. And obviously, we intend to be in the market as well after the vote later this summer. So -- and we do have liquidity to deploy, as you say. But we've guided obviously to how much we would do over the course of the year, and we're going to hold to that guidance right now. Operator: Your next question comes from Jack Matten with BMO Capital Markets. Francis Matten: Maybe one on group retirement. I know it's been in transition. I guess, can you help us frame the time line for when Corebridge expects earnings to stabilize in that business? Are we getting close to that point now? Or do you think it's more likely maybe after the merge closes and you see some synergies from that combination? Marc Costantini: Jack, thanks for the question. Our expectation is that there's another 12 to 24 months for this transition to take place. So we we feel that we are trying to pivot this business and are providing this business from fee spread spread business to fee business. And we're seeing green shoots there. As Chris mentioned in his prepared remarks, obviously, we had some very good flows into that business. We're getting to the $20 billion point in terms of fee-based businesses. But there's still room to make headway there. And obviously, the spread level income on that business is heavier than the fee-based, which is why it creates that, obviously, headwind that will take 12 to 24 months from here to work true. To your comment and question, as we try to make that dividend cross-sell and upsell to the participants. Obviously, the merger presents opportunities here in terms of the discussion we had earlier about the Equitable advisers and teaming up with that platform and those individuals to further penetrate our plans. Now -- do I expect that to happen day 1 after the close, No, right? It takes some time for the teams to get together as we mentioned earlier, before we close, we operate independently, right? So we can plan, but we can execute. So -- so I suspect that execution will take place in the first half of 2027, and then we see the green shoots appear afterwards across the various platforms, including this one. So that's kind of our perspective on that. Francis Matten: That's helpful. And then maybe a follow-up on the annuities marketplace. I guess, is your view that the competition is still intensifying in any of the product categories where you currently focus? Or do you think the market is settling in to do a new equilibrium at this point? And then maybe gives you kind of cogen some spreads stabilizing by the end of this year. But I think you said earlier that higher surrenders could potentially persist into next year or 2028. Just looking for any color there. Marc Costantini: Yes. So sure. So 2 perspectives there in your question. The first one was the -- how intense the competition is. And I always find that a very interesting question because I never felt any quarter there was no competition. So the intensity of the competition ebbs and flows depending on who wants to pick their spots where. And you are correct that there's -- at the low end of the curve, there is a lot more capital being deployed there. And as you in our sales, we're being judicious on how we allocate that capital, and we typically redeploy it to our institutional markets business, and you saw us do obviously $1 billion plus of gigs in Q1. And that's how we kind of judge the allocation of capital, but that's what I would say about the market competitiveness of the business. In terms of spreads, we continue to believe that our spreads on the IR business will level off towards year-end. And then given where we are in the interest rate cycle and where spreads are that we will basically expand from that point on. So we still expect, let's say, this year and or thereabouts to be where they would level off and then start growing and we would still guide to what we have set out there last quarter about that business as well. Operator: Your next question comes from Wilma Burdis with Raymond James. Wilma Jackson Burdis: Given the combined scale of Corporate and Equitable and the investments you plan to make in wealth. Is it possible to accelerate the goal of making the wealth business self-clearing? If I'm recalling correctly, this would add quite a bit of margin and I'm estimating over $100 million of annual wealth earnings. So any color you can provide there on the plans? Marc Costantini: Yes, Wilma, thanks for the question. I think you're primarily referring to Equitable's Wealth Advisors business that is not self-clearing yet, and obviously, scale gets you there. And I'm not going to offer a view yet. I'm not -- we're not informed enough to really have any view on that. I understand the economics we're referring to and the potential benefits, but we're not ready to guide to that. And I will wait again to what we do tied to any Investor Day or [indiscernible] about our view on that business and how we think we will continue to grow it. And as I said -- as I mentioned earlier, we are very, very bullish on this business and it's one that's core to our future. Wilma Jackson Burdis: Makes sense. And -- we looked at the commentary that you all have given on capital and tax benefits and calculated that you sort of back calculated it implied about $500 million to $1.5 billion of capital freed up, just the synergies between the 2 companies. Just wanted to check if that estimate is in the ballpark or if there's anything that we are missing or any other directions on [indiscernible]. Marc Costantini: Yes. thank you for that follow-up. I would say that we have not guided to specific capital and tax benefits. I think we've guided to the fact that we think we'll have 10-plus percent EPS accretion run rate after 2028, which will be a combination of factors, which will include those you're mentioning. But more to come on all of that, including the revenue synergies, and I would point back to the discussion with Tom earlier about Investor Day and Robin and myself and others coming to all of you with more specifics across all of that. But we do firmly believe the transaction will be double-digit accretion over the next 24 months, for sure. Operator: Your next question comes from Mike Ward with UBS. Michael Ward: So I was just wondering about kind of the Corebridge brand in the merger scenario. It's certainly younger than the equitable brand. Just wondering based on what you guys saw coming out of AIG, thinking through any kind of shock lapse. Is that kind of done with? Or could there be a temporary uptick post-merger. Marc Costantini: Yes, Mike, thank you for the question. So yes, so we have decided that we are going to go forward with the [indiscernible] brand post merger. Obviously, the [indiscernible] has an incredible history in legacy, a 167-year-old brand. We are obviously going to continue to maintain and invest in the Alliance Bernstein brand, on the asset management side, that brand itself has an incredible cache across all our markets. And which means that we are moving on from the Corebridge brand. And it was not that easy of a even though it's a 3-, 4-year old brand, a lot of people associated with Corebridge had a lot of pride in the brand, and we're a purple very proudly. I think -- but having said so, it's a 3-, 4-year old brand versus a 167-year-old one. So the right decision is to move forward with the [indiscernible] brand, which we will do probably as a combined company. So -- and we don't expect any business ramification out of bringing the brands together, and we actually think it will be value add to represent the collective firm with Equitable and go-forward basis. Michael Ward: Okay. And so -- and then on the -- these proposed changes to the RBC factors for CLOs and collateral loans. Just I was wondering if you guys had any early reads on the potential impact for you? Unknown Executive: Mark, this is Lisa. Nice to meet you. Thank you for the question. Regarding the changes for CLOs, where is going to have incrementally more capital charge for the lower rated tranches and less for the upper -- all our indications are it's going to be a minimal impact to us given the structure of our CLO portfolio. So we're pretty comfortable with that. Operator: We have run out of time, and therefore, we have reached the end of the Q&A session. This does conclude today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the AMD First Quarter 2026 Conference Call. [Operator Instructions] And please note that this conference is being recorded. I will now turn the conference over to Matt Ramsay, Vice President of Financial Strategy and IR. Thank you, Matt. You may begin. Matthew Ramsay: Thank you, and welcome to AMD's First Quarter 2026 Financial Results Conference Call. By now, you should have had the opportunity to review a copy of our earnings press release and the accompanying slides. If you have not had a chance to review these materials, they can be found on the Investor Relations page of amd.com. We will refer primarily to non-GAAP financial measures during today's call. The full non-GAAP to GAAP reconciliations are available in today's press release and slides posted on our website. Participants on today's conference call are Dr. Lisa Su, our Chair and CEO; and Jean Hu, Executive Vice President, CFO and Treasurer. This is a live call and will be replayed via webcast on our website. Before we begin the call, I would like to note that Jean Hu will present at the Bank of America Global TMT Conference on Tuesday, June 2 in San Francisco. Today's discussion contains forward-looking statements based on current beliefs, assumptions and expectations, speak only as of today and as such, involve risks and uncertainties that could cause actual results to differ materially from our current expectations. Please refer to our cautionary statement in our press release for more information on factors that could cause actual results to differ materially. With that, I will hand the call over to Lisa. Lisa Su: Thank you, Matt, and good afternoon to all those listening in today. We delivered an outstanding start to the year driven by accelerating demand for AI infrastructure across our portfolio. Growth was broad-based with every segment increasing year-over-year, led by 57% data center revenue growth. First quarter revenue increased 38% year-over-year to $10.3 billion, earnings grew more than 40%, and free cash flow more than tripled to a record $2.6 billion, driven by significantly higher sales of EPYC CPUs, Instinct GPUs and Ryzen processors. These results mark a clear inflection in our growth trajectory and a structural shift in our business. Data center is now the primary driver of our revenue and earnings growth. And as AI adoption scales, demand is increasing, not only for accelerators, but also for the high-performance CPUs that power and orchestrate those workloads. Turning to our segments. Data Center revenue increased 57% year-over-year to a record $5.8 billion, led by strong demand for our EPYC CPUs and Instinct GPUs. In Server, we delivered our fourth consecutive quarter of record server CPU revenue. Revenue increased more than 50% year-over-year with sales to both Cloud and Enterprise customers each growing more than 50%. Share gains accelerated year-over-year, reflecting the ramp of fifth-gen EPYC Turin CPUs and continued strength of fourth-gen EPYC processors across a wide range of workloads. In Cloud, AI was the primary driver of growth in the quarter as every major cloud provider expanded their EPYC footprint to support a broad range of AI workloads from general purpose compute and data processing to head nodes for accelerators and emerging Agentic applications. EPYC-powered cloud instances increased nearly 50% year-over-year to more than 1,600 with instances optimized for virtually every enterprise workload and expanded availability across the largest global cloud providers. In Enterprise, demand accelerated with record revenue and record sell-through in the quarter. We expanded our customer base with new wins across financial services, health care, industrial and digital infrastructure companies, while also building momentum with mid-market and SMB customers. We are well positioned to continue gaining share as more enterprises standardize on EPYC across on-prem and hybrid environments based on our leadership performance and TCO. Looking ahead, our sixth-gen EPYC Venice processor built on our Zen 6 architecture and 2-nanometer process technology is designed to extend our leadership across cloud, enterprise and AI workloads. The Venice family spans a broad set of CPUs optimized for throughput, performance per watt and performance per dollar, including Verano, our first EPYC CPU purpose built for AI infrastructure. Across the portfolio, Venice widens our competitive advantage, delivering substantially higher performance per socket and per watt versus competitive x86 offerings and more than 2x throughput per socket versus leading ARM-based AI solutions. Customer demand is very strong with more customers validating and ramping platforms at this stage than with any prior EPYC generation, and we remain on track to launch Venice later this year. Looking more broadly, we are seeing a meaningful acceleration in customer demand driven by the rapid scaling of AI workloads across both Cloud and Enterprise. Inferencing and Agentic AI are increasing the need for server CPU compute as these workloads require additional CPU processing for orchestration, data movement and parallel execution in addition to serving as the head nodes for GPUs and accelerators. As a result, we are seeing both stronger near-term demand and deeper engagement with customers on long-term capacity planning. At our Financial Analyst Day in November, we outlined the server CPU market growing at approximately 18% annually over the next 3 to 5 years. Based on the demand signals we are seeing today and the structural increase in CPU compute requirements driven by Agentic AI, we now expect the server CPU TAM to grow at greater than 35% annually, reaching over $120 billion by 2030. In response to this demand, we are working closely with our supply chain partners to meaningfully increase our wafer and back-end capacities to support this growth. As a result, we now expect server CPU revenue to grow by more than 70% year-over-year in the second quarter, with robust growth continuing through the second half of 2026 and into 2027 as we ramp our next-generation EPYC processors. Now turning to our Data Center AI business. Revenue grew by a significant double-digit percentage year-over-year as adoption of Instinct accelerates across cloud, enterprise, sovereign and supercomputing customers. We're seeing strong momentum as customers move from pilots to large-scale production deployments, particularly in inference where our leadership memory capacity and bandwidth are key advantages. This momentum is driving deeper, long-term customer engagements, including large-scale multi-generation deployments. A key example is our expanded strategic partnership with Meta to deploy up to 6 gigawatts of AMD Instinct GPUs spanning several product generations. Our agreement includes a custom GPU accelerator based on our MI450 architecture, co-designed to support Meta's next-generation AI workloads. Shipments are on track to begin in the second half of the year, leveraging our Helios rack-scale architecture, which integrates Instinct GPUs with EPYC Venice CPUs to deliver fully optimized high-performance AI infrastructure. Together with our previously announced OpenAI partnership, these engagements position AMD as a core partner to the world's largest AI infrastructure builders with deep co-engineering relationships and multiyear visibility into large-scale deployments. More broadly, Instinct adoption continues to expand across AI native and enterprise customers for both training and inference workloads. Existing partners are expanding Instinct across a broader set of workloads, while a growing number of new partners are deploying production AI workloads on Instinct, highlighting the maturity of our hardware and software stack. On the software front, we continue to make strong progress with ROCm, improving performance, scalability and enabling customers to reach production faster. In our latest MLPerf results, MI355X delivered strong competitive performance across the full suite with leadership results in multiple categories. We also expanded day 0 support for the leading open models, including the latest Google Gemma 4 family, Qwen, Kimi and others, enabling customers to deploy new models quickly with optimized performance. To build on this momentum, we have significantly accelerated our ROCm development cadence through increased software investments and agent-based coding workflows, enabling faster performance improvements and more rapid deployment of new capabilities. Looking ahead, customer pull for Helios is very strong, driven by our leadership performance, memory bandwidth and scale out capacity. Helios development is progressing well with strong execution across silicon software and systems as we advance through key milestones. We have begun sampling MI450 series GPUs to lead customers and remain on track to ramp Helios production shipments in the second half of the year. As we approach production, demand for MI450 series GPUs continues to strengthen, with lead customer forecasts now exceeding our initial plans and a growing number of new customers engaging on large-scale deployments, including additional multi-gigawatt opportunities. With this expanded visibility, we have strong and increasing confidence in our ability to deliver tens of billions of dollars in annual Data Center AI revenue in 2027 and to exceed our long-term growth target of greater than 80% in the coming years. I look forward to sharing more on our next-generation Instinct GPUs, EPYC processors, Helios rack-scale platform and our growing customer engagements at our Advancing AI event in July. Turning to Client and Gaming. Segment revenue increased 23% year-over-year to $3.6 billion. In client, revenue grew 26% year-over-year to $2.9 billion, led by strong sales of our latest Ryzen processors and continued share gains across consumer and commercial markets. In desktop, we strengthened our Ryzen lineup, including our latest X3D processors that deliver leadership performance across gaming, content creation and professional workloads. We also introduced the Ryzen AI 400 series and Ryzen AI Pro 400 series desktop CPUs, expanding our AI PC offerings across both consumer and commercial systems. In Mobile, we delivered strong growth driven by a richer product mix as Ryzen 400 mobile PC shipments ramped and commercial adoption increased. Commercial was a key highlight in the quarter with sell-through of Ryzen Pro PCs increasing more than 50% year-over-year as Dell, HP and Lenovo broadened their AMD offerings. We also closed new enterprise wins across large technology, financial services, health care and aerospace customers. Looking ahead, we expect demand for our Ryzen CPUs to remain solid in the second quarter. However, we are planning for second half PC shipments to be lower due to higher memory and component costs. Against this backdrop, we still expect our client revenue to grow year-over-year and outperform the market, driven by the strength of our Ryzen portfolio and expanding commercial adoption. In Gaming, revenue increased 11% year-over-year to $720 million. Semi-custom revenue declined year-over-year as expected at this stage of the console cycle, while engagements with customers on next-generation platforms remain strong. In graphics, revenue increased year-over-year led by demand for our latest generation Radeon 9000 series GPUs. We also strengthened our Radeon portfolio with updates to our FSR software that improved performance and digital quality across a broad set of gaming workloads. Similar to the PC market, we believe that second half demand in gaming will be impacted by higher memory and component costs, and we are planning the business accordingly. Turning to our Embedded segment. Revenue increased 6% year-over-year to $873 million, driven by strength in test, measurement and emulation, aerospace and defense and communications as well as increased adoption of our embedded x86 products. Design win momentum grew by a double-digit percentage year-over-year with billions of dollars in new wins across markets, reflecting the continued expansion of our Embedded business from a primarily FPGA-focused portfolio to a broader set of adaptive embedded x86 and semi-custom solutions significantly expanding our TAM. Our semi-custom engagements also expanded in the quarter as data center, communications and other embedded customers leverage our broad IP portfolio and high-performance expertise to build differentiated solutions. In summary, our first quarter results mark a clear step-up in our growth trajectory with accelerating momentum across the business. Our client business continues to outperform the market, driven by Ryzen adoption and share gains, while in Embedded design win momentum and demand are strengthening across our expanded adaptive and x86 portfolio. At the same time, our Data Center business is inflecting with strong demand for both EPYC and Instinct products significant growth. While we are still in the early stages of the AI infrastructure cycle, the pace and scale of deployments we are seeing today reinforce both the magnitude and durability of the opportunity ahead. As inferencing and Agentic AI deployment scale, they are fundamentally increasing compute requirements, driving both larger scale accelerator deployments and significantly more CPU compute. AMD is uniquely positioned to lead in this next phase of AI with leadership products across high-performance service CPUs and AI accelerators and the ability to optimize them together as fully-integrated rack-scale solution. We have a world-class supply chain and are making significant investments to expand capacity and execute at scale. With the momentum we are seeing across the business and the expanding market opportunity, we see a clear path to exceed our long-term financial targets, including delivering more than $20 in EPS over the strategic time frame. Now I will turn the call over to Jean to provide additional color on our first quarter results. Jean? Jean Hu: Thank you, Lisa, and good afternoon, everyone. I'll start with a review of our first quarter financial results and then provide our current outlook for the second quarter of fiscal 2026. We are pleased with our outstanding first quarter results delivering accelerated revenue growth and earnings expansion driven by strong execution and operating leverage. First quarter revenue was $10.3 billion, exceeding the high end of our guidance, growing 38% year-over-year, driven by strong growth in the Data Center and Client and Gaming segments and the return to growth in the Embedded segment. Revenue was flat sequentially with continued growth in the Data Center segment, offset by seasonality in the Client and the Gaming segment and the Embedded segment. Gross margin was 55%, up 170 basis points versus a year ago, driven by a favorable product mix, including a higher data center revenue contribution. Operating expenses were $3.1 billion, an increase of 42% year-over-year as we continue to invest in R&D to support our AI roadmap and the long-term growth opportunities and go-to-market activities. As the business scales, operating income grew faster than topline revenue. Operating income was $2.5 billion, representing a 25% operating margin. Taxes, interest and other result in a net expense of approximately $275 million. For the quarter, diluted earnings per share was $1.37, up 43% year-over-year, underscoring the significant operating leverage in our model as we scale. Now turning to our reportable segment starting with the data center segment. Revenue was a record $5.8 billion, up 57% year-over-year and 7% sequentially, driven by strong demand for EPYC processors and the continued ramp of Instinct GPUs. Data Center segment operating income was $1.6 billion or 28% of revenue compared to $932 million or 25% a year ago. Client and Gaming segment revenue was $3.6 billion, up 23% year-over-year. On a sequential basis, revenue was down 9%, consistent with seasonality. The client business revenue was $2.9 billion, up 26% year-over-year, driven by strong demand for our latest Ryzen processors, favorable product mix and continued share gains across consumer and commercial markets. Sequentially, client revenue was down 7% due to seasonality. The Gaming business revenue was $720 million, up 11% year-over-year, primarily driven by higher demand for Radeon GPUs, partially offset by lower semi customer (sic) [ custom ] revenue. Sequentially, gaming revenue was down 15%, consistent with our expectations. In addition, as Lisa mentioned earlier, we expect second half demand in gaming to be impacted by higher memory and component costs. We now expect second half gaming revenue to decline more than 20% compared to the first half. Client and Gaming segment operating income was $575 million or 16% of revenue compared to $496 million or 17% a year ago. Embedded segment revenue was $873 million, up 6% year-over-year as demand strengthened across several end markets. Sequentially, Embedded revenue was seasonally down 8%. Embedded segment operating income was $338 million or 39% of revenue compared to $328 million or 40% a year ago. Turning to the balance sheet and the cash flow. During the quarter, we generated $3 billion in cash from continuing operations and a record $2.6 billion in free cash flow or 25% of revenue, demonstrating the cash-generating power of our business model. Inventory was roughly flat at $8 billion. At the end of the quarter, cash, cash equivalents and short-term investment was $12.3 billion. In the quarter, we repurchased 1.1 million shares and returned $221 million to shareholders. We ended the quarter with $9.2 billion authorization remaining under our share repurchase program. Now turning to our second quarter 2026 outlook. We expect revenue to be approximately $11.2 billion, plus or minus $300 million. At the middle of our guidance, revenue is expected to be up 46% year-over-year driven by a very strong growth in our Data Center segment, growth in our Client and Gaming segment and a double-digit growth in our Embedded segment. Sequentially, we expect revenue to be up approximately 9% driven by double-digit growth in both our Data Center and the Embedded segments and modest growth in our Client and Gaming segment. In addition, we expect second quarter non-GAAP gross margin to be approximately 56%, non-GAAP operating expenses to be approximately $3.3 billion, non-GAAP other income and expense to be a gain of approximately $60 million. Non-GAAP effective tax rate to be 13%, and the diluted share count is expected to be approximately 1.66 billion shares. In closing, the first quarter of 2026 was an outstanding quarter for AMD, reflecting strong momentum across the business with accelerated revenue and earnings expansion. We are very well positioned to build on the momentum as we scale our Data Center business, expand margins, drive continued earnings growth and the long-term shareholder value creation. With that, I'll turn it back to Matt for the Q&A session. Matthew Ramsay: Thank you, Jean. Operator, we're ready to start the Q&A session now. [Operator Instructions] Operator: [Operator Instructions] The first question comes from the line of Joshua Buchalter with TD Cowen. Joshua Buchalter: Congrats on the results. Actually, I'm going to start with CPUs, which hasn't happened in a bit. It hasn't been that long since you announced the $60 billion server CPU TAM for 2030 at the Analyst Day, and it's very quickly doubled. Agentic AI has obviously gotten a lot of attention in recent months, but it would be helpful to hear your thoughts on how this TAM is inflecting and changing so meaningfully in such a short amount of time. And maybe you could also speak to your confidence in hitting that greater than 50% share target from the Analyst Day as your x86 competitor seems to be improving its supply and also there seems to be more momentum on the merchant and custom ARM CPU side. Lisa Su: Yes. Sure, Josh. Thanks for the question. So first of all, back to the -- when we think about CPU TAM, I mean we've always said that CPUs are very critical part of data center infrastructure, and that's been where we've invested. And we saw the first signs of, let's call it, AI demand really pulling CPU demand last year, and that was the reason we updated the TAM to, let's call it, the 18% CAGR or approximately $60 billion. And what we've seen is all of the things that we believed in terms of Agentic AI and inferencing and all the CPU compute that is required, is just happening, and it's happening at a much faster pace. So over the last, let's call it, the last few months, as we've talked to our customers and we've seen how AI adoption is really unfolding, we're seeing significant more CPU demand from really every major cloud provider as well as enterprise customers. And the way that comes across is as AI adoption scales, you need more inferencing. As inferencing scales and you do more -- you have more agents and Agentic AI, they all require CPUs for all of the orchestration and the data processing and these other tasks. So with that, we've looked at it both bottoms up in terms of talking to customers and having them give us longer-term forecasts as well as just doing some clear workload analysis. And yes, I mean, it's a very exciting TAM. I think it's exciting to see CPUs growing greater than 35% to over $120 billion. And then when you think about AMD in the context of that, I mean, CPUs are critical for so many tasks that you are seeing a lot more discussion about CPUs in the market. But we actually view it in 3 categories, right? There's general purpose compute. There's the head nodes that really support the AI accelerators. And then there are CPUs just for all of the Agentic AI work. And to do all of this, our belief is you need a broad portfolio of CPUs, and that's really what we have been focused on is building not just one type, but really broader in terms of throughput optimized, power optimized, cost optimized, AI infrastructure optimized as we've done in the Venice family. So when you put all that together, we're very excited about the larger TAM, and we're also very happy with the traction that we're getting. We're clearly feeling like we're seeing significant share gain as we're going into our Turin portfolio that has ramped very nicely. Venice is extremely well positioned, and we're working with customers right now on -- beyond Venice and what we're doing in those architectures. So we feel really good about the market as well as our opportunity to grow to greater than 50% share of that market. Joshua Buchalter: I wanted to ask about the Instinct side. So in the press release, you mentioned that MI450 and Helios engagements are strengthening with customer forecast exceeding the expectations and the pipeline growing. You certainly have the big public OpenAI and Meta deals. Was this comment referring to those engagements upsizing versus the announced initial deployments? Or was it other customers and maybe the increase on the MI450 timeline? Or is it MI500 and beyond? Lisa Su: Sure, Josh. So we are very excited about MI450 and Helios. We're seeing significant customer interest in those products as well. So we have certainly talked about our large partnerships with OpenAI and Meta, and those are going really well. We appreciate the deep co-engineering that is going on there. When we look at the totality of, let's call it, based on our current visibility, how those forecasts are coming in with all of our customers, we're actually seeing it above our initial plans that we had planned for 2027. And I think the encouraging thing is we're seeing a breadth of customers who are now very interested in deploying at significant scale MI450 series. And those are for both training and inference workloads, although the largest deployments are for inference. And based on all of that and the scale of new customer interest, we see a path to really get to exceed our original targets of greater than 80% CAGR. And these are really 2027 time frame. Obviously, when we talk to customers, we're talking to them about MI355. There's a lot of good traction we're seeing there. MI450 and Helios, I think for significant large-scale deployments, and then many customers are also very engaged with us on the MI500 series and all of the opportunities there. So we feel like very, very good progress. And the key is that we're continuing to broaden and widen the scope of both customers as well as workloads. Operator: And the next question comes from the line of Thomas O'Malley with Barclays. Thomas O'Malley: Lisa, if I get your numbers correct here in the March quarter, it sounds like the server processor side of the CPU side grew over 50%. If you take it just at the word, it looks like maybe the data center GPU side actually grew in Q1. So I was curious around the cadence of this year kind of previously, you had talked about really a back half weighted and then kind of more so Q4 weighted year. Could you talk about if that's changed at all? And then the second part of the question is, as you go into 2027, clearly, you're pointing out a lot of upside from the larger customers and then kind of the ecosystem around them with new customers as well. But when you look at supply, that's a major issue in the ecosystem today, could you talk about where you're concerned on supply, if you are? And then any gating factors as you look into next year, whether that be power, data center build-outs, et cetera? Or do you feel really good about the ability to grow? Lisa Su: Yes. Okay. A lot of pieces of that question, Tom. So let me try to get through it. So first of all, on the Data Center segment in Q1, the Server business was greater than 50% year-over-year as we said in the prepared remarks. The Data Center AI was actually down modestly because of the China transition. We had more China revenue -- I'm sorry, sequentially more China revenue in Q4, and it was less in Q1. But as we go forward, I think we see strong growth in both segments. So we guided data center Q2, up sequentially double digits, and that's double digits in both Server as well as Data Center AI. And progression as we go forward. So first, on the server CPU side, we talked about growing to over 70% year-over-year in Q2, and that continuing into the second half of the year. And on the Data Center AI side, we will be ramping Helios in the second half of the year, so let's call it, starting with initial volume in Q3 with a significant ramp in Q4 and then continuing to ramp in Q1. So that's kind of a little bit of progression. And then to your questions about customers and supply, I think I answered, Josh, the customer question. I think we have very good visibility now into the deployments that are on track for 2027. And when I say good visibility, it's visibility down to which data centers are the GPU is going to be installed in. And so that's necessary just given all of the constraints out there. We feel that there is tightness in the supply chain, there's certainly tightness in sort of data center build-outs, but we are confident in our ability to supply to the levels of growth that we're talking about and to exceed the levels of growth that we're talking about. And we're also working very closely with our customers and our partners to ensure that we have good visibility to Data Center power. And there is much more power that's coming online in 2027. And so with all those things in mind, I think, again, lots of things to manage. It's a complex ramp, but we're very pleased with the progress on the ramp. Matthew Ramsay: All right, Tom, I think you shotgun approached the multiple questions there. So operator, maybe we can go on to the next caller, please. Thank you. Operator: The next question comes from the line of Ross Seymore with Deutsche Bank. Ross Seymore: The first one is just on the EPYC competition. Lisa, you went through some of the statistics of you versus x86 and you versus ARM, but I wanted to dive a little bit deeper into that. How do you see AMD truly differentiating, especially when you're signing -- well, you see some of your competition signing up the same customers from the ARM side and the x86 competition having more supply. So I just wanted to see if you could dig a little bit deeper into how you think the market share is going to trend over time? Lisa Su: Ross, look, we're very engaged with every major hyperscaler and in terms of understanding their needs on the CPU side. I think we have very much wanted to, let's call it, optimize our CPU roadmap for the various workloads. I think we were early to call this AI component of CPUs. And so we've been actually optimizing very closely with those customers. The way to think about this, Ross, is that you're going to need a broad portfolio of CPUs, like not all CPUs are the same. Frankly, you're going to need different CPUs for whether you're talking about general purpose operations or you're talking about head nodes or you're talking about Agentic AI tasks, they're going to be optimized differently. And we thought through that, and we are absolutely optimizing across the various workloads. So from a competitive standpoint, we feel very good about where things are. And from a deep relationship with the customer set, I think we feel very good about that. So from our current standpoint, I think the depth of our roadmap just expands as we go forward. And you shouldn't think about it as people are going to do one or the other. I think you're going to see people actually use x86 and ARM for many of the large hyperscalers. And even for those who are developing their own, they're still buying lots of CPUs in the merchant market for the reason that I just stated, which is unique different CPUs for the different types of workloads, and there's very high demand at the moment. Ross Seymore: I guess for my follow-up, maybe more for Jean on the gross margin side of things. It's nice to see the gross margin popping up in the second quarter guide. But I just wanted to get some trends longer term, maybe not specific numbers, but how should we think about when Helios and the Instinct side really ramps in the fourth quarter and more so next year. I could see some offsets with that carrying a below corporate average gross margin, but then everything that Lisa talked about with the EPYC side of things being significantly stronger might be more of an offset than it was in the past. So just walk us through the puts and takes of that and maybe directionally where you think gross margin goes over the next year or 2? Jean Hu: Yes, Ross, thanks for the question. We are very pleased with how our gross margin is trending. It came in really strong in Q1. And also, as you mentioned, we guided Q2 higher at 56%. I think as we think about the second half quarter-over-quarter, as you know, there are some puts and takes, right? I would just say, from a tailwind perspective, we actually have multiple tailwinds really are going to help our gross margin. First is the server CPU. Lisa