PENSKE AUTOMOTIVE GROUP, INC.(PAG)Q2 2026 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers conference call on the second quarter 2026 financial results. We have with us Mr. Polys Hajioannou, Chairman and Chief Executive Officer; Dr. Loukas Barmparis, President; Mr. Konstantinos Adamopoulos, Chief Financial Officer; and Ioannis Foteinos, Chief Operating Officer. Following this conference call, if you need any further information on the call or the presentation, please contact Capital Link at (212) 661-7566. I must advise you that this conference is being recorded. The archived webcast of the call will soon be made available on the Safe Bulkers website, www.safebulkers.com. Many of the remarks today contain forward-looking statements based on current expectations. Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that can cause actual results to differ materially from those in the forward-looking statements is contained in the second quarter 2026 earnings release, which is available on the Safe Bulkers website at www.safebulkers.com. I would now like to turn the conference call over to Dr. Loukas Barmparis, President. Please go ahead, sir.

Good morning to all. I'm Loukas Barmparis, President of Safe Bulkers, and I welcome you to our quarterly and half-year results. In line with our financial performance in the second quarter of 2026, which was supported by a relatively strong charter market, we increased our quarterly dividend for a second consecutive quarter to $0.075 per share. The basic components of our policies — a strong balance sheet, ample liquidity and capital resources, conservative leverage, and fleet renewal with new builds replacing older tonnage — reflect our ability to operate a continuously upgraded modern fleet with improved competitive characteristics. This means we have the financial resources to invest when required and to reward our shareholders. Following a comprehensive review of the forward-looking statements language presented in Slide 2, we will start our presentation with dry bulk fundamentals and proceed to examine the supply side dynamics in Slide 4. We present two scenarios of ship supply growth with the Straits of Hormuz closed and open. The order book now stands at about 13% of the fleet. BIMCO’s forecast for dry bulk supply is to grow by 2% in 2026 in the open scenario versus about 1% growth if the straits are closed. For reference, about 1% of dry bulk capacity is currently within the Persian Gulf. Asset prices remain elevated in line with the current trade market. Currently, about 10% of ship capacity in the dry bulk order book will be able to use alternative fuels upon delivery. However, the dual-fuel order book remains small in the dry bulk segment. It is important to note that 30% of the dry bulk fleet is above 15 years old, meaning these vessels will face increased repairs and maintenance expenses. The increasing age of a vessel, especially above 10 years, is also related to additional inspections, restrictions, and associated costs. In our total order book of 24 Phase 3 vessels placed since 2021, we have two dual-fuel newbuilds on order with delivery in the first quarter of 2027; these will be able to operate with fossil fuels until alternative fuels become available and economically viable, hedging for future cargo intensity related to environmental schemes. The Safe Bulkers fleet now counts 14 Phase 3 vessels on the water, all delivered from 2022 onwards. Our average fleet age of 10.3 years is approximately two years younger than the global fleet average of 12.5 years, strengthening our competitive position in terms of operational performance and fuel consumption. Moving on, Slide 5 presents an overview of demand and basic dry bulk commodities trade. The global GDP growth expectations for 2026 and 2027, as reflected in the IMF forecast, call for growth of about 3% in the coming years, accompanied by persistent inflationary pressures. BIMCO forecasts global dry bulk demand growth of about 3% in 2026. In the open trade scenario, cargo volumes are projected to expand by about 2% in 2026. Iron ore demand is expected to grow up to 3% in 2026 in the open Hormuz scenario, though increased Chinese inventories may soften import demand in the second half of 2026. Coal shipments are projected to decline by 1% to 2% in 2026; thermal coal trade seems to be weakening while coking coal remains relatively resilient. The closed Hormuz scenario reversed some short-term difficult trends, and Chinese imports have significantly supported trade. Grains remain a strong-performing major bulk, with shipments estimated to grow about 5% in 2026 in the open Hormuz scenario. Stronger harvests in the U.S., EU, Argentina, Russia, and Brazil underpin supply. However, China’s policy push toward greater self-sufficiency and reduced soy meal usage presents a downside risk. Minor bulk growth in an open Hormuz scenario is expected to be quite strong for the rest of 2026. Our energy transition-related ores remain supportive, and fertilizer demand continues to be a key factor, also affected by the Hormuz closure. China remains the central swing factor for dry bulk. Its broader economy’s strong exports offset weak domestic demand, which is still being affected by the property sector crisis and manufacturing overcapacity. Its GDP is forecast to grow by 4.4% in 2026. Trade tensions between the U.S. and China, although a truce has been reached, remain a key source of global economic uncertainty. India, with a forecasted 6.5% GDP increase in 2026, continues to perform and is projected to experience the fastest growth among major economies. Its expanding domestic market, with infrastructure investments playing a vital role in the manufacturing sector, continues to contribute positively to dry bulk demand. Japan’s transition from prolonged deflation to sustainable growth includes targeted fiscal stimulus and public investment to boost demand and sustain economic momentum. Summing up the supply-demand equilibrium, in the open Hormuz scenario supply growth is expected to be 2% versus demand growth of 3% for 2026. The freight market showed strength during the first half of 2026 and continues to be healthy to date, with Cape spot at about $38,000 and Kamsarmax spot at about $18,000. Regarding our Capesize vessels, all seven were chartered under period time charters, with an average remaining charter duration of 1.7 years and an average daily charter hire of $24,600, contributing over $105 million in contracted revenue backlog from Capes alone. Turning to our company, Slide 8 highlights our track record. Safe Bulkers relies on experience built through many market cycles with an uninterrupted presence in the dry bulk sector and full alignment of interests with public shareholders through management’s ownership. We are a pure-play dry bulk shipping company providing worldwide seaborne transportation of major bulks — iron ore, coal, and grain — and minor bulks for some of the world’s largest charterers. We have consistent fleet growth since our IPO. Over the last five years, as shown in Slide 9, we have taken delivery of 14 Phase 3 newbuilds, bringing our fleet size to 46 vessels. Key points include an extensive fleet growth plan of 10 more newbuilds on order until 2029 and a young, modern fleet with a 10.3-year average age while maintaining age stability through our fleet renewal program. Our net debt per vessel stands comfortably at $8 million. Focusing on our operational advantage, Slide 10 shows our daily time charter equivalent rate improving relative to our daily operating expenses, which have been in the region of $5,500 to $6,500. Variability is mainly due to dry dockings, which are expensed as incurred. This performance results from our hands-on management and our focus on constant operational improvement for our world-class clients. A testament to that is the successful completion of designated owners and operators audit process related to DryBMS, an advanced monitoring system required by specific charters; Safe Bulkers was among the very few companies worldwide to reach this level of operational standard, being the first in Greece and the sixth globally. Over the last five years, 26 of our vessels have undergone environmental upgrades and 11 vessels are Eco, incorporating superior fuel efficiency characteristics. Through fleet renewal and environmental upgrades, we have achieved a 22% reduction in our fleet's carbon intensity as a result of improved fuel efficiency, which positively influences our financial results. A key point is that we have zero vessels in the CII rating E category, which would require additional CapEx. As reflected in Slide 11, we have been consistent in our asset strategy. Noting that the price and specification for a vessel are substantially agreed some months prior to contract signing, we can conclude on the timing of placing orders. The majority of orders were placed early in the cycle at favorable prices, and newbuilds were delivered to us in time to capture the market upside. Furthermore, we sold the majority of older tonnages and acquired a few younger second-hand vessels, gradually renewing our fleet ahead of a high charter market. As a result, Safe Bulkers today is in a fundamentally better position than five years ago, moving ahead of peers and increasing its resiliency in line with our business model. We have built a resilient company, as seen in Slide 12, with a comfortable leverage ratio of 30% as of quarter end, backed by $143 million in total cash and cash equivalents, bank deposits, and restricted cash, and $200 million available under revolving credit facilities, totaling significant firepower of $343 million. Our capital allocation framework, reflected in Slide 13, balances our CapEx of $277 million against our additional borrowing capacity of over $200 million and our contracted backlog of $154 million, for which we have already paid $92 million toward newbuild CapEx. Moving on to our debt profile and financial health as presented in Slide 14, we stand strong with total liquidity, capital resources, and revenue backlog just shy of $500 million against $519 million of debt, including our unsecured EUR 100 million loan. Our revenue generation, shown in Slide 15, is reflected in robust revenues of $169 million for the first half of 2026, forming the foundation for our strategic fleet growth plans and modernization initiatives. Focusing on reward for our shareholders in Slide 16, we have declared our 19th consecutive quarterly dividend and increased it to $0.075, representing a healthy 4% dividend yield at current share levels. At the same time, our free cash flow continues to finance our newbuild program and we have an active 10 million share repurchase program. Returns to shareholders include $101 million paid in common dividends and $78 million paid in common share repurchases since 2022, reflecting our consistency in generating sustainable returns across market fluctuations due to our track record, financial management approach, and resilient business model. Concluding the company update in Slide 17, our board has decided to reward our shareholders in line with our financial performance in the second quarter of 2026, which was supported by a relatively strong charter market, by increasing our quarterly dividend since last quarter to $0.075 per share. We have consistently paid dividends for the last 19 quarters. While we improved the reward scheme for our shareholders, we continue to direct a substantial portion of our cash flows to our newbuild program, which is the basis of our operational competitiveness. I now pass the floor to our CFO, Konstantinos Adamopoulos, for our quarterly financial review. Konstantinos, the floor is yours.

Thank you, Loukas. Good morning to everyone. During the second quarter of 2026, we operated in an improved charter market environment compared to the same period in 2025, with increased revenues due to higher charter hires and increased earnings from strong bareboat charter vessels. On Slide 19, we show our quarterly financial highlights for the second quarter of 2026 compared to the same period of 2025. Our adjusted EBITDA for the second quarter of 2026 stood at $50.3 million compared to $25.5 million for the same period in 2025. Our adjusted earnings per share for the second quarter of 2026 was $0.28, calculated on a weighted average number of 101.8 million shares, compared to $0.01 during the same period in 2025, calculated on a weighted average number of 102.5 million shares. In the graph on the top of the table, during the second quarter of 2026, we operated 45.13 vessels on average, earning an average time charter equivalent of $20,642 compared to 46.75 vessels on average, earning an average time charter equivalent of $14,875 during the same period in 2025. Our daily vessel operating expenses decreased by 6% to $6,207 for the second quarter of 2026 compared to $6,607 for the same period in 2025. Daily running expenses, excluding dry docking and crew delivery expenses, decreased by 3% to $5,455 for the second quarter of 2026, compared to $5,604 for the same period in 2025. Slide 20 shows a quick overview of our quarterly operating highlights for the second quarter and the first half of 2026 compared to the same period of 2025. Now let's continue to Slide 21, where we present our balance sheet analysis, noting that assets are presented in their book value. The company maintains a healthy balance sheet supported by a robust equity base and conservative leverage levels. Our capital structure positions the company for sustainable long-term growth and resilience. Strong liquidity and ample cash reserves provide significant financial flexibility to navigate market volatility. Let's focus now a bit on our liquidity, our cash flows, and our capital structure as presented in Slide 22. We are maintaining a comfortable leverage of 30%. Our debt remains comparable to our fleet scrap value, although our fleet is just 10.3 years old. Our weighted average interest rate of our debt stood at 5.10% for our consolidated debt, with a portion of EUR 100 million being fixed at 2.95% coupon. We have paid a considerable part of our CapEx in relation to our standing order book. Our liquidity and capital resources stand strong at approximately $343 million, which together with the contracted revenue of about $154 million from our vessels, is under $500 million, and this is more than adequate for our standing CapEx. It provides flexibility to our management in capital allocation. Furthermore, we have additional borrowing capacity in relation to our 9 new builds upon their delivery. We are sure that our capital expenditure is adequately covered by our contracted future revenues, fortifying our balance sheet towards a trajectory of sustainable growth. This underscores our capacity to support debt service, reinvestment, and shareholder returns at the same time. This enables us to expand the fleet, build a resilient company, and create long-term prosperity for our shareholders. Thank you for your attention, and we are ready for the Q&A session.

Thank you. Our first question is from Peter Nelson with Citigroup. Hello, Peter. Is your line on mute?

We don't hear you. Hello, do you hear us?

Peter, is your line on mute? Thank you. At this time, there are no questions coming through. I'd like to hand the floor back over to management for any closing remarks.

Thank you very much for attending our half year results. We're looking forward to discuss again with you in the following quarter. Thank you.

Hello, and welcome to Capital Power's Second Quarter 2026 Analyst Conference Call. I would now like to hand the conference over to Roy Arthur. Sir, you may begin.

Good morning, everyone. My name is Roy Arthur, Vice President, Investor Relations and Investment Partnerships. Thank you for joining us to review Capital Power's second quarter 2026 results, which we published earlier today. The report and the presentation for this call are available on our website. Before we begin, allow me to describe how we will spend our time on today's call. First, our President and Chief Executive Officer, Avik Dey, will walk through our business highlights, including recent commercial optimization efforts and why we remain excited about the future of our business. Following that, our Senior Vice President, Finance and Chief Financial Officer, Kevin MacIntosh, will highlight our growing confidence in the upside embedded in our business in addition to reviewing the quarterly results. Avik will then provide concluding remarks before we open the floor to analyst questions. Now that I've described the agenda for the call, allow me to address a couple of housekeeping items before handing it over to Avik. First, we acknowledge that Capital Power's head office in Edmonton is located within the traditional and contemporary home of many indigenous peoples of the Treaty 6 region and Métis Homeland. We acknowledge the diverse indigenous communities that are in these areas and whose presence continues to enrich the community and our lives as we learn more about the indigenous history of the lands on which we live and work. I'd like to remind everyone that today's discussion includes forward-looking information and references to non-GAAP financial measures and ratios. Please refer to Pages 4 and 22 of the presentation for the applicable disclosures. With that, I'll turn it over to Avik.

Thanks, Roy. Before we begin, I just wanted to acknowledge and thank the number of investors, customers, partners and community leaders that joined us at the Calgary Stampede this year in July in our home province of Alberta. The Stampede this year welcomed more than 1.4 million visitors. And in particular, this year, it was incredibly exciting to see how much energy there was around all the great things happening in Alberta and Canada, exemplified by the number of announcements that were made, and it just continues to excite us what the business outlook for the province in Canada is. And secondly, I just wanted to take a moment also to recognize my 800 colleagues across North America who work tirelessly to deliver reliable and affordable electricity and be active stakeholders in the communities in which we operate. None of our success could happen without their contributions. Our second quarter results reflect a business that is capturing demand and delivering on the opportunity in front of us. There are three key takeaways we'd like to leave you with today. First, as I mentioned before, Alberta is open for business. Policy clarity is improving confidence, attracting investment and positioning Alberta as a leader among North American data center markets. New customers, combined with growing demand from Alberta's established industries means the province will need significantly more reliable power in the years ahead. Our recently announced energy supply agreement is tangible evidence of our differentiated approach and action, taking capacity already embedded in our portfolio and converting it into durable long-term contracted cash flows. Second, our business has significant embedded growth potential. Our large and diverse portfolio offers a number of opportunities to create incremental value from a merchant and contracted perspective. Our confidence in being able to optimize around our business continues to increase as we execute on our strategy, and we are pleased to be providing an update on this today. Third, our returns remain balanced. We continue to target compelling risk-adjusted returns, combining meaningful cash flow growth with an attractive and growing dividend. Turning to our Q2 highlights, you will see how we continue to execute through contracting, optimization and disciplined capital allocation, translating opportunity into results. Turning the page. We continue to progress our 2026 priorities. These include optimization and renewable growth while maintaining a disciplined focus on long-term value maximization. Our second quarter highlights included securing a 250-megawatt long-term energy supply agreement with Meta, a premier hyperscale, customer subsequent to quarter end. Next, advancing capacity upgrades across our WECC and PJM portfolios, adding approximately 45 megawatts of incremental capacity in 2026 and a further 25 megawatts in '27. Executing on our growth projects with North Carolina Solar under construction in East Windsor nearing completion with commissioning now underway, generating 10.1 terawatt hours across the portfolio, up 12% year-over-year with 60% coming from our U.S. fleet, reinforcing once again the success of our diversification strategy. And lastly, advancing our 2026 maintenance cycle with 66% of planned outage days now complete, strengthening the reliability and efficiency of our fleet. Our progress reflects the strength of our people and the culture we've built. One that values ownership, collaboration and disciplined decision-making. By bringing together expertise from across the org, we identify opportunities that create value for our customers and shareholders. The agreement to provide power to Meta is a recent example of that capability at work. Our recently executed energy supply agreement in Alberta demonstrates our ability to unlock value through commercial optimization with investment-grade counterparties. Under the agreement, we will provide 250 megawatts of capacity and energy expected to commence in the second half of 2028 over a term of more than 10 years. Strategically, this transaction does several important things. It converts existing merchant power generation into stable, long-duration contracted cash flows, and it does so with no capital investment. Additionally, the agreement is at the portfolio level and does not encumber any of our assets. This preserves our commercial optimization upside at Genesee, our flagship facility, where we see significant opportunities ahead. In Alberta, we continue to see strong demand from data centers and other large customers seeking reliable power, providing more opportunities to generate incremental value from our existing fleet. This is a significant milestone and reflects a broader trend across our fleet as we continue to secure attractive contracts and enhance the value of our capacity. Recent contracting activity across Alberta, WECC and MISO highlights the strong positioning of our fleet. Over the past 5 years, we have consistently captured value through strategic recontracting across our portfolio. These efforts have enhanced cash flow visibility while generating attractive risk-adjusted returns. We continue to use replacement cost economics as an important benchmark in our negotiating to ensure we are appropriately compensated for the value and reliability our assets provide. We continue to see meaningful opportunities to maximize value per kilowatt through disciplined contracting and commercial optimization. Beyond the value we are creating through contracting, we're encouraged by the opportunities across our markets where strong fundamentals support both development and merchant upside. We operate across multiple power markets, each with its own drivers of value. Throughout our footprint, policy clarity, tightening supply-demand fundamentals and increasing reliability needs are creating opportunities to contract existing capacity at attractive prices and unlock additional value from our portfolio. These dynamics support both commercial optimization today and future growth opportunities across our fleet. We also benefit from diversification across technologies with natural gas, renewables and storage, allowing us to meet a wide range of customer and market needs. Taken together, our portfolio gives us the flexibility to allocate capital where opportunities are most attractive, reduce reliance on any single market and continue creating value across a range of market environments. With that, I'm pleased to turn it over to Kevin, who will take you through our financial results and highlight how the opportunities we've discussed are increasingly reflected in the value we're creating across our business.