talked about the server CPU expected to grow more than 70% in Q2 and continue to be really strong in second half. That really helps our gross margin. Secondly, in the second half for Gaming actually is going to come down, and our Client business actually continued to go up the stack. So from a Client and Gaming segment, the gross margin actually is going to be also very helpful. Embedded actually is very accretive to our gross margin. Its momentum actually is continuing in the second half. So we are really pleased with all the tailwinds we have. On the other side, MI450 will start to ramp in Q3 and then ramp significantly in Q4. That is below corporate average. So that will have different puts and takes in Q4 in the gross margin side. But when we sit here, when we look at all the positive trends we have to really offset some of the gross margin dilution from MI450 side, we actually feel really good about the setup of the gross margin for 2026. And into next year, I think some of the tailwinds I talked about that will actually continue. That's why we feel confident about continue to drive the gross margin. We actually, during our financial Analyst Day, we outlined the long-term gross margin in the range of 55% to 58%. We think for the first year, we are making good progress there. Operator: And the next question comes from the line of Timothy Arcuri with UBS. Timothy Arcuri: I wanted to ask about units versus ASP for server CPU. If I look at the June guidance, it sort of implies up 25% to 30% for server CPU. And Lisa, you had mentioned second half of the year. It sort of implies that server CPU could grow like 70%, maybe a little more this year. And so I guess my question is, how much of that growth either in June or for the year, is like units versus pricing? Is the -- are these price increases sort of mostly captured in June? Or is that also helping in the back half of the year? Lisa Su: Yes. Tim, the way I would say it is, maybe let me bring you back to Q1 for a moment. So if you look at our significant growth in the server business, it was actually -- although we were up on a year-over-year basis for both ASPs and units, it was actually much more unit driven. So we are shipping more CPUs across not just the high-end Turin family, but we're actually shipping a lot of Genoa sort of the Zen 4 family as well. As we go forward for Q2 and into the second half, we are guiding for a significant amount of growth. I think there's a little bit of ASP in there, but the way we're thinking about pricing, to be fair, is we are in a range where the supply chain is tight. And so there are some inflationary pressures. Costs have gone up a bit, and we are sharing some of that with our customers. But we are also being very thoughtful in -- look, this is -- we're playing out for the long term, and that means that we are -- our goal is to ship more units and a lot more units. And so from that standpoint, you should imagine that the majority of the growth is unit driven, and the ASPs are just really to help cover some of the inflationary pressures. Jean Hu: And just to add to what Lisa said, our ASP is increasing because of the mix where actually each new generation, the core counts, those are increasing, that actually drives the ASP up. Timothy Arcuri: And then I guess, Lisa also, so there's a lot of new architectures that are being used from multi-tenancy all the way to low latency. And your competitor has talked about the low latency part of the market being 20% plus and they, of course, added to their portfolio there. Can you talk about how you see that part of the market? I mean, obviously, you have enough business now you don't need to worry about that probably for now. But can you talk about that? Lisa Su: Yes, sure. So look, I think what we're seeing is what we expected in the sense that as you go -- as the AI adoption continues and the volumes continue to go up and the overall market goes up, you are going to see, let's call it, different compute architecture is being used because you want to get more cost optimization from that. So we expect that even in that situation, obviously, the vast majority of the TAM is still going to be, let's call it, data center GPUs as the primary accelerator. But you may choose to do optimization around inference, around low latency, around certain parts of the stack, whether it's decode versus prefill, I think that's very natural. The way we look at it is we're developing a full compute portfolio. So that's CPUs, that's GPUs, that's the ability to connect to all accelerators as well as the ability to do customization for certain customers, and we've also talked about our semi-custom capabilities. And with all of those sort of compute capabilities in our tool chest, I think we will be able to address, very effectively, a large portion of this market, including the low latency portion of the market. So from our standpoint, this is kind of a natural evolution. Now how fast it goes depends a bit on the technology in terms of what share of the TAM these things become, but we should expect that there will be different variants, and we're well prepared to address those different variants. Operator: And the next question comes from the line of Vivek Arya with Bank of America. Vivek Arya: Lisa, do you think Agentic CPU growth is incremental? Or is it coming at the expense of GPUs conceptually? So if you're raising server CPU TAM, are you also implicitly kind of raising AI TAM? So just I'm interested in your perspective on what did you think server CPU was as a percentage of AI TAM before? And what is it now with this $120 billion number? Lisa Su: Sure, Vivek. So the way we're thinking about is it's largely additive to the TAM. So you should think about we need all of the accelerators to run these foundational models, and then as these agents do work, they spawn more CPU tasks. So I would say largely incremental. The key is to make sure -- what we're seeing is in these deployments, the key is to make sure the ratio of CPUs to GPUs are the right ratio. So if you're installing a gigawatt of compute, the ratio -- there's a percentage of CPU as part of that gigawatt will increase. Some of the conversation in the industry has been about CPU to GPU ratios. And it's very hard to call exactly, but we certainly see the movement towards where in the past, the CPU to GPU ratio was primarily just as a host node in like a 1:4 or 1:8 configuration node, now changing and getting closer to a 1:1 configuration or even -- you can even imagine if you get lots and lots of agents that you could have more CPUs and GPUs. So -- but all in all, to answer your question, I think it's largely additive to the TAM. And the key is that everyone is now planning and thinking about CPUs at the same time that they're thinking about their accelerator deployments, which is a good thing. Vivek Arya: All right. And from my follow-up, Lisa, we continue to see memory prices go up. I imagine that is both kind of a cost inflation for you but perhaps an opportunity to take price as well. I'm curious, how is that dynamic playing out for AMD? And especially for your customers because a greater part of their CapEx increase is really kind of this memory inflation tax, right, that they have to pay. So how is this dynamic playing out for you and for your customers? And the part that I'm really interested in is that have you secured enough supply versus your other larger competitor who has disclosed a lot of prepayments and other things? So just how is this memory inflation dynamic playing out? And are you kind of adequately supplied from that perspective? Lisa Su: Sure. So Vivek, let me answer the second one first. I think from a supply standpoint, we are very happy with our partnerships with the memory vendors, and we have secured enough supply to certainly meet and exceed our targets. So it is a tight memory environment. Let me be clear. But I think we are very deep partnerships with the memory providers. And then back to your comments on the inflationary pressures. I mean, look, this is something that everyone in the industry is working with in the time of tight supply, we are seeing some cost increases on the memory side. I think we are all working through that. The way we're seeing it unfold in the market is actually on the Data Center side, because of the, let's call it, the demand for AI compute, I mean people are largely focused on supply and ensuring that the supply assurance is there. The corollary of that, the larger impact that we're watching is the impact on the consumer markets. And as we said in the prepared remarks, we are expecting that there could be some demand -- sort of the demand impact as a result of the memory price increases on things like the PC business in the second half of the year as well as the Gaming business. So we're taking that into account in our overall model. And we continue to work closely with the memory providers as well as our customers to ensure that every time we ship a CPU or GPU, then it's paired with the memory on the other side so that we don't have compute that is not being deployed. Operator: And the next question comes from the line of Aaron Rakers with Wells Fargo. Aaron Rakers: Congrats on the results. I want to stick on the topic of CPU to GPU. And as we think about the chart that you had outlined at the Analyst Day, there was obviously broken out between traditional CPUs and then the AI bucket on top of that. Obviously, I think the new forecast has a lot to do with the AI CPU expansion. I'm just curious, when you're doing a CPU in an AI workload, is there structurally a different level of ASP tied to that kind of CPU optimized for AI relative to a general purpose server CPU? Any kind of color or help on that would be useful. Lisa Su: Sure, Aaron. So let me start with the broader question. The broader question regarding -- the way we think about the CPU TAM is, again, think about it as 3 categories. So there is a traditional CPUs, let's call it, general purpose CPU TAM that is increasing, but let's call it, increasing at low rate, maybe, let's call it, low double digits, then you have your AI head node, which is connecting to accelerators, which is also growing, but it's smaller. And then the largest piece of the growth is this Agentic AI piece, which we think is really stemming from all of the Agentic processes. I don't have a number that I can tell you in terms of relative ASPs because it really depends on the workload that is being run. And what we see going forward is as core counts increase, obviously, we will see ASP increase. And that's the direction that we're going in as we go forward. But the main point is -- the largest portion of this is the Agentic AI, the CPUs that are serving these Agentic AI workloads in terms of the TAM increase. Aaron Rakers: And as a quick follow up, I'm curious, how do you characterize the competitive landscape as we see some of the ARM introductions in the market. Just curious of your views on the competitive landscape and server CPU. Lisa Su: Yes. Aaron, the best way to think about the server CPU landscape is, again, number one, everyone is talking about CPUs. So that tells you how critical they are for the AI infrastructure. And I think that's a good thing. We feel like we're very well positioned. No question, ARM is good architecture. It has a place in the Data Center market. We view it as more point products relative to a portfolio, where, from an AMD standpoint, we've built this broad portfolio of CPUs, going forward, what you're going to need for all of these different workloads. And we have, in the Venice time frame, added an AI-optimized CPU with the Verano in addition to our throughput optimized and sort of cost optimized point. So from that standpoint, I think we're very competitive. We're continuing to innovate on architecture. We're continuing to innovate on both advanced packaging as well as all of the architectural pieces. So we feel very well positioned going forward. And the key is the TAM is much, much larger than anybody thought. And so there's a lot of opportunity for different products to be successful in this area. Operator: And the next question comes from the line of C.J. Muse with Cantor Fitzgerald. Christopher Muse: I guess first question, I was hoping to speak a bit more about client for all of calendar '26. You talked about growth -- expected growth, but would love to hear your thoughts around seasonality in the second half. And I'm assuming that you are repurposing certain logic tiles from clients over to the Data Center and would love to kind of better understand what the implications are for ASPs on the client side looking into the second half. Lisa Su: Sure. So C.J. I think the client business has performed really well for us. I think if we look at Q1, it actually was a little bit stronger than what we expected. We are seeing some mix shift in the client business. The mix that we're seeing is the M&C or the Notebook business is actually growing, especially the premium portion. We're making very good progress in the commercial PC arena with our AI PCs. We did see desktops a little bit softer just given desktop is a more consumer-focused market. And so in that market, it's more impacted by some of the memory pricing and the component price increases. When we look at the full year, our commentary is we are planning for some demand impact in the second half due to the memory pricing. But even in that environment, what we're focused on is ensuring that we continue to make good progress on the Commercial business and continuing to focus on the premium segments of the market. So we believe that we will continue to grow on a year-over-year basis for the Client business compared to last year. And as it relates to ASPs, again, it's a little bit of puts and takes between Notebook and Desktop. But overall, I think we're feeling good about our opportunity to outperform the market and clients going forward. Does that answer? Christopher Muse: That was perfect. And then I guess a question on Instinct gross margins. With compute essentially sold out and obviously, you're building a business, so one has to be, I guess, conservative on that front. But I would think outside of kind of passing through HBM that given the very tight wafer environment that this would be a place where you could look to drive your Instinct margins closer to your corporate average? How are you thinking about that either today or in the coming 1, 2, 3 years? Jean Hu: C.J. at this stage, we really focus on driving the topline revenue growth on our Instinct family of product. I think on the gross margin side, you're absolutely right, it's really -- the demand for compute is tremendous. We actually are very strategic in how we think about the -- how we work with the customers. And of course, the different customers also have a different gross margin. I think, over time, once we start to ramp our revenue, we'll have a lot of opportunities to improve gross margin, both on the ASP side, but also, more importantly, on the cost side when we scale our business. Operator: And the next question comes from the line of Stacy Rasgon with Bernstein Research. Stacy Rasgon: For the first one, I just wanted to make sure I have the near-term AI GPU trajectory correct. So I know you said it was down sequentially in Q1 because of China. You had like $390 million of China revenue in Q4. So the AI business in Q1 actually grow sequentially ex China because it doesn't feel like it, given the server outlook? And then I look at what's maybe suggested for Q2, are you thinking GPUs and servers kind of grow similar rate sequentially because it would probably put GPUs in Q2 below the overall revenue in Q4, which seems low to me. I'm just trying to tie all that out. Could you help me with that, please? Jean Hu: Yes. So I think, Stacy, I appreciate the question. I think if you look at Q1, we did mention Data Center AI was down modest pace sequentially, primarily due to lower China revenue in the quarter. I think on your second question regarding Q2, you're right, both Data Center AI and the server will grow double digit in Q2. Stacy Rasgon: Yes. But you didn't answer my question. In Q1, did it grow sequentially ex the China step down, I guess, is what I'm asking. Jean Hu: The China, for our business, in Q1, it's not material. So I think I will repeat what I just said. Yes, the revenue -- the China revenue in Q1 is not material. Stacy Rasgon: Okay. Okay. So you don't want to -- okay. Second question, OpEx [indiscernible] for spending -- but it sort of continues to blow past the targets. You kind of give an OpEx guide and then it blows through it and then you guide higher. So again, I'm not bothered by this. I'm just wondering why is the OpEx been so hard to forecast? And how should we be thinking about OpEx through the rest of the year given the revenue growth? Jean Hu: Yes. Thanks, Stacy, for that question. I think the most important thing is given the tremendous market opportunities we have, we actually are investing aggressively. If you look at the past several quarters, we're really leaning in, in investing, but all the AI investments are driving the revenue momentum. So if you look at the Q1, revenue was 38% up, then Q2, we guided 46% up. The investments are driving the revenue momentum. Some of the OpEx increase, of course, is tied to the revenue. When you look at our beat on the revenue side versus our guidance, we did beat on the revenue side, right? So that impacted a little bit. But also, at the same time, we have a lot of customer engagement with our Data Center AI business, we do continue to make sure we have the resource to support our different customers. Matthew Ramsay: Thank you very much. Operator, I think we have time for one more caller on the call. Thank you. Operator: Our final question comes from the line of Blayne Curtis with Jefferies. Blayne Curtis: Lisa, I just want to go back to the supply side. There was a lot of story about your competitor restarting 7-nanometer. I'm just kind of curious as you look at that landscape which is quite robust through the end of the decade, do you think that the older products will stay around longer? And is there a way to think about the implications for gross margin in such a strong market. Is that actually a negative? Lisa Su: Actually, Blayne, I don't think we see the older products hanging around longer. In our case, I think it might be company-specific stuff. In our case, we actually see -- first of all, Turin is very strong. We actually crossed over 50% of our revenue being Turin this quarter. Genoa is very strong. We're still shipping some Milan, but I would say that's come down over time. So in general, people want to use the newer products because they're just more efficient in every aspect from performance, from cost structure, from a power standpoint. So that's what we're seeing. By the way, I should also mention, in addition to what we're seeing in the cloud segment of server, we're seeing really nice strong pickup in enterprise. And there as well, we're seeing our newer products do very well. So from our standpoint, it is all about ensuring that we ship what the customer needs. And in this case, it typically is our newer products, and we expect that to continue. As we transition into Venice later this year, we will expect Turin and Genoa to continue shipping, but there's a lot of goodness in going to the new products. And on the supply chain side, I know there's been a lot of discussion about how tight the supply chain is. The supply chain is tight. I would definitely say that. But I also think this is an area where we excel. We have very deep relationships across the supply chain on the wafer side, on the back end capacity side. And we are seeing meaningful improvements in that. And as our customers come to us with more demand, we are getting more supply. And the good thing about this is we're now talking about '27 CPU demand, we're talking about '28 CPU demand. And so that allows us to just plan much better as we go forward. Blayne Curtis: And then just a quick one for Jean. I'm just curious to follow up on Stacy's question on OpEx. I guess I was a little surprised that SG&A is kind of outpacing R&D. I was just kind of curious, is that start-up costs, because in a strong market, you wouldn't think you would have to discount or have a big sales effort. So I'm just kind of curious for the year, how you think about R&D growth versus SG&A? Jean Hu: I think for the year, you should expect us to grow R&D much faster than SG&A. I think in the past few quarters, we have been really building our go-to-market machine, and we have been investing more in sales and marketing side. But going forward, you should expect the year-over-year growth R&D will grow faster than SG&A growth. Lisa Su: Yes. And if I just add to that, Blayne, the places that we invest -- Jean is absolutely right. We're investing in R&D ahead of sales and marketing. But the places that we're investing in sales and marketing are paying off. So the investments are going into enterprise servers. They're going into commercial PCs. They're going into mid-market, small and medium business. These are places where AMD traditionally didn't invest, but now that we have a much broader portfolio, both on the server CPU and on the commercial PC side, it makes sense for us to invest because that's sort of the very best part of those markets. Matthew Ramsay: All right. Thank you very much, everybody, for joining and your interest in AMD. John, you can go ahead and close the call now. Thanks. Operator: Thank you. And ladies and gentlemen, that does conclude the question-and-answer session, and that also concludes today's teleconference. We thank you for your participation. Please disconnect your lines, and have a wonderful day.
Operator: Welcome, ladies and gentlemen, to Embecta Corp.'s Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded, and a replay will be available on the company's website following the call. I would now like to turn the call over to your host today, Mr. Pravesh Khandelwal, Vice President of Investor Relations. Sir, you may begin. Pravesh Khandelwal: Good morning, everyone, and welcome to embecta's fiscal second quarter 2026 earnings conference call. The press release and slides to accompany today's call, along with webcast replay details are available on the Investor Relations section of our website at www.embecta.com. With me today are Dev Kurdikar, embecta's Chairman and Chief Executive Officer; and Jake Elguicze, our Chief Financial Officer. Before we begin, I would like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events as outlined in our slides, including those referenced on Slide 2 of today's conference call presentation. Such statements are, in fact, forward-looking in nature and are subject to risks and uncertainties, and actual events or results may differ materially. The factors that could cause actual results or events to differ materially include, but are not limited to, factors referenced in our press release today as well as our filings with the SEC, which can be accessed on our website. We do not intend to update or revise any forward-looking statements, including any charts, financial projections or other data referenced in this presentation, whether as a result of new information, future events or otherwise, except as required by applicable law. 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 our press release and conference call presentation, which are also included in the Investors section of our website at embecta.com. Our agenda for today's call is as follows. Dev will begin with an assessment of the company's performance during the second quarter and associated financial guidance implications. We will also share the progress we have made on our strategic objectives and will discuss the expected imminent closing of the Owen Mumford acquisition. Jake will then take you through our second quarter financial results in more detail as well as our updated fiscal year 2026 guidance. Dev will then conclude with our updated approach to capital allocation, and we will open the call for questions. With that, I will now turn the call over to Dev. Devdatt Kurdikar: Good morning, everyone, and thank you for joining us today. I want to start the call by addressing our second quarter performance and full year guidance revision. This was a difficult quarter for embecta. Our results were below expectations with consolidated revenues down 14.4% year-over-year on an as-reported basis or 17.4% on an adjusted constant currency basis. As a result, we are updating our full year guidance to account for the underlying factors that impacted performance during the quarter and that we expect to persist for the remainder of the year. We have a number of initiatives underway already to counteract them as we transition from our roots as a spun-out insulin injection delivery company toward a more diversified broad-based medical supplies company. We are actively laying the foundation to one day serve patients beyond those solely with diabetes. Our strategic priorities, along with our recent acquisition of Owen Mumford, will help us get there. Turning to the second quarter. While our International business performed in line with our prior outlook, our U.S. business fell short of expectations due to a combination of factors that I'm going to take you through now. The largest contributor to the lower year-over-year U.S. revenue is share loss within our pen needle product category, most of which is concentrated at a single customer. We estimate that the remainder is spread across smaller regional and independent pharmacy customers. It is important to understand that the patients switching to competitive products are likely not on payer plans where we have preferred access. That means that the revenue impact of the switching is estimated to be greater than what is indicated by an average unit price. The second largest contributor is overall market volume softness for insulin pens and pen needles in the retail channel. We believe this contributes to most of the remaining pen needle revenue decline. And as it relates to the insulin pen market, we are seeing signs of decline in overall insulin pen prescriptions. This is driven by a decline in the retail channel, but is being partially mitigated by growth in the long-term care channel. We are also seeing volume softness in longstanding accounts where we have a stable share position. Additionally, more patients choosing to acquire pen needles from channels where we do not participate or where products are lower priced is driving additional pressure on retail pen needle volumes. The remaining pen needle decline is related to inventory reductions at certain accounts and additional net pricing pressure. Finally, a reduction in syringe and safety products revenue comprised the remainder of the overall U.S. revenue decline. As a result, we are revising our fiscal 2026 revenue guidance to a range of between $1.015 billion and $1.035 billion. This reflects both the U.S. revenue shortfall in the second quarter and our updated expectations in the U.S. for the remainder of the fiscal year. International is performing as expected, and our outlook there is unchanged. Additionally, the revised range includes approximately $30 million in revenue contribution from the acquisition of Owen Mumford, which is expected to close by the end of this month. This compares to our previous guidance range of between $1.071 billion and $1.093 billion. As a reminder, during our first quarter earnings conference call, we had commented that we expected to be closer to the lower end of that revenue guidance range. Excluding the anticipated 4-month contribution from Owen Mumford, our current organic revenue outlook at the midpoint is approximately $995 million or a reduction of approximately $75 million from the low end of our prior expectations. Pen needles account for approximately 70% of the $75 million revenue guidance reduction or approximately $53 million. Given that pen needle market volume estimates can be somewhat imprecise, it is not possible to exactly calculate the individual contributions of competitive share loss and market volume softness on our product volumes. Our estimate is that share loss accounts for nearly half of the pen needle revenue reduction or approximately $25 million, while overall market volume softness is estimated to account for approximately $20 million. The remaining pen needle headwinds we are seeing are related to inventory reductions at certain accounts and additional net pricing pressure, which together accounts for approximately $8 million of the revenue guidance reduction. Turning to syringes. They account for approximately $13 million of the remaining $22 million revenue guidance reduction, most of which stems from lower syringe use associated with compounded drugs. While our decision to discontinue our swab products accounts for approximately $5 million of the revenue guidance reduction. For context, in late 2025, our sole supplier of the active ingredient in our alcohol swabs exited the API manufacturing space. Despite extensive efforts, we were unable to qualify an alternate supplier under applicable FDA standards. And while we remain committed to supporting our customers and patients through this transition, we recently made the decision to cease production of alcohol swaps. This product line had lower gross margins than our insulin injection devices. Finally, a reduction in estimated growth of safety products accounts for the remaining amount of approximately $4 million. Our guidance assumes that share loss and softness in market volumes persist throughout the remainder of the year without any further deterioration or recovery. Taken together, these are the drivers behind our performance in the second quarter as well as the full year revenue guidance revision. Considering the magnitude of the guidance reduction, we have initiated a review of our cost structure and organizational footprint. We will communicate findings and resulting actions as part of our standard quarterly reporting once that work has been completed. Now let me briefly touch on our strategic priorities. First, we continue to advance our global brand transition program during the quarter. More than 75% of embecta revenue is now represented by products commercially launched and shipped under the embecta label, and we remain on track for substantial completion by the end of calendar year 2026. Second, in terms of the development of market-appropriate pen needles and syringes, we continue to make meaningful progress during the quarter. These products are designed to compete in price-sensitive markets and may help mitigate share loss. Market appropriate syringes have launched commercially in China, and we are monitoring customer feedback. We plan to expand availability of these products in additional geographies upon the receipt of regulatory approvals. Regarding new pen needles, we have active regulatory submissions under review by the U.S. FDA, Brazilian authorities, and BSI for CE Mark certification in Europe. Third, portfolio expansion. During the quarter, we made meaningful progress on our GLP-1 B2B strategy, building directly on what we shared with you last quarter. At that time, we reported that we were collaborating with over 30 pharmaceutical partners with more than 1/3 having selected embecta as their preferred device supplier or having executed agreements in place. Three months later, the pipeline has continued to develop and now approximately 40% of our identified partners are either in active contract negotiations or have executed agreements in place. We also note that our partners have received Canadian approval and the first U.S. FDA tentative approval for a generic semaglutide injection product. Additionally, this quarter, we moved from pipeline to execution as several of our partners launched generic GLP-1 therapies co-packaged with embecta pen needles in India. That is a meaningful proof-point of our B2B value proposition and our commercial execution. Furthermore, our small pack GLP-1 retail configuration launched in Canada and Australia. These products are designed specifically to meet the needs of the growing out-of-pocket GLP-1 user population, and we expect to extend availability of such configurations into the U.S. market in the coming months to serve those patients who need pen needles to administer Zepbound in a pen injector. Regarding our fourth priority, financial flexibility, during the first 6 months of the year, we repaid approximately $75 million of outstanding principal of our Term Loan B. Disciplined deleveraging has been a consistent priority and this repayment of debt is consistent with our track record of applying free cash flow to strengthen the balance sheet and preserve strategic optionality. That financial discipline is what creates the capacity to pursue transactions like Owen Mumford. When we announced this acquisition in March, we noted that Owen Mumford had earned a global reputation for innovation, quality and patient-centered design. The more time we spend with this team in this business, the more confident we are in that view. At its core, this acquisition accelerates our transformation into a broad-based medical supplies company, one that serves both pharmaceutical partners seeking drug delivery platforms and chronic care patients across diabetes, obesity, autoimmune diseases, and the anaphylaxis markets. More specifically, we are adding a differentiated drug delivery platform designed to support pharmaceutical companies seeking a device to deliver injectable drugs. In addition, we will expand our product portfolio beyond insulin injection devices and capitalize on our global presence, thereby diversifying our revenue base. Finally, given the nature of the products being added to the portfolio, we expect to be able to leverage our core manufacturing strengths and optimize our manufacturing and distribution network, all of which is consistent with the strategy we presented at our 2025 Investor Day. Next I'll provide a brief overview of the business we are acquiring. Owen Mumford is a privately held U.K.