Thank you, Avik, and good morning, everyone. Before I get into the quarterly results, I want to take a moment to reflect on my first 4 months as Capital Power's CFO. I've been most impressed by the quality of the people that make up the Capital Power team, the discipline they bring to our approach to operational excellence and the care they have for the assets in our fleet, the discipline they bring to the commercial optimization of the business and the track record of disciplined capital allocation. It is an exciting time to be in the industry and be part of the Capital Power team. Let me walk through what I'll cover today. As Avik highlighted, we continue to see significant incremental cash flow generation potential embedded in our business. I'll start there, then provide an update on our guidance and outlook before walking through our second quarter financial results. We've delivered significant value for shareholders over the past several years, reflected in both our growing adjusted EBITDA and share price performance. But what's most exciting is that the opportunity in front of us has continued to improve. Alberta demand growth is accelerating, power market fundamentals are strengthening, and we're seeing tangible evidence that customers are willing to pay for reliable, dispatchable power. While our total return proposition includes disciplined M&A and development, it's important to recognize that significant value can be created from the portfolio we already own through commercial optimization, which includes contracted and merchant opportunities, uprates and operational excellence, we have multiple avenues to grow cash flow and increase earnings over time. That's exactly what our embedded EBITDA opportunity reflects. In December, we outlined approximately $1 billion of annual EBITDA upside embedded in our business. Since then, we have made meaningful progress on recontracting and have gained greater confidence in the outlook for merchant power pricing in Alberta. As a result, we are increasing our estimate of embedded annual adjusted EBITDA upside to approximately $1.25 billion. Of that total, approximately $400 million to $550 million relates to contracted upside, primarily from our U.S. flexible generation assets as legacy contracts expire between 2029 and 2032 as well as upgrade opportunities across several natural gas facilities. An additional $375 million to $700 million relates to merchant upside, reflecting the value creation potential in PJM along with the benefit of stronger pricing expectations in Alberta. Importantly, this represents value that is already embedded within our existing portfolio. Our focus is on realizing that value through disciplined commercial optimization and continued operational execution. As we make progress, we look forward to providing further updates. Based on our performance year-to-date and our outlook for the balance of the year, we are reaffirming our 2026 guidance ranges. We continue to expect adjusted EBITDA of $1.565 billion to $1.765 billion, AFFO of $890 million to $1.01 billion and sustaining capital of $290 million to $330 million. As previously disclosed, our sustaining capital reflects a planned maintenance cycle across the fleet. This investment is intentional and positions the business to capitalize on strong market fundamentals over the long term. Overall, these ranges reflect the confidence in the resilience of the portfolio, the durability of our cash flows and our ability to generate strong financial results while continuing to invest for the future. Turning to our financial performance. The second quarter and year-to-date results reflected the strength of our diversified portfolio. In the quarter, adjusted EBITDA was $351 million, up $29 million from the second quarter of 2025. The increase was primarily driven by the contribution from our expanded PJM portfolio, partially offset by lower results from our U.S. Flexible Generation segment due to planned maintenance outages and lower capacity revenues as well as higher corporate expenses related to strategic initiatives. AFFO was $328 million, up $93 million year-over-year, benefiting from the higher adjusted EBITDA contribution and the recognition of Canadian Clean Tech ITC government grants. These ITCs are the result of the investment we made in Halkirk Wind and Ontario Battery Energy storage projects in Ontario. As we filed our final claims in Q2, the ITCs have been recognized in AFFO. We expect to receive a portion of the funds in 2026 and the balance in the first half of 2027. The ITC benefits were partially offset by higher sustaining capital expenditures associated with our Alberta maintenance program and increased activity across our U.S. flexible generation fleet as well as higher finance and income tax expenses. Year-to-date, adjusted EBITDA increased to $755 million, up $66 million, while AFFO increased to $482 million, up $29 million versus the prior year. These results reflect the contribution from our expanded PJM platform, government grant proceeds from the related Clean Tech ITCs and continued disciplined execution across the portfolio. Overall, the results demonstrate the strength of our diversified fleet and our ability to deliver consistent cash flow and earnings growth while continuing to invest in the long-term reliability and value of our assets. Over the past decade, we have consistently delivered a balanced return proposition, combining meaningful cash flow growth and yield. Since 2016, we have expanded our portfolio from approximately 3 gigawatts to more than 12 gigawatts, growing capacity at roughly 15% annually. That growth has been driven by disciplined capital allocation with more than $12 billion invested across organic growth and M&A opportunities. At the same time, we have historically increased our dividend at an annual rate of approximately 6%. As previously communicated, we have reduced growth rate guidance of 2% to 4%, which is a reflection of our confidence in pursuing value-accretive M&A and development. Consistent with our 2026 guidance, we are increasing our dividend by 2% for this year, marking our 13th consecutive year of dividend increases. This track record reflects our ability to deploy capital prudently, grow cash flows and deliver attractive risk-adjusted returns for shareholders through multiple market cycles. With that, I'll turn it back to Avik for closing remarks.

Thanks, Kevin. As I wrap up, I'd like to come back to three themes I highlighted at the onset of our call. First, Alberta is open for business. Strengthening fundamentals and growing customer demand are creating meaningful opportunities, and we, Capital Power, are uniquely positioned to capture them. Second, our business has significant embedded growth potential. As we emphasized last year at our Investor Day and continue to discuss with our investors at large, our portfolio offers upside with limited capital in addition to expansion opportunities and we are excited about the forward plan to deliver those. Third, our returns remain balanced. We continue to target compelling risk-adjusted returns through a combination of cash flow growth and an attractive growing dividend. We remain confident in our ability to generate attractive long-term returns for our shareholders. Our 2030 outlook is grounded in the same strategy that has driven our strong historical performance, disciplined capital allocation, growth of our U.S. platform, continued optimization of our existing fleet and a commitment to a growing dividend. The strong shareholder returns we have delivered reinforce our confidence in both our strategy and the opportunities we see across our core markets. With that, I'll turn it back to Roy.

Thanks, Avik. This concludes the formal part of the presentation. Operator, we are now ready to take questions.

Our first question comes from the line of Shar Pourreza with Wells Fargo.

It's actually Constantine here on for Shar. Maybe starting off on the most recent PJM RBP proposals. Just with the most recent developments and increasing clarity, what level of participation do you anticipate? And maybe how are you thinking about new resource additions versus any color on advancing commercial arrangements that would utilize existing capacity?

Shar, thanks for the question. Obviously, we've been paying close attention to the recent announcements. The amalgamation of the RBP and connect and manage process is a significant change. We feel really good about our existing fleet at Hummel and Rolling Hills. We continue to see opportunities on the bilateral side. And I think the recent auction just reaffirms our bullishness on the medium to long term in PJM. So we think the movements have been positive for incumbent generators. We think we've got a strong fleet between Hummel and Rolling Hills. And overall, I think the opportunity for bilaterals is stronger than it was previously. So that's how we're thinking about it.

And would you be looking for kind of, I guess, opportunities to put new capital to work kind of versus some of the EBITDA opportunities that you highlighted on the call?

We absolutely are looking for development opportunities on both sides of the border. In particular, Alberta, we see development opportunities to support growing data center load. And then our ongoing efforts in the U.S. are opening a number of opportunities on that front, largely stemming from our positions in our existing markets.

Excellent. And maybe a quick follow-up to that. Maybe any updated thoughts around capital allocation, and I appreciate, Kevin, with kind of a little bit of history there. But any kind of opportunities or thresholds that would cause you to pull forward any incremental capital deployment, any specific IRR thresholds? Or is it more focused on the specific commercial arrangements?

Well, thanks for the question. We're obviously very focused on delivering our committed 13% to 15% annual TSR. We are excited about the growth opportunities in front of us, particularly related to the organic development opportunities that Avik just touched on. And my view is that increasingly we are seeing a speed-to-power premium in the economic cases that are coming forward. So stay tuned. No major departures from our capital allocation framework, but we feel really excited about the growth opportunity ahead of us.

Excellent. I appreciate that. Maybe a quick housekeeping question: with the Meta agreement, the PJM BRA and RBP auctions, stronger curves, and hedging, are you seeing any ways to capitalize on the upside you highlighted to EBITDA versus the 8% to 10% AFFO growth target, or is it too early to call?

I would underscore that we've just updated the embedded EBITDA opportunity that we see in front of us from $1 billion to $1.25 billion. The Meta example is one of the examples that underpins that increase. So yes, we're really optimistic about the organic opportunity in our base business.

Our next question comes from the line of Robert Hope with Scotiabank.

I have a question on Genesee. So we saw G1 G2 test above 600 megawatts a couple of weeks ago. Are we getting closer to being allowed to run at a higher capacity there? And also, when you think about bring your own power and bridging, is the intention on a longer-term basis to use that capacity as a bridging capacity, which will then support potentially an organic opportunity in Alberta?

Rob, yes, in short is the answer to your question. The way we look at Genesee is the incremental capacity over and above 466 would qualify under the Phase 2 bring your own generation, which also, I think, could be considered as part of the bridging solution. So as we've said for the last 1.5 years, we continue to believe Genesee is one of the most attractive sites in all of North America for data center development, but most importantly, without compromising affordability and reliability to the consumers that we serve in Alberta. So our optionality at that site is significant in terms of how we manage through Phase 2 and/or bridging solutions and/or future development of new capacity to serve it. With regards to the testing of 600, that is true. And we continue to work with the ISO in terms of reaffirming our solution there and/or alternative solutions to increase capacity there, and those are proceeding.

Great. Excellent. And then maybe a follow-up question there. With just the increased or becoming more increased clarity on the bring your own generation framework in Alberta as well as the initial announcements, can you provide an update on where discussions that you're having with bringing incremental data center customers to the province?

Sure. What I can say, Rob, is this is a journey that for us started 3 years ago. And we've been doing work on our site and working in partnership with government stakeholders, potential customers for that entire 3-year period, inclusive of having an important role in bringing Meta to the province. So as you can expect, we are having multiple conversations around the future of Genesee and how to work within the existing Phase 2 framework. I'm not in a position to comment on any particular customer or any particular project, but I can tell you, we are having multiple conversations today around how and when and at what quantum to develop that site.

Our next question comes from the line of Maurice Choy with RBC Capital Markets.