-based innovator with a 70-year track record of developing medical devices and drug delivery technologies. OM brings a diversified portfolio of devices that serve chronic care and point-of-care testing markets, including self-injection systems, lancing devices and venous blood collection solutions. These are durable, clinically established franchises with long-standing customer relationships. Their top 10 customers have maintained relationships averaging 20 years, which speaks to the stickiness of their platform and the quality of their execution. Like embecta, Owen Mumford also has a September 30 fiscal year-end. And during fiscal year 2025, they generated revenue of approximately GBP 69.4 million with approximately 80% of their revenue concentrated in the U.K. and the United States. Their business is split between medical devices, which represents approximately 60% of revenue, and pharmaceutical services, which represents the remaining 40%. We view the pharmaceutical services business as the higher growth area of the 2, anchored by the Aidaptus auto-injector platform, which I will discuss next. Aidaptus is an award-winning next-generation auto-injector designed with a single form factor that accommodates both 1 ml and 2.25 ml fill volumes. What that practically means is that Aidaptus has a single final assembly process and was designed from the start to address customers' needs for reduced manufacturing changeovers, simplified supply chain logistics and large-scale production. We estimate the total addressable auto-injector market to be approximately $2.4 billion, growing at a double-digit CAGR. This is driven by the adoption of biologics, the emergence of generic GLP-1 therapies and the broad shift towards self-injection as a preferred modality across multiple chronic care categories. Aidaptus is well positioned to capture a meaningful share of that growth as the platform is already supporting customer clinical development programs with a commercial contract pipeline that includes secured long-term agreements with several partners. The strategic alignment with our existing GLP-1 B2B strategy is also worth highlighting as Aidaptus deepens our relevance to pharmaceutical partners who need a drug delivery device to go alongside their injectable therapy. During fiscal year 2026, Aidaptus is expected to generate a small amount of revenue as market penetration and growth are expected in future years. To that point, the acquisition of Owen Mumford was structured as an upfront payment of GBP 100 million at closing and up to an additional GBP 50 million in performance-based payments based on the net sales of Aidaptus. Regarding synergies, we have assumed a modest level of operational synergies in our financial model, reflecting opportunities to leverage embecta's manufacturing scale and infrastructure alongside Owen Mumford's capabilities. And while we have not assumed any revenue synergies in our financial model, given that OM generates approximately 80% of their revenue in only 2 countries, we believe that the commercial opportunity of pairing Owen Mumford's portfolio with embecta's presence in over 100 countries could be significant. That completes my prepared remarks at this time. And with that, let me turn the call over to Jake to take you through the financials in more detail. Jake? Jake Elguicze: Thank you, Dev, and good morning, everyone. Since Dev outlined the items impacting Q2 revenue, I will keep my comments brief. During the second quarter, embecta generated approximately $222 million in revenue, which is a year-over-year decline of 14.4% on an as-reported basis or 17.4% on an adjusted constant currency basis. Within the U.S., revenue for the quarter totaled approximately $95 million, reflecting a year-over-year decline of 29.4% on an adjusted constant currency basis. The lower U.S. revenue is attributed to the factors that Dev described earlier. Turning to our International business. Revenue for the quarter totaled approximately $126 million, representing an increase of 2.1% on a reported basis, but a decline of 4.1% on an adjusted constant currency basis. Results within International were in line with our expectations as revenue within China was lower as compared to the prior year period, given ongoing market dynamics and the broader geopolitical and trade environment. These declines were partially offset by continued strength across Latin America, Asia, and Canada. Meanwhile, from a product family perspective, during the quarter, adjusted constant currency pen needle revenue declined 20.4%, syringe revenue declined 14.6%, safety product revenue declined 2.3%, and contract manufacturing revenue declined 43.2%. GAAP gross profit and margin for the second quarter of fiscal 2026 totaled $127.8 million and 57.6%, respectively. This compared to $164.1 million and 63.4% in the prior year period. While on an adjusted basis, our Q2 2026 adjusted gross profit and margin totaled $131.8 million and 59.4%. This compared to $165 million and 63.7% in the prior year period. The year-over-year decline in adjusted gross profit and margin was primarily driven by the lower year-over-year revenue in the U.S. as well as lower year-over-year revenue in China. These headwinds were partially offset by net changes in profit and inventory adjustments and FX. Turning to GAAP operating income and margin. During the second quarter of 2026, they were $35 million and 15.8%. This compared to $62.9 million and 24.3% in the prior year period. While on an adjusted basis, our Q2 2026 adjusted operating income and margin totaled $48.6 million and 21.9%. This compared to $81.4 million and 31.4% in the prior year period. The year-over-year decrease in adjusted operating income was driven by the decline in adjusted gross profit as operating expenses remained consistent with the prior year period. Turning to the bottom line. During the second quarter of 2026, we generated a GAAP net loss of $4.1 million and a loss per diluted share of $0.07. This compared to GAAP net income of $23.5 million and earnings per diluted share of $0.40 in the prior year period. While on an adjusted basis, during the second quarter of fiscal 2026, net income and earnings per share were $16.1 million and $0.27 as compared to $40.7 million and $0.70 in the prior year period. The decrease in year-over-year adjusted net income and diluted earnings per share is primarily due to the adjusted operating profit drivers I just discussed as well as a higher year-over-year adjusted tax rate driven by the lower U.S. revenue in the quarter. Turning to the balance sheet and cash flow. During the 6-month period ended March 31, 2026, we generated approximately $47 million in free cash flow, and we repaid $75 million of outstanding debt. While our last 12 months net leverage as defined under our credit facility agreement was approximately 3x. This compared to our covenant requirement, which requires us to stay below 4.75x. That completes my prepared remarks on our second quarter 2026 results. Next, I'd like to discuss our updated 2026 financial guidance and certain underlying assumptions. Beginning with revenue. On an as-reported basis, we are lowering our guidance from a range of between $1.071 billion and $1.093 billion to a range of between $1.015 billion and $1.035 billion. This new range assumes an organic as-reported revenue range of between $985 million and $1.05 billion. It also assumes that we will close the acquisition of Owen Mumford by the end of this month, which would then generate 4 months of contribution or approximately $30 million. In terms of adjusted operating margin, given the expected decline in U.S. revenue as compared to our prior projections, we are lowering our adjusted operating margin guidance from a range of between 29% and 30% to a new range of between 22.25% and 23.25%. We are also lowering our adjusted earnings per share guidance from a range of between $2.80 and $3 to a new range of between $1.55 and $1.75. The largest driver of this reduction is the impact of the lower U.S. revenue and associated gross profit, which accounts for most of this change. In addition to the U.S. revenue and gross profit impact, the addition of Owen Mumford, including the interest expense on the associated borrowings is expected to be dilutive by approximately $0.15. Over the longer term, we continue to expect that the acquisition of Owen Mumford will contribute to revenue growth in fiscal year 2027 and beyond, that OM will be immaterial to embecta's fiscal year 2027 adjusted operating income and to be accretive thereafter, that OM will be dilutive to adjusted net income in fiscal year 2027 to be immaterial to embecta's fiscal year 2028 adjusted net income and to be accretive thereafter, and that the acquisition will generate high single-digit return on invested capital by year 4 with increasing contribution thereafter. Lastly, because of the lower expected U.S. profitability, coupled with the addition of Owen Mumford, we now expect that our adjusted tax rate will increase from approximately 23% to approximately 28%, thereby reducing our adjusted EPS as compared to our prior expectations by approximately $0.10. Turning to the balance sheet and cash flow. Despite the reduction in our revenue and profitability guidance ranges, we continue to target repaying approximately $150 million in debt during 2026. Lastly, in terms of free cash flow and inclusive of the addition of Owen Mumford, we now expect to generate free cash flow of between $95 million and $105 million. This compares to our prior guidance range of between $180 million and $200 million. This updated guidance range includes approximately $40 million in one-time use of cash associated with brand transition and the Owen Mumford acquisition. That completes my prepared remarks. And at this time, I would like to turn the call back to Dev to discuss our updated capital allocation framework. Dev? Devdatt Kurdikar: Recently, our Board authorized a 3-year share repurchase program of up to $100 million and concurrently reduced our quarterly dividend from $0.15 per share to $0.01 a share. We believe that this change in our capital allocation will provide us with additional flexibility to deploy capital towards share repurchases or additional debt reduction, which are currently our primary focus areas. We expect to commence share repurchases beginning in the current quarter, subject to market conditions and our share price, amongst other factors. That completes my prepared remarks, and I will now turn the call over to the operator for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Marie Thibault with BTIG. Marie Thibault: I want to spend a little time better understanding the U.S. weakness this quarter and assumptions going forward. I think you said in your commentary that in the U.S. pen needle segment, the losses were concentrated at a single customer. I wanted to understand if that was the same customer as was referenced last quarter, where there were pricing concessions made and why, if so, the volumes weren't stabilized by that move? And then secondly, you called out weakness in insulin pen prescriptions. Can you tell us a little bit more about what's driving that? Could that be short-lived? Or is that a long-term trend? Devdatt Kurdikar: Let me start by taking the market question first on insulin pens and pen needles, and then go to the competitive loss question. So first on insulin pens, if we look at prescriptions for insulin pens, we have now begun to see a decline maybe more pronounced in the most recent quarter that we reported. That decline is actually greater in the retail channel than it is in other channels. And insulin pens are sold primarily in retail, but some in long-term care and very little in the specialty care channel. So insulin pen is mostly stored and sold in retail, and there has been a decline. That decline is greater in long-acting than fast-acting. And it seems to be driven by a decline in new prescriptions. That obviously translates into the pen needle market as well, but maybe a bit exacerbated in the pen needle market because what we are also seeing is a decline in retail that maybe is a little bit faster for pen needles than there is for insulin pens. Now some of this is likely being caused by shift in purchasing patterns from retail to perhaps lower cost channels or where pen needles are available at a lower price. We've also seen declines in accounts, as I referenced, where we believe we have a stable share position, so more indicative of market than anything else. And those are the market trends that we are seeing. Of all the variables that we try to account for in our guidance, this is perhaps the one where there is maybe more uncertainty because what we are observing is more of a recent shift than certainly what we've seen over the past several years. So that's about the market. Now with respect to the competitive loss, yes, it was the same customer that we had referred to earlier. Obviously, I don't want to talk about pricing at any specific customer or even broadly in the U.S. market. But I think what we've ended up is the share loss at that customer is a little bit deeper than we anticipated. But I want to point out a couple of factors that I referenced in my prepared remarks. So when there is a shift in share at a particular retailer, we believe that much of that share loss occurs with patients who are not on preferred plans with us. And so they can move to a different brand of pen needles and still use their insurance plan. And so when that happens, the revenue impact of that share loss is higher since if we are not on a preferred plan for that patient, obviously the rebate amount for that payer plan is less for us. Secondly, while, yes, most of that competitive loss was concentrated at the aforementioned account, we are seeing some declines in smaller regional players as well as independent pharmacies. Now with these smaller regional players and independent pharmacies, the rebates that these retailers get are obviously less than our large customers. And so that has an impact on the revenue as well. And so the competitive share loss affects us maybe at a higher rate than one might imagine just by using an average unit price. So those are the 2 factors that are impacting the U.S. results this quarter and drove the majority of the guidance revision for the year. Marie Thibault: Okay. That's helpful. And just to clarify, could GLP-1s be an impact on the insulin prescriptions? Is that anything you're seeing in the field? Devdatt Kurdikar: It's hard to definitively state what it is. But certainly, as we explored what the factors were that could be leading to market softness, right? The 2 factors that actually bubbled to sort of the top of the mind are, one, GLPs. And now you could ask sort of what's changed in GLP-1s and GLPs have been around. And we do wonder whether the increasing affordability of GLP-1 drugs certainly over the past several months could have played a factor in increasing penetration rate. Now if that were to be the case, what would result is obviously a larger number of patients sort of would try GLP-1s before they start insulin. And could that be having an effect? Certainly, that's possible, but it's hard to conclusively state that. The second thing, obviously, that occurred in December of 2025, so the beginning of our fiscal second quarter, is the expiration of the ACA subsidies. And could that be having an impact on the insured population, particularly as it affects sort of insulin uptake and doctors' visit and getting sort of progressively treated for type 2 diabetes? Maybe. Those are the 2 factors that potentially have shown an inflection point at the beginning of the quarter, Marie, but it's hard at this point to conclusively state the contribution of those factors or whether there are others. Marie Thibault: Yes. Lastly for me, and then I'll hop back in queue. I understand it's early right now. But as we think about embecta long term, beyond this fiscal year, do you envision that you can return to sales growth here from this level? Devdatt Kurdikar: Yes, absolutely. That's certainly what our intention is, that's what our target is, and that's what we believe the Owen Mumford acquisition will position us for, right? So let me zoom back a little bit. Almost 1.5 years ago, we announced the termination of the patch program. And then at the Analyst Day a year ago, we sort of conveyed our strategic intent to diversify into being a broad-based medical supplies company and really get further into chronic care drug delivery and build out our B2B segment. Prior to the acquisition of Owen Mumford, we started some initiatives. We wanted to expand our portfolio of syringes and pen needles, and you heard today about the advances that we've made over there. And we laid out a plan to really go deeper into the B2B segment and establish relationships with generic drug companies wanting to enter the generic GLP-1 market. And we, at that point, pointed out that that was a $100 million opportunity for us. Everything that we've seen since then, I think, further validates that $100 million opportunity, including the launch of generic GLP-1 therapies in India that actually have our pen needles co-packaged with them. Obviously, we noted with excitement, Canadian approvals. We still expect Brazil and China to launch generic GLP-1s as well. Obviously, timing is a little bit uncertain. China might actually end up being in 2027 rather than 2026. But certainly, the advances that we are making over there do position us to get back to revenue growth. And then on top of that, if you add the Owen Mumford acquisition, it really diversifies our product portfolio into chronic care, broad-based medical supplies. Their medical devices business is really concentrated in a few countries. And while we haven't assumed any revenue synergies in our model, certainly we are excited about the prospect of taking that bag of products and putting it into the hands of our commercial people all over the world. And then the auto-injector platform that I talked about Aidaptus, we believe that that is certainly a product that's differentiated. It allows for reducing supply chain complexity and manufacturing changeovers, which we believe pharmaceutical partners will accept. And over time, by the way, it has a list of secured customers, a pipeline that's developing, and it fits in very nicely with what has been our focus, which is establishing smaller -- deeper relationships with pharmaceutical companies that are looking for drug delivery options. I think you take that and you combine it with our efforts on developing a pen injector, certainly will leverage Owen Mumford's expertise since they have right now a reusable pen injector in their portfolio. And over time, we see ourselves as being a company that can provide an auto-injector, a pen injector and pen needles as a suite of products that will be available to pharmaceutical companies. And I think all of these initiatives absolutely are designed and with the intent of really returning us to revenue growth. One final point I want to mention, sorry Marie, is talking about Aidaptus. I mean, we certainly believe that that could be a $100 million product line for us. Operator: Our next question comes from the line of Anthony Petrone with Mizuho Financial Group. Anthony Petrone: So maybe on the pen needle contract, obviously a competitive loss there. But just wondering the length of the contract in terms of the loss there and when maybe it comes up for renewal, do you think looking ahead, whenever there is another request for proposal there, an RFP that you can look at that contract and be more competitive on the next go around. And then I'll have a couple of follow-ups. Devdatt Kurdikar: Yes. Anthony, on that, maybe it's worth clarifying. It's not like we've lost all the share. It's just our share position is reduced versus what it was. So it's not like we are out of that customer entirely. Now with respect to when we can get back, look, I mean, we have action plans right now underway to not only stem competitive losses, but also figure out ways to get back and win that share. So I don't want to sort of forecast exactly when that will happen, but I do want to convey that we are not going to be standing still waiting for contract renewals or what have you since it's not like we are completely out of those accounts. I think our share position has been reduced in those accounts, and we are certainly going to work as hard as possible to bring our share position back up. Anthony Petrone: That's helpful. I don't know, is there any timing you can put around those efforts? Is that a multiyear effort? Or is it something that you can see in a range of a 12- to 15-month time frame? Or is it, again, longer term? Devdatt Kurdikar: Yes. Look, I don't expect it to be a multiyear effort, honestly. So again, I don't want to put a specific time frame on it, obviously, for competitive and other reasons, but maybe I'll leave it at that. I don't expect it to be a multiyear effort, no. Anthony Petrone: No, all good. And then just when you think about the pressure, you kind of highlighted almost 3 areas here. There's lower-cost providers coming in. There's the GLP-1 question that Marie asked. And then just legacy, there was this pressure moving away from multiple daily injections to patch pumps as well as automated insulin delivery devices. When you think of those 3 buckets, it seems like the lower cost strategy kind of won the day here. But if you had to bucket those 3 headwinds, how would you kind of weight, if you had to put a weighted average on those 3 competitive headwinds in the pen needle business, how would you weight those? And then just a real quick one here would be, you had a trade receivables factoring agreement where there were receivables sold, I think, to Becton. It was roughly like $64 million. Just given the impacts in the business here, I want to make sure that that trade receivable agreement is intact. Devdatt Kurdikar: Yes. I'll let Jake take the trade receivable agreement. But with respect to sort of putting a weight on each of the factors, maybe there are 3 different things, I think, factors that affect the market in 3 different ways, right? The increasing affordability of GLP-1 drugs potentially affects insulin pen prescriptions. And we have seen insulin pen prescriptions trend downwards most recently. Could that be because of the increasing affordability of GLP-1 drugs? Maybe so. And what we've seen over there is the long-acting insulin, which is what you would expect the GLP-1 effect to be concentrated on, is decreasing faster than long-acting insulin. With respect to movement towards maybe lower-priced products, what it is is really maybe more a shifting of where patients are buying pen needles. So instead of the traditional retail channel and maybe they are going to retail, but maybe more patients buying sort of cash pay products or over-the-counter products or in channels where lower-priced products are available, that affects the pen needle market. And then thirdly, you asked about pump adoption. The way sort of we think about that is we look at fast-acting, right, so mealtime insulin prescription trends. And yes, while there has been a decline in fast-acting insulin, really what's driving, I believe, the total prescription decline has been the decline in long-acting. So really, pump adoption is something that, as you know, this business has been dealing with for a number of years. It's hard at this point to look at the data and say that that is the primary factor, Anthony. So I would say it's more towards a shift towards lower-priced products and potentially the 2 other factors I outlined earlier in my question -- in my answer to Marie, is that the increasing affordability of GLP-1 drugs. Could the impact of the ACA subsidies have had some impact on the overall market volume as well? Potentially. But it's going to take months, maybe a couple of quarters to really get the data. Jake Elguicze: And then, Anthony, on the receivables factoring program, this is a standard AR factoring program that we have actually with a third-party bank. So very common in the industry to have something like this. It doesn't have anything to do with Becton, Dickinson in any way. It was something, I think, that we put into effect around a year or so ago. We continue to factor receivables under normal due course, and we would continue to expect to do so in the future. So none of that has necessarily really changed by this. And in terms of liquidity and whatnot, we continue to expect good free cash flow, continue to expect to repay $150 million in debt during the course of this year, which was our original guidance assumption coming into the year. And obviously that's despite the revenue call down in the U.S. today. Operator: [Operator Instructions] Our next question comes from the line of Ryan Schiller with Wolfe Research. Ryan Schiller: I was hoping we could look out further to next fiscal year. Understanding there is no formal guidance in place, but maybe how are you thinking about the FY '27 revenue growth given all the pressure in the U.S.? Devdatt Kurdikar: Yes, Ryan, I think it's too early to comment on that. As you heard me say, right, some of the trends that we are observing now in the most recent quarter are all sort of early. So really, our plan right now is to focus on executing on 2026, closing the impending Owen Mumford acquisition, getting those products in our bag, advancing the pipeline, both on our B2B products for pen needles as well as the auto-injector platform. And really, then we'll talk about 2027. It's far too early at this point for me to comment on 2027. Ryan Schiller: Okay. And then OUS finished in line with your expectations in the quarter. I'm hoping you can give us the latest on what you're seeing in China and any updated growth outlook there? Devdatt Kurdikar: Yes, very pleased with our International performance, certainly performing per expectations. With regard to China, just as a reminder, obviously we don't disclose China separately, but we think about Greater China, which includes Mainland China, Taiwan, and Hong Kong. And over there, we sell the product to 3 or 4 national distributors that then go on to sell to sub distributors. Certainly, last year, fiscal 2025, there were significant declines and we took a bunch of steps to stabilize the situation. We are seeing early signs of sequential stability. We really reordered our sales team, that had a more price competitive pen needle that we launched over there. We will see likely some headwinds this year, but certainly it's going to be significantly less than what we saw last year. And look, over the long term, our view on China hasn't changed, right? The market is growing there in mid-single digits. We have a strong commercial and manufacturing infrastructure over there. The new pen needle that I referenced where we've already submitted for regulatory approvals, that is being developed and manufactured over there. And finally, I also mentioned in the GLP-1 generic space that there are Chinese companies that want to get into the generic GLP-1 market as well. And obviously, we want to partner with them. So for all those reasons, we continue to remain optimistic on how China will end up. Now obviously cognizant of the fact that China -- the geopolitical considerations when it comes to China can impact in the short term, but we still remain optimistic in our long-term view on China. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Dev for closing remarks. Devdatt Kurdikar: As we close the call, I just want to thank my colleagues across embecta for their continued focus and commitment. This was a difficult quarter. But I do want to be clear, we are not standing still and actions are already underway to address the issues we face. The steps that we are taking, closing the Owen Mumford transaction, reshaping our capital allocation and executing on our strategic priorities, are purposeful steps to build a stronger, more flexible company for the long term and are aligned with our strategic road map. Thank you for joining us today and for your continued interest in embecta. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Karina Calzadilla, head of investor relations. Please go ahead. Karina Calzadilla: Thank you, Anton, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies Corporation First Quarter 2026 Earnings Conference Call. Earlier today, we issued a press release reporting Adaptive Biotechnologies Corporation financial results for 2026. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and will be referencing a slide presentation that has been posted to the Investors section on our corporate website. During the call, management will make projections and other forward-looking statements within the meaning of federal securities laws regarding future events and the future financial performance of the company. These statements reflect management's current perspective of the business as of today. Actual results may differ materially from today's forward-looking statements depending on a number of factors which are set forth in our public filings with the SEC and listed in this presentation. In addition, non-GAAP financial measures will be discussed during the call, and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad M. Robins, our CEO and Co-Founder, and Kyle Piskel, our Chief Financial Officer. Additional members from management will be available for Q&A. With that, I will turn the call over to Chad. Chad? Chad M. Robins: Thanks, Karina. Good afternoon, and thank you for joining us on our first quarter earnings call. As shown on slide three, we are off to a strong start to the year, with accelerating momentum in MRD and disciplined execution across the company. MRD revenue grew 53% year over year, reflecting broad-based strength across both clinical and pharma. We also recognized our first primary endpoint milestone this quarter, a meaningful proof point for MRD's expanding role in drug development. clonoSEQ clinical volumes increased 41% year over year, demonstrating strong continued adoption. We also delivered meaningful margin expansion, with sequencing gross margin increasing eight percentage points year over year to 70%, driven by scale and operational efficiency. At the same time, we maintained strong financial discipline, reducing cash burn and ending the quarter with approximately $222 million in cash. Given the strength we are seeing in the MRD business, we are raising our full-year MRD revenue guidance to a range of $260 million to $270 million. Kyle is going to provide more detail shortly. Let us now turn to slide four for a deeper look at the MRD business. Our clinical business continues to deliver strong growth, with revenue up 54% year over year. clonoSEQ tests reached another quarterly record of almost 32,600 in Q1, up 9% sequentially. Growth was observed in all reimbursed indications, led by DLBCL at over 19% growth versus the prior quarter. Importantly, we are seeing mounting traction across the key drivers that support durable, long-term adoption. Blood-based testing reached 49% of MRD volume. In multiple myeloma, a traditionally bone marrow–driven indication, the contribution of blood-based MRD increased to 29%, up eight percentage points year over year. This shift is closely linked to expansion of the community setting, where a combination of favorable guideline updates and implementation of standardized testing protocols contributed to growth rates that outpaced the rest of the business. Community volumes grew 67% year over year and now represent 35% of total testing. Growth in the community business was further supported by our EMR-enabled workflows, which are driving repeat utilization. Serial monitoring orders available to Flatiron-integrated accounts are widely being utilized, and strong initial pull-through rates have further improved with 72% of repeat orders due being fulfilled. Physician engagement also continues to expand, with the number of ordering clinicians growing 43% year over year to nearly 5,000 in Q1, underscoring increasingly broad acceptance of MRD as part of routine clinical management. Finally, we continue to see increases in pricing, with U.S. ASP growth of 11% year over year to $1,360 per test. Importantly, I am excited to share that clonoSEQ is now listed in the Texas Medicaid policy manual. clonoSEQ is one of only two specific tests included in the newly developed genetic testing section, and patients may receive up to six tests per year. It is great to be pioneers in bringing advanced molecular testing to some of our most vulnerable patients. Our scale, adoption, and embedded workflows support clonoSEQ's sustained growth and continue to strengthen our leadership position as the market evolves. Let us now turn to slide five to discuss our biopharma business. We delivered one of the strongest quarters to date in MRD Pharma, with revenue growing 53% year over year, or 33% excluding milestones. As mentioned, we also recognized our first milestone in the U.S. tied to MRD as a primary endpoint, the CEPHIUS trial in multiple myeloma. New bookings were strong, driving backlog to approximately $254 million, up 24% year over year. Bookings came primarily from regulated studies, including several registrational trials where MRD will be used as a primary or co-primary endpoint in both multiple myeloma and CLL. We continue to see increasing use of MRD to guide treatment. Today, we have approximately 20 ongoing interventional studies where MRD is used for enrollment, stratification, or to guide therapy decisions. As these trials read out, they directly support our commercial business. For example, data from the PERSEUS trial helped establish sustained MRD negativity as a meaningful measure of deeper response in multiple myeloma, which supports broader adoption of clonoSEQ in clinical practice. The momentum we are seeing in the pharma business is likely to be further supported by evolving regulatory trends. The FDA recently introduced a new clinical trial model that incorporates real-time data submission, with early proof-of-concept studies underway, including the TRAVERSE trial in mantle cell lymphoma, where MRD-negative complete response measured by clonoSEQ is a key endpoint. While early, this emerging model for accelerating data review will reinforce the value of MRD endpoints that are objective, quantitative, and longitudinal. These dynamics are particularly relevant in regulated and registration settings where data quality, reproducibility, and regulatory credibility are critical, and where clonoSEQ is well positioned as a clinically validated MRD assay. Taken together, the trends we are observing support a reinforcing flywheel between biopharma and clinical testing, as adoption of clonoSEQ in drug development generates evidence, strengthens clinical utility, and drives demand in the clinic. To wrap up on MRD, as shown on slide six, we are well on track to deliver against our key priorities for the year. Starting with clinical volumes, we initially guided to over 30% growth for the year. Based on our first quarter performance and continued momentum, we now expect volumes to grow to at least 35% in 2026, with potential for upside. Importantly, the underlying drivers of growth are already nearing our full-year targets. Blood-based testing is rapidly approaching our goal of over 50% contribution, and community contribution is already at 35%, in line with our full-year expectations. EMR integrations continue to advance, with six new Epic accounts added year to date and five more expected to go live in the next month. In April, we went live with Epic at another of our top 10 accounts, bringing us to seven of our top 10 now being fully integrated. On pricing, we remain on track to achieve our target of approximately $1,400 per test in 2026, supported by recent policy expansions in CLL and DLBCL, Medicaid payment traction, and commercial payer negotiations, with 10 signed in the first quarter alone. Finally, strong top-line growth combined with continued operational efficiencies positions us to achieve over 70% sequencing gross margin and expand adjusted EBITDA. Overall, our progress across these MRD priorities is a testament to our continued momentum and strengthens our confidence in our ability to meet or exceed our full-year commitments. Turning now to slide seven, our immune medicine programs are progressing well against our 2026 key priorities. We continue to scale our TCR–antigen data sets and advance our AI/ML modeling work. We now have more than 6 million functional TCR–antigen pairs, with data that currently spans about 50,000 antigens and 50-plus HLA types. This proprietary data set enables us to understand TCR–antigen interactions and their role in cancer, virology, and autoimmunity. We recently confirmed that our digital AI model outperformed the accuracy of existing public benchmarks in predicting TCR–antigen binding. We published this work in Proceedings of Machine Learning Research and presented at the Machine Learning for Health Symposium. Our focus this year is to further improve these models in targeted applications that could be attractive to partners seeking to leverage our data and our digital capabilities. In parallel, we are applying our AI-enabled immune medicine platform to identify the likely disease-causing T-cell receptors and their antigens in select autoimmune conditions. This quarter, we kicked off our RA target discovery partnership with Pfizer. We received over 1,000 patient samples and are on track to deliver the RA data package in 2026. As we continue to make progress on these 2026 priorities, we are advancing discussions on additional data partnerships, maintaining a disciplined approach to capital allocation, and operating within our expected cash burn range of $15 million to $20 million for the year. I will now turn the call over to Kyle, who is going to walk through our financial results and updated full-year guidance. Kyle? Kyle Piskel: Thanks, Chad. Starting on slide eight with our first quarter results, total revenue was $70.9 million, representing 45% growth year over year, driven primarily by continued strength in MRD, which accounted for approximately 95% of total revenue. Of note, amortization from the Genentech payments is excluded from all prior period comparisons. MRD revenue grew 53% versus the prior year to $67.1 million, with clinical and pharma contributions of 65% and 35%, respectively. Immune medicine revenue was $3.8 million, down 26% from a year ago, primarily due to timing of sample receipts and processing. Turning to margins, sequencing gross margin, which excludes MRD milestones, was 70% for the quarter, up from 62% a year ago. This improvement reflects reduced assay costs due to efficiencies from our NovaSeq X launch in 2025, leverage in overhead as we support higher volumes, and favorable pricing trends across both clinical and pharma. Total operating expenses, inclusive of cost of revenue, were $90.1 million, up 10% year over year. This increase was mainly driven by continued investment in commercial and infrastructure, including EMR integrations and reimbursement, as well as higher personnel-related costs. At the segment level, MRD continues to demonstrate strong profitability, with adjusted EBITDA of $12.1 million compared to a loss of $4.1 million in the prior year, reflecting the impact of revenue growth, including milestone revenue, and continued operating leverage. Immune medicine adjusted EBITDA was a loss of $10.4 million. At the total company level, adjusted EBITDA was a loss of $2.5 million. Net loss for the quarter was $20 million, including approximately $2.9 million of interest expense related to our royalty financing agreement with Orbit. I will now turn to our updated full-year guidance on slide nine. We are raising our full-year MRD revenue guidance to a range of $260 million to $270 million, up from our prior range of $255 million to $265 million. This increase reflects stronger-than-expected clinical volume performance in the first quarter and continued momentum across key growth drivers. This range includes $9 million of MRD milestone revenue, which was recognized in the first quarter, and we do not anticipate additional milestone revenue for the remainder of 2026. At the midpoint of the guide, this implies approximately 25% year-over-year growth, or 33% growth excluding milestones. In terms of seasonality, we continue to expect MRD revenue to be weighted approximately 45% in the first half and 55% in the second half. We are reiterating our full-year total operating expense guidance, including cost of revenue, of $350 million to $360 million. This reflects continued investment in MRD growth, with approximately 75% of spend allocated to MRD, approximately 20% to immune medicine, and the remainder to corporate unallocated. Importantly, we remain on track to achieve positive adjusted EBITDA and positive free cash flow for the full company in 2026. Overall, the quarter reflects strong financial execution supported by continued revenue growth, expanding margins, and operating leverage. With that, I will turn the call back over to Chad. Chad M. Robins: Thanks, Kyle. We are executing well across the business, and the strength we are seeing, particularly in MRD, gives us confidence in both our plan and the opportunity ahead. As we move through the year, we expect to build on this performance and drive additional upside over time. With that, I will turn it over to the operator for questions. Operator: We will now open the call for questions. Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while I compile the Q&A roster. Our first question comes from Andrew Brackmann from William Blair. Please go ahead. Andrew Frederick Brackmann: Hey, guys. Good afternoon. Thanks for taking the questions here. Wanted to ask on community testing. You know, Chad, as you sort of outlined here, I think you are already at the full-year target for the mix that you want coming from the community. Can you maybe sort of compare and contrast for us just the nature of the conversations that you are having with those accounts in particular today versus a year or so ago? You have got so much sort of tailwinds from the blood mix increasing and then also the EMR integration. So how have those conversations sort of evolved over the last year or so? Susan Bobulsky: Thanks for the question, Andrew. I can help answer that. I think a year ago, if you had asked me this question, I would have said the conversations had shifted from “What is MRD? Why should I care? Why should I do this?” to “How should I do this? Which patients? Which indications? Which use cases? Help me understand more of the practical applications.” And now, a year later, the conversations are increasingly shifting toward practical implementation. We are increasingly getting traction with conversations around protocols and, in fact, have established testing protocols in a number of large community centers and networks. The goal is: let us standardize testing so that all our patients have access to the best care; let us ensure our clinicians are not forgetting about this for their heme patients, who in the community may not make up the lion’s share of the patients they see every day. That sort of practical, implementation-oriented conversation is more and more the norm, and I think it is a really positive sign for the degree to which MRD is now becoming entrenched as part of the standard of care in the community at large. Andrew Frederick Brackmann: That is perfect. I appreciate all that color. And then just wanted to ask on the reimbursement front. Obviously, there is a lot of noise out there with respect to CMS and the CRUSH initiative. Can you maybe just remind investors how clonoSEQ is positioned from a reimbursed profile? How you see your rate as durable even if there are changes to things like MolDX nationalization or implementation of prior authorizations? Thanks for taking the questions. Unknown Speaker: Yes. It is Dave. Thanks for the question, Andrew. We have looked extensively at this question, and after internal and external evaluation with outside counsel, we determined that we are currently not subject to panel reporting requirements for the cycle. There are very specific and defined requirements for PAMA reporting by statute, and your tests must not only fall under the CLFS, or Clinical Laboratory Fee Schedule, but also have to account for over 50% of your Medicare revenue. CMS publishes a list of CPT codes that fall under the CLFS, and the clonoSEQ episode billing structure is not on it. If we go one level deeper, CMS does not identify the MolDX code that we use for billing under the clonoSEQ episodic rate structure as being on the CLFS list. It is worth noting, as you all know, that the vast majority of our Medicare revenues are generated through the episode rate structure billing under the MolDX program. CMS does consider the PLA code that we use to bill Medicare for MCL recurrence monitoring as being on the CLFS, but our Medicare revenues under the PLA code for recurrence monitoring are well below the 50% revenue threshold set for PAMA for this initial data-reporting period. Separately, as it goes to your durability question, we are pursuing a multipronged strategy that not only includes recurrence monitoring—we are also in productive discussion with MolDX to increase the number of tests per bundle under our episode structure. There are other things that we are looking at. This is of super high importance, and we are all over it. Andrew Frederick Brackmann: Great. Appreciate all the color. Chad M. Robins: Thanks, guys. Susan Bobulsky: Sure. Operator: Thank you. Our next question comes from David Westenberg from Piper Sandler. Please go ahead. David Michael Westenberg: Hi. Thank you for taking the question. Congrats on the great job here. So I want to talk about MRD as a primary endpoint. Congratulations on that. Should we think about different things like CDx or on the label, and how should we think about pharma basically helping to push your product because of it beyond the label? And lastly, I imagine there is a lot of power in being able to find patients that are recurring. Is there any potential reimbursement or strategic monetization of maybe getting these clinical patients into clinical trials that were not able to prior to maybe, you know, clonoSEQ and its incredibly high sensitivity? Susan Bobulsky: Thanks, David. I appreciate those questions, and I think it is an interesting set of topics. First, with regard to primary endpoint, as you heard in Chad’s prepared remarks, we are seeing increasing use of the assay in the pharma setting in terms of regulated studies. And even more beyond that, we are seeing use in interventional studies where MRD is being used to stop or start therapy and to qualify patients that should be enrolled in the study to begin with. That particular trend is extremely favorable for our business because, of course, we are the only FDA-cleared assay in the space. We are extremely well positioned to capture these opportunities. We are also an assay that has extremely deep sensitivity and high specificity, which is really important in the context of interventions where you do not want to be giving patients therapies they do not need, right? So, the question then comes up: is this a companion diagnostic? Should it be incorporated into studies? There are now the beginnings of studies that are exploring that use case for MRD, although up to this point, the FDA has not taken the position that MRD needed to be positioned as a companion diagnostic within the regulatory context. I imagine that will come up as time goes on. There will be some studies for which that may be appropriate and others not. But regardless of whether MRD becomes a companion or remains a complementary diagnostic for these studies and therapies, it is quite clear that pharma companies are very interested in partnering to ensure that MRD uptake supports the adoption of their therapies. We are already having numerous conversations with our biopharma partners who want to better understand MRD adoption dynamics from our point of view and want to think about how we can work together to expand MRD adoption, especially in the community setting. And to your question about the concept of clinical trial matching, that is potentially an application of the data that we generate, and we have done some initial exploration. There is some level of interest in that, but more work needs to be done to determine whether and how we may proceed. David Michael Westenberg: Got it. And if I may, I am going to ask just one more sticking with the clonoSEQ business. DLBCL grew 19% quarter on quarter. That is great, particularly because there is a lot of noise with competition and a competitor having a lot of different presentations. Do you think that you maybe saw benefits from all of the different presentations at ASH and that would be a one-, two-, three-quarter benefit as all these physicians saw that at ASH? Or do you think there is sustainability for something beyond that? Thank you. Susan Bobulsky: I think that the strength we saw in the DLBCL business in Q1 is very pleasing to see, but also we have seen very strong growth quarter over quarter prior to and since the entry of competition in the space. I am quite confident that the growth we are seeing quarter over quarter is driven by the sustainable moats that we have built and the durable advantages that we have—the brand awareness specifically as a heme MRD test, the technology and its advantages relative to other approaches to assessing MRD, and the broad real-world clinical experience that we have built along with the coverage and the customer satisfaction that we have been able to deliver. All those things have contributed to clinician confidence in utilizing clonoSEQ. As the noise around MRD and DLBCL continues to mount, we are disproportionately benefiting from that as the market leader. And— Chad M. Robins: I was just going to say, David, just remember it is really early days for MRD and DLBCL in general. Susan mentioned all the reasons that we are well positioned, but we see durable growth over many quarters ahead. The general sentiment is getting doctors to incorporate MRD into clinical practice as a routine measure. We are benefiting not only from noise across the industry, but also, as Susan mentioned, from the fact that we have what we believe is the most sensitive and specific test out there. Susan Bobulsky: Yes. And, David, we do intend to continue to release additional data in this space, and I think particularly at ASH, we expect that you will have the opportunity to see another round of significant data advance. David Michael Westenberg: Alright. Chad M. Robins: Thank you. Operator: Our next question comes from Mark Massaro from BTIG. Please go ahead. Mark Anthony Massaro: Hey, guys. Thanks for taking the questions, and congrats on another beat and raise. I wanted to start on the pharma backlog, which increased 24% year over year. And like David said, it is great to see the first primary milestone come in. I think in prior quarters, you have broken out the secondary versus primary funnel. So I am just curious if you could speak to, with just one primary milestone in the bank, what does that look like for you guys over the next couple of years? Is this something that you think can continue? And then can you just remind investors of the economics of the primary endpoint compared to a secondary endpoint? Susan Bobulsky: Sure, Mark. To start out, I can give you an overview of how the backlog is broken out. We have about 190 active studies, and of those, 111 are either primary or secondary endpoint studies. Twenty-three are primary, and the remaining 88 are secondary. And, Kyle, maybe you want to speak to the economics. Kyle Piskel: Yes. On the economics front, deal by deal can have its own unique differences, and I will not go into specifics. Generally, primary endpoint milestones are higher than what we have seen historically in the past, which has been the vast majority of secondary endpoint milestones. They will not all be the same dollar amounts, etc., but they are typically a little bit higher. Mark Anthony Massaro: Fantastic. And then maybe at a high level, can you give us a sense—might be for you, Chad—what inning do you think you are in the EMR integration? I am just basically trying to determine what type of upside you have as we think about getting to full maturity across the EMR systems. Chad M. Robins: I think one of the most important things is prioritizing going after our largest accounts. Now we are seven out of 10 of our top largest academic accounts integrated. In the community setting in particular is where we are targeting large network practices on EMR integrations. Flatiron gives you certain advantages that Epic does not in that you can turn on a lot of accounts at one time. We have now roughly 150 in the community on EMR integrations. The real point is once you have your accounts integrated, we have a very defined strategy about targeting those accounts for pull-through and how you optimize the EMR. I would say we are early on those, but in the accounts where we have gone in and put that muscle into it, we are seeing really strong results. That is the focal point right now: once we are integrated, how do we go in and optimize those accounts? So, I would say early, but we have a very strong playbook in place. Mark Anthony Massaro: Fantastic. Thanks, guys. Kyle Piskel: Sure. Operator: Thank you. Our next question comes from Subhalaxmi Nambi from Guggenheim. Please go ahead. Subhalaxmi Nambi: Thank you, guys. Thank you for taking the questions. You have mentioned before having preliminary discussions on increasing the Medicare bundle of tests to over four. Can you give us the latest on the progress in those? Is this a late 2026 or a 2027 opportunity, and what are the steps left in that process? Chad M. Robins: Yes. It is really hard to predict timing of government contractors and agencies, so I am not going to go out on a limb and try to do that on this call. The only thing I can tell you is that we have a very strong relationship, we continue to develop very strong evidence, and we have had very productive discussions. Subhalaxmi Nambi: That is fair, Chad. Then can you talk about your progress so far this year related to the structure of milestone payments versus transitioning pharma to a more direct pay-for-service structure? How has that been received by partners, and is there a percentage of total customer numbers you are looking to have transitioned as we progress throughout the year? Susan Bobulsky: It is a long process. Many of our contracts are multiyear contracts, and the renegotiations come up as those expire. It is going to take some amount of time, some number of years, for us to even get the opportunity to revisit existing contract structures. What I will say is that in the situations where it has come up, it has been a topic of conversation every time, and many of those conversations are still ongoing. Subhalaxmi Nambi: That is fair. And last one for me, for Kyle—maybe for sequencing margin—what is the ceiling this year, and what will the gross margin progression look like this whole year? Should we expect sequential increases each quarter? Will the full benefit of the NovaSeq transition be realized this year, and what other levers do you have for gross margins? Kyle Piskel: I appreciate the question, Subbu. As it relates to ceiling, we have talked about 75% as the north star. I think it is a fair step up into that 75% gross margin throughout the year. The utility of the NovaSeq X, as we continue to drive volume, just compounds value for us, and as we continue to improve our price point, you will see more margin improvement throughout the year. It is probably fair to state that as a linear step up through to about that 75% range. Subhalaxmi Nambi: Perfect. Thank you so much, guys. And sorry to have nitpicky questions because, honestly, the volume numbers are pretty impressive. So thank you, guys. Susan Bobulsky: No worries. Operator: Our next question comes from Sebastian Sandler from JPMorgan. Please go ahead. Sebastian L. Sandler: Great. Thank you for taking the question. My first question is on pharma MRD bookings and conversion expectations. It looks like most of the guide change is on better volume, so I am just wondering if you expect any of the incremental bookings you saw in 1Q to convert to revenues in 2026. I think normally there is a 20% release rate for in-year bookings, so I am just wondering what is baked in there and if there could be any upside to the guidance in that. And then I have a quick follow-up. Kyle Piskel: Great to see the bookings in Q1 and the increased backlog exiting Q1. As it relates to the guide, pharma is lumpy quarter to quarter. It is a great start to the year. I think we just want to be prudent here in managing expectations, so we will keep it at that 11% to 12% year-over-year growth. That being said, as the trajectory continues and the pace of bookings and pull-through of the backlog increases, it could provide some opportunity to lift the guide in the back half of the year or even potentially next quarter. Sebastian L. Sandler: Okay. Thank you. And then just a follow-up. It looks like EBITDA for MRD stepped up around $2 million quarter over quarter despite a $9 million pharma milestone. Were there any one-offs we should be aware of? It seems like it might have just been personnel and EMR costs. And then I know you have the total company adjusted EBITDA guide positive by the end of the year, but can you give us any more color on incremental MRD EBITDA margins for the balance of the year and pacing there? Thank you. Kyle Piskel: Sure. As it relates to the sequential movement from Q4 to Q1, there is a bit of seasonality in our business in Q1 where we have some increased costs that will not recur, and Q4 was also a little bit higher on the pharma revenue versus Q1. That is the majority of the mix. As it relates to EBITDA improvement in the MRD business, if you focus on the base business, it is going to have a continued growth trajectory throughout the rest of the year. I do not want to put anything firm in terms of an EBIT margin at this point, but suffice it to say it is going to continue to grow sequentially each quarter. Sebastian L. Sandler: Great. Thank you. Susan Bobulsky: Thank you. Operator: Our next question comes from Daniel Brennan from TD Cowen. Please go ahead. Daniel Gregory Brennan: Great. Thank you. Thanks for the questions, guys. Congrats. Maybe just starting off with the 35% volume guide—what do you think the puts and takes would be if you come in above that over the back half of the year, given we have been accustomed to these really strong volume numbers and now you just raised the bar again? Susan Bobulsky: Thanks for the question, Dan. We are very pleased with the performance in Q1. It is a strong start to the year, and we feel very confident in the 35% year-over-year growth. Could it be higher? Yes, and there is potential for upside. We are just early in the year, so we want to see how our key growth drivers continue to play out. It is the same things we have been talking about: EMR integrations and whether we can drive increased adoption of serial testing and increased pull-through, particularly on the Flatiron system, which allows us to really standardize the ordering approach. We have seen really good results to date from that. The blood-based testing—you saw 29% of myeloma MRDs coming in this quarter in blood—that is a nice step up, and we will continue to look for that as a potential area for upside because we do see increased testing frequency where we see increased use of blood. Community use—we achieved our goal, as Chad’s prepared remarks indicated, for the full year in Q1; we need to maintain that and continue to see disproportionate growth in that segment. The guidelines we have been promoting and the favorable updates that came last year have been an important component of that. If we can continue to build and implement the pathways I talked about earlier—protocols that dictate how testing will be done in a standardized fashion in large community practices—that is another source of upside. The “takes” are simply that we believe we are in a very strong position, we have the right strategy, we have the right team, and we are the market leader, but we will remain attentive to existing and emerging competition. That is why it is important for us to maintain a rapid pace of growth, invest appropriately, and solidify all the moats we have been talking about. Daniel Gregory Brennan: Maybe just talking about the commercial organization, can you remind us of the plan this year—where you stand now, what the targets are by year-end in terms of commercial adds—and what is the balance you are trying to strike with driving profitability while ensuring you have enough feet on the street to stay ahead of competition and maximize the opportunity? Susan Bobulsky: The short answer is that we think the team we have is the right team to continue to prosecute the opportunity. We have 65 sales reps in the field, split half and half between account managers who focus on academic institutions and diagnostic hematology specialists who focus on community practices. Our reps have manageable index values; they are calling on a reasonable number of accounts and doctors; and they have acceptable amounts of travel time. We always look at individual territory performance and potential, and we may shift or add territories here and there to capitalize on opportunities in specific geographies. Over time, we will continue to look at new deployment strategies that could justify additional hiring, and we are watching the market dynamics carefully in that regard, but we are not expecting to invest in any significant expansions this calendar year. Chad M. Robins: I will add that some of the areas where we are continuing to deploy capital and invest are EMR integrations, reimbursement and revenue cycle management, and continued data generation to demonstrate clinical utility across all of our indications. Daniel Gregory Brennan: Great. Thank you. Operator: Thank you. As a reminder, to ask a question, you need to press 11 on your telephone and wait for your name to be announced. Our next question comes from John Wilkin from Craig Hallum. Please go ahead. John Wilkin: Hi, guys. Thanks for taking the questions. Just one quick one for me. I wanted to dig in a little bit deeper on the sequencing side of the pharma business. I know you have historically talked about that business being more like a high single-digit grower, and now we are in the second straight quarter where it has grown—I think in Q4 it was 24%, and this quarter over 30%. If you could give a little detail on what is driving that acceleration and if you think that acceleration could be sustainable through the balance of the year? Thanks. Kyle Piskel: Yes, John, appreciate the question. I think we are seeing a lot of traction in the pharma MRD space. The bookings and backlog are really the drivers of that, and the pull-through is also starting to happen. Additional pharma partners want to generate data and get readouts on their trials. I think it is an opportunity for us to continue to go after, and we are going to be beneficiaries of it. Again, we will hold the guide here right now; I anticipate it will grow throughout the year, but it can be lumpy quarter to quarter. John Wilkin: Okay. That is helpful. Thank you. Susan Bobulsky: Thank you. Operator: This concludes the question and answer session. Thank you for participating in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Gibson Energy First Quarter 2026 Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Beth Pollock, Vice President, Capital Markets and Corporate Development. Ms. Pollock, please go ahead. Beth Pollock: Thank you, and good morning, everyone. Thank you for joining us to discuss Gibson Energy's First Quarter 2026 results. Joining me on the call today are Curtis Philippon, President and Chief Executive Officer; and Riley Hicks, Senior Vice President and Chief Financial Officer. Additional members of our senior management team are also present to assist with the question-and-answer portion of the call. Listeners are reminded that today's call will reference non-GAAP financial measures and forward-looking information, which are subject to certain assumptions and risks. Descriptions and reconciliations of these measures as well as related disclosures are available in our investor presentation and continuous disclosure documents on SEDAR+ and on our website. I will now turn the call over to Curtis. Curtis Philippon: Thank you, Beth, and good morning, everyone. I'm pleased to be here today to discuss Gibson's first quarter 2026 results. Before getting into the quarter, I want to start with something that we are proud of at Gibson. This quarter, we reached a major milestone at our Gateway Terminal, safely loading our 1 billionth barrel. This achievement speaks volumes about the strength of our operations team, the trust of our customers and most importantly, the commitment of our people to safety and execution excellence every single day. Turning to the quarter. The macro environment was certainly eventful. We've all been reminded of the important role North America plays in supplying the world with reliable energy. Gibson's crown jewel assets are a critical part of this energy supply chain. Geopolitical developments created some headwinds. Unpredictable and chaotic markets make it challenging for customers to make long-term commitments. Shipping availability and market uncertainty temporarily disrupted exports from Gateway customers and negatively impacted Infrastructure results in the first quarter. This export disruption was a temporary trend that we are now seeing reversing in the second quarter. Gateway volumes have increased, and we expect to be setting new volume records, including pushing close to 1 million barrels per day in the back half of the second quarter. In December, we outlined our strategy at the Investor Day. Central to that strategy was a growth plan to achieve an over 7% infrastructure EBITDA per share growth rate through the deployment of capital across 5 different verticals and unlocking capital-free upside through the increased optimization of the business. The team has made impressive progress advancing this strategy. A few of the most meaningful steps we have taken were on people, progressing the Wink-to-Gateway project and closing the Chauvin acquisition. First, on people, we are continuing to build out our U.S. commercial and marketing team, including adding Andrew Morales in our Houston office to lead our U.S. marketing business. This investment expands our capabilities and has been instrumental in sourcing incremental supply and enabling volume for our customers at Gateway. During the quarter, we took an important step forward towards achieving the 2% capital-free upside target we outlined at Investor Day with the completion of an organizational restructuring, which reduced our headcount by 10% and will drive annual gross cost savings of approximately $10 million in 2027. The changes increased the customer focus of our teams, reduced overhead and reinforced our high-performance culture. The leaner organization now has both the customer focus and cost competitiveness necessary to win. Secondly, the Wink-to-Gateway growth capital projects that were sanctioned at Investor Day are tracking well. These projects involve adding additional tank capacity at the Wink Terminal and twinning a pipeline connection at Gateway. The basis for these projects is sourcing additional supply and removing bottlenecks to deliver more volume to Gateway customers. These were strong projects when they were sanctioned. And now in this crude export market, they are even more valuable. And finally, in Hardisty, the successful closing of the $400 million Chauvin acquisition is a milestone moment for Gibson. The acquisition includes a crude oil pipeline and associated infrastructure assets that connect Chauvin to the Hardisty oil hub, increasing our reach into the growing Mannville Stack area, supported by long-term agreements, the assets add stable contracted cash flows and provide a clear runway for additional optimization and growth capital deployments. Concurrent with closing, we sanctioned the Hardisty Connection Project. We have also started engineering work on a pipeline expansion project, which will increase effective capacity from 30,000 to 45,000 barrels per day. We anticipate sanctioning this expansion later this year. We expect to begin realizing the benefits from the acquisition in the second quarter. The integration work has gone smoothly, and we are excited to welcome Chuck Krahn's Chauvin operations team to Gibson. And with that, I'll turn the call over to Riley. Riley Hicks: Thank you, Curtis. I'll begin with a review of our first quarter financial results, followed by an update on our financial position and capital allocation priorities. We remain focused on disciplined financial management, maintaining the strength of our balance sheet and executing in accordance with our financial principles. In the first quarter, Infrastructure delivered approximately $156 million of adjusted EBITDA, a slight increase over the same period in 2025. We benefited from a full quarter of contribution from the Baytex partnership. However, as Curtis noted, this was largely offset by macro conditions and their impacts on crude exports at Gateway. While export volumes were strong in January and February, they declined in March, driven by elevated freight rates and shifting global trade flows, which temporarily reduced competitiveness from the U.S. Gulf Coast. Despite these near-term headwinds, we remain confident in our 7% plus growth strategy through 2030 as well as our 2026 infrastructure outlook of 5% EBITDA per share growth that we outlined at our Investor Day, which is supported in part by our recent acquisition. Turning to Marketing. The business continued to face a challenging operating environment during the quarter. A steeply backwardated futures curve where prompt crude barrels are priced at a premium to future delivery reduced the economic incentive for storage, while the seasonality of our asphalt business limited the performance of our refined products group. As a result, Marketing generated approximately $3 million of adjusted EBITDA, representing a $2.5 million increase compared to the first quarter of last year. Looking ahead, quarterly results in the Marketing segment are expected to be in line with previously communicated guidance given the current volatility of the commodity markets. We continue to remain confident in the fundamentals of the business and focus on delivering long-term consistent performance. On a consolidated basis, Gibson generated adjusted EBITDA of approximately $139 million during the quarter, a slight decrease from the prior year. In addition to the impacts from the Infrastructure and Marketing businesses discussed earlier, consolidated EBITDA was affected by higher G&A, which we expect to normalize over time as projects come online. A significant portion of the increase in G&A relates to targeted investments in technology and people, including upfront spending on automation and AI initiatives that are expected to drive savings over time. For example, we are currently implementing a new system that will automate thousands of marketing transactions per month, improving efficiency and accuracy. In addition to this, we continue to progress the migration of the majority of our IT platforms to cloud-based systems with associated costs now reflected in G&A under the rules of IFRS. From a people perspective, we made targeted additions across our commercial, marketing and finance teams to support the continued growth and execution of the business. And finally, and to a lesser extent, the restructuring resulted in some changes to cost allocations. As an example, we consolidated our corporate and operational accounting groups into a single team, enabling us to do more with fewer resources and at a lower overall cost to the company. While these changes create some near-term noise, the G&A was forecast and considered when we provided our guidance at Investor Day in December. We remain confident in our 5% infrastructure EBITDA per share growth outlook for 2026, and we also expect our consolidated EBITDA per share growth for 2026 to be 5% or greater. Distributable cash flow for the quarter was approximately $74 million, representing a $17 million decrease compared to the first quarter of 2025. This was primarily driven due to lower EBITDA and higher spending on replacement capital, interest and cash taxes as compared to the same period last year. Turning now to our financial position and capital allocation priorities. We continue to remain committed to our financial principles, maintaining a strong balance sheet, ensuring our growth capital is fully funded and supporting a sustainable dividend backed by stable long-term take-or-pay cash flows. We continue to take a disciplined approach to capital allocation, focusing on high-quality infrastructure investments that drive long-term shareholder value as reflected by our strategic acquisition of the Chauvin assets. Importantly, both S&P and DBRS reaffirmed our stable investment-grade credit ratings following the announcement of this transaction. At the end of the first quarter, net debt to adjusted EBITDA was approximately 3.8x, representing a decrease from 3.9x at year-end. And on an infrastructure-only basis, leverage of 3.9x remains below our target of less than 4x. Our dividend payout ratio was approximately 90% on a trailing 12-month basis, primarily driven by lower EBITDA and distributable cash flow mentioned earlier as well as the increased share count following the equity offering ahead of realizing the associated cash flow benefits from our acquisition. We expect the payout ratio to remain elevated until 12 months of trailing cash flow from the acquisition is reflected. Over the long term, we continue to target a sustainable payout range of 70% to 80% of distributable cash flow. On an infrastructure-only basis, the payout ratio was 83%, comfortably below our target of less than 100%. As the Infrastructure segment continues to grow as a proportion of our earnings, we expect consolidated payout ratios to trend back towards our long-term target range. I will now turn the call back to Curtis for his closing remarks. Curtis Philippon: Thank you, Riley. To close, the first quarter reflected both the strength of our underlying business and the impact of a more volatile macro environment, particularly at Gateway. Despite that, our Infrastructure platform continues to perform well, supported by high-quality assets and long-term contracted cash flows. We're making solid progress against our strategic priorities. Safety performance remains best-in-class. We continue to drive increased utilization across our system, and we are advancing key growth initiatives, including the Chauvin acquisition and our Wink-to-Gateway Integration project. At the same time, we are building for the future, advancing our technology and AI capabilities while continuing to strengthen our high-performance customer-focused culture. Looking ahead, we remain confident in our long-term outlook. While the current environment has introduced volatility, it has also reinforced the importance of secure, reliable energy supply, an area where Gibson is well positioned. Our assets, particularly Gateway, play a critical role in connecting North American barrels to global markets, and we have demonstrated our ability to adapt and capture value as conditions evolve. Our teams have responded well in a dynamic environment, leveraging our integrated platform to manage risk and capture opportunities across the value chain. With a strong balance sheet, disciplined capital allocation and a clear strategy, Gibson is well positioned to deliver continued infrastructure-led growth and long-term value for our shareholders. And with that, I'll turn the call back to the operator to open the line for questions. Operator: At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from the line of Jeremy Tonet of JPMorgan. Eli Johnson: This is Eli Johnson on for Jeremy. Just wanted to start on the export trends at Gateway. It looks like U.S. exports are at record highs. So can you just describe some of the upside for Gibson to capitalize beyond contracted levels? Any sensitivities or color on export upside would be helpful. Curtis Philippon: Eli, we're seeing that firsthand. As exports are increasing, Ingleside is exceptionally busy. I was down in Corpus a couple of weeks ago, and you can visually see the increased traffic that's coming to the U.S. right now and the increasing number of VLCCs that you're seeing transiting in the area. So it's quite impressive to see. We're feeling that uptick right now at our facility. As I mentioned, we expect that we'll be pushing 1 million barrels a day of throughput as you get into May and June. So new records for Gateway, quite significant. It's notable for what that means for our customers. The one thing I would temper a little bit on that there is a nice upside as you get some upside on that activity, but there is also a little bit on who's shipping the volume has an impact. And so typically, our customers are paying for an MVC, a guaranteed window of volume. And what you're seeing right now is virtually all customers are fully utilizing their MVCs. And so you're seeing very good volumes. But on some of that incremental volumes, that's just customers using their contracted volumes. And so there's not an incremental revenue associated with it. So we expect you'll see sort of normalization and a slight uptick from what you saw in Q1, but you shouldn't expect a sort of a dramatic uptick in Gateway as you get into Q2. Eli Johnson: Got it. That's helpful. And then maybe switching over to Marketing. I know you provided some color for the outlook to remain consistent with prior guidance. But just thinking about what would need to kind of change to see structural improvement in that business? Is it just the deeply backwardated curves normalizing? Or what else could we see that would lead to improvement in that business? Curtis Philippon: On Marketing, it's -- you're exactly right. It's the backwardated nature of the market is where you see still some limited opportunity. And in Western Canada, you still have a very efficient egress situation. And so some of those apportionment type plays are not there right now. And so we continue to do well in volatile markets, and our marketing teams do a good job of that. And also, as you look at sort of the refining crack spreads, you see some uptick in our Moose Jaw facility. But I would say it's still fairly incremental for us. So we're seeing some upside out of these things, but we still expect that our guidance of sort of 0 to 10 a quarter is still the right way to be thinking about it. Operator: Our next question comes from the line of Robert Hope of Scotiabank. Robert Hope: Maybe turning over to the higher corporate costs that we saw in the quarter. How should we think about these trending through the year and to what magnitude? I do appreciate the commentary that in the prepared remarks that they will normalize. And then also, just want to confirm that the higher corporate costs as well as the $10 million of incremental savings were part of the longer-term guidance presented at the Investor Day? Riley Hicks: Yes. Thanks, Rob. We can confirm that those were part of the presentation at Investor Day and our longer-term guidance. And then in terms of where we sit on corporate costs going forward for 2026, we would expect to be in the $17 million to $18 million range per quarter as we continue to work through some of these projects. We would expect to see the benefit of those projects in 2027 and beyond. But I would note that there's the opportunity for us to continue to evaluate solid IT automation and cyber projects going forward that we might invest capital in as well. Robert Hope: All right. Appreciate that. And then maybe moving back over to Gateway. Just changes in the geopolitical dynamics there, does that have you rethinking longer-term expansion plans at the facility as well as -- can you remind us kind of how you would look to expand that facility? Curtis Philippon: So when we think about Gateway right now, we're pushing 1 million barrels a day. You've got very high utilization of the facility. I would point towards the Wink-to-Gateway Integration project is something that we'll do that will drive some additional volume and help us debottleneck in particular, the Eagle Ford supply coming to that facility. So those are some nice incremental growth that we'll see as those come online in the back half of the year. Some of the larger scale projects we've talked about sort of longer term sort of plus 5 years out on the dock expansion. I think those are still really interesting projects. I think as the world needs U.S. crude, the Permian is a prolific play that will drive additional barrels to export over time. And I believe that Ingleside is the most cost competitive way to go export barrels. And I believe that Gibson has got the most capital-efficient way to add additional export capacity in Ingleside. So I think that still looks very good, but I still put it in the 5-year-plus territory, Rob, because you still fundamentally need to see production uptick a bit more in the -- you need to see production uptick in the Permian. You need to see pipes expanding from the Permian to Corpus or you need to see other supply coming into the Corpus market to drive additional barrels because right now, you still have very good capacity at our terminal and our neighbor's terminal in Ingleside. So we're able to sort of effectively keep up with the current amount of Corpus pipe capacity with the current docks that are in place. Operator: Our next question comes from Aaron MacNeil of TD Cowen. Aaron MacNeil: Maybe big picture, just given that we've got a lot of potential brownfield expansions and even potentially new greenfield crude oil pipeline expansions in Canada. Can you speak to the potential opportunity pipeline at Hardisty and Edmonton? And sort of within that, I'd be most curious about potential timing. Like I'm just giving an example here, but let's say, like a pipeline expansion comes online in 2 years from today, when would we sort of need to see an announcement or a positive FID for a new sort of tank expansion at one of your hubs? Curtis Philippon: Aaron, yes. I think clearly, the sort of overall macro backdrop of the world needs oil, the political environment in Canada getting considerably better than it's been for a decade has a lot of optimism out there right now that you're seeing some very interesting egress projects getting advanced that I think have some good legs to them, and you're seeing all of our customers talking about very good rates of return paths to increasing production in some pretty substantial ways. And so we see the production coming at us from our executing and sanctioning additional capital on our side, some of the very near-term things we're seeing is the Chauvin acquisition provides us runway of additional capital projects that we see that's sort of effectively extending that Hardisty platform. We've talked about adding this Hardisty connection on Chauvin, but also this pipeline expansion for Chauvin. But I think