Just following up on the last question. Are you able to share how the contracted price compares to where the forward prices are? And if there's any discount, how should we think about how this pares up with any associated pass-through of risk and costs?

Thanks for the question, Maurice. So we have limited disclosure around the specific contract terms. For the 10-plus year contract with Meta that is investment grade, and I'll reaffirm 10-plus years. What I would say in terms of how our approach has been, and I think this is actually one of our big advantages in this market. Our core competency as a company for 17-plus years has been contracting with investment-grade counterparties for medium- to long-term contracting. So as it relates specifically to Alberta in this contract, we have our view on where long-term CONE is going, and we have a firm view on how risk sharing should work. And I can tell you that this contract is consistent with our medium- to long-term outlook for the Alberta market. And I would just make note that we think that, that isn't necessarily reflected completely in the existing pool price outlook in terms of strip given the relatively low liquidity that you see in the out years for it. But I think the best way to answer it is the contract is reflective of appropriate risk sharing between ourselves and the counterparty, one; and two, reflective of our own view of CONE as we look out medium term for the market.

That's great color. Maybe as a quick follow-up, how do you see this relationship possibly progressing from here and hopefully beyond this 250-megawatt ESA.

We are hopeful. We have great confidence in our capability to be a partner of choice for utilities and hyperscalers across North America. We have great confidence in our abilities as a leading operator of utility scale generation, in particular, natural gas. And I think we've demonstrated ourselves to be very collaborative and constructive with stakeholders in all the jurisdictions we're in. And so I'm quite optimistic about our ability to build and forge broader and deeper relationships with our key customers. As we've demonstrated time and time again, whether it's in Michigan with CMS, Arizona with our future additional recontracting. So quite bullish on that, Maurice.

Just finish up with an opportunity in the U.S. And I apologize if this was asked earlier already. I guess when you think about your partnership with Apollo, it's about 8 months since you've announced it. We've seen during the quarter, at least in the recent few months that Apollo has got involved with other third-party power projects in the U.S. Would you be able to share where this partnership is in terms of sourcing opportunities? And what, if any, have been the challenges in sourcing an appropriate deal?

Yes. Thanks. I would say the partnership with Apollo has been going well in the sense that we're actively working together, evaluating multiple opportunities. We have not yet transacted. We've looked at and evaluated multiple opportunities. I think the most important point is that we continue to be disciplined about the opportunities we try to source. As we look, it's less about Apollo, Maurice, and more about the market. We are trying to be very disciplined: the assets we acquire have to have tangible upside that we can quantify and qualify through future upgrades and recontracting opportunities, and they have to meet our minimum threshold for accretion to make the investment case. So we've been looking at some larger transactions. The deal pipeline is bigger today than it was last year, and I feel confident about our ability to ultimately source the right type of transaction. We continue to focus on merchant opportunities with them. To date, I don't feel like there's been a deal done away from us, and we will find something in due course.

Our next question comes from the line of Nick Amicucci with Evercore ISI.

Avik, Kevin, I have a couple of quick questions. Now that we've cleared the hurdle with the Meta ESA for 200 megawatts over more than ten years, as you mentioned, as you think about the stages of discussion with other prospective colocation customers, which of your sites are you targeting and which screen best for the next type of offtake agreement? And how should we set expectations on timing — is this likely over the next 12 months or over the next 24 months? I don't want to put you in a box, but how should we think about the timeline?

Nick, thanks for the question. So absent the shot clock question, which it is a shot clock question, I do think we've got multiple opportunities in front of us. Michigan continues to be interesting. La Paloma is a potential site. We continue to see opportunities in Arizona. And then, obviously, first and foremost is our opportunity set at Genesee. I would say multiple sites in our fleet on both sides of the border, one being Genesee and Alberta, the others being in the U.S. all have opportunities to contract and/or expand to either serve a large load customer or a data center. So we continue to see those. I think much like my response has been over the last few years on recontracting, I would emphasize that this whole recontracting effort for us is equal parts art and science. And that decision to optimize that recontracting window and extension to maximize NPV per KW is all about being able to serve the customer what they need when they need it. And it's also incumbent upon us to have that right value proposition that benefits our shareholders as well, whether we're augmenting that with an upgrade, looking at a potential expansion. So I'd be very hesitant to put a time line on it. all but to say we continue to be disciplined, maximizing NPV per kW is our overarching approach to how we drive those decisions. That's not going to change. And I'm hopeful that what we are demonstrating to you and to our shareholders is that we've got a deep enough inventory of opportunities that it's repeatable over time, and we'll have a good cadence of delivering those. I didn't answer your question exactly, but hopefully, that gives you enough color and confidence in what we're trying to do.

Yes. No, that's perfect, Avik. And I wasn't expecting a direct time constraint. For what its worth. Then I just wanted to ask quickly on Maple Leaf and the Hornet, the solar projects. It seemed to have slipped a little bit. Just wanted to see what kind of drove those scheduling revisions and if there's any kind of broader cost or supply chain pressure that we should be considering?

No, I would say thanks for the question, Nick. It's Kevin. Yes, there's nothing material going on there. We've seen slight slippage in the solar project schedule, but nothing material. And from a cost perspective, it's largely coming in on budget. There is some cost pressure, but nothing material.

Our next question comes from the line of Julien Dumoulin-Smith with Jefferies.

This is Tanner calling in for Julien. I wanted to follow up on the discussion. Your broader energy market commentary appears relatively constructive across several regions. You mentioned markets like Michigan and the WECC. To ask explicitly: relative to PJM, how do those regions look in terms of project development, policy visibility, and potential transaction structures? How are you allocating resources or focusing your efforts? Do you have some M&A upside built into the guidance? Directionally, how should we think about your approach to these markets specifically and how you might ultimately transact there? A priority ordering of a few regions would also be helpful.

Thanks for the question. I think for us, we have a large position in PJM in terms of megawatts but it's concentrated in 2 critical assets, one being Hummel in Pennsylvania and 2 being Rolling Hills in Ohio. So when we think about the overarching market dynamics, what that play between the DRA, the interim resource adequacy service and then the ultimate bilateral opportunity set, it's fair to say you should concentrate that attention around Rolling Hills and how we think about the forward development of Rolling Hills. So our concentration around physical capital investment to expand or add megawatts is generally focused around how and where we can build out capacity there in service of future customers. And Hummel continues to have very interesting wholesale opportunities. So that combination when we underwrote that transaction, that ability to have that portfolio of a highly efficient CCGT with a peaker site with expansion capacity, I think, uniquely positions us there with our own fleet. And I think the dynamic nature of that market, especially given the high-quality nature of our assets, access to existing gas supply in Rolling Hills, multiple points of gas supply, access to transmission and distribution, I think, uniquely positions us off of those 2 assets in a market that's dynamic. And I would reemphasize the point that a market that once again at the latest auction didn't clear reserve margin. So I think we feel very good about the opportunity set, but our attention is fairly focused in how and when and where we would deploy capital against our existing fleet. Hopefully, that answers the question for you.

That's great. I appreciate that. Maybe given the steeper forward curve in Alberta and there's obviously an availability of potential contracting opportunities there. Is there any change in the view you guys provided in December regarding your target geographic or your target international mix over time?

No change in that regard. Because if you recall, we didn't geographically parse our capital allocation targets; they were divided between thermal, renewable and other. As Kevin said earlier, there is no imminent change to capital allocation. We do have flexibility in how and where we allocate capital for thermal — whether to acquire, expand or develop — but we are not at a point where we would allocate between geographies.

Understood. The additional owned U.S. capacity of 3.5 gigs, call it, that's unchanged, correct?

Correct.

Our next question comes from the line of Benjamin Pham with BMO.

I'm just wondering if you can comment a bit on managing the social risk of building data centers, which seems to have increased quite a bit of late, especially in the U.S. You've taken more of a seen-way approach with data center development or still pedal to the metal? And then just related to that, we've been getting a lot of questions on the Alberta poll ledger, whether it's impacting the stocks of late and more curious your thoughts on really the Alberta perception of data center is independent public review? And do you think it could tie into some sort of maybe more broader government policy shift and change?

Thanks for the question, Ben. Here's our view on it. We've been very consistent about the opportunity set for data centers since Q3 and Q4 2023, when we said we didn't necessarily view behind-the-meter opportunities as the ones that would ultimately win the day because you need to engage stakeholders to have the license to operate. I've been a broken record on this point: you can't compromise affordability and reliability. We've stayed true to that in how we've spent our time as a company and where we've allocated people, capital and effort. We haven't focused on behind-the-meter opportunities, which I think will be most affected by community concerns and impacts on affordability and grid reliability. Instead, we've focused on our existing fleet in cooperation and coordination with stakeholders. As we discussed at our Investor Day, the trifecta of managing operators, regulators and customers and finding solutions that work for all of them is where our attention has been and will continue to be. We see a growing opportunity to work with utilities and hyperscalers with the lock-arms, balanced energy solutions approach we've been advocating for the last three years. I do take your point that there will be growing efforts, considerations and political pressure on when and where these data centers can be introduced, but I think we're uniquely positioned in the markets we're in to engage constructively and collaboratively. On the Alberta question, it's going to be very regional and locally driven, and project proponents will need to engage with stakeholders and work within the existing system. Alberta has been out front in trying to coordinate a regulatory environment that supports large load. We didn't agree with the Phase 1 approach to volume allocation, but we supported the government's balanced intent on how to introduce large load. In many ways what we're seeing in PJM now is following Alberta's example. It's a different market structure, but the core questions are the same: how do you introduce large load, manage connect-and-manage situations, and ultimately allow for new generation capacity and new data centers? Short answer on Alberta: it's a local question that will require continued engagement and cooperation.

Okay. Got it. So it sounds like this ledger poll that the National Post has been talking about, saying four out of five Albertans are concerned around the bill. It's probably nothing you're too concerned about is what it sounds like.

I wouldn't say I'm not concerned about it. I think it's incumbent upon every market participant to have strong engagement. If anything, it's a warning that you've got to be a constructive and cooperative and collaborative partner in infrastructure development, which has always been the case. I think where we are on data centers is it's very front of mind for us just given the capital cost and magnitude of it, but I absolutely don't take it lightly. I think it just reaffirms the importance of engagement.

Understood. Just a quick follow-up on that $1.25 billion opportunity set: could you provide more detail on what's driving that? In terms of the exercise, was it mostly a mark-to-market on the forward prices you're seeing? And is the Meta uplift contract included in those buckets somewhere as well?

Yes. Thanks for the question. So yes, let's break it down. I would say the biggest impact is actually in the recontracting space, where we've had a lot of very productive conversations over the course of the last 6 months. As everybody is aware, we've seen CONE creep up over that period of time. And I think increasingly, our customers are realizing that recontracting earlier than they might otherwise in light of the cost pressure on CONE, we're seeing quicker engagement, and that engagement is very constructive from a pricing perspective. Yes, we also see the impact of effectively derisking some of the merchant portfolio with the Meta contract. And as it relates to the merchant exposure in those cases, it is a more constructive view of the fundamental, and I'll say spark spread, not just power price, but views on gas as well. So it's not just a pure mark-to-market. I would call it a derisking of our view on the fundamental prices that we assume for the future.

Our next question comes from the line of Patrick Kenny with National Bank Capital Markets.

Maybe shifting gears to Ontario, not the highest profile market right now, but just given the higher utilization, as you noted, wondering if you could update us on how your portfolio stands to benefit from this rising demand for flex-gen megawatts and perhaps even policy shaping up to attract data center proponents as well? What growth opportunities your team might be working on or planning to work on over the near term? And I guess, how these opportunities might stack up from a risk return standpoint relative to your other, like you said, higher profile jurisdictions?

Pat, I view Ontario as an active region for capital deployment and upgrades. We have two battery projects there. First and foremost, I would focus on our existing fleet and how it is positioned, particularly around flexible dispatchable gas to serve growing load in that market. We remain very interested in developing capacity in the province and are monitoring policy shifts as potential opportunities. As Kevin described, part of our $1.25 billion of adjusted EBITDA upside is reflected in what we see as a more constructive market environment in Ontario. Given the capital we have invested in upgrading the existing fleet, including the expansion at East Windsor and the additions of batteries at York and Goreway, the fleet is well positioned because we are through that capital investment cycle and can now reap the benefits of the growing market. With respect to specific projects, we have an active business development pipeline, but nothing specific identified for Ontario today.

Got it. Makes sense. And maybe a quick follow-up for Kevin on the Alberta power market. So I guess with the clarity on the carbon tax now into the next decade, the bridging capacity likely coming off the grid, I'm just curious how you're thinking about the cadence of spot prices recovering over the coming years relative to, say, where the strip is at and how that might influence your hedging strategy through the back half of the year as you look to lock in more positions for 2027 and 2028?

Yes. Thanks for the question, Patrick. As you know, we have a very disciplined risk management approach that protects our investment-grade rating. The team has done a really good job. The supply trading team has been opportunistically locking in some 2027 and 2028 Alberta prices as optimism has increased, particularly in the 2028 window. At this point we have a lot of hedging in place for 2027 — not completely hedged, but a significant majority is already in place. The team is disciplined and sophisticated about when they decide to lock in those prices. I think we'll continue to see some weakness in 2027, and we are really seeing 2028 respond to Phase 2A nicely.

And maybe, Pat, I'll just add to Kevin's comments. In terms of our approach, to hedging and short and medium-term outlook, there's really no change. And I think we benefit greatly from Genesee and the sheer volume of the megawatts that we manage in this market and our investment-grade balance sheet. So our ability to manage short, medium-term contracting and hedging around that fleet without having to pledge volumes from specific assets gives us considerable flexibility. And as Kevin said, that's what our commercial teams and supply and trading work through quarter in, quarter out, month in, month out in terms of how to manage being long, short in a given market period given that we're inherently long the molecule and the megawatt. And now that we've got a new set of customers, we've got more flexibility to do more contractedness, which is just a positive read-through in terms of how we manage our contractedness and reaffirm our approach to being and staying investment grade.

Our next question comes from the line of John Mould with TD Securities.

Maybe just going back to PJM and M&A, just given all the regulatory movement there, and it's not just limited to capacity procurement in the RBP, how is PJM stacking up against other markets for incremental M&A in the context of the Apollo MOU? Are you seeing better risk-adjusted opportunities elsewhere in the U.S.? Or does that ongoing regulatory uncertainty potentially create some opportunity for you?

Thanks, John. I would say it's fairly balanced. What we're seeing in the marketplace is that because of regulatory uncertainty or ambiguity, we haven't seen a flood of new entrants. So the buyer universe is only slightly deeper. We're starting to see infrastructure funds and utilities playing in the market. It's deeper than it was 1.5 years ago, when there were probably six or fewer active buyers. Given the construct of financing and how these assets are levered, we continue to see really good opportunities in PJM. The underwriting of those assets is still largely similar. With the BRA construct of the cap and the floor, that limited the run-up in valuations there. We continue to be very interested in PJM and continue to evaluate opportunity sets there. We are seeing broader interest from buyers in other markets as the broader market shifts focus away from PJM. But I wouldn't say the opportunity set in PJM is smaller. I would reaffirm our interest in that market because of what we're seeing today, with reserves and BRAs not clearing and continued trades at the cap. I think with success through the RBP process, we'll see some stabilization in the market over the next few years. So more interest in other markets, flat interest in PJM, but more confidence in the medium-term outlook for existing generation in PJM is how I would characterize it.

Okay. And then maybe just going back to La Paloma. I think it's your nearest-term contract expiry with resource adequacy agreements gradually rolling off. It's fair to say that it's not a very transparent market. Can you provide a little more color on how your commercial efforts are advancing there, either on incremental resource adequacy agreements or other contracting possibilities?

We continue to believe that La Paloma is a uniquely positioned asset and it's a critical asset for reliability in California, given where it sits on that North South transmission line in California. I can say that we're looking at multiple opportunities on how to commercialize it, whether it's RA or alternatives. But at this moment, I can't say much more than that, but other than to say there's active conversations on multiple opportunities there. So we feel notwithstanding the market volatility and the pressure that batteries are putting on the market overall, we still feel good about what our options and opportunity set is at La Paloma.

Our next question comes from the line of Mark Jarvi with CIBC.

I know you didn't want to give any specific details, Avik, to Rob's question about Genesee, but just broadly with the policy clarity, Meta now making a substantial commitment in Alberta. Just how has the conversation with potential customers changed in the last handful of months? And is there an increased breadth of customer interest now in Alberta?

Thanks, Mark. What I would say is the announcement changed how I would tier those conversations. Among the large players and hyperscalers, I don't think the announcement made any difference because we've been seeing that growing interest for the last six months. What's happening is there's broader market recognition that this is a viable market. I think that second tier of entrants—whether they're building multi-client data centers or more bespoke facilities that aren't hyper-scale—is exactly what we were talking about two or three years ago. The key was to bring in a big player to validate the market, and then we'd see growth in the broader market over time. It has certainly been very impactful across the broader universe of capacity: data center providers and provincial developers are looking at and evaluating the opportunity set because it was such a big announcement for the province and the country. But among the hyperscalers, they were already there prior to that announcement. It wasn't like the phone rang the day after and everyone said, "Oh, since Meta is there, we should look at it." They've all been moving in that direction in terms of understanding the opportunity here. It's not the same today as it was a year ago. Not every hyperscaler is focused on Alberta, but they recognize it's a very viable market and there's a constructive dynamic where stakeholders are eager to work with them and the environment is inviting for capital investment.

And just with the progress on the testing of the MSSC limit and then Phase 2A rules, with the existing customers you've engaged with, does it feel like a bunch of the items that need to be clarified have been clarified and you're getting closer to commercial terms on discussions?

I think what I can say, Mark, is that all sides are constructive and collaborative, working to find solutions to grow the industry here. I also think the Alberta government's announcements regarding Phase 2 and Phase 2A bridging have been constructive, and I would say there isn't a single announcement that would negatively impact our Genesee site. All of the rules and announcements support Genesee as a very viable and attractive large site.

Got it. And then just on that upside from the U.S. recontracting, which is a big part of the $250 million increase on that upside. And you made a comment about a greater appreciation for what the real cost of new entry is now. Would you say that conversation in the last 6 months have gotten to the point now where those customers you've engaged with in your sales are getting closer to, I guess, consensus on what pricing needs to be for your units? And does it feel like the conversations are moving quick enough that you can move towards some contracts here in the next few quarters?

Thanks, Mark. I would actually say the following. I don't know that the gap was what the view on CONE and contract pricing was. Kevin alluded to it in his comments. the whole game has been focused on speed to power. And the matching of the regulatory changes to accelerate when a data center could connect to the grid while not compromising affordability and reliability and then affirming the path to power, that's been more the critical path than what the PPA price was. I think if you talk to hyperscalers or utilities in the U.S. or those of us that are market participants, I think we would all tell you, if we could guarantee COD date, we could sign a PPA very quickly, subject to all the other stage gates having been met. But I think it's still the speed to power that's critical path.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Roy for closing remarks.

Thank you. Since there are no more questions, we will conclude our conference call. Thank you once again for joining us today. We appreciate your interest in the Capital Power story. Today's presentation and webcast will be made available on our website. Have a great day.