what's really interesting and exciting for us around Chauvin is now that we're through the Competition Bureau, we can actually start talking to customers. And I see us spending -- we're already -- we're sort of 1 week into this, and we can now start talking to customers about, okay, what can we do to tie in more production to the Chauvin pipeline and more production into Hardisty and what does that drive? And so I know I'm diverting a little bit from your question, Aaron, but I think that's some of the near-term sanctioning things that I can see right in front of us that you can see us doing over the next 12 months. As over longer term as some of these big egress projects get sanctioned, I think there's probably some good activity inside the terminals that we're going to see. I think in particular, if I had to see firsthand, I think that the TMX projects are really quite attractive for our customers. Sort of getting volume to the West Coast is the hottest ticket in town here that the people want to get more volume to the West Coast. I expect you're going to see that growth in TMX volume nicely drive some need for additional tankage for us in Edmonton. And you would have heard us talk about before that we've done a lot of work to get ready to add a couple of new tanks in Edmonton. And so all the optimism around expanding TMX nicely leads into needing to do some additional tank expansions in Edmonton over the next year or 2. So those are probably the nearer term. In Hardisty, we're pretty well set up right now. So I think we can supply a good amount of additional expansion on egress with current tank capacity and nicely add, I think, even higher rates of utilization and some competitive tension in Hardisty is a good thing. And so I think you're a little further out on need to sanction new tanks in Hardisty, but I think you see new tanks in Edmonton faster. Aaron MacNeil: Got you. Okay. You referenced it in passing, Curtis. But as we swing into warmer weather, I'm hoping you can just give us a bit more of a status update at Moose Jaw. Like where are sort of the, I don't know, 2-1-1 crack spreads or other relevant benchmarks versus historical in the markets you serve? And is there any sort of -- I don't know what to call it, but like an inventory-based margin pickup that we should expect because you're building inventory earlier in the year and then prices inflected later in the year? Like how should we be thinking about sort of the profitability of that asset over the next 2 quarters? Curtis Philippon: There's a couple of things I think about our Moose Jaw. So one, overall, yes, this is a better environment for the Moose Jaw refinery. I think for all refiners in North America, you're seeing it in the world, you're seeing an uptick. What the big thing that we will watch is, one, what does road construction look like across North America? That's -- we're a significant player in that market. I think what we're seeing right now, early feedback from customers is costs are up and customers are sort of reevaluating what is the scale of their road construction projects for the summer. So Q1, obviously not a big road construction quarter. So we didn't see a lot of activity around that as you get into Q2 and Q3, just how active our customers are going to drive just what the asphalt side of that business is. That's obviously the biggest product line coming out of Moose Jaw. And then the second one that we watch closely on Moose Jaw is our drilling fluid business. And so that typically follows more of a diesel crack spread price. And that -- so obviously, pricing is attractive on that. And what we'd be watching for now is just what does activity look like. And I think everybody is watching what do rig counts do in Canada and the U.S. over the coming quarters. I'm a believer that you're going to see an uptick in activity. These prices are going to be stronger for longer, and that's going to ultimately drive more activity in both Canada and the U.S. on the drilling front, and that will be beneficial to our drilling fluid business. But I would say we haven't seen that yet that we're still seeing a fairly muted response from producers to the increased pricing and some of the rig activity has not significantly upticked and impacted the drilling fluid business yet. Operator: Our next question comes from the line of Robert Catellier of CIBC Capital Markets. Robert Catellier: Yes. I just have one follow-up question here. With the geopolitical events really resurfacing the importance of North American oil exports, you talked about what you're seeing in activity levels. But I'm curious to see -- to learn from you if there's -- the customer interest is leading to longer-dated commitments at Gateway. Is that entering the discussion? Or is it still skewed to a bit shorter duration optionality here? Curtis Philippon: Rob, yes, it's one of the things we've seen is definitely in this amount of market uncertainty, you're seeing people really just focused on the very short term right now. And so initially, you saw just sort of a pullback in the uncertainty in the market caused people to pull back initially for us, our customers anyway. And now we're seeing them rushing to go find supply, but they're still very much living in the prompt here right now and trying to find ways to solve short-term problems and people are having difficulty sort of determining what does the long-term situation look like and make long-term commitments is a challenge for our customers right now. The one -- the one really notable trend, though, I would say for us is we've seen a real uptick in the number of customers at Gateway. And so if you look at Gateway historically, it's been a relatively small group of customers that we've supported and probably over time, there's probably been no more than a dozen different customers that have loaded out of Gateway. Over the second quarter, we will load over 5 or more new customers out of Gateway. So almost a 50% increase in the number of customers that are touching the terminal. And we're going out of our way to try and help people out here right now and find ways to squeeze in additional cargoes. And to be clear, these are, for the most part, sort of relatively short-term sort of spot volumes and things we're doing to help people out in sort of this crisis moment. But I believe there's going to be a long-term payoff from that. You're going to -- I think people have long memories, and we're helping people out in times where they're having some challenges. And these are some really notable customers, including some supermajors that we're going out of our way to help out. And I think it's also given them a chance to get a taste of Gateway. And I think we've got an impressive facility, an impressive team out of Gateway and getting used to working with that group and getting that into the flow of their operation really sets us up nicely to think about longer-term arrangements with these customers in time. But for full transparency, I think right now, people are very focused on meeting their short-term needs and a lot of the activity has been very short-term focused right now. Robert Catellier: Yes, that's helpful context and it makes a lot of sense. And hopefully, that converts to something longer term. Operator: Our next question comes from the line of Sam Burwell of Jefferies. George Burwell: Apologies if I missed this disclosed anywhere, but curious if you could share with us Gateway volumes for February, March and April, if you have them? And if you can't quantify it, just sort of a trajectory over the past few months would be helpful. Riley Hicks: Yes. Thanks, Sam. I think we saw some really nice volumes at Gateway in January and February, touching kind of on average, 800,000 barrels a day or so, which was a nice uptick and kind of what we expected with some of the projects we've done over the last year. And then with the spiking freight rates and some of the other geopolitical events that happened, we saw that drop down to kind of what would have been closer to our prior run rate before all those projects, around kind of 600,000 a day. And so a meaningful drop in March really around kind of those freight rates and some of the tensions politically. But certainly, as Curtis has mentioned, we've seen that recover quickly here in April and see it pushing up closer to the 1 million barrels a day in the back half of this quarter. George Burwell: Okay. Got it. And then shifting over to Chauvin. Would you -- is it fair to say that the Hardisty connection and the pipe expansion would fill the growth CapEx budget for 2027? Just curious if you're able to essentially fill your capital spending needs through just stuff tied to Chauvin or if we need to see additional other projects sanctioned to get CapEx flushed out next year? Curtis Philippon: So on CapEx for 2027, so it will flow into 2027, the CapEx related to those projects. But no, there'll be additional sanctioning over and above those projects. I think those are a nice base load to start and help us, as we've talked about, those 2 projects alone, we expect that brings the acquisition multiple on Chauvin down below 7. So quite attractive projects, but there still will be additional project sanctioning you can expect to see from us over the next year as we go feed into the 7% plus growth rate. Operator: Our next question comes from the line of Maurice Choy of RBC Capital Markets. Maurice Choy: Just apologies if I missed this, but I just wanted to follow up on an earlier comment about how shippers have changed their attitudes since the war began and how the volumes have gone up to 1 million barrels a day. Have you actually seen customers change how they look at contracting, wanting to contract longer and perhaps willing to take higher rates? Or has that not led to that just yet? Curtis Philippon: Maurice, right now, I would say we're just seeing people scrambling to find supply right now. So you're just seeing a mass scramble across the world as people are trying to find supply. And so it's fairly short term in nature right now as they're repositioning their supply chains to point them towards the U.S. They're repositioning their VLCC fleet. They have it come to the U.S. And so we're seeing a fairly significant shift on people trying to find that. There are margin opportunities within some of those, within some of that. But I think it's a lot of very short-term activities right now. Our people are just really just trying to deal with an energy crisis right now and find ways to get supply. Maurice Choy: I suppose if you look beyond the short-term effects, what are the long-term effects -- more durable long-term effects that you're anticipating for Gateway? Curtis Philippon: Well, I think clearly, from our view, and I think you're seeing the impact of the world seeing that you need North American energy supply in a bigger way. So I fully expect you're out of this, you will see people looking for ways to derisk their supply chain on oil. You're going to see an increasing shift on supply coming out of the U.S. And I do expect that will translate into more longer-term arrangements coming out of the U.S. to supply customers. I think no matter what happens in Iran, and there's all kinds of different scenarios that will play out here. But no matter what, there's a lot of work to do in the world here to sort of replenish some of the supply that's been lost over the last number of months. And then on top of that, I expect you're going to see people need to not only refill their strategic reserves, but you're going to need to see -- I think people are going to want to have even more strategic reserves on the other side of this disruption in the world. And so I think you've got a pretty long runway in front of us where there's going to be a big pull on U.S. exports and Gateway is going to be a good beneficiary of that. I think one interesting observation we've seen from our customers is that we've seen some of our Asian customers be a little bit more front foot on this and some of the increase in activity has been focused on supply in Asia. And we actually have seen a little bit less from some of the European customers. I think that's sort of notable interesting trend out of this. But I think in time, I think the entire world has an oil supply problem, and that's going to drive all kinds of demand from all over the world on U.S. supply. So I think that's a trend that is still -- we're still see play out over the next number of months. Maurice Choy: Understood. If I could just finish off keeping this theme about derisking the supply chain. I recognize that you do have some DRUs in your $1 billion 5-year backlog. Given your comments about potential for incremental pipeline egress in the years ahead from Canada, how do you see the outlook for DRUs, especially like would you and your partner ever consider proceeding with these DRUs if they aren't fully long-term contracted competitively? Curtis Philippon: So I think when you look at the sort of the stack of the 5 verticals on where we see capital opportunities, I think the DRU would be on the back end of those opportunities that we see probably more actionable things upfront for as far as new DRU development, I think, is sort of on the back end of the 5-year time frame. But I still think there's a position for additional DRU phases to sort of solve the overall egress solution out of Western Canada that I think you're going to see a number of these pipe projects go forward that's going to drive some good efficient flow of barrels to the U.S. And I'd be a believer that you're going to see some good expansion for producers to be able to get barrels to the U.S. But I think you're going to be limited on what you can get to the West Coast beyond sort of expanding TMX. And I think the play for the DRU for additional phases sort of 2 parts. One, it allows you perhaps to give you a way to expand additional export capacity to the West Coast that there's a way to use a DRU to feed additional export capabilities. Or two, is a bit of a very custom supply option to some refinery that want sort of a neat product that can come out of the DRU and a bit of a custom solution. But I think those are probably a little bit further down the pecking order related to things that are going to get sanctioned over the next few years, though. So I think it's one to watch and one that I think still has legs, but I think you're going to see other pipeline expansion, other tank expansion type projects from us before you see the DRU. Operator: [Operator Instructions] Our next question comes from the line of Patrick Kenny of NBCN. Patrick Kenny: Just maybe back on the Marketing business. You mentioned the headwinds from backwardation, which makes perfect sense. But I guess what I'm not clear on is this dislocation we've seen between the physical spot markets versus the financial prompt markets. And maybe you could just walk us through what's been going on there? And if this unusual dynamic does continue going forward, if that represents any incremental opportunities for your team? Curtis Philippon: Pat, I think we're all seeing the same thing that there is this dislocation and just what is the reality of how these markets will play out. That's something we watch. I think there's -- within there, there's there is volatility opportunities for our Marketing customers. I also think clearly, within that, there's opportunity for our producer customers to realize a higher price for their barrel as you look out further in the curve, I think that's quite healthy for our customers. And I don't believe that's properly priced into the curve yet. So I think that's probably where you see the bigger impact relative -- sure, there's some -- our marketing group does a great job in volatile times. And so I think there'll be some small wins around volatility that the marketing group will take advantage of. But the far bigger impact for us is sort of healthy opportunities for Infrastructure customers that I think you'll see as sort of actual prices start to get realized. Patrick Kenny: Got it. That's helpful. And then I guess just back on the back of the Chauvin acquisition and as your team looks for that next tuck-in opportunity, wondering if you could just help us compare and contrast the Canadian versus U.S. landscape right now, if you might be seeing more attractive acquisition multiples in either jurisdiction, more buyers than sellers in either market? And if labor availability also has any impact on how you're thinking about monetizing any growth potential off of any asset that might be acquired down the road? Curtis Philippon: M&A is a good question. I think the Chauvin acquisition was a great one for us. We're just getting our hands around it a week in. But it -- I think it gets a message to the market that we're very open for these types of things. Like we are a crude-focused business, and we love assets that potentially tie into our current crown jewel assets, both in Canada and the U.S. And so we spent a lot of time with our team looking around at various assets and being proactive, reaching out like we did with Chauvin to see, is there a potential fit that we can find a home for those assets within Gibson. That's -- I think that's something we'll stay active with. I think in general, you probably heard me talk before that I think there's opportunities that come up out there right now where we have some other gas-weighted names that are maybe a little bit more focused on building up their gas portfolio and perhaps we can we can help them with sort of finding a different home for some of their crude assets. And so we look at those sorts of things across Canada and the U.S. to try and find a fit. I think in Canada, just in general on both M&A and on sort of organic growth capital because of just the overall growth that you're seeing right now in Western Canada, I'd say there's probably a little bit more active environment in Canada related to M&A and organic growth capital, just growth drives lots of interesting opportunities that fit in well with Gibson. So we're seeing a bit more of that. So we're staying active on the M&A side, looking around. I think we saw with the Chauvin deal that our shareholders will be very supportive of finding other deals like this, and so we'll be very open to that. But I just caution around that, that it takes 2 to do a deal, and there's only so many great assets out there. And so I think there's nothing imminent that I would be messaging that we're going to go fine. But we're going to stay proactive and look for good fits. Operator: I am showing no further questions at this time. So I would like to turn the conference back to Beth Pollock for closing remarks. Beth Pollock: Thank you. Thanks, everyone, for joining us today. Supplemental materials are available on our website at gibsonenergy.com. If you have any additional questions, please reach out to our Investor Relations team. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day and welcome to the Scorpio Tankers Inc. First Quarter 2026 Conference Call. All participants will be in listen-only mode. By pressing the star key followed by zero, you may reach an operator. Please note this event is being recorded. I would now like to hand the call over to James Doyle, Head of Corporate Development and Investor Relations. Please go ahead. Thank you for joining us today. James Doyle: Welcome to the Scorpio Tankers Inc. First Quarter 2026 Earnings Conference Call. On the call with me today are Emanuele A. Lauro, Chief Executive Officer; Robert L. Bugbee, President; Cameron Mackey, Chief Operating Officer; Christopher Avella, Chief Financial Officer; and Lars Dencker Nielsen, Chief Commercial Officer. Earlier today, we issued our first quarter earnings press release, which is available on our website, scorpiotankers.com. The information discussed on this call is based on information as of today, 05/05/2026, and may contain forward-looking statements that involve risks and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of the risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release as well as Scorpio Tankers Inc.’s SEC filings, which are available at scorpiotankers.com and sec.gov. Call participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days. We will be giving a short presentation today. The presentation is available at scorpiotankers.com on the Investor Relations page under Reports and Presentations. The slides will also be available on the webcast. After the presentation, we will go to Q&A. For those asking questions, please limit the number of questions to two. If you have an additional question, please rejoin the queue. Now I would like to introduce our Chief Executive Officer, Emanuele A. Lauro. Emanuele A. Lauro: Thank you, and good morning, and thank you for joining us today. I would like to start this earnings call by saying thank you. And thank you to all the stakeholders who have supported us in bringing the company to where it is today. When Robert, Cameron, and I started this business in 2009, I cannot say that we envisioned every detail of what the company would become. But in our most ambitious plans, I remember looking at something like this. We have built a platform that can return capital through the cycle while preserving the flexibility to invest countercyclically. This would not have been possible without the trust of our shareholders, the partnership of our customers, and, most of all, the commitment of our people. So thank you. Now focusing on the business front, in the first quarter, the company generated $214 million of adjusted EBITDA and $151 million of adjusted net income. For years, we have focused on what we have under control, on what we can control: strengthening the balance sheet, optimizing the fleet, and reducing our cash breakevens. Today, the discipline is fully reflected in the model. Our cash position stands at approximately $1.4 billion, and it is bound to hit the $2 billion mark early in the summer, with a daily cash breakeven of around $11,000 per day. To put that into perspective, in today’s market, we generate, of course, substantial free cash flow, but in a stressed environment similar to the depth of the COVID 2020 market, we remain at or above breakeven. That is a structural advantage. Our recent financing further reinforces this. We reduced our cost of capital through 1.75% convertible bonds and a new bank facility at 120 basis points; these are the lowest margins in our history. These were proactive and opportunistic actions that were executed from a position of strength and not necessity. We are applying the same discipline to the fleet. Since the start of the year, we have sold 12 of our older vessels at prices above their original purchase levels more than a decade before. This value realization is not only fleet management. The balance sheet strength and fleet optimization together create a powerful foundation for sustained capital returns. In April, we repurchased 1.4 million shares for around $100 million. Today, we are going further. We are announcing a new $500 million share buyback authorization and a quarterly dividend of $0.45 per share. This is deliberate capital allocation. By any measure, this was one of the strongest quarters in the company’s history, not only in earnings but also in execution. Rates have improved for consecutive quarters, and that momentum not only continues, but has strengthened further into the second quarter. While the timing of geopolitical developments in the Middle East remains uncertain, we remain constructive on the underlying fundamentals that are driving the tanker market. We expect restocking and demand to reassert themselves as disruptions normalize. Critically, our low breakeven model allows us to perform across all environments, as mentioned before. We can be resilient in a weaker market and highly levered in stronger ones. We believe Scorpio Tankers Inc. is exceptionally well positioned to continue generating meaningful cash flow and deliver long-term shareholder value. Thank you again, and I will now turn the call to James. James Doyle: Thanks, Emanuele. Slide 7, please. Today, product tanker rates are at unprecedented levels, with average clean tanker earnings over $70,000 per day. It is unclear when returns to the Strait of Hormuz will normalize. But what we do know is this: global inventories, commercial, strategic, and floating, have been significantly drawn down. The system will need to rebuild inventories globally, and given the scale of these draws, that process will take time. This creates a constructive setup for product tankers as refinery utilization and seaborne flows increase to support restocking and global demand. More importantly, product tanker rates were strong prior to these disruptions as a result of robust global demand driving higher seaborne exports, refinery dislocation increasing ton-mile demand, and modest fleet growth constraining supply. We remain optimistic that those fundamentals support a constructive outlook in the short and medium term. Slide 8, please. Last year, over 18 million barrels of crude and refined products transited the Strait of Hormuz. Approximately 90% of the crude oil and naphtha volumes transiting the strait were destined for Asia. West of Suez, roughly 75% of jet fuel flows go to Europe, and 45% of diesel moves to Africa. The temporary loss of these volumes has forced global rerouting of trade flows on an unprecedented scale, reshaping supply chains across regions. Slide 9, please. We are seeing a rebalancing of flows with increased exports from the U.S., Africa, and Europe partially offsetting reduced volumes from the Middle East and Asia. Voyage distances have more than offset lower volumes, tightening effective supply and supporting a strong rate environment that we are seeing today. Slide 10, please. Despite the scale of the disruption, demand has remained quite resilient. In the second quarter, refined product demand is expected to decline by approximately 1.5 million barrels per day year-over-year before rebounding by roughly 2.4 million barrels per day in the third quarter. This aligns with what we are seeing on the water, with seaborne exports down 1.9 million barrels per day in April compared to last year. As transit through the Strait of Hormuz normalizes, we expect demand to recover. Slide 11, please. Importantly, the recovery in demand is expected to occur alongside a period of significant inventory restocking following recent draws. High-frequency refined product inventories have declined by more than 80 million barrels since the start of the year. U.S. refined product inventories have drawn 12 out of the last 13 weeks. Taken together, these data points highlight the scale of the drawdown and the magnitude of the restocking cycle ahead. Slide 12, please. Product tanker newbuilding activity has slowed meaningfully over the past 18 months. Only 37 vessels have been ordered year to date, and approximately half the product tanker order book is LR2s. As we have highlighted, a meaningful portion of LR2s operate in the crude market. Today, roughly 57% of the LR2 fleet is trading crude oil. As a result, the effective product tanker order book is smaller than it appears, reinforcing the view that future fleet growth will remain constrained. Slide 13, please. Today, the order book is 18% of the existing fleet, which may seem high, but context matters. As you can see on the left, 21% of the product tanker fleet is already older than 20 years. By 2028, it will be 30%. Roughly 25% of the Aframax/LR2 fleet and 9% of the MR/Handy fleet are sanctioned, averaging 20 to 21 years old. In a normal market, much of this tonnage would have likely already exited the fleet. Slide 14, please. When adjusting for aging vessels, sanctioned capacity, and LR2 crossover, effective clean products supply fleet growth is materially lower than the headline order book implies. We expect fleet growth to average approximately 3% over the next three years, but potentially lower. As refinery utilization and seaborne flows increase to support global restocking and demand normalization, the market should tighten further. Longer term, refining capacity remains constrained while the fleet is aging faster than it can be replaced. Overall, we expect ton-mile demand to outpace fleet growth. With that, I would like to turn it over to Christopher. Christopher Avella: Thank you, James, and good morning or good afternoon, everyone. Slide 16, please. This quarter, we generated $214 million in adjusted EBITDA and $216 million in net income on an IFRS basis. This includes a $66 million gain on the sale of four vessels during the quarter. We sold another two vessels in April and have reached agreements to sell another nine vessels, all built in 2014 or 2015, all at cyclically high prices. Additionally, we declared a $0.45 per share dividend and replenished our securities repurchase program to $500 million. The chart on the right shows the evolution of our net debt position since December 2021. Our capital allocation policy over this period has been headlined by debt reduction and balance sheet fortification. As you can see, this approach has resulted in a reduction of our net debt position by $3.8 billion, from a net debt balance of $2.9 billion at 2021 to a pro forma net cash balance of $876 million as of today, which reflects our actual net cash balance of $479 million adjusted for the sales of nine vessels that are pending closing. Slide 17, please. The chart on the left breaks down our outstanding debt by type. As you can see, our capital structure keeps evolving as we continue to pursue opportunities to lower our cost of capital. First, we have $368 million in secured bank debt with a lending group exclusively comprised of experienced shipping lenders, and this debt all carries margins below 200 basis points. Further to this, $198 million of this amount is drawn revolving debt, an important tool that we can use if we want to repay the debt but maintain access to the liquidity in the future. Next is our $200 million five-year senior unsecured notes, which were issued in the Nordic bond market in January 2025 and are currently trading at above 103 to par. Last is our $375 million convertible notes due 2031, which were just issued under a month ago. These notes have a coupon rate of 1.75% and are convertible to common stock only under certain circumstances at a conversion price over $100 per share. As part of the offering of our convertible notes, we repurchased 1.3 million, or 2.6%, of our outstanding common shares for $100 million. The chart on the right shows how we continue to pursue ways to reduce our cost of capital. Over the past four years, we have transitioned our vessel-related borrowings out of expensive lease financing into lower-cost, higher-flexibility secured bank debt. Our efforts to pursue lower-cost, longer-tenor structures are ongoing, as you can see with our recent announcement of a $50 million secured credit facility with Bank of America at just a 120 basis point margin and a seven-year tenor. This strategy, coupled with our aggressive prioritization of debt reduction, has transformed the company’s credit profile, thereby unlocking these opportunities in the markets. Now around 60% of our debt structure is unsecured, and not due until 2030 and 2031. Slide 18, please. The chart on the left shows our liquidity profile. We had $1.4 billion in cash as of May 1. If we consider the sale of three vessels that were pending closing as of that date, the cash balance is $1.8 billion on a pro forma basis. We also have an additional $712 million in availability under revolving credit facilities for a total of approximately $2.5 billion in available liquidity. Since November, we have signed contracts to purchase 10 newbuilding vessels, and the chart on the right is a waterfall reflecting our commitments to purchase these vessels. Our disciplined capital allocation over the last three years has afforded us the financial flexibility to enter into these newbuilding contracts. Our remaining newbuilding commitments total just over $641 million as of today, after the payment of $69 million towards these vessels in 2026. Hypothetically speaking, we could pay for all of these vessels today in cash without incurring any new debt. Importantly, approximately 80% of these remaining installment payments are not due until the years 2027, 2028, and 2029. With a low cash breakeven rate, currently at approximately $11,000 per day, we are well positioned to build cash prior to delivery. Moreover, the age and specifications of these vessels make them attractive financing candidates, which has the potential to open opportunities for us to further optimize our capital structure and lower our cost of capital. Slide 19, please. Our cash breakeven rates are at the lowest levels in the company’s history. As shown on the left, these levels are below our achieved daily TCE rates dating back to 2013, with the closest point occurring during COVID-19 when global oil demand saw its largest decline on record. To add, the cash interest on our convertible notes only raises our cash breakeven levels by a modest amount and is more than offset by the interest we currently earn on our deposits. To illustrate our cash generation potential at these cash breakeven levels: at $20,000 per day, the company can generate up to $260 million in cash flow per year; at $30,000 per day, up to $548 million per year; at $40,000 per day, up to $836 million per year; and at $50,000 per day, up to $1.1 billion per year. This concludes our presentation today. We would like to thank everyone for their time and attention. We will now open the call for questions. Operator: To ask a question, if you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. Our first question will come from Gregory Robert Lewis of BTIG. Please go ahead. Gregory Robert Lewis: Hi, thank you, and good morning and good afternoon, and thanks for taking my questions. I guess this first question is either for Christopher or Robert. Could you walk us through the decision on the convertible bond? Clearly, you laid out how strong the balance sheet is, and you touched on it, but just curious, with a lot of cash on the balance sheet, how are we thinking about the liquidity and opportunities for staying, you know, with the convert? Christopher Avella: Sure. Thanks, Gregory. As we said, it was opportunistic. The convertible markets are strong right now, and we have a strong credit profile. It made for a good opportunity to execute an instrument that we view as a low cost of capital: a 1.75% coupon and a high conversion premium. We are mindful of the fact that we have a lot of secured debt maturing in a couple of years—say, 18 to 24 months. Our debt position is not static, and we are going to continue to look at opportunities to execute on low-cost transactions, and this is just one of those. Robert L. Bugbee: I do not have anything to add to that, Gregory. Gregory Robert Lewis: Okay, great. And then the other question on the market: James, you touched on volumes being a little bit light. Roughly a little over two months into the conflict in, or the war in, Iran, have we started to see pockets of hoarding or anything that is out of the ordinary? How is that translating into maybe new trade routes or expanding ones, replacing others? Curious what you are seeing there. James Doyle: Lars, would you like to take this one? Lars Dencker Nielsen: Yes, sure, I will start off. We have seen a lot of what you would consider to be genuinely unique voyages and instances. Ton-miles have obviously elongated across the board. We have seen a huge increase in U.S. Gulf Coast exports, very much further afield than what we would have seen before. From a pre-conflict into conflict level related to Iran, we had ships that were transporting towards the West, and before they even came to the Cape of Good Hope, they were asked to go to the Middle East, and then one day later, to go back to Asia where they had loaded from. The fact is that the price of oil and product has made it such that the price of freight has become insignificant. We are not seeing any issues of freights being curtailed because of the price of freight, because the oil underlying is so valuable and so important for the security of supply. That also goes into the structural reshuffling of product in the United States. We saw the headline of the Jones Act being waived for a brief moment in time; that has also moved the needle relative to anything we have seen in the past. So, yes, there certainly has been a lot of change. Gregory Robert Lewis: Super helpful. Thank you very much. Operator: The next question comes from Omar Nokta of Clarksons Securities. Please go ahead. Omar Nokta: Clearly, things are moving in a really nice direction for Scorpio Tankers Inc., certainly from a financial perspective—going deeper into net cash. You just re-upped the buyback to $500 million, and I wanted to get a sense from you: does this signal a pivot in how you are viewing use of capital from here? And is there any preference at this point in terms of the interest looking either at the shares or the unsecured notes or the converts? Robert L. Bugbee: I do not think it creates a pivot in strategy. I think it creates a point where we feel ready enough to give ourselves the largest ever buyback the company has ever had, if it decides that that is the right thing to do. So there is no pivot. The idea is a developing strategy. The first thing is to de-lever. The second is to start to renew the fleet and take advantage of backwardation in the curve. The third is, as Christopher says, to start to use that balance sheet to get very effective, cheaper finance. Being able to put up the largest ever buyback for the company is a continuation of the strategy: we will watch, act, and react when and if we see the opportunity. We have developed, in a way, a hammer and an anvil here. We have the tremendous cash position that the company has and its ability to get debt cheaply. Underneath it, we are developing the anvil so that if you had a wobble in the stock or we see a continuing dislocation between NAV and stock price, we can take advantage of that, because we believe very much in the long-term development and continued health of the company. Omar Nokta: Thanks, Robert. That makes sense. Maybe just a follow-up: you were mentioning the fleet and taking advantage of the backwardation. How are you thinking about the fleet as it is now? You sold a bunch of vessels this year; you have about $500 million coming in in the second quarter from those vessel sales. Are we getting to a point where the active selling, if you want to call it that, slows down? And is it more about fine-tuning the fleet? Is it looking at newbuildings? How are you thinking about the fleet position from here? Robert L. Bugbee: We have not changed on that. We will continue to take opportunistic sales and work on longer-term time charters too. At the same time, we might continue to gently and responsibly, where it is clear that the financing is not changing our hammer, engage in the renewal part of it. You are not going to see some massive, great big order. You are not going to see an acquisition of a competitor. It is going to be continuing to gently move each of the