You may now disconnect. Good afternoon. Welcome to the Penske Automotive Group Second Quarter 2026 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately 1 hour after completion through August 5, 2026 on the company's website under the Investors tab at www.penskeautomotive.com. I will now introduce Anthony Pordon, the company's Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Thank you, Lea. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's second quarter 2026 financial results was issued this morning and is posted on our website along with the presentation designed to assist you in understanding the company's results. Joining me for today's call are Roger Penske, Chairman and CEO; Shelley Hulgrave, EVP and Chief Financial Officer; Rich Shearing, North American Operations; Randall Seymore, International Operations; and Tony Facione, Vice President and Corporate Controller. I'm also available by mail, e-mail or phone for any follow-up questions you may have. We may include forward-looking statements on today's call about our earnings potential, outlook and other future events, and we may also discuss certain non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted earnings before taxes, adjusted net income and our leverage ratio. We've also prominently presented and reconciled any non-GAAP measures to their most directly comparable GAAP measures in this morning's press release and our investor presentation, both of which are available on our website. Non-GAAP measures should be considered in addition to, not as a substitute for, the comparable GAAP measures. Our future results may vary from expectations because of risks and uncertainties outlined in today's press release under forward-looking statements. As most of you are likely aware, the company received an unsolicited, preliminary and nonbinding proposal from Penske Corporation and Mitsui & Co. to acquire the remaining shares of the company's common stock they do not currently own for cash consideration of $210 per share. The Board of Directors has established a special committee of disinterested and independent directors authorized to retain its own legal and financial advisers to evaluate the proposal. We have no further comments and will not be taking any questions on this matter at this time. However, I do direct you to our SEC filings, including our Form 10-K and our previously filed Form 10-Q, for additional discussion and factors that could cause future events to differ materially from expectations. And now I will turn the call over to Roger Penske.

Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. We're pleased to report a strong second quarter and financial results. During the quarter, PAG delivered 125,000 new and used vehicles and more than 5,400 new and used commercial trucks. We increased our revenue by 6% to $8.5 billion. We generated a sequential increase in earnings before taxes, net income, earnings per share when compared to the first quarter 2026. Earnings before taxes were $354 million, net income was $260 million, and earnings per share were $3.96. Second quarter results include approximately $30 million from the gain on sale of dealerships as we continue to optimize our portfolio. Excluding the gain on sale, adjusted income before taxes was $323 million, net income was $238 million and earnings per share was $3.62. Cash flow was strong, allowing us to reduce our long-term debt by $141 million and increase our quarterly dividend to $1.44, representing our 23rd consecutive quarterly increase. Let's take a look at the details of the quarter. Same-store retail new and used units increased 5%. Gross profit per new unit retail was $4,782, down $1 per unit sequentially. Gross profit per unit retail used was $2,095, up $19 sequentially. Our service and parts same-store revenue increased 2% and related gross profit increased 3%. Service and parts gross margin increased 60 basis points and sequentially 80 basis points quarter-over-quarter. Turning to the Retail Commercial Truck segment. New and used truck units retail increased 2%. In fact, according to industry reports, North American Class 8 orders increased 170% in the second quarter compared to the same period last year. We expect to see the benefit from the strong order book in the second half of 2026. I was also pleased with the increase in profitability of PTS. During the second quarter, equity income increased 7% to $57 million and their earnings were $207 million for the quarter, growing into full-service leasing revenue, improved fleet utilization, lower operating and interest expenses resulted from continued fleet reductions and were partially offset by continued challenges in rental and by lower gain on sale of used trucks. At this point, I'll turn it over to Rich Shearing to discuss our North American operations.

Thank you, Roger, and good afternoon, everyone. In the U.S., our retail automotive same-store new and used unit sales increased by 3%. During the quarter, 24% of the new units sold were at MSRP, which is consistent with the first quarter of this year. Same-store service and parts revenue and gross profit increased 2.5%. Customer pay was up nearly 4%, warranty was flat, and collision repair declined 2%. Our U.S. automotive technician count is up 2% when compared to the end of June of last year, and our bay utilization is approximately 84%. Turning to Premier Truck Group. During Q2, Premier Truck retailed 5,431 new and used trucks. Same-store new units declined 8% and used increased 65%. New units retailed improved sequentially by 53% to 4,276 compared to 2,786 in the first quarter of 2026. The increase in used units is primarily driven by an improved freight environment from a tightening in overall market capacity and improved spot rates. Used vehicle gross per unit was strong, increasing more than 2,000 on a sequential basis when compared to Q1 and nearly 1,900 when compared to prior year. Premier Truck Group generated $928 million in revenue and $143 million in gross profit and gross margin increased 20 basis points. As Roger mentioned, throughout the first half of '26, we have seen a stronger order book developed for the Class 8 market. In fact, Class 8 market orders increased 170% and the industry backlog grew 105% to 186,000 units in the second quarter. We expect to see the benefit from the strong order book in the second half of 2026 in the form of retail sales. Service and parts revenue increased 5% as average daily activity continues to grow and service backlog continues to increase. Turning to Penske Transportation Solutions, we're also encouraged by the stronger financial performance. During Q2, operating revenue was flat with the prior year quarter. Lease revenue increased 1%, rental revenue declined 12% and logistics revenue declined 2%. PTS sold 9,170 units in Q2, ending the quarter with a fleet size of just under 380,000 compared to 414,000 at the end of June '25. As PTS continues to rightsize its fleet and dispose of older, higher-mileage trucks, the gain on sale declined $13 million in Q2. However, higher fleet utilization, lower operating costs and lower interest expense contributed to a 7% increase in equity earnings. As a result, the equity income increased to $57 million from $54 million. I would now like to turn the call over to Randall Seymore to discuss our international operations.

Thanks, Rich. During Q2, international revenue was $3.2 billion, which is up 10%. Same-store new units increased 8% and used units increased 7%. Same-store revenue increased 10%, while same-store gross profit increased 6%. Same-store service and parts gross profit increased 5% as customer pay was up 3%, but warranty declined 7%. Looking at the U.K. in Q2, our new vehicles delivered increased 14%, which was in line with the overall U.K. market increase of 13%. Gross profit per unit increased sequentially by $303 when compared to Q1 2026. Same-store used units increased 9% and gross profit per unit was $2,228, which was down only $29 per unit on a sequential basis. While we were encouraged with the performance in Q2, the U.K. automotive environment remains challenging as higher taxes, consumer affordability considerations, the reduction in motability programs and the government mandate towards electrification impact the overall market. Turning to Australia. In automotive retail, our 3 Porsche dealerships in Melbourne continue to gain market traction through implementing our One Ecosystem process. This process has driven a seamless experience for our customers resulting in top customer satisfaction scores for all 3 of our Porsche dealerships in Melbourne. During Q2, new unit sales were impacted by the switch of the Macan model to a BEV only powertrain. However, a strong model mix of new vehicles sold coupled with a 10% increase in used units showcased the ability of our business to flex with market conditions. Also pleasingly, fixed operations gross profit increased by 11%. Turning to the Australian Commercial Vehicle and Power Systems business, we are diversified with a revenue split approximately 2/3 off-highway and 1/3 on highway. The off-highway business continues to grow. The current order book has exceeded our full year business plan with strengthening in energy solutions, mining and defense sectors. We remain a market leader in the over 1,250 kilowatt horsepower high horsepower market. During Q2, our off-highway revenue increased 63% and the future order pipeline remains strong as we secured over $300 million of orders in Q2, bringing the order book to nearly $660 million in secured orders for 2026. I'd now like to turn the call over to Shelley Hulgrave to review our cash flow, balance sheet and capital allocation.

Thank you, Randall. Good afternoon, everyone. We remain committed to a strong balance sheet and a flexible and disciplined approach to capital allocation while driving our diversification strategy, implementing efficiencies and striving to lower costs. For the 6 months ended June 30, 2026, we generated $418 million in cash flow from operations and EBITDA of $829 million. During the first half of 2026, we invested $134 million in capital expenditures. This is down from $147 million for the first half of last year. We completed acquisitions of 2 Lexus dealerships representing $450 million in estimated annualized revenue. We increased our cash dividend from $1.40 to $1.44 per share, representing the 22nd and 23rd consecutive quarterly increases. On a forward basis, our current annualized dividend is $5.76 with a yield of 2.9% and a payout ratio of 40% over the last 12 months. And we repurchased 265,000 shares of common stock for $43 million. Since the beginning of 2023, we have returned approximately $1.6 billion to shareholders through dividends and share repurchases. At the end of June, non-vehicle long-term debt was $2.5 billion and leverage was only 1.7x despite completing several large acquisitions over the last 8 months. We also reduced long-term debt by $141 million during the second quarter. Floor plan was $4.4 billion, and we had $412 million in vehicle equity. For the quarter, total interest expense increased $6 million. Floor plan interest decreased $5 million due to our cash management and lower interest rates while other interest expense increased $11 million, primarily from higher borrowing costs as a result of acquisitions. We estimate a 25 basis point change in interest rates would impact interest expense by approximately $15 million. Our effective tax rate was 26.2% in Q2 2026. The prior year results Q2 2025 have been recapped for the acquisition of Penske Motor Group using common control as disclosed last quarter. As a reminder, PMG was a partnership prior to our acquisition and was not subject to income tax. Q2 2025 does not reflect federal or state income taxes as PMG had been included in our taxable group. Therefore, period-over-period comparisons of net income and earnings per share may not be directly comparable due to the change in tax status of PMG. The impact to the effective tax rate would have been approximately 100 basis points and the impact to earnings per share would have been $0.05. Turning to SG&A. Expenses increased by 3% during the quarter. SG&A as a percentage of gross profit for Q2 2026 was 71.8% compared to 69.8% in Q2 last year, but was 250 basis points lower sequentially when compared to the first quarter of 2026. Q2 2026 SG&A expenses were impacted by higher costs for personnel expenses including employee benefits, information technology expenses, rent and rent-related costs and vehicle maintenance costs. Total inventory was $5.1 billion, up $295 million from December 2025. New vehicle inventory is at a 51 day supply, including 58 days for premium and 28 days for volume foreign. Used vehicle inventory is at a 44 day supply. At the end of June, liquidity was approximately $1.4 billion, including $70 million in cash and $1.3 billion of availability under the U.S. and international credit agreements and revolving mortgage facilities. At this time, I will turn the call back to Roger for some final remarks.

Thank you, Shelley. We had a solid quarter, and I remain optimistic about our business. Our diversification remains a key strength of our business model. Our recent acquisitions of Toyota and Lexus dealership in California, Florida and Texas demonstrate our ability to identify and incorporate significant acquisitions into our portfolio. New and used retail automotive grosses remains strong and service and parts continue to grow. The recovery in the commercial truck market is underway. We expect the improving freight conditions to benefit both our commercial truck dealerships and also PTS. Again, thanks for joining us for the call today and your confidence in PAG. Let's turn it over to the operator.

Your first question comes from the line of John Babcock with Barclays.

I guess just the first question. This is really more on the trucking business. You talked about the sheer magnitude of the growth in the Class 8 order books. And I was just wondering if you could maybe give some color in terms of how that ultimately converts into sales. So in other words, like kind of the cadence, how it typically flows through? Is that the kind of thing that flows through over a year over 18 months or is that something that we should expect to hit more near term than that?

Yes, John. Rich here. So if you look at the backlog, it's 186,000 is what it's grown to with the ramp-up in the orders year-to-date. So that represents about an 8.5 months' worth of production. We're, as you know, we're exclusively tied to Daimler Truck North America, and they have manufacturing plants, both in Mexico and the United States, depending on the type of vehicle that they produce. Generally from order intake to delivery, depending on where their first production slots availability is, it's a 45- to 60-day kind of time line from when the truck order would be placed to when we receive that truck at our dealerships. So obviously each month, they're producing units that are intended to come to our dealerships. And so if you look at this order ramp up for the first half of the year, we anticipate the majority of those orders that we've taken to convert into retail sales in the second half of this year. So if you look at Premier Truck Group's backlog, it's about 10,400 units. Some of those will probably spill into the first part of next year, but the majority of those will deliver in the second half of this year.

Got you. And has the strength of the growth in those order books been pretty recent? Or like has that been building? Or how should we think about the trend there?

It started to build in December, about three to four months late compared with the normal order cycle. In Q2 orders were up 170%, in June they were up 231%, and year-to-date through six months they're up 117%. Essentially, most manufacturers are at their production capacity for this year and are sold out. So we will probably see that order intake curtail a little bit in the second half of this year as manufacturers begin to publish calendar year 2027 pricing. As a result, used truck demand will remain elevated because the availability of new trucks from the order book and manufacturers' ability to produce additional new trucks this year will be muted.

Rich, I think we also had, what, 6,000 deliveries in the first half?

Correct.

And we're expecting 10,000 in the second half. So quite an increase. And I think we feel good about margins staying pretty much consistent based on the mix of our business.

Yes. And you saw that in the press release that our used gross per unit up almost 2,000 both sequentially and year-over-year.

And then on Penske Transportation Solutions, given where supply and demand are today, where do you think that fleet size ultimately normalizes?

Well, I think basically, where you see the defleeting really, we had over 88,000 rental trucks, and we brought that down. And I think we're at a point now, we actually are in pretty good shape because what's happening is the utilization today is almost 80-plus percent where it was down in the low 70s. So that drove our decisions to defleet. And of course, it has reduced our total debt, almost $2 billion when you look at year-end forecast. Obviously, maintenance is down, interest is down, and we've taken out some mechanics because with a reduced fleet. And I think we're going to grow it back based on our lease business and our logistics business. So I think when you look at the number of trucks we've sold in the first 6 months, it was 18,500, which is lower than it was in the past.

Your next question comes from the line of Michael Ward with Citigroup.

Randall, your comments on the U.K., it sounds like you had a pretty good quarter in the second quarter but you remain kind of cautious on the market outlook. Is that fair?

Look, it's just a turbulent market right now, Mike. I mean, with the ZEV mandate and with the government change there, it's a little bit of a question mark, what they're going to do. The mandate is 33% on the ZEV and we're only at 25%, next year it goes to 38%. So that puts pressure on the OEMs and then that also dictates what channel they sell the cars through. And then so the second point is the Chinese brands have doubled their market share from 7.5% to over 15%. In fact, in June, they were over 16%. So look, we feel good the way we structured our team there. We've gone from regional to market area and look at our brands, our premium channel was good in Q2. So we think we've got more opportunity on the after sales side. So it's just the macro environment is not easy.

So it's just going to change and will continue to change every quarter. So there's no way; it's not like we've established a base and are starting to see a positive rate at this point.

No, Mike, I think we've found our pace. It's just that uncontrollable macro factors have made it difficult, and that's likely to continue. You could say it's a new normal. In Q2, we demonstrated our resilience by operating and performing in that environment.

I would say, though, when I look at the Chinese on building their market share, correct, year-over-year. But that's primarily in the lower-cost vehicles, and we're 90-some percent premium luxury. So at the moment, I don't think that's going to be an issue for us. What do you think, Randall?

Correct, correct.

Yes. I think as I look at it, Mike, we don't know how many dealers are going to put in. What's going to be the volume aspirations. They don't have a captive finance company, but they're relying on banks and other things. And that's always a question when you're dealing against MB financial, Audi financial, et cetera, where we have lease programs, we've got programs on certified vehicles. So there's a big stretch here, then the kind of people they have in the field and we're going to have to build a fixed business. And right now, it's really get ready, and that's it.

Your next question comes from the line of Alex Perry with Bank of America.

Sorry about that. I wanted to ask on actually the Australia, New Zealand energy solutions business for you guys, it seems like a pretty unique business. Maybe just remind us how significant that business is, how big could that business scale to over time? And what would be the key drivers there?

Thanks, Alex. Randall here. Our business in Australia is one-third on-highway, which is our over-the-road truck distribution and retail business, and two-thirds off-highway. Mining is a big chunk of that, along with defense, rail, marine, and energy solutions. We have about 1,300 people, of which 500 are technicians, so we have a very good footprint and infrastructure there. We're in all the capital cities and then in specific other places where we've got business, particularly in mining. The energy solutions business in backup power for data centers, 1,250 kV and higher, has over 75% market share. Australia is the number two market in the world from an AI token export standpoint, so the investment continues and our pipeline continues to grow. As we deliver, we're replacing the pipeline, so it's accretive growth. We stated on the last couple of calls that we feel we can hit AUD 1 billion in data center revenue by 2030, and with the current demand, our market share, and the relationships we have with customers, we see a path to achieve that target. The supply of the engine is probably the biggest challenge, but we're working hard with our partners on that.

That's really helpful. And then maybe just shifting, I think the new commercial trucking side was asked about earlier. But just as we think about the used commercial truck demand, that sort of already turned this quarter. Maybe talk through the strength that you're seeing there. Are you seeing operators sort of take advantage of the higher freight rates? Could this lead to an increase in GPUs on the used truck side? How do you sort of expect the used truck business to play out through the balance of the year?

Yes, thanks Alex. I think you picked up on it. The increase in used truck demand is being driven by the spot rate market. Dry van, reefer, and flatbed rates are 40% to 50% higher than a year ago and at their highest level since 2021. When rates escalate like that, people jump into the market to take advantage. Typically these buyers are those with one to two trucks, owner-operators, and used truck purchasers, and they are driving the demand. As I mentioned in my prepared remarks, we're up 2,000 sequentially and year-over-year. I anticipate that demand continuing into the second half of the year. Some customers will try to avoid the price of new trucks as well. Like in the auto market, we've seen price escalation for new and used trucks, and late-model, low-mileage used trucks are highly desirable. Our challenge as a dealer will be sourcing those trucks to meet demand.

I'd also say that as we look at PTS, we've seen a $2,000 to $3,000 to $4,000 increase what we're getting on our used trucks, which is a huge help to us as we continue to defleet. And that's been one of the areas on day cabs, which has been really losers for us, and that's turned around. So the used truck market is much better. And I think it's given us the opportunity to be able to bring our fleet in line from the standpoint when you look at mix and age.

Your next question comes from the line of Rajat Gupta with JPMorgan.

I just had a question on SG&A to gross. Pretty nice improvement sequentially this quarter. With all that word on the call with respect to PTG coming back, and generally, like stability in other areas of the business. Is it fair to assume further improvement on the SG&A to gross level from here? Because I think one of the reasons why...

Rajat, it's Shelley. I think I got most of your question, but you're right, a nice sequential improvement, 250 basis points. We saw about a 400 basis point improvement from PTG quarter 1 over quarter 2. So certainly, the improvement in their business, all of the efforts that they made to contain costs while business was in a recession, freight recession certainly has helped as they experience better service and parts now and certainly those gross as Rich talked about. There were some Q1 costs related to some weather events that we didn't have here in the second quarter, but we also had some other headwinds, some uncontrollable certainly around fuel costs, some employee benefits. And then there were other costs that we actively pursue, like investments in information technologies and other areas like that. So I think we're still comfortable in that low 70s range that we've been talking about kind of post COVID. You saw us get back to a pretty nice level here in Q2, and we still remain comfortable in the low 70s.