parameters we are looking at along the way—much of the same. Operator: The next question comes from Jonathan B. Chappell of Evercore ISI. Please go ahead. Jonathan B. Chappell: Thank you, and good morning. James, appreciate the presentation. Regarding the disruption, a lot of it seems to be focused around once the flows normalize. Can you help us with scenario analysis? There is still a lot of uncertainty. It feels like the path may be changing by the week, if not the hour. What are some of the other upside opportunities but also downside risks as this unprecedented situation continues to evolve? Robert L. Bugbee: Thanks. I do not think we are in control of that. We do not spend much time going through the hypotheticals or working out if they happen, if they all happen, or even whether any will happen. Information changes—whether or not the straits are open, whether or not there were shells hitting international ships about three or four times just yesterday. We will pass on the hypotheticals, if that is okay. Jonathan B. Chappell: Okay. How have your operations changed? We see these headline rates. Are you fully absorbing them? Have you had to move the fleet around, so maybe you have imbalance or maybe even better exposure to certain regions? As we think about these headline rates, how does it translate to you both from a top-line perspective, but also from a potential disruption or cost/bunker perspective? Lars Dencker Nielsen: This is part and parcel of what we do every single day. We assess where we anticipate the market to react as fleets are deployed. When this happened, we made a conscious effort to move our ships West, where we could see that the market dislocation was the greatest and there were clearly, at the margin, stronger market movements taking place. We moved ships a lot, both through the canal and also around the Cape of Good Hope, and we also made sure that the ships we had opening in New Zealand, Alaska, and North Asia made decisions to move across. That took a little time, but it paid off. You still see today, even with the high volatility in the markets, rates are moving 15% to 20% intra-week. Structurally, the West market has been benefiting from a rate perspective more than vessels trading East of Suez. Jonathan B. Chappell: Got it. Thank you, Lars. Thanks, Robert. Operator: The next question comes from an Analyst at Bank of America. Please go ahead. Analyst: Great. Good morning and good afternoon. Can you talk about any increased interest in multiyear charters given the environment, and your thoughts on that? Do you want to keep the same exposure to the spot market? And then any incremental developments from Venezuela—we have talked about that a lot in terms of short-haul moves. Robert L. Bugbee: I will take one part first. Our reduced breakevens, the lack of debt, and low borrowing cost open up situations where you can look quite favorably at five-year, six-year, seven-year charters. These are very simple, profitable, secure returns, adding to a base of income which has always been lacking in tanker companies. We are not only looking at opportunities that arise, but also favorable to them because of our own financial breakeven dynamics. Lars, would you like to go through the details? Lars Dencker Nielsen: We reported a couple within the quarter. In my experience, these are generational highs in terms of long-term charters, and this is long-term charters to very bankable first-class end users, which we have not seen before. We will always have a balance between spot and time charter. We certainly still have a very large component towards spot, but the ships we have on time charter all reflect the quality of the paper and also counterparties that we have strategically aligned with in terms of the spot business we also do for them, so the relationship goes to a different level. Over the years, that has benefited the business. In terms of looking at period charters for the future, we continue to look at charters every single day. There has been continued interest both in MRs and in LR2/Aframaxes. As everybody on the call will appreciate, we today look at LR2s and Aframaxes as one segment. There has been substantial interest in that market. We have seen one-year deals at extremely high and elevated numbers, three-year interest, five-year interest. Eight-year deals, which we have done on a one-off basis, are not that frequent, but it is clear that not only shipowners consider the market to look pretty good; a lot of the people we do business with are willing to put pen to paper for long-term charter. Analyst: Great insight. Thanks, Lars. Two rapid ones: are you seeing any shortages now at this point on some products—jet fuel or different areas? It seemed like Australia was starting to ration some fuel. Thoughts on where we are? James was talking about inventories. Then you mentioned the $2 billion in cash by this summer, but with the $500 million buyback plan, thoughts on the other $1.5 billion usage plans? James Doyle: I will start with shortages. In Southeast Asia, we have seen methods to reduce travel, but at a high level, it appears it is more inefficient supply to meet demand. Demand has been quite strong. A lot of the current issues fall to the fact that there is not a lot of spare refining capacity in the world. We have been talking about this for years: closures around the world, and refinery capacity has moved further away from the consumer. What you are seeing is a result of this. Going forward, you are going to see a lot of restocking. You will still see refinery dislocation because of how long it takes to build a refinery. We will see how the situation develops, but it is very constructive in the short to medium term based on this refinery dislocation. Robert L. Bugbee: On the future, I think you will see us continue to maintain a very healthy overall cash position. We have said we would even consider further sales of older tonnage. That would result in an even higher cash position than any forecast you could make at the moment. We have also said that we would be willing to explore opportunistically continuing our renewal, which would indicate a few newbuilding orders—not many, but a few to keep a steady position—while keeping the vast majority of cash generated. You are giving some of it out on buybacks, as you have seen so far this quarter, dividends, and newbuilding orders. We did not raise the dividend this quarter, but not for any reason other than it was a knockout quarter. It is fantastic, and we would like to have a look later in the year—July or September—whether we are likely to increase the dividend again, and by how much, whether in smaller steps or a slightly bigger step. Overall, it is a continuation of what we have been doing in the last six, nine, twelve months: taking advantage of the arbitrage on the curve, taking advantage of great secondhand prices, which are indicated to still be increasing. We are seeing that in the market. It is a continuation. It is working well so far. Operator: The next question comes from an Analyst at Jefferies. Please go ahead. Analyst: Good morning and good afternoon, everyone. I wanted to touch on fleet renewal. Do you have a preference whether it is more LR2s or medium-range exposure in the fleet? Any general commentary on fleet exposure within fleet renewals would be helpful. I do have one follow-up. Robert L. Bugbee: We have backed off the VLCCs in terms of expanding there. The recent renewals have been in product tankers, both MRs and LR2s. My expectation is that is where we would continue to concentrate and find opportunity. Analyst: Appreciate it, thank you. Then a follow-up on the dividend itself. Given the favorable financial position that you are in now—and I appreciate your stance on flexibility—do you have any kind of quarterly targeted payout that we should be looking at? Robert L. Bugbee: We have not reached that. I can tell you what we will not have: we will not do extraordinary dividends, and we will not do a high payout dividend. We are for what we would call a permanent dividend that can be met through good times and bad, and ideally can be improved on in good times and bad. High payout dividends, particularly those tied to percentages of income, work great in good times and are quite tragic in other times. Operator: The next question comes from Christopher Robertson of Deutsche Bank. Please go ahead. Christopher Robertson: Good morning, everyone. Thank you for taking my questions. This might be one for Lars. This is related to the bunker fuel market. Initially there was quite a bit of disruption and a huge spike in prices. Can you talk about availability and whether it is having any impact on where you are thinking about positioning the fleet and which voyages you are taking? Has that situation gotten better over the last few weeks? Lars Dencker Nielsen: The short answer is that we do not see issues today in terms of securing bunkers on any of our ships around the world. Prices certainly went to a very high and elevated place, and there were a lot of questions as the conflict started, and we were looking at this. To be honest, this is what we do every single day anyway. Bunker planning is a very important part of any voyage planning that we do. These things are looked at at any given time so that we can reflect the pricing of the bunker input to the output on the time charter equivalent. Right now, we do not encounter issues that create additional challenges for us in terms of supplying bunkers. Christopher Robertson: Got it, thank you. A follow-up related to the dividend. Realizing this is a bit of a chicken-and-egg situation, Robert, could you talk a little more about the philosophy around the dividend? Are you looking for a certain amount of balance sheet strength, a certain breakeven level, or a certain market environment in rate sustainability? What would drive an increase to the dividend, realizing that the goal is to have a sustained level throughout various parts of the cycle? Robert L. Bugbee: The goal is a regular dividend that we can raise through the cycle—not the same percentage of earnings or linked to the stock price. We would hope to raise the regular dividend so it is clear to the most conservative of long-only large institutions, and hopefully to the income growth side too, that we can pay it under any circumstances. You are starting to see in the presentation a lot of concentration by Christopher on cash breakeven and slides related to what happens if we relive the worst market we have ever lived in, which is COVID. Can the company continue to pay and grow the dividend through that cycle? That is how we are evaluating it. At the moment, things are moving. We waited in the last quarters gradually. This was an unbelievably knockout quarter. We felt it was unclear whether to raise it 1 cent or 5 cents. We left it aside, knowing we had an incredible quarter. We put steps into the balance sheet and gave terrific guidance for the second quarter. It is extraordinary; it even surprised us. Later in the year we can see what the next sustainable level is that we are happy to move to. Christopher Robertson: Got it. Thank you. That is very prudent, and we appreciate the commentary. Thank you, Robert. Robert L. Bugbee: Thank you. Operator: The next question comes from Liam Dalton Burke of B. Riley. Please go ahead. Liam Dalton Burke: Yes, thank you. Even prior to the tensions in the Mideast, the rates in the Aframaxes were higher, and there had been a lot of shift from clean to dirty. Post tensions, is there anything that would flip that situation where the Aframaxes would move back to the LR2s or start trading clean? Lars Dencker Nielsen: We are in the perfect situation where you have a lot of LR2s in a north of $100,000 per day market, where the alternative in Aframax is also trading north of $100,000 per day. If you look at the numbers, a couple of years back we were trading around 256 LR2s in the market. Today, we are trading around 170 LR2s in the market. You have had a large component of LR2s go into the sanctioned trade and the age part as well. You also have the element of crude transporting itself farther afield. You have a very strong Aframax market not only in the Atlantic Basin but also East of Suez. TMX, which goes from the Pacific Northwest to Asia, has been extremely strong. The market that goes down to the Pacific lightering area has also been very strong, particularly because VLCCs have been very strong. The Suezmaxes have been very strong. Every element within that framework is extremely strong. The last time we saw switching the other way was when you had a very weak crude market that had been persistent for a while, and the LR2 market had ramped up. At that point, you had a delta of about $8 million between one to the other, and you started seeing a large number of vessels going into the clean market. Today, whichever way you look at it, it is very strong. Regarding Venezuela, that is also an Aframax market. TMX is 100% an Aframax market. The stuff that goes out of Australia is 100% an Aframax market. The story is good in terms of supply and demand when you look at LR2s and Aframaxes together, which is what you have to do today. The argument that was the case a while back—saying you have all these ships being built—does not hold that much when you consider the average ages of the fleet and what ships are actually able to trade. Structurally, we are looking at a very decent supply-demand story on both Aframaxes and LR2s. Liam Dalton Burke: Great, thank you. I think this would be for James. You have always highlighted the redistribution of global refinery capacity. Post-conflict, a lot of that has been Middle East refinery. Would you anticipate any modification of that redistribution? James Doyle: Thanks, William. Good question. It is a challenge. The quickest you can probably build a refinery is seven years, so if you are not starting today, it is not coming in that time frame. One of the things we feel is likely is people will view storage differently coming out of this—how much crude and how much product you are keeping domestically. I think that is going to be great for refinery runs. But in terms of major changes, it will be a challenge to do anything in a short time frame. I am certain people might look at new pipeline opportunities. Liam Dalton Burke: Great. Thank you. Operator: This concludes our question and answer session. I would like to turn the call back over to Emanuele A. Lauro for any closing remarks. Emanuele A. Lauro: Thank you very much, operator. No closing remarks of any substance apart from thanking everybody for your time and looking forward to connecting in the near future. Have a great day. Bye-bye. Operator: The conference has now concluded. Thank you for attending today’s presentation, and you may now disconnect.
Operator: Greetings, and welcome to the Emerson Electric Co. Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Doug Ashby, Director of Investor Relations. Please go ahead. Doug Ashby: Good afternoon, and thank you for joining Emerson Electric Co.’s second quarter 2026 earnings conference call. Today, I am joined by Emerson Electric Co.’s President and Chief Executive Officer, Surendralal Karsanbhai, Chief Financial Officer, Michael J. Baughman, and Chief Operating Officer, Ram R. Krishnan. As always, I encourage everyone to follow along with the slide presentation available on our website. Please turn to Slide 2, which contains a degree of business risk and uncertainty. Please take time to read the Safe Harbor statement and note on the non-GAAP measures. I will now pass the call over to Emerson Electric Co.’s President and CEO, Surendralal Karsanbhai, for his opening remarks. Surendralal Karsanbhai: Thank you, Doug. Good afternoon. I would like to begin by thanking our colleagues around the world. At this moment, it is important to highlight our teams in the Middle East who persevered in a challenging, at times dangerous, environment. All of our employees and families remain safe and we continue to serve our customer needs throughout the region. What defines our company is a high-performance culture based on deep respect for each other and an unwavering commitment to our customers. Led by Liam Hurley, our team in the Middle East brought this to life. Thank you. Please turn to Slide 3. We are committed to ongoing Board refreshment, and today, we announced the newest member elected to our Board of Directors. Jennifer Neustadt is the Senior Vice President and General Counsel of Apple. Prior to joining Apple in January 2026, Jennifer served as Chief Legal Officer at Meta. She previously held multiple senior roles at the U.S. Department of State, White House Office of Management and Budget, and the Department of Justice. Jennifer also spent 12 years in private practice advising technology, media, and financial services firms on litigation and regulatory matters. Her unique expertise in corporate governance, global business, and technology and innovation will be a tremendous addition to the Emerson Electric Co. Board. Jennifer will officially join our Board on 08/03/2026. This will expand Emerson Electric Co.’s Board to 11 members. We are excited to have Jennifer join us. Please turn to Slide 4. End-market demand remains strong. Underlying orders grew 5% in the second quarter, led by Software and Systems, which saw robust investment in growth verticals and sustained momentum in North America and India. Emerson Electric Co.’s second quarter results reflect our ability to deliver in a dynamic environment. Underlying sales growth of 5% was below expectations due to a one-point impact from the Middle East conflict. Test and Measurement continued to exceed expectations, up 12% year over year, and our Ovation business was up mid-teens, driven by the secular demand for power. Adjusted segment EBITDA margin of 27.6% exceeded expectations and we delivered adjusted earnings per share of $1.54, near the top end of our guidance. As expected, annual contract value of our software grew 9% year over year and ended the quarter at $1.64 billion. We are updating our full-year guidance to reflect the impact of the conflict in the Middle East, and we now expect sales growth of 4.5% with underlying growth of 3%. Adjusted segment EBITDA margin is still expected to be approximately 28%, and we are raising the bottom and midpoint of our adjusted EPS guide, now expecting $6.45 to $6.55 per share. We remain confident in our second-half plans for 2026 based on the orders momentum we are seeing and the visibility we have from our backlog, which is up 9% year over year. Throughout the first half, Emerson Electric Co. completed $542 million of share repurchases, and we remain committed to returning approximately $2.2 billion of capital to shareholders this fiscal year. Finally, I want to highlight the strength of our differentiated industrial software portfolio to address concerns in the broader software market regarding AI. We are seeing healthy growth in ACV and expect to finish the year up 10% plus. Our software is based on decades of deep domain expertise and serves mission-critical applications in highly regulated industries. These applications require real-time compute and traceability of data, where being right 99.9% of the time is not good enough. Further, we are well positioned to benefit from embedding AI in our solutions. This represents a great opportunity for Emerson Electric Co. as we advance the journey to autonomous operations. Emerson Electric Co. recently deployed an AI-driven optimization solution for Aramco, one of the world’s leading integrated energy and chemicals companies. Emerson Electric Co.’s Aspen Hybrid Models were integrated into Aramco’s existing refinery planning network to create one of the world’s largest multisite optimization models and give Aramco a scalable, robust tool for global refinery planning. Next week, AspenTech and NI will both host user conferences where Emerson Electric Co. will showcase our latest innovations which will help customers unlock greater levels of optimization and productivity across their operations. As Contech will hold, they are optimizing with over 1,100 customers from 49 countries, including keynotes from ExxonMobil, TotalEnergies, and Exelon. And NI Connect will feature keynote addresses from prominent customers, including NVIDIA and Alstom, with over 1,600 attendees from 38 countries. Please turn to Slide 5. Underlying orders grew 5% in the second quarter, consistent with our expectations and supporting our second-half sales plan. North America and India continued to drive orders performance. Demand in Europe remained stable but soft, while China has started the year slower than expected. Software and Systems orders grew 18% year over year, with Test and Measurement and Control Systems and Software both up 18%. We saw sustained robust investment in power, with orders in our Ovation business up 41% and ACV in AspenTech’s Digital Grid Management Suite up 31%. We expect our growth verticals to be multiyear drivers of growth supported by secular tailwinds, and we are seeing significant capital being deployed in projects. Emerson Electric Co. won approximately $450 million from our project funnel in the quarter, with 85% from our growth verticals led by power, life sciences, and LNG. The funnel grew to $11.2 billion, driven by new opportunities in power. Now I want to highlight a few key recent project wins. First, Emerson Electric Co. was selected by Encore, the largest electric delivery company in Texas, to enable the delivery of reliable power to more than 13 million residents. Encore will use AspenTech’s DGM to modernize and scale its distribution grid, preparing for increased demand driven by the growing population in Texas. Encore will gain operational efficiencies and enhance grid management capabilities by leveraging a purpose-built OT platform for both transmission and distribution systems. Next, Emerson Electric Co. was chosen by NextDecade for the Train 4 and 5 expansion to the 12 million tons per annum in capacity. Emerson Electric Co. will supply instruments, valves, and analytical systems and was selected based upon our strong operational performance in LNG applications and our local presence and support. Third, a major pharmaceutical manufacturer based in Indiana chose Emerson Electric Co. to support the three-site production program for oral GLP-1s. Ramping production quickly to meet substantial demand is critical for this project, and Emerson Electric Co. will provide our leading DeltaV control systems and software as well as our ability to execute complex projects. Lastly, Emerson Electric Co. will provide NI software and modular hardware to a leading aerospace company headquartered in South Texas for the production of the next-generation communications satellite. Emerson Electric Co. was chosen for its ability to provide improved test speed and measurement accuracy within a small footprint. Please turn to Slide 6. We have a $1.2 billion business in the Middle East, representing 7% of sales. Emerson Electric Co. has an $8.5 billion installed base in the region, and over 1,400 employees across manufacturing, field service, and sales administration. The conflict presented a significant disruption in the quarter, causing a one-point impact to underlying sales. First and foremost, the safety of our employees and customers is our ultimate priority, and we took actions such as shutting down manufacturing for a period to protect our people. In March, our field service engineers also operated at less than 50% of pre-conflict levels. Emerson Electric Co. maintains a strong regionalized manufacturing strategy in the Middle East, but components for instruments and valves are imported into the region. Additionally, the closure of the Strait of Hormuz caused significant disruptions to ocean, air, and ground logistics, which restricted our ability to import necessary components, instruments, and valves. Our customers experienced a varying degree of impact, with 47 customer sites identified as having been damaged in some capacity. We saw a slowdown of MRO and project activity in the quarter as some facilities restricted personnel. But we saw an improvement in activity in April. We are encouraged by the efforts of our employees and customers to drive business continuity. The situation remains challenging, and we expect it to impact the full-year 2026 underlying sales by one point. Customer sites were largely operational by mid-April, although running at around 75% capacity due to their inability to move product out of the Strait of Hormuz. Emerson Electric Co.’s manufacturing facilities are both operational, and our field service engineers are now operating at 80% of pre-conflict levels. The dedication and service levels of our employees is deepening customer relationships, and we are working proactively with our customers to ensure we can meet their needs as they begin to work to repair damaged infrastructure. We have already seen rehabilitation activity, and we expect to have additional opportunities as customers continue to assess their facilities. Overall, we estimate a future rebuild and restart opportunity of approximately $100 million, which will play out over several quarters. Although the Strait of Hormuz remains effectively closed, our teams are implementing alternative routes and expect to see logistics continue to improve. While we are seeing increased freight expenses in the region, the cost impact to Emerson Electric Co. is manageable. Importantly, on-site project execution work is now progressing well at several key sites, and the outlook for projects remains strong. I want to reiterate how proud I am of our employees for their resiliency, and we continue to stand with our customers during this challenging situation. With that, I will now turn the call over to Michael J. Baughman to discuss our financial results and guidance in more detail. Michael J. Baughman: Thanks, Surendralal. Please turn to Slide 7 for a more in-depth look at our Q2 financial results. As a reminder, our first-half financial results are adversely affected by a software contract renewal dynamic that impacted Q2 sales growth by approximately two percentage points, adjusted segment EBITDA margin expansion by 90 basis points, and earnings per share growth by $0.09. Our Q2 results were also adversely affected by the Middle East conflict by approximately one point. Excluding these headwinds, Q2 underlying sales growth was approximately 3%. We continue to see strong growth at Test and Measurement, up 12% in the quarter, and Control Systems and Software, which was up 4% excluding the software renewal dynamic. Price contributed 3.5 points to growth, as expected, and MRO was 65% of sales. Backlog ended the quarter at $8.2 billion, up 9% year over year, and our book-to-bill was 1.07. Adjusted segment EBITDA margin of 27% exceeded expectations and benefited from favorable segment and geographic mix. Price/cost and cost reductions more than offset inflation. Excluding the 90-basis-point impact from the software contract renewal dynamic, adjusted segment EBITDA margin was up 50 basis points. Adjusted earnings per share was $1.54, a 4% increase year over year, while Q2 cash flow came in at $694 million with a margin of 15%. We are on track for full-year cash flow growth of approximately 10% at greater than 18% margin. Q2 was a difficult quarter due to the conflict in the Middle East, and I am proud of the operational performance we delivered. One moment, please. It appears we are having some technical difficulty. Thank you. You may now resume. Okay. Sorry about that. We had some technical difficulties. We are going to resume on Slide 9, where we will talk about underlying sales by region. The Americas were up 5%, with the U.S. up 9%. The pace of business in North America remained strong with significant activity across our growth verticals and resilient spend in MRO. As expected, Europe was soft, declining 4%. The Middle East and Africa was down 5%, driven by the conflict in the region as customers were forced to curtail operations. As Surendralal mentioned in his comments, we have modeled the conflict in the Middle East as a one-point headwind to consolidated Emerson Electric Co. sales growth in 2026. During the first half of our fiscal year, we have seen better-than-expected growth in the U.S. We expect the strength in the U.S. to continue, and we now expect the U.S. to grow high single digits for the year. This incremental growth is offset by a slower-than-expected China, which we now expect to be down mid-single digits for the year. Globally, we are seeing significant activity sustained in our growth verticals, which were up 22% in the quarter. Power was up 23%. We saw healthy investment in plant modernizations, lifetime extensions, and behind-the-meter generation for data centers. We also saw robust performance across the other growth verticals, particularly in aerospace and defense, and life sciences. Please turn to Slide 9 for details on the sales and margin performance for our three business groups. Software and Systems faced a 4.5% sales headwind from the software contract renewal dynamic and reported underlying sales growth of 1%. The growth was led by broad-based strength in Test and Measurement, which was up 12%. We saw significant Software and Systems growth in power, life sciences, semiconductor, and aerospace and defense. Software and Systems margin of 29.2% decreased 250 basis points year over year, driven by the software contract renewal dynamic, which was a 300-basis-point drag. Intelligent Devices underlying sales were down 1%. The conflict in the Middle East impacted this growth by two points, offsetting strength in power and LNG. Intelligent Devices margin of 27.9% increased 80 basis points year over year from strong price/cost and cost reductions. Safety and Productivity was up 2% underlying, driven by electrical products and stable project activity in North America, while European markets remain soft. Safety and Productivity’s margin of 21.7% was down 10 basis points year over year, driven by lower volume, offset by benefits from price and cost reduction. Please turn to Slide 10, where I will bridge Q2 adjusted EPS from the prior year. Excluding the $0.09 impact of software renewals, operations delivered $0.08 of incremental EPS in Q2. Of this, Software and Systems contributed $0.05, Intelligent Devices added $0.02, and Safety and Productivity contributed $0.01. Non-operating items added $0.07, primarily from FX benefits. Overall, adjusted EPS grew 4% year on year to $1.54. Please turn to Slide 11 for our 2026 underlying sales guidance by Business Group. We are adjusting our full-year guidance for sales to reflect the Middle East conflict and now expect full-year underlying sales growth of approximately 3%. We expect Software and Systems to be up approximately 8% in Q3 and are increasing our full-year expectations to up 5% based on the strength of our growth verticals in this business and strength in the U.S. Test and Measurement is planned to grow mid-teens in Q3 and low teens for the full year, up from our prior expectations of high single-digit growth in 2026. The Control Systems and Software segment is expected to grow mid-single digits in Q3 and low single digits for the full year. We continue to see robust adoption of our software and still expect ACV growth of 10% plus in 2026. Intelligent Devices is projected to grow 4% in Q3, and we are lowering our full-year expectations to approximately 2% driven by the conflict in the Middle East. Second-half growth in Intelligent Devices is supported by backlog phasing and the timing of product shipments, with strength in the U.S. and growth verticals offsetting a slower-than-expected China. Safety and Productivity is expected to grow 1% in Q3 and 2% for the full year. The North America market continues to recover; we are seeing sustained strength in electric utilities. However, automotive and European markets remain weak. Overall, Emerson Electric Co. expects to grow approximately 5% in Q3 and 3% for the full year. Excluding the impact of software contract renewals, Emerson Electric Co.’s growth rate is expected to be 4% for the full year. Please turn to Slide 12 for details on our Q3 and full-year 2026 guidance. Before going through the details, I would like to highlight a few important assumptions embedded in our guidance. Our guidance considers a gradual resumption of activity in the Middle East and assumes the impact of the conflict remains in the region. Additionally, we expect a net neutral impact from the removal of IEBA tariffs, as this benefit is offset by increases in Section 1 and 232 tariffs as well as freight costs. Finally, our earnings and cash flow guidance excludes any benefit of potential tariff refunds. For the full year, we expect FX to be a tailwind to sales of approximately 1.5% and GAAP sales to increase approximately 4.5%. We still expect adjusted segment EBITDA margin of approximately 28% and free cash flow of $3.5 billion to $3.6 billion. We are raising the bottom and midpoint of our 2026 adjusted EPS guide and now expect $6.45 to $6.55. We still expect to return approximately $2.2 billion to shareholders through $1.2 billion in dividends and $1.0 billion of share repurchase, of which we completed $542 million in the first half. Moving to the third quarter, sales growth is expected to be approximately 5.5% with underlying sales growth of approximately 5%. We expect adjusted segment EBITDA margin of approximately 28% and adjusted EPS of $1.65 to $1.70. With that, I would like to turn the call back to the operator for Q&A. Operator: We will now open the call for questions. Thank you. Our first question is from Scott Davis with Melius Research. Scott Davis: Hey, good afternoon, guys. Hi, Scott. A couple just points to clarify. I thought that detail you gave in the call was pretty thorough, but so we lost about a point in the Middle East, and it sounds like you expect to get about a half of that point back. Is that correct? Is the rest lost revenues, or is there still optionality or potential to regain the remainder of those revenues? Michael J. Baughman: No. I think, Scott, we have seen the disruption in the Middle East, and as we mentioned on the call, there was about $50 million in the quarter. As we look out, we are expecting about another $100 million of disruption. What we see is encouraging with the supply chain improving, but it is still a very uncertain situation and we have six months left here for the year, and capacity right now is running at about 75%. We mentioned that there is some opportunity out there for rebuild and restart, and that has started, but that is going to take, we think, six quarters to unfold here, and we will see how that goes. But I would say do not think there are revenues that are lost, and in fact, over the longer term, there should be opportunity. In this next six months, based on what we saw in the quarter and based on what we see on the ground today, we felt it was prudent to bake that in and take the full-year guide down by a point at the top line. Scott Davis: Okay. That is helpful. And then I do not think you mentioned why China was weak in the prepared remarks, but down 9% was pretty material. Is that chemical-related, or are there other dynamics? Surendralal Karsanbhai: Yes, Scott. You hit the nail on the head. Our exposure to the chemical industry in China, an industry that continues to be over-capacitized and very weak in terms of spend, has adversely impacted us now for a few quarters, and that continued through the second quarter of the year, which then led us to assess China for the year more in the negative mid-single digits versus the low single digits as we had originally thought three months ago. Operator: Our next question is from Andrew Obin with Bank of America. Andrew Obin: Yes, just to follow up on the rebuild question. Was I correct that the value of the rebuild is $100 million? Surendralal Karsanbhai: That is what we have assessed to date. That is based on pace of quotations and orders that we have received already. Now obviously, that is based on the 47 sites that have been impacted across the region. That number could change over time. And that is also based on what we assess restart procedures will entail for MRO activities. So that is all that we have today, Andrew. Andrew Obin: I guess the question I have, if I am just sort of thinking about damage to Ras Laffan and your content, you know, just that gets me a much higher number. So what is wrong with that kind of analysis? And then, clearly, you guys are on the ground, you know what is happening. It just seems the number should be order of magnitude higher given the amount of damage that we have been reading about. Michael J. Baughman: So, Andrew, I think the way the $100 million we have estimated is on the damage created to the installed base on the 47 sites impacted. Now, if you are talking about the LNG capacity that came online to be rebuilt, that is a much bigger opportunity. We have not really scoped that. What we are scoping for you is the near term disruptions we have seen in customers, and as they try to restart operations, what we call our lifecycle services businesses—we quantified that over the next quarters to be in the tune of $100 million. But to your point, the capacity that was taken offline, as that comes online, that is a much bigger number, but we are not in a position to quantify it at this point. Andrew Obin: Okay. That makes perfect sense. Thank you so much. And then just another question, sort of more fundamental question. Has the dial changed post–Middle East as to where downstream CapEx goes or chemical CapEx goes? I think a lot of capacity was reliant on Middle East feedstocks—huge capital costs, low cost of capital. But as we have learned during COVID that efficiency versus reliability are not necessarily the same things. Has thinking changed about where facilities go going forward and where this capacity will be domiciled going forward? I am just thinking, right, because I do not think chemicals are particularly competitive in North America, but any glimmer of hope of any of that capacity coming to North America? Sorry for a long question. Surendralal Karsanbhai: It is a good question, Andrew, and it is certainly worth thinking about the future balancing of capacity in the chemical industry. As you know, at least on the bulk chemical side, that has been largely dominated by China, with Germany and the United States having smaller components. As you move towards the more specialized chemicals, the Europeans and the Americans have had more of a position. That is going to take some time. Right now, I would say the first step is going to be to find alternatives in the Middle East for the Strait of Hormuz. A lot of pipeline quotation activity is ongoing across Saudi Arabia and a few of the other countries to bypass what likely will be a concerning pinch point from here on forward, and so that activity has started. But certainly, I think as things start to settle, producers will eventually balance capacity needs across the world and regionalize their production. Operator: Our next question is from Andrew Alec Kaplowitz with Citigroup. Andrew Alec Kaplowitz: Good afternoon, everyone. Surendralal