Yes. I think when you look at it, Rajat. When we look at PTG, which is the freightliner business, our SG&A to gross actually went down from 66% to 59% in the quarter. And in the U.S., we're at 68%. So if you just look at our retail auto business, which we can compare with other of our peers, yet the U.K. is at 79%. So when you put that mix together, that's why we are still down 250 basis points for the quarter.

Got it. Got it. That's helpful. Just one quick one on used in U.S.

Go ahead.

Sorry. Yes, I was just asking on new GPUs. Could you give us a sense of how the U.S. business did on new GPU sequentially? And any color you could provide on the outlook there?

Yes, Rajat, Rich here. I think used demand has been good. Acquisition continues to be a little challenging. The positive is we kind of hit the valley last year on our lease and loan maturities; that's continued to improve throughout this year, and it should keep improving into next year. Those are cars we have a higher chance of bringing back into our dealerships and either converting into another sale or capturing the lease when it's turned back in, even if the customer goes elsewhere. We saw a high percentage of those in the quarter turn into CPO sales; we're at 42% in the U.S. I continue to believe there's a portion of the market where a new car customer from five or six years ago, due to price escalation, is now a used car customer. Five or actually almost seven years ago, the average used car sale price was $25,000; it's $41,000 today, and that $41,000 is what a new car cost seven years ago. So I think our margin will hold up — it's been about 5% over the last five to seven years — and as long as that pricing stays consistent, we just need to make sure we're buying right and maintaining gross at the point of sale.

Yes, Rich, I think when you look at all-in gross on used sequentially, we were in the $3,700 to $3,800 all-in gross, which is terrific. And driving some of that, I think, is our premium mix. When you think about Toyota, you think about Honda, you think about Lexus, Porsche or Land Rover, remember, we're not in the high volume area. Obviously, we are with Toyota, but the premium mix gives us a lot more stability because we're not racing for big numbers.

Your next question comes from the line of Daniela Haigian with Morgan Stanley.

So I had a question on the Australia power system. As you shift units in operation towards this prime power piece over backup power to build that recurring service remanufacturing tail, how should we expect that to move segment margins over the next 2 to 3 years? And how does that shift impact the service opportunity?

Yes. Well, look, I think on the product actually selling the engines, the margin is pretty consistent. The big difference is standby power: you do maintenance once a month on the engine that is not running. And then on prime power, obviously, you could run anywhere from 5,000 to 8,000 hours per year, depending on how they want to share load or if it's in front or behind the meter and doing any peak shaving. So that prime power just gives you that long-term annuity. And these Bergen engines that we're selling, those will run for 30-plus years. So you get the cycle of various maintenance and repair, and when we do the remanufacturing on those engines, that's where the real annuity is. So look, the full change to prime power in this space is in the cycle now; I would say it's at the beginning stages. This is where we're working on these solutions with our customers, and we hope to grow that business for sure.

We really are the exclusive distributor in that part of the world, correct? And we're looking for opportunities here in the U.S. We haven't identified any yet where we could partner with them either on the sales side or on the service side. So this is a real opportunity. And the technology is really the one that has that mine. I think the technology there, and these engines are amazing when you think about it. As we look at power availability, and even when you look at the smaller engines, the MCUs, which are doing the standby, ultimately some of those can be on prime power too. It's not that they're just built for standby.

We built and supplied 16 engines in the northwest of Australia in the mining area. So this is off the grid by 1,000 miles. And so these engines run close to 8,000 hours per year. And so we installed those engines, they start running about 3 years ago. So now we're at a 16,000-hour maintenance in overhaul cycle. And so those margins are healthy. We're taking care of those customers. We have technicians domiciled on site. And so this is one thing. This happens to be powering various mine sites. But it's the same principle as if you're powering a data center, and you start getting into these, like I said, 16,000 an hour, 32,000 an hour maintenance and remanufacturing cycles, and it's a strong business.

That is super helpful. My second question was a little more tactical. That segment, Commercial Vehicle and Power Systems, a lot of growth opportunities over time. But year-over-year, it looks like revenue grew by more than gross profit. It was up 40% versus gross is up 30%. So what was the driver of that of a bit of margin compression there? Was it mix? Was there something with energy?

It's all mix. When you sell these big engines, you got a big capital product, and it's just our after sales service of parts gross grew 10%, but it didn't grow as fast as the revenue did on selling the engines for energy solutions. So they both grew, just your revenue grew faster because of the mix.

Your next question comes from the line of Jeff Lick with Stephens Inc.

You came a long way, Roger. 20 years ago, you were talking about the new Lexus SUV launch. Now we're talking about Collins Class submarine. So definitely moving along.

I'm not sure what 20 years from now we'll be talking about.

I wanted to double back on the new unit same-store sales up 3.7%. First question is, did the Longo stores and then also the U.K., did they perform above that, meaning that they were actually additive to that number? And then just given that your peers have not put up new comp, positive new comp units, if you could maybe just talk to what's driving that.

Well, I think the U.K. was up for sure. They were up, what, 14%. I think, Rich, you had talked about it before, our premium luxury was flat. This would include Lexus at Longo. But on the Toyota side, we were up 6%. That's a big number when you think about the volume we're doing with Toyota and Lexus. Our domestic was up 15%, but this really not a big factor. So it was really across the board, led by the U.K., which is powerful. When we look at it, it's not a registration month either, which is also good.

And then just as a follow-up, obviously you guys over-indexed the lease penetration. As we're now seeing lease returns up 20%, 30%, 50% in certain weeks, could you talk about that? I'm guessing that's a source of supply, obviously, but also a source of demand. Is that driving things up and are you capitalizing on it?

Yes. Well, we have to. So the answer is yes, lease returns are increasing. Toyota this year is forecast for us to be 4,200 units, going to 5,600 next year. Lexus, not quite up as much: 2,500 this year, 3,100 next year. BMW 9,500 this year, 10,700 next year. And Audi, they've got almost 4,600 lease returns this year for us and 58% of those come in the second half of the year. So obviously each of the OEMs has retention metrics as a KPI, and we've certainly got to hit those. But I would say our objective is to be higher than what they want to hold us to because, as I said earlier, those are generally good used cars. Obviously we want to convert those people into another new car. The challenge for some of them is the equity position, and I think that's where we talked about it in the past, a number of years ago when the market was super hot we didn't sell above MSRP. So if there are customers, we should be able to get them out of that car without the negative equity situation. If they're coming to us and they bought those vehicles from another dealer, we are seeing some challenges with the consumer in a negative equity position. And with rates where they're at, the payment walk can be somewhat challenging.

When you say, Rich, that the captive finance companies that hold those loans want to keep that business. So we're seeing the finance companies chip in to help us, along with the sales team, to retain that customer. We recruit them into a new vehicle, we sell them the vehicle, and then release the old one. It's a big focus for us because it's a customer we already have. And again, certified pre-owned vehicles — we CPO those; it's core parts and service business for us.

Your next question comes from the line of Joe Spak with UBS.

Like I used to sort of at a high level think about PTG, new and used trucks and PTS as somewhat of a almost sort of natural hedge in the business to that part of the market. But unless you speak today, it actually sounds maybe a little bit more pro-cyclical. And I'm wondering if that's what you guys are seeing as well based on sort of how you're currently positioned in each of those markets for each of those businesses?

I'm not sure I completely understand the question, Joe, but I would say they're definitely, if I look at both of those businesses and where the freight environment has been in the last three and a half to four years, it's been a more challenging environment. As we came out of COVID, there was a V-shaped recovery and people shifted away from goods, especially durable goods, toward more services, which don't require trucks to move. That has produced a fairly long down cycle. I think we're turning the corner now into an environment where freight should improve and capacity is tightening. The Department of Transportation and the FMCSA are taking steps to remove non-CDL operators, non-English-speaking CDL holders, and illegal CDL holders from the market, which is helping. I think there's still some upside if the housing market improves, and if much of the manufacturing spending the administration has been promoting comes to fruition, that will drive a lot of freight demand as well.

When you think about it, fixed coverage today at PTG is about 125% to 130%. These are vehicles running 500,000, 600,000, even 700,000 miles. Parts and service help us through the peaks and valleys. Any tailwind shows up in new trucks, and used truck values have gone up. For PTS, we really have to break it down into three buckets. First is leasing, which is probably around 60% to 65%; these are three-, four-, five-year contracts with annual economic escalators, tied together, not something you can break and we are not paying a penalty. Then you have the logistics business, about $3 billion of the $13 billion. Then you have rental. We grew rental much larger than any other company in the country, and when it came down we had to defleet, removing roughly 20,000 to 30,000 units, but our flexibility is key. We can take lower-mileage off-lease units and put them into rental as we go forward. The key on our consumer units is that they are now available to be run locally rather than just one-way. When we finance these, there were long five-, six-, seven-year bonds, and we are getting very good rates. This is all about the truck market, the freight market, and the CDL situation allowing our customers to run more because of new plants being built. We think the PTS future is good, and you can see the $207 million in the quarter. You can't just take that times four, but it is a big number for us going forward.

Okay. And then just as a second question, you guys are already pretty tight on Toyota and Lexus volumes. But with the earthquake in Japan and some Lexus production being disrupted, I guess that might help pricing. Taking pricing together with perhaps slightly softer volumes, is that at all material, or do you not expect any impact from that event?

Based on what we know right now, Joe, we don't think it to be material. The latest information we have is that the plant will only be shut down through this Friday. I think it's precautionary measures. They were 93 miles away from the epicenter of the earthquake. But obviously, they want to do the appropriate inspection of their facilities and make sure it's safe for their employees. And so that's what we understand the disruption to be.

There are no further questions at this time. I will now turn the call back to Roger Penske for closing remarks.

Thanks, everyone. We'll talk to you soon. Thanks, Lea. Thanks, everyone.

This concludes today's call. Thank you for attending. You may now disconnect.