Karsanbhai: Hi, Andy. Maybe just a little more color on the near-term demand environment and orders moving forward. I know obviously you have more difficult order comparisons from here, but as you said, you are getting good momentum from the growth verticals, particularly in power and Test and Measurement. Can you sustain that mid-single-digit order growth rate in this environment? Did you see any difference in order cadence between January and April? A couple of your industrial peers called out a weak start to the calendar year outside of the Middle East. Surendralal Karsanbhai: Yes. No, we felt it was a very strong quarter outside of the Middle East. It was driven for us, as we remarked in the written comments, by the United States and by India, which led. And we saw broad growth across all of the growth verticals, with the lowest one being probably semiconductors in the mid-teens, and all of them in terms of orders grew above that. We feel really good in terms of that resiliency. Of course, the Middle East was much softer than expected in the quarter. We expect that to rebound. We have already seen in April that was encouraging in the Middle East, particularly as it relates to MRO activity, and we will see how the projects ultimately pan out. But I think mid-single-digit orders are sustainable for us as we navigate through the remainder of 2026. At this point in time, we feel very confident that with our backlog support, we have the second half well sized, and then with this momentum in orders, we will be setting us up for 2027. Andrew Alec Kaplowitz: Helpful, Surendralal. And as you said, your expectations for margins, really margin incrementals, have been drifting up a bit given the lower sales forecast, and that is despite, I think, you absorbing more inflation with price. Maybe talk about what you are doing to offset the inflation. Are you baking in more, for instance, memory chip inflation, and confidence level that you can continue to offset inflation headwinds even on lower growth? Michael J. Baughman: Pricing has been very, very disciplined. Our cost reductions and, frankly, favorable mix in some of the sales we have executed has helped, but ongoing productivity actions and supply chain mitigation actions to offset inflation are really what is driving the margins. Operator: Our next question is from Julian Mitchell with Barclays. Julian Mitchell: Hi, good afternoon. Just wanted to understand quickly how you thought about the high-level guidance moving parts. You have taken a little bit down on the revenue line; the EPS dollar guide low end, though, has moved up, with an unchanged segment margin guide. So is what is happening really a narrower corporate cost and then perhaps some rounding in the margins? Is that what is helping? And on the mix front—you have mentioned it a couple of times—help us understand how you see that mix impact playing out over the balance of the year, please. Michael J. Baughman: Yes, Julian. From a margin perspective, you are correct when you say it is in the roundings. It has not fundamentally changed. If you think about it, our view—other than the $50 million and the approximate $100 million in the back half of the year in a region that really has lower margins—our full-year view has not changed. The mix will improve a little, but as we have said, a lot of this growth in the second half is in backlog; it is projects. So there will be a volume uptick with some project and some mix going forward, and it all nets out. We feel very comfortable holding the 28% for the year. Julian Mitchell: That is helpful. Thank you. And then as we are looking at the balance of the year, I think you have in Q3 and Q4 a mid-single-digit sequential revenue increase dialed in and kind of high-30s operating leverage. Is that a fair placeholder for both quarters? Anything we should bear in mind in one versus the other? And on the ACV front, I think you are embedding an acceleration in the back half. Anything to call out there? Michael J. Baughman: I think from a leverage perspective, the numbers are affected by that software contract renewal dynamic and the effects there. But if you take that out, we will be over 40% leverage on the full year, which certainly means some acceleration in the back half. From an ACV perspective, yes, we continue to reiterate the 10% plus for the full year. We had a good quarter, and we continue to think that the ACV growth of 10% plus is the right number for us. And I think you said sequential growth mid-single digits. That is correct. And also year-over-year growth is mid-single digits. So I think that is an important addition to your statement. Sequential growth mid-single digit is consistent with year-over-year mid-single digit, and if you do the math, the leverage will be a tad better than the 30s you stated for the second half. Yeah. Operator: Our next question is from Jeffrey Todd Sprague with Vertical Research. Jeffrey Todd Sprague: Hey, thank you. Good morning, everyone. Just wanted to get a broader sense of the total global ramifications of this. The nature of my question, right, is the comment of the war stays contained in the Middle East, but the economic impacts are not contained. We have Europe becoming less competitive from an energy cost standpoint, maybe China not having the cheaper feedstocks it needs for its chemical industry. So when you are kind of framing this—and I know none of us have a crystal ball—how are you thinking about those second-order impacts? Are you trying to dial those in any way? Surendralal Karsanbhai: It is a very good question, and certainly, Jeff, we have to create a framework in which to set expectations for the second half and performance for the second half of our fiscal year, of course within a time frame of just six months. We have to work within to mitigate potential impact. That framework that we built has a very important assumption, as you stated, that this conflict essentially is constrained to the Arabian Peninsula, the Arabian Sea, the Persian Gulf area. There are certainly economic downstream impacts that are already being felt—certainly feedstock pricing and supply. We have electricity curtailments in parts of Southeast Asia. We have accounted for as much of that as we know today. But very honestly, we have not assumed a significant deterioration in economic conditions or growth, for example, in India or any of the countries in Southeast Asia, that, in a much broader, deeper conflict, would significantly be impacted. Jeffrey Todd Sprague: Right. Understood. And then maybe just a little—if we did not have this war going on, there would probably be a lot more Test and Measurement questions. Maybe just come back to Test and Measurement. The raw numbers you shared with us—growth rates—sound quite encouraging. Anything beneath the surface on verticals or distribution channel that you can share that sheds a little light on the demand profile here? Michael J. Baughman: Yes. I mean, I think the momentum in Test and Measurement is clearly led by semis and aerospace and defense. Both end markets are doing very, very well for us, and frankly, we expect continued momentum across both those sectors, whether it is new space, defense spending, and then certainly on the semi side, the RF and mixed-signal investments that are happening, data center investments. I think there is no surprise there. The weakest segment we have within our Test and Measurement business is the transportation segment, the automotive segment. We believe we have kind of hit bottom, and that will start growing low single digits again. Most of that business is in Europe, and our portfolio business has been resilient. We had a nice run as we came through the recovery mode, but that has stabilized in the mid-single-digit type growth rate. So, on a cumulative fashion, the double-digit for Test and Measurement is sustainable for the next couple of quarters, and we expect that to continue into 2027. Operator: Our next question is from Deane Michael Dray with RBC Capital. Deane Michael Dray: Thank you. Good afternoon, everyone. Surendralal Karsanbhai: Hello, Deane. Deane Michael Dray: I would love to do a similar run-through on power—bigger number there. I think you said up 23%. Could you just talk about the visibility? You called out plant modernization but also behind the meter. Does that stand, and what is the outlook for the balance of the year? Michael J. Baughman: From a power perspective, the momentum in terms of the project funnel—which is a pretty big funnel and that is made up of both modernizations as well as greenfield—and we are starting to see greenfield. There was some greenfield in Q2. We expect bigger greenfield activity in the half. And a similar comment on behind the meter. We saw some behind-the-meter opportunities in Q2, but we expect more to happen in the second half and into 2027. So broad spread for the Ovation business. Obviously that flows through to our valves and instruments business, which is doing very well. And also we called out our Digital Grid Management business; on the transmission and distribution side, a lot of investment is happening in the T&D space. So broad-based strength in power, certainly led by North America, which is our strongest market, but we are seeing momentum in Latin America, particularly Mexico, good activity in China, rest of Asia, and some activity in Europe. Deane Michael Dray: Good to hear there. And then if we just spotlight MRO for a moment—you called out it was 65% of your mix. In previous oil spikes—you get $100 oil—you often see the refiners just turn on the cash register, run 24/7, and do as much MRO project activity as possible, right up until regulatory limits. Have you seen any delays there? Do you expect anything like that this time? Surendralal Karsanbhai: No, Deane. As a matter of fact, we tend to see when you run things that hard, the opportunities for MRO actually increase for us, particularly in stringent applications of high pressure, high temperatures. To date, we have not seen any change in trends that would alarm us negatively on MRO anywhere in the globe, other than what we highlighted related to sites in the Middle East. Operator: Our next question is from Andrew Buscaglia with BNP Paribas. Andrew Buscaglia: Hi, good afternoon, everyone. Surendralal Karsanbhai: Hi. Andrew Buscaglia: Obviously very topical throughout the quarter and throughout the year this year has been AI and software. It sounds like you have these new products out. It sounds like adoption is going well. Can you give us an update on anything you have learned intra-quarter on that front? And then I am curious on the outlook—how impactful do you see these products contributing to growth going forward, even as soon as this year? Maybe you can comment on that, please. Michael J. Baughman: Yes. A lot of customer interest, not only on the NI side, but certainly the capabilities we have launched on Ovation, DeltaV, as well as AspenTech. It will be a very interesting users group event where you are going to see a lot more customer input as it relates to pace of adoption for both NI and AspenTech, so we will get to learn that in a couple of weeks. We do believe that it is a differentiator for us and we are seeing a lot of activity, particularly in the Ovation business, in terms of customer dialogue and a lot of quotes around AI. I would say it is a little early for it to translate into meaningful revenue opportunities. We have been very thoughtful on pricing and making sure that we can extract value and tiering the product suites where we can capture the value, with tiering on the higher-tier products which will have the AI functionality. Time will tell. There is certainly a lot of customer interest, but we do not have meaningful impact on revenue as we sit here today. As we progress into 2027 and beyond, I think it will be a huge differentiator for us. Andrew Buscaglia: Fair enough. And, sticking with software, I wanted to check on your margin cadence through the back half of the year. There is a little bit of noise starting the first half or second half, but can you comment on what is behind the implied guidance for the back half of the year for that segment and the puts and takes there? Michael J. Baughman: This is Control Systems and Software, or Control Systems and Software, just to clarify? Andrew Buscaglia: Yeah, Software and Systems. Michael J. Baughman: It should be up a little bit in the second half versus where it was in the first half, but pretty consistent through the year. There is some project execution there that plays against some of the mix favorability that we will see in the business mix that comes through. Operator: Our next question is from Joseph John O’Dea with Wells Fargo. Joseph John O’Dea: Hi, good afternoon. You made a comment about seeing significant capital deployed in projects, and I would imagine that some of this is a continuation of what you are seeing in growth verticals—so you talk about power and LNG and life sciences. But I am curious if you are seeing an acceleration as well as a broadening out at all. A lot of what we have heard in terms of industrial end-market activity is companies seeing a continuation of spend on areas like productivity, but not so much a broadening out on the capital project side. Are you seeing some broadening out or acceleration of this? Surendralal Karsanbhai: We continue to see consistency in the funnel. As you know, Joe, we look at that on a two- to three-year basis. It grew to $11.2 billion, and the growth has come entirely from inside of our growth verticals. Power really drove the growth in the funnel, but the win rate and the project deliveries continue to be consistent within the growth verticals that we identified. We have not seen tremendous broadening beyond that. It continues to be those five core verticals that are driving not just the activity, but also feeding of the funnel. Michael J. Baughman: Yes, you said it. The new capital formation in our five growth sectors of power, LNG, life sciences, semiconductors, and aerospace and defense continues to accelerate. Every meeting we have with our businesses points to more opportunities in the funnel being added across these five verticals. The core markets in energy, refining, and petrochemical—it depends on the geography there—show stable or muted activity, but as it relates to the growth verticals, there is no slowing down. In fact, we see accelerating additions of opportunities to the funnel. Joseph John O’Dea: And then just touching on the margin strength in Intelligent Devices in the quarter—we saw it in both Sensors and Final Control. If you can unpack that a little bit more with respect to mix and cost actions during the quarter. You do expect a step-up in the growth rate in the back half. Curious the degree to which volume then helps those margins sequentially and how mix is expected to play out as you move forward in the year. Michael J. Baughman: As we talked about, it was the strong price/cost and cost reductions. I will say we got a little bit of benefit in the quarter from not having the IEPA tariffs, and obviously as we move forward, that benefit will, as we talked about, be offset by other tariffs and some freight cost pressure. As we move into the second half, the margins will have, as you suspected, offsetting factors of volume being beneficial with some mix pressure as projects get delivered. I expect to see that group improve margins year over year, as they have been doing, and continue to perform very well. But there will be some pressures that should offset net-net. Year over year, we will see improvement in the operating margins there. Operator: Our next question is from Analyst. Analyst: Yes, thanks. Good afternoon. I wondered if you could just touch on a couple of things for me. Free cash flow came in a little light of where I thought it might end up being, so I wonder if you could talk a little bit about that and how we might think about the phasing through the back half of the year. And then secondly, just on Intelligent Devices, I think even ex–the Middle East, the business came in a little light of your guide. Is the primary driver of that weakness in China and Europe? If you could unpick that a little bit for us, that would be really helpful. Michael J. Baughman: Sure, Alex. In terms of cash flow, the first half was certainly affected by the interest from the Aspen buy-in that was primarily in the back half of last year, and so we will lap that out as we move forward. We also had some tax payment timing that was a negative in the first half. We also had a buildup of some working capital as we get ready for the second half of the year. If you are looking at the prior year, our cash flow that year was far more ratable than it historically has been. This year will look a little more like we have looked in the two years prior to last year. On Intelligent Devices this period versus expectation, yes, there was some softness in China and Europe as you suspected. Operator: Thank you. This concludes today’s conference. We thank you again for your participation. You may disconnect your lines at this time.
Operator: Investor Relations. Roy Nir: Joining me today to discuss our results are Michael Christenson, our Chief Executive Officer, and Mark A. Boelke, our Chief Financial Officer and Chief Operating Officer. Before we begin, I would like to inform you that this call will contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ. Please refer to Entravision Communications Corporation’s SEC filings for a list of risks and uncertainties that could impact actual results. The press release is available on the company’s Investor Relations page and was filed with the SEC on Form 8-K. Additional information may also be found in our Quarterly Report on Form 10-Q, which was also filed today. If you would like to ask a question, please use the Q&A function on your screen, indicate your name and company, and submit your question. We will try to answer any questions that relate to the topics contained in today’s call during the Q&A session. I will now turn the call over to Michael Christenson. Michael Christenson: Thanks, Roy. And thank you to those of you joining this call today. We appreciate your interest in Entravision Communications Corporation and your support. As you saw in our press release, on a consolidated basis, Entravision Communications Corporation revenue increased 114% to $197 million in Q1 2026 compared to Q1 2025. We had operating income of $21 million in Q1 2026 compared to an operating loss in Q1 2025. We report our results for two segments, Media and Advertising Technology and Services, which we call ATS. This is the first quarter of our third year with this segment reporting. As you may know, we started in 2024. For our Media segment, revenue increased 4% in Q1 2026 compared to Q1 2025. This increase was primarily due to higher digital advertising revenue and retransmission fees. This was partially offset by lower broadcast advertising revenue and lower revenue from spectrum usage rights. Our Q1 2026 results included a 6% increase in local advertising revenue and an 18% decrease in national advertising revenue. These numbers exclude political revenue. Local advertising revenue is from our sellers working with local advertisers. They sell broadcast and digital marketing solutions. National advertising revenue is from our partners, primarily TelevisaUnivision, selling our broadcast to national advertisers and agencies. Our local advertising operations had 4% higher monthly active advertisers in Q1 2026 compared to Q1 2025, and a 2% increase in revenue per monthly active advertiser. Our operational priorities are to grow monthly active advertisers and revenue per monthly active advertiser. In terms of operating expenses and profitability, as we have discussed in the past, we made a number of important investments in our Media business in 2025 that we continued into Q1 2026. We added capacity to our local sales teams—more sellers—and we added digital sales specialists and digital sales operations capabilities. More digital. When we analyzed our local markets and our local advertiser base, we saw an opportunity to increase revenue by adding sales capacity. All of our local advertising customers are advertising in digital channels—search, social, streaming video, and streaming audio—and we believe we can serve their needs in those digital channels as well as our traditional broadcast video and audio channels. As we discussed in our fourth quarter report, we have two other important initiatives underway to generate incremental revenue. We are broadcasting a new network on our multicast capacity called Altavision across all of our markets. We produce the local news for Altavision, and we provide the sales and the broadcasting infrastructure. The balance of the programming is currently provided by Grupo Multimedios from Monterrey, Mexico, and we share the revenue. It is still early in the development of Altavision, so we have operating expenses but no significant incremental revenue. In addition, at the beginning of this year, we launched new programming on our full-power Orlando television station WOTF-TV, in partnership with Hemisphere Media. Hemisphere owns WAPA-TV, the number one television station in Puerto Rico. We launched WAPA Orlando channel 26 to serve the large and growing Puerto Rican, Caribbean, Central, and South American Spanish-speaking communities in Central Florida. More than 500 thousand Puerto Ricans live in the Orlando market, and we are very excited about this new revenue opportunity. Again, since it is early in the development of WAPA Orlando, we have operating expenses but no significant incremental revenue. Pulling this all together, in our Media segment, operating expenses increased $2 million in Q1 2026 compared to Q1 2025, so we had an operating loss of $5 million in Q1 2026 compared to an operating loss of $3 million in Q1 2025. As we discussed on prior calls, we are committed to growing our business and earning a profit. So we acknowledge that we have more work to do to improve our operating performance and profitability in our Media business. The new leadership team that we announced in March is evidence of this commitment: Maria Martinez Guzman, President of Entravision Media; Eduardo Meitorrena, President of Entravision Audio; and Winter Horton, our new Chief Revenue Officer. These new leaders are aligned on our core objectives: serve our audience as a trusted source of news, information, and entertainment, and serve our advertisers by connecting them with our audience. This team is committed to growing revenue and earning a profit. Now for our Advertising Technology and Services segment. ATS revenue was $155 million in Q1 2026 compared to $51 million in Q1 2025. We had more monthly active customers and more revenue per monthly active customer. We continued to invest in our ATS segment in Q1 2026 to grow revenue and operating profits. We invested in our engineering team to continue to improve our technology and build more powerful AI capabilities into our platform. And we invested to increase the capacity of our sales and customer service organizations. In addition, our infrastructure costs continue to grow as our revenue grows, but we are beginning to see operating leverage with infrastructure costs growing at a slower pace than revenue. The combination of these investments in ATS increased operating expenses by $10 million in Q1 2026 compared to Q1 2025, or $40 million on an annualized basis. Operating profit for ATS was $34 million in Q1 2026 compared to $7 million in Q1 2025. So to summarize, in Media, we are investing to increase our local sales capacity and to expand our digital sales and digital sales operations capabilities—more sellers and more digital. In ATS, we are investing to add more engineers to advance our technology and to increase our sales and customer service capacity—more technology, better technology, more selling. We believe these investments will help us build a stronger company. I will now turn the call over to Mark A. Boelke to share more details of our financial results for Q1 2026. Mark? Mark A. Boelke: Thank you, Mike. I will start by reviewing the performance of each of our two reporting segments—again, Media and Advertising Technology and Services. In our Media segment, first quarter revenue was $42.4 million, which was up 4% compared to first quarter 2025. This increase was primarily due to increases in digital advertising revenue and retransmission consent revenue, partially offset by decreases in broadcast advertising revenue and spectrum usage rights revenue. We have undertaken initiatives focused on increasing our Media advertising revenue, and we are seeing momentum and progress in the execution of these initiatives, particularly in local ad sales and digital ad sales. Let us look at total operating expense for the Media business—that is the sum of direct operating expenses plus selling, general, and administrative expenses as those two line items are reported in our segment results. Media segment total operating expense in the first quarter increased $2.1 million compared to first quarter 2025, an increase of 6%. One of our goals in the Media segment is to optimize organizational structure and expenses to be aligned with revenue and to generate profit, as Mike noted. We continue to work on achieving this goal, and we have taken steps under an ongoing organizational design plan begun in Q3 2025 intended to support revenue growth and reduce expenses in our Media segment. Key components of this plan have included a reduction in our Media business workforce, reduction in professional expenses, and the abandonment of several leased facilities. We recorded a charge during the first quarter totaling $1 million for the expenses associated with moves under this plan, and these charges were reported as restructuring costs on our income statement. The Media segment had an operating loss of $5.2 million in Q1 2026 compared to an operating loss of $2.6 million in Q1 2025. The decrease was mainly due to higher cost of revenue associated with the increase in digital advertising revenue in our Media segment. We remain focused on providing compelling content, growing revenue, streamlining our organization, and reducing operating expenses during 2026 and beyond. At this time, I will turn to our Ad Tech and Services segment, or ATS. First quarter revenue for the ATS business was $154.6 million, an increase of 204% compared to first quarter 2025, and a sequential increase of 74% from fourth quarter 2025. We had a higher number of monthly active accounts and higher revenue per monthly active account. As discussed on previous calls and as Mike noted earlier, we have had success executing our strategies in the ATS business, including strengthening the AI capabilities that are part of our technology platform and expanding the ATS sales team and geographic sales coverage. ATS total operating expenses increased 72% in the first quarter 2026 compared to first quarter 2025, an increase of $9.8 million. The ATS expense increase was primarily related to the increase in revenue. For example, the expense of cloud computing services has increased as a result of processing more transactions and using stronger AI capabilities in the ad tech platform. There was an increase in sales commissions and performance compensation as a result of the revenue increase and achievement of other performance metrics. And the ATS business has also hired additional sales, engineering, and ad operations staff in recent quarters in order to drive ATS growth and expand into new geographic territories. One of our goals for the ATS business is to continue to grow revenue and generate positive operating leverage, and the ATS revenue increase exceeded the expense increase in terms of percentage and absolute dollars. Operating profit for the ATS segment was $34.3 million in Q1 2026. This was an increase of 427% versus Q1 2025, and a sequential increase of 178% from the prior quarter, Q4 2025. Combining our two operating segments, on a consolidated basis, revenue for first quarter 2026 was $197 million, up 114% compared to first quarter 2025. The two segments together generated a consolidated segment operating profit of $29.1 million in Q1 2026 compared to $3.9 million in Q1 2025. The increase was a result of operating profit in the ATS segment partially offset by a decreased operating profit in the Media segment. We had consolidated operating income of $20.7 million in Q1 2026 compared to an operating loss of $52.8 million in Q1 2025. Corporate expenses in first quarter 2026 were $7.2 million, an 8% decrease compared to first quarter 2025, or about $600 thousand. The decrease was primarily due to expense reductions in professional services and rent. We have taken significant steps to reduce corporate expenses over the past few years, and for additional context, looking back one additional year to 2024, corporate expense in 2026 was 41% lower than corporate expense in 2024. Entravision Communications Corporation’s balance sheet remains strong, with over $71 million in cash and marketable securities at the end of first quarter 2026. We are proud of our strong balance sheet, which we believe sets us apart from others in the industry. Our strategy regarding allocation of cash is, first, reduce debt and maintain low leverage, and second, return capital to our shareholders, primarily through dividends. In first quarter 2026, we made a debt payment of $5 million, reducing our credit facility indebtedness to about $163 million at the end of first quarter 2026. We remain committed to reducing our debt and maintaining a strong balance sheet. In addition, we paid $4.6 million in dividends to stockholders in the first quarter, or $0.05 per share. For 2026, our Board of Directors has approved a $0.05 dividend per share, payable on June 30, 2026, to stockholders of record as of June 16, 2026, for a total payment of approximately $4.6 million. I would like to thank you all for joining our call today. At this time, Mike and I would like to open the call for questions from the investment community. Roy, I will turn it back over to you. Roy Nir: Thank you, Mark. We will now open the call for questions. As a reminder, if you have a question, please use the Q&A function and submit your question. Please hold as we review questions. Mike, the first question is regarding the outlook for political revenue in 2026. Any updates since the last call that you can provide? Michael Christenson: Yes. Thanks, Roy. I guess next quarter, we will put political comments in the prepared remarks. We are 182 days away from Election Day 2026. As everyone knows, primaries are underway across the country, and we are positioning ourselves for a strong political spending environment in 2026. For Entravision Communications Corporation, we have big races in our markets—governor races in Nevada and Texas. Those are the three biggest governor races for us, but we have some others. Then we have the Texas U.S. Senate race, and we have at least seven critical contested House races. So we will be busy this year focusing on political revenue. As everyone knows, this will be one of the most consequential congressional elections in our lifetime. We believe that the Latino vote will be critical to the outcome of all these elections. Studies we have shared with our clients and that studies have shown that Latinos are the most persuadable segment of the electorate, and we have a powerful channel for reaching that audience. So political will be an increasing focus for us as we go through the rest of this year. Roy Nir: Thank you, Mike. The next question we received was related to the status of the negotiations with TU and the affiliation agreement. Can you provide any update on that? Michael Christenson: No new news on the affiliation agreement for this call. This affiliation agreement runs through December 31, 2026, so we have time. We have been partners for three decades, and our plan is to renew this agreement, but there is no news on that at this time. Roy Nir: Thank you, Mike. Again, please hold as we review any potential questions. At this time, we do not have any additional questions. We would like to thank you all for joining our call today. We welcome our investors to connect with us through the Investor Relations page on our corporate website, entravision.com, where you will have access to a transcript of this call, the press release containing our first quarter financial results, and a copy of our Quarterly Report filed with the SEC on Form 10-Q. We look forward to speaking with you again when we report our second quarter results. Thank you very much. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Henry Schein's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Graham Stanley, Henry Schein's Vice President of Investor Relations and Strategic Financial Project Officer. Please go ahead, Graham. Graham Stanley: Thank you, operator, and my thanks to each of you for joining us to discuss Henry Schein's financial results for the first quarter of 2026. With me on today's call are Fred Lowery, Chief Executive Officer of Henry Schein; and Ron South, Senior Vice President and Chief Financial Officer. Before we begin, I'd like to state that certain comments made during this call will include information that is forward-looking. Risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements, and the company's performance may materially differ from those expressed in or indicated by such statements. These forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's filings with the Securities and Exchange Commission and included in the Risk Factors section of those filings. In addition, all comments about the markets we serve, including end market growth rates and market share, are based upon the company's internal analysis and estimates. Today's remarks will include both GAAP and non-GAAP financial results. We believe the non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable the comparison of financial results between periods where certain items may vary independently of business performance and allow for greater transparency with respect to key metrics used by management in operating our business. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding GAAP measures. Reconciliations between GAAP and non-GAAP measures are included in Exhibit B of today's press release and can be found in the Financials and Filings section of our Investor Relations website under the Supplemental Information heading and they're also in our quarterly earnings presentation posted on the Investor Relations website. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 5, 2026. And Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Lastly, during today's Q&A session, please limit yourself to a single question so that we can accommodate questions from as many of you as possible. And with that, I'd like to turn the call over to Fred Lowery. Frederick Lowery: Thank you, Graham, and good morning, everyone, and thank you for joining us today. I'm honored to lead Henry Schein as a CEO, and I look forward to building on the strong foundation and proud heritage that define this company. While at the same time, taking a fresh look at people, process and technology to advance the culture of continuous improvement. I'm also pleased to report our strong financial results for the first quarter. But before we turn to these I want to highlight some key observations that I've had as I progressed through my 100-day plan. First, I am impressed by the strong competitive advantages Henry Schein has built over the years. Globally, we successfully serve hundreds of thousands of independent private practices with responsive, consistent overnight delivery. In the U.S., we are the primary distributor for most national DSOs a position that reflects years of being a trusted and reliable partner. Our reach provides us with supply chain flexibility and sourcing advantages as well as access to a broad global customer base for our suppliers. Secondly, pursuant to our BOLD+1 strategy, we deliver an extensive integrated offering, which includes a broad portfolio of quality corporate brands and specialty products, software, equipment products, technical services and business solutions, this differentiated offering makes us the platform of choice for office-based practitioners. And third, our ability to deliver an excellent customer experience really sets us apart. Our field sales consultants, they really know their customers deeply and are genuinely and invested in their success, and they're supported by our equipment service technicians. And when you put that together, we provide a service that is difficult to replicate. When you put all these things together, our technology, our products, our value-added services, and our people, we create a significant competitive advantage, which we will continue to enhance over time. So over the last 2 months, I've immersed myself in the business, and I've spoken with lots of customers and suppliers and employees and a few things that I've heard. One thing is clear from customers, the dental market remains healthy. with demand continuing to outpace supply. Therefore, efficiency and workflow optimization are important for our customers to be able to see more patients. What's encouraging is how well our strategy aligns with our customers' needs through the development of open architecture integrated solutions that create a platform allowing our customers to deliver better care while running more productive and more profitable practices. Turning to the medical market. procedures continue to shift to nonacute care settings, which also aligns well with our unique capabilities to supply the right quantities to all nonacute settings, including ambulatory surgical centers, community health centers, private practices and home solutions. I also received feedback that our dental and medical supplier partnerships remain another source of competitive differentiation. And I'm committed to providing a broad product offering to our customers supported by strong national brands as well as through our own value-added owned brand products. Suppliers recognize that our deep customer access and trusted relationships make us the partner of choice for driving growth in their businesses. Through exclusive and targeted promotional programs, we create value for suppliers and customers alike. Now while it's still pretty early days for me, I intend to sharpen our operational execution, build a stronger performance culture and create a leaner, more agile Henry Schein, allowing us to respond faster to customer needs and translate our market strength into accelerated growth and improve financial results. As I continue to dive deeper into the business, I expect to identify opportunities to drive growth, to streamline processes and to enhance execution. I'd like to highlight a couple of examples for you today. The first is to enhance the cadence of new products and service offerings. This includes AI solutions, which are transforming the industry rapidly. And Henry Schein has a tremendous opportunity to develop further value-enhancing solutions. I think you're starting to see this with some of the recent product launches from Henry Schein One. The second is to align our commercial efforts to accelerate overall growth across each of our businesses. This is contemplated in accelerating the leverage priority of our BOLD+1 strategy, and we've already started. It's clear that Henry Schein has great assets with a differentiated platform to serve as a trusted partner to health care practitioners worldwide. As we look ahead, I'm excited by the significant opportunities to accelerate growth through the use of technology, improved operational excellence and becoming a more agile company. Now let's turn to the first quarter results. I'm pleased with our strong first quarter results that reflect continuing momentum from the second half of last year as we grow market share and expand gross margins. Sales strengthened in the U.S. dental and global technology businesses overcame softness in the medical business. The dental markets remain stable and healthy, and we are gaining market share. While merchandise prices have increased, particularly in the U.S., procedure volumes are holding steady. We anticipate further merchandise price increases in the second quarter as a consequence of higher oil prices. Dental practices and, in particular, DSOs are continuing to invest in equipment, and we are seeing DSOs gaining market share in the overall dental market. The nonacute care U.S. medical market remains strong, and our Home Solutions business continues to grow well. Our medical business had good underlying growth. However, the quarter was impacted by a decline in demand for point-of-care diagnostic test products related to respiratory illness, resulting from a light flu season. Our specialty products underlying markets remain healthy, with European volumes ahead of the U.S. Demand for premium implants is being driven by strong clinical engagement, most recently demonstrated at our BioHorizons Global Symposium last month where over 40 internationally recognized speakers presented the latest innovations in tissue regeneration, digital workflows and implant-based tooth replacement therapies to more than 1,100 clinicians from around the world. Growth in value implants driven by our S.I.N. and biotech dental businesses continues to outpace premium implants. Our Global Technology business again posted really good growth, reflecting continued demand for our cloud-based software technology solutions. The development pipeline of AI solutions has increased, and these are mostly integrated into our global suite of practice management software solutions. Last week, I had the opportunity to attend our Thrive Live event in Las Vegas which brings together dental professionals to get really hands-on training and education and to showcase our range of equipment and software solutions. This year, we had over 1,000 attendees and we launched our next-generation AI clinical workflow at the event, which generated significant excitement. The broad level of interest in our AI solutions was a clear signal that our customers are ready to embrace these tools and that Henry Schein is well positioned to lead that transition. Now let me give you a few highlights into the initiatives that advanced our strategic plan during the quarter. As I mentioned, our overall operating margin expanded, and we stabilized margins compared to a year ago. Our high-growth, high-margin businesses are now approaching 50% of our total operating income, and we remain on track to exceed our goal of 50% by the end of our strategic planning cycle in 2027. We are just beginning to unlock value from our value creation initiatives. These not only provide a clear path to both cost efficiencies and margin expansion, but I expect them to fuel our growth and further support an enhanced customer experience. Execution is really well underway. Let me give you a couple of examples. We've appointed an outsourced partner to centralize, select back-office functions and we expect to see benefits beginning later this year. We continue to strategically buy out minority partners to unlock integration opportunities across the specialty products business. We are starting to generate additional savings from our indirect procurement processes by leveraging our scale advantage. And finally, we are implementing gross profit initiatives, including value pricing and enhanced growth of our corporate brands. Therefore, I am committing to the company's goal of achieving greater than $200 million of annual operating income improvement within the next few years with $125 million run rate by the end of 2026. These initiatives, along with continued execution of our strategic plan will contribute to us achieving high single-digit to low double-digit earnings growth in the coming years. We have also successfully rolled out our global e-commerce platform, henryschein.com to our Canadian and U.S. laboratory customers. We are well advanced in implementation across the U.S. with over 80% of our U.S. dental e-commerce sales now transacted over henryschein.com. We expect to complete the U.S. rollout by the end of August and to extend the platform to new customers after we plan to shift our focus to the broader international deployment. Over the past several weeks, I have worked through the details of our financial plan. Our growth outlook, combined with the progress made on value creation initiatives and a strong start to the year reinforces my confidence and my commitment that we will deliver on our 2026 financial guidance. Looking ahead, I plan to continue learning more about the business and identify opportunities to accelerate our momentum. I look forward to sharing updates in our next calls. Now with that, I'll turn the call over to Ron to review in more detail our first quarter results. Ron? Ronald South: Thank you, Fred, and good morning, everyone. Today, I will review the financial highlights for the quarter. Starting with our first quarter sales results. Global sales were $3.4 billion, with sales growth of 6.3% compared to the first quarter of 2025. This reflects local currency internal sales growth of 2.5%, a 3.1% increase resulting from foreign currency exchange and 0.7% sales growth from acquisitions. Our GAAP operating margin for the first quarter of 2026 was 5.41%, a decrease of 12 basis points compared to the prior year GAAP operating margin. On a non-GAAP basis, the operating margin for the first quarter was 7.53%, up 28 basis points compared to the prior year, driven by gross margin expansion within the global distribution and global technology products groups as well as business mix. First quarter 2026 GAAP net income was $107 million or $0.92 per diluted share. This compares with prior year GAAP net income of $110 million or $0.88 per diluted share. Our first quarter 2026 non-GAAP net income was $153 million or $1.32 per diluted share. This compares to prior year non-GAAP net income of $143 million or $1.15 per diluted share. Foreign currency exchange favorably impacted our first quarter diluted EPS by approximately $0.03 versus the prior year. Adjusted EBITDA for the first quarter of 2026 was $289 million compared to first quarter 2025 adjusted EBITDA of $259 million or 11.6% growth. During the first quarter, we successfully completed a transaction that provides us a controlling interest in S.I.N. 360, the U.S. distributor of S.I.N. Brazil's value implant systems. We are excited about this transaction as it provides us with greater control over our U.S. implant product portfolio, especially in the faster-growing value implant market. and allows us to unlock growth and back-office integration efficiencies across these businesses. As we had previously held a noncontrolling interest at S.I.N. 360, the transaction did result in a remeasurement gain of $11 million this quarter or approximately $0.07 of diluted earnings per share. We will continue to evaluate strategic opportunities to further integrate some of our joint ventures to unlock growth and efficiencies. Some of these opportunities may result in additional reregimen gains. However, further gains from such transactions, if any, are not expected to be recognized until the second half of 2026. Turning to our sales results. The components of sales growth for the first quarter are included in Exhibit A in this morning's earnings release. We will now walk through key sales drivers for each reporting segment. Starting with our global distribution and value-added services group, whose sales grew by 6.1%, reflecting continuing strong momentum in the U.S. Looking at the components of that growth, U.S. dental merchandise sales grew 5.6% or 4.1% internal sales growth, reflecting ongoing acceleration of sales growth. Data from our Henry Schein One eClaims activity indicated signs of modest procedure growth in the U.S., and we believe that in general, patient traffic remained stable to leaning positively in the quarter. Our sales volume growth resulted in market share gains and prices increased further with the introduction of some additional price increases in January. U.S. dental equipment sales growth of 3.4% was driven by sales of traditional equipment as practitioners, particularly DSOs, remain confident in investing in their dental practices, and we expect this solid growth to continue. U.S. equipment growth was supported by some exclusive supplier initiated opportunities as our suppliers continue to view Henry Schein as their best opportunity to expand market share. This helped drive sales in the traditional and digital imaging categories. Overall, digital equipment sales were essentially flat due to continued softness in sales of Interroll scanners and treat printers. This was driven by lower average selling prices from new market entrants despite higher sales volume. U.S. medical distribution sales grew 1.3% or 1.2% internal sales growth. with strong growth in Home Solutions and dialysis, partially offset by lower sales of point-of-care diagnostic test products related to respiratory illness as a result of the light flu season. This category represents roughly 15% to 20% of our medical business. Excluding the impact of the diagnostic test products category, sales growth would have been in the mid-single-digit range. International dental merchandise sales grew 12.5% or 1.8% LCI sales growth driven by sales growth in the U.K., Italy and Brazil. International dental equipment sales grew 13.4% or 3.6% LCI sales growth, with solid growth in traditional equipment. Equipment sales growth was especially good in Germany, U.K. Canada, Australia and New Zealand. Finally, global value-added services sales grew 10.6% or 7.8% LCI sales growth. Turning to the Global Specialty Products Group, sales grew 8.1% or 1.7% LCI sales growth. Our implant sales were driven by high single-digit growth in value implant systems. The sales mix of value to premium implants also resulted in a lower gross margin compared to the prior year. We expect to achieve improved growth in the Specialty Products Group going forward this year. Our Global Technology Group continued to post solid results, with total sales growth of 7.0% or 6.9% LCI sales growth. In the U.S., we had strong revenue growth in our Dentrix Ascend practice management software business. Internationally, sales growth was driven by our Dentally cloud-based practice management software product. The number of cloud-based customers increased by roughly 25% year-over-year, primarily from new accounts, and we now have more than 13,000 Dentrix Ascend and Dentale subscribers. Regarding our restructuring program, the company recorded restructuring expenses of $12 million or $0.07 per diluted share during the first quarter of 2026 as we advance our value creation initiatives. With reference to capital deployment, during the first quarter of 2026, the company repurchased approximately 1.6 million shares of common stock at an average price of $77.64 per share for a total of $125 million. At the end of the quarter, we had approximately $655 million authorized and available for future stock repurchases. Turning to cash flow. Operating cash flow was negative $97 million in the first quarter of 2026 due to a normal seasonal decrease in accounts payable and accrued expenses from the year-end. Cash flow is typically lower in the first quarter than the rest of the year, and we still expect operating cash flow to exceed net income for the full year. Turning to our 2026 financial guidance. At this time, we are not able to provide about unreasonable effort and estimate of restructuring costs related to ongoing value creation initiatives. Therefore, we are not providing GAAP guidance. Our 2026 guidance is for current continuing operations and does not include the impact of restructuring expenses and related costs and other items described in our press release. Guidance assumes stable dental and medical end markets during the year that foreign currency exchange rates will remain generally consistent with current levels and that the effects of changes in tariffs and higher oil prices can be mitigated. We have implemented a number of measures designed to offset the potential financial impact of rising oil prices at this time, which affect both freight costs and cost pricing. Our 2026 full year guidance remains unchanged. Total sales growth is expected to be approximately 3% to 5% over 2025. We expect non-GAAP diluted EPS attributable to Henry Schein, Inc. to be in the range of $5.23 to $5.37. We are assuming an estimated non-GAAP effective tax rate of approximately 24%. We expect benefits from value creation programs to be weighted towards the second half of the year. Adjusted EBITDA is expected to grow in the mid-single digits versus 2025 adjusted EBITDA of $1.1 billion. and we continue to expect remeasurement gains recognized in 2026 to be less than recognized in 2025. So with that overview of our business and recent financial results, we're ready to take questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Jason Bednar with Piper Sandler. Jason Bednar: I've got a couple, and I'll just ask them both upfront or somewhat connected. When I look across first quarter performance, I guess, what really stood out to me was that gross margin result, a really nice start to the year. Can you unpack maybe a bit some of the drivers there? Is that a function of value creation benefits that we can expect to persist through the year? You're already seeing some of that? And then how do we think about this result in the context of these rising shipping costs that are just better obviously happening just with where oil has moved. And Ron, just if you could maybe unpack some of those comments you made near the end of your prepared remarks on mitigation actions, any rules of thumb we should have in mind on what oil above $100 a barrel or a one kind of barrel means for your margin profile, just so we can have a little bit of an idea on sensitivity to this metric just in, I guess, last thing here, too. Just what's -- if you can help us what's included in guidance around what you're assuming for oil. Ronald South: Sure, Jason. I think on the -- with reference to the gross margin, yes, we are pleased with the improvements that we were able to get in gross margin the year-over-year is about 25 basis points and then the gross -- the total gross margin improvement versus the fourth quarter is about 86 basis points. So you are seeing a little bit -- some of the early benefits perhaps of the gross profit initiative from value creation to more -- we have, I would say, a slightly more dynamic pricing environment that's allowing us to react in a more timely basis. But it also reflects, I believe, the fact that our own brand products continue to -- the growth of those products continues to outpace the rest of the portfolio. where we do get better margins with those products as well. So we're seeing some mix benefit. We're seeing some strategic benefit and just, I think, a greater consciousness of how well we can work with our suppliers to assure that we get competitive costs and improve our margins accordingly. With reference to the price of crude oil and what's happening in terms of some of the disruption in the energy industry, I mean, it's an area where we're watching closely. It does impact a little bit some of the freight costs coming in. We are working closely with our customers. We're not just defaulting to increasing prices or looking at fuel surcharges but there are some things that -- some measures we're trying to take to try to protect the margins a little bit as our -- as we see those costs go up. Nothing that we're seeing out there yet that we believe is creating a significant issue. We have some plans in place that we could initiate if we think we need to. But right now, like we're seeing in our guidance, we feel like based on the current situation, we are able to mitigate any related cost increases. Jason Bednar: Okay. And sorry, just to clarify, your guidance assumes oil stays where it is or you have some error bars around where oil currently is? Ronald South: It assumes that we can mitigate rising. Obviously, there's a tipping point out there, right? But it assumes that we can mitigate the changes in the cost of oil. Operator: Our next question comes from the line of Elizabeth Anderson with Evercore ISI. Elizabeth Anderson: I was wondering about how to think about the cadence of specialty growth over the course of the year? Just in terms of anything to call out seasonality-wise, or some of those pricing changes, Ron, that you mentioned? And then, Fred, one for you. Maybe can you talk about some of the biggest sort of positives that confirmed your sort of expectations coming into Henry Schein and then maybe some of your biggest surprises? Ronald South: Certainly. Elizabeth, I'll start, and then I'll have Fred answer your second question. I think that -- on the specialty side, the results in the quarter were in line with our expectations. There was some timing of some buys from customers that we knew would impact Q1 somewhat. But we do expect improved growth in specialty going forward in terms of what the -- what we saw in the first quarter. I think that the products there, like we still remain very positive on what we're seeing on the value implant side and the high single-digit growth we're seeing in the sales of value implants. I think gives us the confidence that we can continue to improve that growth going forward. Fred, I'll let you to answer the second one. Frederick Lowery: Yes. Elizabeth, great to hear you. Thanks for the question. When I just take a step back and think about the positives, the biggest positive to me, and I sort of said it in the script, has been the confirmation that the set of assets that Henry Schein owns that we own are incredibly important to customers. And the ecosystem that we've built here through these assets really do help customers improve their practices. And that has been confirmed from the many custom business that I've been on. And I think that's incredibly exciting. I would say it's also an opportunity because I don't think it has been exploited to the extent that we can. I think we can do a better job of improving our customer value proposition so that our customers really understand what we can do for them. and that it's not just about us helping them save costs but about helping them have more profitable practices by driving productivity and helping them with their own pricing and seeing more patients. So that's quite exciting. I would say surprises, I don't know that I would characterize anything as a major surprise, but maybe things that I was quite encouraged by would be as it relates to our team Schein members, it's been a very consistent feedback, as I've talked to many, many different employees. The feedback has been 3 things. One, we love the company. We love the culture, the strong culture in the company; two, we love Stan, and we hate to see Stan go. But three, we know that we need to change in order to be better. And that has been like a really great starting point to see people leaning in and excited about the future of the company. I would say from a customer standpoint, without a doubt, every customer visit I've been on, customers enjoy doing business with Henry Schein, and they want to do more business with Henry Schein. And they think that we can help them more and they're depending on us to help them more, which really plays into our opportunity set as we develop new products and services that support them managing and running more profitable and higher growth practices. And then the third will be with our suppliers. Without a doubt, I talk to all of our top suppliers and they all see Henry Schein as a great place for them to grow their business. So those will be the things that I would say I was -- I've been most encouraged by and excited. It gives me some confidence in the future. I'm excited about a bright future for the company. Operator: Our next question comes from the line of Jeff Johnson with Baird. Jeffrey Johnson: Welcome, Fred. So I know it's only been a couple of months in the job now, and I'm sure you're going to get a lot of focus today on the 3-year profitability improvement plan, good to see that you're reiterating that $125 million run rate by the end of this year. But I'd love to hear your thoughts on how Schein gets back maybe to delivering stronger earnings growth in the absence of these one-off kind of restructurings we've been seeing every couple of few years out of the company. How do you think about building and investing in the muscle memory of this company so we can get back to kind of that upper single, low double-digit EPS growth longer term without having to go through kind of these bigger programs every couple few years. Frederick Lowery: Jeff, thank you for the question. And I'd first start with just characterizing the value creation not as just a one-off. We're building real capability that will stay with us over a long period of time. For example, our gross profit programs are -- will be ongoing. So we will be better at value pricing in the future than we are today. We have new techniques and new capabilities there that will stay with us. So I think you'll see that continue over time. We'll continue to benefit from that. The same with the programs that we're focused on driving our own brand products or our corporate brand products. So those things will continue over time. So I would start with that. Secondly, my focus is on developing a continuous improvement process here where we don't have an episodic approach to taking cost out, but where we continue to streamline our processes really for the benefit of our customers, streamlining our process so we become easier to do business with, so we support our customers better, so we grow our business faster. And as we do that, we will actually take some cost out and become more productive. So those are the 2 ways that I think about the question. And then as we do take costs out of the business, over time, we'll be able to reinvest into areas that are going to drive greater growth and thinking about the Henry Schein One portfolio where we're investing in AI capabilities that will help us grow over time. And then finally, our high-growth, high-margin products are growing faster. As I said during the prepared remarks, we're approaching the 50% mark for operating income from those products, and we expect to reach that as expected by 2027 at the end of our strategic plan period. So I think those things will support us getting back to continuing to deliver margin expansion over a period of time. Operator: Our next question comes from the line of Michael Cherny with Leerink Partners. Michael Cherny: Maybe if I can just go into the mitigation efforts a little bit more. You've obviously had situations in the past on a macro basis, I'm thinking back to COVID, where price increases were a component to offset your business. I know you said -- I think it was Ron that you don't want to just do price increases, but how much do you preview some of those dynamics? I can't imagine your customers would be surprised if there are price increases, short-term price increases, surcharges put in place. But how do you think about going through those conversations, the engagement to make sure that if and when you do have to push price increases as an offset, that it's taken in a way that's not necessarily deleterious to the customer relationship? Frederick Lowery: Listen, I'll take that one, and thank you for the question. So just to clarify, listen, we're taking the appropriate pricing actions based on what's happening in the macro, whether that's fuel surcharges, whether it's increasing the price of a particular product that may be oil-based like gloves, for example. And so we'll have those conversations with customers where it makes sense and give customers visibility as to what's driving the change. We also will offer customers alternatives. That's part of what makes us a really great partner and to say, hey, listen, there's some other alternatives that can help you without receiving such a high price increase by looking at the entire portfolio that we have. So we'll take the appropriate actions with our customers and have those direct conversations as we see things materialize in the market. Operator: Our next question comes from the line of Jonathan Block with Stifel. Joseph Federico: Joe Federico on for John. Maybe just to look at implants a little bit closer. I think that the specialties internal growth was low single digits and implants is the majority of that. I think you mentioned high single-digit value implant growth to an earlier question. So does that mean that premium was more flat to down? And is that possibly a function of the consumer? I think premiums heavier weighted to the international business. So any color on some of those dynamics would be great. Ronald South: Yes, Joe. So I think that -- yes, like we said, the value implants did experience higher growth, keeping in mind that of the mix within implants is about a 2:1 mix premium to value for us, right? We did see some flatness in the premium implants. And I would say more so in the U.S. versus Europe, but both were in the, say, lower single digits to flat. And so I do think that there is a -- there is some -- whether it be a little consumer pressure there or whatever it might be. But like I said, there was also some timing on some transactions that where the quarter itself came in, in line with our expectations within that segment. And we do believe that we'll see improved growth within that segment as the year progresses. Operator: Our next question comes from the line of Daniel Grosslight with Citi. Frederick Lowery: Daniel, you may be muted. We can't hear you. Matthew Miksic: Sorry about that. Global Dental growth was relatively strong across both merchandise and equipment. You mentioned a couple of times that you're taking share here, but also the underlying market seems to have recovered somewhat. So I'm curious how much of the dental strength is due to share gains versus just the overall market improving? And what your visibility is into the sustainability of that momentum through the remainder of the year? Ronald South: Certainly. I think that most of our market commentary is really fairly U.S.-centric because it's difficult to kind of talk to the international markets as a whole. Within the U.S., we think there was -- we said a slightly more positive tone to the market, still relatively low market growth. But what we're seeing is that we -- our data indicates that we are taking market share there. So we got a little bit of volume growth. We got a little bit of pricing favorability within the quarter within merchandise. And in the end, in the U.S., with a local internal growth of greater than 4% is a number we're pretty happy with. Outside the U.S., you do get a little bit of some pressure that has occurred in some countries, but we had I would say, especially outside of Europe, when you look at the growth we had in Brazil and in Canada, we had very good merchandise growth there. So there's a lot of pockets of positive whether it be from the market or from us taking market share, and I think it's probably more from us taking market share in those countries where we're getting this, seeing the growth in dental. Operator: Our next question comes from the line of Allen Lutz with Bank of America. Allen Lutz: I want to follow up on that last question around the sources of share gains in dental. The U.S. merchandise sales were a little bit better than we expected and specialty was a little bit softer. Can you talk about where you're gaining share. Ron, I think you mentioned that you're gaining share in the merchandise sales. But have the pockets where you've been gaining market share in general? Have they -- in the U.S. market, have they changed or evolved over the past year or the past couple of quarters between merchandise and specialty? And then how do we think about what you expect for share gains or the sources of share gains for the remainder of 2026? Ronald South: Well, I mean, I don't know if there's any one -- when you say pockets, I don't know if you mean product categories, but I don't think there's anything like any specific product category I would point to. I think it's broader than that. I would say if you're looking for something specific, we are seeing better growth of our own brands than we are with the -- versus the balance of the portfolio. So that is an area that has I think, given us some opportunity to provide some growth that exceeds that of the market. We're also kind of continuing with I think some of the success of the promotional activity we did last year, and that has provided us with some momentum, and we've been able to retain a lot of those customers that we picked up and that increased share of wallet that we picked up with some existing customers that -- so some of that growth you saw in Q3 and Q4 has continued into Q1. Operator: Our next question comes from the line of John Stansel with JPMorgan. John Stansel: Just following up on that point around maybe DSOs in particular. I think you've said over the last couple of months that they're gaining share or growing faster than the market. Is there anything particularly driving their growth above market growth rates? And then maybe just for Fred, as you've had discussions with them, particularly, what are they looking for that you see as opportunities for Schein to provide to the DSOs. Frederick Lowery: Yes. I'll take maybe -- I'll start, and Ron, you can add to this. But one thing to consider about even the last question on market share is that we're growing with DSOs. We have a strong position with all the national DSOs, the most of the national DSOs, almost all of them and they're growing faster. And so we're seeing the benefit of that growth. But when I've spoken with the DSO leaders and I've spent quite a bit of time with them. They appreciate the fact that we're able to support them nationally. They appreciate the fact that we're able to help them improve their efficiency. They appreciate the fact in many cases, that they're leveraging our technology to improve their profitability. And we've got access to some of the best exclusives in the market that are helping to drive their growth. So I think that total platform that we've built to support, particularly in this case, dental, that DSOs are benefiting from that. And so those are the kind of the feedback points that I've received from DSOs. Operator: Our next question comes from the line of Glen Santangelo with Barclays. Glen Santangelo: Fred, I want to talk a little bit about the organic sales growth at a high level. I mean, as you sort of highlighted in your prepared remarks, the second half of the year was particularly strong. And looking at the fourth quarter, we exited at a pretty robust rate. Now you obviously moderated a little bit from that trend and you spoke about medical. And I'm just kind of curious, can you give us some color about how the quarter maybe played out sequentially kind of thinking about the fact that other companies have sort of commented that weather may have impacted January we have the war now in March. And I'm kind of curious if you could give us any early view on sort of April and how things have played out. Frederick Lowery: Yes. Thanks for the question, Glenn. Looking at the quarter sequentially, we saw better performance sequentially through the quarter. So March was stronger than February. Part of what you're seeing in Q1 is the softness related to our respiratory business or because of the light and flu season. And maybe there's a little bit of weather, I would say it's more of the flu season than weather for us. But sequentially, we saw that get better and even that continued in April. So April continues to be strong. Operator: Our next question comes from the line of Kevin Caliendo with UBS. Kevin Caliendo: The remeasurement -- excuse me, not the remeasurement, the cost savings program, what -- can you just give us a little bit of a cadence? I understand the exiting of the year at $125 million is great. Can you size what the costs were in 1Q? When do you think it's going to be breakeven within the P&L? Just trying to understand the cadence. I know you don't like to give quarterly guidance, but just this part of the of the business would be really helpful to understand. Ronald South: Yes, Kevin, I think that the financial impact, at least with reference to the G&A portion of this was, I would say, was relatively nominal in the first quarter because we incurred some costs associated with the programs. We saved some costs associated with the program. we're going to start seeing that savings begin to accelerate as we get into the second quarter and then even more so in the third and the fourth quarter. So that's the root of our of our comment when we say we expect to see better earnings in the back half of the year than the first half of the year because it will be largely driven by some of those G&A cost reductions. I think equally, but it's -- I don't want to forget about the gross profit optimization as well because we do think that there were some benefits in Q1 from it. We think that those benefits can continue to grow as we get into the year. and we'll continue to accumulate into the -- especially into the back half of the year. So in terms of the quarterly cadence, it's really more to what's the back half versus first half, and we still expect the back half of the year to have better earnings in the first half. Kevin Caliendo: Got it. If I can ask a quick follow-up just on the remeasurement stuff. So there's $11 million this quarter and your guidance assumes that from an operational perspective, it will be less than last year, right? So that would imply single digits the rest of the year. Is that -- am I thinking about that the right way? Ronald South: Single digits in terms of EPS? Kevin Caliendo: No, in terms of dollars, in terms of EBIT impact or EPS, however you want to describe it. I'm just trying to understand what's sort of embedded for the rest of the year. Ronald South: Yes. I mean we're -- like I said, we're contemplating a range. And I believe in the prepared remarks, we said any remeasurement gains, if any, I mean there's no guarantee we will have any more remeasurement gains this year, but that's the -- we look at the opportunities there. We look at the strategic initiatives we're taking and which of these joint ventures would it make sense for us to consolidate, and that is contemplated in the overall guidance that we've provided. Operator: Our next question comes from the line of Brandon Vazquez with William Blair. Unknown Analyst: It's Max on for Brandon. Just one quick one for me. On the medical supply side of the business, are you guys seeing any impacts from noise around ACA or Medicaid work requirements or do you have any concerns about this impacting procedural volumes going forward? Ronald South: I would say that clearly, there's going to be -- I'm sure there's some impact, but we -- we're not seeing it as having a material impact at all really on the business. I mean, I think that at the end of the day, the more people who have access to care, the better off we are on the medical side. But this is really a, I think, a relatively small part of a lot of our customers' business, and we don't expect it to be that -- have a significant impact. Operator: And now we have time for one last question coming from the line of Michael Sarcone from Jefferies. Michael Sarcone: I was hoping you can just elaborate a bit more on what you're seeing on the equipment demand side, particularly for the digital equipment? Ronald South: Yes. On the digital side, we're still seeing very good demand for intraoral scanners. That's really the -- to me, that's the key product in digital. But we continue to see lower-priced entrants to the market, which is actually helping drive demand of intraoral scanners. And the beauty of intra-oral scanners, and I've said this before, is once a practice is investing in intraoral scanners, they become a digital practice, and then they are now they become a customer to buy other digital equipment. So while those prices have depressed a little bit and do hurt a little bit of that top line growth, it does give you an opportunity to sell additional digital equipment to those customers going forward. Traditional equipment still had very good growth in the quarter, and that's a very good indicator of the confidence and practices who are investing in their practices, either adding a chair or renovating a chair. And we continue to feel like the backlog on our traditional side is healthy and will help gives us the confidence that we can continue to see growth in equipment as the equipment sales as the year goes on. Frederick Lowery: Well, thank you, again, for joining us today. And I'd like to maybe just give a few concluding remarks. First, we delivered a strong first quarter. Sales momentum continues and the U.S. Dental and Global Technology businesses delivered strong sales growth, more than offsetting the softness in medical. Margins are also expanding, driven by favorable business mix and some early impact from value creation. Secondly, I'm encouraged by the progress we've made on our value creation initiatives. I do remain very realistic about the work that's ahead but we are committed to achieving the $200 million target and the $125 million run rate by the end of the year. The early progress gives me confidence that these initiatives will be a meaningful driver of operating margin expansion over the next several years and will contribute to achieving future high single-digit to low double-digit earnings growth. And third, I believe the full year 2026 financial guidance is appropriate. It assumes stable end markets and takes into account potential macro uncertainty. While our fundamentals are strong, I see meaningful opportunities to enhance our operational execution and performance culture. This will take time, but the work is actively underway, and I'm confident it will drive sustained value creation. I'm optimistic about what lies ahead, and I look forward to updating you on our progress throughout the year. Thank you for your interest in Henry Schein, and enjoy the rest of your day. Operator: Thank you. And this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.